North Korea’s Sanctions Circumvention Allows Russians to Bypass the West
In September 2020, a Hong Kong-registered company transferred ownership of a vessel, which had disappeared from maritime tracking databases the previous month, to Pyongyang-based Su Ryong San Shipping Co Ltd.
According to UN observers, the Chinese company imported up to 200,000 tonnes of sanctioned North Korean coal, which it bartered with a Chinese furniture company in exchange for two shipments of fertilizer to South Korea. North.
The companies’ intricate maneuvers were just a tiny part of a global web of front companies, commodity traders, spies, cybercriminals, banks and ship operators designed to evade international sanctions on North Korean commercial and financial transactions.
The network’s operations illustrate the ambiguous role played by China and Russia. Both countries are nominally committed to UN sanctions against Pyongyang, even as they turn a blind eye to the murky practices that keep the North Korean regime afloat.
Now, as Russia comes under intense pressure from Western sanctions over its invasion of Ukraine, analysts are weighing what North Korea’s example can teach Western policymakers, including China’s role in the easing economic pressure on Moscow.
“North Korea is instructive in many ways, not least because it survives because it has outsourced much of its economy to Russia and China,” said James Byrne of the Royal United Services Institute in London.
In 2017, the US Treasury imposed sanctions on Bank of Dandong, a small Chinese bank that held assets of $10.66 billion, accusing it of facilitating millions of dollars in transactions for companies involved in the program. North Korean weaponry.
Zongyuan Liu, a fellow at the Council on Foreign Relations in New York, said Russia could take advantage of China’s “hot banks”, which facilitate illegal transactions but are then liquidated or reconstituted before their activities are discovered.
“It’s an established pattern, and it’s already being used by North Korea and the Iranians,” Liu said. “But the volumes involved with Russia are so large that it will be very difficult to move the money before it gets caught up in US sanctions.”
In return, “China could have more leverage over Russia in negotiating oil and gas deals, which means it could buy Russian oil and gas at steep discounts,” Liu said.
She added that China lifted restrictions on Russian wheat and barley imports in February, just before the Russian invasion of Ukraine.
Tom Keatinge, director of the Center for Financial Crime and Security Studies at RUSI, said Chinese banks were already assessing the risk of handling Russia-related transactions on a case-by-case basis.
“Transactions rejected at Western branches of Chinese banks for compliance reasons are then processed in Shanghai if they are deemed strategically important to China,” he said.
“China could well become a clearing house for Russian transactions, and there are many interesting tricks that can be used – whether it be the Mexican model of the “black peso market” for cross-border drug financing or the model secular hawala method of using brokers to facilitate transactions without money changing hands,” Keatinge said.
But Aaron Arnold, a counterproliferation expert who has served in both the US government and the UN panel monitoring North Korean sanctions violations, noted Iran’s unfortunate experience of attempt a “barter system with China that was essentially oil for goods”.
“Iran quickly found itself inundated with Chinese products it neither needed nor wanted,” Arnold said. “Shifting economic activity to China may relieve some sectors, but not the economy as a whole.”
North Korea’s misery – its real gross domestic product was just $27.4 billion in 2020, compared to Russia’s GDP of nearly $1.5 billion – means anti-sanctions programs that even fetch tens of millions of dollars or less can make a significant difference to a diet focused solely on survival and personal enrichment.
Allegations in the latest UN report on North Korean sanctions violations included a Taiwanese shipping agency helping Pyongyang import tens of thousands of tons of oil, a North Korean spy running hotels and casinos in Cambodia , a project to establish a factory producing weapons and narcotics in Uganda and plans to import luxury cars and even a grand piano.
Like Russia, North Korea has a formidable cybercriminal capability. Last week, the US Treasury linked North Korean hackers to a $615 million crypto heist by players of Axie Infinity, a popular online game.
But Liu said a far bigger threat to the West than individual criminal operations was that Russia, China and other like-minded countries were accelerating their efforts to build their own parallel financial systems. North Korea, she added, would be a “major beneficiary” of an “alliance of sanctions survivors”.
Liu cited Russian Finance Minister Anton Siluanov’s call this month for the Brics group of Brazil, Russia, India, China and South Africa to expand the use of national currencies and integrate their payment systems.
Several experts have linked the fate of the North Korean sanctions regime to that of the fractured world order.
Last month, Russia’s deputy foreign minister met with North Korea’s ambassador to Moscow to discuss improving bilateral relations “in the context of changes taking place on the international scene”.
Stephanie Kleine-Ahlbrandt, a non-resident fellow at the Stimson Center think tank in Washington, said: “I would expect to see greater sanctions violations by Russia and China, as well as an increase in cooperative efforts, especially multilaterally, to weaken the sanctions regimes against North Korea and other countries.
“The more Russia becomes a pariah, the less interest it will have in maintaining the system,” Keatinge said. “I am increasingly convinced that we are going to end up with financial walled gardens – a garden in the east dominated by China and a garden in the west dominated by the dollar.”