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NORTH KOREA NEWSLETTER NO. 118 (August 5, 2010)

All Headlines 11:03 August 05, 2010

*** TOPIC OF THE WEEK (Part 1)

U.S. Determines to Place New Sanctions on N. Korea in Coming Weeks

SEOUL (Yonhap) -- As North Korea faced ongoing stiff confrontation from the United States and its ally South Korea, a senior U.S. envoy visited Seoul early this week to show Washington's firm determination to carry out new sanctions on the Pyongyang regime.

Robert Einhorn, the U.S. State Department's special adviser for nonproliferation and arms control, said on Aug. 2 the U.S. will carry out fresh sanctions on North Korea "in the next several weeks" that could lead to cutting companies or individuals involved in Pyongyang's illicit activities out of the international financial system.

More specifically, the U.S. will implement new measures to target entities engaged in the export or procurement of conventional arms by or for North Korea, the procurement of luxury goods for North Korea and other illicit activities conducted by North Korean officials.

These activities include the counterfeiting of U.S. currency and other goods, the smuggling of narcotics and other illegal and deceptive activities in the international financial and banking systems.

Einhorn said the purpose of the new measures is to put an end to Pyongyang's "destabilizing proliferation activities, to halt illicit activities that help fund its nuclear and missile programs and to discourage further provocative actions."

Einhorn arrived in Seoul on Aug. 1 along with other officials including Daniel Glaser, deputy assistant secretary of the treasury for terrorist financing and financial crimes, for talks on fresh sanctions on North Korea over its involvement in the March sinking of a South Korean warship that killed 46 sailors.

"The United States will soon adopt and begin implementing new country-specific measures ... that will target entities engaged in the export or procurement of conventional arms by or for North Korea, the procurement of luxury goods for North Korea, and other illicit activities, which are often conducted by or for North Korean officials," Einhorn told a press conference.

"We know that these activities bring hundreds of millions of dollars in hard currency annually to North Korea, which can be used to support" the North's nuclear and military programs or fund luxury goods purchases in violation of U.N. sanctions resolutions, he said.

Officials and analysts have said that the measures themselves are not expected to have much impact on Pyongyang, as the socialist nation has few assets and financial transactions in the U.S. But they could prove painful to the North if Washington's blacklisting leads to financial institutions in other nations following suit, they said.

"By publicly naming these entities, these measures can have the broader effect of isolating them from the international financial and commercial system," Einhorn said.

In 2005, the U.S. imposed similar financial sanctions on Pyongyang by blacklisting a bank with links to the North in the Chinese territory of Macau. That led to the freezing of US$24 million in North Korean money held at the bank, Banco Delta Asia, and scared away other global financial institutions from dealing with Pyongyang for fear they would also be blacklisted.

Washington's move hit Pyongyang hard, briefly cutting off the regime's access to the international financial system by designating the bank as an entity suspected of helping North Korea launder money.

Reports at the time said that North Korean officials had to carry around bags of cash for financial transactions because they were not able to use overseas banks.

Glaser, who oversaw the 2005 measures, expressed confidence that the new sanctions could have powerful effects on North Korea's international finances.

"The real importance of BDA was the impact it had throughout the international financial system as banks throughout the world saw what happened in the case of BDA," he told the news conference. "So regardless of what specific authorities we're talking about ... we are going to have resonance through the international financial system."

Einhorn said that a key to achieving the broader effect of isolating North Korean entities from the international financial system is cooperation from third-party countries, especially China, Pyongyang's last-remaining major ally that provides the North with food and energy aid.

Einhorn said China's cooperation is "critical." "We want China to be a responsible stakeholder in the international system. That means cooperating with U.N. Security Council resolutions, and it means not backfilling, not taking advantage of the responsible self-restraint of other countries," he said.

Earlier in the day, Einhorn held a series of meetings with South Korean officials, including Foreign Minister Yu Myung-hwan, chief nuclear envoy Wi Sung-lac and Deputy Foreign Minister Lee Yong-joon.

After the U.N. Security Council issued a mild rebuke over the ship sinking, North Korea indicated its willingness to rejoin the stalled six-party talks on ending its nuclear programs. Pyongyang has denied any involvement in the sinking.

South Korea and the U.S. have rejected the overtures, demanding that the North first show a responsible attitude over the ship sinking and prove through action that it is serious about abandoning its nuclear ambitions.

"We can't repeat the kind of cycle we have been through on a number of previous occasions where North Korea engages in talks, makes commitments and then abandons those talks and reneges on its commitments. We have to break that cycle," Einhorn said.

Einhorn, however, seemed to be well aware of the limitations of the U.S. sanctions. He said that the "pressuring should not just be for the sake of pressuring," and would leave open the door for the North to come back to the dialogue table. But the U.S. official also made it clear Washington is no longer interested in "dialogue for the sake of dialogue."

"So before the six-party talks can reconvene, it's essential that North Korea demonstrate in tangible ways that it is prepared this time to make commitments and to fulfill them," he said.

On Aug. 3, the U.S. envoy asked South Korea to cooperate in its push for financial sanctions on North Korea. The request was made in a closed-door meeting between Einhorn and South Korea's key policymakers in charge of international financial affairs in the government complex in Gwacheon, south of Seoul.

"During the meeting, the U.S. official explained to us about financial sanctions in connection with North Korea and Iran. They wanted our government to join the moves, asking for cooperation," said Kim Ik-joo, chief of the international financial bureau at the Ministry of Strategy and Finance. He did not go further into detail.

Few details are known about what measures the U.S. envoy brought to the table. But high-ranking diplomatic sources here, meanwhile, speculated that Washington will announce the full extent of its sanctions against the North in two or three weeks, before Einhorn is scheduled to visit China later in the month.

These measures are expected to span eight organizations and individuals blacklisted by the United Nations for engaging in the North's proliferation of weapons of mass destruction, they said.

Officials and analysts say the isolated North Korean economy is already feeling the pinch from existing sanctions and not much more can be achieved through further sanctions.

With North Korea, China is considered key to effective sanctions because it is a lifeline to its impoverished communist neighbor, providing fuel, food and other necessities. China has been reluctant to slap sanctions on North Korea, focusing instead on reviving the six-party nuclear talks, which have been stalled over U.N. sanctions.

Some analysts say the U.S. may end up repeating what happened with Banco Delta Asia in Macau in 2005. Washington lifted the financial freeze in early 2007 to entice the North to come back to the six-party talks.

A Seoul official said on Aug. 4 that the U.S. is expected to blacklist three key North Korean finance officials believed to be taking care of their leader Kim Jong-il's secret funds as part of new sanctions against the North.

One of the three finance officials is Kim Tong-myong, head of Tanchon Commercial Bank, the source said.

"The U.S. is paying special attention to three people, including Kim Tong-myong, who operate North Korea's secret funds abroad," the source said on condition of anonymity. "If they are included in the new sanctions, it could deal a blow to North Korea's leadership."

The U.S. has also collected evidence that nine North Korean financial institutions operating overseas and at least two trading firms have been used for the regime's illicit activities, such as trade in conventional arms, luxury goods and counterfeit money, the source said.

Overall, the U.S. is expected to add some 10-20 North Korean entities and individuals to its blacklist of those to be subject to sanctions, which include freezing their assets in the U.S. and banning them from dealing with American financial institutions.

Currently, U.N. Security Council Resolutions 1718 and 1874 put sanctions on eight North Korean organizations, including the Korea Mining Development and Trading Corporation, Korea Ryongbong General Corporation and Tanchon Commercial Bank.

The sanctions also targeted five North Korean individuals, including Yun Ho-jin, director of Namchongang Trading Corporation and Ri Je-son, director of the General Bureau of Atomic Energy.

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