Plan B Watch: Treasury Targets 100 Suspicious N. Korean Accounts Worldwide

According to multiple newspaper reports published since late last week, the Obama Administration’s new asset-freezing campaign against North Korea began in earnest in June. The Treasury Department, having identified about 200 accounts worldwide suspected of storing the proceeds of banned weapons sales, currency counterfeiting, counterfeit cigarettes and Viagra, proliferation, drug trafficking, and other things that all sovereign nations to do pay for yachts for their despotic rulers.

Treasury focused on 100 accounts where its evidence was strongest and quietly persuaded the banks holding those accounts to freeze them. In contrast to the approach applied in the case of Banco Delta Asia, Treasury approached these banks quietly and got their more-or-less voluntary cooperation — and given the conspicuous example of BDA, who wouldn’t cooperate? (FYI to the Hankyoreh: the amount frozen in North Korea’s BDA accounts was $25 million, not $250 million. Not that the Hanky’s reporting on North Korea reveals much accuracy, insight, objectivity, or any of the other qualities one looks for in journalism.)

Reading between the lines of the stories, Treasury appears to be going after patterns of large cash deposits and withdrawals, of the sort that would require the filing of a Suspicious Activity Report if conducted in an American financial institution. A common example of a suspicious activity would be a low-level employee of a North Korean diplomatic mission making a large cash deposit, or purchasing, say, a quantity of Omega watches out of all proportion to his likely salary.

The banks in question are variously reported to be in Africa, Asia, the Middle East, Europe, and Russia, whose organized crime industry is said to be helping Kim Jong Il launder his money. One account in Liechtenstein was apparently exposed by an employee and whistleblower. The Chosun Ilbo also reports (below) that the South Korean government has identified 10 to 20 suspicious North Korean accounts in its banks. (And I can only hope that the Calderon and Massie plaintiffs are reading this.) At least one entity in China, a Hong Kong-based trading company, is also a reported target.

The stories are too full of interesting detail, some of them slightly varying with each other, not to blockquote at great length. Overall, however, the stories are detailed and consistent enough to suggest that someone in the administration has been directed to speak to the Korean press on background. While the South Korean newspapers are reporting on the asset-freezing campaign extensively, there is surprisingly little coverage of this level of detail in American newspapers. The Washington Times speaks generally about the need for tightening sanctions against North Korea, with quotes from Nick Eberstadt, Bruce Klingner, Kim Kwang Jin, and Chuck Downs.

You can read the longer quotes below the fold. Collectively, they suggest that the administration is making the kind of comprehensive effort that is needed here, and which should have the desired (to me) effect of starving the “palace economy” of cash. And while the cessation of illicit activity and proliferation isn’t a bad thing in itself, the reports say little more about the greater purpose of this. Which, I suppose, is fine for the time being.

From the Joongang Ilbo:

The United States has already begun quietly freezing assets in North Korean accounts at about 10 banks around the world, diplomatic sources familiar with the situation told the JoongAng Ilbo yesterday.

On Tuesday in Seoul, U.S. Secretary of State Hillary Clinton said the U.S. would levy additional sanctions on North Korea for the March sinking of the Cheonan.

“The U.S. Treasury Department and intelligence authorities began looking into about 200 bank accounts that showed suspicious activities involving North Korea,” an informed diplomatic source said. “Bank accounts used to deposit money earned from the North’s exports of arms, in violation of UN Security Council resolutions 1718 and 1874, were studied, along with accounts used to purchase luxury goods believed to be supplied to the North’s leadership.

Of the 200 suspicious accounts, U.S. authorities narrowed their attention to about 100 and began freezing their assets, the source said. The accounts belong to about 10 banks in Southeast Asia, southern Europe and the Middle East, the sources said. All the accounts were opened and operated under aliases, the source said. [….]

“When the U.S. authorities informed the banks that there were problems associated with certain accounts, the banks quietly froze the assets, making it hard for the media to detect,” the source said. “The assets in those accounts are likely to be money Kim Jong-il needs to operate his regime, so this will deal a serious blow to the North.

“The U.S. began the freezings before June,” the source said. “The moves should be interpreted as a part of new sanctions on the North to hold it responsible for the sinking of the Cheonan.

The assets in those accounts were presumably raised through illicit trade of arms, counterfeiting money, money laundering and drug trafficking, the source said. “In the past, the North deposited money in African bank accounts created under aliases and raised through trafficking in elephant ivory, selling of counterfeit Viagra and exporting arms in Africa,” the source said.

The source said the new financial sanctions will be different from what happened in the Banco Delta Asia crisis that stalled the six-party nuclear talks for years due to the North’s protest. Instead of naming and shaming a specific bank as a money laundering institution and pressuring it to freeze North Korean assets, “quiet” moves are now preferred to avoid blowback from Pyongyang, the source said.

Another source confirmed the additional financial sanctions, noting that, “If the charges are very clear, then the Banco Delta Asia method will be used, while the silent method will be used in more ambiguous cases.

Meanwhile, a senior U.S. official said a package of sanctions aimed at stopping Pyongyang’s illegal activities will be announced in the next couple of weeks. In a press briefing in Washington on Wednesday, Assistant Secretary of State Philip J. Crowley elaborated on the fresh sanctions announced by Clinton in Seoul.

“Much of what we’ve done up to this point has centered on proliferation activities that stem from specific authorities,” Crowley said. “We’re moving into strengthening our national steps to attack the illicit activities that help to fund the weapons programs that are of specific concern to us – things like the importation of luxury goods into North Korea, concerns that we have long had about trafficking in conventional arms. So there are authorities that we will strengthen nationally, and we’ll have more to say about that in the next couple of weeks.

North Korea’s counterfeiting of banknotes and cigarettes, diplomats’ smuggling of cigarettes, banking transactions that fund weapons programs and support the government and its policies were named as some of the illegal activities to be tackled under the sanctions.

Crowley also said Robert Einhorn, special adviser for nonproliferation arms control, will soon begin a trip to encourage countries that have been reluctant to implement earlier sanctions, noting that the North has found ways to sidestep the measures.

“They look to see if there are seams and gaps in the international effort,” Crowley said. “That’s what Bob Einhorn is going to be consulting with a range of countries where we think there needs to be more aggressive implementation of Security Council resolutions 1718 and 1874.

Crowley, however, refused to say what Einhorn’s destinations are and if they include China.

“China obviously has a big role to play in this,” Crowley only said. [Joongang Ilbo]

From the Chosun Ilbo:

The U.S. government is tracking 200 North Korean accounts in foreign banks suspected of being linked to illicit activities such as nuclear weapons development, drug trafficking and counterfeiting. “Even before the Cheonan incident, the U.S. was tracking around 200 North Korean bank accounts in banks in China, Russia and even Eastern Europe and Africa that are believed to be involved in the development of weapons of mass destruction and the export of drugs, counterfeit money, fake cigarettes and weapons,” a diplomatic source said Thursday.

North Korean leader Kim Jong-il is believed to have a US$4 billion slush fund stashed away in secret accounts in Switzerland, Luxembourg and Liechtenstein.

According to sources, North Korean bank accounts in Russia are being tracked after the U.S. government obtained information that the Russian mafia is laundering money for the North. Kim Jong-il and other officials cannot engage in financial transactions using their real names, so they are believed to operate secret bank accounts or rely on the Russian mob.

Philip Goldberg, the former U.S. State Department envoy charged with enforcing UN sanctions, visited Russia in August last year and reportedly asked Deputy Foreign Minister Alexei Borodavkin to crack down on the mob for its involvement in laundering money for North Korea.

North Korean accounts held in African banks are being tracked, because the reclusive regime has been earning a substantial amount of money in the region by smuggling ivory and selling weapons. “Despite the UN sanctions, North Korea has opened up new markets in Africa and Latin America,” said one North Korean source.

The U.S. sanctions against North Korea are expected to differ from pressure applied to Macao-based Banco Delta Asia back in 2005. “Rather than freezing the operations of an entire financial institution like BDA by getting the U.S. Treasury Department to blacklist it on suspicion of money laundering, the measures this time will probably involve the tracking of individual North Korean accounts directly linked to illicit activities and freezing them,” a diplomatic source said.

Sanctioning entire banks could prompt North Korea to complain that its legal financial transactions are also being blocked and this could make the lives of ordinary North Koreans even more difficult. This is probably why U.S. Secretary of State Hillary Clinton said these measures “are not directed at the people of North Korea,” but at the “destabilizing, illicit and provocative policies pursued by that government.”

Others say the latest sanctions could be more comprehensive than previous ones by automatically limiting U.S. transactions with all banks found to deal in a certain amount of money with North Korea, rather than singling out particular banks. Under such pressure, banks could voluntarily sever relations with North Korean businesses or individuals to avoid being blacklisted.

The South Korean government has apparently notified the U.S. of between 10 to 20 North Korean bank accounts under suspicion of being involved in illicit deals. There are fears that massive Chinese aid to the North could render the U.S. sanctions useless, but judging from the vehement protests lodged by North Korea when its accounts at BDA were frozen, experts say financial sanctions are an effective means of pressure. [Chosun Ilbo]

Also from the Chosun Ilbo:

The U.S. will freeze North Korean leader Kim Jong-il’s overseas secret bank accounts based on a tip-off from a whistleblower at a state-run bank in Liechtenstein in 2006-2007.

The August issue of the Monthly Chosun said since the North’s attack on the South Korean Navy corvette Cheonan in March, speculation has been rife among North Korea experts in Washington that the Obama administration will freeze Kim Jong-il’s secret accounts in Liechtenstein and Switzerland.

The tip-off from Heinrich Kieber, a former employee of LGT Bank, which is owned by the Liechtenstein royal family, contributed decisively to the U.S. obtaining information about Kim’s secret accounts. According to the U.S. Senate, Kieber said the “head of department in a socialist government” wanted to deposit more than US$5 million “with no explanation in the files whatever in regard to the source of the vast amount.”

The U.S. recently signed a tax information exchange agreement with Liechtenstein which could allow it to freeze bank accounts suspected of belonging to Kim. [Chosun Ilbo]

From the Korea Times:

The U.S. plan to impose new financial sanctions on North Korea will focus on cracking down on its overseas arms sales and the supply of luxury goods to its leadership, according to South Korean intelligence sources, Friday.

Washington is reportedly taking steps to freeze Pyongyang’s secret overseas bank accounts used to deposit money from arms transactions, counterfeiting, money laundering and drug trafficking.

“American investigators have discovered about 200 overseas accounts linked to Pyongyang. It is closely monitoring about 100 of them,” an official from the National Intelligence Service told reporters Thursday, asking not to be named.

“The accounts are in about 10 banks in Southeast Asia, southern Europe and the Middle East and were opened under false names.

Regarding this, Hong Kong’s financial authorities are considering an audit of North Korea’s state-run firms operating in Southeast Asia, including Taepung International Investment Group, whose main mission is to attract foreign investment for the North’s economic projects, another source said.

The probe will focus on revealing whether the firms engaged in illegal deals and stashed slush funds are in violation of U.N. Security Council resolutions 1718 and 1874, which were adopted after the North’s missile and nuclear tests in 2005 and 2009 to ban its arms exports, transactions linked to its nuclear and atomic activities.

“The U.S. sanctions against North Korea will address its illegal and suspicious overseas activities on a wide range of areas,” the Ministry of Foreign Affairs and Trade said in a press release.

“We expect the measures to include stopping the supply of cash earned from arms sales and illegal deals to Pyongyang, banning suspicious figures from travelling overseas and looking into involvement of diplomats in illicit activities.

The U.S. State Department said Robert Einhorn, the envoy on nonproliferation, would travel to Asia in early August to encourage enforcement of the sanctions.

“We would like to see other countries also take the same kinds of national steps that we’ve announced,” spokesman Philip Crowley said Wednesday. [Korea Times]

It looks like at least one economically significant part of China is promising its cooperation:

“Hong Kong will continue to exercise vigilance in enforcing our regulation to effectively implement the United Nations Security Coucil sanctions against DPRK,” Josephine Lo, an official at the Commerce and Economic Development Bureau of the Hong Kong government, told Yonhap News, using the North’s official name, the Democratic People’s Republic of Korea.

“Our law enforcement agencies will take appropriate actions on those found in violation of the laws,” she said. [Yonhap]

And in related news, isn’t it just precious when the North Koreans try to cite a non-binding U.N. presidential statement as authority?

“The new sanctions are in violation of the statement, which encourages the settlement of issues on the Korean Peninsula by peaceful means to resume direct dialogue and negotiation,” said Ri, who is in charge of the disarmament bureau at the North’s Foreign Ministry.

Funnier still, this quote from a member of the North Korean delegation to something called the Asian Regional Forum.

“It will not only pose a grave threat to the peace and stability of the Korean Peninsula, but also of the region,” said Ri.

Hillary Clinton was ready with an answer to that:

US Secretary of State Hillary Clinton on Friday accused North Korea of a “campaign” of provocation as an Asia-Pacific security forum descended into recriminations over tensions on the Korean peninsula.

A North Korean spokesman reacted by warning of a “physical response” to new US sanctions and massive US-South Korean naval exercises due to begin Sunday in the Sea of Japan, accusing Washington of “gunboat diplomacy”. [….]

“Here in Asia, an isolated and belligerent North Korea has embarked on a campaign of provocative, dangerous behaviour,” Clinton said in prepared remarks to foreign ministers gathered at the region’s biggest security dialogue.

“Peaceful resolution of the issues on the Korean peninsula will be possible only if North Korea fundamentally changes its behaviour.” [AFP]

KCNA has since raised the rhetorical ante with calls for a “Korean-style sacred war for retaliation.” Nice of KCNA to supply its own translation, thus removing any question of interpretation and adding extra comical effect.

You know, this may not be the most opportune moment for NoKo Jeans to launch that big market-expansion campaign for its $210 pants. I’d be perfectly content to see them go bankrupt, along with their fellow enablers in Orascom and Koryo Tours.

The bigger question mark is how South Korea can still justify pouring money into North Korea through subsidies to businesses in the Kaesong Industrial Park when other countries’ banks and businesses are being discouraged from dealing with North Korea for the sake of protecting South Korea’s own security. Admittedly, Treasury has identified those other third-country accounts on the basis of the appearance of illegality, but then, no one in the South Korean government can really provide the assurances required in either UNSCR 1718 or 1874 that North Korea isn’t spending its taxpayer-funded Kaesong revenue for its WMD programs. I understand the political reasons why South Korea doesn’t close Kaesong down, but I haven’t understood since October 2006 how it could justify continuing its subsidies to that great failed experiment.