China Steps Up Efforts to Undermine U.S. and U.N. Sanctions Against N. Korea

The single most important provision of U.N. Security Council Resolution 1718, for which China cast a disingenuous “yes” vote, is the provision that requires member states to “ensure” that funds flowing into North Korea are not used for its WMD programs. Similarly, Resolution 1695 requires states to “exercise vigilance” against efforts to fund U.N. sanctions. Now, in the wake of U.S. Treasury sanctions that have put the North Korean regime under unprecedented pressure to meet its disarmament obligations, China is moving to undermine those sanctions by letting North Korea move its assets freely through Chinese banks in Yuan.

China has begun a system which will allow companies and people from North Korea to open bank accounts in China to settle business transactions in yuan, Japan’s Nikkei business daily reported on Sunday.

The new system, which the Nikkei said marked an effective relaxation of sanctions enacted against the North after its October 2006 nuclear test, was jointly developed by the People’s Bank of China and the State Administration of Foreign Exchange, Beijing sources familiar with the matter were quoted as saying.

It is unprecedented for China to create such a system aimed at a specific country, the Nikkei said. [Reuters]

You might wonder exactly what North Korea has done recently to warrant a relaxation, as opposed to an intensification, of economic pressure. Would it be the nuclear disclosure they refuse to provide, their new round of threats to nuke Seoul, their ongoing counterfeiting of dollars, or their latest public executions?

The actual answer, of course, is that China is desperate to prevent the North Korean regime from collapsing before or during this summer’s Olympic games, and if massacring Tibetans, bullying the UNHCR, and cleansing its empire of refugees aren’t hurdles before China’s ruthless pursuit of a dissent-free Olympics, then why should a few forgotten U.N. resolutions be? The result could be that China saves the world’s most repellent regime from the consequences of its own behavior (not that China’s true feelings about that behavior are in serious doubt).

There are several things the United States could and should do about this, but probably won’t. First, keep in mind that most North Korean overseas assets are probably comingled with the proceeds or instrumentalities of illicit activity. Moving or even handling such funds is known as . Thus, Treasury could reopen its investigations of Chinese banks that were reportedly suspected of laundering North Korean funds and even helping to finance its nuclear program as of 2005. If the investigations show that Chinese banks are failing to show due diligence in preventing North Korean entities from laundering money, Treasury should invoke Title III of the USA PATRIOT Act, including the dreaded Section 311, against participating banks.

Another, slightly softer, approach would be to invoke Executive Order 13,382 against any Chinese bank that deals with a North Korean entity suspected of participating in North Korean WMD production. Treasury has published a list of those entities here, but arguably, Bureau 39 of the Korean Workers’ Party should also be sanctioned, as it has been inextricably involved in buying and selling WMD and WMD components, and in selling missiles to fund nuclear weapons production.

Invoking Executive Order 13,382 against Chinese companies would not be unprecedented.