Skirting Sanctions

Skirting Sanctions

With the help of many, North Korea sidesteps U.N. restrictions

FORUM Staff

In the months leading up to the historic summit between the United States and North Korea, sanctions targeting everything from North Korea’s seafood and labor exports to punishments against noncompliant banks were tailored to rein in the outlaw regime’s nuclear weapons and missile programs. Yet, a United Nations report released in March 2018 revealed that North Korea violated U.N. sanctions in 2017 by exporting at least U.S. $200 million in coal and other banned commodities.

North Korea even shipped banned supplies to Syria, such as acid-resistant tiles, valves and thermometers, dozens of times over a decade to help Syria’s chemical weapons program, the report said. For allies who want North Korea to change its behavior, U.N. spokesman Stephane Dujarric offered this challenge: “I think the overarching message is that all member states have a duty and responsibility to abide by the sanctions that are in place,” The New York Times newspaper reported.

Pressure Campaign

Even with North Korea’s efforts to evade sanctions, the measures had some effect. When North Korean dictator Kim Jong Un in March 2018 said he wouldn’t conduct more missile or nuclear tests until he met with U.S. President Donald Trump, U.S. officials hailed the breakthrough as the result of a pressure campaign against Pyongyang.

Nikki Haley, U.S. ambassador to the United Nations, votes with other members of the U.N. Security Council to impose new sanctions on North Korea in December 2017. GETTY IMAGES

“It [pressure campaign] has us now to a point where we may be able to pursue a diplomatic solution to the complete denuclearization of the Korean Peninsula,” said Lt. Gen. H.R. McMaster, then national security advisor to President Trump, according to Time magazine. “So, we’re determined to pursue that course.”

The measures helped pull Kim to the negotiating table. The June 12, 2018, meeting between Kim and Trump was an international spectacle and led to a joint statement in which Kim agreed to denuclearize in exchange for security guarantees from the United States. Trump said the sanctions would stay in place, however, until he sees how North Korea is living up to its promise to abandon the development of nuclear weapons.

The pressure on Kim’s poverty-stricken country had been building for some time. The U.N. in 2017 approved its toughest sanctions ever against North Korea, effectively making about 90 percent of North Korea’s exports illegal under international law, according to Nikki Haley, the U.S. ambassador to the U.N.

“Today, we are attempting to take the future of the North Korean nuclear program out of the hands of its outlaw regime,” Haley said in September 2017, according to a story in The Washington Post newspaper. “Today, we are saying the world will never accept a nuclear-armed North Korea.”

The U.N. sanctions also banned North Korea’s textile exports and put limits on Pyongyang’s oil imports. These sanctions were in addition to previous ones that limited North Korea’s ability to export coal, iron ore and seafood. Over many years, the U.N. expanded the sanctions to include freezing assets of people involved in North Korea’s nuclear program, and bans on the export of electrical equipment, minerals, food and agricultural products, and laborers. While the effectiveness of these efforts has been debated for years as Pyongyang continued its nuclear weapon and long-range missile program and tests, some international experts said they played a role in North Korea’s decision to suspend tests.

U.S. President Donald Trump shakes hands with North Korean leader Kim Jong Un at the Singapore summit after Kim’s country skirted months of economic sanctions. Reuters

North Korean exports declined by 30 percent in 2017, according to a BBC News report. Exports to China — the country’s largest trading partner — decreased rapidly as Beijing started more fully participating in the U.N. sanctions program. By late 2017, China was reporting no imports of aluminum, coal, copper, iron, lead or zinc from North Korea. It continues, however, to export fuel, corn, cotton, palm oil, rice, rubber and stainless steel to North Korea while importing fertilizer, lumber and steel, according to a report by Bloomberg.com.

While it may take more time for the effects of tougher sanctions to become apparent, Kim’s government likely agreed to the summit because it feared what was coming next.  “Many of the tougher measures will take more time, widespread and rigorous implementation to be fully effective,” William Newcomb, a former member of the U.N. Panel of Experts, told BBC News. “Early indications of what is in store in the future are likely becoming more apparent to Pyongyang.”

More Work Ahead

North Korea needed help to earn U.S. $200 million from selling banned commodities. North Korea shipped coal to ports in many countries, including China and Russia, often using false paperwork that showed the coal had a country of origin other than North Korea. North Korea “is already flouting the most recent resolutions by exploiting global oil supply chains, complicit foreign nationals, offshore company registries and the international banking system,” the U.N. monitors wrote in their 213-page report in 2018.

The report specifically criticized Russia and China for failing to enforce sanctions on items including coal, luxury goods and oil. Sanctions have yet to be matched, the report said, “by the requisite political will, international coordination, prioritization and resource allocation necessary to drive effective implementation.” China, which accounts for 90 percent of North Korea’s trade, has been serving as the lead facilitator of black market North Korean trade, according to the U.N. Throughout 2017, China and Russia continued to enable the violation of U.N. sanctions by importing coal, copper, iron ore and steel from North Korea.

China’s participation in the sanctions program could be the determining factor in whether they succeed. “Remember that China does, in fact, account for about 90 percent of North Korea’s merchandise trade; there is other service income emanating from here and there that is harder to track, although there has been pressure on countries to expel diplomats engaged in business,” Stephan Haggard, a visiting fellow at the Peterson Institute of International Economics, told FORUM. “There is going to be some small country leakage, but the main question is: How much is China doing? The rest is small change — not completely unimportant, but expected. North Korea cannot sustain itself from small amounts of trade with Malaysia or Namibia.”

The North Korean military puts its weaponry on full display during a military parade to mark the 105th anniversary of the birth of the nation’s late leader, Kim Il Sung. AFP/GETTY IMAGES

Another member of the U.N. Security Council is also key. Russia, according to U.N. and media reports, continues to engage in banned trade with North Korea. Reuters reported in December 2017 that Russian tankers on at least three occasions supplied fuel to North Korea by transferring cargo at sea.

The U.N. report said a “coordinated effort by Member States is crucial to curb these rampant illicit activities.” The heightened sanctions, the report said, have created lucrative markets for North Korea-backed traders “seeking to procure petroleum while exporting the country’s natural resources. The profit margins involved, coupled with the offshore nature of much of the affected oil, maritime and finance sectors, necessitate far greater private sector due diligence, information-sharing and self-policing.”

Weapons trade funds regime

Despite worldwide condemnation of North Korea’s nuclear and missile tests, countries continued to engage in banned weapons deals with the regime. From Africa to the Indo-Pacific, the U.N. “investigated a wide array of prohibited military cooperation projects,” the report said, “including ongoing ballistic missile cooperation with the Syrian Arab Republic and Myanmar [Burma], widespread conventional arms deals and cyber operations to steal military secrets.”

The U.N. found that North Korean diplomats continue to play a key role in fueling the country’s prohibited programs, providing “logistical support for arms transfers, military technicians and intelligence operations, acting as fronts for designated entities and individuals and engaging in commercial activities that violate the resolutions and the Vienna Convention on Diplomatic Relations.”

U.N. investigators reported in 2017 that an air shipment from China containing North Korean military communications equipment was intercepted in an unnamed country on its way to the African country of Eritrea. U.N. experts also investigated Egypt’s seizure in August 2016 of a North Korean vessel, the Jie Shun, which was carrying 2.3 metric tons of iron ore and 30,000 rocket-propelled grenades. The U.N. report did not list a destination country.

Banks allowing access

The sanctions are also geared to keep North Korea from accessing the global banking system. The regime, however, continues to access international banks “through deceptive practices combined with critical deficiencies in the implementation of financial sanctions,” the U.N. report said. North Korean financial institutions have more than 30 overseas representatives “who live and move freely across borders in the Middle East and Asia, where they control bank accounts, facilitate transactions and deal in bulk cash.” Corporate service providers present a “key vulnerability in the implementation of financial sanctions,” allowing North Korea to create front companies offshore and in Asian financial centers to help move money worldwide.

North Korea launched an intercontinental ballistic missile, called the Hwasong-15, in November 2017 in violation of U.N. sanctions. REUTERS

The U.S. sanctioned a Chinese bank for facilitating access to these financial markets. In June 2017, the U.S. Treasury Department imposed penalties on the Bank of Dandong, cutting it off from access to U.S. financial institutions. The Treasury Department labeled the bank a “foreign financial institution of primary money laundering concern.” The Treasury Department had also sanctioned two individuals from China, as well as a Chinese company, Dalian Global Unity Shipping Co. Ltd. 

“This bank has served as a gateway for North Korea to access the U.S. and international financial systems, facilitating millions of dollars of transactions for companies involved in North Korea’s nuclear and ballistic missile programs,” U.S. Treasury Secretary Steven Mnuchin said. “The United States will not stand for such action.” 

Shell Game at Sea

North Korea goes to great lengths to conceal its shipments of banned commodities. “In continuing its illicit coal exports, the country combined deceptive navigation patterns, signals manipulation, trans-shipment and fraudulent documentation to obscure the origin of the coal,” the March 2018 U.N. report said.

Not all deceptions are complex, however. In some cases, it’s a matter of a simple name change. The Jin Teng, sanctioned by the U.S. in March 2016, became the Shen Da 8 and then the Hang Yu 1, according to a report by Bloomberg News. The Jin Tai 7, also sanctioned by the U.S., changed its name to Sheng Da 6 and then to Bothwin 7. Both ships remain on the list of ships the U.S. has sanctioned. The Bothwin 7 visited the port of Lianyungang, China, in January 2018, the same month the Hang Yu 1 stopped at the Port of Ningbo-Zhoushan, China. Both ships are based in Pyongyang and sanctioned by the U.N.

U.N. members are keenly aware of the pattern and are fine-tuning their efforts. In February 2018, the U.S. Treasure Department announced a slew of new sanctions against 27 entities and 28 vessels in a move aimed to “significantly hinder North Korea’s ability to conduct evasive maritime activities that facilitate illicit coal and fuel transports, and limit the regime’s ability to ship goods through international waters.” The U.N. panel added that North Korea has been able to continue its smuggling activities partly through the use of foreign flag registries. About half of the banned vessels had been flagged in Mongolia but were delisted after the imposition of sanctions. Many have since migrated to the flag of Tanzania, the U.N. report said.

A United Effort

The key to achieving the goal — denuclearizing the Korean Peninsula — could hinge on how fully U.N. members participate. Even with patchy participation, the Peterson Institute’s Haggard said the program is likely having some impact. The sanctions “probably contributed to some import substitution: domestic firms — both public and private — figuring out how to make things that were previously imported, or simply doing without,” Haggard said. “But the biggest effect is that foreign exchange earnings from exports are in short supply. Unless the government can secure credit or release foreign exchange holdings from its own accounts, it means that there should be scarcities appearing in coming months.”

The North Korean cargo ship Jin Teng, shown here delivering palm oil kernels to a port in the Philippines, was sanctioned by the U.N. and the U.S. for violating sanctions. The North Koreans have renamed it twice to avoid detection. It became the Shen Da 8 and the Hang Yu 1. AFP/GETTY IMAGES

A decision by China to strongly impose the sanctions would be critical. Beijing has been slower than many U.N. members to ramp up sanctions. China, according to the Council on Foreign Relations, is North Korea’s main source of food and energy. It has historically opposed harsh international sanctions in part because it fears the collapse of Kim’s regime and an influx of refugees into China.

North Korea’s nuclear and missile tests, however, spurred China into taking a harsher tone toward its longtime ally. After North Korea launched a ballistic missile in November 2017, China expressed “grave concern and opposition.” It backed some U.N. sanctions, but not before some measures of a draft version were dropped, including an oil embargo and the authorization to use force when ships do not comply with mandated inspections.

Yet, North Korea eventually agreed to negotiate to ease the standoff over its weapons programs, spurring some optimism. “Any time you have sanctions, there is going to be leakage [people who don’t abide by sanctions] because it is lucrative to do so; brokers and smugglers emerge to handle this illicit business,” Haggard said. “But we have to keep the larger picture in mind — that major commodity categories are coming under pressure, and the firms that have the size to handle large shipments of commodities like coal and iron ore, probably textiles and marine products, are generally proscribed from doing so. I think the sanctions are having an effect, and that is why the North Koreans are coming back to the table.”  

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