On Saturday, Pyongyang reacted to the Wednesday designation, by the US Treasury Department, of North Korea as a “primary money laundering concern” pursuant to Section 311 of the Patriot Act.
“North Korea is not frightened in the least by the US’s stereotypical method of labeling us as ‘money launders,’ not being content with already branding us as ‘nuclear proliferators,’ ‘human rights abusers,’ etc.,” said a spokesperson for the North Korean National Coordination Committee.
Pyongyang, despite the bravado of the statement, is undoubtedly concerned. The practical effect of the move is that banks and other financial institutions, both American and foreign, will not handle dollar transactions for Pyongyang’s entities and fronts. In all probability, these institutions will also shun dealings in other currencies for these customers.
And Beijing is also concerned. For the most part, North Korean banks plug into the international financial system through Chinese ones. The New York Times recently quoted Andray Abrahamian of Choson Exchange in Singapore, a nonprofit providing training for North Korean entrepreneurs, to the effect that big Chinese banks stopped doing business with North Koreans in 2013.
There is some evidence, however, that the biggest Chinese banks—Bank of China, China Merchants Bank, and Industrial and Commercial Bank of China—kept some of those relationships until early this year, when Beijing apparently ordered them to cut off dealings. Moreover, Bank of Dandong, a much smaller institution at the China-North Korea border, severed its relationships with North Koreans at about the same time.
These and other Chinese banks will lose substantial revenue, in the billions of dollars according to some estimates. It is no surprise, then, that China’s Foreign Ministry immediately complained of Treasury’s designation, which amounts to a unilateral sanction, but these banks will undoubtedly fall into line with Washington’s order, at least at first.
Chinese banks made a show of complying in 2005. Then, Treasury designated Banco Delta Asia, a Macau bank handling North Korean transactions, a money launderer, essentially freezing $25 million. Caught off guard, Pyongyang was forced to use diplomats to ferry cash in suitcases around the world. This time, the regime is thought to be better prepared to handle such a designation, but Treasury’s move will nonetheless make money transfers substantially more difficult.
And North Korea has to be worried about what comes next because the designation suggests Washington is adopting a harder approach toward the regime of Kim Jong Un. Up to now, American policy has been designed “to bring the North to its senses, not to its knees,” as Assistant Secretary of State for East Asian and Pacific Affairs Daniel Russel said nearly last month.
Yet former State Department official Evans Revere, in an interview with NK News published at the end of May, argued that Washington should “take North Korea to the edge and have them stare into the abyss of the possible collapse of their system if they do not return to the negotiating table.” Moreover, Revere, once a tireless advocate of patience toward Pyongyang, said the US is already on that course. “I think there is a lot more coming,” he noted, referring to tougher US actions.
Days later, Treasury proved Revere right.
And there is more the US government can do. The State Department could have added to sanctions on Pyongyang on Thursday if it had re-designated North Korea a state sponsor of terrorism a prior designation was lifted in 2008. State did not do so, however, although some believe there were grounds for a re-designation.
Perhaps the terrorism-sponsorship designation is the next turn of the screw. In the meantime, Pyongyang will have to figure out how to move money around the world without banks. And how to deal with a Washington that, for the first time in years, looks serious about shoving it into the abyss.