Treasury Sanctions Increase Pressure on North Korea’s Global Shipping Network

Treasury Sanctions Increase Pressure on North Korea’s Global Shipping Network

Mathew Ha
23rd February 2018 - FDD Policy Brief

Today, the Treasury Department issued its “largest North Korea-related sanctions tranche to date” against 27 entities, 28 vessels, and one individual tied to Pyongyang’s shipping and trading network. The U.S. also issued a global advisory on North Korea’s deceptive shipping practices. This is the second set of sanctions issued in the midst of North Korea’s Olympic charm offensive, which began with Kim Jong Un’s New Year’s address and seeks to undermine the White House’s maximum pressure campaign.

Today’s sanctions target 16 North Korean shipping companies and 19 of their North Korean-flagged vessels, as well as nine non-North Korean shipping companies along with nine of their vessels. As the UN Panel of Experts recognized how North Korea significantly relies on non-North Korean companies to facilitate their revenue generation, today’s sanctions serve as a strong benchmark in designating more foreign companies helping North Korea in the future. The non-North Korean sanctioned companies and vessels have been facilitating North Korean coal exports and engaging in UN-sanctioned ship-to-ship transfers of refined petroleum products. The income from such activities funds Pyongyang’s nuclear weapons and missile programs. The Japanese government recently shared evidence that North Korean ship-to-ship transfers continue in the East China Sea despite the UN prohibition in Resolution 2375.

Treasury also designated a Taiwanese national, Tsang Yung Yuan, and his two companies, Pro-Gain Group Corporation and Kingly Won International Co., Ltd, for enabling North Korean sanctions evasion activity. For instance, in 2017, Tsang and his company Kingly Won sought a $1-million oil deal with a U.S.-designated Russian entity, Independent Petroleum Company (IPC). Treasury had sanctioned IPC and its subsidiary company, AO NNK-Primornefteproduct, for signing a contract to provide oil to North Korea and shipping over $1 million worth of petroleum products to North Korea.

In addition to today’s sanctions, Treasury, the State Department, and the U.S. Coast Guard issued a global shipping advisory with detailed information on North Korea’s deceptive shipping practices. The advisory highlighted North Korean tactics such as physically altering vessel identification, conducting ship-to-ship transfers, falsifying vessel and cargo documents, and disabling or manipulating the vessel’s automatic identification system (AIS) transponders. To counter these practices, the advisory suggested specific measures that could prevent North Korea and its enablers’ collective effort to “circumvent existing sanctions compliance controls.” Finally, the advisory warned North Korea’s foreign enablers of the penalties and fines they risked by not complying with U.S. and/or UN sanctions.

The next step for the administration is targeting Chinese banks that play an essential role in facilitating sanctions evasion. Unless it targets those banks, the U.S. will not come close to its stated objective of putting maximum pressure on North Korea.

Between 2009 and 2017, Chinese banks processed at least $2.2 billion of transactions through the U.S. financial system for North Korean entities. In November 2017, the Trump administration issued its final rule identifying the Bank of Dandong as a primary money laundering concern for serving as “a gateway for North Korea to access the U.S. and international financial systems.” The administration should move to the next level by issuing fines against Chinese banks – similar to U.S. actions against European banks for Iran sanctions violations in 2012-2015 – to highlight the systemic problem inside China’s banking sector and force China’s leadership to increase pressure on Pyongyang.

Treasury’s action today signals the Trump administration’s commitment to the maximum pressure policy and is a warning that firms, banks, and governments cannot do business with both North Korea and the U.S. The Trump administration’s maximum pressure campaign should continue until Kim Jong Un decides to denuclearize.

Mathew Ha is a research associate at the Foundation for the Defense of Democracies, focused on North Korea. Follow him on Twitter @Matjunsuk

Follow FDD on Twitter @FDD. FDD is a Washington-based, nonpartisan research institute focusing on national security and foreign policy.