If you haven’t already read my post about Chief Judge Beryl Howell’s order directing three Chinese banks to comply with federal grand jury and statutory subpoenas of their North Korea-related records, you should probably start there. Although the docket in this case is still sealed, I speculated in that post that the banks would likely appeal to the D.C. Circuit and seek a stay of the court’s order. And so they have, according to an order Judge Howell unsealed today. It did not go well for them.
The money quote begins with two words no lawyer ever wants to see:
After initially crediting the banks with being cooperative, Judge Howell is now punishing them for their defiance. What follows is entirely my speculation. The banks must be horrified of what the FBI is going to find in their records to be willing to eat not only the cost of this litigation, but the reputational cost of being held in contempt by the Chief District Judge for failing to turn over records in a grand jury investigation into money laundering and sanctions violations. They have to be worried about what their shareholders will think about their legal exposure and expenses, credit ratings, borrowing costs, the tenures of their directors, and what all of those risks will mean for their share values.
The banks’ lawyers must also be worried about what their clients aren’t telling them. Any competent white collar defense lawyer has to know that the FBI might have an informant or evidence obtained through a Title III warrant that could implicate their clients if they try to withhold evidence from the grand jury. That’s why it’s so unusual for proceedings to get this far. Ordinarily, the banks’ lawyers would already have offered to turn over evidence and implicate their customers in exchange for either a DOJ statement that they did nothing wrong (see, e.g., the Dandong Hongxiang case) or agreeing to modest civil penalties and improvements to their anti-money laundering compliance.
That things have proceeded this far suggests higher stakes for either side, or both. If the records show that one or more of these banks knowingly processed transactions for North Korean money launderers or blocked persons, they could find themselves in the same awful predicament as BNP Paribas, which paid a combined $9 billion in fines, penalties, and forfeitures, or ZTE, which swallowed a deferred prosecution deal that included a $1 billion fine, a $400 million escrow deposit, and ten years of monitoring by U.S. compliance officers.
Journalists, pay attention to this litigation. It’s the most important North Korea story you aren’t writing about. This makes Banco Delta Asia look like a speed camera ticket.
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Just as predicted, North Korea’s apologists have switched from the sanctions-never-work narrative to the human shield narrative. And with impeccable timing—which we can be sure the apologists will question—the feds have seized and sued to forfeit a 17,000-ton North Korean bulk carrier that was hauling neither rice, nor corn, nor milk, but coal to enrich Kim Jong-un, and machinery to keep his mines and his military-industrial complex from shutting down.1 And it was doing it with money laundered through correspondent banks in our country, in New York City.
This is the great, uncharged crime of the M/V Wise Honest, the in rem defendant in this new civil forfeiture complaint in the U.S. District Court for the Southern District of New York. What the Complaint alleges is that the vessel was “involved in” violations of the North Korea Sanctions and Policy Enhancement Act, the executive orders and the regulations at 31 C.F.R. Part 510 that implement it, and the International Emergency Economic Powers Act.
Most forfeiture cases start with evidence of a “specified unlawful activity,” an offense listed in 18 U.S.C. 1956(c)(7). For our purposes, the crimes on that list include sanctions violations under the International Emergency Economic Powers Act and section 104 of the North Korea Sanctions and Policy Enhancement Act. Next, the feds must prove that the property they’re trying to forfeit is either proceeds of that crime, or property “involved in” that crime, including what’s known as “facilitating property.” That often means things like drug houses and cars used for smuggling, but it can certainly mean a ship. This is a civil forfeiture case under 18 U.S.C. 981, so the court will have to find by a preponderance of the evidence that the ship is subject to forfeiture to the United States.
Why civil forfeiture, as opposed to criminal forfeiture? Because the feds can’t prosecute a person they can’t arrest and arraign, but they can seize and forfeit money laundered through U.S. jurisdiction, and (so I’ve just learned) they can also reach ships half a world a way. We designed the North Korea Sanctions and Policy Enhancement Act around this jurisdictional gap. My specific intention was for prosecutors to use a provision at 18 U.S.C. 981(k) that allows the feds to forfeit money right out of a correspondent bank to close that gap. The feds haven’t used that 981(k) because of reasons related to internal DOJ bureaucracy, but prosecutors have validated the broader strategy. Since 2016, the FBI and DOJ have used civil forfeiture as a powerful and effective tool to pursue, freeze, and forfeit North Korean property, and since 2017, they’ve specifically used the NKSPEA as a legal basis for doing so.
The claimant in a forfeiture case may argue that the forfeiture of expensive facilitating property, like a house or a ship, is excessive under the Eighth Amendment, because the amount of contraband found was small and the value of the property was disproportionately higher. That argument has gotten some traction in the Supreme Court recently. It won’t in this case for a few reasons. First, North Korea won’t enter an appearance and the feds will win their case by default. That’s their choice, and it’s the wrong one, and I urge them to continue to make it. Second, the ship is probably a floating rust pile that was ready for the scrap yard anyway. Third, the coal the ship was carrying was previously off-loaded to another ship and (as of a few weeks ago) was hovering off the coast of a nearby country. Finally, the ship had made multiple voyages with its AIS locator switched off, which is strong circumstantial evidence that the illicit use of the ship was primary and not trivial.
Prosecutors in three federal districts have now cited the NKSPEA as the legal basis to forfeit property–the D.C. District, the Eastern District of New York, and now, the Southern District, known among practitioners as the “Sovereign District” for its notorious (or to some, glorious) independence from Washington’s political preferences. It is even said that SDNY is the only district in the country with its own foreign policy, which is one reason why those who will cast aspersions of political motives at the prosecutors today will be self-identifying as Twitter lawyers. They should also note well that Indonesian authorities detained the ship in April 2018 and a federal magistrate in New York issued a seizure warrant in July. At a time when the State Department bureaucracy remains institutionally dead-set against enforcing the NKSPEA as Congress intended—and has convinced an intermittently bamboozled President and an overworked, understaffed, and directionless Treasury Department not to enforce it—leadership of the sanctions enforcement effort has defaulted to the FBI and the Justice Department.
The two most important districts for North Korea sanctions enforcement are the District of Columbia and the Southern District of New York, for reasons that have to do with venue, and with the political independence and skill of their prosecutors. The District of the District of Columbia is critical because it’s where the agencies like the Treasury Department that publish the regulations are located. That makes D.D.C. a proper venue for enforcement actions, and D.D.C. has a small but highly skilled team of prosectors who specialize in asset forfeiture and money laundering. The Southern District of New York, of course, is the home of Wall Street and most of the correspondent banks, and it’s the most prestigious district for prosecuting financial crimes.
D.D.C. was the first to begin using the NKSPEA aggressively as tool for seizure and civil forfeiture, and in the broader context, its recent subpoenas of records from three major Chinese banks are still the most important enforcement actions against North Korean money laundering ever—to include the action against Banco Delta Asia—because of the chilling effect they’re likely to have on both major Chinese banks and their correspondents in the United States. Still, I can’t overstate the importance of having the Southern District of New York not only join this fight, but treat the NKSPEA like the mandate Congress intended it to be.
We’ve also seen it demonstrated again that North Korea’s money launderers know they’re in grave danger when paying or receiving dollars. They are desperate to escape from the dollar system, but have found it difficult to do so, because sellers and buyers want to deal in dollars.
Don’t tell me sanctions don’t work. Tell it to Kwon Chol-nam and Korea Songi Trading Company.
Most forfeiture cases against North Korea-related property have sat on the docket for months before the judge finally ruled. This one won’t, because either the U.S. Navy or Coast Guard is currently towing the Wise Honest to American Samoa, where it’s likely to be drained, searched, and repurposed as an artificial reef. Presumably, neither the U.S. nor American Samoan governments wants the ship sitting around as a hazard to navigation, so SDNY will file its Motion for Summary Judgment promptly. The UN’s North Korea sanctions resolutions require states to seize contraband and property of persons engaged in sanctions violations, and following the cases of the Chong Chon Gang, intercepted in Panama, and the Mu Du Bong, intercepted in Mexico, the Panel of Experts has clarified that this also applies to smuggling ships. The resolutions require a state to “seize and dispose of” a ship that’s smuggling in violation of them. As I explained here—back when I was trying to suggest a muscular, Trumpy alternative to the catastrophically awful idea of bombing North Korea—the resolutions also give us limited authorities to board, search, seize, and sink smuggling ships.
Where does the Justice Department get the authority to seize a North Korean ship half a world away? The Complaint doesn’t specify, but there are several possibilities. The 2019 report of the Panel of Experts, which discusses the Wise Honest, mentions one of them—that the ship switched between the flags of North Korea and Sierra Leone, which would have rendered it stateless and given us or the Indonesians a right of visitation. Alternatively, because the ship was in Indonesian waters and there were “reasonable grounds to believe” it was smuggling, the Indonesians would have had the authority to inspect it under UNSCR 2397, paragraph 9, which would have triggered “seize and dispose of” authority once the Indonesians found evidence confirming that it was involved in sanctions violations. It’s also possible that our diplomats in Sierra Leone asked that purported flag state for consent to board and search under UNSCR 2375, paragraph 7.
Historically, states such as Mexico and Panama have found it burdensome and expensive to seize North Korea’s floating jalopies. My private advice to the State Department then was to offer to take the ships off the seizing states’ hands and dispose of them ourselves. My guess is that we offered an arrangement like that with Indonesia here. The Wise Honest left Nampo, North Korea in March 2018 with a load of anthracite coal and entered Indonesian waters in April. The Complaint alleges that it had its AIS switched off, but also suggests that our satellites or our navy tracked its voyage. By this time, OFAC had designated the ship’s owner, Korea Songi Trading, which means the Indonesian authorities might have put two and two together on their own, although I’d guess there was probably a tip-off from the Americans that the ship was smuggling contraband. Sometime between March and July, the Americans made a decision to seize and forfeit the ship. This would have necessitated extensive discussions with the Indonesian authorities, who had not only detained the ship but also prosecuted its North Korean captain. Three months and one Trump-Kim summit went by before a magistrate in the Southern District of New York found probable cause to seize the ship. The Indonesians’ behavior here was commendable. To the extent this case yields anything of monetary value, I hope the Justice Department will be mindful of the revenue sharing provisions of 18 U.S.C. 981(i), which gives the feds the authority to compensate them for their trouble.
Taken together, the D.C. District’s subpoenas and the Sovereign District’s contribution of a large cadre of DOJ’s most skilled and aggressive prosecutors means that the financial system is becoming unsafe at any speed for Kim Jong-un. Because of DOJ’s independence generally and SDNY’s independence in particular, that’s probably regardless of not only Steve Mnuchin’s inattention, but also regardless of Donald Trump’s whims. This still isn’t maximum pressure, but it’s a giant leap toward it.
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1. I take a certain perverse pleasure in using one of the hard left’s favorite cliches against Pyongyang, which is a military-industrial complex, sustained by crime, terror, and slavery, only with a flag and a seat in the UN General Assembly.
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We’ve all heard of ancient Chinese curses. Now, here is a modern one: “May the subpoenas fall like rain on your New York correspondents.” In December 2017, that curse afflicted three Chinese banks that now find themselves enmeshed in an expensive and legally perilous FBI investigation into the laundering of large amounts of Kim Jong-un’s lucre.
With today’s unsealing of Chief Judge Beryl Howell’s opinion, ordering the banks to comply with the subpoenas, the story can be told. You can read Chief Judge Howell’s full opinion here:
The FBI and DOJ prosecutors are investigating possible violations of at least three statutes:
18 U.S.C. 1956, money laundering;
50 U.S.C. 1705, the International Emergency Economic Powers Act, which criminalizes violations of Treasury Department sanctions regulations; and
The Bank Secrecy Act, which requires banks doing business in U.S. jurisdiction to exercise certain due diligence procedures, particularly Know-Your-Customer requirements, to prevent money laundering. It carries both criminal and civil penalties.
A grand jury in the District of Columbia issued two of the subpoenas, to two of the banks. The local U.S. Attorney’s office issued the third subpoena to a third bank under 31 U.S.C. 5318(k). The U.S. Attorney’s office served all three subpoenas in December 2017. The banks have been resisting the subpoenas in court ever since. All the while, the court sealed the cases to protect an ongoing investigation. The fact that the case can now be unsealed suggests that the investigation no longer needs protecting, and might mean that another shoe is about to drop. The court’s order does not say that the banks are targets or defendants—in fact, the opinion says that “the banks have acted in good faith and the sincerity of their willingness to comply is not questioned”—but they were also worried enough to have paid lawyers to litigate this for more than a year. That language may be small comfort to the banks. Depending on what those records show and what the Justice Department decides to do about it, the effects of this order could be as significant as the effects of DOJ’s actions against ZTE and Huawei.
The banks are not named because of standard Justice Department policy against naming unindicted parties in criminal filings. The fact that the suspected North Korean money launderer is now defunct, however, implies that it is not the only target of the investigation. Its name is redacted, but anyone with access to the SDN list or C4ADS’s Sanctions Explorer could narrow it down very quickly by searching for Hong Kong-based designees under Executive Order 13,382 (code NPWMD).
No, I’m not going to do that for you.
The banks argued that the Chinese government had threatened them with fines or prosecution for cooperating with the Justice Department. They also argued that the U.S.-China Mutual Legal Assistance Treaty was the proper way to obtain records created and maintained in China. DOJ answered that—
(1) when the three banks set up branches in New York, they specifically told the FDIC that they were submitting to U.S. jurisdiction;
(2) the Chinese government had frustrated DOJ’s past efforts to use the MLAT to obtain bank records, notably in the Dandong Hongxiang case (where major Chinese banks helped a sanctioned North Korean bank hide vast sums of money and got away with it);
(3) the actual risk that China would fine or prosecute its own (partially state-owned) banks was small and remote; and
(4) the Chinese government’s interests aren’t the same as the compelling U.S. national interest in stopping North Korean proliferation financing.
After balancing a list of factors, the court held that the U.S. interest in enforcing the law against sanctions violations in the U.S. was greater than the Chinese interest in not enforcing the law against sanctions violations in China. Needless to say, those documents will make for fascinating reading for FBI agents, intel analysts, prosecutors, and the UN Panel of Experts.
This is the first time I’m aware of that a U.S. federal court has ordered Chinese banks to comply with subpoenas issued by a U.S. federal agency to get records about North Korean money laundering. Any North Korean agents and enablers who might have assumed that their dollars were hidden safely behind the Great Wall just got a big shock. This decision will certainly reverberate within China’s financial industry, which was already under rising pressure to step up its Anti-Money Laundering compliance. I’d expect the three Chinese banks to appeal this ruling,1 but whether they can stay compliance with the subpoena while they try their luck at the D.C. Circuit is another story.
Meanwhile, the big Chinese banks—the same banks that Steve Mnuchin had effectively immunized until now—will now feel exposed to the full range of legal consequences I described at that last link. Depending on what the evidence ultimately shows, those risks include the burden and embarrassment of responding to grand jury subpoenas, civil penalties (which could be colossal if the records turned over yield evidence of willful sanctions violations), criminal or civil forfeitures of customer funds and potential litigation with those customers, criminal prosecution, and Special Measures under the Patriot Act. Any of those consequences is also bad news for a bank’s credit rating and shareholders, at a time when China’s economy and stock market are already wobbly.
That is to say, Judge Howell’s decision just closed a gaping hole in U.S. sanctions enforcement by scaring China’s big banks into “enhanced due diligence” to keep North Korea out of the financial system. For the first time ever, they face serious legal risks for doing anything less. The Chinese government’s reaction will be furious and blustery, but for the reasons I stated here, China’s banks are about to embark on the most furious scrub of their customer lists since September 2005. So if you’re an out-of-work compliance officer, definitely go for that intensive Mandarin study night course.
The unsealing of this case may also explain something else. Just over a week ago, I published a chronology and analysis concluding that U.S. and UN sanctions are crippling North Korea’s military-industrial complex. My qualified crediting of the Trump administration’s sanctions strategy also grumbled about its lack of focus on Pyongyang’s bank accounts and considered the possibility that “Treasury is doing more to get Chinese banks to comply than is known publicly.” The unsealing of this order lends some weight to my speculation, although it’s not clear how much of a role Treasury played in this.
Admittedly, the timing doesn’t match up perfectly. The Justice Department served its subpoenas in December 2017, the same month I published several months’ worth of evidence that some Chinese banks were cracking down on North Korean traders. Even then, grand jury subpoenas are supposed to be secret, and courts are very serious about enforcing those secrecy rules. But is it possible that earlier in 2017, at least one government agency had asked the correspondents for records of North Korea-related transactions? And of course, the effects of a polite request for records in mid-2017 would have dissipated by 2019 if some more serious threat did not arise later. I would be surprised if, Rule 6(e) notwithstanding, word of the U.S. government’s interest in records of North Korea’s bank transactions did not spread quickly through Beijing and Dandong.
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1. I can’t confirm that until PACER lets me see the docket. It still reflects that the cases are sealed, although the opinion is not.
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The fact that even the New York Times says so didn’t make it so; it just made it harder for people who trust the New York Times to deny it. But for those of us who’ve always put more stock in the Daily NK and Rimjin-gang, the evidence has been piling up for more than a year.
3/2016: It is two months after North Korea’s fourth nuclear test and one month after Congress passed the North Korea Sanctions and Policy Enhancement Act (NKSPEA). Treasury is still finalizing the executive order that will partially implement it, and ban dollar transactions in the North Korean mining, transportation, manufacturing, and financial services industries. The Security Council (UNSC) has just approved Resolution 2270, which bans correspondent relationships with North Korean banks and caps (but does not yet fully ban) North Korea’s coal exports. There are early reports that oligarchs known as donju, most of whom have enriched themselves by trading on their connections with the state, are nervous and withholding their investment in the coal mining industry. A few people hoard food, but prices remain stable. Some traders shift to non-sanctioned trade, including food exports from China to North Korea. China unilaterally bans seafood imports from North Korea, a large percentage of which are controlled by the Reconnaissance General Bureau. In North Korean markets, seafood prices fall, and availability increases. The UNSC would approve a ban on seafood exports a year later.
4/2016: The mining industry was already marginal before the new sectoral sanctions begin to hit. Now, some miners anticipate the worst, sell their houses, and move into smaller ones. But as the months pass, conditions stabilize.
9/2016: North Korea conducts its fifth nuclear test. The UNSC begins work on Resolution 2321, which mostly tightens existing sanctions. The Treasury and Justice departments file their first major enforcement actions against a Chinese company dealing with North Korea, Dandong Hongxiang Industrial Development. It would be the first of many for a Justice Department that is, along with the FBI, an increasingly important player in North Korea sanctions enforcement. Critically, Treasury and DOJ directly target Chinese companies that import North Korean coal.
11/2016: Treasury finalizes a rule cutting North Korean banks off from the financial system. Donald Trump is elected President.
6/2017: The UNSC approves new sanctions designations in response to new North Korean missile tests.
8/2017: Congress tightens the NKSPEA with title III of the Countering America’s Adversaries Through Sanctions Act. The UNSC approves Resolution 2371, which bans most remaining North Korean mineral and seafood exports, tightens banking sanctions, and bans joint ventures with North Korea.
9/2017: North Korea conducts its sixth nuclear test; the UNSC approves Resolution 2375, tightening oil import and shipping sanctions, and banning textile exports. Traders in China, most of whom had not planned for the possibility of more serious sanctions enforcement, begin complaining that they “have no work” due to sanctions, but that the state is still shaking them down for more “loyalty” payments.
10/2017: Chinese investors flee the Rason Special Economic Zone due to sanctions. Textile factories and fisheries there slow or stop.
11/2017: A Pyongyang resident reports that conditions are stable. The elites are complacent about their ability to withstand sanctions.
12/2017: Banks in China are closing or freezing North Korean trading companies’ accounts. Cross-border trade is slowing. There is an isolated report of electricity shortages in Pyongyang, but the situation improves later, because the state is burning coal it can no longer export to generate more power.
1/2018: UN bans on North Korean exports are affecting state-controlled industries, including coal mines, the fishing industry, and the textile industry. A source reports that conditions have worsened in Pyongyang, but the real estate market there is still strong. The security forces are increasingly resorting to extortion and bribery, suggesting that they’ve stopped receiving regular wages. Soldiers along the borders are turning back to smuggling to survive.
2/2018: Economic conditions worsen in the border town of Sinuiju as textile factories close and market prices fluctuate wildly. Chinese authorities have tightened customs inspections at the border.
4/2018: By now, cross-border trade between North Korea and China has slowed dramatically. Real estate prices in Pyongyang wilt as people sell or rent out their apartments and move into country houses.
4/2018: North Koreans’ moodssour after Kim Jong-un’s summit with Moon Jae-in fails to bring significant sanctions relief, and as economic conditions continued to decline. A backlash may be building in response to those unmet expectations, which now shift to the Singapore summit between Kim and Trump.
5/2018: Some local governments can no longer provide rations to the favored descendants of anti-Japanese guerrillas.
5/2018: The state launches “crackdowns on cadres who are siphoning off money from residents in Pyongyang” through various forms of graft. “Cadres are looking nervous, and those involved in trade are particularly worried.”
6/2018: Real estate prices in Pyongyang soar on speculation that Kim Jong-un will persuade Donald Trump to lift sanctions at Singapore.
6/2018: Trump meets Kim in Singapore. Before the summit, Trump calls off a new round of sanctions designations but does not lift any of the sanctions then in place.
6/2018: Trading companies affiliated with powerful state agencies muscle in on cross-border smuggling, which had historically been an unwritten partnership between private smugglers and local border guards.
7/2018: The Bank of Korea estimates that the North’s GDP fell 3.5 percent over the previous year.
7/2018: After Singapore, Pyongyang real estate prices crash, falling by 80 percent in some areas. A 50 percent decline is reported in Sinuiju. The state keeps building despite a glut of vacant apartments.The Daily NK attributes the declines to a liquidity crisis caused by sanctions, although overbuilding must also be a contributing cause. Builders voice fears of a prolonged recession.
8/2018: Economic conditions worsen in the coal mining region of Kaechon, North Pyongan. There are goods in the markets, but people can’t afford them. Electricity shortages are reported.
8/2018: A source in Pyongyang tells Rimjin-gang that incomes there have fallen by half because people can no longer afford the goods for sale in the markets. The source of the cash flow problem is directly traceable to the slowing of sanctioned trade at the border. According to one “trade institution executive stationed in China,” “[t]he ones having the hardest time are the upper-class people” whose income came from trade. “They are in trouble now that the money is gone.” Darkly, he predicts that “[i]f the government cannot solve these economic problems, the wealthy will grow unhappy and there may be grave consequences.”
8/2018: On the border, state trading companies, some of them controlled by Bureau 39, continue to take over cross-border smuggling routes from army units. Military trading companies lose revenue. Soldiers who survived by smuggling are now reduced to borrowing. Officers’ wives must go into business to support their families.
9/2018: Bureau 39-controlled and army-affiliated trading companies suffer from a lack of business due to the drop-off in the minerals and seafood trades.
11/2018: By now, much of the North Korean mining industry has stopped working. Many coal mines in South Pyongan and the copper mine at Hyesan are idled. It’s the same with the zinc mine at Dancheon, where miners are put on trial for stealing ore and selling it to smugglers. The iron mine at Musan barely functions by selling ore to domestic mills or smugglers. North Korea’s already-decrepit steel mills fail to meet their production quotas. Academic estimates confirm a steep decline, but probably haven’t caught up with its full extent and don’t account for smuggling.
11/2018: A North Korean diplomat and his wife go missing in Italy and may have defected. Nothing in the report links his disappearance to sanctions, but historically, Pyongyang has imposed strict, no-excuses earnings quotas on its agents abroad.
12/2018: Construction slows to a crawl at Kim’s showpiece tourist resorts at Samjiyeon and Wonsan-Kalma because the state can no longer obtain steel beams and reinforcement bars. It pressures its expatriate workers in China to “contribute” more wages to the projects.
2/2019: Production slows in North Korean state-owned factories due to a shortage of raw materials, such as metals from the mines. importers who cannot obtain domestically manufactured goods switch to imported ones from China. At Musan, iron miners skip work and spend their days hauling and smuggling ore.
2/2019: Pyongyang launches a wave of “inspections” of officials, particularly those involved with foreign trade and border control, to root out corruption and confiscate any wealth they’ve earned or embezzled. Even the Guard Command responsible for Kim Jong-un’s security is inspected and purged. This is a significant shift for a state that has previously bought the loyalty of the elites by allowing them to enrich themselves. In the past, it had tolerated a certain degree of graft as long as officials met their quotas.
2/2019: Pyongyang summons its diplomats and their families to return home for ideological examinations and reeducation. Purely my own speculation: this may be a second-order consequence of sanctions affecting diplomats’ ability to meet earnings quotas, or it may be related to the “inspections” of corrupt officials and the search for their hidden slush funds.
3/2019: Trump and Kim meet again at Hanoi. Kim makes sanctions relief his top demand, but the summit breaks up with no agreement. Conditions for those who rely on state wages, from miners in Musan to elites in Pyongyang, continue to deteriorate. Says one trading company executive from Pyongyang, “If this continues, it could become a big problem. There is a lot of discontent.”
3/2019: Following the Hanoi summit, three Ministry of State Security officers posted in Shenyang vanish and may have defected. Their flight may have been motivated by the fear that an inspection team would find the bank accounts where they had hidden “significant amounts of money.” Other North Koreans in China are worried that because of sanctions, they can’t meet the steep earnings quotas imposed by Pyongyang. Days later, another report alleges that their MSS supervisor fled from Pyongyang to China, fearing that he would be punished for the disappearance of the other three. The report hints at other defections or desertions, including from the MSS, since the Hanoi summit ended without a deal for sanctions relief. In some regions inside North Korea, particularly in mining regions, officers in the MSS and the Ministry of People’s Security who aren’t getting steady wages or rations rely on trade and corruption to survive.
4/2019: The number of market merchants falls steeply in Pyongyang and the coal mining region of South Pyongan. State workers no longer receive wages and can’t afford to buy goods.
4/2019: China’s Dandong Port Group, hit hard by the fall in trade with North Korea, goes insolvent and is placed in court receivership. (See this previous post for more information about the port’s financial troubles and legal vulnerability to section 2014 of the CAATSA.)
I’ve said all along that with aggressive enforcement, it would take between one and three years for sanctions to have a serious impact on the regime. That prediction is holding up well, despite my quibbles with the aggressiveness of our enforcement when Glocom and other large money laundering fronts are still operating–probably due to Trump’s personal intervention–and when Treasury still isn’t holding the Chinese banking industry accountable for laundering Pyongyang’s money. Those deficiencies suggest that either Treasury is doing more to get Chinese banks to comply than is known publicly, or that Pyongyang might eventually find a way to adapt and muddle through. The administration focused on shipping and sectoral sanctions instead, and those sanctions are clearly affecting the regime. The oligarchs in Pyongyang, the “core” class, the military-industrial complex, and the enforcers who inflicted so much misery on the poor for so many decades are suffering, too.
I often reflect on how life has been kind to me lately. Once, I was poor and cold; now, I live in comfort and warmth. Once, I struggled to eat enough; now, I struggle to eat less. Once, life was enclosed in the ennui of poverty, isolation, and the prospect of a life lived in dullness and pointlessness; now, life is endlessly interesting. Once, I was alienated and alone; now, I come home to my best friends, including the two best friends I literally made. So if you still haven’t found the good fortune to climb Maslow’s pyramid, I advise you to find someone who looks at you like journalists once looked at Moon Jae-in.
[Video C] 문재인 대통령과 김정은 판문점에서 만나는 순간 외신반응(feat.MPC) / 조선일보 - YouTube
[They gazed into his dreamy eyes and thought they saw their own reflections.]
Or did, until this happened.
The controversy erupted last week after conservative lawmaker Na Kyung-won cited the headline of the Bloomberg story as part of an effort to criticize Moon’s foreign policy after the collapse of U.S. President Donald Trump’s talks with North Korean leader Kim Jong Un. Lee subsequently issued the statement naming Bloomberg and the reporter involved, using a derogatory term referring to ethnic Koreans who work for the foreign press. [Bloomberg]
The topic of the Bloomberg story was how Moon was trying—and failing—to sell Kim Jong-un to a skeptical world as a lovely guy we had all just misunderstood. The rational mind cannot reconcile this view with reality; consequently, Moon’s oleaginous praise and glossing-over of Kim’s crimes against humanity was shaping Moon’s own image far more than it was shaping Kim’s. It was also widening the already-wide split between Washington and Seoul.
This week, the debate over whether Moon is too committed to engagement with North Korea boiled over in a controversy about a Bloomberg news report that called him a “top spokesman” for Kim Jong Un last year.
Moon’s office faced criticism from foreign media associations after ruling party officials used the racially charged term “black-haired foreigner” to personally single out the author of the Bloomberg story – who is South Korean – for being “almost treasonous.”
After days of pressure, the party apologised on Tuesday for using “black-haired foreigner,” while Moon’s office said it would take action if the reporter were “under real threat.” [Reuters]
After this, several Bloomberg reporters received threats from Moon’s supporters. Until then, for almost two years, their fellow journalists had failed us—and failed the cause of Koreans’ civil liberties—when they overlooked ignored Moon’s abuse of libel suits silence his critics and jail his opponents. A few simpered some token complaints at his censorship of “fake news,” but most didn’t, because they didn’t care for the speech or the speakers and had lost sight of the greater danger of censoring controversial ideas. They barely coughed at the silencing of defectors because peace. They still haven’t said a word about Moon’s criminal investigations of campus protest posters. That is how democracy dies in the blazing light of day. But at least they finally spoke up for one of their own.
“It is disturbing for any politician to accuse any journalist of treason – a criminal offence – for reporting on matters of public interest or voicing an opinion. This is a form of censorship and journalistically chilling. Questions or complaints regarding an article should be raised with the publication in question rather than personally and publicly targeting a reporter. South Korea underwent a long struggle to achieve full democracy and the SFCC calls on politicians on all sides to respect the right to freedom of expression and freedom of the press.” [Seoul Foreign Correspondents’ Club, on Facebook]
On March 12, in a National Assembly speech and subsequent comments, the Liberty Korea Party floor leader referred to the Bloomberg article, pointing to it as an example of coverage by the “foreign press” (외신). In response, the ruling Minjoo Party’s spokesperson questioned the reporter’s credentials, her affiliations with foreign media, and referred to her article as “a borderline treasonous act insulting the head of state.” Her Korean ethnicity and the fact that she is based in Seoul have been used to discredit her reporting. AAJA-Asia is disturbed by this rhetoric targeting a journalist. It is further disturbed that following these accusations, she has faced threats to her personal safety.
Threatening or intimidating behavior towards journalists is unacceptable and needs to stop. Such activities have a chilling effect and undermine the freedom of the press for all journalists working in Korea. AAJA-Asia urges everyone engaging in this discussion to respect the right to freedom of expression and freedom of the press. The statements from the involved parties have also highlighted some misconceptions in how foreign media are perceived in Korean media. Some have referred to “the black-haired foreign reporter” (검은머리외신기자), which implies that there is something abnormal about a Korean reporter’s role as a member of the foreign press corps. [Asian-American Journalists’ Association]
The words that ignited the party mouthpiece off characterized Moon as “a de facto spokesman singing [Kim Jong-un’s] praises.” In retrospect, the reporter might have made it clearer that she was characterizing foreign perceptions of Moon. I’ve found that characterization to be an almost universally held view on Capitol Hill, regardless of party. It is also widely held inside our government, at least by the people who talk to me.
After days of controversy, the spokesman issued a non-apology for his remarks, and the Blue House issued a token affirmation of freedom of the press. Journalists moved on, but this time, they could not fail to notice the ugly ethno-nationalism that motivated the ruling party’s rage against this heretical journalist, implying that her ethnicity burdened her with a duty to portray the government in a favorable light. But even this criticism may have missed the spokesman’s most disturbing—and revealing—criticism.
The DP then cited parts of the ethics code of the Journalists Association of Korea, saying Korean reporters were responsible for following the principle of fairness and contribute to peaceful reunification, national reconciliation and the restoration of national homogeneity. Bloomberg is not part of this association. [Joongang Ilbo]
This is only partially true, but the truth is bad enough. From the JAK’s introductorypages, one can see that it leans left and favors what it calls “journalist exchanges to promote peace and reunification of the Korean Peninsula,” which is both hilarious and tragic because it implies belief that the North Koreans its members met were, in fact, journalists. Its Code of Ethics says nothing about “peaceful reunification, national reconciliation and the restoration of national homogeneity,” but does talk about freedom of the press and the rejection of outside pressure that might threaten it. Its Korea Press Association Code, however, says, “We strive for the peaceful reunification of our country and the restoration of homogeneity of the nation.”1
Just how disturbing you find those words to be depends on how they’re applied in practice and enforced by the state. And in this case, the “Democratic” Party cited it to enforce the idea that ethnic Koreans must obey the ruling party’s agenda to achieve “peaceful reunification, national reconciliation and the restoration of national homogeneity” by suppressing criticism of Kim Jong-un and those who would appease him. I could restate the significance of this, but why say it twice? And note well that the villain and victim of this part of the story is Park Geun-hye.
Pyongyang has repeatedly demanded that Seoul muzzle or censor political criticism of it as the price of peace. The second of the 2000 inter-Korean agreement’s eight points required the two sides to “work for mutual respect and trust in order to overcome differences in ideology and system.” Seoulobliged, and used the police forces of a nominally free and democratic society to enforce the point against the few troublemakers — and there were very few of them, most of them defectors — who protested against the North.
* * *
In 2014, Seoul agreed to Pyongyang’s proposal that each state should cease its “slander” of the other, as part of a deal allowing family “reunions” — in reality, short visits with relatives, often people abducted by the North, under the close supervision of North Korean minders. It was never clear exactly how the two sides would define “slander,” or whether Pyongyang would interpret this as an agreement by Seoul to censor criticism of Pyongyang by private South Korean citizens or activist groups. (Pyongyang prefers vague agreements. It can interpret them freely at moments of opportunity.) [Me, in 2016]
The duty of a journalist is not to serve the state, a party, a leader, or a race. It is to find important facts and report them accurately. It is to give the people of a free society the means to see the truth and make decisions about the governance of their country. The duty of a journalist is to serve truth.
[I found this picture of Na Kyung-won on her Facebook page, so I’m pretty sure no one will sue me for using it.]
But journalists still paid little attention to the ruling party’s vicious attacks against opposition leader Na Kyung-won. Ruling party lawmakers threatened her with an ethics investigation and a “disciplinary hearing,” even though her words were arguably true. One ruling party lawmaker even compared Na to a Nazi—and worse yet, Shinzo Abe. South Korean columnist Kim Jin-kook pointed out that right-wing dictator Park Chung-hee used similar tactics against its own opponents in the 1970s, including future President Kim Young-sam. And this is not the only example of Moon’s government and party—we’ve recently seen the Blue House outsource its most vicious attacks to the “Democratic” Party—behaving like authoritarians. Here are the latest ones:
The Korean Communications Commission moves forward with new plans to tighten internet censorship of social media, including YouTube videos alleging a North Korean role in instigating the Kwangju uprising. Even lawmakers who try to argue the facts of this event—which is of almost incalculable significance in modern Korean history—draw petitions of strip them of their seats in the National Assembly, or an “ethics” investigation and unspecified “punishment.”
A former Environment Minister is accused of blacklisting and trying to fire civil servants who criticized the Moon administration or were appointed under former President Park Geun-hye. The prosecution sought a warrant for her arrest, but the court refused to grant it. Moon and his supporters had accused former President Park of blacklisting left-leaning artists in the decisions about who would receive government grants.
Kim Seung-min, who survived both North Korea and cancer and still broadcasts dissenting views into his homeland, alleges that South Korean government officials offered to fly him to Washington to participate in North Korea Freedom Week 2019, on the condition that he not say anything critical of Moon administration’s agreement with Kim Jong-un at Panmunjom last year. Kim told them to fuck off, which is also what he told Kim Jong-un and cancer. Ditto Park Sang-hak, who survived an assassination attempt inside South Korea in 2012.
You may still call Moon Jae-in a “liberal,” but only if you rely on the sort of journalism that has always ignored the ample evidence that the Korean left is nothing of the kind. And you may still call South Korea a free society, but only if you’re either extraordinarily obtuse or have an extraordinarily fluid definition of the word “free.” A democracy that many of us went to Korea to defend is dying. It is good that journalists have exhibited some solidarity with the freedom of their colleagues. They would do better to show more solidarity with the principle of free speech itself.
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1. One can also find othercodes of ethics online from competing Korean journalists’ organizations.
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At the heart of the First Amendment is the recognition of the fundamental importance of the free flow of ideas and opinions on matters of public interest and concern. “[T]he freedom to speak one’s mind is not only an aspect of individual liberty — and thus a good unto itself — but also is essential to the common quest for truth and the vitality of society as a whole.”
Even before he was inaugurated, South Korea’s “liberal” President, Moon Jae-in, began nibbling at the margins of free speech, prosecuting the unpopular, censoring the powerless, and hearing only sporadic and token mewlings of concern from his journalist admirers. Having found this much fit for consumption, he is now hacking off thick chops from its body. On Monday, the semi-official Yonhap News Service reported that South Korean police are investigating this on-the-nose April Fools’ Day parody of a North Korean propaganda poster, satirically using a name almost identical to that of the pro-North Korean former student group, Chondaehyop.1 The poster, of course, is actually a satire of Moon, his appeasement of the world’s most oppressive tyrant, and his disastrous economic policies.
It’s not North Korea by a long shot, but it’s not a free society by a long shot, either. It’s sort of “south North Korea.”
Police said Monday they were informed about the posters by school officials who collected them and called 112. Officers retrieved CCTV footage to track down the suspects and said they would determine whether the posters were a libel case. The far-right group probably won’t be charged for breaching the National Security Law for now, police told reporters, because the posters did not praise the North. [Joongang Ilbo]
Whether you agree with the criticism should bear no relevance to any defender, on the left or the right, of Koreans’ freedom of expression. The economy and North Korea policy are issues at the heart of South Korea’s once-vibrant political debate. And for those with even a passing familiarity with current South Korean events or North Korean propaganda, this satirical list of theses has moments of brilliant satire, profound insight, and off-putting excess–all of which should be debated openly. Read the whole thing at Tara O’s blog. I’ll just quote a part of her translation:
South Korean People’s Mother-Father President Moon Jae-in crushed the dirty self-employed and small business owners’ hideous pursuit of profit and established the law of the traditional four classes of society (scholars, farmers, artisans, and tradesmen) with his miraculous income-led growth; forever gave time off to the youths who had groaned under hard labor with his minimum wage increase; and when “JeokpaeIlbaeJahandang” [jeokpae (accumulated evil) Ilbe (conservative website) Liberty Korea Party (Jahandang, an acronym for the main opposition party)] displeased the feeling of the Great Power [China] using fine dust as an excuse, prevented South Korean dust from damaging China by defying the west wind [wind from the west; China is west of Korea] through vehicle control and various regulations, thereby restoring Sinocentric order by currying favor with the Great Power and correcting China-South Korea relations.
By dismantling the nuclear power plants, he made the South Korean people realize the importance of energy and made everyone shut off lights even at home and caused a candlelight revolution; discontinued three major military exercises with U.S. forces in Korea, which are the main obstacle to revolution; disarmed South Korea by dismantling the five forward deployed infantry divisions, giving up the Northern Limit Line, blowing up GPs [guard posts at the DMZ], and removing anti-tank barriers and Han River barbed wire fence. [Taro O]
Parody has a long tradition as a peaceful weapon of public debate, from the earliest days of our republic, to Swift’s parody of English heartlessness in the face of the Irish famine, to Thomas Nast’s parodies of Boss Tweed. Chief Justice Rehnquist, writing for the unanimous Court, quoted an article arguing for the importance of protecting even speech that offends the powerful: ”The political cartoon is a weapon of attack, of scorn and ridicule and satire; it is least effective when it tries to pat some politician on the back. It is usually as welcome as a bee sting, and is always controversial in some quarters.” That principle has gained wide acceptance in our society, and in all free societies.
The People vs. Larry Flynt (7/8) Movie CLIP - The Supreme Court (1996) HD - YouTube
The parody posters of Moon Jae-in are not just squarely within the kind of political speech that the laws of most democracies guard from both powerful and petty authoritarians. They also fall squarely within Korea’s own tradition of the political poster as a medium of dissent, and of the college campus as a venue for dissent. That is only fitting and proper, given that the next class will graduate into record-high youth unemployment, and a society where their democratic avenues to demand change are narrowing to a vanishing point.
The People vs. Larry Flynt (4/8) Movie CLIP - The Price of Freedom (1996) HD - YouTube
Incidentally—and I feel the need to say this because there are people in Twitter who lie without compunction, or who don’t much care what the truth is—I’vearguedconsistently for well over a decade that the National Security is overbroad and should not be used to punish non-violent speech, even when the speech is explicitly pro-North Korean. I’ve opposed the abuse of defamation suits by the right as well as the left. After 30 years of democracy, the time has come to let the Korean people speak, hear, and think for themselves—in both South and North. If South Koreans can’t resist the allure of North Korean propaganda by now, God save them, because neither censorship laws nor the U.S. Army can. So for today, OFK will be a free speech wall for the ideas the censors don’t want you to read–ideas you never would have read had the censors not tried to extinguish them in the first place.
1. Chondaehyop was a violent, pro-North Korean, anti-American student group that is believed to be responsible for an arson attack at a U.S. cultural center, botched firebombings of the U.S. Embassy and its Consular Annex, the occupation of the U.S. Ambassador’s residence, and the murder of a suspected police informant. Until 1989, its leader was Im Jong-seok, who would later go on to be President Moon’s Chief of Staff for a year and a half. Chondaehyop’s successor organization, Hangchonryon, also carried out multiple violent demonstrations and firebombings at U.S. military installations in Korea before, during, and after my tour.
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In December, I was a panelist at this event at the American Enterprise Institute. You can read the transcript here, or watch it on video here. In my remarks, I tried to put the censorship of South Korea’s left and right into that country’s recent historical context, noting the signs that left-wing leaders who emerged from a nominally pro-democracy movement were now engaging in a strategic and systematic campaign to silence defectors, vloggers, and political critics through internet censorship and defamation suits. The Korean Embassy sent its resident propagandist to that event to denounce this as “fake news,” a phrase that Donald Trump has sown in the lexicons of authoritarians everywhere. You can see me harangue him near the end of the event, after each panelist speaks and after Professor Sung-yoon Lee’s more extended comments.
“During the year there were reports that government authorities contacted North Korean refugees and asked that they withhold their criticism of the North Korean government in advance of the Winter Olympics. In other instances North Korean refugees were reportedly contacted and asked not to participate in public-speaking engagements that might be perceived as critical of the Moon administration’s engagement with North Korea.”
“Under the election law, the government may limit the expression of ideas that the National Election Commission deems to be false.”
“In mid-October the Unification Ministry refused to accredit Chosun Ilbo journalist Kim Myeong-sung, who had planned to cover north-south ministerial talks at Panmunjom. The ministry cited safety concerns and the potential effect of Kim’s ‘active reporting’ as ‘special circumstances’ in the ministerial context.” Me: State’s comment here should have mentioned that Kim appears to have been excluded because he is a refugee from North Korea. When asked, South Korea’s Unification Minister refused to say whether this meant that defector-journalists could no longer cover inter-Korean talks.
“The government and individual public figures used libel and slander laws, which broadly define and criminalize defamation, to restrict public discussion and harass, intimidate, or censor private and media expression. The law allows punishment of up to three years in prison for statements found to be ‘slander’ or ‘libel,’ even if factual, and up to seven years for statements found to be false…. The Suwon District Prosecutor’s Office was investigating the wife of Gyeonggi Provincial Governor Lee Jae-myong for allegedly posting defamatory comments on social media before the 2017 presidential election. Police claimed she wrote comments against President Moon Jae-in, then her husband’s rival in the Democratic Party, in December 2016.” Me: The Korean right would do much to reduce its overdraft of credibility by defending the views of someone it disagrees with politically, but this may be too much to ask.
“The [National Security Law] criminalizes actions interpreted to be in support of North Korea or otherwise against the state. The government used this law to arrest and imprison civilians, deport foreigners, and disband political parties. The Supreme Court ruled the NSL constitutional in 2015. As the government engaged in talks with the DPRK, NSL-related investigations into positive media coverage of the DPRK appeared to decline. For example, in December a prominent KBS nighttime talk show, ‘Tonight, Kim Je-dong,’ interviewed Kim Soo-geun, who headed a pro-Kim Jong-un group and praised the North Korean leader as a “capable and talented leader.” While many conservative members of the National Assembly criticized KBS for this segment, at year’s end none of the parties involved in the interview had been arrested or investigated.” Me: Park Geun-hye surely knew she would not have gotten away with this. Moon is confident that he can, because he knows that adoring liberal journalists gaze into his dreamy eyes and see their own reflections.
“The KCSC blocked 143,681 websites from January to September. The vast majority of blocked sites involved pornography or gambling; 8,063 sites, including many North Korean propaganda sites on YouTube channels and Twitter accounts, were blocked under the NSL. Although viewing websites praising the DPRK regime is lawful, disseminating information about those websites, including posting links to those sites, is unlawful under the NSL…. The KCSC determines whether posts made on social networking sites, such as Twitter and Facebook, or in chat rooms, contain unlawful content, defined as harmful or illegal speech. If the government finds prohibited materials, it has the authority to warn the user. If the prohibited content is not removed, the user’s account may be blocked.”
“As the government engaged in talks with the DPRK, defector organizations reported coming under direct and indirect pressure from the government to reduce their criticism of North Korea. This pressure allegedly included, for example, the termination of 20 years’ funding support for the Association of North Korean defectors in December 2017, police blocking groups’ efforts to send leaflets into North Korea by balloon, and police visits to organizations and requests for information on financial and other administrative matters.”
As the Joongang Ilbonoted, State Department reports have not cited South Korea for this sort of conduct in the recent past. For a while, I saw a relative lag in reports of politically motivated libel suits or state censorship. I even began to wonder if our criticism had given Moon’s government some pause. It now seems that this was merely the passing of the storm’s eye.
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In 1986, Congress passed the Comprehensive Anti-Apartheid Act by a vote that was overwhelming, if not quite so overwhelming as the margins by which later congresses would pass North Korea sanctions. I still have a vague memory of when President Reagan vetoed anti-Apartheid sanctions and took his plea for “constructive engagement” to the American people, making many of the same arguments that the left would make generations later to support “engagement” with Kim Jong-un. Congress, unpersuaded then as now, overrode Reagan’s veto, and the Act became law. The law itself wasn’t much to behold legally—some hortatory statements of policy, well-meaning but marginal benefits for the victims of Apartheid, narrow trade sanctions (Krugerrands, military sales, computer exports, tourism promotion), and bans on U.S. government investment in, and procurement from, South Africa. But the embarrassment of a veto override weakened President Reagan. It also convinced South Africa’s white oligarchy that unless it abolished Apartheid, stronger sanctions were sure to follow. My memory of this is much clearer—I worked in South Africa during the summer (winter there) of 1990, when F.W. DeKlerk had already put South Africa on an irreversible path to dismantling Apartheid, and most whites grudgingly accepted that he had no other choice.
[1986: Congress votes to override President Reagan’s veto of sanctions against South Africa.]
Donald Trump’s chaotic and disgraceful public declination to enforce what would have been “maximum pressure” has, if nothing else, instantly clarified that his pressure on His Porcine Majesty is not remotely maximum. This is particularly frustrating, coming as that pressure, for all its limitations, shows increasingly clear signs of affecting North Korea’s economy and elites. I won’t present all of my evidence for that contention here, but I’m not alone in asking why Kim Jong-un made sanctions relief his only demand at Hanoi if sanctions aren’t pressuring him. Just as I’ve said for years (defying the academic and journalistic consensus) that sanctions could work, I’ve also said for a year (defying the same consensus) that the pressure wasn’t maximum when Glocom still has the run of our banking system and the Bank of China launders Kim Jong-un’s money with impunity. Weekly, it seems, members of Congress from both parties are expressing their frustration that this President isn’t enforcing the law. Trump’s action last week can only embolden Congress in its rising impatience to overthrow the President’s policy. Trump’s timing undoubtedly boosted one such effort—the BRINK Act, co-sponsored by Senators Van Hollen and Toomey. I have enough text in my computer now to pile the President’s desk with bills for the duration of his term.
There may not be just one reason why our pressure isn’t maximum, although our #Floridaman presidency is surely the most important of them. The incompetence of Treasury Secretary Steven Mnuchin and his effective grant of immunity to China’s corrupt and lawless banks is another. The under-resourcing of Treasury’s North Korea sanctions effort must also be attributed to the same cause. There is also evidence of mismanagement and infighting in Treasury that precedes Trump and Mnuchin. This detailed, deeply sourced story about the Financial Crimes Enforcement Network, or FinCEN, offers an unflattering interpretation of its moral and factional battles with the Office of Intelligence Analysis. Treasury’s own Office of Inspector General isn’t as harsh, but for those accustomed to reading OIG reports, it’s troubling. The latest unflattering press report targets Undersecretary Sigal Mandelker, who exhibited none of these unpleasant personality traits described on the single occasion when I met her. But for whatever reason or combination of reasons, people at Treasury sound demoralized and are leaving for high-paying jobs in the private sector, even as Treasury’s workload is increasing. This is what’s known as a “death spiral.”
One traditional way for Congress to bend the executive branch to its will is to pile reporting requirements on the agencies. This isn’t a particularly effective tactic, because if an agency doesn’t have enough people to do the work as it is, adding more time-consuming reporting requirements will only mean that the agencies have fewer man-hours to spend executing the laws. A better way would be to put “not-less-than-$” language in the State and Treasury Department’s appropriations, to force them to spend more of their appropriations on North Korea sanctions enforcement. The last several congresses didn’t do this, mainly because the foreign affairs and appropriations committees didn’t seem to have sufficiently clear and open lines of communication to coordinate such a strategy. (Silos between committee staffs are Congress’s most under-appreciated institutional weakness; the staffers’ ridiculously low pay and job instability are the others.)
Of course, Congress’s sanctions laws assume the existence of a rational president who faithfully executes the law and appoints officials who are both willing and able to administer it. They give the President the authority to enforce sanctions through the International Emergency Economic Powers Act, Chapter 53 of Title 31 (which includes section 311 of the Patriot Act), and a myriad of regulations Treasury has promulgated under those authorities. But what if those laws and regulations cease to function as Congress intended, due to a combination of under-resourcing, mismanagement, and incompetence?
Theoretically, Congress has the authority to impose sanctions even when the President won’t. It’s right there in article I, section 8 of the Constitution: “The Congress shall have Power … [t]o regulate Commerce with foreign Nations, and among the several States.” Not only is Congress’s power here explicit, it’s joined to the interstate commerce clause, which the Supreme Court has broadened dramatically since the 1950s, to give the federal government the authority to enforce civil rights laws in the segregated South. It can pass news laws that, by substituting “shall” for “may,” can ban North Korea from U.S. financial systems directly and deny the President the authority it does not trust him to exercise. One example of this would be a travel transaction ban that would preemptively destroy any prospect for the Samjiyon and Wonsan-Kalma projects to be profitable. Because Kim Jong-un is building those projects with tens (if not hundreds) of thousands of slave laborers, this would have both financial and political consequences for Kim’s misrule.
Of course, someone will still have to enforce these new laws. How can Congress effectively do the work that a huge Treasury Department bureaucracy is supposed to do? Several strategies come to mind. The IEEPA and Title 31 aren’t the only authorities that allow the government to enforce sanctions. There are other authorities in Title 18, the Criminal Code, that allow the FBI and the Justice Department to pursue sanctions violations criminally—typically as money laundering, bank fraud, or conspiracy—or through the civil forfeiture laws. Most of these charges, of course, require predicate offenses, such as violations of the IEEPA. Another such predicate prohibition is the North Korea Sanctions and Policy Enhancement Act, which we grafted to the civil forfeiture and money laundering laws to allow Justice to seize, freeze, and forfeit funds directly from correspondent accounts. That strategy has been tested in court, and it works. We designed the law this way because most of North Korea’s enablers never touch U.S. soil and would otherwise be completely beyond the reach of the feds.
If you’ve been paying attention, you’ve noticed that the Justice Department isn’t pulling its punches against North Korea. DOJ values its prosecutorial independence as much as Donald Trump loathes it. Even before Donald Trump and Steve Mnuchin made Treasury the weak link in “maximum” pressure, the FBI and Justice went to work, using the NKSPEA’s civil forfeiture authorities to chase and confiscate the funds of North Korea’s partners in proliferation and money laundering. DOJ and FBI are now the unsung heroes of maximum pressure. They’re maintaining this pressure with a fraction of the staff that OFAC and FinCEN could potentially dedicate to sanctions enforcement. Because Justice has limited prosecutorial resources, it can only afford to pursue the bigger, fatter targets rather than playing whack-a-mole against small-time ones, as Treasury has done for the last year. DOJ’s actions require higher standards of proof in court, but also tend to have greater impacts than Treasury’s recent designations. If so, it stands to reason that Congress should shift limited budget resources from the parts of government that aren’t working and require the approval of an incompetent president (Treasury) to the parts of the government that are and don’t (FBI and Justice).
This may also require Congress to do legislatively what Trump won’t do administratively. For example, Congress could pass a law prohibiting U.S. persons from facilitating any transaction with a person who was designated on, say, March 31, 2019, under an applicable executive order, for transactions involving the Government of North Korea. To avoid ex post facto considerations, the penalties could mirror the existing penalties that apply under the IEEPA today. By making this law a “specified unlawful activity” under the money laundering statute, Congress could give the Justice Department the power to reach, freeze, and forfeit violators’ assets. Those whom it could not jail, it could still bankrupt. It could also legislate a flat criminal prohibition on knowingly facilitating transactions with the Government of North Korea within U.S. jurisdiction. Something like that prohibition already exists now, because of North Korea’s designation as a state sponsor of terrorism.
Congress could also legislate (or require the Secretary of the Treasury to impose one or more of) the Special Measures in Section 311 on any financial institution that fails to conduct due diligence against North Korean money laundering. We forget that not all of those Special Measures block a bank out of the financial system entirely. Some impose “enhanced due diligence” and reporting requirements to their transactions, which by themselves raise bank’s operating costs, and harm its reputation, credit rating, and stock price. Congress might give the Treasury Department waiver authority for banks that demonstrate by clear and convincing evidence that they’ve cleaned up their acts.
Eventually, Congress could even claim the power to designate persons, but only within some careful limits to avoid running afoul of the Bill of Attainder Clause. If Congress has the power to regulate foreign commerce, and if it also has the power to conduct investigations (something Congress routinely does through its committee staffs, or the General Accountability Office), there’s no legal reason why the foreign affairs oversight committees in the House and Senate couldn’t self-appropriate and build their own sanctions investigative infrastructure to supplant OFAC. Congress certainly has the power to issue subpoenas, if necessary, but there is already enough information in the outstanding reports of the UN Panel of Experts, Justice Department filings, and credible NGOs like C4ADS and RUSI, to keep a small staff of experts busy recommending designations for years. Legally, this is tricky because the Bill of Attainder clause says that Congress can’t directly impose criminal-like punishments on a specific person or an articulable list of persons, but Congress can impose reasonable regulatory limits based on sound and neutral administrative reasons. The courts will review a bill of attainder question on its particular facts. The key question will be whether Congress intended to punish for prior acts or implement “a legitimate regulatory scheme” to prevent future misconduct.
I imagine the system would work roughly like this: (1) a new GAO division identifies “substantial evidence” that a foreign person should be denied access to U.S. commercial and financial systems; (2) GAO refers that evidence to the Treasury and the Justice departments; (3) unless the Treasury Secretary returns a waiver within 45 days finding, by clear and convincing evidence, that the target has come into compliance with the law, the target’s ban from U.S. commercial and financial systems goes into effect. After that, the ban remains in effect until repealed. (Congress can’t apply a similar forcing mechanism to any sort of judicial action. That would interfere with the Justice Department’s prosecutorial discretion.) Why make this body a new GAO division? Because GAO staff have pay scales and job stability comparable to executive branch employees, which would allow the new division to attract and keep top-notch talent. No sane person with a family and children is ever more than a wave election or a #MeToo scandal away from defaulting on his mortgage. That’s a topic that deserves its own post.
This strategy would entail a significant, long-term revocation of constitutional, statutory, and budget authority from the presidency to Congress. It would be another example of how Trump’s presidency seems likely to diminish the power of future presidents. It would not be the first time in American history that power has shifted between the political branches. It’s not the familiar way we’re used to enforcing sanctions in this country. It certainly isn’t conventional. Now convince me it’s unconstitutional.
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A mysterious February raid on the North Korean embassy in Madrid now looks to have been the work of Chollima Civil Defense, also known as Free Chosun, the first documented North Korean resistance organization since the immediate aftermath of the Korean War. What recently looked like a small band of plucky dissidents may soon pose a serious threat to Pyongyang’s survival. How can this be so, when Chollima has no demonstrated presence inside North Korea itself? Because Chollima’s raid targeted the financial and political vulnerabilities that hide behind Pyongyang’s image of military strength. By raiding the North Korean embassy in Madrid, Chollima stands to strike body blows against both vulnerabilities.
For a first major operation, the Madrid raid was impressive. It was brazen and imperfectly executed, but ultimately succeeded in making off with computers and mobile phones that could contain a windfall of intelligence and kompromat. It appears to have been carefully planned. The raiders knew what they wanted, got it, and got away. They had enough resources to obtain (and later, abandon) “two luxury vehicles” they used to flee the scene. And presumably, the Spanish Police are not amateurs, but a professional force with decades of experience chasing Basque terrorists.
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On several levels, it is not surprising that a left-leaning Spanish newspaper, El País, initially blamed the raid on the CIA. The Russian propaganda outfit Sputnik was spreading that theory before El País printed it. Whoever has read “Homage to Catalonia” or the story of Alexander Orlov knows how long the Spanish left has been exploited by Russian spies. And superficially, the actions of a well-planned and well-resourced operation do point to the assistance of a professional intelligence organization.
But other aspects of this theory never quite added up. First, the execution of the raid during the Hanoi summit would suggest an intent to frustrate, rather than to support, U.S. policy objectives. This argument will do nothing to persuade left- and right-wing conspiracy theorists who harbor a Jason Bourne world view, but intelligence officers are no different than other federal bureaucrats — afraid of being fired or disciplined, as prone to political bias and tribalism as bureaucrats anywhere else, and fearful of being ratted out by dissenting or disgruntled colleagues. Plotting to invade a foreign consulate in violation of the Vienna Convention would be a very big risk, and would probably require presidential approval. And while it doesn’t strain the limits of plausibility to imagine such an operation as a dark-of-night “black bag job” by one or two highly trained intruders, doing it in broad daylight seems implausibly conspicuous for an agency that can presumably eavesdrop on that embassy as it is.
It’s fair to note that Chollima has previously thanked diplomats from several foreign governments, including the U.S., the Netherlands, and Taiwan, for their help in rescuing Kim Jong-un’s nephew, Kim Han-sol. But aiding Chollima’s rescue of someone as sympathetic as this young man is one thing; knowingly assisting in the planning or execution of a raid on a foreign embassy is another. For what it’s worth, Chollima denies having any foreign help with the Madrid raid. It has not publicly claimed responsibility for the raid, but did hint at it:
On Feb. 25 the website posted a statement saying the group had “received a request for help from comrades in a certain Western country” and that “it was a highly dangerous situation but (we) responded.” The group said an important announcement would be coming that week, but no details of any operation have been released. [Reuters]
A more intriguing line of inquiry is how Chollima might have found the financial and operational resources to plan an operation of this kind without foreign help. Between 2014 and 2016, several North Korean money launderers defected in various places in Europe and Russia. So did several high-ranking officials in the North Korean intelligence services, and a number of North Korean hackers, including a group of ten who defected in China in early 2017. One recent report even claims that U.S. intelligence got its hands on one of their servers. Consider the collection of assets and skills these defectors possessed: bank account numbers, access to large amounts of money, expertise in how to move and hide it, contacts with other North Koreans who might be wavering or disloyal, knowledge of how to plan and execute complex intelligence operations, and enough knowledge of information technology to set up a web site and conceal who runs it.
An example that combines several of these skills is Chollima’s sale of “G-Visas” to those who make financial contributions to it in Bitcoin — another skill that North Korean hackers and money launderers have perfected (start at paragraph 109). Delectably, the appeal offers a “Limited issuance of 200,000 anonymous blockchain visas to visit Free Joseon (previously North Korea) upon liberation.” Previously — I like the sound of that. I have no information to suggest how many (if any) of those defectors joined up with Chollima, but its web site publishes a number of testimonials it claims are from defectors it rescued. If even a few of these highly skilled money launderers, intelligence officers, and hackers are assisting Chollima, they could have carried out an operation at this level of sophistication with little outside help.
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The fact that the raiders wanted computers and cell phones also hints at Chollima’s tactical goals. Those computers and phones will contain contacts to recruit and exploit, emails to read and post online, and bank accounts to drain. Documents Chollima posts online could be immensely embarrassing — and potentially, incriminating — to its bankers, business partners, spies, and sympathizers. They could provide invaluable leads for law enforcement. They could be equally invaluable to prosecutors in proving that North Korea’s enablers in the banking industry or export businesses acted with the requisite intent to violate sanctions or launder money to promote other illicit activity. Major money laundering, intelligence, and influence operations from New York to Kuala Lumpur could be compromised and shut down. The raid and its secondary consequences will also sow mistrust among North Korean diplomats and agents abroad. North Korean counterintelligence is probably already deciding who to call home to interrogate about “inside job” theories. That mistrust will get effective operatives called home and killed. Others, who may already be wavering, will choose not to go home, just as Thae Yong-ho did.
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But if Chollima’s greatest immediate threats to Pyongyang are operational, legal, and financial, its words pose a far greater political threat in the long term. A few days after the Madrid raid, Chollima wrote “Free Korea” on the walls of another North Korean embassy, on the other side of the world.
JUST IN: North Korean embassy in Kuala Lumpur defaced with graffiti. First spotted last night, ahead of #KimJongNam trial resuming & South Korean President’s visit. The writing supposedly says “free North Korea…we are rising up”. And “Down with Kim Jong Un”. pic.twitter.com/u9nV7ZpV7v
Word of the Madrid raid will be big news in South Korea. That means it will also find its way back into North Korea, just as word of Kim Jong-un’s mishandling of the Hanoi summit did. This news will inspire intense and desperate hope among North Korea’s latent dissenters. They will not only learn that others share their dissent, but also that members of the elites, no less, have organized to launch a low-level global insurgency against the state. Chollima’s words are powerful. Read its inspiring March 1st declaration of a government in exile, on the 100th anniversary of Korea’s March 1st uprising against the Japanese occupation.
One hundred years ago on this day, our ancestors spoke into being a Korea independent and free, calling on their compatriots to rise and overthrow a system of wanton oppression and intolerable indignities. Risking their lives, they heralded a new era of enlightenment: one in which women and men were endowed with certain unalienable Rights, and a fair and just nation would protect and provide for the welfare and happiness of all Koreans, in harmony with the Peninsula’s neighbors.
This great task remains unfinished. On this very day tens of millions of our fellow Koreans remain enslaved by a depraved power, ruled by a corrupt few made wealthy by the toils of many, building its capacity for unimaginable destruction, presenting a smile and an open hand to the willfully blind who surmise that, with only the right words and tribute, such entrenched totalitarianism might be charmed into surrender.
We the People of Joseon, indict this immoral and illegitimate regime:
For the devastating starvation of millions, despite the ability to feed them;
For government-sponsored murder, torture, and imprisonment;
For overwhelming surveillance and thought-control;
For systemic rape, enslavement, and forced abortions;
For political assassinations and acts of terror around the world;
For the forced labor and stifled potential of our children;
For the enforced poverty of body, mind, and opportunity;
For the development and distribution of modern weapons of great destruction, shared and sold to others who would also use them towards cruel ends;
For even still a great many compounding iniquities.
For decades we hoped for rescue, while our families were held hostage. We watched powerful and wealthy nations ignore our pleas, and enrich and embolden our tormentors. We gazed at incredible feats of prosperity and developments to the south, hoping that with their rising strength they would remember their sisters and brothers left behind by history. [Chollima Civil Defense]
That news will also find its way back to North Korea. Most North Koreans who read these words will still feel isolated and terrorized, but perhaps a few will find the courage and inspiration to conspire and organize. A world that has failed the people of North Korea, that has failed to act to stop the crimes committed against them, has no moral standing to deny them the right to rise in their own defense. At best, it can counsel them that rising too suddenly or too violently against the state may have the effect of consolidating, rather than loosening, the loyalty of regime officials who will have to change sides to end those crimes. For now, I wish Chollima all the luck in the world at stealing back the money that Pyongyang has already stolen from the people. That’s why this raid could do grave political and financial damage to Pyongyang, both abroad and at home. It probably won’t be the last, either.
Kim Jong-un must be furious and terrified. No doubt, he has already dispatched every officer the Reconnaissance General Bureau can spare to hunt down the raiders, wherever they are. That makes it doubly unfortunate that our Treasury Department has been derelict in its legal duty to freeze the assets of the massive RGB money laundering network known as Glocom. It’s not the only such network that continues to enjoy access to the U.S. banking system, but it’s the biggest one funding the agents who will stop at nothing to snuff out this brave little resistance group. Within weeks of the March 1919 uprising, little remained of it but a government in exile. But great things have small beginnings. Pray for the safety and success of this brave little band. If they can cripple the regime abroad and inspire the people at home, they may become our best hope for a free and peaceful Korea.
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The U.N. Panel of Experts has released its latest report, and for the first time since it began publishing them in 2009, it is now investigating South Korea for violating the sanctions. One area the Panel is looking into is its imports of North Korean coal for ten months, in violation of UNSCR 2371, while its Coast Guard dragged out an “investigation” of those imports, allowed the smuggling ships to come and go freely without seizing them, and later charged a few small-time scapegoats.
37. The Panel continued its investigation of prohibited coal exports by the Democratic People’s Republic of Korea in 2017 via transshipment35 through Russian Far Eastern ports, including Kholmsk.36 On 10 December 2018, the Republic of Korea indicted four of its nationals and five commodity trading companies for illegally importing coal and pig iron (see table 1). The motive reportedly cited by the Public Prosecutors’ Office was “profit from arbitrage, using the fact that the prices of North Korean coal and other materials are low due to their difficulty to be traded internationally”.37
This may not be the full extent of South Korea’s imports of North Korean coal, either:
35. The Panel’s investigations into coal brokering and export chains highlight the significant amounts of revenue for the Democratic People’s Republic of Korea as well as profit for commodity traders seeking commissions or arbitrage from such deals. The Wise Honest shipment was worth $2,990,000, according to its contract (see annex 17). Regarding the shipment’s export documentation and brokering chain, Indonesia stated that it had recovered “cargo documents and clearance received from a Russian cargo ship intending to conduct an STS transfer around Balikpapan waters in East Kalimantan”. The Panel requested further clarification and/or documentation, which has not been received to date. Indonesia also named a company of the Republic of Korea, Enermax, as the “final destination/recipient of the coal upon the STS transfer of the coal in Balikpapan” (see annex 16). On 3 December 2018, Enermax informed the Panel that it had been investigated by its national authorities and that there was no import of coal.31 The contract for the shipment named the sellers as Hong Kong Nova International Trade Company, an entity selling cigarette-manufacturing machinery. The company informed the Panel that it “had no idea where the contract came from nor why it has our company’s seal” (see annex 18).
The Panel also warned Seoul about its exports of fuel to Kaesong without notifying the 1718 Committee (see UNSCR 2397, paragraph 5). The Moon administration risibly claimed was not a violation because the fuel wasn’t really for North Korean use. The Panel is hearing none of it.
13. The Panel sent a letter to the Republic of Korea regarding August media reports of a transfer of petroleum products to Kaesong for a planned inter-Korean liaison office. The ROK replied, “in the process of carrying out the [inter-Korean] projects, the ROK personnel used the petroleum products exclusively for the implementation of the projects, while ensuring that no transfer of economic values to the DPRK occurs.” The ROK explained that “among 338,737 kg of petroleum products used for the implementation of the joint projects from January 2018 to November 2018, 4,039 kg were unused and brought back to the ROK.” The Panel notes that the specific language of paragraph 5 of resolution 2397 (2017) requiring Member States to notify the Committee of any transfer to the DPRK of refined petroleum products is by territory as opposed to possession and does not differentiate between temporary and permanent transfers, or under whose control the items will be after transfer.
In terms of volume and value, this is a de minimis amount of fuel. What Seoul is clearly trying to do here is push the boundaries and test U.S. and UN reactions to this violation, to establish a precedent for progressively larger violations. In rejecting that argument, the Panel is reading the resolutions to mean what they plainly say — that there is no ethnic exemption to the resolutions, and that “to the DPRK” means “to the DPRK.” Moon Jae-in is a lawyer. His government is filled with lawyers and other intelligent people who can read resolutions and obtain competent legal advice. If they’re still violating the sanctions two years into this administration, it can only be because they choose to. The more interesting question is whether they’re motivated by naivete, sympathy, terror, or some combination of these things. Depending on the answer, it suggests that Seoul may already be under Pyongyang’s effective political hegemony.
As I’ve said more than once, if South Korea — the very country the UN’s sanctions are designed to protect — gets away with violating the sanctions, any U.S. appeal to other states to comply with them becomes a punchline. And if no one but us complies with the sanctions, the U.S. won’t have sufficient leverage to slow, stop, and reverse Kim Jong-un’s violations of every norm of human civilization, or to confront his threats to peace and freedom everywhere from Kuala Lumpur to Hollywood to Al-Kibar, without resorting to the use of force. Letting sanctions fail would be a license for Kim Jong-un to nuke up, to proliferate, to assassinate, to steal, to counterfeit, to rape and murder, to starve the poor, to extort and censor Americans in their own country, and ultimately, to dominate South Korea and smother it in fear, poverty, and darkness. Moon Jae-in came into office with the expressed intent to undermine sanctions by reopening Kaesong and Kumgang, putting his government in a direct conflict with core U.S. national security interests. Sanctions have now stopped him from doing that for almost two of his five years in office. With his approval rating now below 50 percent and falling, and with the economy steadily losing altitude, Moon cannot afford to expose his country’s banks and conglomerates to sanctions risks. Here’s hoping our erstwhile allies in Seoul missed their window to betray us.
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