Treasury Heightens Pressure on Facilitators of North Korean Sanctions Evasion

The U.S. Treasury Department on Friday sanctioned two individuals and three companies for helping North Korea evade sanctions via ship-to-ship (STS) transfers. While this action reminds Pyongyang that Washington remains committed to enforcing all U.S. sanctions, it falls short of delivering a critical blow to North Korea’s efforts to bypass them.

Treasury’s latest targets are Taiwan-based individuals Huang Wang Ken and Chen Mei Hsiang, Taiwan-based companies Jui Pang Shipping Co Ltd. and Jui Zong Ship Management Co. Ltd, and the Hong Kong-based company Jui Cheng Shipping Company Limited. Treasury said that these five actors were either owners or operators of the Shang Yuan Bao, which violated UN Security Council Resolutions 2375 and 2397 last year by engaging in STS transfers of oil with two U.S.-sanctioned vessels, the Paek Ma and the Myong Ryu 1.

In March, a UN Panel of Experts report on North Korea sanctions enforcement disclosed that the Shang Yuan Bao was one of three vessels engaged in STS activity with sanctioned North Korean-flagged vessels. The other two vessels were the New Regent and the Xing Ming Yang 888, both of which share either ownership or management ties to companies based in Hong Kong and Taiwan. The Panel specifically recognized that these vessels and their owners were “operating out of ports within 600 nautical miles of previously identified zones in the East China Sea.”

Despite the Panel’s presentation of evidence showing that all three vessels engaged in STS transfers, Treasury sanctioned only the Shang Yuan Bao and its owners and managers. It is equally important, however, to hold accountable the New Regent and the Xing Ming Yang 888, along with their owners and managers.

Treasury should also build upon the designation of these vessels by continuing to target foreign banks and financial institutions that facilitate sanctions evasion. In June, for example, Treasury rightly designated the Russian Financial Society, offering a reminder that rogue banks and financial service providers are key enablers of previously sanctioned North Korean individuals and companies that still conduct business overseas. Underscoring the importance of this issue, the UN Panel assessed that lax enforcement and scrutiny of financial sanctions have enabled North Korea’s illicit networks to thrive throughout Southeast Asia, Africa, and the Middle East.

Specifically, in late 2017, the Treasury Department reportedly considered sanctioning two of China’s largest banks, China Construction Bank and Agricultural Bank of China, which were both complicit in North Korean sanctions evasion. Treasury ultimately decided against sanctioning these institutions out of fear that doing so would damage the global economy.

Moving forward, Treasury should follow through in punishing these banks if their misconduct persists. To offset any deleterious economic impact, Treasury could first issue multibillion-dollar fines on the banks instead of designations. These fines would serve as a warning signal that Washington will ultimately sanction them if they do not stop facilitating North Korean sanctions evasion.

As tensions between Washington and Pyongyang continue to escalate, the Trump administration must demonstrate that the costs of defying Washington far exceed the benefits. By closing all gaps in the U.S. sanctions architecture, the United States can push the North Korean regime to alter its strategic calculus.

Mathew Ha is a research associate focused on North Korea at the Foundation for the Defense of Democracies (FDD), where he also contributes to FDD’s Center on Economic and Financial Power (CEFP). Follow Mathew on Twitter @MatJunsuk. Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.