Congress Blog

An economic reckoning for North Korea

If insanity, as the saying has it, means doing the same thing over and over and expecting different results, then U.S. efforts to stop North Korea's nuclear weapons program have been madness. For more than two decades, foreign aid and half-hearted sanctions have been deployed in vain to thwart Pyongyang's ambitions, a wait-it-out strategy based on the premise that the North Korean regime is simply too fragile to survive much longer. 

With the country's sixth nuclear test on Sept. 3, along with the July launching of two intercontinental ballistic missiles and the discovery that Pyongyang can now equip them with nuclear warheads, we must take the Kim regime seriously and squeeze North Korea's economy before military confrontation becomes inevitable.

Existing U.S. and UN sanctions are falling short for two main reasons. First, and counterintuitively, they have concentrated mostly on North Korean actors. According to research by Harvard's John Park and MIT's Jim Walsh, North Korea has masked much of its trading activity by moving it beyond its borders, particularly through the use of Chinese middlemen and front companies. This means that effectively sanctioning North Korea must entail sanctioning non-North Korean nationals.

Second, anti-proliferation efforts have relied on sanctions imposed by UN Security Council resolutions, which, at least in theory, are supposed to bind UN members to enforcing them. But as the UN's Panel of Experts concluded earlier this year, member nations' compliance with these sanctions has been so lax that North Korea's retains its access to the international financial system.

The UN resolutions themselves have suffered by leaving out the toughest possible measures: the latest sanctions approved in September, just like a previous round from August, still leave openings for North Korea to get its hands on hard currency.

Yet despite North Korea's creativity in gaining access to finance, the front companies and middlemen it relies on in third-party countries still need banks. Those banks, in turn, use U.S. financial institutions to process international transactions. It's counterproductive for U.S. policy to permit foreign banks to do business in America as well as business that ultimately helps North Korea. It is time for those banks to choose between the two.

Under an Executive Order issued in September, the President authorized the Treasury Department to levy sanctions on foreign banks that finance North Korean trade. This is a crucial step forward, but the U.S. should be ready to widen the net still further.

That is why I have introduced legislation that would, if enacted, require the most far-reaching financial sanctions ever aimed at the North. This bipartisan bill would punish foreign financial institutions for dealing with virtually anyone facilitating North Korea-related business, an incentive for traders, middlemen, and others to give up activities that ultimately strengthen the Kim regime. In addition, the bill targets foreign banks that deal with North Korean laborers, more than 50,000 of whom have been sent abroad to amass hard currency. Up to 90 percent of these laborers' wages are confiscated by the North Korean government for this purpose, bringing Pyongyang an estimated $300 million each year.

The elephant in the room is China. With the country accounting for over 90 percent of North Korea's trade, including continued shipments of petroleum, the Chinese would naturally see themselves impacted by these sanctions.

Some observers have warned that getting too tough on China could jeopardize Beijing's willingness to rein in Pyongyang's behavior. But there lies the problem: Beijing's efforts have been for naught precisely because the costs that Chinese banks and middlemen bear for enabling North Korean trade have been so negligible. 

By broadening the Trump administration's sanctions authorities, Congress can strengthen U.S. diplomats' hand when explaining to China that the status quo is unsustainable. Nor is the problem with Pyongyang an issue of personal animus from the White House; instead, new sanctions from Congress would show that the U.S. government is united in its resolve to counter the Kim regime's hostility.

To be clear, sanctions are not an end in themselves, and we must not allow them to become a form of geopolitical venting. While sanctions on foreign banks could represent a massive crackdown on North Korea's economy, we should also provide for sanctions relief if the Kim regime suspends weapons testing and agrees to multilateral talks with U.S. negotiators. It will then be up to our diplomats to ensure that such talks produce more than empty promises from the North.

The alternative to stronger sanctions presents a bleak picture: more of the same means resigning ourselves to a North Korea that can strike the U.S. at will. And for all the talk of containing Pyongyang once it's capable of threatening the U.S. mainland with nukes, the fact is containment can be punctuated by apocalyptic risks, as close calls during the Cold War made so clear.

Plus, even if one believes that Kim Jong-Un is a rational leader - a bold claim given that few outsiders have so much as met with him - being rational doesn't preclude engaging in nuclear brinkmanship without end. On the contrary, given that nuclear blackmail has paid off for North Korea to this point, wouldn't its continuation, if not escalation, be only rational?

It is irresponsible to subject ourselves and future generations to this risk if we can avert it. Years of half-measures and wishful thinking have done enough damage already. We must give tougher sanctions on North Korea a chance.

Rep. Andy Barr (R-Ky.) is a member of the House Financial Services Committee, where he is chairman of the subcommittee that oversees the implementation of financial sanctions.

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