No yachts for you (UPDATE)

UPDATE (12/7/2010): Austrian convicted for yacht sale to DPRK.  According to Reuters:

A Vienna court has fined an Austrian man 3.3 million euros ($4.4 million) over the sale of luxury goods, including yachts, believed destined for North Korean leader Kim Jong-Il, a court official said Tuesday.

The businessman, who was not named, was also handed a nine-month suspended sentence late Monday for the dealings which violate an international trade embargo against Kim’s impoverished state, court official Christian Gneist said.

“The amount was 3.3 million euros because this was the amount he received as payment,” Gneist said. The trade violated U.N. sanctions against North Korea imposed over its nuclear bomb tests.

Working with a North Korean intermediary close to Kim, the Viennese man tried to procure two yachts and received payment for them, Gneist said.

Prosecutors also accused him of lining up eight top-end Mercedes-Benz S-Class cars and musical instruments including a Steinway grand piano for Pyongyang, Austrian daily Kurier reported.

The Austrian man pleaded guilty and told the court he had not realized what he was getting into, Kurier said.

“It doesn’t have anything to do with atomic bombs. I am not interested in politics. I am a businessman,” the paper quoted him as telling the court.

Italian financial police helped to break up the sale of the yachts last year, which prosecutors believed to be a birthday present for Kim. The Austrian bought them from the Azimut-Benetti boatyard, one of the world’s leading yachtmakers. Azimut-Benetti was not accused of wrongdoing and had cooperated fully in the investigation, Italian police have said.

The sale of luxury goods to North Korea is banned under a U.N. resolution in retaliation for the country’s nuclear testing program. The U.N. Security Council unanimously voted to widen its sanctions after North Korea’s nuclear test in May last year.

ORIGINAL POST (7/23/2009): According to Reuters (via Washington Post), UN sanctions have prevented the sale of two Italian yachts to the DPRK.  To top it off, the DPRK purchaser lost the deposit!  According to the article:

Financial police in the city of Lucca in central Italy said the vessels were worth nearly 13 million euros ($18 million) and had been purchased by an Austrian intermediary from the Azimut-Benetti boatyard, one of the world’s leading yachtmakers.

The Austrian intermediary then ceded the contract to a Chinese company, which in turn paid a Hong Kong business to take delivery of the vessels, police said.

“The difficulty was tracing it back to a violation of the sanctions,” said Colonel Antonio Leone, the Finance Police’s commander in Lucca. Asked if Kim was the intended final recipient of the vessels, he said: “It is an irrefutable fact.”

“There has been a thorough investigation, partly in Austria, backed up by confessions and investigative breakthroughs.”

The yachts were initially confiscated by Italy’s Economic Development Ministry but have since been returned to the boatyard, which has been allowed to keep the deposit.

Azimut-Benetti is not accused of wrongdoing and has cooperated fully in the investigation, police said.

The sale of luxury goods to North Korea is banned under a U.N. resolution in retaliation for the country’s nuclear testing program. The U.N. Security Council unanimously voted to widen its sanctions after North Korea’s May 25 nuclear test.

Given the complex chain of front companies involved in carrying out this transaction, the application of the UNSC resolution is a great illustration of what Haggard and Noland call “whac a mole“.  The North Koreans will now attempt to reconstitute their trade and proliferation networks using new front companies.  According to Haggard and Noland:

As a small country dependent on foreign trade and investment, North Korea should be highly vulnerable to external economic pressure. In June 2009, following North Korea’s second nuclear test, the UN Security Council passed Resolution 1874, broadening existing economic sanctions and tightening their enforcement. However, an unintended consequence of the nuclear crisis has been to push North Korea into closer economic relations with China and other trading partners that show little interest in cooperating with international efforts to pressure North Korea, let alone in supporting sanctions. North Korea appears to have rearranged its external economic relations to reduce any impact that traditional sanctions could have.

Given the extremely high priority the North Korean regime places on its military capacity, it is unlikely that the pressure the world can bring to bear on North Korea will be sufficient to induce the country to surrender its nuclear weapons. The promise of lifting existing sanctions may provide one incentive for a successor government to reassess the country’s military and diplomatic positions, but sanctions alone are unlikely to have a strong effect in the short run. Yet the United States and other countries can still exercise some leverage if they aggressively pursue North Korea’s international financial intermediaries as they have done at times in the past.

Read Haggard’s and Noland’s complete analysis here.

Read the full stories here:
Italy blocks sale of yachts to North Korea’s Kim
Reuters (via Washington Post)
7/23/2009

Sanctioning North Korea: The Political Economy of Denuclearization and Proliferation
Peterson Institute Working Paper 09-4
Stephan Haggard and Marcus Noland

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