As a United Nations report revealed earlier this month, North Korea continues to dodge international sanctions and raise money for its nuclear weapons program, despite attempts to bar it from the global financial system. The report from the panel of experts charged by the U.N. Security Council with overseeing enforcement of U.N. sanctions on North Korea conclusively shows how Pyongyang capitalizes on an old method of sanctions-busting—smuggling—and a much newer one: hacking. In both cases, its tactics are getting more innovative.
When it comes to smuggling, North Korea’s use of ship-to-ship transfers continues to circumvent sanctions “unabated,” including through previously unreported methods. North Korea has been so successful in importing refined petroleum that the U.N. report said there are no current shortages of gasoline or diesel fuel within the country. Meanwhile, Pyongyang has used increasingly sophisticated cyberattacks “to steal funds from financial institutions and cryptocurrency exchanges,” the report warned, allowing it “to evade financial sanctions and generate income in ways that are harder to trace.” In both cases, North Korea relies on jurisdictions that lack either the will or the ability to stop it.
Despite the Trump administration’s claims of a stringent, international campaign of “maximum pressure” on North Korea, Kim Jong Un’s regime can still shield itself thanks to Russia and China. Both major powers objected to some details in the U.N. report, in part out of fear that it would implicate Russian and Chinese nationals in helping North Korea evade sanctions. North Korea, in a demonstration of what is at stake, launched two projectiles into the sea a week after the report’s release.
Ship-to-ship transfers remain a preferred method for North Korean sanctions evasion, particularly when it comes to smuggling resources like refined fuels, crude oil and coal. North Korea has a geographic advantage: The East and South China Seas are vast areas, and while surveillance from the U.S. and its allies provide a great deal of evidence of North Korean activity, it cannot capture everything. This is especially true as North Korea uses as many ships as possible to avoid detection. As the U.N. report showed, there are no consequences for ships that shut off the transmitters, called Automatic Identification Systems, that would indicate active smuggling operations in the waters close to North Korea. The report also called on both the shipping and commodity industries to look for illicit financial activity, something on which they have lagged far behind compared to international banks.
Perhaps the report’s more sobering revelations revolve around the extent of North Korea’s cyberactivity, which has generated up to $2 billion in topline revenue—an astounding amount of money considering that the country’s gross domestic product in 2017 was estimated at $17 billion. According to information in the report provided by an unidentified U.N. member state, the proportion of revenue that North Korea obtains through the hacking of foreign financial institutions, including cryptocurrency exchanges, has increased relative to its more traditional illicit activities, such as smuggling fuel or luxury goods.
Despite the Trump administration’s claims of an international campaign of “maximum pressure” on North Korea, Kim Jong Un’s regime can still shield itself thanks to Russia and China.
The remarkable details included in the U.N. report include 35 documented cyberattacks on financial institutions across 17 jurisdictions, including 10 in neighboring South Korea alone. North Korean hackers have attacked SWIFT, or the Society for Worldwide Interbank Financial Telecommunication, the communications service for financial transactions used by banks all over the world. They engaged in sophisticated social engineering techniques to trick a Chilean employee of a banking network into downloading malware onto his work computer. Their cyberattacks on South Korean virtual currency providers generated tens of millions of dollars, and North Korean hackers continue to try to exploit new financial technology. In response to all this, the U.N. report recommends that member states ensure virtual currency providers in their jurisdiction follow the same anti-money laundering controls as traditional banks, and that they explore strategies for improving cybersecurity protocols.
North Korea’s continued ability to get around international sanctions seems to belie the Trump administration’s claims that there is in fact a “maximum economic pressure campaign” on Pyongyang. This reality is underscored by the degree to which Russia and China shield their own citizens who are involved in North Korea sanctions-busting activities. Many smaller jurisdictions—from Namibia to Uganda to Singapore to Malaysia—either have financial agents acting on behalf of North Korea within their own borders, or do not maintain domestic regulations that are strong enough to incentivize their own financial institutions to guard against North Korean activity.
However, this doesn’t mean that using sanctions against North Korea, as part of a wider diplomatic effort, is an exercise in futility. For one thing, any effort to close off North Korea’s access to the international financial system, no matter how leaky, is worth it, given its nuclear provocations and threats to international security. An imperfect effort to enforce sanctions is better than no effort at all, and the United States and its partners should be credited for continuously working to make those sanctions more effective.
Additionally, there is still no indication that the North Korean regime has entirely ruled out more negotiations with the United States over its nuclear program, despite their frustration with the Trump administration. North Korean negotiators have prioritized the removal of sanctions, which suggests that, despite how much they are able to get around these financial controls, they still want them eliminated or substantially rolled back as part of a process that leads to further normalization of relations with the United States.
What remains to be seen, as ever, is if the Trump administration has a consistent strategy that is realistic and can produce tangible results. The recent departure of John Bolton as Trump’s national security adviser—apparently over Bolton’s hard line toward Pyongyang, among other foreign policy disagreements—may suggest an openness, at least temporarily, to expedite a new round of diplomacy that goes beyond another made-for-TV summit.