“Sanctions” have long been slapped on countries deemed at odds with international norms, and North Korea is no exception. Daily NK recently asked Joshua Stanton, a noted expert on sanctions on North Korea, about the history of sanctions on the country and his thoughts regarding the current sanctions regime.
DNK: The US banned trade with North Korea during the Cold War and has long used sanctions periodically as punishment against “bad behavior” on the part of the regime. Was the failure of these past sanctions to prevent North Korea’s nuclear program from expanding because they were aimed at the “wrong targets”?
There is simply no comparison between the power of our sanctions in 1950 and today. First, North Korea and the United States were never trading partners historically, even before World War II. After the war, there was no bilateral trade, but the US was never a natural trading partner for North Korea anyway—Japan, China, Russia, and (of course) South Korea were. In any event, the US produced plenty of coal, minerals, seafood, and textiles of its own, or could import them at less cost from other places and had little need for the few products North Korea exported. So, during most of the decades in which the US banned bilateral trade, Pyongyang hardly noticed the difference.
Several developments would eventually change this. During the Cold War, the global economy became increasingly dollarized, and an efficient financial system connected the world. Most international transactions and many intranational foreign transactions were denominated in dollars, and these were cleared through banks in New York. In the decade between 1970 and 1980, the US passed two key laws to curb the misuse of that system for money laundering and proliferation—the Bank Secrecy Act (which required banks to make due diligence inquiries into who their customers were and where their money came from) and the International Emergency Economic Powers Act (which allowed the US Treasury Department to freeze the assets of proliferators, criminal cartels, and money launderers).
This still didn’t affect Pyongyang much until the Soviet Union collapsed. But the fall of the USSR not only denied Pyongyang of a generous trading partner that provided it with fertilizer, pesticides, and other goods at very low prices, it also cost Pyongyang a major financial backer. At around the same time, China was entering the global economy and the dollar-based financial system. Thus, Pyongyang’s often-illicit trade was suddenly thrust into the spotlight of increasingly efficient financial regulation. Even then, this hardly mattered before the US began to scrutinize Pyongyang’s transactions as they were cleared through banks in New York.
The first real application of that regulatory scrutiny came in 2005, when the US barred Banco Delta Asia from the financial system. Banco Delta Asia was a small bank that handled a great deal of North Korean business with very little scrutiny. When other banks saw the damage done to Banco Delta Asia, they also began freezing North Korean accounts. By several insider accounts, this caused a financial panic in Pyongyang and probably forced Kim Jong Il to make the disarmament promises he made in 2007. Of course, as soon as President Bush lifted the sanctions, Kim broke his promises.
The action against Banco Delta Asia caused both Washington and Pyongyang to realize just how reliant Pyongyang had become on access to the dollar system. Pyongyang has since tried to diversify its financial lifelines and embed them deeper into the Chinese economy—with some success—and shift to non-dollar currencies like the ruble and the euro—with less success. It remains to be seen whether it will have greater success with cryptocurrencies. For our part, no American president has ever taken full advantage of Pyongyang’s financial vulnerability—and that certainly includes Donald Trump. By any objective measure, our sanctions on Iran, Syria, and Cuba are still much stronger than our sanctions on North Korea.
DNK: The US slapped new sanctions on North Korea in 2017. Do you think these new sanctions have had their desired effect and what are the key indicators you look at that tell you that current sanctions are working (or not working) on North Korea?
Before 2016, one could count the quality and quantity of Treasury Department enforcement actions against Pyongyang and compare them to other nations. The state subject to the toughest sanctions has usually been Iran, with Syria, Cuba, and Iraq taking turns at second place. North Korea never even made the top three, and it usually wasn’t in the top five. By 2014, our North Korea sanctions were still weaker than our sanctions against Belarus and Zimbabwe.
Again, this was mostly for political reasons. Every president since Clinton saw sanctions as undermining diplomacy with Pyongyang, rather than what they really were—a powerful coercive incentive to force Pyongyang to come back to talks and at least promise to make concessions. So, for years, Washington either pretended or incorrectly believed that it had strong sanctions against North Korea. That simply wasn’t true. And for all the talk of “maximum pressure,” it’s only half-true today. Historically, there has been a directly proportional relationship between the effectiveness of our sanctions enforcement and the effectiveness of our diplomacy with Pyongyang. Once you understand that, you can see where we’ve gone wrong.
The turning point for sanctions, at least on paper, came after the 2016 nuclear test. Almost immediately after this, the US Congress passed the North Korea Sanctions and Policy Enhancement Act, and the UN approved Resolution 2270. Congress and the Security Council have approved more sanctions laws and resolutions since then. On paper, these have tightened the sanctions even more, but an authority is only as good as the enforcement, and the enforcement has been uneven at best.
In 2017, the Trump administration seemed to be moving toward what he called “maximum pressure,” but he never got there. His failure to act against Chinese banks that laundered Kim Jong Un’s money was the outstanding failure of his policy. Even so, by the end of 2017, Km Jong Un could probably see the potential for sanctions to undermine his economy, and in early 2018, he suddenly broke years of self-imposed isolation and held summits with the leaders of South Korea, China, and finally, the US. Of course, it was a ploy. But both the U.S. and South Korean presidents were too arrogant about their own powers of persuasion to recognize this, and so both of their policies have failed.
In May 2018, just before the Singapore summit, President Trump froze nearly all new sanctions enforcement by the US Treasury Department. Yet the new US sanctions laws still allowed prosecutors in New York and Washington to freeze and confiscate Pyongyang’s money as its front companies tried to launder it through our banks. So, with the Treasury Department sitting on its hands and the Justice Department being fairly aggressive, the result was something like “medium” (not maximum) pressure. In some ways, that’s the worst of everything—honest banks are scared enough of being penalized or prosecuted that they’re still avoiding North Korean business, while the dishonest ones that aren’t afraid to turn a blind eye to proliferation financing (mostly in China) continue to do so.
This is painful for Pyongyang, but not so painful that it can’t cope by passing most of that pain down to the poor—effectively, waging class warfare. The irony is that stronger sanctions might have forced Pyongyang to open its doors to aid, disarmament, and the necessary conditions for a lasting peace.
Sanctions will continue to fail to have the desired effect 100 percent of the time we don’t enforce them. And what is the desired effect? In my view, it’s either to force Kim Jong Un to recognize that Pyongyang’s financial vulnerability is a political vulnerability, and to negotiate toward disarmament and peace, or to bring those vulnerabilities to their logical conclusion, undermine the confidence of the elites, and cause the end of his rule from within. Trump could have done either. He blew it—all for a few cheap photo ops.
DNK: You’ve argued that financial sanctions are key to forcing the regime to the negotiating table, just like the US did with Iran. What is the biggest obstacle to financial sanctions being implemented fully on North Korea?
I don’t think there can be any doubt that President Trump personally owns this failure. He personally halted sanctions enforcement. He literally declared his love for Kim Jong Un. By some accounts, he believes he’s a Svengali or (according to Jared Kushner) a father figure to Kim. Of course, he’s fooling himself. And yes, China, Russia, and increasingly, South Korea are doing their best to undermine sanctions—as they have, more often than not—but those countries don’t issue the world’s reserve currency or hold stewardship over the global financial system. Trump failed, he made the decisions that caused him to fail, and so he owns that.
In 2018, Trump should have frozen the assets of key regime front companies like Glocom, Pan Systems, Malaysia-Korea Partners, and Shinhung Trading, which finances the Ministry of State Security (MSS), which runs the political prison camp system and keeps the people of North Korea in terror. His sanctions should have targeted the MSS, the Ministry of People’s Security (now renamed the Ministry of Social Security), and the units guarding the borders, to weaken the state’s immune system against subversion and dissent. He should have directed the Treasury Department to apply some of the same enforcement and deterrent tools to Chinese banks for laundering Pyongyang’s money that President Obama used against European banks for laundering Tehran’s money. That would have caused big Chinese banks to freeze Pyongyang’s accounts, brought Kim Jong Un to a financial crisis, and forced him to take a more serious approach to talks. Now, that opportunity has passed. Trump’s time has probably run out.
DNK: Based on reports from inside the country and other data, North Korea appears to be in an even worse economic situation due to the closure of the Sino-North Korean border. Do you think that sanctions should be relaxed to accommodate for North Korea’s economic troubles due to the COVID-19 pandemic?
The way to help North Korea’s poor and sick isn’t to relax sanctions on the state that has kept most of its people at the brink of starvation—or worse—for much longer than sanctions have had a significant effect on the state. In fact, sanctions on Pyongyang’s food exports have the effect to making more food available in North Korean markets, at more affordable prices. We’ve seen this in the case of seafood in particular. Sanctions on coal exports have driven down domestic prices and made it cheaper for North Koreans to heat their homes, and to heat greenhouses that grow fruit and vegetables. North Korea’s poor probably never saw much of the revenue from the exports of that coal anyway, and the Treasury Department believes that at least some of that revenue was diverted to the production of missiles. By enforcing sanctions on labor exports, we can also help bring North Korean doctors and nurses home from Africa and the Middle East to care for sick North Koreans.
Instead of relaxing sanctions, we should be offering forms of aid like corn, wheat, soybeans, cooking oil, and powdered milk to feed the poor. We might be able to offer medicines, medical supplies, and ventilators. And if the state promises to stop confiscating sotoji (small plot) farms, we should provide plastic sheeting and non-dual-use fertilizers for greenhouses. Of course, given Pyongyang’s history, the world must insist that the state agree to generally accepted aid monitoring practices under the principle of “no access, no aid.”
If the aid program is successful, we should offer more. We have nothing to gain from the suffering of the poor in North Korea, after all. If Pyongyang rejects our offer, we should tell the North Korean people how their government refuses our help, to put internal pressure on the state to cooperate with aid efforts. And we should begin to take state funds and property that UN member states seize and confiscate under the authority of UNSCR 1718, and deposit those funds in escrow to pay for aid programs for the poor—the people Kim Jong Un stole that money from to begin with.
DNK: South Korea’s new unification minister Lee In Yong supports trading “goods,” rather than money, to help push the inter-Korean relationship in a new direction. Do you think that is a violation of the “spirit” of sanctions on North Korea?
I believe it violates both the spirit and the letter of the sanctions. It violates the spirit of the sanctions in that they are intended to put pressure on Pyongyang to agree to disarm, to prioritize the needs of its people, and live in peace with the world. What Lee is trying to do is relieve that pressure, despite Pyongyang’s refusal to disarm, reform, or make peace.
It violates the letter of sanctions on several other levels. First, understand that both UN and US sanctions actually do cover the barter trade, by banning transactions in “economic resources” and “property,” not just money. Perhaps Lee’s idea is to avoid US jurisdiction by avoiding transactions that pass through the US financial system, but new secondary sanctions that went into effect earlier this year broaden the reach of our sanctions to cover any assets in the US of persons violating UN sanctions, or trading with a sanctioned North Korean entity. Finally, even incidental transactions that facilitate a sanctions violation can give prosecutors in the US jurisdiction to seize property that never directly touches the US. The idea that barter trade is a magical bypass around sanctions is unlawyered nonsense. Just ask the former owners of the Wise Honest.
In this case, the proposed barter trade involves the export of agricultural products, which is prohibited by UN sanctions. Pyongyang should be using its land to grow food, not make liquor. The trade may well violate the UN bans on support for trade with North Korea, and on the formation of joint ventures and cooperative entities. We still don’t know how this trade can work without someone violating the ban on exporting transportation vehicles to North Korea.
Most concerning of all, the entity that Minister Lee would trade with, Koryo Kaesong Ginseng Trading Company, may well be a front for a UN- and US-sanctioned entity, Bureau 39 of the Workers’ Party. Incidentally, UN sanctions put the burden on Seoul to prove that this is not the case, and that the “economic resources” will not be provided to a UN-designated entity. As such, any trade with it would not only violate UN sanctions, it would expose the persons involved in the trade to the seizure of assets and criminal prosecution. It’s as if Minister Lee didn’t read the sanctions or get competent legal advice before he made this proposal. This is certain to increase the rising distrust between Seoul and Washington. That’s to the political advantage of Pyongyang and Beijing, but not for anyone in South Korea. Koreans need to understand that the alliance between Seoul and Washington is under greater strain today than at any point in its history.
Joshua Stanton is the founder of OneFreeKorea and is an attorney with 20 years of military and civilian experience in criminal and civil litigation. He served as US Army Judge Advocate in Seoul, Daegu and Pyongtaek between 1998 and 2002. Since April of 2013, Joshua has assisted the U.S. House of Representatives, Committee on Foreign Affairs, with the drafting of the North Korea Sanctions Enforcement Act and is the author of “Arsenal of Terror: North Korea, State Sponsor of Terrorism,” published by the Committee for Human Rights in North Korea.
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