Make Pyongyang Pay

Stop North Korea by hitting it where it hurts: its wallet.


If Washington needs more data points showing that its North Korea policy has been a dismal failure, consider the events of the first 40 days of 2016. After 20 years of cajoling Pyongyang to give up its nukes, so-called “strategic patience,” and half-hearted sanctions followed by aid packages worth in total at least $1.3 billion, Pyongyang is now much closer to becoming a legitimate nuclear power — and an imminent threat to the United States.

On Jan. 6, North Korea conducted its fourth nuclear test. On Feb. 7, it conducted its sixth long-range missile test, bringing it closer to its longstanding goal of demonstrating its ability to hit the continental United States with a nuclear warhead-tipped missile. Worryingly for all the responsible powers in the region, Pyongyang has also moved closer to a second goal: changing the balance of power in the Korean peninsula by holding Seoul and U.S. forces in Korea hostage to a nuclear war with Washington — a crucial step in eventually overpowering South Korea.

The good news for the United States is that if one day Washington must weigh the lives of hundreds of thousands of its own citizens against its treaty obligations to defend South Korea, it could withdraw troops and downgrade the alliance. The bad news for everyone is that Pyongyang would still continue to sell nuclear material to its clients in Iran, Syria, and elsewhere. Seoul, increasingly wary of this ominous trajectory, would likely go nuclear itself — a step far beyond the Feb. 7 announcement that it might allow the United States to deploy the Terminal High Altitude Area Defense System, a powerful anti-missile system, on South Korean soil. Once Seoul crosses that nuclear Rubicon, an increasingly assertive Japan could follow suit, as it would be faced not only with the threat of Pyongyang but with an accelerated Chinese military buildup. No one wants a nuclear arms race in Northeast Asia.

Since Barack Obama became president in 2009, Pyongyang has conducted three nuclear tests and three tests of long-range missiles. What can Obama do to prevent his legacy in the region from being as poor as his two predecessors’ — or worse?

Sanction North Korea, and don’t stop until it disarms and begins irreversible reforms. Despite his isolation, North Korea’s leader Kim Jong Un depends on foreign trade, banking, and access to the dollar-based financial system to pay his elites, military, and security forces. The U.S. Treasury Department, as the steward of the global financial system, has the power to regulate and block the vast majority of international transactions that are denominated in dollars. In recent years, however, it has made only token efforts to restrict Pyongyang’s access to international finance.

Financial sanctions successfully isolated Pyongyang from the international financial system in 2005, until the George W. Bush administration prematurely lifted those measures two years after North Korea’s first nuclear test, in 2006. They can work again, even on banks in China — the country that provides North Korea with the majority of its financial support. When Treasury designated North Korea’s Foreign Trade Bank a “key financial node in North Korea’s weapons of mass destruction apparatus” in 2013, several weeks after Pyongyang’s third nuclear test, China’s four largest banks all ceased money transfer to North Korea. Similarly, in 2005, Chinese banks voluntarily halted transactions with the Treasury-designated North Korean entity. No one, not even Chinese banks, relishes coming under the scrutiny of Treasury and facing the prospect of being blocked out of the U.S. financial system. The record shows that money, or the disincentive of losing it, rather than moral suasion, is the way to get Beijing to pressure Pyongyang.

Yes, Pyongyang today may be more adept at evading such financial measures than it was under the Bush administration, but multinational financial institutions — highly sensitive to political risks and financial losses — will shy away from financial transactions with designated North Korean entities. Moreover, recent U.N. reports confirm that Pyongyang continues to rely on the dollar, and its access to the dollar system, to move money around the world. This gives the United States great leverage in constricting the Kim regime’s streams of revenue and damaging its ability to pay off its party elites, security forces, and military.

Congress has united to expand on this strategy with new legislation that further restricts North Korea’s access to the financial system, requires Treasury to freeze the assets of those involved in Pyongyang’s proliferation and human rights abuses, and authorizes secondary sanctions against international banks that help Pyongyang perpetuate this behavior. The House overwhelmingly passed this legislation, and the Senate passed it on Feb. 10. If Washington enforces these sanctions as aggressively as the sanctions it imposed on al Qaeda, it will put Pyongyang under severe pressure.

How long should the sanctions last? Until Pyongyang verifiably denuclearizes and dismantles its gulags — two credible signs of genuine intent to change. A regime that operates a vast system of forced labor and enforces a deliberate policy of mass starvation will feel no compunction about killing its own citizens or civilians across the border, arming terrorists, or blatantly deceiving its interlocutors in nuclear negotiations. The process might take several years, but it’s the only way — aside from attacking the country — to force Pyongyang to change course.

Moreover, one only has to consider Washington’s record of dealing with Pyongyang over the last quarter-century to realize that sustained sanctions are the best option. Each time Pyongyang took a half-step toward de-escalation, the Bill Clinton, Bush, and Obama administrations would lift sanctions, or at the very least feel appeased, and turn their attention from North Korea. Pyongyang would then eventually backslide on its commitments, and conduct another missile or nuclear test, carefully timed for maximum political impact and international coverage.

Pyongyang’s first missile test, on Aug. 31, 1998, set a bad precedent. After the test, Pyongyang pressured the Clinton administration to give it nearly $200 million in food aid, in return for inspecting a cave suspected of storing military materiel. But by the time Pyongyang allowed U.S. inspectors into the cave, more than one year later, it was already empty — the material had either been moved months before, or was never there in the first place. Either way, Pyongyang tricked the United States.

Subsequent tests were galling not only because they showed what a waste of time prior diplomacy had been, but because of their carefully chosen dates. Pyongyang’s second test came in the afternoon of July 4, 2006, Washington, D.C., time, and the third on April 5, 2009, during Obama’s first trip to Europe as president and hours before delivering his first major foreign policy speech — on a world without nuclear weapons. Pyongyang’s fourth and fifth came in April and December 2012, aimed, respectively, at bolstering Kim’s leadership and flouting Chinese President Xi Jinping, who took power in November of that yeary.

With the same dramatic effect in mind, Pyongyang conducted its first nuclear test on Oct. 9, 2006 — Columbus Day in the United States and the eve of one of North Korea’s most important national holidays, Party Founding Day. Its second came on May 25, 2009, U.S. Memorial Day, and third on Feb. 12, 2013, during Xi’s first Lunar New Year’s celebrations. Its fourth test, in January, came two days before Kim’s birthday.

The United States must henceforth maximize its vast financial powers rather than patronize Pyongyang and fall prey yet again to its ruse — or outsource its North Korea policy to China.

But won’t damaging the regime force it to lash out dangerously against the United States? Hardly. Over the past several decades, Pyongyang has shown itself far more rational than suicidal: It provokes on its own timetable, regardless of Washington’s rhetorical hostility, generous engagement, or apathy. Only when Pyongyang fears regime collapse from financial constrictions will the United States be able to reach a negotiated settlement.

Until Washington applies sufficient financial pressure to destroy the Kim regime’s instruments of self-preservation, it will lack sufficient leverage for negotiations to work. In the wake of this most recent missile test, the United States must apply and sustain pressure until independent observers can verify Pyongyang’s dismantlement of its nuclear arsenal and its concentration camps.

The alternative is to live with a growing security threat and a Northeast Asia possibly marked by nuclear proliferation. In short, the world’s most dynamic economic region is hanging in a precarious balance of nuclear parity between an economically moribund, risk-prone, nuked-up North Korea and the affluent, risk-averse, nuked-up rest.

Image Credit: KIM JAE-HWAN/AFP/Getty Images

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