U.S. Should Sanction Chinese Banks Laundering North Korean Money: Experts

WASHINGTON --The U.S. government should sanction Chinese banks with ties to North Korea in order to convince the rogue state to finally abandon its nuclear weapons drive, issue experts advised lawmakers on Tuesday.

The United States is “singularly equipped” to deliver harsh economic coercive pressure on the Kim Jong Un regime due to the strength and pervasiveness of the U.S. financial system, according to Tufts University Korean studies professor Sung-Yoon Lee.

“The Treasury Department should declare the entire North Korean government a primary money laundering concern” and require all U.S. financial institutions to take measures that would impact foreign banks’ willingness to do business with North Korean entities, Lee told the House Foreign Affairs Committee.

Pyongyang for years has faced U.N. Security Council penalties that specifically target its nuclear and missile programs, ban the North from engaging in any weapons commerce on the international market, and prohibit the import of a number of luxury goods. Other countries have adopted even more comprehensive domestic sanctions; the United States has a total trade and financial embargo in place against the North.

Despite these punitive measures, North Korea has steadily advanced toward a deliverable nuclear weapon, conducting its first successful launch of a long-range rocket in December and last month carrying out a third nuclear test.

Committee Chairman Ed Royce (R-Calif.) criticized the North Korea policies of both the former Bush administration and the Obama administration, which have emphasized sanctions and diplomatic outreach, largely via regional six-nation negotiations last held in 2008.

“Successive administrations -- both Republican and Democrat -- have clung to an unrealistic hope that one day North Korea will suddenly negotiate away its nuclear program,” he said.

In order to gain currency to fund its arms projects, Pyongyang has built up a number of criminal enterprises including drug trafficking and counterfeiting $100 dollar bills.

China is by far North Korea’s largest trade partner and Chinese companies have been named by Security Council sanctions experts as the primary source of suspected violations of U.N. sanctions targeting the Kim government.

“The current administration has done little to target North Korea's illicit activities. Instead, the administration has deferred to a policy over at the United Nations and has opted for strategic patience,” Royce said.

The Obama administration has held two-way talks with Pyongyang but has refused to provide the country with sought-after economic assistance due to its continued violation of international norms.

Royce is interested in introducing new legislation that would “systematically” limit the North’s access to the hard currency it relies on to procure materials for its WMD programs. He also wants the United States to aggressively crack down on Pyongyang’s criminal enterprises.

“It is this dependency by the regime on illicit activities that can in fact be exploited,” the California lawmaker said.  “This is the Achilles heel.”

Royce noted previous success Washington has had in penalizing third-party financial institutions that enable North Korea’s illicit activities through money laundering.

 The Treasury Department in 2005 cited Banco Delta Asia as a “primary money laundering concern” under the Patriot Act and banned all U.S. financial firms from directly or indirectly doing business with the Macau-based entity. This action caused other foreign financial institutions to avoid doing business with the sanctioned bank.

 “The impact was immense because the message the international financial institutions were [sending] was very clear. If you do business with North Korea and they’re involved in money laundering, you could be affected also,” said Joseph DeTrani, who represented the United States at the six-party talks from 2003 to 2006.

With the Banco Delta Asia under U.S. sanctions, the Chinese government “sprang to life as a partner of ours for a year,” fearing that additional Chinese banks would be targeted if it did not crack down on North Korea’s illicit activities through its territory, according to David Asher, who directed the Bush administration’s policy against North Korea programs and its finances from the National Security Council.

The Chinese government “acted in a very businesslike fashion. They’re pragmatism remained supreme,” Asher, now a senior nonresident fellow with the Center for a New American Security, said without discussing details.

Asher said he did not see any “blowback” on the broader U.S.-China relationship following Washington’s targeting of the Macau bank. “They didn’t threaten to sell off their Treasury bonds, which would be self-defeating.”

However, once the Bush administration eased sanctions on Banco Delta Asia as part of a 2007 agreement reached through the six-party talks participants, the Chinese government ceased robust cooperation on North Korea, he said.

If the United States is willing to use “coercive” force against Chinese financial institutions and trading companies engaged in illegal business dealings with North Korea, Beijing might again be prompted to aggressively curb its northern neighbor’s weapons activities, Asher said.

Lee suggested that in addition to expanding domestic financial sanctions against the North, Washington should “also ask allied governments to apply corresponding measures to third-country banks, businesses, nationals doing business with North Korea.”

“Moreover, the U.S. should expand the designation of prohibited activity to include those furthering North Korea's proliferation, illicit activities, import of luxury goods, cash transactions in excess of $10,000, lethal military equipment transactions and the perpetration of crimes against humanity,” the academic said.


March 5, 2013

WASHINGTON --The U.S. government should sanction Chinese banks with ties to North Korea in order to convince the rogue state to finally abandon its nuclear weapons drive, issue experts advised lawmakers on Tuesday.