US Sanctions Policy: Missing the Forest for the Trees



Last week the press picked up a one day story focusing on whether Dennis Rodman had violated US law by importing luxury items into North Korea. Several of the accounts contained the claim by Dennis Halpin that the gifts were worth roughly $10,000. The press reports indicated that Treasury and State would not comment on whether an investigation was ongoing. Earlier, companions on Rodman’s basketball junket had indicated that they had been paid by Paddy Power, not the government of North Korea, so that they believed that they were clear of any legal entanglement associated with their pay.

When interviewed by CNN in this connection, I explained the penalties for sanctions busting could result in prison time and fines of double the value of the improperly traded goods. That part got televised. What got left on the cutting room floor was the point that the US government risked missing the forest for the trees: sure, Dennis Rodman may have illegally handed $10,000 of luxury goods to Kim Jong-un, but the Treasury appears to be in the process of granting North Korea $3 billion dollars in debt relief.

Read that last sentence again. It’s like the AT&T commercial: which is better faster or slower? Which is more important: $10,000 or $3,000,000,000?

Here’s how it works: back in the 1970s North Korea defaulted on bank loans which have traded for years for pennies on the dollar. You may actually indirectly own some of these securities through pension or mutual fund accounts. Last year, when Treasury designated North Korea’s Foreign Trade Bank as a sanctioned entity, the secondary market in these debts froze. The problem is that the holders of the debt have to periodically get the default judgments renewed. If the securities cannot trade and are practically worthless, then the holders will not expend resources to keep their legal claims alive. And as those legal judgments lapse, North Korea will be let off the hook and the holders of those debts which include US pension funds, will be left holding worthless paper.

The Treasury could remedy this situation by granting a general license to trade these securities, but has not thus far.

So which is more important: $10,000 or $3,000,000,000? It’s not complicated.

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