North Korea’s Illicit Networks

Policy Options and Analyses

The Foundation for Defense of Democracies hosted a lunch conversation on Capitol Hill on June 13 discussing “North Korea’s Illicit Networks: Policy Options and Analyses.” The expert briefing focused on illicit finance, the North Korea-China nexus, and sanctions implementation.

Juan Zarate, Chairman and Senior Counselor of FDD’s Center on Sanctions and Illicit Finance and former Deputy National Security Advisor, moderated an opening conversation alongside Chairman of the House Foreign Affairs Committee, Rep. Ed Royce (R-Calif.). Royce said that new upcoming legislation will allow the United States to target the North Korean regime’s abuse of conscript labor, utilized to fund Pyongyang’s nuclear weapons program. When asked how he would explain the increased sanctioning of North Korea to the lay audience, Royce referenced the 2007 destruction of the nuclear reactor in Syria, responding, “Imagine where we’d be right now if the IDF [Israeli Defense Force] had not taken out that facility… imagine the tug-o-war that would be going on between Al-Nusra and ISIS, and Hezbollah for the weapons.” Later in the conversation, Royce re-affirmed the potential success of sanctions, referencing their use in South Africa to end the nuclear weapons program and lift apartheid. He added, “When we can speak with one voice we really can be enormously effective with financial sanctions, because when it’s done in concert, there are no choices, other than implosion.”

The discussion shifted to North Korea-Iranian ties, during which Royce said, “The Iranians got a copy of the playbook. They looked at North Korea and saw they were allowed to get away with it,” further elaborating that the ability of North Korea to build their uranium and plutonium programs “under the nose” of the United States gave Iran confidence.

Royce then highlighted the important role of China in the context of North Korea, maintaining that it is possible to strike a balance between pressure and partnership. He argued that as long as the U.S. enforces the third party aspect of the sanctions, it will help China and others “get to the right conclusion.” He concluded the discussion by making suggestions of how to add pressure diplomatically; for example, by establishing a special tribunal focused on North Korea’s human rights abuses, similar to ones created for Sierra Leone and Rwanda, and developing an international network focused on prohibiting North Korea illicit activities out of consulates around the world.

Following the opening discussion, former Deputy Director of the CIA, David Cohen, former Treasury and State official and FDD Senior Fellow Anthony Ruggiero, and Chief Operating Officer of C4ADS, Varun Vira, all joined Jay Solomon of The Wall Street Journal in reviewing the history of North Korea sanctions and offering possible solutions to halting Pyongyang’s prohibited activities. The panelists discussed the effect of U.S. efforts to this point and the involvement of Chinese companies, compared North Korean sanctions policy to Iran sanctions efforts, and weighed the benefits and consequences of secondary sanctions.

Beginning the discussion, Vira commented, “…sanctions need to be dynamic, because North Koreans adapt to sanctions as they happen,” since “at the tactical level, the same commercial systems continue to sub-operate,” as found in research recently published by C4ADS that details how North Korea’s networks in China support Pyongyang’s nuclear weapons and missile programs. Cohen suggested the application of secondary sanctions that “targeted pressure on the key vulnerabilities” in order to pressure North Korea into negotiations or, potentially, even a change of leadership. Later, Vira noted that the current situation is a combination of North Korea taking advantage of Chinese markets and China being complicit in the nuclear program.

The panelists all agreed that the current policy of negotiating a freeze on North Korea’s nuclear weapons and missile programs is not working, especially because, as Ruggiero noted, “the North Koreans were more interested in their nuclear program than any deal we were willing to offer them.” Also, as Cohen later remarked, the Chinese government has prioritized stability in the peninsula over denuclearization, and would act accordingly.

Referring to the FDD research memo published June 13, Ruggiero reiterated his six specific recommendations for changing U.S. policy toward North Korea.

  • Sanction Chinese facilitators of Pyongyang’s sanctions evasion
  • Block the revenue North Korea receives from overseas laborers
  • End tourist travel to North Korea
  • Impose mandatory inspections for all North Korean ships
  • Address Iran-North Korea cooperation
  • Use U.S. and partner states’ authorities to enforce UN sanctions

In response to Solomon’s question of why the U.S. has not imitated policies used regarding Iran, Vira and Cohen agreed that there is a real opportunity for “rolling up entire networks” which would be considerably more useful than sanctioning individual companies. Cohen further emphasized the importance of going after “vulnerable key nodes” and posed the question: “Are we going to prioritize going after, and try to incentivize Chinese to go after, the people and fund companies and financial institutions in China that are the key mechanism for supporting the regime?”

Ruggiero commented that, so far, “we’ve allowed Chinese banks and companies to run roughshod over enforcement of U.S. law,” citing the example of North Korea’s Foreign Trade Bank whose accounts were quickly shut down by Bank of China. Cohen suggested that financial institutions are aptly positioned for addressing illicit business, if properly incentivized. Ruggiero suggested the U.S. could impose regulatory fines against Chinese banks for its role in North Korea’s sanctions evasion.

Cohen rejected the idea of a military solution, calling it a “nightmare scenario, and one that ultimately might not accomplish denuclearization.” Ruggiero noted that American citizens should not travel to North Korea because it is not safe and travel companies that promote such travel should be honest with potential customers. Cohen ended the discussion by recognizing the potential for losing traction on other key issues with China if secondary sanctions were prioritized, and acknowledged the need for additional diplomacy between the U.S. and China.

Watch the full recap video from the event here.

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