May 1, 2020 | Insight

UN Report Reveals North Korea’s Persistent and Evolving Maritime Sanctions Evasion Schemes

May 1, 2020 Insight

UN Report Reveals North Korea’s Persistent and Evolving Maritime Sanctions Evasion Schemes

The UN Panel of Experts on the Democratic People’s Republic of Korea (DPRK) belatedly released a biannual report last week divulging North Korea’s persistent sanctions evasion activity, including its facilitation by both Russia and China. In particular, the report highlights Pyongyang’s elaborate and evolving maritime tactics designed to evade UN import and export sanctions. This activity underscores persistent shortcomings in global enforcement efforts, particularly in halting the concealment of vessels’ identities, facilitating information sharing about imminent sanctions violations, and policing waterways for illegal shipments.

During the reporting period, which covers 2019 and part of 2020, North Korea continued to illegally import and export several sanctioned commodities via maritime routes. The UN Panel of Experts found that North Korea is circumventing sanctions by integrating new types of vessels into its shipping fleet or relying on the use of these vessels by foreign partners. For example, North Korea began relying on foreign-flagged, self-propelled barges and large bulk carriers to facilitate exports, rather than smaller and lighter ships. The Panel’s report describes how these large bulk carriers allowed North Korea to reduce the number of voyages needed to transfer sanctioned goods, since the vessels can carry two to three times more capacity in a single trip.

North Korea’s shift toward the use of self-propelled barges also allowed it to more easily export sand, a sanctioned commodity it has begun selling abroad. One UN member state reported to the Panel that in May 2019, North Korea began “a substantial sand-export operation” to China, “with over 100 illicit shipments of sand originating in the DPRK,” worth up to $22 million. North Korea used its port in Haeju as a hub for the illegal sand exports. Member state reporting tracked 92 Chinese-flagged, self-propelled barges loading sand from Haeju and then travelling to Chinese ports.

North Korea also illegally procured refined petroleum products using both ship-to-ship (at sea) transfers and direct maritime imports, in which foreign-flagged and/or regime-owned ships docked at the port of Nampo or other key ports. Ships can be flagged by one country but still owned by another. Pyongyang exported significant amounts of coal, mostly to China. A UN member state reported that the regime “exported 3.7 million tons of coal between January and August 2019, with an estimated value of $370 million.” The Panel wrote that at least 2.8 million tons of this coal were passed to Chinese barges via ship-to-ship transfers. Along with ship-to-ship transfers, North Korea has increased its reliance on direct imports of sanctioned goods.

North Korea continued to obfuscate vessel ownership, identification, and detection while in operation. For example, the Pu Zhou, a bulk carrier vessel that illegally exported North Korean coal, changed its name, flag, and identity number several times over the course of a few months. The report states that after North Korea illegally purchased the Pu Zhou from China in the summer of 2019, the vessel “manipulated its identifiers … by employing two automatic identification systems on board, using four different ship names – Fu Xing 12, Puzhou, Su Ri Bong, Hua Hai/Su Tong Hai – and sailing under three flags (those of China, the Democratic People’s Republic of Korea and Sierra Leone).”

Pyongyang continued its longstanding practice of flying foreign flags to illicitly import and export commodities. Often, Pyongyang’s vessels have been owned by trading companies or unknown parties located in other nations, although sometimes Pyongyang merely uses a foreign flag. The Panel has previously tracked North Korea’s use of foreign flags and notified those countries. These and other likely efforts by key enforcement nations appear to have markedly decreased the number of countries whose flags Pyongyang now uses. However, the Panel tracked the persistent use of the flags of China, Sierra Leone, and Vietnam, and in some cases, entities in those countries were also the true owners of the ships.

Finally, the report lists many instances in which China and Russia continued to violate UN import and export sanctions on North Korea via maritime trade and other means. As permanent UN Security Council members, they also frequently complicate the Panel’s writing process and delay report releases. For this report, in many cases, China and Russia responded to Panel inquiries and investigations by suggesting the information was inaccurate or incomplete or that the Panel’s conclusions were prematurely reached, presumably as a means of avoiding further discussion. These actions stymie the Panel’s mandate to “take appropriate action on information regarding alleged violations of sanctions measures.”

The Panel usefully recommends enhanced sharing of data and other information on the activities and movement of vessels carrying coal, and the establishment of a regional cooperative mechanism to serve as a point of contact. To enhance the impact of this recommendation, member states should consider establishing a regional mechanism and point of contact to   facilitate and coordinate broader information gathering on North Korea’s maritime sanctions evasion. Ostensibly, such a mechanism could serve as a hub not only for member states but also for private actors or whistleblowers to divulge illicit activity. Such information could then be passed to jurisdictional states for preventive or remedial action.

To better defeat North Korea’s sanctions evasion via maritime trade, the Panel recommends that member states require their shipping registries to collect and disclose extensive information regarding the true beneficial ownership of vessels. As the Panel indicates, for a member state to take action, national legislation and enforcement action is often needed to hold ship registries – as well as vessels, their owners, and crews – accountable for helping North Korea circumvent sanctions. Additional regulatory and enforcement efforts are required by many nations to prevent trading companies, brokers, or insuring entities from providing illicit assistance to North Korea’s maritime trade.

International law, and specifically Article 94 of the UN Convention on the Law of the Sea (UNCLOS), grants a ship’s flag state certain authorities and operational responsibilities over vessels on the high seas. Thus, countries exercising minimal oversight over the use of their flags through open ship registries make themselves vulnerable to exploitation by states such as North Korea. If it is not already doing so, the State Department should strongly urge these countries to better police the use of their flags, which are easily available for use, in some cases via online ship registries.

As an enforcement measure, countries could work together to stop and board vessels that are suspected of carrying illicit cargo bound for or leaving North Korea. Article 27 of UNCLOS provides for the boarding of ships within a coastal state’s territorial waters or contiguous zones, if the ship in question is a merchant or government ship operated for commercial purposes. On the high seas, such a coalition could work with those states bearing responsibility for the operation of ships bearing their flags, and, under UNCLOS Article 110’s Right of Visit, stop and search suspect vessels.

Washington and its like-minded partners must overcome the inherent obstacles posed by Chinese and Russian obstruction at the UN Security Council. Moving forward, the United States and its allies should continue to investigate and report on Pyongyang’s suspected sanctions violations and those of its overseas partners. They should unilaterally deploy enforcement actions and sanctions against individuals, entities, or governments found to be assisting North Korea.

Mathew Ha is a research analyst focused on North Korea at the Foundation for Defense of Democracies (FDD), where Andrea Stricker is a research fellow focused on nonproliferation. They both contribute to FDD’s Center on Economic and Financial Power (CEFP). For more analysis from Mathew, Andrea, and CEFP, please subscribe HERE. Follow Mathew and Andrea on Twitter @MatJunsuk and @StrickerNonpro. Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.

Issues:

China International Organizations North Korea Russia Sanctions and Illicit Finance