At Last

Obama’s Sanctions Finally Hit North Korea Where It Hurts—in China

If Washington can get solid cooperation from Beijing, even reluctantly, that may help keep Pyongyang’s nuclear wolves away from the door.

10.03.16 5:00 AM ET

The Obama administration may have found a way to contain North Korea.

Just about everyone says sanctions don’t work. That’s exceedingly misleading. Sanctions have not worked simply because they have not been enforced. Now, Washington looks like it’s getting serious.

At the end of last month, two U.S. agencies hammered China’s so-called “accidental sanctions breaker,” and Beijing took notice.

Specifically, on September 26 the Treasury Department’s Office of Foreign Assets Control added Ma Xiaohong, three co-workers, and her company, Dandong Hongxiang Industrial Development Co. Ltd., to its list of Specially Designated Nationals. By doing so, Treasury imposed sanctions on the listed parties for ties to North Korea.

The action against Hongxiang was the first time the Obama administration imposed secondary sanctions on a Chinese firm for dealings with the North’s nuclear weapons program.

Treasury’s notice contains no explanation for the designations, but North Korea sanctions expert Joshua Stanton told The Daily Beast that the sole reason for the designations was their help to Korea Kwangson Banking Corp., itself under sanctions, which is laundering money.

On the same day, the Justice Department announced the unsealing of indictments of the same four individuals and Hongxiang for various crimes including “conspiring to evade U.S. economic sanctions and violating the Weapons of Mass Destruction Proliferators Sanctions Regulations through front companies.” The indictments allege the laundering of money for Pyongyang through the U.S. financial system.

The Justice Department also initiated a civil forfeiture action to recover money in 25 Chinese bank accounts.

The U.S. actions came after two American prosecutors traveled to Beijing to lay out the case against Hongxiang, starting with Ma and her three associates. Since then, China has cooperated, for instance by beginning its own police investigation of what it termed “serious economic crimes.” Authorities have also detained Ma and prevented suspects from leaving the country.

Yet Beijing has exhibited a noticeable lack of enthusiasm for prosecuting the culprits identified by Washington. Most notably, the Chinese Foreign Ministry immediately criticized the American indictment and sanctions. Said spokesman Geng Shuang at the regular news briefing on the 27th, “If any country tries to exercise ‘long-arm jurisdiction’ by enforcing its domestic laws over China’s enterprises and individuals, we are firmly opposed to that.”

“That’s rich,” Joshua Stanton, the sanctions expert behind the One Free Korea site, said. “China is really claiming a unilateral right to misuse our financial system, to threaten our security, break our laws, and violate UN resolutions.”

As Stanton points out, those selling materials and components for Pyongyang’s weapons program demand dollars. All dollar-denominated transactions clear through the U.S. financial system. That means the U.S. government “has a right and duty to ensure that its financial system isn’t misused.”

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And Beijing should not complain too much because, even after this latest move, the Obama administration is giving China a pass on particularly egregious conduct. For instance, the Justice Department’s press release announcing the forfeitures of the Chinese bank accounts stated, “There are no allegations of wrongdoing by the U.S. correspondent banks or foreign banks that maintain these accounts.”

The Wall Street Journal noted in a September 29 editorial that this would seem to signal that Chinese banks “are untouchable.”

 banks have long been deeply involved in handling funds in connection with North Korea’s illicit commerce. But recently have they begun to cut ties in anticipation of U.S. enforcement actions.

Bank of China, China Merchants Bank, and Bank of Dandong stopped doing business with North Koreans. Moreover, Industrial and Commercial Bank of China, China’s largest financial institution, reportedly froze accounts of North Korean customers in Dandong, the Chinese trading hub across the Yalu River from the North.

There are many more Chinese firms to go after. Ma’s business is considered a small fry. The South China Morning Post calls her an “accidental sanctions breaker” because she was pulled into helping the Norks “against her will.”

According to a “source” speaking to the Hong Kong newspaper, she was undone by a $30 million receivable. “When Ma kept pressing them for the outstanding money, the North Koreans suggested Ma import chemicals like aluminum oxide for them,” the unidentified party told the paper, which increasingly carries Beijing’s line. Aluminum oxide is used in processing fuel for nuclear devices.

Ma’s company is not the only one that sold the Kim regime materials and components for Pyongyang’s nuclear weapons program. David Albright of the Institute for Science and International Security said this spring cylinders of uranium hexafluoride, vacuum pumps, and valves crossed the Chinese border into North Korea.

And the weapons commerce might include more important items. Bruce Bechtol of Angelo State University has raised the possibility that the missile launched by a North Korean submarine on August 24 is based on China’s JL-1.

“If one looks at pictures of the JL-1 and compares them to the ‘new’ North Korean submarine-launched ballistic missile, the two look very similar,” he told The Daily Beast. “In addition, based on the limited data we have from the North Korean tests, the specifications appear to be very similar.” And as he points out, Pyongyang’s technicians do not have the technology to develop a solid-fueled, two-stage sub-launched missile “completely on their own.”

North Korea could have procured the missile directly from a Chinese manufacturer, from Chinese middlemen, or from a third country that got it from China. Yet the least likely option is that Kim Jong Un’s technicians built a similar looking missile on their own.

As Charles Burton of Brock University told me last week, Beijing, by supporting proliferation—or at least allowing it to continue—“appears to be forcing a crisis on the Korean peninsula by renewing its support for the Democratic People’s Republic of Korea just as it gets closer and closer to perfecting development of nuclear weaponry that forms a credible threat to the U.S. mainland.”

Kim Jong Un is perhaps three years from developing the capability to land a nuke in the lower 48 states. He has two launchers that can get there—the Taepodong-2 and the KN-08/KN-14—and all he needs now is the warhead. His technicians already have a nuclear device for their shorter-range launchers, like the intermediate-range Nodong, so he can’t be far off from incinerating the American city of his choice.

Clearly it’s urgent for Washington to act in a way that gets the Chinese to take action. The September 26 sanctions, indictments, and forfeitures are good first steps, but they are not enough in and of themselves. As RAND’s Andrew Scobell told me, they are “a signal to China that Beijing needs to do much more.”

At this late date, Washington needs to do more than just send coded messages. The U.S. has to overcome what Scobell correctly calls Chinese “policy inertia.”

That exists in American policy circles as well. In Washington, there remains reluctance to confront the complicity at the highest level of the Chinese political system, even in the face of evidence of Beijing-approved sanctions busting.

For example, Sino-Korean trade, which dropped off after the adoption of UN sanctions in early March, has now returned to pre-March levels. Moreover, sanctioned North Korean vessels are now regularly loading and unloading at Chinese ports. Beijing is also allowing luxury goods, which the regime uses to reward loyal followers and which are under sanction, to go across the border unimpeded.

It’s not that Washington does not have the means to push China in a better direction. Bob Corker, chairman of the Senate Foreign Relations Committee, notes the administration “has barely scratched the surface when it comes to using all of the tools at its disposal.”

Last week, a senior State Department official, Daniel Fried, told one of Corker’s subcommittees that the administration is going after other Chinese companies. That’s good, of course, but it is hardly sufficient. The Obama administration needs to be willing to understand Chinese intentions and put American security before Beijing’s sensitivities.

After all, if some U.S. city ends up a smoldering heap of radioactive rubble after being hit by a North Korean nuke, it will not do for an American president to say “I could have stopped this, but I didn’t want to anger the Chinese.”