September 06, 2017

The Next Steps in North Korea Policy Should Be Implementation of New Sanctions Authorities

By Future of U.S. Sanctions Task Force

In the last month tensions over North Korea’s destabilizing nuclear threat have reached a fever pitch, with fresh missile launches from the peninsula, a new nuclear test, and sharp exchanges of words between Washington and Pyongyang. The risk for escalation and miscalculation is enormous. The political, economic, and security consequences for the United States and its partners abroad are grave.

The U.S. strategy towards North Korea must include many elements, including global diplomacy and U.S. and allied military force posture. However, one of the most immediate issues facing Washington and foreign partners is the need to implement new sanctions enacted in July and August by the U.S. Congress and the United Nations Security Council. By leading global partners in a fresh pressure campaign on Pyongyang, the White House can craft a multilateral framework to help address the situation. This effort must include an effective approach toward China, North Korea’s lifeline to international economic activity and proliferation procurement and which represents an estimated 90% of North Korea’s trade.

If the new sanctions are implemented robustly, they have the potential to reduce North Korea’s export revenues, block new investments in the North Korean economy, and further restrict North Korea’s access to the international financial system. This will slow Pyongyang’s ability to advance its missile and nuclear programs and may affect its calculus on threatening adversaries. However, past rounds of U.S. and U.N. sanctions on North Korea have often been poorly implemented, effectively allowing prohibited trade to continue despite sanctions authorities enacted in U.S. and international law. This has led North Korean leaders to believe, correctly, that the sanctions are often far more symbolic than serious. Strict enforcement of the new sanctions will be essential to ensuring that they actually have an economic and political impact on Pyongyang.

Summary of new sanctions

President Donald Trump signed new U.S. sanctions on North Korea into law on August 2, 2017, as part of the Countering America's Adversaries Through Sanctions Act, which also included new U.S. sanctions on Russia and Iran. The sanctions provisions directed at North Korea broadly focus on four areas:

  • Enhanced enforcement of U.N. sanctions: The new U.S. sanctions law requires the U.S. executive branch to impose U.S. sanctions on individuals and companies that violate U.N. sanctions on North Korea. These sanctions have the potential to give added force to U.N. sanctions, particularly against companies and individuals based in countries that do not strictly enforce U.N. sanctions.
  • Discretionary sanctions on a broad variety of trade with North Korea: The new U.S. law authorizes, but does not require, the U.S. executive branch to impose sanctions on companies that engage in a variety of trade with North Korea, including purchasing many types of North Korean natural resources, textiles, and agricultural products; selling oil to North Korea; and engaging in significant transactions with North Korea’s mining, transportation, energy, and financial services sectors.
  • Restricting North Korea’s access to the international financial system: The recent round of sanctions includes new sanctions on foreign banks that engage in significant financial transactions with North Korea. They also restrict financial relationships between third country banks that facilitate North Korea’s financial transactions, such as Chinese banks involved in North Korean financial transactions, and the U.S. financial system.
  • Pressure on North Korean shipping: The new U.S. sanctions law imposes a variety of measures to restrict North Korean shipping, including sanctions on providing bunkering, repair, and other services to North Korean ships.

On August 5, the United Nations Security Council enacted U.N. Security Council Resolution (UNSCR) 2371, tightening prior rounds of U.N. sanctions on North Korea. UNSCR 2371 broadly targets four areas:

  • Bans on certain North Korean natural resources exports: UNSCR 2371 bans the sale of North Korean coal, iron, iron ore, lead, and lead ore and the sale of North Korean seafood products (canned and processed seafood is a significant North Korean export).
  • Restricts new joint business ventures with North Korea: UNSCR 2371 imposes a broad ban on joint ventures between international companies and North Korea, including expanding existing joint ventures.
  • North Korean shipping: UNSCR 2371 tightens existing U.N. sanctions on North Korean shipping activities.
  • Targeted sanctions on key North Korean enterprises: UNSCR 2371 imposes targeted sanctions on key North Korean enterprises, including North Korea’s Trade Bank and one of the companies involved in the sale of North Korean labor outside of North Korea.

In addition to the new sanctions passed by the U.S. Congress and the United Nations, on August 22, the Trump Administration designated a number of Chinese and Russian companies for trading with North Korea, including companies that provided revenue to Pyongyang by purchasing coal from North Korea. 

Recommendations for implementation

If implemented effectively, including by China, the new sanctions have the potential to significantly reduce North Korea’s exports and to put additional economic pressure on the country. According to information released by the U.S. government when the new U.N. sanctions passed, the U.N. sanctions could curb $1 billion of North Korean exports, amounting to roughly a third of North Korea’s total annual exports. The restrictions on North Korean shipping also have the potential to limit North Korea’s ability to traffic in supplies for its nuclear and ballistic missile programs and to engage in illicit trade.

However, vigorous enforcement will be key to determining whether the new U.S. and U.N. sanctions have economic bite. Past rounds of sanctions on North Korea have often been incompletely or haphazardly enforced: For example, a February 2017 report by the U.N.’s Panel of Experts on North Korea sanctions found widespread examples of successful North Korean sanctions evasion and haphazard sanctions enforcement by countries around the world. In the United States, the June 2017 U.S. Section 311 action against China’s Bank of Dandong was an important example of an increasingly aggressive enforcement posture for U.S. sanctions.

1. The U.S. State and Treasury Departments should mount a global diplomatic campaign promoting sanctions compliance: When the United States was waging a sanctions campaign on Iran between 2006 and 2014, State and Treasury Department officials mounted an aggressive diplomatic campaign to promote compliance with new U.S. and U.N. sanctions. This included not only government-to-government meetings, but also direct outreach by U.S. government officials to the international private sector to explain new sanctions and the potential penalties for sanctions violations. The U.S. government published extensive FAQs, fact-sheets in multiple languages, and other public guidance documents. Even today, after many Iran sanctions have been removed following the 2015 nuclear deal, the Treasury Department maintains more than 200 FAQs related to Iran sanctions, compared to just 10 FAQs related to North Korea sanctions. The U.S. State and Treasury Departments should promote compliance with new U.N. and U.S. sanctions by mounting an aggressive outreach campaign to explain the sanctions, including distributing detailed private sector guidance materials and meeting directly with banks and companies in China and elsewhere in Asia to explain the new sanctions and potential penalties for non-compliance. 

2. China should take further steps to ensure compliance with international sanctions: China has a mixed record of implementing prior rounds of sanctions on North Korea. This has been due to Beijing’s political reluctance to crack down on North Korea trade, given its relationship with Pyongyang. It has also been attributed to the widespread corruption in China, particularly among the local border patrols and other police forces responsible for enforcing trading restrictions and counterfeit goods movements (against which there are sanctions prohibitions) at the border. Beijing needs to make clear political statements that it is fully committed to implementing new sanctions on North Korea and must back that demonstration of political intent to enforce sanctions by launching a concerted effort to enhance sanctions compliance, including by deploying more central government resources to the Chinese-DPRK border to inspect cargoes and ensure that prohibited trade is actually stopped at the border. As more than 90 percent of North Korea’s foreign trade is with China, making Chinese companies and customs officials comply with old and new sanctions is key to the sanctions’ success.

3. The United States should keep up the pressure on companies that violate the new sanctions: U.S. officials can encourage global compliance with sanctions by mounting an aggressive campaign to sanction individual companies that engage in business prohibited by the new U.S. and U.N. sanctions. The U.S. decision to sanction China’s Bank of Dandong in June, for example, both imposed costs on the bank and sent a powerful message to other companies that there will be financial and business consequences for engaging in prohibited trade with North Korea. Since January, the Trump administration has increased the pace of U.S. sanctions designations on prohibited North Korea trade, and should accelerate its enforcement posture in the months ahead, including against appropriate Chinese companies that Beijing does not bring into compliance with the new sanctions.

4. The U.S. government, allies, and non-profits should publicize examples of apparent sanctions violations: In addition to sanctions designations, the United States, the U.N., and other national authorities, investigative media and non-profit experts should continue to draw public attention to apparent sanctions violations. For example, in April 2017 media accounts drew public attention to North Korean ships that appeared to be preparing to unload coal in Chinese ports. Following that attention and diplomatic engagement, China ultimately required the ships to return to North Korea without unloading their cargoes. An aggressive campaign to “name and shame” companies doing business with North Korea in apparent violation of international sanctions can complement aggressive enforcement of new U.S. and U.N. sanctions.

5. Congress can promote and oversee strong implementation: Finally, the U.S. Congress can promote strong implementation of the new sanctions by the Trump administration and the international community. Congress should hold hearings on sanctions implementation and should be prepared to enact new and additional sanctions when appropriate. Foreign policy leaders in Congress should also engage counterparts in partner nations to encourage legislative adoption of national-level authorities to implement U.N. sanctions. They should furthermore urge these counterparts to accelerate their own tools of national power, in parallel to the United States, to pressure Pyongyang.

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