war on the rocks

Walls and Ladders: The Latest UN Panel of Experts Report on North Korea Sanctions

March 28, 2018

In a recent conversation about the state of implementation of UN sanctions on North Korea, one Southeast Asian official lamented, “We are a year’s worth of UN resolutions behind.” It was no ordinary year, either. In 2017, the United Nations Security Council was a veritable conveyor belt of sanctions on North Korea, propelled by the U.S. government’s “maximum pressure” campaign. Four new resolutions significantly expanded the scope of sanctions to include major restrictions on North Korean export revenue streams, maritime commerce, and access to the international financial system.

Since its establishment in 2009, the UN Panel of Experts Established Pursuant to Resolution 1874 has played a crucial role in monitoring the implementation of these measures. As the sanctions mushroomed, the panel’s work has become more prominent and more challenging, with a vast array of provisions to monitor, from arms embargoes to bans on North Korean mollusks.

The panel’s new report about developments in 2017 offers a snapshot of where sanctions are creating costs for North Korea, and where they are not. For the most part, Pyongyang’s evasion effort seems to be ably keeping pace with the new resolutions, helped by its resilient business relationships around the world and savvy evasion tactics. When it comes to some of the newer measures like bans on joint ventures, however, it is simply too early to tell how disruptive they will be for North Korea’s illicit activities.

Yet the panel’s reports are most powerful when read together. Year after year, they outline how North Korea is advancing its nuclear weapons and ballistic missile capabilities, and adapting its evasive practices to minimize the impact of restrictions on its access to trade and finance. The reports tell a story of a regime whose view of the desirability of nuclear weapons has not yet been altered by the steadily stronger sanctions adopted in New York.

This may be because the expansion of the sanctions regime occurred only recently, and new measures will still take time to “bite.” Meaningfully implementing these penalties is a challenging process for countries, and one made significantly more complicated by North Korean sanctions circumvention. But we must also recognize that the sanctions may be too little, too late to change the regime’s mind about the need to maintain nuclear and missile programs. North Korea has already carried out three successful intercontinental ballistic missile tests and six nuclear tests, and it seems prepared to endure enormous national hardship to maintain these programs. Challenges associated with sanctions implementation and combating North Korean evasion also limit the costs other countries can force Pyongyang to incur for its prohibited activities.

Thus, policymakers must consider whether the official goal of the sanctions — to compel the “complete, verifiable, and irreversible” denuclearization of North Korea — needs to be revisited to reflect more feasible policy objectives. North Korea is willing to incur the costs of evading sanctions, but the penalties are more likely to tip cost-benefit calculations for objectives short of denuclearization — such as caps, freezes, or partial roll-backs of its programs. Without such a critical evaluation, countries around the world may find themselves running a never-ending race to build higher walls to confront North Korea’s progressively longer ladders.

Persistent Implementation Difficulties

Nearly 12 years have passed since the UN sanctions regime on North Korea was created, and implementation of even the longest-standing measures remains patchy. Some countries are eager to improve their practices, but lack the capacity. Elsewhere, poor awareness and competing priorities result in little attention paid to international sanctions obligations. Other countries, however, actively ignore or resist the sanctions regime on North Korea. Pyongyang exploits these weak links to continue its illicit activity. Though the United States is making strides in improving awareness and implementation by exerting focused pressure on key nations, improving sanctions implementation and enforcement (especially through independent and proactive action by countries) remains a slow affair.

Exemplifying this issue is the fact that in many cases key people in North Korea’s networks seem untroubled by the sanctions adopted. Last year, we noted how the same names kept appearing in UN Panel investigations into cases of potential sanctions breaches. Relevant states, including China and Russia, continually failed to take action to curb these individuals’ behavior. The latest report includes plenty of useful details about Chinese action and inaction, which point to increased Chinese responsiveness to panel requests. The panel also noted that, according to media reports, China has closed off ports to North Korean ships and shuttered several publicly known Chinese-North Korean joint ventures.

Still, China appears largely uninterested in taking proactive steps against individuals and entities helping facilitate the North’s evasion activities. Networks that China should have monitored and shuttered long ago, such as one that exports drone components to North Korea, are still operating. Russia, for its part, commonly refuses to investigate cases unless open-source evidence clearly indicates a breach, and sometimes not even then.

Other hard cases include Syria and Myanmar. The panel investigated dozens of arms-related shipments by North Korea to customers in Syria, including those linked to the Syrian chemical weapons and ballistic missile programs. The two countries continue to actively help each other get over and around obstacles created by sanctions (fitting, given Syria’s insistence that the only North Koreans in-country are “gymnasts”). According to the panel, Pyongyang is still profiting from purchases by Myanmar’s Directorate of Defense Industries — an entity previously sanctioned by the United States before the Obama administration lifted sanctions on Myanmar to encourage the country’s continuing democratization. The directorate’s shopping list has reportedly included unspecified ballistic missile “systems,” surface-to-air missiles, and multiple rocket launchers. This deserves to be a much larger story than it has been given the confirmation that Myanmar is now ballistic missile-armed, ongoing discussions about civil-military relations in Myanmar, and the use of Myanmar as a case study for sanctions lifting. Revelations of continued cooperation between North Korea and Myanmar should also serve as a reminder of how personal and institutional relations are as critical to North Korea’s illicit activities as those at the central government level.

Admittedly, the report bears out numerous modest successes in sanctions implementation. The US-led “maximum pressure” campaign, together with political change in several countries, appears to have compelled greater implementation assistance in some parts of the world. Angola’s new leadership cooperated with UN investigations into several designated entities, despite Luanda’s longstanding commercial, political, and military relationship with Pyongyang. However, the Angolans did not provide the panel with requested information on North Korean military training activities. Zimbabwe and Mozambique have also newly offered some assistance in closing down DPRK-sanctioned entities operating on their soil. Further U.S. efforts to raise awareness of UN sanctions obligations and illicit activity taking place in individual countries, combined with the threat or actual application of limited secondary sanctions in the event of continued transgressions, could prompt more action by governments that have in the past not been particularly cooperative.

Implementation deficiencies will always exist. But unless they are steadily diminished, the sanctions regime has little hope of creating persistent costs for Pyongyang — costs that are essential if sanctions are to be an effective tool in advancing any policy objective.

North Korean Sanctions Evasion

Pyongyang’s simple evasive tactics, widely replicated, have allowed it to keep up with sanctions implementation so far and moderate pain felt from international restrictions. Its approaches make it difficult for even the most well-intentioned implementers to detect and prevent prohibited activity. As highlighted in the panel report, despite years of restrictions, North Korea continues easily to access the international financial system and trade in a host of prohibited goods and services.

One way in which North Korean entities and individuals secure such access is simple but effective, and repeatedly highlighted in the panel’s report: Convince foreign companies and governments they are not actually North Korean. Front companies and foreign national facilitators help the country’s sanctions evasion networks appear Chinese, Southeast Asian, or Russian. Writing “Korean” in the country field on corporate registry paperwork leads many corporate secretaries to record an individual’s nationality as “South Korean.” Routing trade via third countries similarly gives governments the false impression that they do not have noteworthy bilateral trade with North Korea, and therefore are not very relevant to the sanctions compliance drive.

These dynamics are only going to become more challenging. For example, after Namibia came under intense scrutiny for contracting with the sanctioned entity Mansudae Overseas, it promised to sever all ties to the company. The panel noted that Mansudae then swiftly sought to hide in the folds of Chinese construction activity in Africa. It entered into a relationship with a Chinese contractor, Qingdao Construction, which took over Mansudae’s contracts and employees in Namibia. Since being unmasked, Mansudae now appears to be hiding behind a new name, “Tritonia Holdings.” Without active monitoring and some pressure and attention from the U.S. government, these developments could easily have gone unnoticed, and Mansudae would have retained its foothold in a country that had foresworn it. In line with these tactics, we expect to see North Korean networks masquerading even more actively as South Korean or Southeast Asian when in Asia, or as Chinese when in Africa.

Elaborate corporate structures help Pyongyang too. The Malaysia-Korea Partners Group of Companies, a joint venture between North Korean and Malaysian businessmen, is a case in point. Its companies, themselves joint ventures, created a slew of other joint ventures across Africa. In many corners of this network, the on-paper connection to North Korea was several levels removed, and the non-North Korean partners were either unaware that their business may have been linked to Pyongyang, or could easily pretend to be.

North Korea’s sophisticated sanctions evasion practices are likely to continue fooling countries who devote few resources to monitoring North Korean networks. They also give plausible deniability to countries or individuals who may be keen to preserve their ties to Pyongyang for political, historical, or other reasons.

Newfound Headaches?

North Korea has had to resort to complex measures to undermine the effects of other UN sanctions, particularly those focused on restricting the country’s shipping networks and its ability to export major commodities. North Korean coal became subject to a complete ban under Resolution 2371, passed in August 2017. To continue selling coal, the regime has resorted to large-scale coal laundering to convince receiving port authorities that a shipment contains legitimate coal from somewhere other than North Korea.

One method ships used was to loiter outside a non-North Korean port to pretend they had called and loaded cargo there. They would then falsify their shipment documentation to reflect the fake port call, before sailing onward to their destination. Port authorities in Vietnam, Malaysia, Thailand, and China were then told the coal had originated in either Russia or China. In one case, a non-North Korean flagged vessel added 3,800 kilometers and over two weeks to what would have otherwise been a quick journey between the port of origin and destination. Another method was to transship coal via Russian ports. A vessel would load coal in North Korea, sail to Russia, and unload it at a Russian port. Shortly thereafter, a second vessel would pick it up and transport it to its destination in Japan or South Korea, where the cargo would be declared as Russian-origin.

Prohibited ship-to-ship transfers offer another example of North Korean attempts to evade restrictions on petroleum imports. To gain access to petroleum products, North Korea has leveraged relationships with primarily Taiwanese shipping networks to arrange tricky ship-to-ship transfers in the East China and Yellow Seas, sometimes in the dark of night. North Korean vessels involved in the transfers have been obscuring physical identifiers on the their hulls, including their name, flag, and IMO number (which is assigned to a ship and attached to it for its lifespan). While it is a positive sign that the sanctions regime is making it difficult for North Korea to access petroleum products, at least for now, the country is managing to scale these walls.

Countries are becoming more aware of Pyongyang’s tactics. In its recent implementation report, Thailand indicated that it has factored coal transshipment practices into its compliance efforts. Media sources also suggest some Chinese ports may have banned the import of Russian coal because of compliance concerns. Time will tell whether these increased implementation efforts will overcome North Korean evasion tactics.

Sanctions Effectiveness: A Path to the Exit

Richard Nephew, one of the leading thinkers on sanctions policy, describes the task of designing a sanctions regime as akin to building a complex maze into which you set your quarry, and “pressure it to move this way and that, all in accordance with the sanctioners’ interest and with the intent of the target reaching the exit.” While UN reports help outline the contours of the walls and how North Korea is trying to climb them, few observers seem to have a clear idea of what a realistic path to the exit looks like.

In fact, given that the sanctions regime’s stated goal is the complete denuclearization of North Korea, many argue that such an exit does not currently exist (despite Kim Jong Un’s alleged openness to eliminating his arsenal). The official narrative is that the sanctions are in place until North Korea gives up its nuclear weapons, which has stifled most discussion of the prospect of partial sanctions lifting: Few of the sanctions regime’s architects want to be seen to be taking their foot off the gas pedal. But it is worth considering whether some sanctions, like certain export commodity bans, could be relieved if North Korea shows progress short of denuclearization. Of course, any such approach must account for the sanctions’ secondary objectives. The arms embargo, for example, is also aimed at inhibiting North Korea from proliferating dangerous military technology to customers around the world, and should not be relaxed unless that issue is addressed.

The Trump administration now seems to have opportunities to cautiously explore diplomatic options, and the president has indicated his desire to pursue them. But it is difficult to say how enduring his interest will be, especially if it becomes clear that despite Kim’s supposed olive branch, he is neither feeling pain from America’s pressure campaign nor willing to trade away North Korea’s nuclear program. If the White House decides to wait for Kim to buckle under pressure, it could be waiting a long time. The next UN Panel of Experts report is thus likely to tell yet another tale of higher walls and longer ladders built by Pyongyang to climb out of the sanctions maze on its own terms.

 

Andrea Berger (@AndreaRBerger) is a Senior Research Associate at the Middlebury Institute of International Studies at Monterey (MIIS), and a co-host of the Arms Control Wonk podcast. Shea Cotton (@Shea_Cotton) is a Research Associate working on export controls and sanctions at MIIS.

Image: U.S. Navy Photo/USS James E. Williams