Archive for the ‘Illicit activities’ Category

New report on North Korea’s proliferation financing system

Monday, June 12th, 2017

By Benjamin Katzeff Silberstein

The non-profit C4ADS has released a new report about the networks that North Korea uses to get around the international sanctions regime, and to continue trading and financing its weapons programs. Among the most interesting findings, in my opinions, is that of how interconnected and few the Chinese firms that trade with North Korean entities are:

North Korean overseas networks have been extremely adaptive to the combined pressures of international sanctions, in large part due to their ability to nest and disguise their illicit business within the licit trade. Like the cover material of iron ore over the RPG’s aboard the Jie Shun, or the dual role played by Dandong Hongxiang, the problem is particularly acute in the North Korean context where the state controls major aspects of the international trading economy. As early as 2006, former Undersecretary for Terrorism and Financial Intelligence Stuart Levey noted that, “the line between North Korea’s licit and illicit money is nearly invisible.” As North Korea has become ever more isolated internationally, it has had to confine nearly all of its trade to China. Data from 2016 shows that around 85% of total North Korean trade was conducted with China. According to Harvard-based North Korea specialist John Park, “what we are seeing now is the operation of sophisticated North Korean-run networks based in China.” In this relationship, North Korea has repeatedly taken advantage of the system of trade to conduct illicit activity nested within the licit system.

[…]

Although the regime has seen a boom in the sale of natural resources in recent years, the increased sale of fewer and fewer commodities to a single country has left its system of trade progressively more vulnerable. Analysis reveals that the scope of licit trade, in which North Korea nests its illicit networks, is surprisingly small. According to trade records, from 2013 to 2016, there were only 5,233 companies within China that either imported goods from or exported goods to North Korea. To put that number in perspective,as of 2016, 67,163 Chinese companies exported to South Korea. Additionally, these 5,233 businesses are not all unique actors: many of them have subsidiary relationships with companies within the dataset. For example, the network surrounding the DHID, the Liaoning Hongxiang Group, was made up of 18 companies in China alone, many of which appear within the dataset as unique entities.

The report mainly carries three findings:

In this report, we conduct a system-level examination of the North Korean overseas financing and procurement system. Our paper finds that this system is centralized, limited, and vulnerable, and that its disruption should greatly increase the pressure on the Kim regime to return to the negotiating table.

  • In Centralized, we examine key individuals and companies that connect networks from around the world. We discuss case studies of both regime “tactical controllers,” who conduct the operational tasks needed to move illicit goods, as well as “strategic chokepoints” through which these goods and their regime financing must flow.
  • In Limited, we explore trends within China-North Korea trade, the largest market exploited by North Korean overseas networks. Our data shows only 5,233 Chinese companies to have traded with North Korea from 2013 to 2016. Our analysis shows a small number of interconnected firms annually account for vast proportions of the trade, limiting the number of avenues in which North Korea can nest its illicit activity.
  • In Vulnerable, we analyze corporate structures and risk indicators that can be used to filter this data to identify potential dual-use transactions and networks of possible concern. Our priority lay in linking previously unidentified entities with known North Korean illicit actors to showcase the possibility of causing systemic disruption using targeted enforcement.

Full report:
Risky Business: A System-Level Analysis of the North Korean Proliferation Financing System
David Thompson
C4ADS
June 2017

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US tightens sanctions against DPRK’s UN diplomats

Wednesday, December 21st, 2016

According to Reuters:

The U.S. Treasury Department tightened sanctions against North Korean diplomats to the United Nations, requiring banks to get special permission before granting them accounts, the agency said in a notice posted online Tuesday.

The United States removed an exemption in the broad economic sanctions against Pyongyang that had allowed U.S. banks to service North Korean diplomats without getting specific permission from the Treasury Department Office of Foreign Assets Control (OFAC).

Banks will now have to obtain a special license from OFAC before opening bank accounts, processing transactions or extending credit for North Korean diplomats or their family members, OFAC said. North Korea’s U.N. mission did not immediately respond to a request for comment.

U.S. officials have long said North Korea uses the bank accounts of diplomats to help Pyongyang conduct business around the world, despite economic sanctions.

A U.S. intelligence official, speaking on condition of anonymity, said North Korea “seeks to alleviate its economic isolation” by bringing back currency from overseas “using all available avenues.”

For example, said another U.S. intelligence official, North Korea sells cigarettes and illegal drugs outside the country and use diplomatic packages to send the cash back home.

Washington has been ramping up economic sanctions against Pyongyang since a nuclear test and rocket launch this year, seen as provocations by the United States and its allies.

Under new U.N. sanctions adopted last month in response to North Korea’s fifth and largest nuclear test in September, countries are required to limit the number of bank accounts to one per North Korean diplomatic mission and one per diplomat.

Here is the official statement from OFAC:

Publication of Updated North Korea-related General License
12/20/2016

The Office of Foreign Assets Control (OFAC) has amended General License 1 pursuant to E.O. 13722 of March 15, 2016, “Blocking Property of the Government of North Korea and the Workers’ Party of Korea, and Prohibiting Certain Transactions With Respect to North Korea.” General License 1-A no longer authorizes U.S. financial institutions to open and operate accounts for the diplomatic mission of North Korea and its employees and their families. It now requires that funds transfers to or from the mission or its employees be conducted through an account at a U.S. financial institution that has been specifically licensed by OFAC.

I am generally behind on blog posts this year and plan to catch up, including coverage of sanctions, in the next.

The Reuters story can be found here:
U.S. tightens sanctions against North Korea’s U.N. diplomats
Joel Schectman; Additional reporting by Michelle Nichols in New York
Reuters
2016-12-20

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Has Camp 18 been re-opened or merged with Camp 14?

Friday, September 30th, 2016

The consensus among North Korea watchers (myself included) was that Camp 18 had been closed sometime in the late 2000s (between 2006 and 2011) [UPDATE: Camp 18 may have been moved to Tongrim-ri in neighboring Kaechon. I first wrote about the new prison camp here, though I did not know it was the remnants of Camp 18]. The coal mine located inside the camp, the Pongchang District Coal Mine (봉창지구탄광), was even featured on North Korean television on 2011-1-3,  2012-2-27, and 2012-10-20.

Recent satellite imagery of the camp featured on Google Earth (2016-3-30), however, indicates that a new prison camp has been opened on the site of the former prison sometime between 2013 and 2015. If a new prison camp has been been opened, it’s name and administrative classification remain a mystery, though I post some evidence and speculation below for your consideration….

New Security Perimeter
A new security perimeter has been built around the former Camp 18, and it is not built along the same path as the old Camp 18 security perimeter.

new-camp-18-security-perimeter-2016-3-30

Pictured Above (Google Earth): The outlines of the new prison camp security perimeter (in yellow) and various historical security perimeters associated with Camp 18 (in black)

The difference between the security perimeter of the old Camp 18 and the new prison camp can be most clearly seen along the eastern and norther edges of the camp. Camp 18 had a security perimeter along the norther border, and remnants of it still remain, but the new prison camp does not yet appear to have a northern border (other than the Taedong River).

The new security perimeter appears to be composed of two barbed-wire fences held up by concrete posts.

new-camp-barbed-fense-2016-3-30

The new security perimeter has five new guard posts along the mountain ridge and two new security checkpoints, one at each of the two transit points. The eastern security checkpoint appears to be the main entrance. The southern mountainous checkpoint appears to be for delivery of coal to the “famous” 2.8 Jikdong Youth Coal Mine Mine (2.8직동 ì²­ë…„ 탄광) located outside the security perimeter.

guard-post-2016-3-30

Pictured Above (Google Earth: 2016-3-30): Security perimeter of prison camp (yellow line), five guard posts (yellow points), two transit checkpoints (red points), roads in/out of the camp (blue lines)

Here is a closeup of the new guard post at  39.546986°, 126.018297°. It was built between 2013-10-1 and 2015-4-4. You can also see the barbed wire perimeter running next to it.

new-guard-post

There is also a guard post on the bridge that links the area with Camp 14, but this checkpoint appears to be a remnant of the former Camp 18.

camp-18-rail-guard-post-2016-3-30

New Guard Barracks?

There also appears to be six facilities (four that are new) that could serve as guard barracks scattered around the camp.

new-camp-18-guard-facilities

The guard facilities/barracks are located here: 1.  39.536004°, 126.051207° 2.  39.521812°, 126.079342° 3.  39.579655°, 126.080485° 4.  39.593158°, 126.115249° 5.  39.576379°, 126.131835°

The five facilities are very similar in construction. Here is a closeup of the facility that lies at the main entrance to the new prison camp:

main-checkpoint-18-2016-3-30

Housing Razed

A substantial amount of housing was razed in the camp between 2013 and 2016, which would support the idea that “innocent” people were moved out of the camp perimeter (possibly to eastern neighboring Myonghak Coal Mine (명학탄광) or Tukjang Youth Coal Mine (득장청년탄관) which have both seen substantial housing growth starting in 2011). It is possible that once the “innocents” were moved to the neighboring coal mines,  the Pongchang Coal Mine in the former Camp 18 could return to the exclusive use of prison labor.

housing-razed-camp-18-2016-3-30

In image above areas where houses were destroyed are outlined in red.

Below are images from neighboring Myonghak Coal Mine (명학탄광) which saw a housing boom starting in 2011. Were these people being removed from former Camp 18?

myonghak-coal-mine-2011

By 2014, this new housing construction appeared to be complete.

myonghak-mine-2014-2016

The Myonghak Coal Mine also received a new market in the period after camp 18 was closed ( 39.576284°, 126.171663°):

 myonghak-market-2011-5-23 myonghak-market-2013-10-1 myonghak-market-2016-3-30

Pictures dated (L-R): 2011-5-23, 2013-10-1, 2016-3-30

The Tukjang Mine also received a new market:  39.577375°, 126.209774°

The Pongchang Coal Mine received a market when Camp 18 was closed, but it has been torn down with the arrival of the new camp. You can see remnants of the market here: 39.564626°, 126.075621°.

Immortality Tower Removed

The “immortality tower” that is present in the vast majority of villages, factory complexes, and mining complexes has been removed. The monument was torn down sometime after 2013-10-1. I am not sure what this means.

immortality-tower-removed-before

immmortality-tower-removed-after

Although all prison camps have an immortality tower next to the MSS administrative buildings, they are not found in remote parts of the prison camps. When Camp 22 was closed, we could see immortality towers being built in parts of the camp that were being converted to normal villages (because they did not have them, and most other normal villages did). Perhaps a new tower will be built next to the headquarters building in due time so that the new camp will in this respect be identical to all the others.

Another possible explanation for the tower’s removal is that it is being “updated” to include fidelity to Kim Jong-il and Kim Il-sung, as many other towers have been.

Kim Il-sung Monument Removed

The main administrative area featured a single Kim Il-sung monument as of 2011-8-19. By 2013-10-1 the camp appeared to have the new Kim Il-sung/Kim Jong-il double monuments which have become popular in the Kim Jong-un era. However, by 2016-3-30, both monuments have been removed.

 

Did Camp 18 merge with Camp 14?

Pictured below is the ferry that goes between Camp 14 and former Camp 18.  It was built sometime between 2007 and 2011 (sorry, not much imagery here). Coordinates:   39.589340°, 126.077555°.

camp-14-ferry

The fact that a ferry appears to be operational between the two prison camps, coupled with the observation that the new camp has no northern perimeter (and that they have always been connected by railway and temporary road), supports the hypothesis that the Camp 18 area may have been taken over by Camp 14. The history of the relationship between Camp 14 and Camp 18 is complicated, but there is also some historical precedent.

Wrapping up

If this is a new prison camp, and I believe the evidence shows this is plausible, it will be the second in the Kim Jong-un era. I spotted the first new prison facility of the Kim Jong-un era (which later turned out to be the relocated Camp 18) in January 2013 on the north west side of Camp 14.

Let the debate begin…

ADDENDUM: The Ponchang Area Coal Mine (봉창지구탄광), the name of the coal mine in Camp 18 has only been featured in KCNA twice. I post the articles below (via KCNA watch):

Lives Devoted to Prosperity of Motherland

Pyongyang, December 10 [2009] (KCNA) — In the Democratic People’s Republic of Korea there are many people devoting their clear conscience and even lives to the prosperity of the country.

Ri Yong, a heading workteam leader of the Pongchang Area Coal Mine, devoted his life to the coal production.

Working at the mine for nearly three decades as a heading worker and a heading workteam leader, he, together with his men, had procured thousands of tools and accessories needed to overfulfil the workteam’s heading plan every year.

He had dedicated his all to coal output, encouraging his men to do their part as coal miners to increase the production. That is why he, though dead, is still remembered by people.

Among such patriotic coal miners as Ri Yong are Jo Nam Sik and Kang Kye Jin of the Kangso Coal Mine.

Jo rescued fellow colliers when a pit was collapsing in last June, while Kang was an official of the mine with a 30-odd years long career of pitman.

Ri Jin Guk, a worker of the Sunchon Plastic Daily Necessities Factory, kept his machine going until the last moment of his life, giving a pattern of life devoted to the country.

Sonu Pong Nam, a hewer of the Ryongnam Coal Mine, Sin Kum Nam, a farmer of the Ryongok Co-op Farm in Yomju County, Kim Ho Sok, a worker of the Kosan Essential Foodstuff Factory and Ri Jang Gun, a member of the Revolutionary Battle Site Management Office at the secret camp of Mt. Paektu are also known as patriots who lived for the prosperity of the socialist motherland.

Their true life and working manner recorded in the history of the building of a great, prosperous and powerful nation inspire the Korean people to work miracles in the efforts to bring about a new revolutionary upsurge.
Coal Miners Do Not Stop Working in Collapsed Pit for 19 Hours

Pyongyang, August 27 [2013] (KCNA) — Some days ago, the 3rd-shift group under the 6th pit of the Pongchang Area Coal Mine in the DPRK was doing preparatory works for next shift after fulfilling its daily quota at 102 percent.

At that time, hundreds of meters of pit ceiling fell down, affected by earth pressure, leaving the pit entrance closed.

The miners could come out of the pit through an air tunnel. But they did not stop mining coal.

They turned out scores of tonnes of coal for 19 hours until the entrance reopened.

Their devoted efforts were prompted by a strong sense of patriotism to contribute to the country’s prosperity even a bit.

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DPRK Cyber attacks 2016

Friday, May 27th, 2016

UPDATE 1 (2016-5-26): DPRK Linked to attacks on Swift. According to the New York Times:

Security researchers have tied the recent spate of digital breaches on Asian banks to North Korea, in what they say appears to be the first known case of a nation using digital attacks for financial gain.

In three recent attacks on banks, researchers working for the digital security firm Symantec said, the thieves deployed a rare piece of code that had been seen in only two previous cases: the hacking attack at Sony Pictures in December 2014 and attacks on banks and media companies in South Korea in 2013. Government officials in the United States and South Korea have blamed those attacks on North Korea, though they have not provided independent verification.

On Thursday, the Symantec researchers said they had uncovered evidence linking an attack at a bank in the Philippines last October with attacks on Tien Phong Bank in Vietnam in December and one in February on the central bank of Bangladesh that resulted in the theft of more than $81 million.

“If you believe North Korea was behind those attacks, then the bank attacks were also the work of North Korea,” said Eric Chien, a security researcher at Symantec, who found that identical code was used across all three attacks.

“We’ve never seen an attack where a nation-state has gone in and stolen money,” Mr. Chien added. “This is a first.”

The attacks have raised alarms in the global banking industry because the thieves gained access to Swift, a Brussels-based banking consortium that runs what is considered the world’s most secure payment messaging system. Swift’s system is used by 11,000 banks and companies to move money from one country to another — one reason that it is a tempting target for criminals.

Swift has warned publicly that the attacks are part of a broad coordinated assault on banks, though it has not assigned blame. It has also emphasized that it was the banks’ connection points to its network — and not the core Swift messaging network itself — that the attackers were able to breach. Also, American bankers have noted that the security lapses all occurred at banks in third-world countries, which may give some comfort to banking customers in the United States.

Security researchers and American government officials have tied thousands of attacks to nations in the past. They have linked the United States and Israel to an attack that destroyed Iranian centrifuges, and the Chinese military and contractors to attacks that stole military and trade secrets from thousands of foreign entities.

Continue reading the main story
RELATED COVERAGE

Hackers’ $81 Million Sneak Attack on World Banking APRIL 30, 2016

Details Emerge on Global Bank Heists by Hackers MAY 13, 2016

Once Again, Thieves Enter Swift Financial Network and Steal MAY 12, 2016
But the latest spate of attacks on banks in Bangladesh and Southeast Asia would be the first time, security researchers say, that a nation has used malicious code to steal purely for financial profit.

The idea that Pyongyang had turned to digital theft would not be surprising. North Korea’s economy has been ravaged by sanctions, food shortages and other deprivations. Pyongyang does not publish economic data, but estimates have put North Korea’s gross domestic product between $12 billion and $40 billion, tiny when compared with South Korea’s economic output of more than $1.4 trillion.

In the attack at Bangladesh’s central bank in February, the thieves tried to transfer $1 billion in funds from an account at the Federal Reserve Bank of New York. Fed officials became suspicious of the some of requested transfers and released only $81 million to accounts in the Philippines.

“If you presume it’s North Korea, $1 billion is almost 10 percent of their G.D.P.,” Mr. Chien said. “This is not small change for them.”

Symantec researchers said it was possible that the bank in the Philippines containing the North Korean code was also involved in the Bangladesh bank scheme and the attempted breach on the Vietnamese bank. The researchers would not identify the Philippines bank and did not say whether the thieves had been successful in transferring funds. Researchers were able to confirm only that the attackers had managed to breach the bank and install identical code strings on the bank’s computer systems — the same code that they discovered in Bangladesh, Vietnam and the two previous attacks at Sony in 2014 and South Korea in 2013.

Mr. Chien noted that the attackers not only used identical numbers but wrote the code in the same, unusual sequence across all three attacks.

Mr. Chien said the evidence pointed to all three attacks being the work of the “Lazarus Group,” a name his team gave to the attackers behind the Sony and South Korean attacks.

Officials have pointed to North Korea’s threat of “merciless countermeasures” against Sony if the studio released “The Interview,” a movie by Seth Rogen and Evan Goldberg that made fun of North Korea and includes a fictional assassination of its leader. F.B.I. analysts also note critical mistakes North Korean hackers made, such as logging into their attack servers from known North Korean Internet addresses and even logging into both their Facebook account and Sony’s servers from the same computers.

In the months since evidence of the attacks involving the Swift network started to emerge, investigators have been looking for commonalities at numerous other potential breaches. It remains unclear whether these breaches are connected to the ones in Bangladesh and Vietnam, but they too have occurred in or around Southeast Asia.

There is no evidence to date that the thieves have gone after large American or European banks, though new possible attacks are being reported weekly. Last week, evidence emerged that Banco del Austro, an Ecuadorean bank, was infiltrated by hackers who were also able to sneak onto the Swift network. The thieves transferred several million dollars to accounts around the world, according to a lawsuit the bank filed in federal court in the United States against Wells Fargo, which facilitated one of the transfers.

Researchers have yet to unearth any of the code used in the Ecuador attack, but banking analysts say it is probably no coincidence that these attacks are happening in the developing world, where security measures tend not to be as tight as they are in financial hubs like New York and London.

Swift has issued numerous warnings in recent weeks urging banks to step up their security protocols. Analysts worry that the breaches could have a chilling effect on global finance; larger banks may become reluctant or even refuse to transact with smaller banks in the developing world unless they can have assurances that their networks have not been compromised by thieves and malware.

At a conference on Tuesday in Brussels, Swift’s chief executive, Gottfried Leibbrandt, said the recent attacks could do far more damage than breaches on retailers and telephone companies, which he said suffer largely reputational and legal hits.

“Banks that are compromised like this can be put out of business,” Mr. Leibbrandt said.

North Korea has long been known for creative attempts to generate badly needed hard currency. In the last decade, United States government officials accused North Korea of counterfeiting $100 bills, which were known as “superdollars” or “supernotes” because the fakes were nearly flawless. The Federal Reserve began thwarting that effort by circulating a new $100 bill over the last three years that makes counterfeiting nearly impossible: The redesigned $100 is easier to authenticate and harder to replicate.

“North Korea is hurting for money,” said Herb Lin, the senior research scholar for cyberpolicy and security at Stanford University’s Center for International Security and Cooperation and a fellow at Stanford’s Hoover Institution. “They’ve been cut out of the financial system because of sanctions. They had been among the best counterfeiters in the world, and only recently have they been stymied in the counterfeiting of superdollars. If it’s true that we’ve cut them off from that, then it’s not at all surprising that they would turn to something else.”

Read the full story here:
North Korea Linked to Digital Attacks on Global Banks
New York Times
2016-5-26

ORIGINAL POST (2016-5-27): Swift hack linked to Sony hack. According to The Guardian:

Security researchers Symantec have found clues in the malware used to hack into international financial messaging network Swift, which suggest a link to the Sony Pictures hack in 2014.

At least three banks have reported financial attacks based on the Swift hack. In February, Bangladesh’s central bank lost $81m (£55m) after fraudulent messages were sent through the network instructing a transfer to an account in the Philippines. In May, a Vietnamese bank came forward to say that it had been targeted by the hackers as well, and had managed to stop a $1m transfer. And later that month, Reuters revealed that a third bank, Ecuador’s Banco del Austro, had also fallen prey.

At heart, all the hacks relied on social engineering as much as technical talent. Once the attackers gained fraudulent access to the Swift network, they simply messaged the banks’ banks, and asked for funds to be transferred – which, generally, they were. The Bangladesh case only came to light because a typo in one of the instructions alerted a worker.

But in order to gain access to the network, the attackers used a specific type of malware, dubbed Trojan.Banswift by Symantec.

The security research firm analysed the malware used in the Bangladesh attack, and found what it describes as “a distinct file wiping code”. The way the software deleted files was like little else the company had seen, but it had been seen in one other piece of malware, a specimen named Backdoor.Contopee, which had been used to hack into financial organisations in south-east Asia.

Programmers often have quirks that make it into their code, and they also reuse code between projects. Symantec says it believes “distinctive code shared between families and the fact that Backdoor.Contopee was being used in limited targeted attacks against financial institutions in the region, means these tools can be attributed to the same group.”

That means the hackers, who gained public notoriety with the Bangladesh hack, may have been attacking financial institutions for much longer than previously thought.

But it also links them to a wider group of hackers. The Backdoor.Contopee malware has previously been used by a group known as Lazarus, which has been attacking businesses and commercial operations across the US and South Korea for the last six years. And Lazarus, in turn, is “linked” to another piece of software, Backdoor.Destover, which was used in the 2014 hacking attack against Sony, which the FBI ended up attributing to the North Korean state.

The link is not conclusive, however. Hacking groups often share and sell code, and the Sony Pictures hack is several degrees removed from the Swift attacks.

What’s more, Lazarus was severely disrupted earlier this year, Symantec says. “The group was the target of a cross-industry initiative known as Operation Blockbuster earlier this year, which involved major security vendors sharing intelligence and resources in order to assist commercial and government organizations in protecting themselves against Lazarus.”

Swift itself has promised to improve its security following the hacks. According to Information Security magazine, the group’s chief executive offered up a new plan for change. Gottfried Leibbrandt said: “Banks can learn from one another about the modus operandi and put better preventative measures in place; entities like Swift can serve as the information sharing channel, and we can develop indicators of compromise to help those banks improve their detective capabilities.

“We are doing so,” he added, “But information sharing needs to get better, much better.”

Read the full story here:
Swift network bank thefts ‘linked’ to Sony Pictures hack
The Guardian
2016-5-27

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UNSC adopts new DPRK sanctions: UNSC Resolution 2270

Wednesday, March 2nd, 2016

UPDATE 7 (2016-3-24): The Daily NK reports that DPRK coal shipments are sitting in limbo outside of Chinese ports.

UPDATE 6 (2016-3-18): NPR discusses China’s interest in enforcing new sanctions:

Beijing has begun instructing Chinese banks, ports and shipping and trading companies doing business with North Korea to implement the U.N. resolution to the letter.

Adam Szubin, the Treasury Department’s acting undersecretary for terrorism and financial intelligence, tells NPR that China is taking this very seriously.

“I know from my meetings here in Beijing that my counterparts have very much taken the resolution to heart,” he says.

Szubin, who visited Beijing this week, says the new sanctions will hit hard enough to change Pyongyang’s “decision-making calculus.”

The new U.N. resolution is not just “adding a few new companies to a sanctions list or a few new North Korean officials,” Szubin says. Instead, it targets “every major aspect of North Korea’s access to international shipping, international banking [and] international trade to develop revenues for its missile and illicit nuclear programs.”

Although China appears committed, the sanctions put it in a tough spot.

First, says People’s University international relations expert Cheng Xiaohe, some Chinese companies are going to take a hit to their bottom line. China-North Korea trade was worth $6.86 billion in 2014.

“At the same time as we protect our national security interests, we must be prepared to sacrifice some of our own economic interests in order to accurately target North Korea with sanctions,” he says.

Cheng says the U.S. has its work cut out for it, collecting intelligence on the hundreds of Chinese firms doing business with North Korea, and on North Korean firms adept at concealing their business dealings behind fronts and shells.

And if Chinese firms are found to be violating the U.N. resolution, Cheng points out, they could themselves face sanctions.

“This could create new frictions between the U.S. and China,” he warns. “I hope that the U.S. will think carefully before it uses this big stick to crack down on Chinese firms.”

Cheng notes that China continues to supply North Korea with crude oil as humanitarian assistance. The sanctions allow this, even if North Korea may be able to refine some of the oil for military uses.

China says neither a humanitarian crisis nor regime collapse are acceptable outcomes for North Korea. But Zhang Liangui, a veteran North Korea watcher at China’s Central Party School in Beijing, says that at the end of the day, China cannot save North Korea from its fate.

“If North Korea is going to collapse,” he says, “no external force can prop it up. Frankly speaking, whether it collapses or continues to develop will mainly depend on its own domestic and foreign policies.”

UPDATE 5 (2016-3-15): According to UPI, the Philippines has searched a second DPRK ship.

UPDATE 4 (2016 3-10): Sanctioned North Korean ship, Gold Star 3, was turned away from Hong Kong port. According to Yonhap (via Korea Times):

Hong Kong has banned a North Korean freighter, which is blacklisted by new U.N. sanctions over the North’s latest nuclear test and rocket launch, from berthing at its port, a source with knowledge of the matter said Thursday.

The North Korean freighter Gold Star 3 arrived at the Hong Kong port on Wednesday to get fuel and supplies for its crew, but Hong Kong authorities did not allow the ship to dock at the port, the source said on the condition of anonymity.

The ship is among 31 vessels operated by a North Korean shipping company, Ocean Maritime Management, which is hit by the new U.N. sanctions.

For now, the ship is said to be staying in international waters, according to the source.

Media reports have said the Chinese port of Rizhao in the eastern Shandong province also barred another North Korean ship from docking at the port.

China has said it will “earnestly” implement the new U.N. sanctions, but the sanctions should not affect the well-being and humanitarian needs of North Korean people.

Still, China is unlikely to put crippling sanctions on North Korea because a sudden collapse of the regime could spark a refugee crisis at its border and lead to a pro-U.S., democratic Korea on its doorstep, analysts say.

UPDATE 3 (2016-3-6): North Korea ship impounded in Philippines. According to Yonhap:

A North Korean ship impounded in the Philippines last week was registered as being from Sierra Leone via a practice called flag of convenience, South Korea said Sunday.

Flag of convenience is a business practice of registering a merchant ship to a country other than its origin for the purposes of avoiding taxes and other regulations.

The Philippines seized the North Korean ship Jin Teng on Saturday, becoming the first country to enforce sanctions on the reclusive country since the United Nations Security Council passed a more comprehensive resolution last week.

Resolution 2270 subjects 31 ships belonging to North Korea’s Wonyang Shipping Corp. to an asset freeze and sanctions.

Despite being Sierra Leone-flagged, the Jin Teng was seized because the sanctions are imposed via the ship’s International Maritime Organization (IMO) number, not its country of origin, a South Korean official said.

Nine other ships on the list are registered as being from countries other than North Korea, including Tanzania and Cambodia, the official added.

Here is coverage in Xinhua.

UPDATE 2 (2016-3-4): Analysis of the sanctions by the European Council on Foreign Relations:

The case of sanctions against North Korea – where earlier resolutions were already adopted in 2006, 2009 and 2013 – provides a useful window into their efficiency and limits. All the more so because the debate on this latest round of sanctions has been long and hard (it has been nearly two months since the DPRK’s nuclear test of 6 January). As noted by ECFR’s Mathieu Duchâtel earlier this week, China and Russia have taken a big step towards tightening the noose around Pyongyang – by accepting to place limits on its external revenue, in areas that go much beyond the illicit activities directly targeted by the resolution. They have agreed to a ban on the export of coal, iron ore, rare earth and other minerals, as well as gold, and also to inspection of North Korean cargoes in other ports. The sanctions include North Korean diplomatic offices that harbour entities otherwise targeted by sanctions. All of these developments have the potential to be game changers. The fact that China – which received 90 percent of North Korea’s foreign trade given earlier sanctions – has agreed to the sanctions, certainly gives some indication of how vast the chasm between the Chinese and North Korean leadership is growing.

But more questions arise as a result of these sanctions, and on three different levels. Firstly, what are the limits of the resolution, secondly, how will it be implemented, and thirdly, what has been conceded or left out in order to secure this result at the United Nations Security Council.

The limits of these sanctions can be uncovered in the wording of the resolution itself. Almost all new sanctions can be overridden if the trade is being made for “humanitarian” or “livelihood purposes”. These exceptions only apply if they do not generate “revenue”, which would seem to reserve the provision of bona fide food or medical assistance. Alas, the resolution’s language appears to be contradictory in places. Point b of article 28 exempts trades which are “exclusively for livelihood purposes and unrelated to generating revenue for the DPRK’s nuclear or ballistic programs or other activities prohibited”. This clearly leaves the door open to other revenue streams. It is not clear whether the resolution will target North Korea’s export of indentured labour – not only in Russia, but in Poland and reportedly in Lithuania and Slovakia too. In these places there are North Korean workers remitting over 70 percent of their wages to the state – which leaves them with just $120 a month for living.

This loophole, along with the exclusion of oil imports from sanctions, has all the hallmarks of being imposed by China. There are many others too, such as the exclusion of coal re-exported from the port of Rason – a transit center for Mongolian coal towards Russia. Aviation fuel cannot be sold to North Korea but its planes can be fueled elsewhere on a return journey. North Korean financial institutions and firms elsewhere are subject to sanctions, with trade banned, but foreign firms already present in North Korea are not.

More important than these concerns is the undefined nature of “inspections” in foreign ports. In this respect, the US sanctions go much further by imposing checks on third parties. It will be interesting to see if the European Union, a champion of the “smart power” of sanctions, follows suit. Some, for example the French, who still suffer from the heavy fines imposed by the US on BNP Paribas because of its actions in Sudan, may beg to differ. In any case, the practical difficulties of checking, for example, on China’s immense export and re-export volume preclude an efficient implementation. What happens in Dandong, China’s notoriously opaque harbor that processes North Korea’s trade, is key. US sanctions will create moral hazard for traders, which is altogether a desirable but insufficient goal.

Which leads us to a third observation. The resolution has left a wide gamut of sanctions open to interpretation. In practice, these interpretations will be dictated by China, North Korea’s chief intermediary with the outside world. In some aspects, the resolution hands the key to North Korea’s economic fate to China, even if one might believe that North Korean diplomats are experts at circumventing restrictions, and creatively exploiting loopholes in “easy” third countries. After all, who will be checking the “humanitarian” nature of its relations with Namibia?

UPDATE 1 (2016-3-2):  Chinese banks halt transfer of yuan currency to N. Korean banks. According to Yonhap:

Chinese banks in the northern border city of Dandong have suspended the transfer of the yuan currency to North Korean banks, Chinese financial sector officials told Yonhap News Agency on Wednesday.

The move comes as the U.N. Security Council is set to vote on new sanctions against North Korea’s fourth nuclear test and rocket launch this year.

Employees of the Dandong branch offices of China’s top four state-owned banks, including Agricultural Bank of China and Industrial and Commercial Bank of China, as well as six commercial banks such as China Merchants Bank, told Yonhap that the suspension came after “orders” from their headquarters.

Since North Korea’s third nuclear test in 2013, the Dandong branches of the Chinese banks have halted the transfer of U.S. dollars to North Korean banks.

An employee of the Dandong branch of the Agricultural Bank of China said the order came down after North Korea’s fourth nuclear test in January.

Dandong is a border city between North Korea and China and a main conduit of bilateral trade between the two neighboring countries.

ORIGINAL POST (2016-3-2): According to the Washington Post:

The U.N. Security Council unanimously adopted harsh sanctions Wednesday against North Korea, imposing some of the strongest measures ever used to pressure Pyongyang to abandon its nuclear weapons program.

The new sanctions come two months after North Korea tested what it claimed was a hydrogen bomb and a month after it conducted what was widely described as a banned missile test under the guise of launching a satellite into space. But U.S. officials began drafting the measures three years ago, soon after North Korea conducted a previous nuclear test, in order to move swiftly the next time it happened. Negotiations to win China’s support began two days after North Korea’s January nuclear test, its fourth in a decade.

The resolution is far more sweeping than existing sanctions requiring a link to proliferation activities. That precondition has been removed, in effect erasing the presumption of innocence.

It mandates cargo inspections for all goods going in and out of North Korea by land, sea or air, chokes off supplies of most aviation fuel for its armed forces, and bans the sale of all small arms and conventional weapons to Pyongyang. It also prohibits transactions that raise hard cash for North Korea through sales of its natural resources.

The resolution doubles the blacklist of people and institutions already sanctioned and requires countries to expel North Korean diplomats involved in any sanctioned activities.

One provision was designed to prevent Pyongyang from sending taekwondo instructors to train foreign police forces. Another bars North Koreans from specialized training at any school or research center in the world if the learning can advance Pyongyang’s nuclear and ballistic missile programs.

President Obama welcomed the sanctions as a firm and appropriate response to North Korea’s attempts to develop weapons of mass destruction.

“Today, the international community, speaking with one voice, has sent Pyongyang a simple message: North Korea must abandon these dangerous programs and choose a better path for its people,” he said.

As soon as the sanctions were released, the Treasury Department and the State Department updated their blacklists of people and entities tied to the Democratic People’s Republic of Korea, the official name for North Korea, and its proliferation programs. The designation freezes their U.S. assets and bars Americans from doing business with them.

The U.N. sanctions, which target the country’s elites and avoid “adverse humanitarian consequences” for civilians, aim to accomplish what worked with less onerous sanctions on Iran by pushing the impoverished nation to quit pumping money into its nuclear program.

“The chronic suffering of the people of North Korea is the direct result of the choices made by the DPRK government, a government that has consistently prioritized its nuclear weapons and ballistic missile programs over providing for the most basic needs of its own people,” said Samantha Power, the U.S. ambassador to the United Nations.

“The North Korean government would rather grow its nuclear weapons program than grow its own children,” she added.

The resolution was presented by the United States with the support of China, a sharp reversal, given Beijing’s longtime support of its neighbor. Although the United States has long had an embargo on trade with North Korea, China has provided food and fuel and has been a key trading partner. In recent years, living conditions in North Korea have improved, thanks in large part to China.

In the past, China has been unwilling to tighten the screws on Pyongyang, in part out of concern for what an imploding, unstable North Korea might mean for China’s own border. But recently North Korea has continued testing new weapons and missiles, disregarding China’s warnings and personal envoys.

After North Korea on Jan. 6 detonated a new device — calling it a hydrogen bomb, although most experts say it was a smaller nuclear device — China’s ambassador to six-party talks, Wu Dawei, went to Pyongyang to urge restraint. Instead, North Korea announced while he was there that it would test a missile.

China’s about-face suggests it has started to realize that doing nothing would impose growing political costs internationally — the possibility of a greater U.S. presence in the region and weaker relations with South Korea, which Beijing has been cultivating.

“I expect there’s been a delayed recognition in China to the political price China was paying, with South Korea in particular, for its equivocation or outright silence about how to respond to North Korea and North Korea actions,” said Jonathan Pollack, a specialist on East Asian politics and security at the Brookings Institution.

During a visit to Washington last month, Chinese Foreign Minister Wang Yi hinted at the strains in policy toward North Korea.

“On the one hand, we’re saying to the international community . . . that the normal exchanges, especially those affecting the livelihoods of the North Korean people, should not be adversely affected,” he said at the Center for Strategic and International Studies. “On the other hand, in order to uphold the international nuclear nonproliferation regime for the sake of denuclearization, our exchanges will be affected to some extent.”

But some analysts question the depth of China’s commitment to the latest round of sanctions.

“The real question going forward is whether China will enforce the new measures,” said Victor Cha, a professor at Georgetown University. “My guess is that China will squeeze for a little bit, but not too hard, while the U.S. will want China to squeeze harder and for a longer period of time.”

Sung-Yoon Lee, a Korean studies professor at Tufts University, said the U.N. sanctions, even if violated in the future, will become increasingly meaningful if ordinary citizens in North Korea are adversely affected.

“The fact the U.N. is involved will lend greater legitimacy to the effort to sanction North Korea and enable others, like Japan and Europe, to shoulder some of the blame if there are negative repercussions from sanctions, so the blame doesn’t just fall on the shoulders of the United States,” he said.

Preparatory work on the sanctions began in early 2013, immediately after the Security Council passed a sanctions resolution in response to North Korea’s third nuclear test, according to a State Department official who spoke about the sensitive negotiations on the condition of anonymity. U.S. officials concluded that incrementally ratcheting up sanctions was insufficient and that more restrictive measures were needed, the official said.

As technical experts from many government agencies met to share ideas, a contingency draft of sanctions was repeatedly updated to be ready for a fourth nuclear test by North Korea.

On Jan. 8, two days after North Korea announced the fourth test, diplomats from the U.S. mission to the United Nations presented a draft to the Chinese mission. There was little response during January as China studied the proposed sanctions, which dropped requirements to prove proliferation links, as China had insisted on previously.

China did not change its position during a Jan. 27 visit to Beijing by Secretary of State John F. Kerry or during a Feb. 5 phone call that Obama placed to Chinese President Xi Jinping.

But after the Feb. 7 missile test, the State Department official said, the Chinese came around to the U.S. point of view. Throughout much of February, U.S. and Chinese diplomats met several times a day to discuss provisions that had to be approved by Beijing, the official said.

“At 8 or 9 at night, diplomats at the U.S. mission would schlep to the Chinese mission,” the State Department official said. Then they would meet again the next day after Beijing had worked through the provisions overnight.

After a tentative agreement was reached early last week, U.S. officials had hoped for a quick adoption by the Security Council. But there were delays while Russia studied the sanctions to gauge their impact. Russia transports coal over a short stretch of railroad in North Korea to a port, and Moscow wanted reassurances it would not be banned, the official said.

In recent days, North Korea has boasted that more sanctions would not hurt. Now China, South Korea, Japan and the United States are awaiting its reaction. Early Thursday, hours after the sanctions were approved, the North fired short-range projectiles into the sea, South Korea’s Defense Ministry said.

“We’ve seen its reckless and unpredictable acts for years,” Power said. “We’ve seen threats directed at the continental United States and the Republic of Korea. We’ve seen cyberattacks on American companies costing hundreds of millions of dollars. We do not expect a change of behavior overnight.”

Read the full story here:
U.N. adopts sweeping new sanctions on North Korea
Washington Post
Carol Morello and Steven Mufson
2016-3-2

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DPRK used as Chinese smuggling route

Friday, October 23rd, 2015

According to the Siberian Times:

SWAT team ambush illegal cargo at night in open seas off coast of the Democratic People’s Republic.

The high-quality jade from the Republic of Buryatia was being exported to China without export documents. Its value was put at 50 million roubles or $800,000. Customs spokeswoman Tatiana Shichanina said: ‘We had a tip off that the smuggling was planned and decided to arrange ambush.’

The operation was led from customs vessel ‘Petr Matveev’. Officers seized ten sacks of jade. The crew were detained and taken to Vladivostok.

In China, this mineral is considered a ‘sacred rock’ and it can command a higher price than gold. The value of the ornamental rock in China encourages criminal gangs to collect and smuggle it.

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Customs seize 3 tons of Siberian jade being smuggled by sea to North Korea en route to China
Siberian Times
2015-10-23

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North Korean Meth

Thursday, August 27th, 2015

UPDATE 1 (2016-6-6): Mr. Stammers has been sentenced. According to Reuters (via The Guardian):

A British citizen who worked for a Philippines-based global criminal organisation was sentenced on Friday to more than 15 years in a US prison for conspiring to import 100kg of North Korean methamphetamine into the United States.

Scott Stammers, 47, was sentenced by US district judge Andrew Carter in Manhattan. He was one of five defendants who pleaded guilty in 2015 in a case stemming from a US Drug Enforcement Administration sting operation.

His case is one of several prosecutions to flow out of the 2012 arrest in Liberia of Paul Le Roux, the head of a multinational drug and weapons trafficking enterprise who turned into a top government informant.

On Monday, Joseph “Rambo” Hunter, a former US army sergeant who prosecutors said oversaw contract killings for Le Roux, received a 20-year prison term for conspiring to kill a federal drug agent and an informant.

Prosecutors said Stammers, while living in the Philippines, managed drug and weapons trafficking for an organisation led by Zimbabwe-born Le Roux, who participated in the sting that resulted in his arrest.

Prosecutors said in 2012, Le Roux tasked Stammers and fellow British citizen Philip Shackels with storing and protecting a large amount of North Korean-produced methamphetamine obtained from members of a Hong Kong-based organisation.

Law enforcement in Thailand and in the Philippines later seized the methamphetamine.

In 2013, the same members of the Hong Kong organisation, Ye Tiong Tan Lim and Kelly Allan Reyes Peralta, agreed to supply 100kg of the methamphetamine to purported members of a South American drug cartel, prosecutors said.

The South American cartel members were actually DEA informants, prosecutors said.

Tan Lim and Peralta agreed to deliver the North Korean-produced narcotics in Thailand, where Stammers, Shackels and another defendant, Adrian Valkovic, would provide security, transportation and storage for the drugs, prosecutors said.

The five men were arrested by Thai law enforcement in September 2013 while working on the deal, after Stammers reported to Le Roux that “all main players are now on the ground,” prosecutors said.

Like Stammers, who received a 181-month prison term, the other defendants pleaded guilty to conspiring to import methamphetamine into the US.

Valkovic was sentenced in January to 113 months in prison, Peralta in April received a 91-month term, and Shackles was sentenced to 85 months. Tan Lim’s sentencing is set for Tuesday.

Read the full story here:
UK man jailed for 15 years in US for North Korean drug plot
Reuters
2016-6-3

ORIGINAL POST (2015-4-27): According to the AFP:

A British man pleaded guilty in New York on Thursday to conspiring to import 100kg of dangerously pure North Korean methamphetamines into the United States, American prosecutors said.

Scott Stammers, 46, was one of five defendants arrested by authorities in Thailand in September 2013 on suspicion of preparing to ship the drugs by boat.

He faces 10 years to life in prison when sentenced at a future date by a US judge. Three of the other defendants pleaded guilty earlier this month.

The fifth, 32-year-old Philip Shackels, is scheduled to go on trial in New York on 21 September.

Manhattan US attorney Preet Bharara thanked authorities in Liberia, Romania and Thailand for assisting with the US investigation.

“Stammers’ scheme ended not with the North Korean methamphetamine flooding American streets as he had intended, but rather with a guilty plea in a Manhattan federal court,” Bharara said in a statement.

Defendants Ye Tiong Tan Lim and Kelly Allan Reyes Peralta had belonged to a criminal gang, which had claimed to have stockpiled one ton of North Korean methamphetamines in the Philippines for storage, court documents say.

Read the full story here:
Briton Scott Stammers pleads guilty to North Korean drug smuggling plot
AFP
2015-8-27

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North Korean-supplied missiles to Yemen

Wednesday, July 29th, 2015

According to Yonhap:

Scud missiles fired into Saudi Arabia by Yemeni rebels in recent months came from North Korea, a South Korean intelligence official said Wednesday, in the latest case that illustrated North Korea’s support for the weapons programs of some countries in the Middle East.

Saudi Arabia has shot down about 40 percent of some 20 Scud missiles fired by Yemen’s Houthi rebels, said the official, who is familiar with the issue.

He did not give further details on how South Korea reached the conclusion that the missiles originated from North Korea. He spoke on condition of anonymity because he was not authorized to speak to media.

Missile exports have long been a major source of hard currency for North Korea.

“North Korea has sold missiles to Yemen and sent missile engineers to that country in the 1990s,” said a former North Korean official, who was in a position to know about the arms deals.

Another former North Korean intelligence official in Seoul said North Korea sold many Scud missiles to countries in the Middle East, noting Egypt was the hub of North Korea’s arms trade in the region.

The two former North Korean officials, who later defected to South Korea, asked not to be identified, citing the issue’s sensitivity.

North Korea’s Scud-B missiles and Scud-C missiles have a range of 300 kilometers and 500 kilometers, respectively, according to South Korea’s Defense Ministry.

Read the full story here:
Scud missiles fired into Saudi Arabia from Yemen traced to N. Korea: official
Yonhap
2015-7-29

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North Koreans arrested for trade in rhino horn

Thursday, May 28th, 2015

According to the Daily NK:

One of the two North Koreans arrested on site for engaging in illegal trade of rhinoceros horns in Mozambique has been confirmed a Pyongyang diplomat, according to the Voice of America.

“Of the two arrested North Koreans, one was confirmed to be Park Chol Jun, a diplomat working at Pyongyang’s embassy in South Africa,” VOA reported, citing an official working at Seoul’s mission in the same country.

The two perpetrators, arrested on the 3rd this month, posted bail the following day and left the country for South Africa, the official said.

The North Korean mission there paid roughly 30,000 USD for their bail, the South Korean official said.

North Korean diplomats are said to often engage in illegal activities in other countries.

In March, a Pyongyang diplomat was deported from Bangladesh after attempting to smuggle in 27kg of gold, while in April, a couple from the North’s mission in Pakistan was caught selling alcohol on the streets of Karachi without a license.

“These kind of illegal activities have been around for a long time, because they stem from structural problems in operation,” Hong Sun Kyeong from the Committee for the Democratization of North Korea, who was also a former Pyongyang diplomat in Thailand, said. “Since the late 1970s, the North has not been giving its overseas missions money to operate. So not only do they have to make their own money, the state also makes it a rule that they have to wire back ‘loyalty foreign currency.’”

He added, “Back in the North, they do not recognize such illicit activities as being illegal, so even if officials are deported, they can just as easily be sent to missions in other countries.”

Here is coverage in the Joong Ang Ilbo.

Read the full story here:
Pyongyang diplomat caught in illegal trading of rhino horns
Daily NK
Kim Seong Hwan
2015-5-28

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DPRK selling Viagra in Bangladesh

Friday, May 15th, 2015

According to UPI:

A North Korean restaurant manager in Bangladesh was arrested in connection with illegal sales of Viagra and alcohol on Friday.

The supervisor of Pyongyang Restaurant in Dhaka, identified as a North Korean woman, had been secretly selling the impotence drug alongside other pharmaceuticals, reported South Korean news agency Yonhap.

Bangladesh’s Customs Intelligence Investigation Department was tipped off about the illegal sale of alcohol – and a raid on Friday uncovered 210 pills of Viagra, other medications, 94 cans of Foster’s beer and ten bottles of whisky, according to Bangladesh news site Prothom-Alo.

Pyongyang Restaurant in Dhaka is presided over by North Korea embassy staff, and an embassy employee reportedly tried to block the investigators.

Moinul Khan, head of the Customs Intelligence Investigation Department, said legal steps would be taken against the one North Korean national who was arrested.

Yonhap reported Bangladesh news network Jamuna TV was first to report the arrest, and said the North Korea-operated restaurant was raising funds through illegal operations.

Bangladesh’s population is mostly Muslim, with 83 percent of the country adhering to the Islamic faith. Alcohol cannot be sold without government permission.

This is not the first time North Korean envoys have been connected to illegal activity in Bangladesh.

In March North Korean diplomat Son Yung Nam tried to transport $1.4 million worth of gold bars, 170 in total.

Bangladeshi customs officials said the gold was most likely headed for a “local criminal racket” in order to raise cash for North Korea.

Read the full story here:
North Korean arrested in Bangladesh for sales of Viagra, alcohol
UPI
Elizabeth Shim
2015-5-15

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