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Last week, Marc Noland and I offered our analysis of HR 1771, new sanctions legislation that passed the House on a voice vote. Not coincidentally, there have been a number of other analyses of this legislation recently that might be of interest.
At the KEI blog, Bruce Klingner asks why the Obama administration has not exploited the sanctions powers it currently has. Following up on comments by Kurt Campbell, he notes that North Korea is less sanctioned than Burma was, and offers a defense of financial sanctions.
In a counter-point on the KEI blog, I look in somewhat more detail at the pros and cons of the new sanctions legislation. Among the concerns are limiting the president’s discretion to escalate sanctions when really needed (for example, in the face of a fourth test) but also to reduce them were an opportunity to arise. I also raise a concern explored in more detail by Joseph deThomas at 38North: that financial sanctions have the effect of limiting commercial trade and investment that the US would arguably like to encourage on the theory that a more integrated North Korea will ultimately be less bellicose. I confess to becoming more skeptical of the theory over time; if China is willing to support the regime through commercial engagement, the byungjin line might be able to persist for some time. Finally, The National Committee on North Korea offers a balanced assessment of the implications of the legislation for the humanitarian community, noting some possible barriers that might arise despite the bill’s efforts to keep this channel open.
Marc Noland and I provide a detailed chapter-by-chapter overview of the legislation in the post cited above; I reproduce it here; WTT refers to our commentary.
House Foreign Affairs Sectional Analysis of the North Korea Sanctions Enforcement Act of 2014 with Witness to Transformation Commentary.
Title I—Investigations, Prohibited Conduct, and Penalties.
Section 101. This section states that it is the policy of the United States to pursue vigorously sanctions against the North Korean government in order to peacefully disarm Pyongyang.
Witness to Transformation commentary (WTT). The choice of “peaceful disarmament” of North Korea is particularly unfortunate if we ever want to engage the country; what leadership would agree to being “disarmed”?
Section 102. This section mandates that the President investigate sanctionable conduct involving North Korea upon the receipt of credible information that a person or entity has engaged in such activity. Among other things, this may include proliferation of weapons of mass destruction,arms related materials, luxury goods, and counterfeit goods. This provision would prevent any Administration from ignoring destructive North Korean behavior.
WTT. An interesting feature of the legislation is that it opens the door for outside information to be brought to bear on the sanctions process.
Section 103. This section requires regular briefings to Congress on North Korean assets and transactions, so that Congress can oversee the enforcement of sanctions and ensure that North Korea is cut off from its offshore assets and income. It also requires the Administration to be more forthcoming with providing information to Congress.
WTT. The President is supposed to report on North Korea’s foreign asset holdings, about which little is known; however, this could incentivize more Treasury sleuthing on the question.
Section 104. This section describes the conduct and entities subject to sanctions. It mandates blocking sanctions (the prohibition on any transfers in financial instruments or other property) against persons that have materially contributed towards North Korea’s nuclear, ballistic missile development and other unconventional programs. While this prohibition is contained in existing Executive Orders, this legislation makes such violations mandatory, rather than discretionary. It sanctions persons that engage in other destructive activities—from importing or exporting into North Korea related WMD materiel, to producing training or advice to their unconventional and conventional weapons programs. It also levies mandatory sanctions on those who import luxury goods into North Korea, or enable its censorship efforts or continuing human rights abuses. Finally, it strikes at the heart of their efforts to fund their illicit activities by requiring sanctions against those who have engaged in money laundering, counterfeit goods manufacture, or narcotics trafficking.
This section also provides the Administration the necessary tools to sanction North Korea’s third-party enablers transferring or the facilitating the transfer of financial assets and property of the North Korea regime.
WTT. This is the core of the secondary sanctions piece of the legislation. The designations pertain to those who are “knowingly engaged” with North Korea in the ways delineated. However, given the highly centralized nature of the regime it could be read to include virtually any commercial activity with the country if that activity could be interpreted as generating foreign exchange that the regime used to maintain itself. A key question is whether the ambition of the legislation may have the perverse effect of leading potential violators to shrug it off rather than comply.
Section 105. This section seizes assets forfeited for violations of North Korea sanctions laws, and provides it to the US Treasury.
Title II-Sanctions against North Korean proliferation, human rights abuses, and illicit activities.
Section 201. This section instructs the Secretary of the Treasury to determine whether North Korea is a “primary money laundering concern.” If such a determination was made, that would block North Korean banks from direct or indirect access to the U.S. financial system, and require “special measures” against designated persons, North Korean government entities, and banks that provide financial services to entities found to have engaged in sanctionable conduct. Such a designation could have a debilitating effect on North Korea’s ability to access the international financial system.
WTT. This section reviews the history of trying to bring North Korea into line with its so-called AML/CFT (anti-money laundering/combatting the financing of terrorism) obligations, something on which we have reported at length (most recently here on SWIFT). The section is a little weaker in that it is a “sense of Congress” language, but it requests the administration to determine whether North should be designated as a jurisdiction of primary money-laundering concern.
Section 202. This section finds that all states and jurisdictions are obligated to implement and enforce UN Security Council resolutions and provides as a sense of Congress that the President should intensify efforts to implement a diplomatic strategy to protect the global financial system from North Korean threats.
WTT. Basically directs the US to engage in a more vigorous diplomatic campaign on these issues.
Section 203. This section re-imposes sanctions under the Export Administration Act and the Arms Export Control Act that applied to North Korea until it was removed from the list of state sponsors of terrorism in 2008. The provision will statutorily prohibit the export of munitions to North Korea and severely restrict export licenses for the for controlled good and technologies, and sanction those who send or receive lethal military equipment from North Korea as if the regime were still designated a state sponsor of terrorism.
WTT. Seems gratuitous, but is emblematic of the effort to shut down any loopholes.
Section 204. This section bars designated persons, their officers, and their subsidiaries from receiving U.S. government contracts. If a person is enabling or facilitating the regime’s destructive policies, they should not be eligible to receive US Government contracts.
WTT. Ditto.
Section 205. This section requires the Administration to provide briefings identifying foreign seaports and airports whose inspections of vessels originating from North Korea are deficient. Cargo coming from ports that consistently fail to inspect North Korean cargo, as required by U.N. resolutions, may be subject to increased inspection requirements at U.S. ports. It also allows for the seizure of ships or aircraft used for smuggling. This provision is critical as that it protects the US homeland from ports that deliberately fail to sufficiently inspect North Korean cargo.
WTT. A very interesting and new second sanction; pressure on foreign countries to inspect by basically targeting any cargo coming from that port “if there are reasons to believe that such cargo contains goods prohibited under this Act.” Much will depend on how liberally used.
Section 206. This section allows the President to deny the entry into the U.S. of any alien who is a person that has been sanctioned under this Act. If a person is an enabler of the North Korean regime, you should not be granted a visa or access to the United States.
WTT. Completely justified, but hopefully will not throw sand in the granting of visas to any and all North Koreans; our motto remains “get people in, get people out,” even—indeed, particularly—lower-level officials, academics and others.
Section 207. This section provides for exclusions and waivers from sanctions for humanitarian aid, consular activities, for cooperating witnesses and banks, and when vital to the economic or national security interests of the United States.
WTT. Again, the National Committee on North Korea airs its concerns here.
Section 208. This section finds that a United Nations Panel of Experts issued a report that North Korea continues to “trade in arms and related material” and that “there is no question that it is one of the country’s most profitable revenue sources.” It also provides a sense of Congress that the U.S. should work with other nations to implement UN Security Council Resolutions 1695, 1718, 1874, 2087, and 2094.
WTT. Again, the objective is to urge the administration to keep this front-and-center with countries—particularly developing countries—that may not be exercising due diligence in enforcing the sanctions..
Title III—Promotion of Human Rights.
Section 301. This section requires the President to study the feasibility of bringing unmonitored and inexpensive cellular and internet communications to the people of North Korea, to break the information blockade the regime has imposed on its own population. This information has proven crucial in changing the perception of the North Korean people about the nature of the Kim regime and the outside world.
WTT. We strongly support increasing the permeability of the border to information. Yes, there are risks for those caught, but our view is that they are capable of assessing those risks and that focusing on the supply side is a legitimate activity.
Section 302. This section requires a report by the State Department on North Korea’s political prison camps, which are estimated to hold up to 120,000 men, women, and children. It is meant to focus greater public attention on North Korea’s grave and pervasive crimes against humanity.
WTT. This provision comports directly with a similar objective articulated by the Commission of Inquiry.
Section 303. This section requires a report by the State Department that identifies severe human rights abusers in North Korea, utilizing information collected in the recent U.N. Commission of Inquiry Report on North Korean human rights abuses, the most comprehensive such report to date. This will bring needed attention to the North Korean human rights disaster.
WTT. The Commission of Inquiry was careful to was very careful to repeat that it was not a prosecutorial body. But those entities responsible for the most egregious human rights violations, such as executions and the prison camps, should be named and shamed.
Title IV— General Authorities.
Section 401. This provision provides for a one-year suspension of sanctions, renewable for one consecutive year, if North Korea takes significant steps toward disarmament and reform, while preventing the premature relaxation of sanctions for false North Korean promises.
WTT. The legislation sets incredibly high hurdles for reversing the sanctions once imposed, which has the effect of making it extremely difficult for the administration to engage in any more incremental negotiations or to advance any inducements; again, that seems to be an unstated purpose of the legislation. For sanctions to be lifted, the government of North Korea has to:
- verifiably ceased its counterfeiting of United States currency, including the surrender or destruction of specialized materials and equipment used for or particularly suitable for counterfeiting;
- take significant steps toward financial transparency to comply with generally accepted protocols to cease and prevent the laundering of monetary instruments;
- take significant steps toward verification of its compliance with United Nations Security Council Resolutions 1695, 1718, 1874, 2087, and 2094, in effect, take “significant steps”—undefined—to denuclearize and cease and desist in its missile program;
- take significant steps toward accounting for and repatriating the citizens of other countries abducted by the Government of North Korea;
- take significant steps toward verification of its compliance with the Joint Statement of September 19, 2005;
- accept and begun to abide by internationally recognized standards for the distribution and monitoring of humanitarian aid;
- provide credible assurances that it will not support further acts of international terrorism;
- take significant and verified steps to improve living conditions in its political prison camps and;
- added from the last version of the bill, make significant progress in family reunions with the South.
Section 402. This section terminates these sanctions if North Korea undergoes a fundamental change of governance toward an open, free, and peaceful society.
WTT. Basically, this would terminate sanctions if the current regime were to completely reverse course by: denuclearizing; releasing all political prisoners; ceasing censorship; taking steps toward the establishment of an “open, transparent, and representative society”; fully addressing the abduction issue; addressing FATF concerns with AML/CFT obligations.
Section 403. This section specifies that nothing in this act can limit the authority of the President to an application Executive order or otherwise pursuant to the International Emergency Economic Powers Act.
Section 404. This section states that this Act shall take effect on the same date of enactment.
Section 405. This section provides an offset of $10 million by amending the Enhanced Partnership with Pakistan Act of 2009.
