Commentary: How is North Korea laundering money – and getting away with it?
North Korea’s clever tactics will continue to earn the country income, despite fresh efforts from the US to clamp down on money laundering, says Steven Borowiec.
SEOUL: News of a recent indictment of people allegedly involved in a money-laundering ring that worked to funnel billions of dollars to North Korea made headlines last week, as one US official involved in the operation revealed the intent was intended to “name and shame”.
The same official acknowledged said it was unlikely anyone named in the indictment, representatives of North Korea’s Foreign Trade Bank, will be brought to trial.
The indictment implicates 28 North Koreans and Chinese nationals accused of using a network of more than 250 companies to circumvent international sanctions and get money to the reclusive state.
That the US, the world’s most powerful country, is resorting to “naming and shaming” is a surprising indication of just how difficult it has been for the international community to cut off North Korea’s income streams.
Proponents of sanctions on Pyongyang often grumble about how clever North Korean operatives keep finding new ways to score, or that certain countries, most notably China, do not fully enforce existing sanctions.
The US hopes that publicly naming the individuals and entities involved will lead financial institutions to refuse to work with them, freezing them out of global financial networks and making it impossible, or much more difficult, to earn money.
The unsealing of the indictment was the latest step in the game of cat and mouse between the US and North Korea, with Washington attempting to block every path that leads to transactions using its financial system.
North Korea is currently banned from exporting coal, iron, lead, textiles and seafood. Crucially, it is also banned from importing petroleum products.
Since North Korea is not an oil-producing country, this has led to fuel shortages and undermined agricultural production, as it left the North unable to produce fertilisers or operate gas-powered equipment.
This has left North Korea seeking ever more creative and covert ways to drum up money.
NORTH KOREA HAS BEEN NOTORIOUSLY DIFFICULT TO PIN DOWN
The sanctions are a consequence of North Korea’s tests of nuclear weapons and other aggressive acts. The first round of United Nations sanctions were enacted in 2006 in response to North Korea’s first nuclear weapons test.
At that time, US President George W Bush took a harsher line on North Korea than his predecessor, Bill Clinton, infamously naming the country as part of the “axis of evil”. Shortly after the inauguration of Bush’s successor, Barack Obama, North Korea conducted a series of weapons tests in an apparent attempt to test the new leader.
Throughout his term, Obama was mostly hands-off in dealing with the hermit kingdom, calling his approach “strategic patience”, which reading between the lines, essentially meant waiting for North Korea to collapse due to sanctions but doing little otherwise.
Meanwhile, during Obama’s term, North Korea made systematic strides in its weapons development.
In 2010, after North Korea was accused of sinking a Republic of Korea Navy vessel and causing the deaths of 46 soldiers, Obama signed an executive order sanctioning individuals and entities facilitating North Korean trafficking in arms and related materiel, the procurement of luxury goods, and engagement in certain illicit economic activities, such as money laundering, the counterfeiting of goods and currency, bulk cash smuggling and narcotics trafficking.
South Korea also enacted bilateral sanctions limiting trade after North Korea denied involvement in the sinking.
As Pyongyang stepped up weapons testing in 2016 and 2017, the Financial Crimes Enforcement Network of the United States even went so far to declare that “the entire North Korea financial sector was a primary money laundering concern”.
The United Nations Security Council broadened the scope of sanctions, switching from measures that targeted specific individuals or institutions associated with weapons programmes to comprehensive sanctions that amount to across-the-board bans.
This broader form of sanctions applies to entire countries, not just those suspected of involvement in the production of weapons, and include civilians, partially the reason why they have garnered significant opposition. In Iraq, comprehensive sanctions were blamed for hundreds of thousands of deaths.
Those who favour sanctions contend that only by bringing North Korea’s financial system to the point of collapse will the country earnestly negotiate its weapons programme or improve its human rights record.
Some analysts, many of whom I respect, argue that to be effective, measures must be even more severe, such as freezing assets held by North Korea’s leaders in offshore accounts.
Despite some mixed messages, sanctions have remained in place notwithstanding US President Donald Trump’s pledge to engage with North Korea through a series of meetings.
Throughout the two countries’ summits, Trump refused to budge on sanctions relief unless North Korea committed to credible steps toward denuclearisation.
BUT NORTH KOREA IS INCREDIBLY RESILIENT
It is useful to recall North Korea’s unique psychology. The country is accustomed to improvising, to finding new ways to get around obstacles put in place by more powerful adversaries.
Throughout the Korean War in the 1950s, the North’s military used asymmetric tactics to attack better-equipped South Korean and US soldiers, tactics that go back to the country’s founders’ background as anti-Japan guerilla fighters.
In the postwar period, North Korea used stealth tactics to fight an ideological war against South Korea, secretly providing funding to pro-North student groups with the hopes of fomenting rebellion that would damage the legitimacy of South Korea’s leaders.
More recently, the North has deployed an army of skilled hackers to carry out cyberattacks on banks around the world.
Through the use of technology, the North Korean state has been able to find and exploit holes in sanctions. Hackers are also reportedly stepping up efforts to steal and launder money by using cryptocurrency.
North Korea also has a reliable backer in China, which provided aid in 2019 that helped North Korea weather the effects of sanctions, and has pledged to provide assistance to Pyongyang to help deal with the coronavirus outbreak (though North Korea has reported no cases of the illness).
There is no reason to believe that any level of sanctions will cause the North to denuclearise or to change its behavior in any significant way.
Over the long term, it is possible making life in the country so difficult will eventually lead to change, but in the short term, there is no cogent ethical case for inflicting so much suffering on so many innocent people.
Too much of North Korea’s identity is tied up in doggedly defying the outside world, particularly the US, that the country’s leadership will almost certainly never admit that they have been wrong to pursue nuclear weapons and would be better off dumping their nukes and becoming a normal country.
The US can continue to name and shame, but Kim Jong Un and the people in charge in North Korea know they aren’t likely to face justice and will find ways to keep money coming in, while ordinary North Koreans will continue to suffer the brunt of sanctions.
Steven Borowiec is the politics editor of Korea Expose.