Archive for the ‘Fiscal & monetary policy’ Category

The prospects for commercial, mobile banking in North Korea

Friday, August 3rd, 2018

By Benjamin Katzeff Silberstein

A couple of days ago, Korea Times ran an interesting interview with Kim Young-hui of Korea Development Bank (KDB), on the prospects of commercial and mobile banking in North Korea. Kim was optimistic regarding the prospects for mobile banking to take off soon in North Korea:

“I think it could happen in the near future, within a year at most,” said Kim, Senior Research Fellow at KDB’s Korean Peninsula New Economy Center.

Kim’s forecast is based on the latest edition of the North Korean quarterly journal Economic Research, issued in June, which was about establishing a mobile banking system for smartphone users. The contents of the quarterly were reported by Yonhap.

“A commercial bank should be established first to enable customers to use mobile banking services,” she said. “Once it is established, individuals will be able to make transactions through their smart phones through their own bank accounts.”

In North Korea, the concept of individuals opening a bank account is alien.

Most of North Korean residents deposit their money with individual money traders, making it hard for the North Korean regime to account for the money it prints, Kim said.

Although North Korea established the Commercial Bank Law in 2006, it still does not have a separate commercial bank regulatory system. There are some “commercial” banks, but they only deal with foreign currency, not domestic currency, Kim said.

The Commercial Bank Law enables loan services for individuals, while working with domestic currency as well as foreign currency.

North Korea under Kim Jong-un is now trying to open up to the global economy as he declared in November that the completion of nuclear weapon development left him with one mission of economic development in his Byeongjin policy.

The new smartphone-based financial service would enable North Korean residents to check (their) bank accounts, withdraw cash, transfer money as well as pay at shops. The tool is a smartphone, an “indispensable information communication tools.”

The report also urged the mobile telecommunication organizations in the country to establish a communication infrastructure that can provide information on the purchase of goods while notifying financial transactions to mobile banking users. The infrastructure, once established, will also enable confirming of payments and settlements to both buyers and sellers.

“Unlike other countries where a series of steps have been taken before introducing mobile banking, North Korea is skipping them since smartphones are already prevalent in the country,” the researcher said.

The report also proposed the development and introduction of RFID (Radio Frequency Identification) and NFC (Near Field Communication) technologies as well as the installation of necessary devices to make payment using smart phones at stores and other facilities more quick and accurate.

Full article and source:
‘North Korea will soon open commercial bank, mobile banking’
Jung Da-min
Korea Times
2018-08-01

A few thoughts on this:

First, on methodology, I’m not entirely convinced that one can or should read the North Korean journal that this assessment is based on, Kyungje Yungoo (경제연구) as a blueprint for what policies are in place or will come in the future. For years, and particularly under Kim Jong-un, the journal has run a multitude of articles on private incentives and profits within enterprises and firms, and on topics such as the role of various technologies within the economy, with no large-scale, public policy announcement following. To be sure, much has already changed in the economic realm within most spheres of what the journal covers, but there doesn’t seem to be a clear line between articles there and consistent, thorough changes in economic management. Rather, Kyungje Yungoo is perhaps best read as a map of what topics of conversation and debate (yes, debate) are acceptable in the academic and policy realms in the country. In other words, the regime is clearly thinking about commercial banking and ways to make it work, but that doesn’t mean it’s necessarily on the horizon in the immediate future (which it could well be).

Second, on the issue itself: North Korea’s financial sector is seriously underdeveloped. The lack of a solid banking system is a huge stumbling block for economic development, as assets that could otherwise be used to fuel growth through investments often sit idle. (For those interested in the issue, I wrote about it in this report for the Center for a New American Security a couple of months ago). Part of the problem is that even if the state did take initiatives to create some form of commercial banking sector, public trust in the state is deeply eroded. The government isn’t really an entity that most people want to hand their hard-earned savings to, because economic policy has historically been so erratic and often changes on a whim. Look, for example, at the market crackdowns of the past few months. Much is done by decree and order rather than by law. And the laws that do exist don’t really mean much if there’s no credible mechanism to enforce them. Should the government institutions simply allow for the institutionalization of private, commercial banking, rather than participate in the game themselves, that would be a different story, but the history of economic development in North Korea shows that that’s usually not how things work.

Third: it does make sense that there could be a lot of leap-frogging in sectors like banking in North Korea, given the increasing prevalence of smartphones and other technology. So there’s certainly room for optimism here too.

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Use of Yuan in the North Korean economy

Monday, April 16th, 2018

According to the Asahi Shimbun:

The Chinese yuan apparently has growing currency in North Korea and is commonly used in daily transactions such as paying taxi fares and restaurant bills.

The situation is a far cry from the 1990s, when only 4.9 percent of defectors said foreign currencies, including the U.S. dollar, were commonly used in daily transactions.

Lee’s study targeted around 1,000 defectors. The results, released Feb. 28, found that 44.3 percent of defectors between 2011 and 2015 said foreign currencies were often used for transactions. However, 52.5 percent of defectors after 2013 said the yuan is chiefly used nowadays.

The survey highlighted the fact that China’s currency is increasingly in circulation in North Korea, which helps explain why the reclusive country’s commodity prices and exchange rates have remained relatively stable.

The Pyongyang regime’s decision to revalue its won currency in November 2009 eroded public trust in the monetary system by 2013 as it wiped out the savings of many North Koreans, sparking incidents of unrest and a thriving black market.

North Korea’s official exchange rate is pegged at 108 won to the dollar. But on the black market, $1 (107 yen) fetches about 8,000 won.

Since 2013, the U.S. dollar has continuously traded at around 8,000 won. There are suspicions that Pyongyong has reduced the volume of won in circulation amid the influx of foreign currencies in daily transactions.

Read the full story here:
China’s yuan now firmly part of North Korea’s daily economy
Yoshihiro Makino
Asahi Shimbun
2018-4-13

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Are DPRK hard-currency reserves expected to dry up by October?

Wednesday, February 21st, 2018

According to Yonhap:

North Korea’s hard currency reserves are expected to dry up around October if international sanctions on the communist nation hold, the chairman of the parliamentary intelligence committee said Wednesday.

Rep. Kang Seok-ho of the main opposition Liberty Korea Party said during a party meeting that the North’s recent peace overtures toward the South, including its invitation to President Moon Jae-in to visit Pyongyang, are aimed at overcoming such economic hardship.

“I received an analysis that, if international sanctions against the North continue like this, all of North Korea’s foreign currency earnings and overseas assets will be frozen, and its dollar (reserves) will dry up around October,” the lawmaker said.

Kang didn’t say where the analysis came from, including whether it’s from the National Intelligence Service.

He said it is an assessment he drew after discussions with intelligence authorities, concluding that as a result of international sanctions North Korea held out an olive branch, including its invitation to Moon to visit the North for what would be a third inter-Korean summit.

“At a time like this, our government should further strengthen cooperation with the international community on sanctions against the North,” Kang said.

He also said the government should send a special envoy to the North and work actively to help resume talks between the U.S. and the North.

A similar prediction was made in the Joong-Ang Ilbo a couple of weeks ago:

In 2017, the North’s exports to China — the only remaining market it officially trades with — plunged by 37 percent on-year. This year, they could plummet more than 90 percent if China fully complies with the sanctions.

Despite a sharp fall in exports, imports remained unchanged, suggesting a thinning of foreign exchange reserves.

Pyongyang is estimated to have about $3 billion in foreign exchange reserves. The unregistered sum could be higher when including foreign currency hoarded away by the elite. The coffers will fall further this year. By the second half, North Korea could be short on foreign exchange.

The Joong-Ang Ilbo article offers additional data and is well worth reading.

$3 billion seems low to me, but I can’t prove it. The black market value of the won has not moved much (since 2012!), and I have to suspect that the currency traders in the DPRK have a better idea of the country’s foreign exchange reserves than I do.

I suppose we will see in the later half of this year? It is interesting to think about think about the implications of North Korea running out of foreign exchange…

Read more here:
N. Korea’s hard currency reserves expected to dry up by October: lawmaker
Yonhap
2018-2-21

The effect of sanctions
Joong-Ang Ilbo
Kim Byung-yeon
2018-1-22

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DPRK resolves debt with Poland

Wednesday, October 25th, 2017

According to Yonhap:

North Korea cleared off its debt to Poland in 2012 after the European country signed a deal with the North to write off 61 percent of the debt the previous year, Voice of America reported Thursday.

The Polish Treasury Department told VOA’s Korean Service that Poland held talks with North Korea on a debt write-off in 2011 and the North implemented what it was required to do under the agreement the same year.

According to the contract obtained by VOA, the agreement, signed in Pyongyang on June 1, 2011, stipulates that the North’s debt amounted to roughly US$4.31 million as of the reported year, including the production and delivery costs of Mi-2 military helicopters for which the Polish communist regime struck a deal with the North in 1986.

The report also said Poland’s debt relief was linked to the North’s provision of US$1.5 million in cash to purchase a ship to a North Korea-Poland joint venture shipping firm established in 1967.

Under the debt write-off deal, the North was also required to foot the bill of $200,000 to repair the Polish Embassy in Pyongyang. The repair project was based on an agreement between representatives from the two countries’ foreign ministries and the North was obligated to transfer the money to the embassy’s account.

In case the obligations are fulfilled, the agreement says, Poland will write off 61 percent of the North’s debt that corresponds to around $2.61 million.

North Korea currently owes debts to Sweden, Switzerland and Finland. The countries earlier said they had no intention of writing off the North’s debts.

Read the full story here:
N. Korea settles bill with Poland in 2012 after 61 pct of its debt written off: report
Yonhap
2017-10-25

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China closes more RMB bank accounts linked to North Korea

Monday, September 11th, 2017

UPDATE 2 (2017-9-12): According to the Global Times/Reuters (PR China):

Large State banks halt services for North Korean clients, tellers say

The big four Chinese State-owned banks have stopped providing financial services to new North Korean clients, according to branch staff, amid US concerns that the Chinese government has not been tough enough over North Korea’s repeated nuclear tests.

Tensions between the US and North Korea have increased after the sixth nuclear test conducted by Pyongyang on September 3 prompted the United Nations Security Council to impose further sanctions on Tuesday.

Chinese banks have come under scrutiny for their role as a conduit for funds flowing to and from North Korea.

China Construction Bank (CCB) has “completely prohibited business with North Korea,” said a bank teller at a branch in Northeast China’s Liaoning Province. The ban started on August 28, the teller said.

A person answering the customer hotline at the world’s largest lender, Industrial and Commercial Bank of China (ICBC), said the bank had stopped opening accounts for North Koreans and Iranians since July 16. The person did not explain why or answer further questions.

The measures taken by the largest Chinese banks began as early as the end of last year, when the city branch of Bank of China (BOC) in Dandong, Liaoning Province, which borders North Korea, stopped allowing North Koreans to open individual or business accounts, said a BOC bank teller who declined to be identified.

Existing North Korean account holders could not deposit or remove money from their accounts, the BOC teller said.

At Agricultural Bank of China (ABC), a teller at a branch in Dandong said North Koreans could not open accounts. The teller did not provide further details.

Official representatives for BOC, ICBC, CCB and ABC could not be reached for comment.

Banks in Dandong have been under the microscope as tensions have risen, given the city’s proximity to North Korea.

In June, the US accused the Bank of Dandong, a small lender, of laundering money for North Korea.

Attempts to slowly choke off the flow of funds to and from North Korea come after the US imposed sanctions on a Chinese industrial machinery wholesaler that it said was acting on behalf of a Pyongyang bank already covered by UN sanctions for supporting the proliferation of weapons of mass destruction.

UPDATE 1 (2017-9-11): According to the Financial Times:

China’s biggest banks have banned North Koreans from opening new accounts in an unprecedented move to clamp down on financial flows with the country’s unruly neighbour.

Multiple bank branches, including those of the country’s top four lenders, told the Financial Times they had imposed a freeze on new accounts for North Korean people and companies. Some are going even further, saying they are “cleaning out” existing accounts held by North Koreans by forbidding new deposits.

Banks implementing a ban on new accounts include the country’s big five — Bank of China, China Construction Bank, Agricultural Bank of China, and Industrial and Commercial Bank of China and Bank of Communications.

Branches of each of these banks in China’s north-eastern border towns, where trade with North Korea is concentrated, said they had been instructed to stop opening new bank accounts for North Korean individuals or companies.

Branches of three of the banks said they were in the process of cleaning out existing accounts, while the remainder did not comment on procedures for existing accounts.

Although some bank branches said they had received notice of the freeze on North Korean accounts last month, others said they had been told as early as January.

“Branches didn’t implement the rule all at the same time but it started recently,” said one branch of ABC in Dandong, the border city through which roughly 70 per cent of China’s trade with North Korea flows.

“Current bank accounts held by North Koreans should be cleared out,” said a representative of a branch of ICBC in Yanji, the trading hub closest to the nuclear blast site at Punggye-ri. “We implemented the restrictions long before last month’s sanctions.”

However, traders pointed out that there were ways to get around the account ban to continue doing legal business with North Korea.

“We always use Chinese citizens living in North Korea as intermediaries when doing business,” said one groceries trader in Dandong who wished to remain anonymous because of the political sensitivity around North Korean trade.

“There’d be no reason to freeze Chinese nationals’ accounts, unless they’re sanctioning individuals,” he added.

Two Chinese businesspeople who run companies in North Korea — one of whom is based in the Chinese border town of Hunchun and one in Pyongyang — said all their transactions, such as payments to North Korean staff, were made in cash in Chinese renminbi, avoiding the need to have dealings between North Korean and Chinese banks.

Read the fulls story here:
China’s biggest banks ban new North Korean accounts
Financial Times
Yuan Yang and Xinning Liu
2017-9-11

Here is additional coverage in the BBC.

ORIGINAL POST (2017-9-9): Daily NK reports that Beijing orders banks to close accounts for North Koreans:

Chinese banks have reportedly banned North Koreans living in China from opening up new accounts, and have ordered existing accounts to be closed.
.
“The Chinese authorities have made no distinction between North Korean consular officials, laborers, or traders; all are banned from opening accounts,” a local source reported to Daily NK. “Previously, the banks were happy to open accounts for North Koreans living in China for personal reasons (mostly visiting relatives), provided they present their personal identity documents. This practice has ended as well.”

According to the source, the new order applies to the four major state banks, as well as the Construction Bank of China, and regional private banks such as Pudong Bank.

The new measures do not come without precedent. After North Korea’s third nuclear test, China implemented a provision of United Nations Security Council Resolution 2094 that involved suspension of a deal with North Korea’s Joson Trade Bank. However, the UN resolution did not address individual accounts.

Following this, the North Korean authorities began circumventing international financial sanctions by opening accounts in individuals’ names and remitting investment capital and commercial payments to and from Chinese companies.

Because the bank accounts of North Koreans residing in China are being closed, North Korean laborers are having difficulties remitting money back home.

“Under the old system, the monthly wages of North Koreans working in Chinese factories were transmitted through the bank account of the North Korean factory manager. This is no longer possible, so they are being paid in cash,” the source explained.

Also relevant to the measure is that North Korean-Chinese collaborative ventures have been banned from using bank accounts, so seed money is now required in cash.

“Normally, when North Korean merchants want to start a new business in China, they make a business plan and submit it to Pyongyang. Upon approval, they seek out cooperation and investment from Chinese investors. But now, even if the investment request is approved, it isn’t possible to open a bank account so the investor needs to use a third party to provide cash directly,” the source said.

A March 2017 Radio Free Asia (RFA) investigation reported a similar trend, noting, “Private Chinese banks are beginning to close bank accounts held by North Korean nationals. North Korean laborers earning foreign currency in China have been issued an emergency alert.”

The Chinese Ministry of Commerce announced on August 25th that it is banning new joint ventures with North Koreans in China and additional investments.

“The Chinese government is publicly announcing that they are banning business projects with North Koreans and closing North Korean bank accounts, but many loopholes remain in place. Money can be laundered on the North Korean side and passed through Southeast Asian nations,” a separate source in China with knowledge of the matter said.

Read the full story here:
Beijing orders banks to close accounts for North Koreans
Daily NK
2017-9-9

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Rice prices on steady decline

Monday, February 6th, 2017

According to the Daily NK:

Rice prices in North Korea’s markets are reportedly on a downward trend. It was originally expected that the sanctions implemented by the international community would lead to inflation due to trade reductions, but a year after the sanctions were implemented, prices have instead fallen due to the steady development of marketization and active trade with China.

According to recent findings by Daily NK, rice is trading at 4,000 KPW (per kg) in Pyongyang, 3970 KPW in Sinuiju, North Pyongan Province, and 4190 KPW in Hyesan, Ryanggang Province. This represents an approximate 1,000 KPW reduction from a year ago (Pyongyang 5019 KPW, Sinuiju 4970 KPW, Hyesan 4980 KPW).

A source in North Hamgyong Province told Daily NK on January 30, “I know that China donated a large amount of rice after the flood damage in September last year. I also heard that rice farming in North and South and Hwanghae Provinces and South Pyongan Province went well.”

The price of rice in Hoeryong City (North Hamgyong Province), which suffered severe flood damage last year, is at approximately 3,600 KPW. “Rice was about 5,000 KPW in January, but prices have fallen now, so women preparing for the New Year’s holiday were fairly pleased,” she said.

“Rice prices have also been slowly dropping since the end of last year at the Pyongyang markets and reached 4,000 KPW this year. Traders (who purchase products to sell elsewhere) lining up at the market entrance to buy rice coming in from the countryside are saying that the amount of rice circulating in the markets has definitely increased compared to January last year,” a source in South Pyongan Province said.

“Rice prices in most markets in Pyongyang are declining, with more than 70% of rice being imported from China. People usually mix Chinese rice with Korean rice because Chinese rice is too dry (as if it has been in storage for a year), unlike the sticky Korean type.”

VOA (Voice of America) reported on January 26 that North Korea’s total rice imports from China amounted to 4.2 million tons last year (2016), a 2.4-fold increase over the previous year (2015). This statistic was put forward by Kwon Tae Jin, Director of East Asia Research at the GS&J Institute, citing an analysis of data published by China’s General Administration of Customs.

Sources within North Korea have consistently pointed out that revitalized market activities have played a role. “In the past (Kim Jong Il’s time), rice prices increased whenever the regime cracked down on market activities, but people are now able to do business without many restrictions. In the current situation, it’s unlikely that the price will suddenly jump,” a source in Ryanggang Province said.

Market stability has been a hallmark of Kim Jong Un’s rule and is thought to be reducing backlash from the general public as their quality of life improves.

However, the ongoing decline in rice prices is likely to lead to livelihood instability for farmers. If rice prices fall while the prices of other commodities (Chinese imports) remain the same, issues are likely to arise.

“The prices of commodities other than rice have mostly increased. As a result, a growing number of farmers are worrying that they will be unable to survive on farming alone,'” the Ryanggang-based source said.

Read the full story here:
Rice prices on steady decline
Daily NK
Kang Mi Jin
2017-2-6

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Daesong Bank launches Kumgil Card

Friday, December 16th, 2016

Simon Cockerell of Koryo Tours has posted images of a new prepay card offered by Daesong Bank (대성은행/Taesong Bank) called “Kumgil” (금길) or “Gold Road”:

The front of the card contains the brand name, logo (a diamond?), sponsoring bank name, and the phrase “electronic payment card”. I spoke with James Pearson at Reuters about the 16 digit number, and based on his research it does not appear to be directly related to the Foreign Trade Bank (FTB). Mr. Cockerell reports on his Instagram page that the card uses the same retail payment equipment as the Narae Card (which is controlled by the FTB), so that means the two banks (Daesong and FTB) have an established clearing mechanism to settle electronic balances (Q: Are other NK banks using this same equipment/part of the same network?). FTB is supposedly the official repository of the state’s hard currency reserves for the purposes of managing foreign trade and domestic hard currency transactions for imported goods, though it apparently does not have a monopoly on individual/company hard currency accounts. Daesong Bank (Taesong) is has been linked to the KWP’s Office 39.

The back of the card reads:

주의사항 (Caution)
1. 카드앞면의 전자요소가 손상되지 않도록 주의하여주십시오.
Be careful not to damage the chip on the front of the card
2. 암호를 련속 3번 틀리게 입력하면 카드의 사용이 중지됩니다.
The card will stop working if you enter the wrong password 3 times.
3. 카드를 분실한 경우에는 즉시 카드발급지점에 알려주십시오.
If you lose the card, immediately notify the branch that issued the card.
4. 기타 제기되는 문제들은 카드발급지점에 문의하여주십시오.
For any other issue, consult the branch that issued the card.

This card is apparently for hard currency purchases only, and it was launched in early 2016. It is functionally the same as the Golden Triangle Bank Electronic Payment Card, Jonsong Electronic Payment Card, KoryoBank Electronic Payment Card, Narae Electronic Payment Card, Ryugyong Commercial Bank Electronic Payment Card, and Sowol Electronic Payment Card.

I should also mention that none of these are “debit cards” since they are not linked with a specific checking (demand) deposit. These are pre-pay cards only. These cards are essentially private digital currency issued by an established bank. The bank maintains control of the hard currency used to top off the cards, which it uses to generate income (float), while the card holder gains the convenience of not having to carry cash, which does offer some security from petty crime, but makes retail transactions more observable to security agencies.

Mr. Cockerell also posted the picture of a loyalty card for the Moran Shop (“Bar”):

He reports that “every time you spend money there it’s recorded on the card and when you reach $500 equivalent in total then there’s some free gift.”

I have written about some other loyalty programs here and here.

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US Treasury “311s” North Korea

Thursday, June 2nd, 2016

Here is the statement from the Treasury Department:

Treasury Takes Actions To Further Restrict North Korea’s Access to The U.S. Financial System

6/1/2016

Action Responds to the Threat that North Korea Poses to the Global Financial System; the United States Calls on International Partners to Similarly Takes Steps toward Severing Banking Relationships with the Dangerous Regime

WASHINGTON – Today, the U.S. Department of the Treasury announced a Notice of Finding that the Democratic People’s Republic of Korea (North Korea) is a jurisdiction of “primary money laundering concern” under Section 311 of the USA PATRIOT Act. Treasury, through its Financial Crimes Enforcement Network (FinCEN), also released a notice of proposed rulemaking (NPRM) recommending a special measure to further isolate North Korea from the international financial system by prohibiting covered U.S. financial institutions from opening or maintaining correspondent accounts with North Korean financial institutions, and prohibiting the use of U.S. correspondent accounts to process transactions for North Korean financial institutions.

Section 311 gives the Secretary of the Treasury the authority to identify a foreign jurisdiction to be a primary money laundering concern. Once identified, the Secretary can require U.S. financial institutions to take appropriate countermeasures. The special measure proposed in today’s NPRM would impose the most significant measure available to the Secretary under Section 311.

“The United States, the UN Security Council, and our partners worldwide remain clear-eyed about the significant threat that North Korea poses to the global financial system. The regime is notoriously deceitful in its financial transactions in order to continue its illicit weapons programs and other destabilizing activities,” said Adam J. Szubin, Acting Under Secretary for Terrorism and Financial Intelligence. “Today’s action is a further step toward severing banking relationships with North Korea and we expect all governments and financial authorities to do likewise pursuant to the new UN Security Council Resolution. It is essential that we all take action to prevent the regime from abusing financial institutions around the world – through their own accounts or other means.”

Reasons for This 311 Determination

Treasury is taking this action consistent with the North Korea Sanctions and Policy Enhancement Act, enacted on February 18, 2016, which requires Treasury to determine within 180 days whether reasonable grounds exist for concluding that North Korea is a jurisdiction of primary money laundering concern, and if so, to propose one or more special measures. In addition, the United Nations Security Council adopted Resolution 2270 on March 2, 2016, which in part requires UN Member States to sever correspondent banking relationships with North Korean financial institutions within 90 days of the adoption of the resolution.

North Korea is proposed for action under Section 311 because (1) North Korea uses state-controlled financial institutions and front companies to conduct international financial transactions that support the proliferation and development of WMD and ballistic missiles; (2) North Korea is subject to little or no bank supervision anti-money laundering or combating the financing of terrorism (“AML/CFT”) controls; (3) North Korea has no diplomatic relationship, and thus no mutual legal assistance treaty, with the United States and does not cooperate with U.S. law enforcement and regulatory officials in obtaining information about transactions originating in or routed through or to North Korea; and (4) North Korea relies on the illicit and corrupt activity of high-level officials to support its government.

Impact of the 311 Notice of Finding and the NPRM Special Measure

While current U.S. law already generally prohibits U.S. financial institutions from engaging in both direct and indirect transactions with North Korean financial institutions, this NPRM, if finalized, would require U.S. financial institutions to implement additional due diligence measures in order to prevent North Korean banking institutions from gaining improper indirect access to U.S. correspondent accounts. While North Korea’s financial institutions do not maintain correspondent accounts with U.S. financial institutions, North Korean financial institutions frequently conduct transactions on behalf of the North Korean government and state-controlled corporations. The NPRM, if finalized, would prohibit the use of third-country banks’ U.S. correspondent accounts to process transactions for North Korean financial institutions.

Italics added for emphasis.

The “Notice of Finding” is here, and is also worth reading.

According to the Wall Street Journal:

Treasury Department officials said they are moving to ban non-U.S. banks and entities from processing dollar transactions on behalf of North Korea, an arrangement known as a U-turn, in a move to block its international trade.

China is by far Pyongyang’s largest trading partner, and Chinese firms could be caught in the crosshairs, according to current and former U.S. officials.

Zhu Haiquan, the spokesman for China’s embassy in Washington, repeated Beijing’s warnings against what it considers “unilateral sanctions taken by any country.”

He added that “we should avoid any move that may further aggravate tensions” on the Korean peninsula, and said “the unilateral sanctions must not affect and harm the legitimate rights and interests of China.”

U.S. officials were pleased that China agreed in March to support the new U.N. sanctions, which could significantly impair North Korea’s ability to generate hard currency and ship its exports.

Still, U.S. officials have voiced skepticism that Beijing would significantly punish Pyongyang, a longtime ally. China has rebuked North Korea in the past for its nuclear and missile tests, only to increase investment and trade with the country.

The issue is likely to be among the topics discussed when Messrs. Kerry and Lew meet top Chinese officials in Beijing for the Strategic and Economic Dialogue, a series of annual bilateral meetings.

According to the New York Times:

As a practical matter, that would largely affect Chinese banks, which facilitate North Korea’s financial transactions with Beijing, its largest trading partner. It could also affect some institutions in the nominally autonomous Chinese regions of Macau and Hong Kong, as well as in Singapore, where Pyongyang has often gone to hide the true nature of its banking activities, and to pay for missiles, nuclear fuel and the huge infrastructure it has built around those programs.

It is hard to assess how much the action will hurt North Korea. Such sanctions against financial institutions doing business with Iran proved effective because Tehran had billions of dollars in monthly oil and other energy exports that could be choked off; North Korea has none. Oftentimes Pyongyang deals in cash. Until a few years ago it was one of the largest counterfeiters of $100 bills. But that once-lucrative fraud was largely cut off by the redesign of the $100 bill.

Banks in the United States are already prohibited from doing business with financial institutions in North Korea. But the recommended rules would require them to perform additional due diligence to ensure they are not inadvertently transacting with North Korean financial institutions or the Pyongyang government through shell companies or other fictitious entities.

Notice of the new rules has been published by the Federal Register. Feel free to comment if you like.

Josh also writes a walk-through of how this works.

Here is information from Choson Exchange.

Troy Stangarone writes about the sanctions for KEI.

The UK also strengthened financial sanctions against the DPRK.

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New Party Central Auditing Commission inaugurated

Wednesday, May 11th, 2016

New-central-auditing-commission

According to the Pyongyang Times (2016-5-10):

The First Plenary Session of the 7th Central Auditing Commission of the Workers’ Party of Korea was held on May 9.

The event was attended by the members of the Party Central Auditing Commission who have been elected at the Seventh WPK Congress.

There was an election of the chairman and vice-chairman of the Party Central Auditing Commission.

Choe Sung Ho was elected chairman with Pak Myong Sun as his deputy.

According to the Ministry of Unification, the Party Central Auditing Commission, as its name suggests, inspects the party’s financial management.

This is interesting because this story originated in KCNA, though no pictures were released. However, the KCNA story was picked up by the Pyongyang Times, and this second version does contain pictures indicating that Kim Jong-un ran the meeting (See pictures at the top), even though he is not mentioned in the text of the article.

I am not sure of the meeting room location or where the Auditing Commission is physically located, but the meeting did not take place in Conference Hall No. 1 next to the Central Committee Building, Kim Jong-un’s official office.

Kim’s meeting at the Auditing Commission has not been reported in the Rodong Sinmun, the KWP newspaper, to the best of my knowledge.

The cheap and fast analysis suggests that as this is Kim Jong-un’s first committee meeting following the party congress, he is making a priority of understanding/controlling party finances in an effort to be a more assertive party leader (he was just named party chairman after all). Following a thorough party audit, Kim will be in a better position to allocate party financial rents to key supporters as well as to critically engage other cadres over party operations.

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9th Plenary Meeting of 13th SPA Presidium Held

Wednesday, March 30th, 2016

According to KCNA (2016-3-30):

The 9th plenary meeting of the 13th Presidium of the Supreme People’s Assembly (SPA) of the DPRK took place at the Mansudae Assembly Hall Wednesday.

The plenary meeting was attended by members of the SPA Presidium.

Officials concerned were present there as observers.

Discussed at the meeting were review of the implementation of the state budget for Juche 104 (2015) of the DPRK and the state budget for Juche 105 (2016).

A report was made at the meeting.

According to the report, the state budget for last year was correctly carried out.

The plan for state budgetary revenue was over-fulfilled 1.3 percent or an increase of 5 percent over the previous year.

The plan for local budgetary revenue was fulfilled at 113.8 percent while that for state budgetary expenditure was carried out at 99.9 percent.

15.9 percent of the total expenditure was allocated for national defence while 47.5 percent for building an economic power and the improvement of the standard of people’s living.

Investment in the fields of science and technology showed a 4.7 percent increase over that last year.

36.6 percent of the total expenditure was earmarked for cultural construction including education, public health, sports and literature and arts.

The state budgetary revenue for this year is expected to go up 4.1 percent out of which transaction revenue will hold 3.3 percent, the revenue from the profits of state enterprises 4.5 percent, the revenue from the profits of cooperative enterprises 1.5 percent, that from real estate rent 4 percent, that from social insurance 1.1 percent, that from the sale of properties and price difference 2.5 percent and other revenue 1.3 percent. The revenue from economic trade zone is expected to grow 4.1 percent.

Out of the state budgetary revenue the national budgetary revenue will account for 76.8 percent while that from local areas 23.2 percent.

The state budgetary expenditure is expected to go up 5.6 percent over last year out of which 4.8 percent will go to industries, 4.3 percent to agriculture, 6.9 percent to fisheries, 13.7 percent to capital construction and 7.5 percent to forestry.

It was decided to increase expenditure in the field of science and technology 5.2 percent, the field of education 8.1 percent, the field of public health 3.8 percent, the field of sports 4.1 percent and the field of culture 7.4 percent.

15.8 percent of the total expenditure will be spent for national defence.

A large amount of educational aid fund and stipends will be sent for the education of Korean children in Japan.

A decision of the Presidium of the SPA “On approving the review of the fulfillment of the Juche 104 (2015) state budget of the DPRK” and a decree of the Presidium of the SPA “On the Juche 105 (2016) state budget of the DPRK” were adopted at the meeting.

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