Shining a light on North Korea’s illicit shipping and sanctions evasion practices

Lee Kok Leong, our special correspondent, interviews Mathew Ha, research analyst at the Foundation for Defense of Democracies, on Pyongyang’s illegal maritime tactics to evade sanctions.

Lee Kok Leong, our special correspondent, interviews Mathew Ha, research analyst at the Foundation for Defense of Democracies, on Pyongyang’s illegal maritime tactics to evade sanctions.  The Foundation is a Washington DC-based nonprofit, nonpartisan research institute focusing on foreign policy and national security.  Mathew’s research includes North Korea’s illicit financing, human rights, the U.S.-Korea alliance, and inter-Korean relations.

Mathew Ha

As 90 percent of global trade involves maritime transportation, North Korea is constantly seeking new ways to exploit this global supply chain for its benefit, with proceeds going towards advancing the country’s nuclear and missiles production, funding the lifestyles of elites, propping up the economy, and for personal gains.  As Pyongyang sees these streams of revenue as vital to its survival, the regime has developed a number of novel but illegal tactics and a complex web of entities to enable it to evade the sanctions imposed by the UN and US.

Maritime Fairtrade (MFT)What are the various North Korean maritime tactics designed to evade US/UN import and export sanctions?

Foundation for Defense of Democracies (FDD): The various maritime tactics employed by North Korea includes frequent changes to the identity of vessels by flying foreign flags of convenience, frequent changes to the names of vessels as well as frequent changes to vessel ownership and management. 

However, more recently, other tactics that have become more frequent include manipulation of the automatic identification system (AIS) used to show where vessels are travelling. AIS manipulations allows vessels to avoid detection in order to travel to ports or meet other ships to conduct transactions. 

Additionally, ship to ship transfers, which are now banned by UN Security Council resolution 2375, continues to be a common tactic. There have been several accounts provided by the governments of Japan, the US, Australia, and several others of North Korean ships transferring sanctioned goods, such as oil and coal, to other ships that would travel then to ports to offload this cargo. The UN Panel of Experts also included this evidence in its most recent report. 

In addition, this same report by the UN Panel revealed a new tactic for North Korean maritime tools. Specifically, North Korea have now been using new larger barge and bulk-carrier vessels to reduce the number of trips, conduct direct delivery services, and potentially to even reduce the need for ship-to-ship transfers. However, this new development does not mean the North Koreans will stop conducting ship-to-ship transfers of sanctioned goods, according to the Panel’s evidence in its latest report.

MFT: In your opinion, are these illicit tactics successful in evading sanctions?  How important are these illicit tactics to Pyongyang?

FDD: Based on the evidence from the UN Panel, I would assess the North Korean government is successful in evading sanctions through these various tactics. This obviously is of crucial importance for Pyongyang as it seeks to generate revenue amid the major sanctions campaign against it for not just its nuclear weapons and ballistic missile programs, but also the regime’s human rights violations and other issues. 

However, these methods alone surrounding maritime sanctions evasion are not the only components of Pyongyang’s revenue generating schemes. The North Korean regime also explore sanctions busting schemes through several other sectors. For instance, Pyongyang still benefits from banks and financial institutions around the world allowing Pyongyang to access the international financial system to conduct illicit transactions that fuel this sanctioned maritime trade and other activities, such as arms trade and luxury goods sales. 

Beyond this, the Kim regime is utilizing its state-backed hackers to conduct cybercrime against virtual currency exchanges and other traditional financial institutions to make money on behalf of the regime. Moreover, maritime sanctions tactics are only one of many tools that the Kim regime employs to undermine the UN sanctions aiming to change the Kim regime’s behavior. 

MFT: What are the roles played by the Chinese and Russian governments?  In your opinion, why do you think they are complicit in these illegal dealings?  

FDD: The Chinese and Russian governments have been recently known to be obstructing the reporting process of the aforementioned UN Panel of Experts investigating North Korean sanctions enforcement. News articles quoting former members of this UN Panel have shared several examples of Russia and China obstructing the reporting process due to its concerns over evidence that likely showed sanctioned activities going on in their countries. 

Also, in the latest Panel report, the Annex includes a series of emails exchanged between the US, Russian, and Chinese panel members disputing the legitimacy of evidence that underscore the delays in this process that China and Russia initiated. 

Regardless, the evidence and analysis that have made it into all the UN Panel reports on North Korean sanctions consistently suggest that Chinese and Russian entities and individuals have been helping North Korea conduct illicit trade and financial activities that would suggest that Beijing and/or Moscow are turning a blind eye towards sanctions evasion activity within their countries. 

In turn both governments have used their position in the Security Council as well as this Panel of Experts to prevent certain pieces of evidence being included in the report as well as delaying the publication of the entire report itself to avoid any blame.

China’s motive in essentially turning a blind eye towards North Korean sanctions evasion activities and repeatedly denying the Chinese government’s role in these schemes is because it prefers maintaining the status quo on the Korean peninsula and enabling Kim Jong Un’s regime stability. China is likely concerned that maximum enforcement of sanctions could spark a major economic crisis in North Korea that leads to domestic instability. 

For Beijing, political unrest inside North Korea could pose major short-term and long-term challenges to Chinese national interest. For example, in such domestic crisis scenario for North Korea, the immediate concern would be a massive outflow of North Korean refugees across the Sino-North Korean border, which would have destabilizing impact on Chinese economy and security. 

Also, Beijing’s long-term concern for any North Korean instability is that such crisis may see the US and South Korea seek to forcefully reunify the Korean peninsula under their leadership. China has valued North Korea as a strategic buffer zone that curbed the US’ influence that brought it closer to the doorstep of China. 

However, any chance to reunify the peninsula could see China have the U.S. gain another foothold in the region. Consequently, the Chinese government has more to lose by enabling North Korea’s economy to suffer more.

Russia likely has similar motives to Beijing for enabling these sanctions evasion activities to reduce US and allied influence over the Korean peninsula. In addition, Russia also benefits economically from certain sanctions activity, such as enabling North Korean overseas workers in its Far Eastern regions. This goes against UN Security Council resolutions that required all member states to repatriate North Korean overseas workers back by the end of last December.

MFT: Besides sanctions, what else do you think the US and international community can do?

FDD: Besides just imposing new sanctions designations, the important outstanding issue is better enforcement of the existing measures. The UN Panel provides several important recommendations that could help reduce North Korea’s chances in successfully carrying out its various tactics at the maritime level. 

Specifically, flag registries, especially of nations in which North Korea/North Korea-linked vessels have flown, could play a key role by sharing information about suspect vessels and companies that could be linked to North Korean sanctions evasion. As UN Security Council resolutions 2375 and 2397 provide member states with guidance and requirements to seize and inspect possibly suspect vessels, this shared information will be critical. 

While it has been helpful for this UN Panel as well as governments of the US, Japan, Australia, and others who have exposed North Korean maritime sanctions evasion activities, namely ship-to-ship transfers, the next step is to utilize this information and enforce these UN resolutions by seizing vessels that have been found to have committed such activity.

MFT: If the US and the international community is unable to effectively counter Pyongyang’s illegal maritime trade, what is your assessment of the costs and risks to the global economy? 

FDD: Considering my research focus is more on security, foreign policy, and strategy rather than the global economy, my best answer to the question is that the greatest cost to not effectively countering North Korea’s illegal maritime trade will be North Korea gaining a significant boost to its asymmetric security assets, namely its nuclear weapons program. 

Sanctions were meant to impose the necessary costs to change Kim’s behavior. Forsaking enforcement and enabling Pyongyang’s access to revenue will not only help the regime build more weapons, but could alter the dynamic of its relations with its adversaries in Washington and Seoul. 

The development of more advanced capabilities such as long-range missiles, the ICBM, or more advanced nuclear warheads will definitely further embolden those in Pyongyang to conduct more provocative actions and impose far greater threats against the territorial U.S. or against US allies in the future to not only ensure regime survival, but also extort its adversaries South Korea, the US, Japan and elsewhere.

Kok Leong Lee

Kok Leong Lee

Kok Leong, executive editor, has overall editorial responsibility for the direction and focus of Maritime Fairtrade. He has two decades of working experiences, including holding senior regional roles in business-to-business (B2B) print and online publications. He enjoys his work as a journalist, and regards it as a calling.

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