Israel ran afoul of UN sanctions earlier in December when the country’s Tax Authority was questioned on gold exports to North Korea which reportedly took place in 2011.
Speaking to Israel’s Knesset’s Economic Affairs Committee, Tax Authority export director David Khuri gave a mixed bag of answers on questions relating to breaches of UN luxury good sanctions, sometimes giving incorrect dates and information.
Khuri called the gold shipments – which were valued at around $347,000 – a “disgrace” to country, telling the committee they were unearthed by the UN and that further export attempts had since been blocked.
“To my regret there was export of gold, and regretfully (the UN) discovered this and we were required to give explanations,” Khuri said in comments carried by Haartez.
The export director however then made a couple of claims apparently at odds both with the data contained in the UN Comtrade database, and that in Isreal’s own numbers (from which the UN numbers are generated).
“There has been almost no exporting of gold to North Korea sonce (sic) 2011, and our exports only included books and dental implants,” Khuri added, according to another local news outlet ynetnews.com.
According to the trade databases however, the gold was not exported in 2011, but in 2013 and no other gold exports after 2006 are listed. Further exports over the last four years also include potentially sanctioned organic chemicals, wine (a real bargain if trade figures are to be believed at 1600 litres for $2000), aluminium, printing machinery, articles of wood and other miscellaneous chemical products.
The total listed value of the trade is $853,000, mostly on the back of the gold and chemicals shipments.
“Mr. Khuri presented to the committee members accurate data, according to the information found in the customs’ database, regarding the subjects he was asked about,” the organisation’s senior media officer Iris Dor-On said , despite the database indicating otherwise.
Whether or not certain trades breach sanctions and how seriously, can often depend when they took place. North Korea’s nuclear and ballistic programs trigged fresh rounds of UN sanctions between 2006 and 2013, with later designations often building on earlier ones.
The most recent resolution in 2013 included a more defined list of luxury goods which previous documents lacked. After the third nuclear test, the UN Security Council also decided to try and further squeeze Pyongyang’s elite, by limiting exports of precious metals, stones and luxury vehicles.
“(The resolution) reaffirms the measures imposed in paragraph 8 (a) (iii) of resolution 1718 (2006) regarding luxury goods, and clarifies that the term ‘luxury goods’ includes, but is not limited to, the items specified in annex IV of this resolution,” article 23 of Resolution 2094 reads.
Providing the North Korean government with gold however is problematic for another reason. Under the increasingly watchful eye of the U.S. Department of Treasury’s Office of Foreign Asset’s Control (OFAC), the dollar has become a risky currency for the DPRK.
Gold could be used as way to circumvent the restrictions and allow North Korea to trade more freely. Resolution 2094 urges UN member states to monitor transfers of bulk cash to the DPRK, expressing “concern that transfers to the DPRK of bulk cash may be used to evade the measures imposed in resolutions 1718 (2006), 1874 (2009), 2087 (2013).”
“Gold is another form of payment that evades the formal financial system. UNSCR 2094 issued calls to be vigilant for and restrict the DPRK’s use of alternate means of payment, particularly bulk cash transfer. If the DPRK can get its hands on gold it will have a way to trade with most,” Andrea Berger, deputy director of proliferation and nuclear policy at RUSI told NK News.
The earlier resolutions did not call for the same vigilance on bulk cash or financial transfers, so gold exports occurring in 2011, instead of after the publication of Resolution 2094 in March 2013 could potentially run up against different sanctions.
Further complicating the sanctions picture is how well UN member states implement the Security Council’s resolutions into their national legislation. The UN itself does not enforce trade relationships between countries, nor prosecute companies or individuals that don’t pay attention to sanctions.
Local media in Israel also reported on the oddity of the exports occurring nearly a decade after the first DPRK designations. According to Haaretz, the long delay was in translating UN sanctions into Israeli law was remedied on December 9 this year.
“A representative of the Economy Ministry’s legal department, Dalit Rennert, presented the order and said it would allow supervision of exports to North Korea and set that the export will be allowed only with a license. Likewise, the order sets a list of luxury products banned from exports,” Haaretz reported on the same day.
The lack of previously existing legislation was blamed for the loophole, which subsequently allowed the export of the gold with little apparent oversight. Israel’s Tax authority told NK News they were only an “enforcer” when answering questions on why no action was taken on the exports until 2015, adding they did not deal with issues regarding to UN sanctions.
“No such permits concerning goods, services and technology referred to in Council resolutions 1718 (2006) and 1874 (2009) have been given,”
But the claim that Israel had no laws to back up sanctions seems in tension with what they told the UN in 2010. Member states update the Security Council on the implementation of various sanctions and resolutions and according to the UN’s website, Israel filed two implementation reports in 2007 and 2010.
The second document implies that at least some legislation was put in place after the passage of resolution 1874 in 2009.
“In accordance with its domestic legislation, transactions or transfers involving goods, services and technology referred to in Council resolutions 1718 (2006) and 1874 (2009) require official authorization, by means of a permit, from various governmental authorities,” it reads.
“No such permits concerning goods, services and technology referred to in Council resolutions 1718 (2006) and 1874 (2009) have been given,” it adds.
The wording appears similar to reported by Haaretz on December 9, which also claimed a license would be required for exports to North Korea.
“The Israeli Ministry of Foreign Affairs has duly informed all relevant domestic authorities of Council resolution 1874 (2009), together with a reference to its requirements and the additions it makes to the previous resolution, with a view to ensuring the implementation of its obligations,” the report continues.
The Tax Authority and Ministry of Foreign Affairs declined to comment on the 2010 implementation report, or why there was no enforcement of the “domestic legislation” alluded to in it, which should have covered the (albeit somewhat vague) definition of luxury goods outlined in the 2006 resolution.
Other media reports on the exports mentioned David Khuri briefly spoke of other exports aside from the gold, but gave few details.
One potential eyebrow raising export which went unmentioned was the 2010, $56,000 shipment of “organic derivatives of hydrazine/of hydroxylamine”. The former chemical –when above a 70 percent concentration – is mentioned in the UN sanctions list 19 times, given its various spinoffs can be used as fuel for small rockets.
“China currently uses hydrazine as propellant … North Korea, like China, has been using hydrazine for rocket propellant as well. (It) is not used in large rockets but still in small rockets to put satellites in orbit,” Kwon Se-jin, a professor at the department of aerospace engineering at South Korea’s KAIST University told NK News.
The other chemical, hydroxylamine, is not designated by the UN, though could potentially be used in similar applications.
“Hydroxylamine nitrate is one of the candidates under research to replace hydrazine in the future,” Kwon added.
However tracking down the exact nature of the shipment is challenging. Custom’s databases rarely include information on the companies actually conducting the trade, nor would they be under any obligation to talk about a sanctions breaching export. Also, while some business directories list exporting companies by sector, membership is not obligatory so lists are not exhaustive.
The problem extends to other potentially sanctioned trades and countries. Israel is not the only exporter of hydrazine/hydroxylamine to North Korea since 2006. Membership of that dubious club also belongs to Italy, India and China, with the latter the only country to send shipments in 2014, though to this day Israel’s delivery remains the largest.
The DPRK however may not need to import hydrazine above 70 percent concentrations, and could also perfectly legitimately order less concentrated or unsanctioned variants for more benign uses.
“Nearly every country working on space development projects domestically produces the main chemicals used in aircraft (or) space rockets. And I assume that applies in North Korea’s case too. They would not rely on hydrazine imports from abroad,” Kwon continued.
Nonetheless, despite a good probability the export was not in breach of sanctions, the Ministry of Foreign Affairs does not appear willing to clarify the shipment.
Israel ran afoul of UN sanctions earlier in December when the country’s Tax Authority was questioned on gold exports to North Korea which reportedly took place in 2011. Speaking to Israel’s Knesset’s Economic Affairs Committee, Tax Authority export director David Khuri gave a mixed bag of answers on questions relating to breaches of UN luxury
One of the most striking features of Kim Jong Un’s North Korea has been the recent construction boom.
For nearly three decades North Korean cities remained essentially unchanged, but between 2008 and 2010 work began again, and began to speed up after 2011 when the new leader came to power.
The visible results of this boom are the new residential districts in Pyongyang, including the much publicized Ryomyong Street.
For outside observers, true believers in the power of sanctions, it is often difficult to admit that the economic situation in North Korea is improving: the construction boom in Pyongyang, too large to be denied or unnoticed, is frequently described as a sui generis, a unique case – perhaps the result of the regime’s willingness to make massive investments for propaganda purposes.
But construction is not limited to the capital. Furthermore, while Pyongyang projects are indeed often used for propaganda purposes, subsidized by the state, and are, predictably, sometimes of dubious practical value, the situation in the countryside is different.
The countryside is experiencing a construction boom, too, but because this is driven by private money and market demand, the resultant buildings are of much smaller scale, but definitely livable – and certainly profitable for their owners.
I interviewed Mr. Suh (not his real name), a man who once worked on construction sites in the North Korean countryside. He is one of (actually, very rare) people whose defection to the South was not a result of some accident but was carefully planned and well thought out.
Since his teens, Mr. Suh had listened to South Korean radio, and came to entertain deep suspicions about the future of North Korea as well as his own future in this society. So, he began to plan an escape very carefully and systematically. At one stage he moved to a town relatively close to the border to work in construction and in order to make money and also gather intelligence for his future escape. He spent two years there.
The construction boom in Pyongyang, too large to be denied or unnoticed, is frequently described as a sui generis
Technically, Mr. Suh was a college student, and this eased his life when it came to dealing with police bureaucracy: it was assumed that it was normal for a student to live with relatives or even friends while on leave from school.
Mr. Suh came to the town and found accommodation with a local family, renting out a room in their house. Three meals a day were provided as well – and these were good meals, since the town, located relatively close to the border and a center of legal and illegal trade with China, is one of the richest in North Korea. Thus, Mr. Suh was given rice gruel three times a day (still a luxury in other parts of the country), and pork dishes were even provided on weekends, while fish could be cooked every second day or so.
Given the quality of food, and size of the room, one should not be surprised that the accommodation was costly: 200 Chinese yuan (roughly USD$35) per month.
And one should also not be surprised that the price was cited in the Chinese currency: after the 2009 currency reform debacle, nobody in his or her right mind would trust local notes, so North Korean money in the region was used only for small transactions. At any rate, it was a noticeable part of Mr. Suh’s income which, as we will see, was good by local standards.
Major Pyongyang projects may have grabbed the headlines, but a construction boom is taking place across the country | Photo: Rodong Sinmun
Mr. Suh found employment in a small interior design company. Since houses were being built in large numbers, business was booming. The company had six-seven permanent workers and also hired some additional workforce when necessary.
Needless to say, the small company where Mr. Suh worked did not officially exist. All employees and employer formally had other jobs – all within the state economy, of course.
But they did not show up at their official workplaces, and in most cases paid so-called “August 3rd money,” a contribution to the budget of the company they were registered with but did not actually attend. In essence, this is the price to be paid for being legally unemployed or, rather, employed outside the state economy.
As an important additional benefit, “August 3rd money” gives the purchaser the right to skip boring and time-consuming indoctrination meetings all North Koreans are required to attend.
North Korea (like, say, present-day Russia), is a country where newly built flats are completely devoid of anything: no wallpaper, no paint, no water heating or storage equipment, and often no sinks or showers – just unpainted cement or brick walls.
It is assumed that once the flat is sold, the necessary arrangements will be done by the owners, who will decide what they will make of it depending on their tastes.
The managers and workers of independent work teams, like the one where Mr. Suh was employed, along with the owners, first perused Chinese catalogs and magazines, and then made decisions how the interior should look.
The new owner of a flat does not receive any property recognition, but rather a residence certificate
It was quite common, say, for a rich local couple to buy not one, but two flats on the same floor, and then have them connected and redesigned as one extra-large living space.
In some cases, patrons or designers even traveled to Beijing to study the newest trends in the Chinese architectural fashion and interior design – China, no matter what the official propaganda says, is seen as an embodiment of good modern taste and high fashion.
The countryside is experiencing a construction boom, too, but this is driven by private money and market demand |Photo by m•o•m•o
However, the building has to be erected first. In the countryside town, there was no need for high-rises and, of course, they are not particularly profitable economically: five to seven floors are the norm nowadays.
On paper, the new building belonged to the state. One had to be a government agency or state-owned enterprise in order to be eligible for a permit to build a house. However, agencies or factories nowadays have neither the money nor, often, the expertise, and hence have no choice but to find local rich people to act as investors.
The construction projects Mr. Suh worked on were jointly operated of state enterprises and private capital. A government institution or a state-owned enterprise (like, say, a factory) sorted out all legal issues, hired architects and also handled relations with the municipal authorities. Private investors paid money which allowed them to buy construction material, hire workers, rent the heavy equipment. Usually, it took a year or a bit more to have a building completed.
Once the major work was done, Mr. Suh and his colleagues moved in, to paint and plaster, and install water heating and water tanks. After another couple of months, the building was ready to house its first inhabitants.
The profits were divided. The agency or factory which did the paperwork (and, technically was the sole owner of the entire project) got its cut in the shape of a certain number of flats. These flats were used to house their workers, but some were given to the state which would then allocate living space to people considered worthy.
The remaining flats were to be sold, and profit would go back to the private investors. By their standards, it was a good investment: not particularly profitable (30-50% profit was the norm), but also relatively safe from political risk.
Since technically North Korea does not recognize the private ownership of houses (with minor exceptions which are irrelevant to our story), sales are unofficial. The new owner of a flat does not receive any property recognition, but rather a residence certificate, undistinguishable from the certificates which were issued to those lucky who got the state-distributed flats free of charge.
Since private ownership is frowned upon, property ownership is usually the result of a pact between state entities and rich citizens | Photo by yeowatzup
However, it did not bother them in the least: it was universally assumed that the ownership rights and residence rights are not that much different.
This might sound strange to Western readers, who are too used to strictly defined legal obligations, but yours truly, being a former Soviet citizen, does not see much problem with such arrangements: this is how similar things were dealt with in the late Soviet era, when the real estate trade was beginning to spread but fictions of the universal state ownership still existed.
Mr. Suh has no clue how many flats in a typical new building was allocated to the state agency, and how many went to the private investor – he was a humble worker, of course, and given the semi-legal and grey nature of the entire arrangement, he was in no position to know. Nonetheless, he believes that private investors received well over half of new flats.
Mr. Suh came as a novice, and for a few months he did unskilled work, paid 400 yuan a month. Then, he gradually learned the craft, and in the final days of his employment, his monthly salary was 600-700 Chinese yuan – slightly over USD$100. The best-paid people in his brigade regularly brought home 1200 Chinese yuan, or nearly USD$200 a month.
Even by the standards of a booming border town, it was a good income, even though the workers had to work long hours to earn that much (a 12 hour work day was seen as the norm).
As we know, Mr. Suh was not going to stay at this job for too long: he acquired some money and learned what he needed to know, and one day he was gone: in due time he was in China, working his way to South Korea.
One of the most striking features of Kim Jong Un’s North Korea has been the recent construction boom. For nearly three decades North Korean cities remained essentially unchanged, but between 2008 and 2010 work began again, and began to speed up after 2011 when the new leader came to power. The visible results of this boom