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A LEGISLATIVE PROPOSAL TO 

IMPEDE NORTH KOREA’S 

ACCESS TO FINANCE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON MONETARY 

POLICY AND TRADE 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

SEPTEMBER 13, 2017 

Printed for the use of the Committee on Financial Services 

Serial No. 115–41 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

STEVE STIVERS, Ohio 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

LEE M. ZELDIN, New York 

DAVID A. TROTT, Michigan 

BARRY LOUDERMILK, Georgia 

ALEXANDER X. MOONEY, West Virginia 

THOMAS MacARTHUR, New Jersey 

WARREN DAVIDSON, Ohio 

TED BUDD, North Carolina 

DAVID KUSTOFF, Tennessee 

CLAUDIA TENNEY, New York 

TREY HOLLINGSWORTH, Indiana 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

JOSH GOTTHEIMER, New Jersey 

VICENTE GONZALEZ, Texas 

CHARLIE CRIST, Florida 

RUBEN KIHUEN, Nevada 

KIRSTEN SUTTON MORK, Staff Director 

(III) 

SUBCOMMITTEE ON MONETARY POLICY AND TRADE

ANDY BARR, Kentucky, Chairman 

ROGER WILLIAMS, Texas, Vice Chairman 

FRANK D. LUCAS, Oklahoma 

BILL HUIZENGA, Michigan 

ROBERT PITTENGER, North Carolina 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

ALEXANDER X. MOONEY, West Virginia 

WARREN DAVIDSON, Ohio 

CLAUDIA TENNEY, New York 

TREY HOLLINGSWORTH, Indiana 

GWEN MOORE, Wisconsin, Ranking Member 

GREGORY W. MEEKS, New York 

BILL FOSTER, Illinois 

BRAD SHERMAN, California 

AL GREEN, Texas 

DENNY HECK, Washington 

DANIEL T. KILDEE, Michigan 

JUAN VARGAS, California 

CHARLIE CRIST, Florida 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

September 13, 2017 .......................................................................................... 1 

Appendix: 

September 13, 2017 .......................................................................................... 37 

WITNESSES 

WEDNESDAY, SEPTEMBER 13, 2017 

Albright, David, President, Institute for Science and International Security .... 5 

Klingner, Bruce, Senior Research Fellow, Northeast Asia, the Heritage Foundation .................................................................................................................... 11 

Rosenberg, Elizabeth, Senior Fellow and Director, Energy, Economics, and 

Security Program, Center for a New American Security .................................. 9 

Ruggiero, Anthony, Senior Fellow, Foundation for Defense of Democracies ...... 7 

APPENDIX 

Prepared statements: 

Waters, Hon. Maxine ........................................................................................ 38 

Albright, David ................................................................................................. 40 

Klingner, Bruce ................................................................................................. 53 

Rosenberg, Elizabeth ........................................................................................ 71 

Ruggiero, Anthony ............................................................................................ 78 

(1) 

A LEGISLATIVE PROPOSAL TO 

IMPEDE NORTH KOREA’S 

ACCESS TO FINANCE 

Wednesday, September 13, 2017 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON MONETARY

POLICY AND TRADE, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:06 a.m., in room 

2128, Rayburn House Office Building, Hon. Andy Barr [chairman 

of the subcommittee] presiding. 

Members present: Representatives Barr, Williams, Huizenga, 

Pittenger, Love, Hill, Emmer, Mooney, Davidson, Tenney, Hollingsworth; Moore, Foster, Sherman, Green, Heck, Kildee, and Vargas. 

Ex officio present: Representative Hensarling. 

Also present: Representative Wagner. 

Chairman BARR. The Subcommittee on Monetary Policy and 

Trade will come to order. Without objection, the Chair is authorized to declare a recess of the subcommittee at any time. 

Today’s hearing is entitled, ‘‘A Legislative Proposal to Impede 

North Korea’s Access to Finance.’’ 

I now recognize myself for 5 minutes to give an opening statement. 

Today’s hearing will examine draft legislation that would impose 

secondary sanctions on foreign banks whose business supports the 

North Korean regime, whether directly or indirectly. By encompassing virtually all of North Korea’s economic activity, these 

measures would represent the toughest financial sanctions yet directed at Pyongyang. This means going after coal, petroleum, textiles, and minerals, as well as North Korean laborers abroad. 

In addition, the bill would incentivize greater compliance with 

U.N. sanctions by leveraging our vote at the international financial 

institutions where certain countries with lax enforcement go to 

seek assistance. This bill puts those countries on notice. 

This proposed legislation has been informed by the committee’s 

ongoing work on North Korea, as well as the U.N. panel of experts’ 

evaluation of existing sanctions effectiveness. 

Needless to say, North Korea’s sixth nuclear test on September 

3rd, coupled with its repeated launching of intermediate and longrange ballistic missiles, underlines that more must be done. As a 

result, the legislative draft we will be looking at lays out a choice: 

2 

Foreign banks can either do business that benefits North Korea or 

they can do business with the United States. They cannot do both. 

As many of us here today are aware, this is a similar approach 

to the one taken in 2010 against Iran, which helped compel the 

ayatollahs to negotiate over their nuclear program. While there are 

differences of opinion over how successful those negotiations were, 

there is consensus, I believe, that in the absence of secondary sanctions affecting banks, Tehran would have been far less incentivized 

to even engage in talks. 

A focus on banks is especially important given how North Korea 

has evaded sanctions in the past. As Dr. John Park of Harvard’s 

Kennedy School testified before this subcommittee in July, the 

North Koreans have moved much of their trading activity offshore 

using third-country brokers and front companies. 

The specter of financial sanctions may concentrate the minds of 

foreign banks so that the entities identified by Dr. Park and others 

have fewer options to carry out transactions and mask North Korean involvement. 

Having said that, this bill would expand the scope of our sanctions to encompass even actors engaged in conventional trade with 

the North. Given North Korea’s unchecked hostility, broadening 

our efforts in this way appears essential. 

Nevertheless, China’s response to stronger sanctions has been 

cited as a concern as the country accounts for an estimated 90 percent of North Korea’s trade. Some have therefore argued that 

harsher sanctions now may damage cooperative efforts with Chinese leaders to curb North Korea’s weapons program. But I would 

submit that those critics should be far more sensitive to a quarter 

century of failed multilateral efforts to reign in Pyongyang. There 

comes a time when caution or, ‘‘strategic patience,’’ as one Administration phrased it, becomes a euphemism for self-delusion. 

As this subcommittee learned from its hearing in July, if China 

is not part of the solution to North Korea, it is part of the problem. 

Chinese officials have fallen short on enforcing U.N. sanctions that 

Beijing itself has signed on to. And as the U.N. Security Council 

talks following the North’s sixth nuclear test have demonstrated, 

it is still unclear if China is committed to meaningfully tackling the 

North Korean threat. 

Finally, we should acknowledge that Kim Jong-un’s eagerness in 

forcing the withdrawal of U.S. troops from the region may not be 

entirely inconsistent with Chinese interests. For all the breathless 

talk of China exerting influence around the globe as a rival to U.S. 

power, we are curiously asked to believe that its hands are tied 

when it comes to a small, economically dependent state next door. 

Well, if Chinese officials’ hands are tied, then we should proceed 

with secondary sanctions so that their banks can assist international efforts to cut off North Korea’s access to finance. If, on the 

other hand, China could do more than it has, then secondary sanctions may finally inspire it to do so. 

I want to thank our witnesses for appearing today, and I look 

forward to their testimony. 

The Chair now recognizes the ranking member of the subcommittee, the gentlelady from Wisconsin, Gwen Moore, for 5 minutes for an opening statement. 

3 

Ms. MOORE. Thank you so much, Mr. Chairman. 

And in the absence of our ranking member of the full Financial 

Services Committee, Ms. Waters, I would like to share some 

thoughts that she has committed to paper regarding today’s hearing: 

‘‘I want to thank our witnesses for joining us to discuss the legislative proposal aimed at expanding United States sanctions against 

North Korea and pressuring the international community to enforce those restrictions as well. 

‘‘The situation in North Korea is the most urgent and dangerous 

threat to peace and security that we face. And it is one that grows 

more dangerous as North Korea aggressively pursues the capacity 

to extend its nuclear reach to United States cities. 

‘‘In fact, there are no good options for dealing with North Korea. 

Most experts agree that a preemptive strike at this point on North 

Korea would be reckless beyond belief. 

‘‘Of the least-bad options, I like the idea of pressing China to 

lean more heavily on North Korea and I like the idea of tougher 

sanctions. But we should not confuse either of those things with a 

coherent strategy, and we should be clear up front about our goals 

and objectives and what we expect sanctions can accomplish. 

‘‘Any ratcheting up of sanctions must be coupled with aggressive 

diplomatic engagement by the United States and within a framework that would entail nuanced negotiations with North Korea, 

U.S. allies, and China. This would require unprecedented policymaking capacity and coordination across the United States Government as well as skilled policy coordination with our allies. 

‘‘It concerns me, therefore, that just as this crisis is accelerating, 

our diplomatic capabilities, which open channels for crisis communication and reduce the risk of miscalculation, are diminished. Not 

only are U.S. ambassadorships to Japan and South Korea still vacant, the President has yet to nominate a permanent Assistant Secretary of State for East Asia and Pacific affairs. 

‘‘The legislative proposal before us today rightly recognizes the 

need to exert massive and immediate pressure on the North Korean regime and, importantly, enlists China and others in this effort. However, such a powerful approach towards sanctions that 

have the capacity to reverberate throughout the global economy 

and present potentially disastrous, unintended consequences must 

also allow for careful calibration in its implementation. 

‘‘We look forward to the witnesses’ views on the proposal before 

us as well as your views on how the U.S. can most effectively use 

this leverage to contain the alarming danger North Korea presents. 

‘‘And I reserve my time.’’ 

Chairman BARR. The Chair now recognizes the gentleman from 

Washington, Mr. Heck, for an opening statement. 

Mr. HECK. Thank you, Mr. Chairman, and Ranking Member 

Moore, for the time. And thank you all for convening this important hearing. 

Responding effectively to North Korea’s provocations will require 

a variety of tools: credible deterrence; adept alliance management; 

skillful diplomacy; and a careful design of nonmilitary sanctions. 

Here in the Financial Services Committee, we have jurisdiction 

over only one of those tools: sanctions. But I believe it is important 

4 

that we always keep the broader picture in mind as we work to 

perfect the discussion draft which has been put forward today. 

Even with perfect compliance, I believe it is very difficult to stop 

any country from pursuing a course of action which it views as 

vital to its survival through sanctions alone. These challenges are 

even greater when dealing with a regime like North Korea, a regime which relies on force to stay in power, a regime which has 

demonstrated indifference to the incredible suffering of its own people, a regime which can easily make sure that its elite and its nuclear program are the last to feel any pinch. 

Done right, however, sanctions can make further North Korean 

advances slower and more costly, giving more time for other policy 

tools to work. 

And I look forward to hearing from our distinguished witnesses 

about how this proposed draft fits into a larger strategy. 

My constituents in the South Puget Sound, who include the 

servicemembers at Joint Base Lewis-McChord, are counting on us 

to respond to this crisis in a responsible manner. So, too, are our 

allies, like South Korea and Japan and an Asia Pacific region 

which has enjoyed decades of peace and prosperity in large part because of the credibility of U.S. security guarantees and a broader 

commitment to the region. 

We cannot afford to fail them. We have to get this right. And I 

am hopeful that with steady American leadership working in a bipartisan manner, we will get this right. 

I yield back, Mr. Chairman. 

Chairman BARR. The gentleman yields back. 

And because of the significance of the issues under consideration 

in this hearing and the importance of the North Korean threat to 

our homeland and to the interests of our country, a number of 

members from the full Financial Services Committee have expressed an interest in participating in today’s subcommittee hearing. 

And so I ask for unanimous consent that members who are on 

the full committee, but not on this subcommittee, may join in this 

hearing. Without objection, it is so ordered. 

Today, we welcome the testimony of a distinguished panel of witnesses. First, David Albright, who is the founder and president of 

the Institute for Science and International Security. He has written 

numerous assessments on the secret nuclear weapons programs 

throughout the world. Mr. Albright has published assessments in 

numerous technical and policy journals, including The Bulletin of 

the Atomic Scientists, Science, Scientific American, Science and 

Global Security, Washington Quarterly, and Arms Control Today. 

Mr. Albright has also coauthored four books, including, ‘‘The World 

Inventory of Plutonium and Highly Enriched Uranium,’’ as well as, 

‘‘Peddling Peril: How the Secret Nuclear Trade Arms America’s Enemies.’’ 

Prior to founding the Institute, Mr. Albright worked as a senior 

staff scientist at the Federation of American Scientists, and as a 

member of the research staff of Princeton University’s Center for 

Energy and Environmental Studies. 

Anthony Ruggiero is a senior fellow at the Foundation for Defense of Democracies. He has spent more than 17 years in the U.S. 

5 

Government as an expert in the use of targeted financial measures. 

Most recently, he was a foreign policy fellow in the office of Senator 

Marco Rubio and was Senator Rubio’s senior adviser on issues relating to the Senate Foreign Relations Committee. Mr. Ruggiero 

has also served in the Treasury Department as Deputy Director 

and then Director of the Office of Global Affairs in the Office of 

Terrorist Financing and Financial Crimes. 

Prior to joining Treasury, Mr. Ruggiero spent over 13 years in 

various capacities at the State Department, including as Chief of 

the Defensive Measures and WMD Finance Team. He was also 

nonproliferation adviser to the U.S. delegation to the 2005 rounds 

of the six-party talks in Beijing, and participated in U.S.-North 

Korea meetings following the identification of the Macao-based 

Banco Delta Asia as a primary money-laundering concern. He has 

also served as an intelligence analyst covering North Korean nuclear and missile programs and proliferation activities. 

Bruce Klingner specializes in Korean and Japanese affairs as the 

senior research fellow for Northeast Asia at the Heritage Foundation’s Asian Studies Center. He is a frequent commentator on the 

region in U.S. and foreign media. Mr. Klingner’s analysis and writing about North Korea, South Korea, and Japan are informed by 

his 20 years of service at the Central Intelligence Agency and the 

Defense Intelligence Agency. 

From 1996 to 2001, Mr. Klingner was the CIA’s Deputy Division 

Chief for Korea, responsible for the analysis of political, military, 

economic, and leadership issues for the President of the United 

States and other senior U.S. policymakers. In 1993 and 1994, he 

was the Chief of the CIA’s Korea branch which analyzed military 

developments during a nuclear crisis with North Korea. 

Elizabeth Rosenberg is a senior fellow and director of the Energy, 

Economics and Security Program at the Center for a New American Security. In this capacity, she publishes and speaks on the national security and foreign policy implications of energy market 

shifts and the use of sanctions in economic statecraft. 

From May 2009 through September 2013, Ms. Rosenberg served 

as a Senior Adviser to the Assistant Secretary for Terrorist Financing and Financial Crimes and then to the Under Secretary for Terrorism and Financial Intelligence. In these roles, she helped to develop and implement financial and energy sanctions. She also 

helped to formulate anti-money-laundering and counter-terrorist financing policy and oversee financial regulatory enforcement activities. 

Each of you will be recognized for 5 minutes to give an oral presentation of your testimony. And without objection, each of your 

written statements will be made a part of the record. 

Mr. Albright, you are now recognized for 5 minutes. 

STATEMENT OF DAVID ALBRIGHT, PRESIDENT, INSTITUTE 

FOR SCIENCE AND INTERNATIONAL SECURITY 

Mr. ALBRIGHT. Chairman Barr, Ranking Member Moore, and 

other members of the subcommittee, thank you for the opportunity 

to testify today. 

North Korea’s September 3rd nuclear test, its sixth overall and 

by far the largest in terms of explosive yield, demonstrates its reVerDate Nov 24 2008 17:14 May 15, 2018 Jkt 029542 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 K:\DOCS\29542.TXT TERI
6 

solve and commitment to developing a nuclear arsenal able to 

strike its enemies. 

During the last few years, North Korea has embarked on an intensive nuclear weapons testing and production campaign that has 

included the construction and operation of many nuclear facilities, 

three underground nuclear tests, and tens of ballistic missile 

launches. 

Its apparent goal is to have a variety of nuclear warheads of 

many varieties mated to ballistic missiles with ranges stretching to 

intercontinental distances. Few doubt that North Korea can now 

launch nuclear-tipped ballistic missiles that can strike our allies, 

Japan and South Korea. There is rightly more skepticism that 

North Korea is yet able to deliver a nuclear warhead to an American city, but it is making rapid progress toward that goal. 

I continue to believe that North Korea can be peacefully 

denuclearized; however, substantive negotiations appear unlikely 

unless North Korea changes its path. Given North Korea’s unwillingness to enter denuclearization talks, and its provocative behaviors, there is little choice but to assert more pressure, including 

harsher sanctions and additional trade cutoffs. The U.N. Security 

Council resolution passed on Monday is an important step in that 

direction. 

A near-term priority is to far more effectively isolate North 

Korea from the regional and international financial system. A central problem is that many countries are not enforcing sanctions effectively or are, in some cases, willfully disregarding them. Punitive measures are needed to encourage compliance and deter violations. Additional U.S. legislation that supports that goal is useful. 

North Korea appears to target entities and persons engaging in 

activities in violation of U.N. Security Council sanctions in tens of 

countries with weak or nonexistent trading control system, poor 

proliferation financing controls, or higher-than-average corruption. 

Although a range of remedies are needed to fix the poor performance, in general, of many of these countries, the creation of punitive measures may be an effective means to accelerate more compliant behavior in the short term among a wide range of countries 

where entities and individuals see North Korea as a quick way to 

make money or obtain military or other goods either more cheaply 

or unavailable elsewhere. 

Dealing with China’s trade with North Korea is in a different 

category. North Korea has depended on illegal or questionable procurements for decades for its nuclear and other military programs. 

And as the chairman pointed out, they have gone offshore quite 

successfully to be able to acquire those goods. 

And they don’t just acquire them, let’s say, in a country such as 

China. They are able to get those goods from the United States, 

Europe, and Japan by operating in China and exploiting China’s 

weak export control and sanctions legislation. 

Although China is improving its export control laws, Beijing has 

certainly not done an adequate job of enforcing its laws and sanctions against illegal exports and re-transfers to North Korea. And 

I have provided several examples in my testimony. 

China remains North Korea’s central, perhaps unwitting supply 

conduit for its nuclear weapons program. And one of the priorities 

7 

is to change that. The Trump Administration’s efforts to sanction 

Chinese, and for that matter Russian-owned companies and individuals that significantly support North Korea’s weapons programs, 

are a positive step. 

But unless China and Russia show dramatic improvements in 

ending their nefarious trade with North Korea, the United States 

should go further and sanction major Chinese and Russian banks 

and companies for any illicit North Korea dealings. 

Both countries have gotten away with for far too long, and have 

faced too-few consequences, for turning a blind eye to the sanctionbusting business activities of their citizens and those of North 

Korea in using their economies for nefarious purposes. 

North Korea has a diplomatic path out of its isolation and sanctions if it negotiates a full, verified denuclearization of its nuclear 

and long-range missile programs. Any such negotiations would 

need to repair past mistakes where North Korea was able to evade 

inspections and continue expanding its nuclear programs. 

An agreement would also need to allow unprecedented inspections and access allowing for a full accounting of the program as 

part of a denuclearization process. Although this prospect seems 

unlikely in the short term, given North Korea’s current trajectory, 

it is important to keep this goal available as a matter of U.S. policy 

in case increased sanctions can convince North Korea to negotiate 

in earnest. 

Likewise, the Trump Administration should continue to make 

clear that regime change is not its goal. And particularly if the goal 

is to seek cooperation from China, that becomes even more important. 

Chairman BARR. The gentleman’s time has expired. 

Mr. ALBRIGHT. Okay. 

[The prepared statement of Mr. Albright can be found on page 

40 of the appendix.] 

Chairman BARR. Thank you. We will look forward to the remainder of your testimony during the question-and-answer session. 

And, Mr. Ruggiero, you are now recognized for 5 minutes. 

STATEMENT OF ANTHONY RUGGIERO, SENIOR FELLOW, 

FOUNDATION FOR DEFENSE OF DEMOCRACIES 

Mr. RUGGIERO. Thank you, Chairman Barr, Ranking Member 

Moore, and distinguished members of the subcommittee. Thank 

you for the opportunity to address you today on this important 

issue. 

Often, U.S. policy toward North Korea gets stuck in a cycle 

whereby a North Korean provocation is met with a strong American rhetoric and/or a token increase in sanctions, a pattern repeated over and over. If we don’t break this cycle, the Kim regime 

can keep distracting the United States with its repeated provocations. We must ensure that the U.S. response to every North Korean provocation advances our goal of denuclearizing North Korea. 

Some experts will call for the White House to negotiate a freeze 

of North Korea’s nuclear program with claims that it will reduce 

the threat and eventually lead to denuclearization. But we have 

seen this movie before and its ending is not encouraging. 

8 

North Korea has made it clear that it has no interest in 

denuclearization. To the extent that Pyongyang is interested in negotiations, it is only for the purpose of extracting concessions in exchange for promises it will quickly violate as it did with the 1994 

agreed framework. 

In testimony before this subcommittee in July, I noted that U.S. 

sanctions did not have a serious impact because they have neither 

sufficiently targeted enough of Pyongyang’s international business, 

nor have they targeted non-North Koreans facilitating sanctions 

evasion. Fortunately, this appears to be changing. The Trump Administration has started to sanction North Korea’s international 

business partners. 

Since March 31st, the U.S. has sanctioned 43 persons, of whom 

86 percent operate outside North Korea and 54 percent are nonNorth Koreans. But this work is not done. As I note in my written 

testimony, recent U.S. actions against North Korea reveal three 

methods Pyongyang uses for financing prohibited activities. 

In slide one, the first method starts with North Korean revenue 

in China following the sale of commodities brokered by Chinese 

firms and individuals. The payment then moves through a North 

Korean bank. Moving left to right, from there, the funds move to 

a Chinese company and then a front company that accesses U.S. 

banks. This only happens because the U.S. banks are tricked into 

processing the North Korean transactions. This is how payment is 

made for the original item in U.S. dollars. 

This method is important to highlight with recent reports that 

Chinese banks have cut off North Korean accounts. The method relies on a ledger system between North Korea and China where the 

Chinese firms and individuals hold these bank accounts. 

Slide two, please. 

The second method was identified by the Justice Department 

based on information from an unnamed North Korean defector. On 

the left side of the slide, Chinese entity one owes money to North 

Korean entity one while North Korean entity two owes a similar 

amount to Chinese entity two. The entities pay each other, given 

the difficulties of moving money over the China-North Korea border. 

Slide three, please. 

The third method was used by a Russian company to receive U.S. 

dollars for a shipment of gas and oil to North Korea. Again, this 

is very important, given the new resolution that restricts energy 

sales. 

A U.S. bank would not process this transaction between sanctioned parties. To avoid this scrutiny, the front companies were created in Singapore to obscure the nature of the transaction, allowing 

almost $7 million in payments for this transfer. 

All three methods show that North Korean suppliers prefer U.S. 

dollar payments, providing a key vulnerability that Washington 

can exploit. This is why it is crucial for the Trump Administration 

to issue fines against Chinese banks that are facilitating North 

Korea sanctions evasion, matching the successful U.S. policy, as 

the chairman said, used to pressure European financial institutions 

that were facilitating Iran sanctions violations. The fines likely will 

9 

prompt Chinese banks to increase scrutiny of North Korea-related 

transactions. 

To be clear, if nongovernmental organizations here in Washington can find these transactions, I am confident the largest banks 

in China, with its significant manpower, can find them, too. Chinese banks need to do more or face severe consequences. 

In the meantime, it is important to remember that there are 

other political considerations at play. Pyongyang is trying to decouple the United States from our closest allies in South Korea and 

Japan. The Kim regime’s ultimate goal is not a suicidal nuclear attack on the U.S. homeland, but rather using that threat to bolster 

Pyongyang’s effort to reunify the Korean peninsula and intimidate 

our Japanese allies. 

A sanctions approach that focuses on North Korea’s financial activities has the best chance of success. 

Thank you again for inviting me to testify, and I look forward to 

your questions. 

[The prepared statement of Mr. Ruggiero can be found on page 

78 of the appendix.] 

Chairman BARR. Thank you, Mr. Ruggiero. 

Ms. Rosenberg, you are recognized for 5 minutes. 

STATEMENT OF ELIZABETH ROSENBERG, SENIOR FELLOW 

AND DIRECTOR, ENERGY, ECONOMICS, AND SECURITY PROGRAM, CENTER FOR A NEW AMERICAN SECURITY 

Ms. ROSENBERG. Thank you, Chairman Barr, Ranking Member 

Moore, and distinguished members of the subcommittee. I appreciate the opportunity to testify before you today. 

North Korea’s alarming and dangerous recent ballistic missile 

launches and its sixth nuclear test highlight the need for much 

stronger pressure on the regime to limit its proliferation activities 

and cease its provocations. Financial sanctions should be a core 

part of a pressure strategy along with force posture and projection 

and complemented by a diplomatic engagement to move North 

Korea toward stability and denuclearization. 

I applaud the work of Congress to impose new sanctions authorities this past summer to tighten financial pressure on North Korea 

along with complementary new sanctions from the United Nations. 

However, non-enforcement and evasion is gravely concerning, particularly when it comes to China, through which flows the overwhelming majority of North Korean international finance and 

trade. 

For some observers, the lack of sanctions enforcement is an immediate indication that the current sanctions framework is inadequate and that the United States should make secondary sanctions’ shock treatment mandatory to force other countries to comply 

with sanctions. 

While current sanctions authorities are already very aggressive 

to apply pressure on North Korea and its international enablers, I 

support the efforts of this committee to consider how mandatory 

secondary sanctions should be deployed to enhance pressure. 

We must not forget, however, that secondary sanctions require 

delicacy in their application. They may be counterproductive if they 

are so aggressive or politically incendiary that U.S. partners beVerDate Nov 24 2008 17:14 May 15, 2018 Jkt 029542 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\29542.TXT TERI
10 

come utterly defiant, uncooperative, and create officially backed 

evasion schemes and impose retaliatory sanctions or economic punishments on U.S. firms abroad or a trade war. 

Ultimately, avoiding pitfalls in the use of secondary sanctions is 

primarily the responsibility of the U.S. Administration. The body 

that implements and enforces sanctions, Congress, must oversee 

aggressive sanctions implementation, but also give the Administration adequate flexibility, even within the framework of mandatory 

secondary sanctions, to impose these measures and also manage 

their consequences for the United States and its partners. 

In addition to sanctions, U.S. policy leaders must deploy another 

form of economic statecraft to target North Korea, pushing for rigorous, risk-based approaches for global banks to identify and curtail proliferation finance. Currently, only large U.S. banks and 

some major European and Asian banks holistically pursue proliferation finance, leaving all other global banks significantly vulnerable to abuse by North Korean or other proliferators. 

For these other global banks, weak supervisory frameworks and 

expectations, lack of knowledge and resources, and insufficient 

prioritization of the threat means that they often take a mechanical approach to proliferation finance in the form of checking customers or transactions against entities sanctioned by the U.N. or 

national governments, sometimes, but not always, including the 

United States. This presents obvious opportunities for proliferators 

to use front companies or proxies to get around limited compliance 

controls outside of major financial institutions. And we have just 

heard that described in some of the examples offered by my colleague, Mr. Ruggiero. 

The global standard-setting body for countering illicit finance, 

the Financial Action Task Force, endorses an approach toward proliferation finance along the lines of checking customers against 

sanctions lists instead of a risk-based evaluation of suspected proliferation conduct or proliferation typologies. 

This limited approach is inadequate and we need much stronger 

leadership from the United States to clarify that global banks must 

take a more holistic, risk-based approach to screening and investigation for proliferation finance and that there must be stronger 

public/private information exchange around known proliferation entities and typologies. 

In my written testimony, I outline several specific points in response to your legislative discussion draft and some ideas for additional legislative measures. To briefly summarize a few items, I 

support your tough approach on secondary sanctions and encourage 

the inclusion of meaningful waiver provisions to manage unintended consequences. 

Also, I urge you to consider ways to provide additional financial 

support for the Treasury and State Departments and the U.S. intelligence community to expand the group of experts crafting and 

enforcing U.S. sanctions and offering technical assistance to foreign 

countries related to sanctions enforcement. 

Finally, Congress should mandate new bank supervision requirements for U.S. banks extending to their foreign branches, subsidiaries and correspondence related to proliferation finance and faciliVerDate Nov 24 2008 17:14 May 15, 2018 Jkt 029542 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 K:\DOCS\29542.TXT TERI
11 

tate greater public/private information sharing on this topic to enhance global compliance and to impede the proliferation threat. 

Thank you for the opportunity to testify, and I look forward to 

answering any questions you may have. 

[The prepared statement of Ms. Rosenberg can be found on page 

71 of the appendix.] 

Chairman BARR. Thank you. 

And, Mr. Klingner, you are now recognized for 5 minutes. 

STATEMENT OF BRUCE KLINGNER, SENIOR RESEARCH 

FELLOW, NORTHEAST ASIA, HERITAGE FOUNDATION 

Mr. KLINGNER. Chairman Barr, Ranking Member Moore, and 

distinguished members of the subcommittee, it is truly an honor to 

be asked to speak before you. 

Although North Korean nuclear and missile programs are indigenous, the regime requires access to foreign technology, components, 

and hard currency. Pyongyang maintains covert access to the international banking system through a global array of overseas networks and shell companies. Most of North Korea’s financial transactions, and those of the foreign entities that assist the regime, 

continue to be denominated in U.S. dollars and thus are still going 

through U.S. banks. 

While the challenges in imposing targeted financial measures on 

North Korea may appear overwhelming, a closer examination reveals several encouraging characteristics. North Korea uses a limited number of trusted individuals to run its covert networks. Although the shell companies can be swiftly changed, the individuals 

responsible for establishing and managing them have remained unchanged, often for years. By embedding their illicit activities into 

the global financial network, North Korean agents leave behind a 

digital trail making them vulnerable to targeted sanctions. 

As C4ADS, a non-government organization using only publicly 

available information discovered, while China accounts for almost 

90 percent of total North Korean trade, the entire trading system 

consists of 5,000 companies. Those firms are centralized among a 

smaller number of large-scale trading firms so that the top 10 importers of North Korean goods in China controlled 30 percent of the 

market. And those trading firms themselves are controlled by a 

smaller number of individuals. 

As such, the North Korean network in China is centralized, limited, and therefore vulnerable. Therefore, targeting a relatively 

small number of strategic choke points can have disproportionate, 

disruptive ripple effects impacting multiple networks across multiple countries. 

Every law enforcement action could induce remaining components in the network to change routes, bank accounts, and procedures to less-effective means. Even legitimate businesses will become more fearful of being entangled in illicit activity and more 

fully implement required due-diligence measures. Cumulatively, 

these efforts reduce North Korea’s foreign revenue sources, increase strains on the regime and generate internal pressure on the 

regime. 

Sanctions enforcement must be flexible, innovative, and adaptive 

to the changing tactics of the target. But as North Korea altered 

12 

its modus operandi, international law enforcement agents didn’t 

keep pace. When North Korea shifted to Chinese brokers, the U.S. 

and U.N. agencies should have begun including them on sanctions 

lists that lagged. 

To raise the cost of North Korean defiance, the U.S. must go beyond sanctions and diplomacy to include a full-court press to diplomatically and economically isolate North Korea from the international community and introduce tremors into regime stability. 

For too long, successive U.S. Administrations have used sanctions as a calibrated and incremental diplomatic response to North 

Korean provocations rather than a law enforcement measure defending the U.S. financial system. 

The U.S. should target any entity suspected of aiding or abetting 

North Korean nuclear missile and conventional arms development, 

criminal activities, money-laundering, or the import of luxury 

goods. The U.S. should also end de facto Chinese immunity from 

U.S. law. Beijing has not paid a price for turning a blind eye to 

North Korean proliferation and illicit activity occurring on Chinese 

soil. Washington has long cowered from targeting Chinese violators 

of U.S. laws out of fear of undermining perceived assistance and 

pressuring North Korea or economic retribution against U.S. economic interests. 

The North Korea Sanctions and Policy Enhancement Act mandates secondary sanctions on third-country banks and companies 

that violate U.S. sanctions and U.S. law. The U.S. should penalize 

all entities, including Chinese financial institutions and businesses 

that trade with those on the sanctions list, export-prohibited items, 

or maintain correspondent accounts for North Korean entities. 

Washington should impose significant fines on China’s 4 largest 

banks at a commensurate level to the $12 billion in fines the U.S. 

levied on European banks for money-laundering for Iran. And the 

U.S. should designate as a money-laundering concern any medium 

or small Chinese banks or businesses complicit in prohibited North 

Korean activities. 

In conclusion, the most pragmatic U.S. policy is a comprehensive, 

integrated strategy using all of the instruments of national power 

to increase pressure in response to Pyongyang’s repeated defiance 

of the international community, to expand information operations 

against the regime, to highlight and condemn Pyongyang’s crimes 

against humanity, and to ensure the U.S. has sufficient defenses 

for itself and its allies, while leaving the door open for diplomatic 

efforts. 

Sanctions require time and the political will to maintain them in 

order to work. It is a policy of a slow python constriction rather 

than a rapid cobra strike. 

Thank you again for the privilege of appearing before you. 

[The prepared statement of Mr. Klingner can be found on page 

53 of the appendix.] 

Chairman BARR. Thank you for your testimony. 

And the Chair now recognizes himself for 5 minutes for questions. 

Earlier this month, Russian President Vladimir Putin argued 

that the potential for North Korea sanctions to be effective remains 

13 

limited. He claimed that the North Koreans would, ‘‘prefer to eat 

grass,’’ rather than give up their nuclear weapons. 

How would you respond to those who claim that North Korea can 

always weather sanctions, that sanctions are not an effective 

means of providing substance and meaning to our diplomacy, and 

that the Kim regime will never care if its economy will suffer in 

order for him to advance his weapons? 

And I will ask all of you to briefly respond to that question. 

Mr. ALBRIGHT. I think sanctions can have a very big impact in 

North Korea, partly for what you have been focusing on, they are 

not implemented, so there is a lot of room to really press North 

Korea to change its behavior. So I think it is an extremely valuable 

tool. 

I think part of the purpose of sanctions—I would like to see 

North Korea eat its nuclear weapons. If that is what they choose, 

that the sanctions should start to have a cost, and I think that can 

actually be done. And particularly in North Korea, I think it is 

more vulnerable because it is surrounded by very big powers. This 

isn’t like India and Pakistan or even Iran. North Korea is a relatively weak state that is surrounded by very powerful neighbors 

who increasingly, even in the case of Russia, do not like its behavior. 

Chairman BARR. Mr. Ruggiero, when you answer this question, 

could you also address the issue that, of course, North Koreans 

have been very creative in using third-country brokers, as you testified, and front companies to mask their illicit transactions? And 

as you answer the question, could you address our draft bill and 

whether you think that banks and third countries, above all China, 

actually possess the capacity to identify these brokers, middle men, 

and front companies? 

Mr. RUGGIERO. On Russia, I would start with perhaps President 

Putin should focus on his Russian companies that are facilitating 

North Korea sanctions evasion, the ones that are working with a 

North Korean proliferation entity called Tangun that was designated by the U.N. in 2009, that the U.S. sanctioned twice in the 

last couple of months. So perhaps if he had his own companies implementing sanctions, they would do a little bit better. 

I would also go back to 2005 and my experience at that time, 

that Banco Delta Asia was very effective in targeting North Korea’s 

financial activities. Now, there is a difference here because North 

Korea is, frankly, not stupid enough to concentrate all their financial activities in one bank. 

In terms of being creative, certainly people criticized sanctions 

because it is a game of whack-a-mole. And certainly, it takes a lot 

of resources, it did with Iran, but they are not invisible. As Mr. 

Klingner said, if C4ADS can find them, the largest banks in the 

world can find them. And that is the part I would highlight, 

amongst other things in the legislation, is the due diligence. 

If we are not having in particular Chinese banks and U.S. banks 

looking for these activities, that is the problem, that is the serious 

problem here. 

Chairman BARR. Ms. Rosenberg? 

Ms. ROSENBERG. I would just add that China has a variety of 

strong interests in ensuring that there is no money-laundering ocVerDate Nov 24 2008 17:14 May 15, 2018 Jkt 029542 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 K:\DOCS\29542.TXT TERI
14 

curring in their own economy, not just related to their support or 

relationship with North Korea. So yes, I agree that China has the 

capability to go after, investigate, and take action on North Korean 

money laundering or the use of front companies in the Chinese 

economy. 

And if China, a country with extensive and sophisticated capital 

controls and that has taken measures, including installing facial 

recognition cameras at ATMs in order to manage the flow of currency outside of China, then they can certainly do a lot more to recognize some of these trusted agents of the North Korean government that change their names and change their legal entities in 

order to launder money through China. 

Chairman BARR. And Mr. Klingner, in the remaining time, if you 

could answer the question. And given how North Korea has evaded 

sanctions in the past, I wanted you to specifically address your 

quote that every U.N. Security Council resolution is an incremental 

step forward. Because of Chinese resistance, what we have is incremental law enforcement because we get what China allows us to 

have. 

If the Security Council resolutions are incremental, can we afford 

to just rely only on those, or do we need to do more in Congress? 

Mr. KLINGNER. Yes. I would tell Mr. Putin that sanctions have 

several objectives. They are enforcing U.S. law, they are imposing 

a penalty or a pain on those that violate our laws. They put in 

place measures to make it harder for North Korea to import items 

for their prohibited programs. It puts in place tougher proliferation 

or counter-proliferation measures. And we hope, with all the other 

instruments of national power, that gets North Korea to abide by 

resolutions and laws. So I believe in doing the right thing, even if 

it is difficult. Rather than throwing up our hands in despair, I believe in rolling up our sleeves and getting to work. 

On implementation— 

Chairman BARR. My time has expired. I will have to yield to the 

gentleman from Illinois at this point, Mr. Foster. 

Maybe you can follow up during the remainder of the time. 

Mr. FOSTER. Thank you, Mr. Chairman. 

And thank you to our witnesses. 

The financial sanctions we are talking about seem to be having 

two strategic goals. The first is to cut off access to the technical 

components necessary for the development of what looks to be 

many dozens of deliverable nuclear weapons in the next several 

years. 

What is the rough estimate? It has been widely reported that 

there is a lot of indigenous capability to make components inside 

North Korea at this point. So what is the rough amount, what is 

the dollar figure, a decent ballpark estimate for the dollar figure 

for how much they have to purchase outside their country to execute that program that everyone is worried about? 

Mr. ALBRIGHT. I must confess, when we watch their business of 

acquiring equipment, and we focus mostly on the nuclear weapons 

program, they are buying things in orders of millions of dollars and 

they are buying a lot. What they paid— 

Mr. FOSTER. For example, is it a small fraction of a billion dollars? 

15 

Mr. ALBRIGHT. Yes. I would say for what—because they also 

have an infrastructure that has been in place for 40 or 50 years 

that they have been paying for incrementally. So while I see they 

seem to have no shortage of cash to buy things for the nuclear program, it is not huge amounts of money that they are using. 

Mr. FOSTER. Yes. But in terms of trying to understand what sort 

of leaks we could tolerate in a sanctions regime designed to shut 

down their nuclear program, the answer is it would have to be really prohibitively tight. 

Mr. ALBRIGHT. But these objects aren’t, we have found anyway— 

and even in the case of Iran where they put in place more deceptive practices in their procurements, companies, governments are 

pretty good at detecting these things. We get a pretty good readout 

on a lot of what North Korea has acquired over the years. And we 

use that both strategically to understand their program and where 

it is going, but also tactically you get a lot of information about the 

networks that you can then act on. 

The problem has been China is not cooperating. So a company, 

let us say a German company in China is getting help from its own 

government to try to defeat the North Korean efforts, but the Chinese government isn’t doing very much and they are the ones who 

should be doing the most. 

Mr. FOSTER. So the goal, rather than to actually cut off money, 

which is a tough thing, is to actually increase information and increase our shaming ability towards— 

Mr. ALBRIGHT. But once you identify the goods, you can then 

move to cut off the financing because they have to pay for it, as 

my colleagues have talked about. And so I think these things build 

upon each other. And I think I would agree that going after the 

money is the way to hurt them the most. 

Mr. FOSTER. The Chinese are well-known to be sort of past masters at shuffling around money in black markets. The 

cryptocurrencies alone are just enormous compared to the amount 

of fund transfers that we are talking about having to detect, so 

that is my read. 

The second part of the question, the second strategic goal is actually to put pressure on the general economy. You mentioned fuel, 

luxury goods, things like that. And the strategic goal there seems 

to be to put the fear in the leadership in North Korea of some sort 

of general unrest. 

And my big worry on that is that if that actually comes to fruition that it will be interpreted as a decapitating strike or something like that may trigger even a preexisting plan to retaliate certainly against our allies, which, as you mentioned, are very hard 

to defend against given their current nuclear capability. 

And so I was wondering if you have any thoughts on that, on the 

sort of risks that we are heading for? 

Mr. ALBRIGHT. I think, again, if the question was directed at me, 

and maybe someone else can answer. 

Mr. FOSTER. Ms. Rosenberg? 

Ms. ROSENBERG. In addition to those two goals that you outlined, 

I would add a third, which has become what I see as a primary 

goal for Congress in contemplating mandatory, secondary sanctions 

now. That third goal is, putting pressure specifically on the foreign 

16 

or third-country enablers of North Korea’s either specific proliferation programs or their economy more broadly. 

So going after China in particular, Chinese government entities, 

or private institutions, banks, and companies, to encourage or compel their greater activity to advance your, as you outlined, goals 

one and two. 

Mr. FOSTER. Yes, Mr. Klingner? 

Mr. KLINGNER. One of the functions of the pressure tactics, along 

with increased information operations and ensuring sufficient defenses, is to put greater pressure on the regime’s stability. We want 

to make Kim Jong-un fearful of regime stability if he continues 

down the path of defying the international community. 

That said, I disagree with those who advocate a regime change 

through a decapitation strike, either special forces or limited military strikes or a more general invasion. I think we are in a longterm game. It is like the long Cold War strategy against the Soviet 

Union. We are deterring, defending, pressuring, and seeking to undermine. 

Mr. FOSTER. Thank you. 

Chairman BARR. The gentleman’s time has expired. 

The Chair now recognizes the Vice Chair of the subcommittee, 

the gentleman from Texas, Mr. Williams. 

Mr. WILLIAMS. Thank you, Mr. Chairman. 

And thanks to all of you witnesses for your testimony this morning. 

North Korea continues to destabilize Southeast Asia and threaten the safety of the United States and our allies in the region. The 

aggression shown by Kim Jong-un is equally as concerning as the 

methods he uses to finance his hostile activity. As the United 

States develops its strategy to further curb the threat posed by the 

DPRK, we must consider the profound effect that other nations 

have in enabling their actions. 

Because Kim has proven unresponsive to sanctions imposed by 

the West, we must consider actions to target and cut off the governments that prop him up. Nations that are unwilling to cut ties 

with the rogue regimes that encourage mass destruction, suppress 

their people, and threaten global security should not be in business 

with the United States of America. 

So with that, Mr. Klingner, can you explain the decision that 

China is faced with when determining whether to do business with 

the United States or continue financial and technological support 

with North Korea? And furthermore, is this a geopolitical issue for 

China, or is their investment in North Korea so substantial that 

there are severe financial implications to cutting them off? 

Mr. KLINGNER. What I would focus on is those entities that are 

acting against the U.N. resolutions as well as international and 

U.S. law, so entities that are violating our laws by misusing the 

U.S. financial system, the money laundering and other criminal 

acts, or that are engaging in facilitating the North Korean nuclear 

and missile programs. 

So I would focus on more of a law enforcement basis of going 

after those entities, banks, businesses, individuals, that are violating laws and resolutions. 

17 

Mr. WILLIAMS. Okay. Another question, let me follow up. If the 

DPRK eventually falls, what do you believe will be the fate of the 

North Korean people who have been exposed to decades of propaganda and oppression? And do you believe that they can adapt to 

a new way of life or a new form of governance? 

Mr. KLINGNER. I think the answer really, sir, is we don’t know. 

They have been isolated for decades. They have been fed a daily 

diet of propaganda. That said, increasingly, information from the 

outside world is getting in. So whether they believe the propaganda 

is a question we debate amongst ourselves. I think it varies by individual and by certainly the access they have to outside information. 

So that is one of the reasons, like with East Europe and the Soviet Union, we are trying to get information into the regime as 

much as we can to have the citizens question the propaganda that 

their government gives them. 

Mr. WILLIAMS. Thank you. 

Mr. Albright, can you discuss the level of nuclear cooperation 

that North Korea has with other countries? And who, outside of 

China, do you believe to be of the greatest concern? 

Mr. ALBRIGHT. North Korea had considerable nuclear cooperation 

with Syria, including essentially building a nuclear reactor which 

was bombed by Israel in 2007 prior to its operation. After that, it 

has been much harder to track any nuclear cooperation. 

There are suspicions that something could happen between 

North Korea and Iran and that is a very active area. But as far 

as I know, nothing substantial has been found. 

During the six-party talks, North Korea committed in a Singapore minute not to engage in proliferation. Obviously, we don’t believe that is true. But I think it is on notice that if it does engage 

in significant nuclear cooperation it will be incredibly significant 

and can trigger or cross a red line that would be very hard for the 

United States not to take very draconian action, including even 

military action, if it involved plutonium, weapon-grade uranium, or 

a nuclear weapon. 

Mr. WILLIAMS. Okay, thank you. 

And, Mr. Ruggiero, can you discuss the ways in which the U.S. 

Government exposes and then targets money-laundering activity 

related to DPRK? And if we impose secondary sanctions, are you 

confident that we can identify illicit transactions and stop them? 

Mr. RUGGIERO. I think what we are seeing now, in particular 

with China, is that the Trump Administration is using a combination of the Justice Department tools and the Treasury Department 

tools. On six occasions since late May, they have used those tools 

to target money launderers in particular, those who are trying to 

do financial transactions through the United States, whether it is 

designations, requests for asset forfeiture, or the new one was what 

are called damming warrants which we are setting that up in U.S. 

banks, understanding that Chinese banks were going to do the 

transactions through U.S. banks. 

We need more of that. We need nongovernmental organizations 

exposing these networks and we need the U.S. Government in particular putting the right amount of resources, like we had on Iran, 

18 

on this problem. And I am not sure that latter part is happening 

yet. 

Mr. WILLIAMS. Thank you. 

Thank you, Mr. Chairman. 

Chairman BARR. The gentleman’s time has expired. 

The Chair recognizes the gentleman from California, Mr. Sherman, for 5 minutes. 

Mr. SHERMAN. Mr. Chairman, I want to commend you on this bill 

draft. I look forward to working with you on it, and I look forward 

to cosponsoring it. 

Chairman BARR. Thank you. 

Mr. SHERMAN. But I have been doing this for 20 years. And for 

20 years—I want to applaud you for getting these witnesses here, 

I have heard them often, and they have enlightened me—I have sat 

on the Foreign Affairs Committee, and Administration after Administration, expert after expert has come forward and we have 

gone from no nuclear weapons in North Korea to hydrogen bombs 

and near-ICBMs in North Korea. 

What is less well-known is that we have seen a 50 percent increase in the real GDP of North Korea, even while this regime is 

subject to sanctions, and then we are told we are going to change 

this with, ‘‘unprecedented sanctions,’’ which just means a little bit 

more than what we have been doing before. 

Now, hydrogen weapons, ICBMs, 50 percent GDP growth, some 

would say our policy has been a failure. But viewed another way, 

our policy has been a tremendous success, a success for the political class in Washington. We have been able to tell Americans we 

are doing all we can to protect them and don’t blame us, and at 

the same time we have avoided doing anything that is difficult for 

the political class in Washington. 

What would those too difficult things be? The first would be to 

move beyond company sanctions to country sanctions. Because 

these witnesses are experts in how we can tell China goes after 

this bank instead of that bank, but as long as China wants North 

Korea to be relatively stable, they will find a bank that will do 

business with them or they will set one up. 

And yet, country sanctions would be very difficult for the political 

class here in Washington because that would really concern big 

companies who would wonder whether there is some risk to their 

supply chain. 

The other thing we haven’t done because it is politically difficult 

is to set realistic objectives. We keep banging the table and saying 

we are going to get this regime to give up all its nuclear weapons. 

Saddam’s dead, Gadhafi’s dead and Kim Jong-un does not want to 

join them and he is not going to give up all his nuclear weapons. 

And if he thought his regime was falling, he would use them. 

So I want to commend you, Mr. Chairman, for the more realistic 

objective you have in this bill, because you sunset it upon verifiable 

limits on the nuclear weapons program. We might achieve those. 

So you have done something that those who spend their time on 

foreign affairs have been unwilling to do, and you have taken a 

very constructive step. But I have seen this go on. 

19 

Let me ask Mr. Albright, if Kim Jong-un really thought his regime was going down, would he shrug his shoulders and go to The 

Hague for trial or would he use his nuclear weapons? 

Mr. ALBRIGHT. I think if there was a conflict going on, I would 

imagine that he would use them. But if he is knocked off by some 

of his military generals, then he very well may not use them. So 

I think it depends on how this unravels. 

Mr. SHERMAN. So we can hope that they are saner and more 

peaceful than he is. 

Mr. ALBRIGHT. I think they would be moving to survive, and I 

think they would want to accommodate the neighbors. 

Mr. SHERMAN. I will point out, Saddam’s people didn’t do that to 

him, Gadhafi’s people didn’t do that to him, and many of the people 

around Saddam and Gadhafi would have been worse than their 

leader. 

How has the North Korean economy grown by 50 percent—I am 

trying to achieve 50 percent economic growth for my country—in 

spite of all these sanctions, Ms. Rosenberg or anybody else? 

Ms. ROSENBERG. The first best answer to that is because they 

have been allowed to do that by a broad culture of noncompliance 

and nonenforcement with sanctions. 

Mr. SHERMAN. Yes. Even if there were no sanctions, 50 percent 

economic growth, but I would also want to put this in context. 

Their economy is only $15 billion today. They use as much oil in 

the whole country as 150 gas stations. I have 150 gas stations on 

Ventura Boulevard. They grew from a very small base and they are 

still very small, which makes the whack-a-mole a little bit more 

difficult because we are dealing with relatively small moles. 

I yield back. 

Chairman BARR. The gentleman yields back. 

The Chair recognizes the gentleman from North Carolina, Mr. 

Pittenger. 

Mr. PITTENGER. Thank you, Mr. Chairman. 

And I thank each of you for your expert witness today and for 

the very important role that you play in these areas. 

As you may know, I authored an amendment to NDAA that was 

adopted. It would prohibit the Defense Department from doing 

business with Chinese entities that provide material support to 

North Korea’s cyber attacks. 

Earlier this year, I also led efforts to punish the Chinese government-affiliated firm ZTE, located in the USA, for violating export 

controls and selling embargoed technologies to the North Korean 

government, which resulted in a billion-dollar fine. 

Mr. Ruggiero, in your opinion, should my amendment capture 

ZTE? Is this an appropriate response? And would selling embargoed technologies to North Korea to be presumably used for cyber 

capabilities qualify as material support for North Korean cyber attacks? 

Mr. RUGGIERO. On the amendment in terms of anything that 

suggests that firms need to do better at identifying North Korea 

transactions and North Korea companies, and I think an amendment like that and the bill that is proposed by the committee, the 

main goal is diligence and making sure that DOD and others do 

not do transactions with companies in China. 

20 

On cyber, I would just point out that there has been some focus 

on North Korea’s cyber. There have been some reports recently, I 

believe this month or this week, that North Korea is looking at 

Bitcoin and other cyber-enabled technologies to avoid sanctions, including trying to steal Bitcoin I believe from South Korea. So that 

is certainly a different turn on their illicit activities. 

Mr. PITTENGER. Do you believe these fines are an effective deterrent? 

Mr. RUGGIERO. I think ZTE is a very interesting case. I think 

that everybody would equate ZTE with a large Chinese bank or 

large or medium-size Chinese bank. And I think, as you well know, 

but others might forget, that ZTE actually agreed to that fine and 

it was because ZTE was caught doing the transactions. 

And I would also point out that there are some North Korean 

front companies that are caught up in the ZTE— 

Mr. PITTENGER. Do you think, though, that it will be a deterrent? 

Mr. RUGGIERO. I think, again, ZTE is—and I think for the Chinese leadership, look, if you are a senior official in the C suite of 

a Chinese bank, you have to be worried right now. 

Mr. PITTENGER. Sure. 

Mr. Klingner, what other entities like ZTE provide the most material support to any North Korean cyber attacks? 

Mr. KLINGNER. I think a lot of the North Korean programs, as 

I said before, are indigenous, but they do need technology and components and knowledge. 

Mr. PITTENGER. Any specific ones you have in mind? 

Mr. KLINGNER. I don’t know specific companies right now, sir. 

Mr. PITTENGER. Would you support blocking those firms from 

doing business with the U.S. or with the Department of Defense? 

Mr. KLINGNER. I think we should have a provision where you can 

do business with North Korea or you can have access to the U.S. 

financial system. So I think that is a choice that companies should 

have to make. 

Mr. PITTENGER. Yes, sir. 

Mr. Klingner, from a strategic standpoint, whenever we discuss 

responses to North Korea, as you said earlier, we are really talking 

about U.S.-China policy. And how can we better compel the Chinese government to work with us on this issue? 

Mr. KLINGNER. I think we need to separate law enforcement from 

diplomacy. We can continue on the U.N. path and cajoling and imploring and pressuring China to do more to implement required 

U.N. sanctions, but we don’t need Chinese permission to enforce 

U.S. law. So we made clear to them that we are not going to negotiate away our law enforcement. We have had incrementally better 

U.N. resolutions, but we should not incrementally enforce U.S. law. 

Mr. PITTENGER. Thank you. 

Ms. Rosenberg, could you elaborate on data sharing between the 

private and public sector that you mentioned in your testimony and 

what we could do, what type of enhancement and capabilities that 

could provide us and assist our efforts? 

Ms. ROSENBERG. Sure, thank you for the question. In my written 

testimony, I outlined a couple of ideas that I think would be a good 

opportunity for Congress to take action on increasing data sharing 

among financial institutions. So pursuant to Section 314(b) of the 

21 

USA PATRIOT Act, instructing the Administration to offer some 

new guidance and adaptation in order to facilitate more information sharing between financial institutions within U.S. jurisdiction. 

That will also transfer to their— 

Mr. PITTENGER. Could this be done, protecting our privacies 

while enhancing our capabilities? 

Ms. ROSENBERG. I believe that is absolutely feasible. To be sure, 

it is not a walk in the park. There are a lot of serious civil liberties 

and privacy considerations here. But if we can pioneer this, as has 

been successfully done for the sharing of terrorism financing information, then it can and should be done for proliferation finance information as well. 

Mr. PITTENGER. Thank you. My time has expired. I appreciate 

your comments. 

Chairman BARR. The gentleman’s time has expired. 

The Chair now recognizes the gentleman from Arkansas, Mr. 

Hill. 

Mr. HILL. I thank the chairman for this hearing. 

And I particularly appreciate the expertise of our witnesses. And 

I share Mr. Sherman’s compliments of their longstanding work on 

this issue, and appreciate your service for our government in office 

and out. 

Bill Newcomb from Johns Hopkins was here a few weeks ago to 

talk on this topic and he basically, in response to my question— 

I asked him, I said, we have been dealing with this, as you have, 

for 3 decades now, 4 Presidencies, and I asked him, are we ever 

going to get serious about sanctions on North Korea? And why 

weren’t these great sanctions proposed to President Clinton or 

President Bush or President Obama? 

And he said, ‘‘I think the United States did too little for too long 

and they are just now thinking about getting serious about it. But 

again, it depends on establishing this—meaning North Korea—as 

a national security vital interest.’’ 

Boy, that confused me because I watched TV in 2002 when President Bush declared North Korea a part of the axis of evil. 

So I am confused about why North Korea is so low on your chart, 

Mr. Ruggiero. You have been in government. Why is it that we are 

just now getting serious about North Korea? Tell me your top three 

reasons why for 20 years we have not sanctioned North Korea in 

an effective way? 

Mr. RUGGIERO. It has not been the foreign policy priority. That 

is the bottom line. Whether you look at getting rid of the sanctions 

against or giving the money back on Banco Delta Asia in 2005, 

whether it is, and this is going to be bipartisan, whether it is removing North Korea from the state sponsor of terrorism, as Dr. 

Albright said, right after we discovered that they built a reactor in 

Syria, or whether it is looking at this Congress approving, insisting 

that North Korea be evaluated as a primary money laundering concern. And when you look at that detailed information provided last 

year, you see that financial transactions went back all the way to 

2009, you start to ask the question, what have we been doing over 

the last 10 years? 

And the answer unfortunately is that it has not been the foreign 

policy priority. And when I hear people suggest that this new AdVerDate Nov 24 2008 17:14 May 15, 2018 Jkt 029542 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 K:\DOCS\29542.TXT TERI
22 

ministration policy is the same as the prior one, that is just frankly 

not true. As I have said, they have gone after China six times, they 

have gone after Russia, they have moved North Korea up the chart, 

but there is a lot more to do. 

And to the question of how are we going to get from this point 

to denuclearization, the point I would make on this Administration 

is, Secretary Tillerson said it is a dial and it is at five or six, it 

is the United States that is determining that it is not at 20 right 

now, and that is what we really need and it should be moved to 

an extreme level so that North Korea will start to feel that impact. 

Mr. HILL. I appreciate that. And I appreciate the work Ambassador Haley is doing in the United Nations, but I don’t think it is 

a substitute for increased pressure by the United States. And I 

thank the chairman for bringing this draft bill before us. 

You said, Mr. Ruggiero, in your testimony that another suggestion was mandated inspection for North Korean vessels. Is that a 

United Nations sanction? Is that an American sanction? How does 

one do that and be lawful, how does one do that in a legal manner? 

Mr. RUGGIERO. Right. I think the U.N. sanctions use the phrase, 

and even the new resolution uses the phrase, ‘‘reasonable grounds,’’ 

that some kind of sanctions violation or prohibited material are 

being transferred. 

I believe, just as we did with Iran, you can create a group of likeminded countries, probably South Korea, Japan, Australia, the 

U.K., France, and Germany, that say we interpret that clause to 

now say there are reasonable grounds that every shipment that 

North Korea puts back and forth from North Korea is a violation 

and that it is subject to inspection. 

Of course, there are international laws with regard to flag-state 

consent and master consent and all of that, that would have to be 

worked out, but that would be a key element, just like the proliferation security initiative in the 2000s. 

Mr. HILL. Thank you, Mr. Chairman. I have other questions, but 

I yield back. 

Chairman BARR. The gentleman yields back. 

The Chair now recognizes the gentleman from Ohio, Mr. Davidson. 

Mr. DAVIDSON. Thank you, Mr. Chairman. 

And thank you to our guests. I really appreciate your testimony, 

written and verbal, here. I have enjoyed your dialogue on the questions. 

And I just want to say that perhaps we are shooting for too low 

of a goal. It seems that our goal there is a non-nuclear peninsula 

in Korea except that most of the parties don’t really want that outcome, and so it makes it a pretty hard outcome to attain. 

We seem to desire it, but we may be one of the few. South Korea 

doesn’t want the North to have it, and as long as we have their 

back, I guess they are okay that they don’t have it themselves. 

Japan doesn’t want it, but the list might stop there, frankly. 

And so I think it might make sense to set a higher goal, which 

should have been our goal since 1950, which is an end state that 

does not have the United States defending the North Korean Peninsula or the Korean Peninsula altogether. 

23 

What would it take to do that? Well, it would take peace. It 

would take the same sorts of conditions that led to the United 

States minimizing our presence in Germany where the East and 

the West have reconciled. And so we haven’t really moved down a 

path that pursues that. We have moved down a path that continues to escalate and continues to make seeking nuclear weapons 

somewhat rational for a really irrational guy, generation after generation. 

So I think that begin with the end in mind, maybe perhaps why 

we have failed. Along with lots of other things that my colleague 

Mr. Hill highlighted, failure to act in the past. 

I do feel that we have a good track record in Iran to build on. 

And we have had good track records in other situations to use economic action to hopefully pursue a peaceful outcome to our desired 

end states. 

And I get that there are some concerns about trade with China. 

They are certainly a key part of our supply chains, but they are 

also a vital part of North Korea’s supply chain. And at some level, 

when you look at the risk on supply chain management, I think we 

need to get to the point where we use all of the levers of U.S. 

power to force, just like banks are forced to know your customer, 

the rest of the world needs to be forced to know your supplier. And 

part of that will be hard in China. But to enforce these good sanctions that I think are highlighted in the North Korea Sanctions 

and Policy Enhancement Act, it may take that. 

And, Mr. Klingner, I think you highlighted a number of those 

things in your testimony. And I would just like to say, or ask, how 

is it that we can take action down to the small manufacturing company in China that has allied themselves with someone from North 

Korea and they are moving products, services, and cash back and 

forth? What tangible steps can we take to close off that pipeline? 

Mr. KLINGNER. I think there are a number of things and, first 

of all, it is really having the political will to do it. I have been surprised over the years that the U.S. has hesitated to enforce its own 

laws to the same degree to North Korea as we have done to a 

greater degree on other countries for far less egregious violations. 

So I think that the three reasons, I might say, are naivete, wishful thinking, and lack of political will. We have gone down the diplomatic path a number of times. We have tried freezes before and 

they didn’t work. I think we need to give greater resources to the 

intelligence community and the State Department and the Treasury Department and sort of unleash the law enforcement. 

If you talk to officials in the government, they will say, yes, for 

years I have had a list of Chinese and North Korean violators in 

my drawer, and I am sort of allowed to take out 10 or so every time 

there is a provocation and then I have to put the rest back in the 

drawer. I think it is time to empty the drawer, as it were, of going 

against all those entities that we have evidence for. 

Mr. DAVIDSON. Yes, Mr. Albright? 

Mr. ALBRIGHT. I think many of these companies are becoming 

multinational and some of them come to the United States for their 

subcomponents. And I think what U.S. companies should be doing 

and they haven’t been doing it is gaining assurance from those ChiVerDate Nov 24 2008 17:14 May 15, 2018 Jkt 029542 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 K:\DOCS\29542.TXT TERI
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nese companies in writing that they will control the end use of 

their product that contains U.S. goods. 

I think that it is in U.S. law, but it should be applied much 

broader to start to push these Chinese companies. If they want to 

do business with the U.S., they have to meet our ethical and legal 

standards that you are not arming, in essence, our adversaries. 

Mr. DAVIDSON. Thank you. 

My time has expired, but I get that my conclusion is that we 

have an existing law in place, we don’t really need more laws, we 

need to enforce our existing laws. 

I look forward to any other feedback with our office to help 

bridge that gap. So thank you for your testimony. 

Mr. Chairman, I yield back. 

Chairman BARR. Thank you. The gentleman’s time has expired. 

The gentlelady from Utah, Mrs. Love, is recognized. 

Mrs. LOVE. Thank you. 

Thank you all for being here. 

In the wake of North Korea’s sixth nuclear test, the proposal was 

circulated among U.N. Security Council members that would have 

frozen North Korea’s leaders’ assets. Could our witnesses just very 

quickly comment on the desirability of expanding the prohibition in 

our draft legislation to include the members of the North Korean 

government and the DPRK Workers’ Party? 

We can start with you, Mr. Albright. 

Mr. ALBRIGHT. Yes, I think it is useful to do. 

Mrs. LOVE. Okay. 

Mr. RUGGIERO. I think there is already an Executive Order on 

that. I would go in a different direction. I would say the issue on 

leadership assets is identification of those assets. So anything that 

can be done to incentivize those folks in banks in Europe in particular that might have information on leadership assets, I think 

that would be more beneficial. 

Mrs. LOVE. Ms. Rosenberg? 

Ms. ROSENBERG. I would certainly agree. And not just gathering 

that information and reporting back to the United States as a law 

enforcement matter, but also being able to share that among other 

banks because there is never an instance where money laundering 

exists only in one financial institution. That will allow the variety 

of banks where these different assets are located to understand 

them as a network and to stop it. 

Mrs. LOVE. Okay. 

Mr. KLINGNER. I would absolutely go after leadership assets. 

Last year, the U.S. finally designated Kim Jong-un, and I believe 

nine others, for human rights violations, so we have identified Kim 

Jong-un in the past. There is an Executive Order issued in January, 2015, that gives us the authority to sanction any member of 

the North Korean government simply for being a member of the 

North Korean government. So I think we can and should go after 

not only Kim Jong-un, but the other senior leaders. 

Mrs. LOVE. Okay. Along those same lines, Mr. Klingner, could 

you discuss the potential for North Korea to assist countries such 

as Iran in developing nuclear weapons and advanced ballistic missiles? 

25 

Mr. KLINGNER. As Mr. Albright was saying before, I think there 

has clearly been a missile relationship between North Korea and 

Iran. The first Shahab-3 missiles that Iran paraded were actually 

a hundred percent made in North Korea, they were No Dongs and 

given a local paint job. 

The information on nuclear cooperation is much more difficult to 

get. We know North Korea was engaged in nuclear cooperation 

with Pakistan through the A.Q. Khan network and Libya and others, but the information with cooperation with Iran is much more 

difficult to get, particularly outside of government. 

I think there clearly is a relationship on the nuclear side between the two countries, but I think it is very hard to get particularly unclassified information on it. 

Mrs. LOVE. Mr. Albright, here is my connection between the two. 

I am concerned that if we continue to just try and be as—and we 

want to be as diplomatic as possible, we want to be able to work 

with people who are willing to work with us. However, we have 

seen North Korea be incredibly defiant. We have seen them do test 

after test after test. 

To me, and I don’t know if you have these same concerns, but 

it seems as if they are not a threat by itself, that the proliferation 

of these activities can support nuclear ambitions for other foreign 

regimes. Are you concerned about that at all? 

Mr. ALBRIGHT. Certainly. I think you have to be concerned with 

North Korea, because they like to go and sell things of value, and 

their nuclear assets are of increasing value. So you have to worry 

about that a great deal and that has to be part of what is watched 

for and in the messages delivered to North Korea. 

I don’t think it was a coincidence that the Director of the CIA 

was on FOX News the other day raising this issue. And so I think 

it is important to send the signal that if North Korea crosses that 

line and is willing to sell weapons-grade uranium, plutonium, or 

nuclear weapons, that we will probably respond militarily to take 

out that regime. 

It may be a bluff, but I think it is important that that line be 

maintained and I would say enforced. And North Korea will get the 

message. They don’t want to commit suicide. 

Mrs. LOVE. I just have one more question. Given Beijing’s reluctance to take a harder line with North Korea, what arguments 

should be brought to bear in order to convince the Chinese that 

pressuring the dictators of North Korea is in their self-interest? 

Mr. ALBRIGHT. One, China wants to be a responsible member of 

the international community. So a lot of these arguments on applying sanctions on Chinese companies are the same arguments we 

used in the 1980s against Germany. It was at that point, arming 

Pakistan, Iraq, Libya, Iran and probably several others with the 

wherewithal to make nuclear weapons. So I think these are not 

new arguments. And China wants to be responsible and so it 

should start to act that way. 

Mrs. LOVE. Thank you very much. 

My time has expired. Thank you, Mr. Chairman. 

Chairman BARR. The gentlelady’s time has expired. 

The Chair now recognizes the gentleman from Indiana, Mr. Hollingsworth. 

26 

Mr. HOLLINGSWORTH. Good morning. I really appreciate everybody being here. 

And as everyone has reiterated already, this is an important and 

timely topic and something we need to take with grave earnestness. And so I appreciate the consistent testimony that everybody 

here has provided. 

One of the things that I really wanted to talk about was making 

sure that we have partners that are engaged in this as well. And 

Russia comes to mind, and my concern has continued to be that 

they don’t have an interest in enforcing sanctions at the same level 

that we do and a willingness to combat this issue. The more the 

United States continues to be, I will use the word, ‘‘distracted,’’ and 

I don’t mean that lightly, but distracted by North Korea, the better 

off they may see themselves. 

And so, can you talk a little bit about what we can do to engender some cooperation and willingness on behalf of Russia to be able 

to participate in whatever solution this looks like? And that is for 

any of the panelists. 

Ms. ROSENBERG. Thank you for the question for us. I think a 

good strategy is one that we have discussed here primarily with regard to China, but in this case applying it to Russia, which is, 

using sanctions or other law enforcement actions to go after specific 

Russian entities that are acting in violation of sanctions or specifically in violation of the U.N. sanctions so— 

Mr. HOLLINGSWORTH. To what extent do you think the Russian 

government would be able to shield those companies from the ill 

effects of those? 

Ms. ROSENBERG. It is possible that they would try and do that, 

certainly rhetorically, such as the dismissive rhetorical gestures 

that we were discussing from President Putin. Nevertheless, if 

those companies want to use U.S. dollars, then they won’t be able 

to if U.S. sanctions enforcement or law enforcement measures prevent them from doing that. 

And any Russian company or bank that wants to stay in the good 

graces of the United States will be very reluctant to facilitate such 

sanctions evasion activity going forward, notwithstanding what 

their political top cover may offer them at home. 

Mr. HOLLINGSWORTH. So you really believe that these can be efficacious, even without participation from the political sector in Russia? 

Ms. ROSENBERG. I do. And we have seen that in other instances 

not related to North Korea. For instance, in Iran, in the era before 

there was broad international consensus about the need for strong 

sanctions, going after companies and speaking directly to them was 

a way to have them get out far in front of their own governments 

on their willingness to abide by sanctions. 

Mr. HOLLINGSWORTH. Great. So the second question I have, and 

really, I am just a business guy at heart, so one of the things I 

think about is, what does success look like? When will we know 

that this has been successful? What does that look like? And what 

is the next step after that? 

Obviously, we want, to the greatest extent possible, to either 

slow down or stop the technical progress both with ICBMs and nuclear/hydrogen weapons. But what does it look like after that? 

27 

What is the next step? We put in place these very, very tight sanctions and we just continue them forever? Or kind of tell us a little 

bit about what phase two would look like beyond putting in sanctions that theoretically would work? 

Mr. ALBRIGHT. I think one is—I should emphasize we haven’t 

talked about this that much. The point of this is to have meaningful negotiations. That would be a sign of success. If North Korea, 

without accepting benefits, that is one new change in this Administration compared to others. The benefits come after the concrete actions, not a reward for negotiating. 

But if there are meaningful negotiations that are toward 

denuclearization, creating limits on their nuclear program, you see 

intrusive inspections. Inspectors have never gone outside of 

Yongbyon in North Korea, and yet we know there are other sites. 

And if there is movement toward a peace treaty, that is also 

something that is actually important to work into this whole process. 

So I think on that side, we know it when we see it. And with 

the new criteria that are being used that are really built on avoiding the mistakes of the past, I think that we will know it when we 

see it. 

Mr. RUGGIERO. I would just—I agree with most of that. I would 

caution that we want to make sure we get out of the trap of negotiations for negotiations’ sake. I think from my perspective, a freeze 

is not as valuable as some people think it is. I think the next step, 

if we are talking about negotiations, is a demonstratable step by 

North Korea of its commitment to denuclearization, which would 

flip the negotiations on its head. 

And it used to be we freeze then we drag them to 

denuclearization. We need to flip that on its head. But we also 

have to recognize that this might not be the regime that is willing 

to do that. And if sanctions can’t get them there, then perhaps we 

need to start having that conversation. 

Mr. HOLLINGSWORTH. Your second point notwithstanding, I very 

much agree with the first as well. I just want to comment on the 

second in that making sure we don’t just freeze here at the precipice of ICBM, at the precipice of being able to launch a nuclear attack, but instead move them back, because we have seen their willingness to renege on promises before. I don’t want us to be a 

month, a year, a year-and-a-half away from an ICBM and find 

them reneging in the future. 

And with that, Mr. Chairman, I will yield back. 

Chairman BARR. I thank the gentleman. The gentleman’s time 

has expired. 

The Chair now recognizes the Chair of our Oversight and Investigations Subcommittee, and also a member of the House Foreign 

Affairs Committee, the gentlelady from Missouri, Mrs. Wagner. She 

is recognized for 5 minutes, 

Mrs. WAGNER. Thank you, Mr. Chairman, for hosting this very 

timely hearing. 

In August, I traveled to Korea and Japan and China to dialogue 

with our allies in the peninsula. And I had the opportunity to visit 

not only the DMZ, but also to visit Dandong where I watched ChiVerDate Nov 24 2008 17:14 May 15, 2018 Jkt 029542 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 K:\DOCS\29542.TXT TERI
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nese trucks loaded with goods drive across the China-Korea Friendship Bridge into North Korea. 

Seventy percent of North Korea’s trade passes over that bridge. 

And it was a stark reminder that the United States should 

prioritize secondary sanctions against the Chinese companies and 

banks that sustain the regime. 

Mr. Ruggiero, I have had the pleasure of hearing your testimony 

in the Foreign Affairs Committee before. You wrote that North 

Korea is the fourth-most-sanctioned country in the world. And 

given the recent September U.N. Security Council resolution, how 

would you rank North Korea today, given that certain Chinese investments and trade efforts are grandfathered in or exempted from 

the August and September U.N. sanctions? How effective do you 

think the resolutions will be? 

Mr. RUGGIERO. I would just point out that February 2016 was 

number eight. And when I testified before this subcommittee in 

mid-July, it was number five, so it is moving up the ranks. But it 

has a long way to go, unfortunately. 

The way I like to look at it is very similar to Iran. In 2010, we 

had Resolution 1929. That was really the foundation, and sanctions 

passed by this U.S. Congress and implemented by the prior Administration were what put Iran over the edge and led it back to the 

negotiating table. We need that here. We have the U.N. foundation, 

but what we need is the U.S. sanctions. 

And I would just say, it is concerning to hear the Treasury Secretary say, well, we are going to wait and see if the Chinese implement the U.N. resolution. I think that is the wrong approach. I 

think what we should be moving forward with right now is U.S. 

sanctions against Chinese banks. We should not give China a veto 

over U.S. sanctions. They might have a veto in the U.N., but they 

should not have a veto over U.S. sanctions. 

Mrs. WAGNER. I agree. 

Mr. Klingner, barring a threat to the Kim regime’s very survival, 

Kim will never come to the negotiating table in good faith, I believe. We must change Kim’s financial calculus, as we have discussed here, which is why comprehensive secondary sanctions are 

so critical, I believe. 

I appreciated your statement on increasing inspection and interdiction of North Korean shipping. Would you support mandatory 

secondary sanctions on ports that don’t implement required inspections? 

I agree we must pay much more attention to this. 

Mr. KLINGNER. I agree. And that is something that the Congress 

has been looking at, particularly if a port doesn’t implement required sanctions, then measures such as any ship cannot transit 

that port and enter the United States waters for 6 months or so. 

So it is an area that has been looked at. 

One thing we have been hampered by in the U.N. resolutions is 

that all of them have been passed with what is called Chapter 7, 

Article 41 authority where we are not allowed to board a ship on 

the high seas, even if it is suspected of carrying nuclear missile 

contraband. So we have been advocating Chapter 42 which would 

give us the authority to have Coast Guard or law enforcement 

agencies intercept and board ships. 

29 

Mrs. WAGNER. Doesn’t the recent package allow us to board now 

and others on the high seas in terms of member states? I think 

they have some new tools, don’t they, to stop high-seas smuggling 

of these prohibited products? 

Mr. KLINGNER. I believe that was included in the original U.S. 

draft, but it was something that I think was tossed overboard, as 

it were, that did not make it in the final resolution. 

Mrs. WAGNER. Yes, Mr. Ruggiero? 

Mr. RUGGIERO. I think that it is the ‘‘reasonable grounds’’ standard, but it still goes back to what Mr. Klingner is saying. You need 

flag-state consent or masters consent in order to board the ship. 

Mrs. WAGNER. Okay, quickly here. 

Mr. Albright, in my view, North Korea already has nuclear weapons. For my constituents without access to classified information, 

it would be helpful if you can explain from public sources how 

many nuclear weapons the Kim regime may have and where they 

may be. 

Mr. ALBRIGHT. Yes. We estimate they have 13 to 30 as of the end 

of 2016. It is a rough estimate. We have no idea where they are. 

Mrs. WAGNER. Thirteen to— 

Mr. ALBRIGHT. Thirty. And I think the U.S. Government estimates are higher than that. But I have worked on this problem 

since 1985 and I have visited North Korea a couple of times, met 

their nuclear people, and I think they are not giants technologically 

and they encounter problems. So that estimate tends to be lower 

than the U.S. Government one, but it is still a significant number 

and it is growing. 

Chairman BARR. The gentlelady’s time has expired. 

Mrs. WAGNER. Thank you, Mr. Chairman, for your indulgence. 

And thank you, Mr. Albright. 

Chairman BARR. Thank you. 

And because of the interest in the witnesses’ testimony, Members 

here I think are interested in a second round of questioning. If we 

can seek the indulgence of the witnesses for a brief round, we 

would appreciate that. 

And with that, I will recognize myself for an additional 5 minutes of questioning. 

Just to revisit this issue of effectiveness of sanctions, and you all 

heard the comments and questions of my colleague from California, 

Mr. Sherman, on that point. That over the last several decades, 

there has been maybe a lower priority, but there have been sanctions nonetheless on North Korea. And yet, we have seen a continuous belligerence, a continuous development and an acceleration of 

the development of the nuclear program and the capabilities of the 

Kim regime, particularly in recent years. 

So my question to anyone who wants to answer is, what is different, if anything, about the foreign policy, the sanctions efforts of 

the current Administration, particularly the efforts of Ambassador 

Haley and the U.N. sanctions packages that she has been able to 

secure at the United Nations? 

We will start with that question and start with Mr. Albright. 

Mr. ALBRIGHT. Yes. I think one is I would like to go back. U.S. 

policy has been to try to stop North Korea from acquiring goods. 

And in the 1980s and 1990s, a lot of effort was made to kick them 

30 

out of Europe because their missions would go to companies and 

buy the goods for their nuclear program. And they were kicked out. 

What was not anticipated was that they would move to China 

and set up shop there and buy the same goods from European companies, get them to China and then send them by truck up to the 

nuclear program. 

And so the problem has been, and this is, I would say, the most 

important change to me, this Administration, is they are willing to 

risk trade conflict with China to solve this problem. And since 

China has set up shop in North Korea, the Administrations have 

not been willing to do that until this one. And I think that is critical. 

Mr. Ruggiero, as you answer that question, you have read the 

draft proposal, the draft bill that we have presented to you. Could 

you comment on that bill and the extent to which it would ratchet 

up this pressure through secondary sanctions on the regime? 

Mr. RUGGIERO. From my approach, we tend to get ourselves in 

this provocation response cycle and we have done that over the last 

10 years. But I agree with Dr. Albright that this Administration 

has gone after China and Russia to an extent that we haven’t seen 

before. It needs to be sustained. 

I think in the past, we have convinced ourselves—I personally 

have written, I have delivered, I have been in the same room when 

these have been delivered, we give China a list and we convince 

ourselves we have done a tough way forward and the Chinese just 

sort of hand wave and we are okay with that. 

In terms of the legislation, I noted earlier the due diligence component. But I would also, beyond the various legislations that are 

out there, it is oversight, because I think that the key aspect here 

is ensuring that these bills that eventually become law are actually 

implemented. 

There are many companies that are still not sanctioned and 

should be subject to sanctions, even from the sanctions law last 

year. 

Chairman BARR. And could I just ask, Mr. Klingner, on the heels 

of that answer, again, revisiting your comment, that the importance of the distinction between the U.N. incremental enforcement 

and the U.N. sanctions, the two rounds of U.N. sanctions, and Congress and the Administration and the United States acting independently. How much more pressure would the legislation being 

proposed or U.S. independent additional action on secondary sanctions, how much of a difference would that make above and beyond 

the most recent round of U.N. sanctions? 

Mr. KLINGNER. Right. As I have said, the U.N. sanctions, each 

one is incrementally better than the last. We can be cynical or positive about moving the ball a few yards down the field. But the U.S. 

actions, I think, are critical. They are measures that we can do ourselves. We don’t need permission by China. 

And to be honest, I don’t see why we are having a debate about 

whether we should be implementing secondary sanctions. They are 

enforcing U.S. law, why should anyone be against enforcing our 

law to the fullest degree? 

So the legislation as well as the oversight through which Congress can hold the Executive Branch’s feet to the fire to try to push 

31 

them to fully enforce the laws that are either on the books or could 

be on the books. The three main actions the Obama Administration 

did last year were really because they were pressured through the 

North Korea Sanctions and Policy Enhancement Act. 

Chairman BARR. I think the difference here is, it is the things 

that you mention, but it is also an issue of lax enforcement. So enforcement is very, very critical. The U.N. panel of experts points to 

continued lax enforcement of U.N. sanctions by foreign countries, 

so these secondary sanctions, I think, are absolutely critical in applying the additional peaceful pressure. 

And I will let Ms. Rosenberg conclude on that point. Do you 

think these secondary sanctions would make a difference from previous efforts? 

Ms. ROSENBERG. I do. I think we have seen that happen in the 

last year and this year as well. And I think it would do more. 

One of the challenges about the new U.N. security measures 

passed this week are that, of course, they are not self-reinforcing 

and where they rely on a reduction or a cap on, for example, petroleum, that is something that the U.N. will have to do accounting 

on. We have problems with inaccurate or unavailable data with 

countries, member states not feeding the data to the United Nations. So I think there is a very high likelihood that we are not 

going to see compliance with this, even just as a matter of arithmetic and slow and poor reporting. 

What that means is that when the United States can impose its 

secondary sanctions to call out and highlight where foreign countries are not undertaking their requirements as U.N. member 

states, it will have a major and significant effect in bringing them 

where they are willing to cooperate to do so. 

Chairman BARR. My time has expired. 

And I will now recognize the gentleman from Arkansas, Mr. Hill, 

for a second round of questioning. 

Mr. HILL. Thank you, Mr. Chairman. 

We also learned in our previous testimony on this subject that 

in the Standing Committee in the Politburo in China, two of the 

seven members are from provinces that abut North Korea, and that 

the presumption is that one gets on the Standing Committee of the 

Politburo by hitting goals established on economic development, et 

cetera. 

So I am interested in your view on China’s seriousness here. And 

do you think that they can recognize what Secretary Tillerson has 

laid out quite clearly, that we don’t have aims for U.S. presence or 

Western presence at their border? 

And so given that, comment on that Politburo political view from 

your point of view. And also, do you anticipate that China would 

be more helpful after they have their significant party congress 

that I believe is to be held in October? In other words, let’s talk 

about the politics in China, about them understanding the United 

States’ sincerity in ending this issue once and for all. 

Mr. Klingner, do you want to start? 

Mr. KLINGNER. I think China is as helpful as it needs to be to 

prevent the U.S. from taking further action on our own. The message that has been given to China, but I think needs to given and 

more forcefully is, you don’t want a crisis on your border, but your 

32 

lack of pressure on North Korea is only encouraging Pyongyang to 

continue going down that path that you don’t like. It is also inducing the U.S. and its allies to take defensive measures, missile defense, et cetera, that China doesn’t like, but we are being pushed 

into it by your ally. 

So you can pay me now or you can pay me later. You need to 

increase pressure or we are going to head toward that crisis you 

don’t want, China. 

Mr. HILL. Your assessment of, will their diplomatic or public position be any different after they complete their party congress? 

Mr. KLINGNER. I have become pretty cynical about North Korea 

and China. And I think it is just that they talk well, they implement sanctions for about 1 to 4 months after each U.N. resolution, 

and then they back off. 

Mr. HILL. Mr. Ruggiero, any comment on that? 

Mr. RUGGIERO. I agree 100 percent. I think that anyone who believes that China will be more cooperative after the party congress 

is falling into Beijing’s trap again. Everybody said they had a good 

summit at Mar-a-Lago, and the Chinese were onboard. And it 

turned out that they were not onboard. Unfortunately, I can do 

that over the last 10 years. That has happened time and time 

again. 

And to your question on how do we measure seriousness, I think 

that is a good question. How I measure it is the Chinese should not 

be closing North Korean accounts, they should be closing their own 

nationals’ accounts. And they should be in Dandong stopping those 

trucks from going over the bridge. They should be in those companies and saying here are the sanctions, how are you implementing 

them? They should be in those banks doing the same thing. 

Until they do that, they are not serious. 

Mr. HILL. I appreciate it. 

Dr. Albright? 

Mr. ALBRIGHT. I agree. I don’t know Chinese politics, so I can’t 

really say. But I would agree with Mr. Ruggiero that we do need 

signs of seriousness. And I can give an example: If a country wanted to inspect the customs areas at the border with China and 

North Korea, a country with vital trade arrangements with China, 

and they weren’t allowed in. They were literally blocked by the private company running the customs storage area. 

So I think it is these signs that we are looking for. And I would 

love to see some Chinese busted. I have been involved in Federal 

prosecutions of at least one Chinese national prosecuted successfully here. He was never or his colleagues were never prosecuted 

in China. And so I think these signs are critical. 

Mr. HILL. So, Ms. Rosenberg, enforcement we know, and upping 

the ante, but talk about, who is a bigger trading partner of China, 

the United States or North Korea? And can we use that stick? 

Ms. ROSENBERG. There is certainly no question there. And to 

refer back to the question posed by the Chair at the beginning, 

what has changed, one thing I will say and apropos of what you 

have just said is the willingness of the current U.S. President to 

offer tough rhetoric on North Korea, including raising the possibility of whether trade can and should occur between the United 

States and China, even if that is just meant to send a really strong 

33 

signal, that is different and that has clearly been a huge wake-up 

call. 

So obviously now the devil is in the details. How do you do implementation? And to be frank, when we have seen China comply 

with other international sanctions frameworks for Iran and Russia, 

even others, when they have gotten with the program, it has never 

looked like them saying to U.S. diplomats, who go sit there and 

pass some intelligence, we got this, we are with you. It comes 

under a different guise. 

And so I would welcome seeing China come forward with its own 

domestic law enforcement or regulatory action against certain companies as a matter of going after money laundering or prosecuting 

corruption, which they clearly have an interest to do. And if it happens to have an effect on their relationship with North Korea, all 

the better. 

I don’t need them to get out in front. And they will have a problem politically looking like they are capitulating to U.S. sanctions, 

but if they do it as a measure of domestic financial sector integrity, 

all the better. 

Mr. HILL. I agree with that. 

Thank you, Mr. Chairman. 

Chairman BARR. The gentleman’s time has expired. 

The Chair now recognizes the gentleman from Texas, Mr. Green. 

Mr. GREEN. Thank you, Mr. Chairman. 

And I thank the witnesses for appearing as well. 

And I would indicate that we have had many duties related to 

some adverse circumstances that we have encountered related to 

bad weather, and that is putting it mildly, and these things have 

attracted my attention, so my apologies for not being here for the 

entirety of the hearing. 

I am concerned about the sanctions. I do have some questions 

that probably have already been posed, so please forgive me for 

being redundant or superfluous. 

My initial question is, if we can perfect the sanctions as codified, 

what would be the impact on China, first? And then I would like 

to move to a secondary portion of the question, which relates to the 

impact on North Korea. 

So on China, what would be the impact if we perfect these sanctions as codified? 

And I will leave this question to whomever would like to respond 

initially. 

Ms. ROSENBERG. Thank you for the question. I think that a way 

to perfect or improve upon the sanctions that exist, and they are 

extensive and they are powerful, is to go after them prosecuting an 

aggressive strategy of implementation and enforcement. 

And that may or may not include secondary sanctions measures, 

but by making an example of these sanctions and calling out the 

companies in China, certainly in North Korea, entities and persons, 

but also in China and other international facilitators of North Korean proliferation entities or its economic activity, that is a strong 

and important way to improve upon these sanctions and make 

them more efficacious. 

Mr. GREEN. Thank you. 

34 

The efficacy of the sanctions, please, would you care to respond, 

sir? 

Mr. RUGGIERO. I would just take a step back. There is obviously 

going to be an impact on Chinese companies and North Korean 

companies. But I think as Dr. Albright noted, China has been a 

problem for a long time in terms of proliferation, whether it is with 

Iran or North Korea. 

A successful goal could be that China finally realizes that just 

issuing a notice from their commerce department with a list of 

goods that are prohibited is not enough, that they need to do more, 

engaging their own companies, engaging their banks, and law enforcement actions, inspections at the border, authorizing other 

countries to do those inspections. 

The Chinese are, in a lot of ways, the center of a market and it 

is the market for proliferators and that is a problem. And until 

they realize that they have to change their ways, we are unfortunately not going to be successful. 

Mr. GREEN. Let me follow up with this question. If we perfect the 

sanctions proposed in their entirety, what will be the impact on 

North Korea? 

Mr. ALBRIGHT. One impact would be probably their gas centrifuge program that makes weapon-grade uranium would probably 

stop at some point. It may take a year or two. But they do depend 

on what we would consider perishable goods in order to operate 

that plant and they don’t make those goods. 

So I think if we had a perfect set of sanctions, I think you could 

cause serious damage to the progress of their nuclear program. You 

couldn’t stop what they already have, but you could stop more. 

Mr. GREEN. Please do not assume that I have a position based 

upon the questions I am posing. I think that these are some things 

that I just need to hear answers to. 

The next question has to do with China’s position that if the 

sanctions create turmoil to the extent that North Korea becomes a 

government that no longer exists for all practical purposes and people start to flood into China, they have always raised that as a possibility. Is it possible that these sanctions could create such a circumstance if completely implemented against North Korea? Because China is a means by which we get to North Korea, so would 

that create the breakdown in governments? 

Mr. ALBRIGHT. That is China’s fear. There has been some newer 

talk in China that, in anticipation of that, the people’s army would 

occupy part of North Korea in order to block refugees coming into 

China and also to build housing for— 

Mr. GREEN. So the expectation is that China would somehow seal 

North Korea such that people in North Korea could not migrate 

into China? 

Mr. ALBRIGHT. There is discussion of that. It has been on the 

table a long time, but the discussion is recurring. But China fears 

that and that is part of the problem. China fears that the instability of North Korea could create problems for itself, and it worries 

about that more than it worries about North Korea’s nuclear weapons. So it is at the crux of the matter and U.S. has to solve that 

problem for China. 

Mr. GREEN. Thank you, Mr. Chairman. 

35 

Chairman BARR. Thank you. The gentleman’s time has expired. 

The Chair now recognizes the gentleman from Ohio, Mr. Davidson. 

Mr. DAVIDSON. Thank you, Mr. Chairman. 

I yield 1 minute to the chairman. 

Chairman BARR. Thank you. 

And very briefly, Mr. Ruggiero, just to follow up on this hearing 

and the legislative proposal to impede North Korea’s access to finance that has been discussed here today, would the passage of 

this legislation that is being proposed or the mere introduction of 

a bill that directed Treasury to impose these additional secondary 

sanctions, would that, in your judgment, give Secretary Tillerson 

and Ambassador Haley additional leverage in their negotiations 

with China and with Russia with respect to North Korea? 

Mr. RUGGIERO. I think that is right. When you look at the Comprehensive Iran Sanctions and Divestment Act of 2010 (CISADA), 

only two banks were designated: China’s Kunlun Bank; and Iraq’s 

Elaf Bank. Elaf Bank was relieved of those sanctions. There were 

many threats associated with that and banks changed their compliance procedures because of that bill. 

Chairman BARR. Thank you. 

I yield back to my friend from Ohio. 

Mr. DAVIDSON. Thank you, Mr. Chairman. 

South Korea has announced that they plan to participate in some 

decapitation exercises. This is kinetic, not financial, presumptively. 

And I guess I am just curious from the panel what is your assessment of North Korea’s reaction to the rhetoric, if not in fact the 

deeds. 

Mr. KLINGNER. Actually a year ago, the South Korean minister 

of defense of the previous administration had announced that they 

have a special forces unit whose mission is decapitation. He also 

emphasized they have surface-to-surface missiles. And then just a 

week or two ago, they demonstrated a practice attack using their 

F-15Ks. And they had announced that they would conduct such an 

attack if they detected signs that North Korea was about to attack. 

Pyongyang responded, well, we will preempt your preemption if 

they detect indications that South Korea is going to attack. 

So one of my concerns is the risk of miscalculation by either 

Korea or the U.S., and that we sort of stumble across the red line 

in some kind of kinetic military action based on very difficult-todiscern intelligence. 

Mr. DAVIDSON. Thank you. I think that is accurate, personally. 

I think I am also curious, at some point, doesn’t this make having a nuclear deterrent, given their massively weaker military stature, a rational choice for North Korea to pursue? 

Mr. ALBRIGHT. Not really. No one is planning to invade North 

Korea. The decapitation idea is a reaction to North Korea strikes, 

some of which happened against South Korea, the sinking of their 

ship by the North Korean submarine, the artillery attack where 

they did not respond, and they have said next time we will. 

So I think these kind of actions, I think, have to be put in context, but the background is no one is planning. Saddam had enemies, Libya had enemies. 

Mr. DAVIDSON. Yes, I understand that— 

36 

Mr. ALBRIGHT. North Korea doesn’t have anybody who wants to 

invade them so they don’t need nuclear weapons. 

Mr. DAVIDSON. Yes, I understand what our perspective is and I 

understand our probability of invading North Korea is really low. 

I think that on the other side of the border, they don’t understand 

that, frankly. I think when we do our rotational efforts and they 

see division after division after division getting experience in 

Korea, if I am a North Korean, that looks a lot like people are preparing to do that. I respect the ability to draw different conclusions. 

I guess the next piece I want to talk about is our naval power, 

there is obviously massive, differential naval power there. Of the 

$15 billion mighty North Korean economy, how much of it is dependent upon access to the sea? Does anybody know? 

Mr. KLINGNER. The North Korean naval forces and air forces are 

small and antiquated. So they have given their focus in the past 

on ground forces, and then as those conditions deteriorated, even 

in the 1990s when I was at the CIA, they compensated for declining conventional capabilities by focusing on asymmetric capabilities, like nuclear weapons, missiles, and special forces. 

Mr. DAVIDSON. Right. Are they dependent upon the sea for their 

oil? 

Ms. ROSENBERG. Not exclusively. They have the capacity to take 

tanker or delivery as well as pipeline from China. 

Mr. DAVIDSON. So pipeline, but they do get a fair bit by ocean? 

Ms. ROSENBERG. Or tanker over that bridge, for example. Those 

are all— 

Mr. DAVIDSON. Oh, tanker trucks, not ocean tankers. 

Okay. Thank you. 

I guess the last thing is, in the ability to use naval power, what 

portion of—if you took this up to the next thing and a blockade, 

short of force, this is control the ocean, is there an ability to have 

a discernible impact on North Korea’s economy? 

Mr. ALBRIGHT. I would imagine. We have to consider the possibility of a submarine-launched ballistic missile. 

Mr. DAVIDSON. Of course. 

Mr. ALBRIGHT. They are far from that, but you have to worry 

about their submarine force. But in answer to your question, I 

think certainly an embargo would affect their economy. 

Mr. DAVIDSON. Yes, that is the question. So is the next step sort 

of kinetic force—Mr. Chairman, my time has expired. I yield back. 

Chairman BARR. Thank you. 

The gentleman’s time has expired. 

And I would like to thank our witnesses for their testimony 

today. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

This hearing is adjourned. 

[Whereupon, at 12:01 p.m., the hearing was adjourned.] 

(37) 

A P P E N D I X 

September 13, 2017 

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TRANSCRIPT 

September 13, 2017 

MONETARY POLICY AND TRADE SUBCOMMITTEE HEARING ON 

LEGISLATIVE PROPOSAL TO IMPEDE NORTH KOREA'S ACCESS TO 

FINANCE 

MOORE: And thank you so much, Mr. Chairman. 

And I want to, in the absence of our ranking member of the full committee, I'd like 

to share some thoughts that she has committed to paper regarding today's 

hearing. 

I want to thank our witnesses for joining us to discuss the legislative proposal 

aimed at expanding United States sanctions against North Korea and pressuring 

the international community to enforce those restrictions as well. 

The situation in North Korea is the most urgent and dangerous threat to peace 

and security that we face. And it's one that grows more dangerous as North 

Korea aggressively pursues the capacity to extend its nuclear reach to United 

States cities. 

In fact, there are no good options for dealing with North Korea. Most experts 

agree that a preemptive strike at this point on North Korea would be reckless 

beyond belief. 

Of the least-bad options, I like the idea of pressing China to lean more heavily on 

North Korea and I like the idea of tougher sanctions. But we should not confuse 

either of those things with a coherent strategy, and we should be clear up front 

about our goals and objectives and what we expect sanctions can accomplish. 

Any ratcheting up of sanctions must be coupled with aggressive diplomatic 

engagement by the United States and within a framework that would entail 

nuanced negotiations with North Korea, U.S. allies and China. This would require 

unprecedented policymaking capacity and coordination across the United States 

government as well as skilled policy coordination with our allies. 
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29542.002

It concerns me, therefore, that just as this crisis is accelerating, our diplomatic 

capabilities, which opens channels for crisis communication and reduces the risk 

of miscalculation, are diminished. Ne~U.S. ambassadorships to Japan 

arni-&luth Korea still vacan~s--y~ 

assistant secretary Gf-state for East Asia and P-aBific affairs. 

The legislative proposal before us today rightly recognizes the need to exert 

massive and immediate pressure on the North Korean regime and, importantly, 

enlists China and others in this effort. Such a powerful approach towards 

sanctions, however, that-which have the capacity to reverberate throughout the 

global economy and present potentially disastrous, unintended consequences 

must also allow for careful calibration in its implementation. 

We look forward to the witnesses' views on the proposal before us as well as 

your views on how the U.S. can most effectively use this leverage to contain the 

alarming danger North Korea presents. 

And I reserve my time. 
40 


29542.003

Testimony of David Albright, 

President of the 

Institute for Science and International Security, 

before the Monetary and Trade Subcommittee of the Committee on Financial 

Services 

Hearing Title: "A Legislative Proposal to Impede North Korea's Access to 

Finance" 

September 13, 2017 

North Korea's September 3, 2016 nuclear test, its sixth overall and by far its largest in terms of 

explosive yield, demonstrates its resolve and commitment to developing a nuclear arsenal able to 

strike its enemies. During the last few years, North Korea has embarked on an intensive nuclear 

weapons testing campaign that has included three underground nuclear tests and tens of ballistic 

missile launches. Its apparent goal is to have a variety of nuclear warheads mated to ballistic 

missiles with ranges stretching to intercontinental distances. Few doubt that North Korea can 

now launch nuclear tipped ballistic missiles that can strike our allies Japan and South Korea. 

There is rightly more skepticism that North Korea is yet able to deliver a nuclear warhead to an 

American city. 

I remain skeptical that North Korea can build a miniaturized two-stage thermonuclear weapon 

that it can deliver on an intercontinental ballistic missile (ICBM) to the continental United States. 

Nonetheless, this test appears to have achieved an explosive yield of over 1 00 kilotons, far larger 

than the yield of any of its previous tests. This yield is large enough to destroy substantial parts 

of modem cities. Whatever the specific design for this high yield weapon, this test is significant 

and requires extraordinary responses. 

I still believe North Korea can be peacefully denuclearized. Accomplishing that goal will likely 

require exerting enormous pressure, starting with much harsher sanctions and trade cutoffs. The 

UN Security Council resolution passed on Monday is an important step in that direction. A 

priority is to far more effectively isolate North Korea from the regional and international 

financial system. Because many countries are not enforcing sanctions effectively, or are in some 

cases willfully disregarding them, punitive measures are needed to encourage compliance and 

deter violations. Additional U.S. legislation that supports that goal would be useful. 

If pressure does not lead to successful negotiations, then it is better to have a further weakened 

North Korea and to make it more difficult for Pyongyang to create a functioning nuclear arsenal. 

In parallel, the United States needs to work with its allies in the region to build up defensive 

capabilities and increase deterrent postures. Today, the alliance among the United States, Japan, 

and South Korea is more critical and should be further strengthened. It remains imperative that 

those allies do not feel inclined to develop their own nuclear deterrent, further exacerbating 

regional security concerns and increasing the chance for nuclear war or miscalculation. 

1 
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Substantive negotiations appear unlikely if North Korea continues its nuclear and missile testing 

efforts. Moreover, the United States should not grant additional concessions to North Korea. 

However, it should state to North Korea that it has a diplomatic path out of its isolation and 

sanctions if it commits to negotiate a full, verified denuclearization of its nuclear and long-range 

missile programs. Any such negotiation would need to repair past mistakes where North Korea 

was able to evade inspections and continue expanding its nuclear programs. An agreement 

would also need to allow unprecedented inspections and access, allowing for a full accounting of 

the program as part of a denuclearization pathway. Again, this prospect seems unlikely in the 

short tcnn given the current trajectory, but it is important to keep available as a matter of U.S. 

policy in case increased sanctions convince North Korea to negotiate in earnest. Likewise, the 

Trump administration should continue to make clear that regime change is not its goal. The 

verified denuclearization of North Korea should remain the guiding U.S. policy, rather than 

piecemeal freezes with limited access in return for economic or other concessions. 

Recent Test 

The September 3'd nuclear test had the largest seismic signal of any of North Korea's six 

confirmed tests. The estimated yield of this explosion was about 100-150 kilotons, far larger 

than its earlier tests, which topped out at roughly 15 kilotons. This much larger yield, combined 

with North Korea's efforts to acquire capabilities to produce key thermonuclear materials, would 

suggest that this test was some type of thermonuclear device to increase the yield of a fission 

design. How it may have used the thermonuclear materials remains unclear. 

We should view skeptically North Korean claims that this test was a two-stage thermonuclear 

device. Likewise, the picture of an elongated device distributed by North Korea purporting to 

show a miniaturized two stage H bomb is likely more aimed at spreading propaganda than 

something to be taken literally. North Korea understands our fears and is well practiced in the 

art of disinformation. [ believe the ohject in the picture was a model meant to play on our fears 

ofl-I bombs, sow division, and bolster their deterrent. In reality. the picture and North Korea's 

statements provide no evidence that the object or test used a two-stage thermonuclear design. 

Moreover, the shape of the device in the picture and information in its statement do not appear to 

go beyond in content that which is available in the open literature. Absent other infonnation, I 

believe it would be premature to assess that North Korea, which has had real struggles mastering 

technological targets, has reached such a difficult goal. I hope we can learn more ahout this test 

and North Korea's capabilities to build such devices. Perhaps, data and insights will come from 

defectors or from radioactive emissions from the test site, which are far likelier to have occurred 

in this test than earlier ones. 

The test could have involved a boosted or a one-stage thermonuclear design, which are both 

easier to develop and build than a two-stage thermonuclear design. In this case, its 

miniaturization and weaponization for a missile is easier but also challenging. While I am 

skeptical that North Korea is able to successfully build such a design for delivery by an ICBM. 

achieving a weaponized one-stage or boosted weapon may not require more underground tests. 

It will likely require more above ground non-nuclear tests, but these can be done in 

military/nuclear research facilities that are very hard to detect or monitor remotely. 

2 
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29542.005

When can North Korea reach its goal of a miniaturized, high explosive yield warhead able to be 

successfully delivered to a target on an ICBM? This is difficult to precisely estimate but it will 

likely be within a few years, if testing continues unabated. 

More tests? 

More underground tests could refine North Korea's skills in designing more efficient fission 

weapons and fission boosted weapons (that use less plutonium or weapon-grade uranium per 

kiloton of explosion), and achieve designs with greater total explosive yields. North Korea could 

explore more optimized one-stage thermonuclear weapons and develop more tailored 

electromagnetic pulse (EMP) weapons. The bottom line is that if they test more, they will be able 

to develop more advanced weapons that can use less plutonium and weapon grade uranium 

(WGU), arc more miniaturized for missiles, and can be more destructive if detonated. 

With more tests, North Korea could succeed in building two-stage nuclear weapons. There are 

sound reasons to do so. Two stage weapons have advantages over boosted and one stage 

thennonuclear devices, namely (I) their explosive yield can be much higher (into megatons) than 

boosted or one stage designs which tend to be limited to several hundred kilotons, (2) their 

requirements for fissile material are less than one stage designs, and (3) their elongated shape 

(with a smaller fission explosive) can potentially fit more easily into missile reentry vehicles than 

one stage designs which tend to increase in diameter as the explosive yield increases. A twostage design is simply more threatening than a boosted or one-stage design. But they are more 

complicated to develop than one-stage weapons. I believe that North Korea needs more tests and 

time to develop a miniaturized two stage thennonuclear weapon but it is motivated to do so. 

North Korea's Nuclear Weapons Capabilities 

The last several years have witnessed a dramatic and overt build-up in North Korea's nuclear 

weapons capabilities. The main activities that are known publicly include: 

Six underground nuclear tests in 2006,2009,2013, 2016, and 2017; 

Restart and refurbishment of the small 5 megawatt-electric (MWe) reactor at Y ongbyon 

after a several-year halt; 

Revelation of a centrifuge plant at Yongbyon in 20 I 0 and subsequent doubling of its 

floor size a few years later; 

Separation of several kg of plutonium in 2009 and again in 2016 from the 5 MWe reactor 

at the Radiochemical Laboratory at Yongbyon; 

On-going construction of an experimental light water reactor (ELWR) at Yongbyon (type 

of reactor is uncertain); 

• Construction by a nuclear organization of a new graphite production facility. Graphite is 

a moderator in a type of reactor that is an excellent plutonium producer; 

• Construction of facilities to make thermonuclear materials, including a lithium 6 

enrichment plant and likely an Isotope Production Facility able to separate tritium; 

3 
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• Modernization and construction of many buildings at Yongbyon, including likely one 

able to manufacture fuel for the EL WR and others to support reactor and centrifuge 

operations; 

Refurbishing of uranium mines and mills; and 

• A robust program to develop, manufacture, and test ballistic missiles of various ranges. 

In addition to known sites, North Korea has likely developed an array of secret facilities and 

activities. This unknown part of North Korea's nuclear weapons complex includes: 

• The strong possibility of an older gas centrifuge plant that has made weapon-grade 

uranium for up to a decade 

• Unknown sites to research, develop, and manufacture nuclear weapons and their 

components; 

• Sites associated with nuclear weapon component testing, including full-scale cold-testing 

that complement underground nuclear testing at its Punggye-ri underground test site; 

• Possible integration facilities that could mate a nuclear warhead to a ballistic missile; and 

• Nuclear warhead storage capabilities. 

All of these activities have been supported by extensive, often illegal, overseas procurements of 

equipment, material, and technology. 

Estimated Number of Nuclear Weapons 

North Korea bas developed successfully the means to produce both plutonium and weapon-grade 

uranium for nuclear weapons. The size of its stocks of these materials provides a rough guide to 

the number of nuclear weapons North Korea has built. 

Its stock of plutonium appears limited and all of it appears to have been produced in the small 

aging 5 MWe reactor at Y ongbyon. It has a gas centrifuge plant at Y ongbyon able to produce 

weapon-grade uranium. A substantial amount of weapon-grade uranium could also have been 

produced at unknown sites. Many assess that North Korea has another gas centrifuge plant at an 

unknown location that may have been producing weapon-grade uranium since about 2005 or 

2006. 

My Institute's median estimates of the size ofNortb Korea's plutonium and weapon-grade 

uranium stocks through 2016 are: 1 

• 33 kilograms of separated plutonium; and 

• 175-645 kilograms of weapon-grade uranium, where 175 kilograms corresponds to a 

median estimate for the case of one centrifuge plant and 645 kilograms corresponds to the 

median estimate for the case of two centrifuge plants. 

1 David Albright, North Korea's Nuclear Capabilities: A Fresh Look, Institute for Science and International 

Security, August 9, 2017. bJ!P:/ Iisis-online,ondisis-reports/detail/north-koreas-nuc!ear-cillhl!;illLti.£.~.:: .. <,1_:fl:_~~ft-look 

P-Q)~~X:P..9!ll!.2ti9~ 

4 
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29542.007

Through 2016 (before the latest underground test), my Institute estimated that North Korea had 

about 13 to 30 nuclear weapons. 2 These values reflect the utilization of 70 percent of the 

available, estimated stocks of plutonium and weapon-grade uranium. This assumption means 

that thirty percent of North Korea's total stocks of plutonium and weapon-grade uranium are 

assessed as in production pipelines, lost during processing. or held in a reserve. The limits of 13 

and 30 correspond to the median values for the cases of one or two centrifuge plants and each 

weapon contains either plutonium or weapon-grade uranium. 

These estimates suggest that North Korea has a substantial number of nuclear weapons and add 

weight to assessments that North Korea is competent at using plutonium and/or weapon-grade 

uranium in nuclear weapons. 

North Korea is currently expanding its nuclear weapons at an estimated rate of about 3-5 

weapons per year. Again, the lower bound corresponds to one centrifuge plant and the upper 

bound corresponds to two centrifuge plants. 

Through 2020, North Korea is assessed as having enough plutonium and weapon-grade uranium 

for about 25-50 (rounded) nuclear weapons. A worst case, involving the operation of the 

Experimental Light Water Reactor, is that it would have enough plutonium and weapon-grade 

uranium for up to 60 nuclear weapons by the end of2020. 

A Closer Look at the Upper bound: Two Centrifuge Plants 

The upper bound of the estimate of the number of nuclear weapons through 2016 includes the 

production of weapon-grade uranium at a second, unknown enrichment plant. Based on 

discussions with U.S. officials, their estimates of nuclear weapons capabilities assume that this 

second enrichment plant exists and has contributed significantly to North Korea's stock of 

weapon-grade uranium. Although I am less sure, it is useful to focus on the case of two 

centrifuge plants producing weapon-grade uranium. 

The lower and upper bound ofthe Institute's range above represent the medians of frequency 

distributions of estimates of the number of nuclear weapons, which differ mainly on whether 

North Korea has one or two centrifuge plants. Each frequency distribution is calculated by 

considering several variables, each of which is a range of values. These variables include the 

total number of centrifuges, the efficiency of the centrifuges, the length of operation, and the 

amount of plutonium or weapon grade uranium per weapon. All of these variables are uncertain, 

because of North Korea's efforts to keep its nuclear programs secret. 

The rollowing frequency distribution translates the total amount of plutonium and weapon-grade 

uranium into an equivalent number of nuclear weapons. In the chart, this value is abbreviated as 

the total number of nuclear weapons equivalent by "Eq.'' 

2 lbid. 

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The median of this slightly skewed distribution is about 42 weapons equivalent, with a standard 

deviation of 7 weapons equivalent. The full range is 25 to 75 weapons· equivalent. 

However, as discussed above, the actual number of nuclear weapons would be expected to be 

fewer in number than given by the above nuclear weapons equivalent values. A fraction of the 

plutonium or WGU would be tied up in the manufactnring complex that makes unclear weapons 

components or would be lost during such Some of this material >vould be expected 

to be held in a reserve for underground or new types of weapons. In these 

estimates, it is assumed that only 70 percent of the total amount or WGU is used in 

nuclear weapons. 

Accounting for this reduction, the distribution of the estimated number of weapons made from 

plutonium or weapon grade uranium from two centrifuge plants at the end of2016 is: 

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The median of this slightly skewed distribution is 30 nuclear weapons, with a standard deviation 

of 5 weapons. The full range is 18-53 weapons. The range defined from the 51

h and 95111 

percentiles of this distribution is 23 to 39 nuclear weapons. The latter range of the number of 

weapons North Korea may possess is a more reasonable representation in the case of two 

centrifuge plants making weapon-grade uranium. However, I would stress that in our analysis 

this range represents a worst case. 

One implication of this analysis is that a recent report that North Korea has up to 60 nuclear 

weapons represents a worst case. Alternatively, it is unlikely that North Korea has such a large 

number of weapons. 

Thermonuclear Materials 

For several years, evidence has accumulated that North Korea has been producing or procuring 

materials needed to make thermonuclear weapons, which has added credibility to North Korea's 

claims that it has been pursuing boosted or thermonuclear nuclear weapons. W c assess that 

North Korea has established a domestic capability to make lithium 6, which is a key material for 

thermonuclear weapons whether in one or two stage thermonuclear designs (see also below). It 

is also the material irradiated in a reactor to produce tritium, which can be used in boosted or one 

stage thermonuclear designs. North Korea has expressed interest in deuterium, another key 

thermonuclear material. It has also constructed a new Isotope Separation plant at Y ongbyon that 

could separate tritium produced in the 5 MWe reactor or in a small research reactor at 

Yongbyon, called the IRT reactor. 

Types of Nuclear Weapons (warhead and delivery system) 

North Korea is likely developing a range of nuclear warheads or bombs that can be fitted to 

delivery systems. However, there is little public information about the warheads or bombs North 

Korea has built or is developing. Based on delivery systems, North Korea may have: 

• Aircraft dropped bombs: unknown if bomb designs exist but likely able to design 

• Nodong missile: miniaturized, plutonium-based warhead likely; unknown if could build 

miniaturized fission-only composite core design (with both plutonium and WGU) but 

increasingly possible 

• Medium range missile, land-based, warhead unknown 

Intermediate range missile, land-based, warhead unknown 

• ICBM, land based, warhead unknown 

Sea-launched missile, medium range, warhead unknown 

• Tactical nuclear weapons, such as backpack bombs and land mines; speculative if exist 

or planned 

These delivery systems would likely entail different nuclear weapons designs and combinations 

of plutonium and weapon-grade uranium. A thermonuclear warhead is probably being 

developed for some of these systems. 

7 
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Observations and Findings about North Korea's Nuclear Weapons 

Capabilities 

• North Korea appears able to produce considerably more weapon-grade uranium than 

plutonium, providing a pathway to a much greater number of nuclear weapons. 

• North Korea appears to have a family of relatively reliable, miniaturized fission weapons 

with the destructive force rivaling the size of the Hiroshima blast that can use plutonium 

or weapon-grade uranium and fit on a number of ballistic missiles. 

• Miniaturization is assessed as being done for the Nodong missile for a plutonium-only 

warhead. North Korea could use similar warheads on its longer-range missiles, although 

it would need to ensure that they can withstand the harsher environment experienced by 

these longer range missiles, particularly an ICBM. Moreover, it may experience 

problems in miniaturization and achieving sufficient warhead ruggedness as it seeks to 

use composite cores of plutonium and weapon grade uranium or thermonuclear materials. 

As a result, nuclear warhead miniaturization efforts likely continue. 

• Other weaponization issues probably continue to be under development, i.e. reliability, 

safety, and security of nuclear weapons. 

• North Korea can achieve explosive yields, likely using crude thennonuclear or boosted 

designs, that can destroy modern cities. With time, likely within a few years, it will have 

a reliable capability to deliver and explode such weapons over targets. 

North Korea will continue to depend on importing key goods for its nuclear programs 

from suppliers. 

• North Korea could proliferate its capabilities to other nations. Although this aspect of the 

problem is not discussed here, North Korea's nuclear proliferation to other countries 

remains a fundamental concern. 

Foreign Procurements by North Korea's Nuclear Programs 

The North Korean government directs highly organized and centralized illicit trade efforts to 

outfit its nuclear, missile, and military programs. The government also uses North Korean 

government officials stationed at embassies to conduct illicit procurement related business and it 

recruits private companies to obtain goods. North Korea has established entities abroad under its 

control that seek goods. It also uses North Korean expatriates who own private companies 

located abroad. In the past, North Korean government entities cooperated closely with Pakistan, 

obtaining critical sensitive gas centrifuge assistance. 

North Korea has depended on illegal or questionable procurements for decades for its nuclear 

programs. In particular, it has sought European, Japanese, and U.S. goods for its nuclear 

programs. When it could no longer base its operations in Europe in the early 2000s, it shilled its 

operations to China where many procurement operations for its nuclear program have been 

centered since then. Operating in China and Hong Kong, it has acquired a wide range of goods 

from Chinese companies and middlemen, as well as from U.S., Japanese, and European 

subsidiaries, which have been deceived into thinking they were selling to Chinese end users. 

North Korean entities often contract with private Chinese and Hong Kong trading companies and 

sometimes manufacturing companies to acquire these goods, either from Chinese suppliers or 

subsidiaries of Western or Japanese suppliers in China. Although China is improving its export 

8 
48 


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control laws, Beijing has not done an adequate job of enforcing its laws and sanctions against 

illegal exports and retransfers to North Korea. 

The following illustrates the range and types of goods North Korea seeks abroad and the 

important role these goods play in the development and success of a range of North Korean 

nuclear programs. Many of these procurements were detectable and could have been stopped. 

One example also focuses on North Korean schemes to bypass financial controls and sanctions 

that led to a U.S. asset freeze. 

Procurements for North Korea's Centrifuge Program 

The operation and expansion of North Korea's gas centrifuge program has depended on 

importing many goods and technologies from abroad. The annex contains a list of goods North 

Korea has imported for its centrifuge program during the last fifteen years. This list does not 

include the substantial centrifuge assistance North Korea received from Pakistan in the late 

1990s and early 2000s. 

Evidence supports that North Korea is still importing a variety of goods and technologies for its 

gas centrifuge program, while benefiting from earlier procurements obtained from abroad. North 

Korea can make key centrifuge components domestically and would be expected to be seeking 

independence from foreign supply. However, there is a wide range of materials and equipment 

that North Korea must import in order to produce these components and then make and operate 

its centrifuge plants. 

Procurements for North Korea's 5-Megawatt Electric Reactor at Yongbyon 

During the last several years, North Korea procured goods for its 5 MWe reactor and spent 

considerable funds on this endeavor. The intention appears to be the restoration and upgrading 

of the aged reactor. Many of these goods arc neither high-tech nor certified for nuclear use. 

North Korea seeks them from abroad for various reasons, including finding them more 

affordable than producing them domestically or unable to manufacture them with sufficient 

reliability. In China, it procured carbon dioxide blowers for the primary cooling system, a 

Japanese emergency generator, and Sulzcrs water pumps for the secondary cooling system. 

North Korea also procured a relatively rare aluminum-magnesium powder for making cladding 

of fuel for this reactor. The supplier was in Rritain but was apparently unaware of the diversion 

from China to North Korea. 

Procurements for a Lithinm-6 Enrichment Plant3 

As discussed above, a critical thermonuclear material is lithium 6. Utilizing foreign 

procurements from China, North Korea is assessed as having built a lithium 6 enrichment plant. 

at the llungnam Fertilizer Complex, near Hamhung on North Korea's east coast. This site is 

involved in ammonia processing, fertilizer production, and other chemical processing. Key 

3 David Albright Sarah Burkhard, Mark Gorwitz, and Allison Lach, "North Korea's Lithium 6 Production for 

Nuclear Weapons," Institute for Science and International Security, March 17, 2017, !ntn£isls:9Jl_litl!',D!g/J5i:;: 

ftQQrliQ~tai l/nQl1Jl:kQI~A~lilb.Lum:..<i::llfill.b:Kliilll~i9..I:1l!dfk?I=-!~ill?Q1~1l'-

9 
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29542.012

procured items included metric ton quantities of mercury and tens of kilograms oflithium 

hydroxide which are strong indicators of a lithium-6 enrichment plant. The order of mercury and 

lithium hydroxide was from a 2012 North Korean contract to arrange the purchase of a wide 

range of industrial and lab-scale equipment and materials abroad in China. Although the purpose 

of the contract was not included, the list of goods implies they are tor a lithium 6 enrichment 

plant using mercury-based lithium exchange. The contract had handwritten notes stating that the 

goods were needed urgently and the procurements involved the Hamhung complex. Most of the 

procurements were for industrial-scale equipment. 

Shenyang Machine Tools Company4 

North Korea seeks advanced machine tools abroad, including from European suppliers. These 

machine tools are important in nuclear and ballistic missile programs. Headquartered in 

northeast China, Shenyang Machine Tools Company allegedly supplied sophisticated 6-axis 

machine tools to North Korea containing controlled subcomponents. The subcomponents were 

provided by a European company under the condition that they would not be re-exported. The 

company imports a range of subcomponents from major Western supplier nations. It sells its 

machine tools in China and globally, including in Europe and the United States. European 

government officials gathered evidence that at least two 6-axis machine tools, containing 

controlled, imported subcomponents, were exported to North Korea in about 2015 without 

authorization from the supplier country, a requirement of the original supply of the goods. 

Although Shenyang company officials have stated that the exports were inadvertent, other 

evidence suggests that the company did know about the end destination of the controlled goods 

being North Korea. The Chinese government refused to cooperate with a foreign criminal 

investigation to determine the actual situation, backing the company's claim that the exports 

were inadvertent or uncontrolled re-exports. As a result, legal options to investigate the 

company's exports are limited. However, my Institute recommends that this company should be 

considered a candidate for U.S. sanctions. In addition, the United States should take other 

measures to ensure that U.S. companies' and other suppliers' goods are not re-exported to North 

Korea, in part by obtaining verified assurances from Chinese companies. Moreover, China 

should require its companies to have internal control systems and hold top company officials 

liable for illegal exports originating within their companies. 

Dan dong Chengtai of China and Velmur Management and Transatlantic Partners (both 

Russian-owned) of Singapore 

North Korea has used a range of methods to bypass financial sanctions and regulations on its 

nuclear, missile, and arms programs. On August 22, 2017, the Department of Justice announced 

two law suits against financial and nonproliferation sanctions busting rings in China and 

Singapore (the latter involving Russian-owned entities and individuals)5 The Trump 

4 David Albright, "Shenyang Machine Tools Company," Institute for Science and International Security, April 13, 

2017, [lttp: liisis-on.li!l£.,_\u:giliis59JJ!Il~Ldetai 1/shenyang-mach_ine-tools-company 

' See: Andrea Stricker, "Case Study: United States Levies Civil Suits Against Chinese and Russian Entities for 

Helping North Korea Bust Financial and Sanctions," Institute for Science and International 

Security, September 7, 2017, L>.U.Uc~'-'""·"":-""''-""'""''·""·'·"-'~·"""'~'-'.'"-"~''-"~"'-"=c"-"='-'-''~=""'"-"~~ 

10 
50 


29542.013

administration also sanctioned the entities and individuals.involved in the case. The law suits 

froze North Korean assets that touched U.S. correspondent banking accounts. The suits alleged 

that the rings are working to help North Korea buy or sell goods internationally and then launder 

the money for its nuclear, missile, and military programs. The first law suit against Dandong 

Chcngtai, which was conducting prohibited coal trade and illicit financial transactions with 

North Korea, shows that enforcing the new UN resolution 2371 to prohibit coal trade with North 

Korea may temporarily restrict its ability to acquire needed dual-use goods for its nuclear, 

missile, and military programs. The Velmur/Transatlantic case involved Russians setting up 

front companies in Singapore in order to make prohibited financial transactions for North Korea 

for purchases of Russian gasoil. This case shows that North Korea's imports of gasoil (as well as 

oil) are vulnerable commodities that deserve UN sanctions. 

Countries Violating UNSC resolutions on North Korea 

As part of preparing this testimony, we decided to use a new tool we have developed to evaluate 

preliminarily 33 countries that the United Nation Security Council Panel of Experts on North 

Korea identified as violating UNSC resolutions on North Korea. 6 Although this list is not 

complete, it appears to be fairly representative of the type of countries implicated in nefarious 

activities with North Korea. These countries show a tendency of cooperation with North Korea 

in its illicit procurement of goods for its nuclear or missile programs, as well as cooperation with 

North Korea in its attempts to evade sanctions. Common offenses include facilitating or 

initiating there-flagging of ships, and the setting up of front companies and bank accounts. 

Some of the countries are involved in the import of banned North Korean goods, such as iron and 

ore. Others cooperated with North Korea militarily in areas of training, arms, and equipment. 

This includes North Korea's alleged export of surface-to-air missiles or related equipment to at 

least two African countries. 7 

Using what we have developed and titled the Peddling Peril Index (PPI), which measures the 

extent and effectiveness of a country's strategic export control systems, we considered the 

ranking of these 33 countries in terms of trade control legislation, proliferation financing, and 

overall ranking in the index. 

The group of countries that deal with North Korea on illicit or sanctioned goods or services tend 

to have a relatively poor overall ranking on the PPI. The ones that have a higher ranking tend to 

have adequate export control legislation but poor enforcement or anti-proliferation financing 

practices. 

On the issue of proliferation financing. half of all countries on the list rank in the bottom 30 

percent of the 200 countries evaluated under this criterion. This means that many of these 33 

countries do poorly on preventing proliferation financing. 

Almost all of the countries that deal with North Korea on conventional arms or are involved in 

reflagging their vessels have no or poor export control legislation. 

6 All reports can be found on the website of the United Nations Security Council Subsidiary Organs: 

hnn_~_)/\V\\~V.UJ].:.QEg!._~fLsubor!2i_~llisanctiQn~Llll8/pancl Qffi~~-QI1~ 7 Mozambique and Tanzania, sec bltp://ty}Y.\Y.JlJ.1_,Q!:g{g££scarch/vie\Y dQc.asp?svmbg£~L1..QJ 71741 

11 
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29542.014

Many of the countries identified in this list experience a high degree of con·uption. Notably, 

countries on the list with adequate export control legislation, which typically translates into Jess 

corruption, performed more poorly than their peers. 

These results suggest that North Korea targets those countries with weak or nonexistent export 

and proliferation financing controls and suffer from on average more corruption than other 

countries. Although a range of remedies are needed to fix the poor performance of many of 

these countries on this list, the creation of punitive measures may be an effective means to 

accelerate more compliant behavior in the short term. 

Thank you for inviting me to submit testimony. 

12 
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29542.015

Annex: North Korean Illicit, Foreign Procurements for Centrifuges 

(non-Pakistani supply) 

North Korea has sought the following advanced goods from Western countries and via China for 

its gas centrifuge programs: 

Materials: Aluminum tubes (low strength for outer casings), ring magnets for use in a 

centrifuge upper bearing, epoxy resins used in assembling centrifuge parts (sold 

commercially as Araldite), raw materials and additive alloys; 

Vacuum Equipment: A range of equipment important to operating centrifuges 

individually or in cascades, such as vacuum pumps, valves, specialized uranium 

hexafluoride resistant oils. Also pressure transducers, which are used to measure the 

vacuum pressure in individual centrifuges and cascades; 

Other Equipment: Uranium hexafluoride cylinders, uranium hexafluoride flow meter, 

He leak detectors, and frequency converters or their subcomponents. Also computerized 

control equipment, including software and updates, used to run a plant composed of 

centrifuge cascades. (The equipment is the same as that acquired by Iran to control its 

centrifuges.) 

Manufacturing Equipment: Flow-forming machine usable to make centrifuge rotors. 

an electron beam welder for centrifuge assembly, equipment to make ring magnets. Stateof-the-art computer numerically controlled (CNC) machines for making centrifuge parts, 

and measuring equipment; 

Spare parts for centrifuge-related equipment. 

13 
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29542.016

'TiieHet1tage Foundation 

CONGRESSIONAL TESTIMONY 

Time for Shock and Awe Sanctions 

On North Korea 

Testimony before the 

House Committee on Financial Services 

Subcommittee on Monetary Policy 

And Trade 

September 13, 2017 A legislative Proposal to Impede 

North Korea's Access to Finance 

Bruce Klingner 

Senior Research Fellow, Northeast Asia 

The Heritage Foundation 

214 Massachusetts Avenue, NE • Washington, DC 20002 • (202) 546~4400 • heritage.org 
54 


29542.017

CONGRESSIONAL TESTIMONY 

My name is Bruce Klingner. I am the Senior Research Fellow for Northeast Asia at The Heritage 

Foundation. The views I express in this testimony are my own, and should not be construed as 

representing any official position of The Heritage Foundation. 

Time for Shock and Awe Sanctions on North Korea 

North Korea's successful test of a hydrogen bomb, test launches of an ICBM that could eventually 

threaten the American homeland, and threats to launch missiles at Guam have energized debate over 

U.S. policy toward Pyongyang. 

Secretary of State Rex Tillerson declared that if North Korea reached a technological level deemed 

threatening, then military options "were on the table.'' 1 National Security Advisor H.R. McMaster 

commented that President Trump insisted that North Korea being able to target the United States 

with a nuclear warhead was "intolerable'' and had directed the U.S. to prepare a preventive war 

option that would thwart North Korea from completing development of an ICBM.' 

But shooting down missile test flights that do not clearly pose a security threat to the United States 

or conducting military attacks on North Korea could trigger a war with a nuclear-armed nation that 

has a large conventional military force poised along the border with South Korea. Such a war risks 

catastrophic consequences for the United States and its allies. While the U.S. should he steadfast in 

its defense of its territory and its allies, it should not be overeager to ''cry havoc and let slip the dogs 

ofwar."3 

Conversely, other experts continue to push for a rushed return to the failed approach of negotiations, 

insisting it is the only way to constrain Pyongyang's growing nuclear arsenal. But there is little 

utility to such negotiations as long as Pyongyang rejects their core premise, which is the 

abandonment of its nuclear weapons and programs 4 

Moreover, dialogue requires a willing partner. By word and deed, North Korea has demonstrated it 

has no intention to abandon its nuclear weapons. Pyongyang has made emphatically clear in both 

public statements and private meetings that denuclearization is off the table and there is nothing that 

Washington or Seoul could offer to induce the regime to abandon its nuclear arsenal 5 

The most effective way to engage in negotiations would be after a comprehensive, rigorous, and 

sustained international pressure campaign. Such a policy also upholds U.S. laws and UN resolutions. 

1 James Griffiths. Paula Hancocks and Alexandra Field, "Tillerson on North Korea: Military action is 'an option'," CN'N, 

March I 7, 20 I 7, http://www.cnn.com/20 !7 /03/17 /politics/tillerson-south-korea-dmz/index.htrnl. 2 Jason Le Miere, "U.S. Prepared to Launch 'Preventive War' Against North Korea, Says H.R. McMaster." Newsweek, 

August 5, 2017, http://www.newsweek.com/us-north-korea-war-mcmaster-646942 . 3 Bruce Kiingner, "Save Preemption for Imminent North Korean Attack;' The Heritage Foundation, March J, 2017, 

http://www .heritage.org/rnissi le-defense/report/save-preemption-im minent -north-korean-attack . 

.t Bruce KJingner, "The Trump Administration Must Recognize the Dangers of Premature Negotiations with North 

Korea." The Heritage Foundation, May 11, 2017, http://www.heritage.org/global-politics/report/the-trumpadministration-must-recognize-the-dangers-premature-negotiations. 

5 Bruce Klingner and Sue M.i Terry, "We participated in talks with North Korean representatives. This is what we 

learned," The Washington Post. June 22, 2017, https://www.washingtonpost.com/opinions/we-participated-in-talks-withnorth-korean-reprcsentatives-this-is-what-we-learned/20 17/06/22/8c83 8284-5 77b-1 I e 7 ~ba90- f58 75b 7 d !876 _story .htm I. 

--~~-----------~----

2 
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29542.018

CONGRESSIONAL TESTIMONY 

imposes a penalty on those that violate them, makes it more difficult for North Korea to import 

components including money from illicit activities- for its prohibited nuclear and missile 

programs, and constrains proliferation. While leaving the door open for eventual negotiations, the 

U.S. must also ensure it has sufficient defenses for itself and its allies. 

Greater International Response to North Korean Violations 

North Korea· s two nuclear tests and numerous missile launches in 20 J 6 produced a new 

international consensus that stronger measures must be imposed on North Korea for its serial 

violations of UN resolutions and international law. Efforts to date have moved forward on three 

tracks. 

Track 1: UN Security Council Resolutions 

ln March 2016, the UN Security Council approved Resolution 2270 which increased financial 

sanctions, expanded required inspections of North Korean cargo. and targeted key exports. The 

resolution banned all financial institutions from initiating or maintaining a correspondent account 

with North Korea unless specifically approved by the UN 1718 Committee. 

Given international financial institutions' extreme sensitivity to reputational risk, the clause should 

lead to increasing scrutiny of all North Korean financial transactions and greater due diligence 

efforts to prevent being even unwittingly complicit in North Korean illicit activities. 

The UN resolution was the first targeting North Korean commercial trade, including mineral exports. 

The resolution also prohibited financial support for trade with North Korea if the financial support 

could contribute to North Korea's nuclear or ballistic missile programs.6 It was notable for requiring 

mandatory inspections of all North Korean cargo transiting a country rather than only those 

suspected of carrying prohibited items. 

In November 2016, the UN passed Resolution 2321 in response to North Korea's fifth nuclear test. 

The resolution expanded on its predecessors by banning export of some North Korean resources 

while capping coal exports at $400 million annually, limiting the number of bank accounts held by 

North Korean diplomatic posts, requiring closure of foreign bank accounts in North Korea. and 

adding more North Korean entities to the UN sanctions list, including state-owned Air Koryo. 

In August 2017, the UN passed Resolution 23 71 to further augment pressure on the regime. Most 

notably, the latest resolution completely banned the export of coal, one of North Korea's largest 

exports. If fully implemented, the resolution could eliminate one-third of North Korea's total export 

revenue. 

Track 2: U,S, actions 

for years, successive U.S. administrations have pulled their punches on fully enforcing U.S. laws 

against North Korean, Chinese, and other violators. Contrary to the mischaracterization that North 

Korea is the most heavily-sanctioned country in the world, the U.S. has sanctioned other countries to 

a greater degree than North Korea. Prior to 2016, North Korea ranked eighth ofU.S.-sanctioned 

6 "Security Council Imposes Fresh Sanctions on Democratic People's Republic of Korea, Unanimously Adopting 

Resolution 2270 (2016)," United Nations, March 2, 2016, http://www.un.org/press/en/2016/sc12267.doc.htm. 

3 
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CONGRESSIONAL TESTIMONY 

nations, after Ukraine/Russia, Iran, Iraq, the Balkans, Syria, Sudan, and Zimbabwe. Currently, North 

Korea is the fifth-most sanctioned entity by the U.S. 7 

In February 2016, the U.S. Congress sought to induce greater executive branch action by passing the 

North Korea Sanctions and Policy Enhancement Act.8 The legislation closed loopholes, toughened 

measures. and provided new authorities. That Congress made enforcing some U.S. laws mandatory 

rather than discretionary was a strong, bipartisan rebuke to Obama's minimalist approach. 

The legislation pressed the Obama Administration to take stronger measures against North Korea. 

The three major actions of the Obama Administration against Pyongyang in 20169 were all required 

by provisions in the NKSPEA. Since passage of the law, the number of U.S. sanctioned entities on 

North Korea has doubled. 10 

North Korea as a Money Laundering Concern. In June 2016, in accordance with Section 20lofthe 

North Korea Sanctions and Policy Enforcement Act, the U.S. designated North Korea as a primary 

money laundering concern. 11 Washington concluded that the regime "uses state-controlled financial 

institutions and front companies to conduct international financial transactions that support the 

proliferation and development ofWMD and ballistic missiles [and] relies on illicit and corrupt 

activity of high-level officials to support its government.''12 

The U.S. ruling constrained North Korea's ability to gain hard currency by cutting off the regime's 

access to the U.S. financial system. Washington banned any U.S. financial institution, as well as all 

foreign banks' correspondent accounts in the U.S., from processing any transactions on behalf of 

North Korean financial institutions. 

Since the majority of all international financial transactions are denominated in dollars, the U.S. 

action will force financial entities to choose between doing business with North Korea or 

maintaining access to the U.S. financial system. Any institution maintaining a correspondent account 

for a North Korean entity could face tines, seizure of funds, or preclusion from the U.S. financial 

institution. Foreign banks and businesses will be more reluctant to engage with North Korea even on 

legitimate business dealings due to risks to increased potential for themselves facing U.S. sanctions. 

North Korea as a /Iuman Rights Violator. In accordance with Section 304 of the NKSPEA, in July 

2016 the Obama administration imposed sanctions on North Korean leader Kim Jong Un and 15 

1 Anthony Ruggiero,"Restricting North Korea's Access to Finance," Foundation for Defense of Democracies, July 19, 

201 7, https :/ /www .belfercenter.org/publ icationlrestricting-north-koreas-access-finance. 8 H.R.757 North Korea Sanctions and Policy Enhancement Act of20 16. U.S. Congress, february 18, 2016, 

https://www .congress.gov/bill!l14th-congress/house-bill/757. 

"Human rights-related sanctions, designating North Korea as a money laundering concern, and sanctioning Chinese 

entities. 

10 Anthony Ruggiero,"Restricting North Korea's Access to finance," Foundation for Defense of Democracies. July 19, 

20 1 7, https:/ /wv .. 'W .bel fercenter .org/publication/restricting-north-koreas-acccss-finance. 11 31 U.S. C. United States Code. 2013 Edition, Title 31 Money and Finance Subtitle !V ~Money, Chapter 53--

Monetary Transactions, Subchapter II Records and Reports on Monetary Instruments Transactions, Section 5318A 

Special measures for jurisdictions, financial institutions. international transactions, or types of accounts of primary 

money laundering concern, U.S. Government Printing Office https://www.gpo.gov/fdsyslpkg/USCODE-2013-

title3l/htm 1/TJSCODE-20 13-titlc31-subtitlcl V -chap53-subchapll-sec53 J 8A.htm. 12 "Treasury Takes Actions to Further Rescind North Korea's Access to the U.S. Financial System," U.S. Department of 

Treasury Press Center, June I, 2016, https://wvvw.treasury .gov/press-center/press-releases/Pages.(jl04 7l.aspx. 

4 
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29542.020

CONGRESSIONAL TESTIMONY 

other entities "for their ties to North Korea's notorious abuses of human rights'' Adam J. Szubin, 

acting Under Secretary for Terrorism and Financial Intelligence, explained the sanctions were 

imposed since, ·'Under Kim Jong-un, Notih Korea continues to inflict intolerable cruelty and 

hardship on millions of its own people, including extrajudicial killings, forced labor, and torture." 

North Korea's political prison camp system was cited for ''torture, execution, sexual assault, 

starvation, slave labor, and other cruel extrajudicial punishment." 13 

This was the first time that the U.S. had designated North Korean entities for human rights abuses. 

The United States had previously sanctioned for human rights violations the leaders of Belarus, 

Burma, Iraq, Liberia, Libya, Syria, and Zimbabwe14 Pyongyang's atrocities were been well-known, 

particularly since a February 2014 U.N. Commission of Inquiry report, which concluded that North 

Korea's human rights violations were so widespread and systemic as to constitute "crimes against 

humanity." 15 

Sanctioning Chinese Violators. In September 2016, the Treasury and Justice Departments 

sanctioned five Chinese entities for laundering money for North Korea through 12 Chinese banks 

into U.S. banks. The Dandong Hongxiang Industrial Development Corporation had conducted $532 

million worth of trade with North Korea during 2011 to 2015. The action, required by the NKSPEA, 

was the tirst time the Obama Administration sanctioned a Chinese entity for providing assistance to 

North Korea's nuclear weapons program. 

In March 2017, the Trump Administration imposed a $1.2 billion fine on ZTE, China's largest 

telecommunications equipment com~any, for illegally exporting U.S. telecommunications 

equipment to Iran and North Korea. 6 

In June 2017, the United States identified the Bank of Dandong in China as a primary money 

laundering concern and severed its ability to access the U.S. financial system. The bank served as a 

conduit for North Korea to access the U.S. and international financial systems. The U.S. assessed 

that during 2012-2015, the bank processed $786 million in dollar-denominated financial transactions 

through the US financial system, including activity for US and UN sanctioned North Korean entities 

linked to the regime's nuclear and missile programs. 17 

In July 2017, the U.S. District Court for the District of Columbia unsealed a seizure warrant for 

funds of Dandong Zhichcng Metallic Materials Company that entered eight U .S.-based 

n Elise Labott and Ryan Browne, "U.S. sanctions North Korean leader for first time over human rights abuses," CNN, 

July 6, 2016, http://www.cnn.com/20 16/07 /06/politics/north-korea-kim-jong·un-human·rights/indcx.html. 14 "Background Briefing on DPRK the Human Rights Abuser Report and Sanctions," Special Briefing with Senior 

Administration Officials, U.S. Department of State, July 6. 2016, https://2009-

2017 .state.gov/r/pa/prs/ps/20 16/07 /259394.htm. 15 Commission oflnquiry on Human Rights in the Democratic People's Republic of Korea, United Nations, February 

2014, http://www.ohchr.org/EN/HRBodies/HRC/CoiDPRK!Pages/CommissionlnquiryonHRinDPRK.aspx. 16 "Trump administration carrying out North Korea sanctions enacted under Obama administration:· Hankroyeh, March 

9, 2017, http://english.hani.eo.kr/arti/cnglish _edition/e northkorea/785773.html. 17 US Department ofTreasmy, ''Treasury Acts to Incre3.se Economic Pressure on North Korea and Protect the U.S. 

Financial Syslcm," June 29. 2017, https://www.treasury.gov/press-center/press-releases/Pages/sm0118.aspx and 

Anthony Ruggiero, "'Trump Acts against Chinese Bank for North Korean Money Laundering," FDD Policy Brief, June 

3 0, 20 17, http://www .defcnddemocracy .org/media-hit/anthony-ruggiero-trump-acts-against -chinese-bank-for -northkorean-money-laundering/. 

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con·espondent banks. 18 The Chinese company had processed $700 million in prohibited North 

Korea-linked transactions through those U.S. banks since 2009. 19 

Track 3: Targeting North Korea's Business Practices 

Diplomatic pressure, increased financial sanctions, and growing concern of reputational risk from 

being linked to a heinous regime has led nations, banks, and businesses to reduce business activity 

with even legitimate North Korean enterprises. 

Numerous foreign entities are severing their business relationships with North Korea by suspending 

economic deals, curtailing North Korean worker visas, and ejecting North Korean diplomats. 

Actions taken against North Korean business include: 

Compendium of international actions taken against North Korea during the past two years 

South Korea terminated its involvement in the inter-Korean economic venture at Kaesong. 

South Korea's action severed a critical source of foreign currency for North Korea. Kaesong 

generated 23 percent ofNorth Korea's foreign trade ($2.3 billion of North Korea's annual 

overall trade of$9.9 billion) and $120 million in annual prolits.20 

• Russian state-run gas company Gazprom ended plans for energy-related projects with North 

Korea due to concerns arising from UN sanctions.21 

Taiwan implemented a complete ban on imports of North Korean coal, iron ore, and some 

other minerals 22 

• Uganda directed that all North Korean military and police personnel should depart the 

country and that it was severing military and security ties with Pyongyang, which had been a 

source of revenue for the regime. There were approximately 50 North Korean military and 

police training officials. UN resolutions preclude North Korea from engaging in weapons 

trades or military training with other countriesn 

Sudan severed military ties with North Korea. In November 2016, Sudanese Foreign 

Minister Ibrahim Ghandour declared there was no longer any military or diplomatic 

cooperation with North Korea and that all diplomats had been removed24 

18 B1mk of America, Deutsche Bank Trust Company Americas, Citihank, Bank of New York Mellon, HSBC, JP Morgan 

Chase, Standard Chartered Bank, and Wells Fargo. 19 Joshua Stanton, "Maximum pressure watch: The Dandong Zhicheng warrants foreshadow N. Korea-related 

indictments," OneFreeKorea, July 12, 2017, http://freekorea.us/20 17/07 I 12/maximum-pressure-watch-the-dandongzhicheng-warrants-foreshadow-n-korea-related-indictments/#sthash.aoZB I vF6.dpbs. 

:!O Kim Tong-hyung, "How Impoverished but Nuclear-armed North Korea Earns Money," lhe A1orning Journal, 

February 12,2016, http://www.morningjoumal.com/article/MJ/20160212/NEWS!l60219852 and "S. Korea starts 

withdrawing nationals from Kaesong complex," Yonhap, February II, 2016, 

http://english.yonhapnews.eo.kr/northkorea/20 16/02/11164/0401 OOOOOOAEN20 160211 002800315F.html. 21 '·N.Korean Anns Dealers Run Out of Safe Havens," The Chosun 1/bo. April29, 2016, 

http://cnglish.chosun.com/site/data/html dir/20 16/04/29/2016042901075 .html. 22 Park Boram, "Tightening global sanctions hurting N. Korea's diplomatic ties, overseas commerce;' Yonhap news, 

September 29, 20 16, 

http://cnglish.yonhapncws.eo.kr/northkorea/20 16/09/29/0401 OOOOOOAEN20 1609290 12800315.html. 23 Kang Jin-kyu and Jeong Yong-soo, "Uganda tells North Koreans to go back home," Korea Joongang Daily, June 9, 

20 16, http:/ /koreajoongangdaily .joins.com/news/article/ Article.aspx?aid~30 19773. 24 Leo Byrne, "Sudan cuts military tics with North Korea,'· NK News, November 2, 2016, 

https:/ /www .nknews.org/20 16/ I I /sudan-cuts-military -ties-with-north-korea/. 

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Namibia halted economic ties with two North Korean state-run companies which had built a 

munitions factory, a violation of UN resolutions. The North Korean entities were Korea 

Mining Development Trading Corporation (KOMID), which is on the UN list of sanctioned 

entities for earning foreign cash via illicit arms deals, and its at1iliate Mansudae Overseas 

Projects.25 Africa has been an important arms market for North Korea. 

• Angola suspended all commercial trade with North Korea,26 South Africa stopped military 

cooperation and weapons deals,27 and Uzbekistan demanded the departure of all North 

Korean diplomats and the closure of the North Korean embassy .

28 

Bangladesh, South Africa, Burma, and other countries have expelled North Korean 

diplomats for illicit activities.29 

India announced it would halt all trade, except for food and medicine, as of April 2017. India 

had been North Korea's third largest trading partner after China and Saudi Arabia. India will 

also freeze all North Korean funds and financial assets on its territory.30 

Kuwait plans to end its commercial and financial transactions with North Korea and 

discontinue visas for North Korean workers31 

North Korean Overseas Financial Operations Suffering 

• Conventional Arms Sales. North Korea officials tied to illegal sales of conventional arms 

were deported from Burma, Egypt, and Vietnam. Pyongyang reportedly earned $300 

million in hard currency from arms sales in 2015.32 China arrested dozens of smugglers 

involved in illegal arms trafficking with North Korea. The arms smuggling was reportedly 

coordinated by North Korea's Second Economic Committee, which is the central 

coordinating body ofNorth Korea's military and defense industry and a UN-sanctioncd 

entity.33 

Overseas Restaurants. Kim Jong-un expanded North Korean restaurants overseas to 

generate additional money for the regime. A high-ranking North Korean military defector 

estimated the regime's restaurants in China contributed $200 million annually to the 

regime34 At least 30 of North Korea's overseas restaurants have closed due to dwindling 

"Namibia cuts ties with North Korea state fim1s: South Korea government, media,'· Reuters, July 1, 2016, 

http://www.reutcrs.com/articlelus-northkorea-namibia-idUSKCNOZIBPW. 

:!6 "Squeezing North Korea: Old Friends Take Steps to Isolate Regime," Reuters, September 26, 2016, 

http://www.reuters.com/article/us-northkorea-nuclear-squeeze-idUSKCNll VOWE. 17 "12 Countries Downgrade Ties with N.Korea," Chosun Ilbo, October 4, 2016, 

http://english.chosun.com/site/datalhtml dir/20 16/ I 0/04/201610040 1346.html. 28 Lee Yong-soo, "N.Korcan Embassy ii~ Uzbekistan Shut Down," Chosun Ilbo, August 22, 2016, 

http://english.chosun.com/site/data/html . dir/20 16/08/22/201608220 1134.html. 

Daniel Russel, "Statement Before the "senate Foreign Relations Committee, Subcommittee on East Asia, the Pacific, 

and International Cybersccurity Policy," September 28,2016, https://2009-

20 17 .statc.gov/p/eap/rls/m1120 J 6/09/262528.htm. 30 Ivana Kottasova and Sugam Pokharel, "North Korea cut off by 3'd biggest trading partner," CNN Money, May I, 

20 17, http://www.looppng.com/global-news/north-korea-cut-3rd-biggest-trading-partner-5 7983. 

'

1 "Kuwait to end commercial tics, with N. Korea, visa issuance for its workers: envoy," Yonhap, August 14,2017, 

http://english.yonhapnews.eo.kr/northkorea/20 17/08/14/040 J OOOOOOAEN20 1708 J 4008400315.html. 

"N.Korean Arms Dealers Run Out of Safe Havens," The Chosun J/bo. April29, 2016, 

http://cnglish.chosun.com/site/data/html dir/20 16/04/29/20 1604290 I 075.html. 33 "China arrests dozens of smugglers tr;ding weapons with N. Korea:' Yonhap, June 16,2016, 

http:/ I eng! ish.yonhapnews.co .kr/news/20 16/06/ 16/0200000000AEN20 1606160087003 15 .html. 34 Choi Song J\.fin, "From cash cow to moribund in a matter of months," Daily NK, June 8, 2016. 

http:/ /www.dai lynk.com/engl ish/read.php0 catal d .,nk00300&nunv 1393 2. 

--------------------------------··-· 

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business brought on by sanctions, China's anti-hedonism rules, and the South Korean 

government calling on its citizens to avoid the restaurants. 35 

Trading Companies. North Korean trading companies sent to China to earn hard currency 

have begun defaulting on payments to Chinese creditors and finding it harder to get lines of 

credit. A North Korean source reported, "Companies under the Ministry of External 

Economic Affairs and other trade agencies have begun experiencing a severe foreign 

currency crisis." Even Prime Minister Pak Pong-ju and Office 39, the North Korean 

leadership's money laundering organization, suffered foreign currency shortages.36 

Transportation Organizations. Cambodia, Mongolia and Singapore have revoked their 

permission for North Korean ships to sail under their national flag, which Pyongyang had 

used to evade sanctions.37 North Korea's Ocean Maritime Management Company, 

sanctioned by the UN, has been essentially shut down and its ships denied access to ports.38 

Kuwait, Thailand, and Pakistan no longer allow Air Koryo to land in their countries, 

leaving only Russia and China as allowing flights.39 

Overseas Workers. Malta, Poland, and Qatar have stopped issuing work visas to North 

Korean workers in response to human rights abuses_4° Oman repatriated 300 North Korean 

workers who had been involved in construction projects in response to greater international 

scrutiny_41 Singapore will tighten control on North Korea immigrants by revoking North 

Korea's visa waiver status. Singapore was one of the few countries that allowed North 

Korean citizens to enter without a visa.42 In March 2017, Malaysia cancelled its visa waiver 

program with North Korea after the assassination of Kim Jong-nam at the airport in Kuala 

Lumpur. The South Korean foreign ministry indicated that other countries in Africa, the 

15 Choi Song Min, "From cash cow to moribund in a matter of months," June 8, 2016, Daily NK, 

http://www.dailynk.com/cnglish/rcad.php?cataid~nk00300&num~13932 and Jiang Jie, "NK restaurants in China falter 

as staff defect, profits decline," Global Times, May 25,2016, 

http://www.dailynk.com/english/read.php?cata!d~nk00300&num~13932. 

Jt, Joshua Stanton, ''North Korean trading companies can't pay their Chinese creditors because of sanctions," One Free 

Korea, June 22, 20 16, http://freekorea. us/20 16/06/22/north-korean-trading-companies-cant -pay-chinese-creditorsbecause-o(:_?~!l~.!iQ!t~/ and Choi Song Min, "Sanctions drive trading companies to default on payments," Daily NK, June 

21, 2016, http://www.§jlynk.com/eJl!ili>llirea<L.12!u2ZmmE.l19.iJ_&catald~nkO 1500. 37 Park Boram, "Tightening global sanctions hurting N. Korea's diplomatic ties, overseas commerce," Yonhap news, 

September 29, 2016, 

http://english.yonhapnews.eo.kr/northkorea/20 16/09/29/0401 OOOOOOAEN20 1609290 12800315.html and 11 Daniel 

RusseL "Statement Before the Senate Foreign Relations Committee, Subcommittee on East Asia, the Pacific, and 

I ntemational Cybersecurity Policy," September 28. 2016, https://2009-20 17 .state.gov/pleap/rls/nn/20 16/09/262528.htm. 38 Daniel Russel, ''Statement Before the Senate Foreign Relations Committee, Subcommittee on East Asia, the Pacific, 

and International Cybersecurity Policy," September 28, 2016, https://2009-

20 17 .state.gov/p/eap/rls/rm/20 16/09/262528.htm. 3

<) "N. Korea's Air Koryo operates flights to only China, Russia," Korea Times, October 25,2016, 

http://english.yonhapnews.eo.kr/northkorea/20 16/10/25/90/040 I OOOOOOAEN20 161 025003000315F.html. 40 Hyun Yun-kyung and Lee Joon-seung, "Malta has stopped issuing work visas for N.Koreas: foreign minister," 

Yonyap, July 31, 2016, 

http://english.yonhapnews.eo.kr/northkorea/20 16/07/3110401 OOOOOOAEN20 160731000200315 .html. 

·"Elizabeth Shim. ''Hundreds of North Korea workers in Oman sent home, report says," UP!, December 29, 2016, 

http://www. upi.com/T op _News/World-N ews/20 16/12/29/H undreds-of-North-Korea-workers-in-Oman-sent-homereport-says/2551483031058/. 

42 Countries that continue to provide visa waiver to North Korea are Dominican Republic, Ecuador, Haiti, Malaysia, 

Gambia, and few other small countries. "Singapore to exclude N.Korea from visa waiver countries list in October," 

Yonhap. July 31.2016, 

http://english.yonhapnews.eo.kr/news/20 16/07/31/0200000000AEN20160731 002100315 .html?input·csns. 

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Middle East and Europe have also taken steps to reduce the number of North Korean 

laborers.43 

How North Korea Evades Sanctions 

Although the North Korean nuclear and missile programs arc indigenous, the regime requires access 

to foreign technology, components, hard currency, and the international financial system. In 2017, 

the UN Panel of Experts concluded that, far from being isolated, North Korea continued to 

circumvent sanctions through "evasion techniques that are increasing in scale, scope and 

sophistication.'' 

Pyongyang maintains covert access to the international banking system through a "global array of 

overseas networks [that] make up a complex overseas financing and procurement system designed to 

raise the funds and materials North Korea needs for its regime security and weapons programs."44 

The UN panel assessed that most of North Korea's financial transactions continue to be denominated 

in U.S. dollars and thus go through the U.S. banks.45 The U.S. Treasury Department also found that 

designated North Korean banks still conduct financial transactions through the American banking 

system.46 

North Korean networks in China arc a critical component of the regime's strategy for evading 

sanctions. 

• In September 2016, the Justice Department found that from 2009 to 2015, Chinese nationals 

had used 22 front companies to open accounts in Chinese banks to conduct dollar 

transactions through the U.S. financial system for sales to Pyongyang on behalf of a 

sanctioned North Korean entity.47 

The UN identitied dozens of Chinese firms linked to sanctioned North Korean entities and 

cited Bank of China for helping a North Korean entity move $40 million through U.S. banks. 

The UN panel showed how North Korea acquired missile components via Chinese tirms.48 

For years, Korea Kwangsong Bank accessed the financial system illegally through a Chinese 

conglomerate, Dandong Hongxiang Industrial Development. The U.S. eventually indicted 

DHID, froze its assets, and filed a complaint to forfeit its accounts in a dozen Chinese 

banks49 

43 "Poland stops receiving N. Korean workers amid sanctions," Yonhap, June 7, 2016, 

http://cnglish.yonhapnews.eo.kr/northkorea/20 161061071040 I OOOOOOAEN20 160607009900315.html. 44 "Risky Business: A System-Level Analysis of the North Korean Proliferation Financing System," C4ADS, June 2017, 

https://c4ads.org/risky-business. 

45 "Letter dated 17 Febmary 2017 from the Panel of Experts established pursuant to resolution 1874 (2009) addressed to 

the President of the Security Council, United Nations Security Council, February 27, 2017, 

https://assets.documentcloud.org/documents/3482392/NORTH-KOREA-REPORT.pdf. 

46 Joshua Stanton and Anthony Ruggiero," North Korea's nuclear blackmail: Trump, make sanctions work again." The 

Hill, April 3. 2017, http:l/thehill.com/blogs/pundits-bloglforeign-policy/326974-trump-makc-north-korea-sanctionswork-again. 

47 Anthony Ruggiero. Severing China-North Korea financial Links. CSIS, April3, 2017, 

https://www.csis.org/analysis/severing-china-north-korea-financial-links. 

48 David Feith, "The North Korean Sanctions Myth, Wall Street Journal, March 27,2017, 

ftttps://www. wsj .com/arti~.les/the-north-korea_:~illl.ctions-myth-149Q.~425_Q2 49 Joshua Stanton, "For North Korean banks, 2016 has been like that Corleone baptism montage," One Free Korea, 

December 7, 20 16, http://freekorca.us/20 16/12107/for-north-korean-banks-20 16-has-been-like-the-corleonc-baptismsccne/#sthash. wi03 53 uC .dpbs. 

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The UN Panel of Experts suspects that at least four U.N.-designated North Korean banks 

continue to operate from Chinese territory. 

The UN Panel of Experts identified a characteristic that makes enforcing sanctions against North 

Korea easier than against Iran, "A limited number of trusted individuals appear to serve as the 

networks' key nodes:· (emphasis added) .... Although shell companies can be swiftly changed, the 

individuals responsible for establishing and managing them have remained, often for years."50 

While identifying the covert networks is difficult, "by hiding their illicit activities within the global 

financial network, the North Korean agents leave behind a digital trail within public records. and 

other data sources, and are acutely vulnerable to targeted sanctions.''51 

A groundbrcaking report by C4ADS, a small non-government organization using publicly available 

unclassified data, discovered that China "represents about 85% of total North Korean trade. Yet, this 

entire trading system has consisted of only 5,233 companies from 2013 to 2016 I that] play a 

disproportionately large role." Of those firms, a "disproportionate share of that trade is centralized 

among an even smaller number of large-scale trading firms [so that] the top ten importers of North 

Korean goods in China in 2016 controlled just shy of30% of the market:· In turn, those trading 

firms are controlled by a very small number of key executives. 5

2 

C4ADS concluded that North Korea has become increasingly reliant on a small number of"gateway 

firms" operating across multiple covert networks that could become strategic chokepoints for 

targeted sanctions. As such, the North Korean network in China is "centralized, limited, and 

therefore vulnerable." 

Tighten tlte economic noose. The very limited and centralized nature of the North Korean network 

means that targeting a relatively small number of key nodes can have disproportionate disruptive 

ripple effects impacting multiple networks across multiple countries. Every law enforcement action 

could induce remaining components of the network to change routes, bank accounts, and procedures 

to less effective means to acquire and transfer components and currency. Even legitimate businesses 

will become more fearful of being entangled in illicit activity and more fully implement required due 

diligence measures. 

Each individual action to constrict North Korea's trade may not he decisive, but cumulatively these 

efforts reduce North Korea's foreign revenue sources, increase strains on the regime, and generate 

internal pressure. 

North Korea adapted to increasing international pressure by altering its modus operandi, including 

using shell companies and shifting to sophisticated Chinese networks more integrated into the global 

economy. But international Jaw enforcement efforts didn't keep pace. The UN Panel of Experts 

blamed the lack of success of strengthened international sanctions on a lack of "requisite political 

will, prioritization and resource allocation to ensure effective implementation:· Numerous countries 

50 "Note by the President of the Security Council, United Nations Security Council, February 23, 2015, 

http://www. ncnk.org/resources/pu b lications/DPRK _Panel_ of_ Experts_ 2015 .pdf 51 "In China's Shadow: Exposing North Korean Overseas Networks," The Asan Institute for Policy Studies and C4ADS, 

August 2016. http://en.asaninstorg/contents/in-chinas-shadow/. 52 "'Risky Business: A System-Level Analysis of the North Korean Proliferation Financing System;· C4ADS, June 2017, 

https://c4ads.org/risky-business. 

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are not implementing and enforcing legislation as well as notperforming necessary due diligence, 

which enables North Korea to continue prohibited activities.'·' 

Sanctions enforcement must be flexible, innovative, and adaptive to the changing tactics of the 

target, rather than abandoning efforts to uphold law and order as having become too difficult. As 

North Korea shifted to Chinese brokers, the UN and U.S. agencies should have begun including 

them on sanctions lists. 

A Stockholm International Peace Research Institute study from 2014 found that 91% of US and 84% 

of UN targeted entities were North Korean, but that 74% of sanctions evading networks identified in 

the report were third country (non-North Korea) entities54 

Presently, only 12% of U.S. sanctions to curtail North Korea's nuclear and missile programs are 

targeted against non-North Korean entities whereas only 2% of UN sanctions are focused on nonNorth Korean entities55 

Raising the Cost of North Korean Defiance 

North Korea must be held accountable for its actions. To refrain from doing so is to condone illegal 

activity and give de facto immunity from U.S. and international law and to undermine UN 

resolutions. The UN, the U.S. and the European Union have not yet imposed as stringent economic 

restrictions on North Korea as it did on Iran. 

There is much more that can be done to more vigorously implement lJN sanctions as well as what 

the U.S. can do unilaterally to uphold and defend its own laws. North Korea is more vulnerable than 

Iran to a concerted sanctions program since it has a smaller, less functioning economy that is 

dependent on fewer nodes of access to the international financial network. 

It is possible to influence foreign entities' actions both through direct legal action as well as 

changing their cost/benefit analysis of economically engaging with Pyongyang. In 2005, the U.S. 

declared Macau-based Banco Delta a "'money laundering concern," which, accompanied by U.S. 

officials' sub rosa meetings throughout Asia, led 24 financial institutions, including nations and the 

Bank of China to sever relations with Pyongyang. 

The U.S. must go beyond sanctions and diplomacy to include a full-court press to diplomatically and 

economically isolate North Korea from the international community and introduce tremors into 

regime stabi 1 ity. 

Washington should lead a world-wide effort to inspect and interdict North Korean shipping, 

aggressively target all illicit activity, sanction entities including Chinese banks and businesses that 

arc facilitating Pyongyang's prohibited nuclear and missile programs, expand information operations 

against the regime, highlight and condemn Pyongyang's crimes against humanity, and wean away 

even North Korea's legitimate business partners. 

53 "Letter dated 17 February 2017 from the Panel of Experts established pursuant to resolution 1874 (2009) addressed to 

the President of the Security Council, United Nations Security Council, February 27, 2017, 

https:/lasscts.docurnentcloud.orgldocuments/3482392/NORTH-KOREA-REPORT.pdf. 

54 "In China·s Shadow: Exposing North Korean Overseas Networks," The Asan Institute for Policy Studies and C4ADS, 

August 2016, http://en.asaninst.org/contentslin-chinas-shadow/. 55 Anthony Ruggiero,"Restricting North Korea's Access to Finance," Foundation for Defense of Democracies, July 19, 

20 I 7, https:/ /ww"\v .bclferccnter.org/pub I ication!restrkting -north-korcas-access-finance. 

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Only such a long-term principled and pragmatic policy provides the potential for curtailing and 

reversing North Korea's deadly programs. Returning to over-eager attempts at diplomacy without 

any North Korean commitment to eventual denuclearization is but a fool's errand. Everything that is 

being advocated by engagement proponents has been tried, often repeatedly, and failed. 

What the US Should Do 

Isolate North Korea economically and diplomatically. 

Prior to 2016, the UN and U.S. sanctions were narrowly target-based which was different from the 

broader sector-based sanctions imposed on Iran. The differences between the North Korean and Iran 

approaches were the difference between law enforcement and economic warfare. The latter approach 

should now be applied to North Korea. 

• Cut off the flow of foreign currency into North Korea. The Financial Action Task Force, an 

international organization that sets anti-money laundering standards, has called on its 

members to sever ties with North Korean banks and terminate correspondent accounts. The 

organization is comprised of 35 nations and two regional organizations, including the U.S., 

South Korea. China, and Japan. 5

6 

• Target any entity suspected of aiding or abetting North Korean nuclear, missile, and 

conventional arms development; criminal activities; money laundering; or import of luxury 

goods. Such targeted financial measures should include seize and freeze assets, impose 

significant fines, and preclude their access to the U.S. financial system as well as targeting 

overseas assets, business ventures, and bank accounts associated with any prohibited or 

illegal activity. 

Ban any entity that trades with North Korea from being allowed to access the U.S. financial 

system, regardless of whether that trade activity violates UN resolutions. 

• Encourage North Korea's business partners to sever their relationships by underscoring the 

reputation risk of being associated with a regime that exploits its overseas workers and 

conducts crimes against humanity and terrorist acts against civilians. 

• Advocate additional UN measures and assess unilateral U.S. steps to more broadly target 

North Korea's national economy, including a global embargo to cut off North Korea access 

to oil, trade, currency, and financial markets. There is precedent for such a move. In 

November 1963, the UN General Assembly, in Resolution 1899 (XVIII), urged all UN 

member slates to refrain from providing petroleum to South Africa for its policy of apartheid. 

• Ban North Korea from international cultural, educational, sporting, and other exchanges, 

including the Olympics, as the UN requested in December 1968 that all states and 

organizations do so with the apartheid regime of South Africa. Pretoria was banned from 

participating in the Olympic Games. 

Fully enforce U.S. laws 

For too long, successive administrations have used sanctions as a calibrated and incremental 

diplomatic response to North Korean provocations rather than a law enforcement measure defending 

the U.S. financial system. 

'56 ·'Anti-money laundering body calls for cutting ties with N. Korean banks," Yonhap, October 24, 2016. 

http://english.yonhapnews.eo.kr/national/20 16/1 0/24/0301 OOOOOOAEN20 161 024008800320.html. 

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Washington should sanction all entities violating U.S. laws, executive orders, and regulations rather 

than, as in the past, doling out a few entities to be designated after each North Korean violation. 

Sanctions do not enforce themselves, they require active continuous implementation. 

Doing so, however, requires resolve and political will to sustain a comprehensive long-term 

campaign against a growing threat to the United States and the international community. It also 

entails devoting requisite resources. personnel, and funding at the Departments of State and Treasury 

and other agencies for the extensive and time-consuming detective work required to assemble 

evidence and designate entities violating U.S. law. 

End de facto Chinese immunity from U.S.Iaw. 

Beijing has not paid a price for its lackadaisical enforcement of UN sanctions and turning a blind eye 

to North Korean proliferation and illicit activity occurring on Chinese soil. For whatever misguided 

reasons, Washington has long cowered from targeting Chinese violators of U.S. laws out of fear of 

undermining perceived assistance in pressuring North Korea or economic retribution against U.S. 

economic interests57 

Dennis Wilder. former Senior Director for Asia at the NSC commented, "Every time we got close to 

putting in secondary sanctions, the Chinese agree to do a little more [to apply pressure on North 

Korea]. They've been very good at playing the game ofratcheting up pressure on North Korea at 

times when it helps them avoid us imposing sanctions.''58 

U.S. officials privately comment that they have lists of North Korean and Chinese entities for which 

they have sufficient evidence to enforce U.S. law and impose sanctions but were prevented from 

doing so. The U.S government knew about Dandong Hongxiang's activities for six years before 

taking any action, according to former U.S. Treasury official Anthony Ruggicro.59 

The North Korean Sanctions and Policy Enhancement Act mandates secondary sanctions on thirdcountry (including Chinese) banks and companies that violate U.N. sanctions and U.S. law. The U.S. 

should penalize all entities, particularly Chinese financial institutions and businesses that trade with 

those on the sanctions list, export prohibited items, or maintain correspondent accounts for North 

Korean entities. 

Washington should impose significant fines on China's largest four banks at a commensurate level to 

the $12 billion in fines the U.S.levied on European banks for money laundering for Iran, The U.S. 

should designate as a money-laundering concerns any medium and small Chinese banks or business 

complicit in prohibited North Korean activities. The U.S. has not imposed any fines on a single 

Chinese bank and only recently designed the Bank ofDandong --the first action against a Chinese 

bank in 12 years -- as a welcome first step. 

57 Bruce Klingner, '"Chinese Foot-dragging on North Korea Thwarts U.S. Security Interests, The Heritage Foundation, 

August II, 2016, http://www.heritagc.org!dcfensc/report/chinese-foot-dragging-north-korca-thwarts-us-securityinterests. 

"Josh Meyer, "Failure to sanction China helped North Korea, former officials say;• Politico, April 16, 2017, 

http:! /www .politico.com/story /20 17/04/north-korca-ch ina-sanctions-23 723 8. 

'"Josh Meyer, "Failure to sanction China helped North Korea, former officials say," Politico, April 16, 2017, 

http://www. poI itico .com/story /20 I 7/04/north-korca-ch ina-sanctions-23 723 8. 

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The U.S. must separate law enforcement measures to protect America's financial system from 

diplomatic attempts to encourage Beijing to more fully implement required UN sanctions. Any 

entity that enters the U.S. financial system is subject to its rules and regulations, regardless of 

country of origin. The U.S. is not only allowed but required to take action. 

Imposing secondary sanctions, or even having the Damocles Sword of their future imposition. can 

push foreign banks and businesses to abandon dealing with North Korea, even on legitimate business 

ventures, lest they face U.S. fines, asset seizure, and preclusion from accessing the all-important 

U.S. financial system. 

The U.S. should make clear to Beijing that actions are against entities violating laws, not the Chinese 

government. That said, Chinese government reluctance to uphold laws raises suspicions of Chinese 

complicity. 

Ban North Korea overseas workers exploited in highly abusive conditions. Workers often 

operate in violation of international labor laws. The North Koreans are stripped of their passports, 

forced to perform labor in unsafe or exploitative conditions often without compensation, and have 

their wages paid directly to the regime which dispenses only a fraction to the workers60 

North Korea has an estimated 60,000 to 100,000 overseas workers in 50 countries but mainly China 

and Russia, earning the regime between $1.2 billion and $2.3 billion annually in foreign currency.61 

Other experts estimate the figure is lower, approximately $300 million to $400 million annually 62 

The U.S. should push for a UN ban on North Korean overseas laborers which would end exploitative 

labor practices and eliminate a source of regime revenue. U.S. Executive Order I 3722, promulgated 

to implement the North Korea Sanctions and Policy Enhancement Act, blocks the property of any 

person found to "have engaged in, facilitated, or been responsible for the exportation of workers 

from North Korea, including exportation to generate revenue for the Government of North Korea or 

the Workers' Party ofKorca."63 

Target North Korean human rights violations 

Advocacy for human rights must be a part of a comprehensive U.S. policy on North Korea. 

Stigtnatizing the regitne for its barbaric treatment of its people is consistent with American values 

and principles, provides an additional means to sanction the regime, and provides greater traction in 

gaining international condemnation and punitive action against Pyongyang. 

-----·---·------

60 Greg Scarlatoiu, "Congressional Testimony: North Korea's Forced Labor Enterprise: A State-Sponsored Marketplace 

in Human Trafficking," The Committee for Human Rights in North Korea, April29, 2015, 

http://www .hmk .orglevents/con gressional-hearings-view. php?id::-:-J I. 61 Kim Tong-hyung, "Ilow Impoverished but Nuclear-anned North Korea Earns Money." Associated Press, February 12, 

2016, http://host.madison.com/travellnational/how-impoverished-but-nuclear-anned-north-korea-earnsmoney/article _ 2d640cfa-377b-597d-b358- I dcdb I ecbffi9.html. 

"N. Korea's Treatment oflts Laborers Abroad Is Scandalous Abuse;' The Chosun Jlbo, February 22, 2016, 

http://english.chosun.com/site/data!html dir/20 16/02/22/201602220 1738.html. 

'

1 "Blocking Property of the Government of North Korea and the Workers' Party of Korea, and Prohibiting Certain 

Transactions With Respect to North Korea," Executive Office of the President, March 18, 2016, 

https :1/www .fcderalregister.gov /documents/20] 6/03/18/20 J6w0635 5/blocking-property-of-the-govemment -of-northkorea-and-the-workers-party-of-korea-and-prohibiting. 

--------·----·--------

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Executive Order 13687, issued in 2015, declared that North Korea's "serious human rights abuses 

constitute a continuing threat to the national security, foreign policy, and economy of the United 

States." Since the July 2016 designation of Kim Jong-un and other North Korean entities. the United 

Stales has not taken any additional measures against North Korean human rights abusers. 

Washington should exponentially expand the list of North Korean entities sanctioned for human 

rights violations and lead an energetic public diplomacy effort to shame foreign businesses away 

from dealing with North Korea. 

Return North Korea to the state sponsors of terrorism list. 

Since the U.S. removed North Korea from the State Sponsors of Terrorism List in 2008 in a failed 

attempt to stimulate progress in the Six-Party Talks nuclear negotiations, the regime has conducted a 

number of violent acts which justify its rc-designation. Under various statutes ofU.S.law (the most 

relevant being 18 U.S. Code § 2331 ), international terrorism is defined as acts that: 

(A) involve violent acts or acts dangerous to human life that are a violation of the criminal 

laws of the United States or of any State, or that would be a criminal violation if committed 

within the jurisdiction of the United States or of any State; 

(B) appear to be intended-

(i) to intimidate or coerce a civilian population; 

(ii) to influence the policy of a government by intimidation or coercion; or 

(iii) to affect the conduct of a government by mass destruction, assassination, or 

kidnapping; and would be a criminal violation if committed within the jurisdiction of 

the United States and are intended to intimidate or coerce a civilian population64 

After its cyber attack on Sony Pictures. North Korea threatened "9/11-type attacks'' against U.S. 

theaters to intimidate patrons from viewing the movie The Interview which ridiculed Kim Jon g-un. 

North Korea has also been involved in cyber attacks South Korean government agencies, businesses, 

banks, and media organizations; attempted assassinations against North Korean defectors and South 

Korean intelligence agents; and shipments of conventional weapons to Barnas, 1-lczbollah. Iran, and 

Syria.65 

Increase information operations to promote greater North Korean exposure to the outside world. 

Promoting democracy and access to information in North Korea is in both the strategic and 

humanitarian interests of the United States. Improving access to information will help the people of 

North Korea and provide a means of influencing North Korea from the inside out. As demonstrated 

by U.S. and West German efforts during the Cold War, technology and media can play a crucial role 

in undermining totalitarian regimes60 

The United States and South Korea should expand broadcasting services, such as by Radio Free 

Asia, and distribution of leaflets, DVDs, computer flash drives, documentaries, and movies into 

North Korea through both overt and covert means. South Korea should look into the potential for 

64 18 U.S. Code§ 2331 -Definitions, Cornell University Law School, http://www.law.cornell.edu/uscode!textiJ 812331 

(accessed January II, 2016). 65 For a more complete listing of North Korean terrorist-related actions, see Bruce Klingner, "Moving Beyond Timid 

Incrementalism: Time to Fully Implement U.S. Laws on North Korea: Congressional Testimony before the House 

Foreign Affairs Committee:' January 13,2016, http://www.heritage.org/testimony/moving-bcyond-timidincremcntalism-time-fu!ly-implement-us-laws-north-korea. 

M Olivia Enos, "'[mproving Information Access in North Korea," December 7, 2016, 

http://www .heritage.org/research/reports/20 16/1 2/improving-in formation-access-in-north-korea. 

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CONGRESSIONAL TESTIMONY 

generating cell phone transmissions, potentially using the frequency of the network created by 

Egyptian tirm Orascom, to enable North Korean citizen communication with the outside world. 

Subversive coercive information operations exposing the true nature of the regime could sow 

domestic dissent against the regime. 

Impose Travel Ban on US citizens to North Korea. Banning tourist travel to North Korea would 

protect additional Americans from being arrested on trumped up charges and sentenced to 

excessively lengthy and arduous imprisonment. While the U.S. government rightfully hesitates in 

curtailing Americans' right to travel, there are occasions where public safety considerations require 

such action. 

A ban would also reduce, albeit on a small scale, funds to the regime. The State Department recently 

announced a restriction on the use of American passports to travel to North Korca.67 There will be 

exemptions to enable humanitarian, journalist, and government travel. 

The U.S. should augment the passport restriction with legislation banning "transactions incident to 

travel to, from, and within North Korea." Such a provision would ban dollar-denominated travel to 

North Korea regardless of the nationality of the traveller. The U.S. could also impose a "secondary 

immigration sanction on North Korea, one that would make any recent non-U.S.-citizen travelers to 

North Korea ineligible for admission into the United States.''68 

The U.S. should encourage China to also implement a travel ban on its citizens traveling to North 

Korea. Beijing demonstrated it can and would do so over its disagreement with Seoul over the 

THAAD deployment. Beijing pressured Chinese tourists away from South Korea, even to the point 

where thousands aboard a cruise ship all refused to disembark on Jeju Island. 

Increase Inspection and Interdiction of North Korean shipping- UN resolutions against North 

Korea have all been passed with UN Charter Chapter 7, Article 41 authority. The UN should instead 

provide for Article 42 authority to enable military, coast guard, and law enforcement vessels to carry 

out the required inspections. This would authorize naval, coast guard, and law enforcement 

personnel to intercept, board, and inspect North Korean ships suspected of transporting precluded 

nuclear, missile, and conventional arms, components, or technology. 

As required under UN Resolution 2270, all UN member nations should be proactively monitoring all 

North Korean cargo entering and leaving the country. The North Korea Sanctions and Policy 

Enhancement Act Section 205 enables the U.S. to impose secondary shipping sanctions on ports 

failing to implement required inspections. Washington could intensify inspections or ban shipments 

into the U.S. from non-compliant ports 69 

67 "United States Passports Invalid for Travel to, in, or Through the Democratic People's Republic of Korea," U.S. 

Federal Register, August 2. 2017, https://www.federalregister.gov/documents/20 J 7/08/02120 17-16287/united-statespassports-invalid-for-travel-to-in-or-through-thc-democratic-peoples-republic-of-korea. 

"Joshua Stanton, "The North Korea travel ban. PUST, and the failure ofpeople-to-minder engagement," 

OneFreeKorea. July 25, 2017, http://treekorea.us/20 17/07/25/the-north-korea-travel-ban-pust-just-thebeginning/#sthash.sW!mhMrK.dpbs. 

69 Joshua Stanton, "'China is waging economic war against S. Korea. We must stand by our ally," OneFreeKorea, March 

8, 20 1 7, http://freekorea. us/20 17/03/08/ china-is-waging-economic-war -against -south-korea-we-must -stand-with-ourally/#sthash.PqcUCJTp.dpbs. 

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There should also be a concerted international effort, as required under UN Resolution 2270, to 

target North Korean attempts at reflagging its ships under other nation's flags of convenience. 

Conclusion 

If the U.S. is serious about going after North Korea's nuclear and missile programs and those that 

assist it, then Washington will have to engage in a more expansive, sustained, and committed 

campaign. This must include a willingness to sanction Chinese entities. 

Targeted financial measures, including secondary sanctions, are a component of U.S. laws and 

executive orders to defend the U.S. financial system against those who would use it for illicit 

activities. Those who argue against imposing stronger sanctions should be called on to explain how 

giving entities immunity from U.S. law furthers the cause of North Korean denuclearization. 

That all of these measures could have been implemented years ago is testament to a collective 

lethargy, a multi-national reluctance to confront North Korean belligerence. Even today, some 

counsel caution for fear of how North Korea could respond to being held accountable for its 

transgressions. But just as sheepishness is contagious, so is fortitude to do the right thing. The 

United States and other nations should not shirk from their responsibility to stand up to those who 

would do us harm. 

Sanctions require time and the political will to maintain them in order to work. While there are 

additional measures that could be included in additional legislation, more important is to vigorously 

and assiduously implement existing UN measures and U.S. laws. We must approach sanctions, 

pressure, and isolation in a sustained and comprehensive way. It is a policy of a slow python 

constriction rather than a rapid cobra strike. 

What are America's other options? Abandon enforcing U.S. laws and give blanket immunity to 

North Korean and Chinese entities? Rush back to another round of negotiations that Pyongyang 

declares it is not interested in? Accept North Korea as a nuclear state and undermine global nonproliferation efforts. Or initiate military action to impede North Korea's imminent completion of its 

ICBM, in essence stating a war to prevent a war. Sanctions, working in conjunction with other 

instruments of national power, have a better chance than any tool being used in isolation. 

17 
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-------·------------· 

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recognized as exempt under section 50I(c)(3) of the Internal Revenue Code. It is privately supported 

and receives no funds from any government at any level, nor does it perform any government or 

other contract work. 

The Heritage Foundation is the most broadly supported think tank in the United States. 

During 20 I 6, it had hundreds of thousands of individual, foundation, and corporate supporters 

representing every state in the U.S. Its 2016 income came from the following sources: 

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The top five corporate givers provided The Heritage Foundation with 1.0% of its 2016 

income. The Heritage Foundation's books are audited annually by the national accounting firm of 

RSMUS. LLP. 

18 
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September 13, 2017 

Center for a 

New American 

Security 

Testimony before the House Financial Services Committee 

Subcommittee on Monetary Policy and Trade 

A Legislative Proposal to Impede North Korea's Access to Finance 

Elizabeth Rosenberg, Senior Fellow and Director, 

Energy, Economics, and Security Program, Center for a New American Security 

Chairman Barr, Ranking J\fember 11oore, distinguished members of the committee, thank you for 

the opportunity to testify before you today on C.S. policy options to pressure North Korea through 

constraints on its access to finance. 

North Korea's alarming and dangerous recent expansion of provocations, including more ballistic 

missile launches and a sixth, powerful nuclear test, highlight the need for much stronger pressure on 

the regime. This pressure may serve to curb North Korea\ threatening activity and facilitate a 

diplomatic process to advance denudcarization. Financial sanctions should be a core part of such a 

pressure strategy~ force posture and projection, and other coercive tools of statecraft, and 

complemented by diplomatic engagement. The United States is placed to lead this effort and 

must closely coordinate with international partners even as it urges them to do more \Vith secondary 

sanctions and other gestures. 

The Sanctions Framework for North Korea, Compliance, and Circumvention 

The United States has in place a framework of sanctions to apply financial pressure on North Korea 

to limit its proliferation activities and the broader revenue streams available to regime leaders. These 

complement and expand on sanctions put in place by the United Nations Security Council, \vhich 

jnstruct member states to cease dealings with North Korean proliferation entities and stop engaging 

in proscrihed economic activities that enrich the regime. 

1 applaud the recent work of Con_srress this past summer to impose new sanctions authorities to 

tighten the financial pressure framework on North Korea, along with new sanctions from the 

United Nations. Collecth.Tly, these nc\V authorities expanded pressure on North Korea with 

restrictions on economic sectors incluJlng energy, metals and mining, transportation, financial 

services, and seafood, as well as limitations on North Koreans working abroad. 

I Io\vcver, as your legislati\T discussion draft, the focus of today's hearing, points out, 

circumvention of sanctions and non-enforcement is a major problem and a reason for North 

Korea's continued proliferation activities. Tough sanctions authorities cannot, of thcmsch·es, create 

Bold. 

Innovative. 

Bipartisan. 
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meaningful pressure on North Korea to change its policies. Rather, their enforcement, particularly 

by North Korea's key financial partners, will determine the measures' strenf.,:rth, which may 

contribute to an effective pressure stratct,ry to facilitate North Korean change. In practical 

terms, effective sanctions enforcement comes down to China, which responsible for O\'et 90°/tJ of 

North Korea's trade, adopting a strict enforcement posture:~ 

Application of Secondary Sanctions on North Korea 

The regime of current internarjonal sanctions may actuaHy be adequate to constrain the ability of 

North Korea to procure proliferation materials, and to influence its cost/benefit calculation on 

instigating international threats, if fully enforced. Cnfortunately, it is not. Also, these outcomes are 

not the only of most U.S. leaders who now aim to use pressure to change the cost/benefit 

calculation to coerce ~orth Korea into halting its provocations and proliferation. 

The United States, at present, does have S\veeping, powerful authorities to impose sanctions and 

conduct law enforcement activities to identify and impede North Korea's international agents and 

affiliates propping up the regime's proliferation activities and its economic acti\-ity. The U.S. 

administration can go after major international companies, banks, and officials and has announced 

some important, recent actions to highlight and impede North Korea's international facilitation 

net\vorks. There is much more that the administration can, and no doubt will, do to continue this 

work. The primary priority in congressional oYersight of U.S. sanctions on North Korea should be 

to urge and support aggressive implementation of existing sanctions authorities, which \vill do a 

great deal to deepen the financial pressure on North Korea and its enablers. 

Nevertheless, many legislators and other observers frustrated with non~enforcement and evasion of 

sanctions, and anxious that sanctions, when they arc enforced, are not working rapidly enough, are 

gravely concerned that time is running out. For some, this translates into the belief that the current 

U.S. sanctions framework is inadequate, and that the United States should make secondary sanctions 

"shock treatment" mandatory to f()rce other countries to comply with C.N. sanctions on North 

Korea. I believe it is time to contemplate where mandatory secondary sanctions would be 

appropriate to accelerate or deepen the pain of sanctions targedng North Korea. 1 support the 

efforts of thjs committee to consider how such measures should be deployed to send a very clear 

message to North Korea and those who prop up its regime. 

\\lc must not however, that secondary sanctions require great delicacy in their application. 

Often, just the of use or a few carefully-chosen example cases can have the desired deterrent 

effect to motivate compliance among the global financial They may be 

counterproductive if application of secondary sanctions is so or politically incendiary so 

as to make U.S. partners utterly defiant, uncooperative, and move rapidly to create officially-backed 

evasion schemes and retallatory sanctions and economic punishment on U.S. firms operating 

abroad. Secondary can also b;1ckfire lf their implementation docs not allow the targets of 

tbeir policies and effectively comply with sanctions in a manner that is 

domestic constituency. China, for example, is highly unlikely to sever 

1 Eleanor :\!bert, ''The Chim.-~nrth Korea Relationship," !lackt'C•oundcr (Council on Foreign Relations, July 5. 2017), 

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its economic activity with North Korea if the only \vay to do it appears to its population and the 

global community to be capitulation to U.S. sanctions. 

Another risk of secondary sanctions is that their application could have significant unintended 

consequences for U.S. businesses and individuals, particularly those within China, for rapkily 

expanding bilateral trade with China, or for the U.S. economy more broadly. lf the United States 

imposes sanctions on major Chinese banks, f()r example, there could be significant implications for 

currency devaluation in China, and spillover currency valuation effects elsewhere, making U.S. goods 

and services less competitive for export. Sanctions on Chinese banks could also negatively impact 

the U.S. correspondent institutions of sanctioned Chinese banks, or bilateral and international trade, 

to the detriment of the economic interests of the United States and allies. The largest Chinese banks 

are the largest global banks) and the United States must move carefully to address any North Korean 

financing moving through these institutions.2 \Ve must bear in mind that the interconnected 

nature of our global economy and supply chains means that a disruption or China will 

inevitably affect the United States. 

Targeted secondary sanctions on the large::;t Chinese banks could ultimately be the right answer to 

create pressure on North Korea, but other law enforcement actions or regulatory penalties could be 

more appropriate to send a signal and manage the consequences for the U.S. economy. 

Ultimately, avoiding pitfalls in use of secondary sanctions is primarily the responsibility of the 

U.S. administration, the body that implements and enforces sanctions. Congress must give the 

administration adequate flexibility, even within a framework of broad mandatory sanctions, to be 

able to impose aggressive sanctions tO pressure North Korea but also manage the consequences and 

pursue an effective diplomatic and alliance stratef:,l)' with international partners. 

A Rigorous, Risk-Based Approach to Countering Proliferation Finance 

In the realm of financial statecraft to apply pressure on North Korea, sanctions are only one set of 

instruments available to the United States. An oven:vhelming focus on sanctions as the only or the 

primary instrument of financial pressure elides the significance of another powerful frame'.vork to 

limit "0Jorth Korea>s proliferation activities. This other framework is a rigorous, risk· based approach 

by global flnancial institut1ons to identit}' and curtail proljferation finance within their institutions. 

Currently, only large U.S. banks, and some major r:.uropean and Asian financial institutions, 

holistically pursue proliferation finance, leaving all other global banks signif-icantly vulnerable to 

abuse by North Korean, or other, l'"''or these other global banks, weak supervisory 

frameworks and expectations, and resources, and insufficient prioritization of the 

threat means that they often take a approach to proliferation finance in the form of 

customers or transactions against entities sanctioned by the U.N. or national governments 

rcnm''•'"""" but not always, including the Cnited States). This presents obvious, and documented, 

opportunities for prolifcrators to usc front companies or proxies to around limited compliance 

controls outside of major financial institutions. Very often, banks in jurisdictions arc not 

asking the right questions to discern \vhen money laundering, cash transactions) or other suspect 

2 '''fhe \\'orld's I.argest Ihnks," Sc'.-"'P Cloba!J\farket lnte!l(r,cnce, http:/ /pages.markctintdligcnce.spglohal.com/C;Jobal~ 

Bank-Rankings-Rcquesr.hrml. 

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be disguising proliferation finance. Information from U."!\l. reports,3 inYestigatiYe 

,~'"""''''"'' law enforcement cases,5 and independent experts6 illustrates how financial institutions 

offer services to North Korean proliferators and their money laundering fronts, often unwittingly, 

without rigorous investigation into proliferation finance ties. 

The global standard setting body for countering illicit finance, the Financial Action Task Force 

(FAT1~), endorses an approach toward proliferation finance along the lines of checking customers 

against sanctions lists, instead of a broader risk-based evaluation of suspect proliferation conduct or 

proliferation typologies. 7 FATF' is now in the process of updating guidance on proliferation finance. 

However, it has many more opportunities to provide strong leadership to activate the global banking 

community to identify and counter proliferation finance in a manner that is commensurate \Vith the 

current proliferation risk and that is in line with the standards currently applied to other forms of 

serious illicit activ1ty) such as terrorist financing. 

There must be much stronger leadership from best-in-class financial sector leaders as well as from 

national leaders on the subject of proliferation finance to clarify 1 hat global banks must take a more 

holistic, risk-based approach to screening and investigating for proliferation finance, and there must 

be strong public-private information exchange around known proliferation entities and typologles. 

\"'Vithout such leadership, and indeed without the creation of tough expectations and requirements 

for global financial institutions, most international banks and their regulators will not change the 

alarmingly inadequate status quo on countering proliferation finance. They may become better listcheckers if there arc more primary and secondary sanctions, but that will not change the culture of 

compliance enough to truly mitigate the proliferation finance threat. ?v1oreover, without strong 

signaling for change from FATF, the mandate of multilateral development institutions and 

multilateral financial service sector technical bodies will not include the provision of technical 

assistance around a rigorous, risk-based approach to proliferation finance. 

\Vorking to change the compliance practices of global banks around proliferation finance concerns 

will not immediately halt the North Korean threat. lt can, however, have a profound, ultimate 

impact, and is an appropriate and effective complement lO additional sanctions on the North 

Korean regime. Both of these forms of financial statecraft are needed as part of a broad strategy to 

apply pressure on North Korea and check its ability to engage in proliferation activities. 

l_;N Security Council, of the 1\mel of Experts Established Pursuant to Resolution 1874 

February 27,2017, 

Pearson, Tom r\!b.rd, and Rozann;t L;tt1fC "Exc!ush·e- 'Dolbrs and euros': How a ?\fal.aysian 

10, 

I ligh Court of the Republic of 

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Comments on Pending Legislation and Ideas for Additional Measures 

I \viii offer a few points in response to your lcgislatiYe discussion draft. I wiH also offer some ideas 

for inclusion as you continue to evaluate policy options and craft a strategy for oversight of new 

sanctions, follo-..ving their presumed enactment into la\v, 

A tough approach to focusing on North Korean proliferation networks and facilitators and 

cutting off North Korea's ability to earn and use foreign currency is appropriate and 

proportionate to the risk we face today. Now is the time to embrace secondary sanctions 

authorities and a calculated, targeted strategy for their implementation, to contribute to a 

broader pressure strategy applied hy the United States and international partners on the 

North Korean regime and its facilitators. 

\\/ithin a framework of mandatory secondary sanctions, I strongly encourage the inclusion of 

meaningful and unconditional waiver provisions to allo\v the U.S. administration to manage 

unintended consequences of mandatory secondary sanctjons, including a\'Oicling accidentally 

undermining a broader C.S.··led coalition strategy toward ~orth Korea, a situation \Vhere 

sanctions create a true diplomatic breakdown or look likely to provoke a trade war between 

the United States and China, for example, or the creation of untenable economic costs for 

the United States. Waiver provisions should not excuse any proliferation activities but should 

provide the U.S. administration implementation discretion with regard to partner countries 

conducting economic acti,~it:y with North Korea if they make rapid, significant, and repeated 

progress in reducing trade or financial transactions with North Korea, or if they could 

otherwise be deemed to be a closely cooperating partner of the United States. This kind of 

waiver framework could also prescribe escrowing of limited North Korean funds, if 

permitted under a sjgnificant reduction waiver, in monitored accounts from which money 

may not be transferred to a third country. 

Cont-,rress should require the administration to prepare a study on the impacts of different 

forms of sancrjons on large Chinese banks that have dealt either directly or indirectly with 

North Korea, including its prolifera6on entities. As the full implications of potential U.S. 

sanctions or other law enforcement actions on large Chinese banks are not \vell understood, 

a rigorous and empirical approach to thjs matter will guide careful application of sanctions 

authorities, or the usc of other law enforcement actions, and provide useful information to 

oversee the U.S. financial pressure strategy on North Korea and 

policy oprions in the future. 

The threat of cutting off International I\fo:netary Fund (IMI~) support to countries in which 

evasion of North Korea sanctions occurs, notably China anJ Singapore, misses the 

that the countries of greatest concern arc not necessarily illd recipients or 

countries with the least and funds for sound sanctions compliance. Also, cutting off 

Uv[f support for poorer countries in Africa or elsewhere in Asia that have conducted some 

business w1th North Korea, and where limited but concerning evasion may be ongoing, may 

be less effective than authorizing more funds for technjcal ~tssistance to support rigorous 

compliance. Congress should consider \vays to direct more money to technical assistance on 

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proliferation finance and sanctions compliance issues, including through the U.S. 

Department of the Treasury's Office ofTcchnkal Assistance, using funds from illicit finance 

asset forfeiture or bank fines for violation of sanctions, among other possible sources. 

I caution against new sanctions that specifically go after political leaders of countries in 

which sanctions evasion occurs. This \vill be provocative and unconstructive in the 

diplomatic process of working multilaterally to constrain North Korea's threat. It may create 

real logistical impediments for the United States in communicating and coordinating \Vith 

partners on North Korea policy, and jt may make it needlessly politically infeasible for these 

partners to find ways to comply domestically \Vith sanctions on ;--.Jorth Korea. The array of 

U.S. secondary sanctions authorities designed to go after sanctions \"iolators and evaders 

outside of North Korea, including financial institutions, companies, traders, shippers, 

insurers, and many others, will certainly be adequate to compel the serious attention of 

political leaders in countries where evasion is occurring. 

To accelerate the adoption of a rigorous, risk-based approach to proliferation finance at 

global banks, particularly those in high-risk jurisdictions, Congress can instruct the Financial 

Crimes Enforcement :Network (FinCEN) and tl1e U.S. federal banking regulators to expand 

supervision of U.S. financial institutions with regard to proliferation finance in risk-based 

anti-money laundering programs. Banking supervisors should eYaluate the adequacy of 

requirements for covered institutions' foreign subsidiaries, branches, and correspondents to 

appropriately and similarly apply a rigorous, risk~based approach to identify, freeze, 

investigate, and report proliferation transactions. FinCE~ and the banking agencies should 

proYide proliferation finance typologies, with special emphasis on those used by North 

Korean proliferation networks, in the new update of the l"''ederal F'inancial Institutions 

Examination Council (FF1EC) manual, currently under revision to account for the new 

Customer Due Diligence rule. 

To complement and support new superv1sion requirements for U.S. banks, extending to 

their foreit,:rn branches, subsidiaries, and correspondents, on proliferation finance, 

should facilitate greater information sharing among banks and between the public 

private sectors on proliferation finance. Three ways to accomplish this include the following 

requirements: 

o 1nstruct FinCE:N to regularly report to Congress on the 1ntclligence products it 

from Bank Secrecy Act filings on proliferation finance transactions moving 

the U.S. financial system and on its collaboration with hw enforcement 

the community, and foreign financial intelligence units to make 

maximum usc of Secrecy Act data. FinCEN should also report on the 

~1dvisories it issues to financial institutions on proUferation finance acti\·ity. 

o Amend Section 314(b) of the CSA PATRIOT Act to more explicitly allow banks 

and other financial institutions authorized under that provision to share information 

for the purpose of detecting proliferation finance~ related activity. Also, amend 

Section 314(b) to provide safe harbor for certain non-financial institutions, e.g. 

company formation service providers, to share with banks information about their 

customers relevant to the detection of terrorism finance, proliferation finance, and 

money laundering. 

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o Direct the Treasury Department to consider whether and how current regulations 

for information sharing, particularly for the purpose of identifying and impeding 

proliferation finance, may be expanded within the scope of Section 314(b), and to 

convene external experts and stakeholders in the process, conducting related 

rulemaking to accomplish any such expansion through a formal regulatory notice 

and comment process. 

Perhaps the most effective thing that Congress can do to accelerate ::~.nd enhance the 

administration's work to analyze North Korean economic and proliferation activity and 

impose sanctions on those facilitating and enabling it is to the Treasury and State 

Departments, and the Intelligence Community, more support to expand their work 

in this area. Such funds could come from law enforcement asset forfeiture or penalties paid 

by violators of sanctions. More administration experts to do the technical analytical and 

dcsit,rnat.ions work wiH rapidly translate into a more muscular ability to use sanctions 

pressure. ?vforc diplomats to explain to foreign banks anrt regulators the requirements of U.S. 

sanctions, and the risks of violating them, will also have a direct and meaningful effect on 

sanctions implementation internationally. Reporting requirements for the administration to 

explain publicly to Congress its North Korea sanctions strategy are appropriate, and they 

may play a role in mitigating unintended escalation or miscalculation. However, it would be a 

detriment to U.S. national security if reporting requirements draw slgnificant time and 

attention away from the already-stretched experts working in the g(wernment to impose and 

enforce sanctions. 

Congress has an important role to play in authorizing and overseeing a strong pressure campaign on 

North Korea, including financial sanctions and other economic measures, to address the regime's 

dangerous proliferation activity and defiant provocations. \\lith the direction of responsible U.S. 

policy leaders, this pressure campaign will maintain the multilateral framework necessary for success 

and a holistic approach balancing the various tools of economic statecraft with military force and 

diplomacy. It would be folly to think that sanctions or financial pressure alone, or even primarily, 

can engineer North Korean willingness to enter diplomatic talks or consider a proliferation 

moratorium or denucleari7.ation. But, as such economic coercion has the potential to help move 

North Korea to\vard a more stable and peaceful path, tough financial sanctions and rigorous bank 

scrutiny for proliferation finance must now be key policymaker priorities. 

CNAS ORG I w @CNASDG 
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Introduction 

Chaim1an Barr, Ranking Member Moore, and distinguished members of this subcommittee, thank 

you for the opportunity to address you today on this important issue. 

My testimony will begin with an update on the nature of North Korea sanctions, provide examples 

of North Korea's illicit financial activities, and propose ideas to combat those activities. 

Often, U.S. policy toward North Korea gets stuck in the provocation-response cycle whereby a 

North Korean provocation is met with strong rhetoric and/or a token increase in sanctions, which 

is repeated over and over. These scattershot responses have not, to date, added up to a serious and 

effective sanctions policy because they are driven by the momentary need to look tough, rather 

than by a clear strategy for denuclearizing the Korean peninsula. In practice, the Kim regime can 

keep distracting the United States with its repeated provocation. We should break this cycle and 

ensure that the U.S. response to every North Korean provocation advances our ultimate goal. 

Regrettably, many experts call for the acceptance of North Korea as a nuclear weapons state and 

insist that the U.S. can protect itself with a policy of deterrence. To evaluate the effectiveness of 

deterrence, one must be clear about such a policy's goals. Some suggest the United States has 

successfully deterred Pyongyang over the last 25 years, since there has been no second Korean 

war. Bnt the goal should be deterring North Korea from actions that threaten the U.S. or its allies. 

On that score, deterrence has had a mixed record at best. For example, Pyongyang killed over 40 

South Korean sailors when it sunk the Cheonan, maintains a robust relationship with Iran, built a 

nuclear reactor in Syria that Israel destroyed in 2007, and launched a ballistic missile directly over 

Japan. Unfortunately, this is a short list of the failures of deterrence. 

At some point, Washington will need to consider the Kim regime as the obstacle to achieving 

denuclcarization of the Korean peninsula, and sanctions can decrease the threat from the regime 

in a way that negotiations cannot. 

The Nature of North Korea Sanctions 

In testimony before this subcommittee in Jnly, I provided conclusions from a quantitative and 

qualitative review of North Korea sanctions. 1 This year, the Trump administration started to 

sanction North Korean international business partners. Since March 31, the U.S. has sanctioned 

43 persons, of whom 86 percent operate outside North Korea and 54 percent are non-North 

Koreans who facilitate North Korea's sanctions evasion. 

A quantitative review of U.S. sanctions reveals that North Korea currently sits fourth on the list of 

countries with the most sanctioned entities. North Korea has moved up one position since my July 

testimony, placing it behind Ukraine/Russia, Syria, and Iran- even after the lifting of numerous 

sanctions on Iran to comply with the Joint Comprehensive Plan of Action (JCPOA), as the 2015 

1 Anthony Ruggiero, "Restricting North Korea's Access to Finance." Testimony before House Committee on 

Financial Services, Subcommillee on Monetary Policy and Trade. July 19, 2017. 

(h1!}2;iL\vww.defendd~mQ~racv.on::lcontenf!m~loads/QQ.£1JmetH~8nthonv Ruet!iero -~~~Jif!lQ~~J21oi0 

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nuclear deal is fonnally kuown and ahead of Iraq (sec graphic 1 )2 North Korea sanctions have 

more than doubled since the North Korea Sanctions and Policy Enhancement Act came into effect 

on Febmary 18, 20 I 6. Prior to that date, North Korea ranked eighth, behind Ukraine/Russia, lran, 

Iraq, the Balkans, Syria, Sudan, and Zimbabwe. 

1 The review of sanctions included those entities and individuals listed on the U.S. Department ofthe Treasury's 

Office of Foreign Assets Control Nationals list The Ukraine/Russia sanctions 

includes persons sanctioned under Sergei Rule ofLmv Accountability Act and to the 

Ukraine-related Directlves. U.S. Department Treasury, Specially Designated Nationals 

August 29, 2017. (b11E'·~·.•:<l!lc0ii!D5"'0'Ici:J.&J'!'.U:ccb',~Q'·D 

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Anthony Ruggiero September 13, 20 l 7 

A assessment of the sanctions imposed on North Korea reinforces the conclusion that 

it not been targeted aggressively, since U.S. sanctions barely touch the international business 

networks- especially in China- on which Pyongyang relics to evade most restJictions. The Trump 

administration's recent efforts have focused on Pyongyang's international business and non-North 

Koreans, but there is still more to do. 

Even the UN acknowledges that North Korea uses "non-nationals of[North Korea] as facilitators, 

and rcl[ics] on numerous front companics"to generate "significant revenue'' for North Korea. 3 In 

testimony before this subcommittee, I noted that 47 percent of U.S. sanctions targeted persons 

located/conducting business outside ofNorth Korea. That number has now increased to 50 percent. 

In July, only !2 percent of those persons were non-North Korean; that number has increased to 

more than 17 percent (sec graphic 2). The UN sanctions numbers arc worse. ln July, only 27 

percent of all designated persons were located or conducting business outside of North Korea, a 

number that has improved to 33 percent. In July, only 2 percent of those persons were non-North 

Korean, yet that number has dropped to 1.75 percent. 

3 United Nations ofExpcrts established pursuant to resolution 1874 (2009)," 

February 27,2017. "-''W"-''"''uy:,'-c•'!.h~'-'"'-'·-''-'•"-'' 

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North Korea's Financial Activities 

A review of the Treasury and Justice Departments' actions against North Korea's financial 

activities reveals three main methods Pyongyang uses to finance its sanctions evasion. The first 

method was used by Dandong Hongxiang Industrial Development, which was sanctioned by 

Treasury and indicted by Justice in September 2016 (see graphic 3).4 The method was also used 

by Dandong Zhieheng Metallic Materials, which was sanctioned by Treasury and subject to an 

asset forfeiture request for more than $4 million filed by Justice in August. 5 Both companies' illicit 

activities were initially exposed by the innovative data-mining organization C4ADS6 

The scheme begins with North Korea shipping a commodity to a Chinese company - in these 

examples, coal is used. The Chinese company sells the item and pockets a significant profit. The 

money owed to the North Korean exporter remains in China, which allows North Korea to usc it 

to purchase goods. Each side keeps a ledger that tracks debits and revenue, which allows North 

Korea to purchase goods from its Chinese trade partner's accounts; the Chinese partner receives 

additional profit from facilitating these sales. Most sellers want payment in U.S. dollars, which 

requires hiding Pyongyang's role to continue the transaction. This is the point at which Chinese 

firms and individuals use accounts in Chinese banks to transfer money to front companies in China 

and other jurisdictions to create the illusion of a transaction between the seller and China, when 

North Korea is the real destination. This fraudulent scheme tricks U.S. banks into processing the 

transactions, and Chinese banks arc either complicit or fail to ask about Chinese companies' 

business with North Korea. 

4 U.S. Department of the Treasury, Press Release, "Treasury Imposes Sanctions on Supporters of North Korea's 

Weapons of Mass Destruction Proliferation," September 26, 2016. 0J!.!P2;.iL'>.!:Y~'-~~!L~.~b!£Y,.gQY/pJt&~.ntcCpi£.§5-=: 

relea:)es.yages/jl5(l~2.,p.sp~); U.S. Department of Justice, Press Release, "Four Chinese Nationals and China-Based 

Company Charged with Using front Companies to Evade U.S. Sanctions ~orth Korea's Nuclear 

Weapons and Ballistic Missile Programs," September 26,2016. 

U.S. Department Treasury, Press "Treasury Targets Chinese and Russian Entities and Individuals 

Supporting the North Korean Regime," August 22,2017. th~!flli; 11 W\VlYJreasm:.yJLQY:::m:rlili:£fD!fJ!l?J§~~'i= 

r.tieas~2id:q,g_es/sm0 14_~J!.illCJ; United States of America v. Fund'i Associated vdth Dandong Chengtai Trading 

Limited, No. 1:!7-cv-01706 (D.D.C. August 22, 2017). (Accessed via PACER) 6 "In China's Shadow: Exposing North Korean Overseas Networks;' The Asan Institute for Policy Studies and 

C4ADS, August 2016. 

(!!!!n:ili.,'-lillic I .;<_CJ!!illl'320.ITSQmistilli.£'229-"..i]ll'hi_['!tl 07_~,3_2_<jj] 2fuli.tL~JJlk7..:!.9c;dOf68.Q_6_2..2.:m 306/L{?_:I_2_')_1 _ _:i_.l~±8.QD. 

r_l~_:\.:!1.ina'\927;;_:§hal[Q.\£.D.d_f); "Risky Business: A System-Level Analysis of the North Korean Proliferation 

Financing "C4ADS. June 2017. 

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Evasion Method h 

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Anthony Ruggiero September 13, 20!7 

The second method was identified by the Justice Dcpanmcnt following an interaction with an 

unnamed North Korean defector (sec graphic 4). 7 The scheme is simple: Chinese companies pay 

each other using the credits of one North Korean company to pay the debt of another North Korean 

company. It is unclear if these transactions involve U.S. dollars, but they have the bcnet]t of 

avoiding money transfers between China and North Korea that could he subject to increased 

scrutiny. Chinese banks likely facilitate these payments between Chinese companies, and asking 

additional questions about the nature of the business relationship between these companies and 

Nonh Korea could identify that these arc problematic transactions prompting additional scmtiny. 

2: Alternative Method 

7 United Stares (~{Arnerica v. Fund~' Associated with Dandong Chengtai Trading Limited, No. 1 :17-cv-01706 

(D. D.C. August 22, 2.0 17). (Accessed via PACER) 

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Anthony Ruggiero September 13, 2017 

The third method was used by a Russian company to receive payments from North Korea for the 

shipment of oil (sec graphic 5). Petroleum Company (1PC) was sanctioned by the 

Treasury Department in early June signing a contract to provide oil to North Korea and 

reportedly shipped over $1 million worth of petroleum products to North Korea8 IPC shipped 

gasoil to North Korea and lPC requested payment from North Korea in U.S. dollars, but a direct 

transaction between Russia and North Korea nsing U.S. dollars is nearly impossible. IPC and North 

Korea devised a scheme to create two companies in Singapore to create the illusion of transactions 

between and Russia. The scheme obscured North Korea's involvement and furthered 

Pyongyang's with assistance from a Russian company and Russian individuals, to violate 

U.S. law. The Justice Dcpmimcnt requested forfeiture of almost $7 million and fines for these 

alleged violations of U.S. laws. 

Financial Facilitators 

Treasury, Press Release. "Treasury Sanctions Suppliers ofNorth Korea's Nuclear and 

·· hme I. 2017. (lll'fl1s:_l-'."2'·.tg~agrry,_lill'~ll'!'"'''.C.er.;tc.rJ'l·css, 

Unilecl.'itures Funds Associated with Velmur Malta.l!f'T'tcnt PTE. Ltd., No. 1: 17-cs-0170) (D. D.C. 

August 20!7). (Accessed PACER) 

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Addressing North Korea's Financial Activities 

The U.S. approach toward North Korea's financial activities should take a page out of the Iran 

sanctions playbook where banks were forced to_make a choice: stop doing business with Iran, or 

lose access to the U.S. dollar and risk the U.S. freezing their assets and labeling them as doing 

business with a state sponsor of terrorism intent on developing a nuclear weapon. The banks' 

business with North Korea is a small percentage of their overall business and they will not risk 

working with Pyongyang over Washington. 

The Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA) 

provides a good model for North Korea financial sanctions, provided there are modifications to fit 

the current situation. 1

° CISADA required the Secretary of the Treasury to cut foreign financial 

institutions off from the U.S. financial system if they knowingly processed transactions for Iran's 

Islamic Revolutionary Guard Corps or the Government of Iran's proliferation activities, money 

laundering. and other activities. Only two banks were sanctioned under ClSADA, China's Kunlun 

Bank and Iraq's ElafBank, but the law was used by Treasury to achieve compliance from other 

foreign financial institutions.ll The Treasury Department lifted sanctions against Elaf Bank nine 

months after designating it, after Treasury verified a "significant and demonstrated change in 

behavior." This illustrates the important Jesson that financial sanctions are not simply punitive, but 

can lead to rehabilitationn 

The North Korea-Iran comparison is useful, but North Korea's financial activities are different 

than those Washington faced with Iran. The primary difference is the role of China in North 

Korea's known illicit financial transactions. Given the size of the Chinese economy and the U.S.-

China relationship, sanctions against Chinese financial institutions should be carefully calibrated. 

But that does not mean Washington should shy away from protecting its own financial system. 

A successful financial sanctions approach will focus on increasing the efforts of U.S. and foreign 

financial institutions to search for North Korea's illicit financial activities. While Pyongyang is 

experienced in hiding its activities behind front companies, the linkage can be found. C4ADS used 

data analysis tools to find multiple China-North Korea trade relationships, an effort that could 

certainly be duplicated by the largest Chinese banks. 13 In many cases, Chinese companies arc not 

even hiding their relationships with North Korea. For example, Dandong Zhicheng Metallic 

10 Comprehensive Iran Sanctions, Accountability, and Divestment Act of20!0, Pub. L. lll-195, 124 Stat. 1312, 

codified as amended at 22 U.S. C. §8501. (h!JO~_;!!..Y.o::~\~YJJ~illil.JIYogQ.Y,~~~~.\!!lr~e_: 

s::eJl!.t;X/?~m~1.i.Q.n.~~lQ_~).£1lJHf.D~hr2J.9.:t.mtf) 

" U.S. Department of the Treasury, Press Release, Sanctions Kunlun Bank in China and ElafBank in Iraq 

for Business with Designated Iranian Banks,"' July 31. 2012. Ul!.\P5:~.YV\\:-Y,I[5a:illr.Y,gO.'!!JlC.C''>S:£".I>I£.l:~J2!= 

releasesiPaeesiw I f)Q l.asgx) 

io U.s:-Department~;fthe :-freasury, Press Release, "Treasury Removes Sanctions on Iraqi Bank,'" May 17,2013, 

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""In China's Shadow: Exposing North Korean Overseas Networks," The Asan Institutefor Policy Studies and 

C4ADS, 

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Anthony Ruggiero September 13,2017 

Material Co. Ltd., which was sanctioned by Treasury and is subject to an asset forfeiture request 

by Justice from late August, advertised on its Alibaba site: ''We are a professional company of 

trading the North Korea Briquettes, choose us, trust us" and highlighted the sale of North Korean 

coal in U.S. dollars. 14 Chinese financial institutions certainly could have found that same 

information if they wanted to ask the right questions. Facing significant fines or losing access to 

the U.S. dollar should heighten Chinese banks' desire to start asking those questions. 

Additional Recommendations 

In testimony before this subcommittee in July, I provided nine recommendations for U.S. policy 

on North Korea: 15 

Recommendation 1: Sanction Additional Chinese Banks. 16 

Recommendation 2: Sanction Chinese and Russian Facilitators of Pyongyang's Sanctions Evasion. 

Russia has emerged as a key node in North Korea's sanctions evasion, and any effort to combat 

Pyongyang's activities should include sanctions against Russian entities and individuals. 17 

Recommendation 3: Block the Revenue North Korea Receives from Overseas Laborers. In early 

August, Kuwait stated that it employs over 6,000 North Korean workers and said it has no plans 

to reduce that number, contradicting the State Department's 2017 Trafficking in Persons report. 18 

The Russian government admitted in late August that it employs 40,000 North Korean workers in 

timber processing and construction. 19 UN Security Council Resolution 2371 unfortunately only 

caps the number of overseas North Korean workers, despite stating the revenue is used in 

14 The Justice Department noted that "Aiibaba is one of the largest e-cornmerce websites in the world. It is 

headquartered in China." United Stales of America v. Funds Associated with Dandong Chengtai Trading Limited, 

No. I :17-cv-01 706 (D.D.C. August 22, 2017). (Accessed via PACER); U.S. Department of the Treasury, Press 

Release, "Treasury Targets Chinese and Russian Entities and Individuals Supporting the North Korean Regime." 

August 22, 2017. (https://\\'\vw.treasurv. go~?~~nts:_r!.DI~lili_:releq~~~~~~11i-~S/sm0 148.amx) 15 Anthony Ruggiero, "Restricting North Korea's Access to Finance," Testimony before House Committee on 

Financial Services, Suhcommillee on Monetary Policv and Trade, July 19, 2017. 

(h1tn;Li~L\\}\~.-.9.~J~.lQ4~.DlQ.~U:t~Y-·9T&':.g.Q_m~H~!!Jllili!~ :.QQcUJTIIT!ti~ l)rr~bQl!LJS~!.ggir&Jj;o§!t!D.m.lLU.f5.C R~tf) 16 Anthony Ruggiero, "Severing China-North Korea Financial Links," Center for Strategic & International Studies, 

April3, 2017. (h_t!~'V/_~·"'•'_}~}y__,_~si~.Qrg/?IilllYsislseveJ]!lg-chilhl.":lJQI1h:::k_Qm~t~t1n%11(if!J:-liJlb.?); Anthony Ruggiero, "Time 

for Trump to Get Tough on China," Politico, July 6, 2017. 

()1 tHLjD\'..\£,UQ_ljJj£Q_,.f_QJJ11m1g~~;;;_ill~0"NIYc~.Q.17J.!ELQQ{.~iQD..f!1.4.~JDJJJill.:-S;_l)jJJ5t: .. IJ9.I1!l-19J~~--2I ~.l:!JJ 17 Anthony Ruggiero, "North Korea sanctions are finally getting serious," Fox News, August 25, 2017. 

Oll!D_:_L/\V\V\V. fOxnews.com/op inion(~ 0 l 7 !OX/2~:11Qrlb.:k2ITa-san_s;:!iD.n~:ill3~~-Jluf!.ll y-gctting -se~LQUS.lltn:U) 

"Jon Gambrell, "Kuwait Says North Korean Workers Welcome Then Refutes Itself," Associated Press, August 11, 

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State, "Trafficking in Persons Report 20 17," June 2017. 

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19 Pol ina Nikolskaya and Katya Golubkova, "Russian-North Korea projects foundering because of missile tests: 

minister," Reuters, August 28, 2017. (htt.l1ii~Y!~~Y':1V_~~~gt~T$,~Qm{;}!1L~l~!U;i~rt!~.sj.~:llQt:_H~}\_gr~~=tm4~~ 

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Pyongyang's nuclear weapons and missile programs. 20 The Countering America's Adversaries 

Through Sanctions Act mandates the president to impose sanctions on persons that employ North 

Korean workers, and Washington should lead an effort to end North Korean slave labor21 The 

U.S. should then build a coalition oflike-minded countries that commit to not accept North Korean 

overseas laborers. China and Russia would block a UN ban on payments to North Korea, but 

exposing the terrible work conditions and links between the revenue and the prohibited programs 

could pressure Beijing and Moscow to alter the payment mechanism and provide the money 

directly to the laborers, while continuing to import North Korean laborers. 

Recommendation 4: Pursue an Offensive and Defensive Cyber Strategy.22 

Recommendation 5: Impose Mandatory Inspections for all North Korean Ships. 

Recommendation 6: Usc U.S. and Partner States' Authorities to Enforce UN Sanctions. 

Recommendation 7: Address Iran-North Korea Cooperation. 

Recommendation 8: Implement Restrictions on Tourist Travel to North Korea23 The State 

Department has restricted the use of U.S. passports for travel to North Korea starting September 

1, except under limited conditions24 This is a good step forward, but Congress must ensure it is 

being implemented and that it is not adversely affecting the operations of humanitarian 

organizations who care more about the North Korean people than the Kim regime. 

Recommendation 9: Address North Korea's Human Rights Abuses.25 

Conclusion 

Pyongyang's provocations, including its ICBM tests and sixth nuclear test, deserve increasingly 

harsh responses from Washington. A sanctions approach that focuses on North Korea's financial 

20 20 United Nations Security Council, Resolution 2371, August 5, 2017. 

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~ Samantha Ravich and Anthony Ruggiero, '"The growing North Korean cyber threat," F{jih Domain Cyber, June 

12, 2017. (l1!lQ .. ;L:iL~::W.Jttf~!10_dcmoqm;y .9sg ~media-hit/ ~nrr.mt1a -rav i.ctL:"!ll~-growing-nonh-koreai!:_<.~vbe.r -threE!!{); 

Samantha Ravich, "State-Sponsored Cyberspace Threats: Recent Incidents and U.S. Policy Response," Testimony 

before the Senate Foreign Relations Commiffee, June 13, 2017. 

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24 U.S. Department of State, "United States Passports Invalid for Travel to, in, or Through the Democratic People's 

Republic of Korea," 82 Federal Register 36067, August 2, 2017. (!illJ:>o;j/wv.~;:,gno.go\/fdsys/pkgrFR-2017-Qg. 

02ipdf2Q!l:_l6287.pdf); U.S. Department of State, "Notice oflnformation Collection Under OMB Emergency 

Review: Request for Approval To Travel to a Restricted Country or Area," 82 Federal Register 36065, August 2, 

20 1 7. (b!.\Q5.;'Ll':o'3':Jm.Q.JLQ\ihl;;y2P kQ/FR · 2.0JLO_ii:Qf/p<J.faQ11.: 162B.J"pdf) 25 Anthony Ruggiero. "Don't let North Korea's nukes overshadow human rights abuses," The Hill, Apri128, 2017. 

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activities has the best chance of success, and combined with Washington's efforts to build a 

coalition of likemindcd countries to increase other sanctions will protect the U.S. and its allies 

from the Kim regime's dangerous nuclear weapons and missile programs. 

On behalf of the Foundation for Defense of Democracies, I thank you again for inviting me to 

testify and I look forward to addressing your questions. 

0 

Foundation for Defense of Democracies 12 www .defenddcmocracy. org