Recently, we have seen a series of interesting stories dealing with North Korea’s external financial relations, some related to sanctions—and their evasion—others to remittances.
First up, George Russel at Fox News offers up a well-researched story on the effect of sanctions on the humanitarian community operating in North Korea. The story first broke following the imposition of the Foreign Trade Bank sanctions, a Banco Delta Asia-style effort by the US initiated in March to pressure Chinese and other banks with corresponding banking business in the US. Stories then broke in May (Hankyoreh on the Asahi Shimbun story , for example) that Chinese banks were in fact closing all or some accounts—it was never clear—with the FTB in advance of the Xi-Obama summit. A German NGO, Welthungerhilfe, said in May that it had encountered difficulties in funds transfers and had kept projects running by re-routing 500,000 euros ($643,000) to Chinese and North Korean accounts in China to pay for building supplies and other goods there.
The Fox story now reveals a memo circulated last month by UNDP that it is unable to transfer money into its North Korean accounts, “due to the impact of sanctions and the closure of key banking channels.” The story also suggests that both multilateral agencies as well as NGOs are doing what the North Korean regime is no doubt also doing: scrambling for alternative channels. The UNDP admits to carrying cash out of accounts in China in order to pay staff. According to Fox, the World Food Program is using corresponding banks in Russia to fund its programs—which are receiving less and less support—and that the WFP might in effect extend the services of its partners to other UN agencies to keep their operations going.
It is important to understand that these developments are not a result of multilateral sanctions, although we have reported developments on that front as well. Last Wednesday Marc Noland reviewed the recent UN Expert Panel sanctions report and noted its recommendations for expanding the number of individuals, entities and products subject to sanctions. The Treasury’s Office of Foreign Asset Control (OFAC) subsequently updated its list of specially designated nationals per the Panel’s recommendations. Rather, these difficulties arise out of some combination of the effects of the US FTB sanctions and measures taken by the Chinese government.
Last month, however, Joongang Daily ran an excellent feature by Ahn Sung-kyoo on the alternative channels North Korea is using in China. Ahn traces a $2 million money-laundering transaction in Guangdong carried out by Kwangson Banking Group, an affiliate of North Korea’s state-run Foreign Trade Bank but also identified as Bureau 711, an extension of the Kim family’s financial operations. Citing a report entitled “Recent Financial Activities of North Korea” by Kim Gwang-jin, a defector-turned-researcher at the Institute for National Security Strategy, the story reports that Kwangson has simply taken on some of FTB’s functions, albeit operating in cash. Kwangson was sanctioned by the US back in 2009, but its counterparties are now in effect Chinese loan sharks who have no need for access to the US financial markets. As a result, they are happy to launder money for fees that can go as high as 30% of the transaction. 30% is not trivial. The sanctions are clearly having effect even if they can be circumvented it comes at a high cost.
There may be some justice in the need for North Korean officials to scramble in this way: New Focus International offers up a third well-reported story on the barriers they put in the way of remittances. The story details the virtual impossibility of receiving transfers through official channels, including not only the standard trick of using the official exchange rate but the outright predation on anyone revealing that they are receiving remittances; the party and local officials have still not gotten that such remittances could be of larger social value if left unimpeded. The result is that refugees and defectors who seek to transfer money back have to resort to Chinese brokers who charge 30% fees but at least appear to get the money through.
Kudos to these reporters for good journalistic work.