How North Korea Evades Sanctions in Southeast Asia: The Malaysia Case
By Daniel Salisbury and Endi Mato, Diplomat 1/8/17
Aug 1, 2017 - 11:55:57 AM
Two companies with links to Pyongyang and Malaysia reveal how North Korea can skirt international restrictions.
In the weeks after North Korea’s intercontinental ballistic missile (ICBM) test, senior U.S. State Department official Ambassador Joseph Yun traveled to Southeast Asia, seeking to persuade regional governments to further clamp down on North Korea’s activities. Yun visited Singapore to participate in the Northeast Asia Cooperation Dialogue, and later visited Myanmar.
These countries have seen significant cases involving North Korean illicit activities in the recent past. Singapore was host to a significant proliferation financing court case related to the giant interdiction of North Korea-bound weapons in the Panama Canal in 2013. The case against Singapore-based Chinpo Shipping collapsed in May this year. Until recently, Myanmar has been a significant customer of North Korean arms. It has worked to curb its reliance as part of broader economic and political change, and a “nonproliferation U-turn” since 2011.
However, these two countries are by no means the only states in the region that have seen significant North Korean activity. Following the assassination of Kim Jong-nam (Kim Jong-un’s estranged half-brother, who was assassinated with nerve agent VX earlier this year at Kuala Lumpur airport), North Korea watchers and sanctions experts have turned their attention to North Korea’s relationship with Malaysia.
Two cases uncovered by investigators surrounding Malaysian-based companies Glocom and Kay Marine seemingly involve North Korea’s use of Malaysia to breach the UN arms embargo.
Malaysia: Balancing Economic Development and Nonproliferation
Malaysia first officially recognized North Korea in 1973, concurrently establishing their trading relations. Bilateral relations were strengthened by the opening of their respective embassies in 2003, followed by a rare reciprocal visa-free travel arrangement. More recently, their diplomatic relations have come under significant strain since Kim Jong-nam’s assassination in February.
Malaysia – like many states in Southeast Asia – has traditionally been wary that strategic trade controls could harm economic development (see this 2000 State Department cable for example). Limited export control regulation before 2010 saw proliferators act with impunity. Malaysia played a direct role in the A.Q. Khan network, with Khan’s closest associate BSA Tahir operating out of the country, as well as companies working to produce centrifuge components for the Libya deal. As a former Malaysian export control official notes, despite its important role in Khan’s Libya deal, SCOPE did not break any laws in Malaysia at the time.
In the late 2000s the Obama administration expressed concern – especially in relation to Iran – that “Malaysia was becoming the ‘new Dubai’ for illicit traders.” Six years after the Khan revelations and the passage of UNSCR 1540 – a UN resolution making export controls mandatory – Malaysia put in place the Strategic Trade Act (STA) in 2010. This established a more comprehensive export control system, including coverage of conventional arms. Despite improvements, there are still limitations: the Financial Action Task Force noted in its 2015 review of Malaysian anti-money laundering and counterterrorist finance controls that Malaysia still has significant technical gaps in the implementation of targeted financial sanctions, such as long delays in transposing new UN designations.
Malaysia and the Arms Embargo: Glocom and Kay Marine
UN reports in 2013 and 2016 suggested that the country had been used as a meeting venue, and traveled through, by North Korean arms dealers. However, more details of North Korean business activities in Malaysia have emerged in two cases in the past few months.
A February report by Reuters highlighted the activities of Glocom, a case that concurrently featured in the 2017 UN North Korea panel of experts report. In the UN report, Glocom is said to be a “Malaysia-based company” advertising “radio communications equipment for military and paramilitary organizations.” While not officially registered in Malaysia, two Malaysian registered companies (established in 2005 and 2012) were said to be acting on its behalf. The UN report describes Glocom as a “front company of the Democratic People’s Republic of Korea company Pan Systems Pyongyang Branch (Pan Systems Pyongyang).”
Malaysia was mainly used by Pan Systems Pyongyang as a “base for its key representative abroad.” There is also suggestion that Malaysia played a role as a transshipment or transit hub, with a shipment of radio gear being seized on route to a phantom end user in Thailand in 2011. The network was active recently – with a new Glocom website advertising new products in January 2017, and the seizure of Glocom radio equipment on route from Beijing to Eritrea in July 2016. A recent Glocom brochure alleged that the company takes $10 million annually from transactions in over 50 markets.
A second case involved Kay Marine, a boat builder sanctioned by the U.S. State Department in 2016. Despite no signs of North Korean connections in registry documents, the open source record suggests otherwise. A 2011 YouTube video, after a few minutes of marketing benign civilian vessels, appeared to turn into a fully-fledged marketing video for North Korean-designed military craft. Included were a variety of torpedo boats, semi-submersible vessels, and a Yono-class miniature submarine.
Although the full activities of Kay Marine are unclear, together the 2016 sanctioning, the 2011 promotional video, and statements by the company management of collaboration with North Korea in the mid-2000s suggests that Kay Marine has likely marketed arms on behalf of the country. The relationship could possibly have gone beyond marketing, as the MD spoke of collaborating on the “manufacture of assault boats” in 2007. While there is evidence that Kay Marine marketed arms, and suggestion of possible collaboration in manufacturing, there is no hard evidence to link the vessels in the video with Malaysia.
Lessons for Sanctions
The Glocom and Kay Marine cases highlight a reality that is well documented – North Korea has continued to profit from marketing arms and related military equipment despite extensive UN arms embargo and sanctions. Our colleague Andrea Berger’s 2015 study Target Markets shows the breadth of North Korean arms sales and relationships, and highlights some of the means by which the country’s networks have operated.
The two cases illustrate many of the sanctions evasion methods that North Korea has long used for doing business. Glocom in particular was noted by the UN Panel to demonstrate the “increasingly sophisticated nature of evasion of sanctions” by the DPRK. North Korea was able to:
establish a company in a third country, building up significant international recognition, including through participation in prominent regional arms fairs and by selling high-end arms and related materiel in multiple countries.
The Kay Marine case, although the details are still limited, suggests that North Korea likely uses existing companies in third countries to market arms.
Both companies present a seemingly credible façade obscuring North Korean involvement. Glocom exhibited at the Defense Services Asia arms fair for the third time in 2016 alongside a “who’s who” of international defense companies. In 2014 Kay Marine – just two years prior to its sanction by the United States – signed a AU$2 million contract with the Australian government.
Are there more Glocoms and Kay Marines in Malaysia or elsewhere? Likely so.
Most crucially, both cases have highlighted the power of open source intelligence techniques. Significant information was found by non-government investigators about these illicit activities by trawling open sources and connecting the dots. Kay Marine’s YouTube video provides a sense of how open source materials – hidden in plain sight – can potentially provide a smoking gun as well as broader context.
Yun’s trip to the region is the latest in a long history of efforts to curb North Korean revenue-generating illicit activity. It comes at a time when U.S. President Donald Trump’s efforts to pressure China to deal with the North Korean issue appear not to have borne fruit. These recent Malaysian cases pay testimony to the sophistication of North Korean activities and the challenges of countering them.
Source: Ocnus.net 2017