U.S. sanctions to strangle North Korean economy

Legislation allows Treasury Department to strike at DPRK financial vulnerabilities

Undersecretary of the Treasury for Terrorism and Financial Intelligence Sigal Mandelker testifies to members of the Senate Banking, Housing, and Urban Affairs committee about North Korean financial sanctions. Credit: Sully Lockett
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With tensions rising with the Democratic People’s Republic of Korea, the U.S. announced new and stringent sanctions to tighten the screws on the ‘Hermit Kingdom.’

Executive Order 13810, published on Sept. 20, gives the government the most powerful tools yet to strike economically at North Korea, said Undersecretary of the Treasury for Terrorism and Financial Intelligence, Sigal Mandelker.

“This administration is applying maximum financial and diplomatic pressure,” Mandelker said. The focus of the sanctions, he testified, was to attack North Korean financial vulnerabilities.

The financial interdiction is aimed at bringing North Korea to the negotiating table and denuclearization, much like the United States did with Iran by releasing frozen Iranian assets to bring the nation to the table. Mandelker added that the intentions of the State Department do not include the dissolution of North Korea, nor the stationing of U.S. forces north of the 38th Parallel.

North Korea has been a diplomatic hot potato for decades, particularly as it reached for nuclear capability. Many presidents have focused simply on getting through their terms and handing the ‘Korea issue’ off to the next to hold the office, but North Korea’s recent development of thermonuclear capability and improving delivery technology mean that it may be too big an issue to simply pass off anymore.

How do the sanctions work?

The sanctions are intended to punish anyone who does business with North Korea. According to testimony before the Senate Committee of Banking, Housing and Urban Affairs, the Department of the Treasury will freeze assets or not do business with any financial institution that does business with North Korea.

“These complaints show our determination to stop North Korean sanctioned banks and their foreign financial facilitators from aiding North Korea”

Additionally, the government officials responsible for protecting America’s financial and security interests will take aim at weakening North Korea’s financial interests from other angles. According to a recent press release from the DC district court, the government seized more than $11 million from companies who trade with the North Koreans.

“These complaints show our determination to stop North Korean sanctioned banks and their foreign financial facilitators from aiding North Korea,” said attorney Channing Phillips, talking about the asset seizure.

Between seizing assets, blacklisting banks who do business with the DPRK, and aiming at stopping North Korea’s exports and imports, the sanctions are intended to provide a flexible and multitiered approach to economic warfare. Mandleker emphasized in testimony that the only way these efforts would be successful is if the Department of Treasury and other players had the flexibility and license to prosecute their targets.

Revenue sources

Mandelker identified four major targets for the new sanctions. The largest is the export of coal, primarily to China. Exported overseas labor is also a major issue – North Korean workers in other countries sending their wages home, often from awful conditions.

North Korea has long been known to derive income from the sale of weapons and weapons technology, as well as iron, lead, and seafood. Mandelker also testified that it was important to target the shipping networks that North Korea uses to get around UN bans on imports and exports.

On Aug. 11, 2017, Egyptian officials seized a North Korean freighter sailing towards the Suez Canal after American diplomatic efforts forced them to take official cognizance. The ship carrying more than 30,000 rounds of rocket propelled grenade ammunition was bound for Egypt itself. It was the largest seizure of North Korean arms ever, valued at more than $23 million, according to the Washington Post.

It wasn’t the only one, however. Other assets have been seized over the years, including a freighter seized by Panamanian authorities as it attempted to transit the Panama Canal in 2014. The ship, departing from Cuba, was seized, searched, and found to contain older fighter jets and other military hardware concealed under its surface cargo, according to the BBC.

Historical issues

The Chinese and North Koreans have been traditional allies since the birth of the DPRK as a nation. While the Soviet Union also supported the nominally communist country, China and North Korea’s shared border and history together have bound their direction more closely. Chinese military strength was the only thing that pushed back U.S. forces, as they fought North Korean forces to the end of their own country.

Since then, Chinese support, both diplomatically and economically, has often been the only lifeline for the embattled North Korean state. China’s place on the security council has often spiked U.S. efforts to push for harsher legislation to punish North Korea’s failure to play ball. Coal exports from the DPRK to China, and Chinese banking institutions friendly to the Kim regime have been the only friends North Korea has had at court.

It might be their recognizance that the Kim regime is not a good friend to have, and represent their first steps to distance themselves rather than riding that relationship down in flames.

But that may be changing. China’s hesitance this summer to defend North Korea’s increasingly erratic actions may mark a change in long-held Chinese policy to agree to enforce international sanctions in public while doing nothing to impede North Korea’s status.

This could be the result of any number of things. It might stem from an unwillingness to get their own financial institutions caught in the kill zone of the increasingly broad and stringent sanctions. It might be their recognizance that the Kim regime is not a good friend to have, and represent their first steps to distance themselves rather than riding that relationship down in flames. Or, it could simply be more of the same; cheerfully agreeing to play ball with the West will privately ignoring any international actions that don’t suit it and going their own way, with increased subtlety.

Is it enough?

Lawmakers worry that the sanctions aren’t steep or broad enough. Sen. Pat Toomey, R-PA, was among those voicing dissatisfaction with the level of force applied to North Korea.

“We are not yet at the maximum level of sanction,” said Toomey, during a hearing.

Toomey said that North Korea’s economy had its largest year of growth in nearly two decades in 2016, and that mounting UN Security Council and U.S. sanctions on the wayward state are not robust enough.

Mandelker testified that she believed the sanctions and the executive order would be enough. This new escalation comes soon after the Bank of Dandong, identified as a major facilitator for North Korea’s international finances, was targeted for sanctions which Mandelker said will sever the bank’s ties to U.S. financial markets.

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