[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
        NORTH KOREA'S CRIMINAL ACTIVITIES: FINANCING THE REGIME

=======================================================================

                                HEARING

                               BEFORE THE

                      COMMITTEE ON FOREIGN AFFAIRS
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 5, 2013

                               __________

                            Serial No. 113-4

                               __________

        Printed for the use of the Committee on Foreign Affairs


Available via the World Wide Web: http://www.foreignaffairs.house.gov/ 
                                  or 
                       http://www.gpo.gov/fdsys/

                                 ______



                  U.S. GOVERNMENT PRINTING OFFICE
79-667                    WASHINGTON : 2013
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202ï¿½09512ï¿½091800, or 866ï¿½09512ï¿½091800 (toll-free). E-mail, [email protected].  


                      COMMITTEE ON FOREIGN AFFAIRS

                 EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey     ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida         ENI F.H. FALEOMAVAEGA, American 
DANA ROHRABACHER, California             Samoa
STEVE CHABOT, Ohio                   BRAD SHERMAN, California
JOE WILSON, South Carolina           GREGORY W. MEEKS, New York
MICHAEL T. McCAUL, Texas             ALBIO SIRES, New Jersey
TED POE, Texas                       GERALD E. CONNOLLY, Virginia
MATT SALMON, Arizona                 THEODORE E. DEUTCH, Florida
TOM MARINO, Pennsylvania             BRIAN HIGGINS, New York
JEFF DUNCAN, South Carolina          KAREN BASS, California
ADAM KINZINGER, Illinois             WILLIAM KEATING, Massachusetts
MO BROOKS, Alabama                   DAVID CICILLINE, Rhode Island
TOM COTTON, Arkansas                 ALAN GRAYSON, Florida
PAUL COOK, California                JUAN VARGAS, California
GEORGE HOLDING, North Carolina       BRADLEY S. SCHNEIDER, Illinois
RANDY K. WEBER SR., Texas            JOSEPH P. KENNEDY III, 
SCOTT PERRY, Pennsylvania                Massachusetts
STEVE STOCKMAN, Texas                AMI BERA, California
RON DeSANTIS, Florida                ALAN S. LOWENTHAL, California
TREY RADEL, Florida                  GRACE MENG, New York
DOUG COLLINS, Georgia                LOIS FRANKEL, Florida
MARK MEADOWS, North Carolina         TULSI GABBARD, Hawaii
TED S. YOHO, Florida                 JOAQUIN CASTRO, Texas
LUKE MESSER, Indiana

     Amy Porter, Chief of Staff      Thomas Sheehy, Staff Director

               Jason Steinbaum, Democratic Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page

                               WITNESSES

David Asher, Ph.D., non-resident senior fellow, Center for a New 
  American Security (former Senior Adviser, East Asian and 
  Pacific Affairs, and Coordinator, North Korea Working Group, 
  U.S. Department of State)......................................     4
Sung-Yoon Lee, Ph.D., assistant professor in Korean Studies, The 
  Fletcher School of Law and Diplomacy, Tufts University.........    17
The Honorable Joseph R. DeTrani, president, Intelligence and 
  National Security Alliance (former Director, National Counter 
  Proliferation Center, Office of the Director of National 
  Intelligence)..................................................    26

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

David Asher, Ph.D.: Prepared statement...........................     6
Sung-Yoon Lee, Ph.D.: Prepared statement.........................    19
The Honorable Joseph R. DeTrani: Prepared statement..............    28

                                APPENDIX

Hearing notice...................................................    60
Hearing minutes..................................................    61


        NORTH KOREA'S CRIMINAL ACTIVITIES: FINANCING THE REGIME

                              ----------                              


                         TUESDAY, MARCH 5, 2013

                       House of Representatives,

                     Committee on Foreign Affairs,

                            Washington, DC.

    The committee met, pursuant to notice, at 10:07 a.m., in 
room 2172 Rayburn House Office Building, Hon. Edward Royce 
(chairman of the committee) presiding.
    Chairman Royce. This hearing on North Korea will come to 
order. On February 12, North Korea conducted its third and most 
powerful test to date of a nuclear weapon, a smaller weapon, 
because North Korea is working on miniaturizing its weapon in 
order to place it on the head of an ICBM. This followed 
December's launch of a three-stage, intercontinental ballistic 
missile.
    So we have had test after test. We have had broken promise 
after broken promise, and successive administrations, both 
Republican and Democrat, have clung to an unrealistic hope that 
one day North Korea will suddenly negotiate away its nuclear 
program. It is a hope that in 1994 many of our senior members 
here shared when we passed the nuclear framework agreement 19 
years ago with North Korea.
    But during that whole period of time that we attempted to 
engage, we found instead that North Korea was perfecting their 
weapon, was violating those negotiations. The approach that we 
have taken has failed. And three nuclear tests later, I think 
we have to be realistic. We have to find a better alternative. 
A failed approach to North Korea doesn't result in just a more 
dangerous situation on the Korean Peninsula. It, in fact, has 
resulted in a more dangerous world.
    We know that North Korea helped build the carbon copy of 
their program in Syria on the banks of the Euphrates. We also 
know that Iran has directly benefited from North Korea's long-
range missile technology. We suspect that they have benefited 
from the nuclear tests. Last month, Ranking Member Engel and I 
were in Northeast Asia, and it is clear from our discussions 
there that our North Korea policy must change.
    Today we will look at the illicit activities that are 
underwriting North Korea's weapons programs. We are going to 
look at its illicit missile sales abroad and at its meth 
trafficking. This is the only country in the world that 
manufactures and then trafficks in meth. We are going to look 
at their counterfeiting of U.S. $100 bills, and we are going to 
think about the reason why this country has been called the 
``Soprano State.'' We will hear from one witness who will 
testify that North Korea's ``illicit money making machinery 
continues to turn.''
    But it is this dependency by the regime on illicit 
activities that can be exploited. This is the Achilles' heel. 
We did this once. In the fall of 2005, the Bush administration 
targeted the Macao-based Banco Delta Asia for its money 
laundering role. While U.S. money was being counterfeited they 
were laundering for North Korea. And our pressure led other 
banks in the region to shun North Korean business, which 
finally isolated the regime and cut off its ability to get hard 
currency. However, after Kim Jong-il made promises on its 
nuclear program, the pressure was prematurely lifted. Today, 
the current administration has done little to target North 
Korea's illicit activities. Instead, the administration has 
deferred to a policy at the United Nations and has opted for 
``strategic patience.''
    The purpose of today's hearing is to examine how best to 
pressure North Korea's ruling elite by systematically 
restricting their access to the hard currency on which they 
depend. We will hear from one witness who has first-hand 
experience spearheading such an effort. We will be introducing 
legislation based on some of the ideas we will hear today.
    It is important to realize that we have more options other 
than simply to rely on Beijing to do more. Disrupting North 
Korea's illicit activities will place tremendous strain on that 
country's ruling elite who have done so much harm to the people 
of North Korea. We must go after Kim Jong-un's illicit 
activities like we went after organized crime in the United 
States--identify the network, interdict shipments, and disrupt 
the flow of money. This would sever a key subsidy for North 
Korea's weapons of mass destruction program. For only when the 
North Korean leadership realizes that its criminal activities 
are untenable do prospects for peace and security in Northeast 
Asia improve.
    I will now turn to our ranking member, Eliot Engel of New 
York, for his opening comments.
    Mr. Engel. Well, thank you very much, Mr. Chairman. I would 
like to thank you for calling this timely hearing and for your 
leadership in addressing the North Korean threat. I would also 
like to say publicly that it was a privilege to travel to the 
region with you earlier this year to discuss North Korea with 
top leaders in Seoul, Tokyo, and Beijing. The recent nuclear 
test conducted by the North was a dangerous provocation that 
raised tensions in Northeast Asia. It reinforces the fact that 
Pyongyang poses a serious threat to the national security of 
the United States and our allies in the region. Following the 
test, the House overwhelmingly passed a strong bipartisan 
resolution, authored by Chairman Royce and myself, condemning 
the North's irresponsible action. Among other things, that 
resolution called for the United States Government to use 
available legal authorities and resources to defend our 
country's interests against North Korean illicit activities, 
which is of course the topic of today's hearing.
    North Korea's nuclear tests, ballistic missile launches, 
and attacks against South Korea have been obvious to the entire 
world. What has drawn less attention, however, is the fact that 
North Korea engages in a wide array of illicit activities to 
support its military program and leadership. The North Korean 
regime's criminal conduct including drug smuggling, weapons 
trafficking, the sale of nuclear and ballistic missile 
technology to rogue regimes in Iran and Syria, and the 
counterfeiting of U.S. currency, cigarettes, and 
pharmaceuticals serves as a lifeline to keep itself in power. 
Proceeds from these criminal activities are distributed to 
members of the North Korean elite, including senior members of 
the military, and are used to finance the top leadership's 
lifestyle. They are also invested in North Korea's military 
programs.
    I am one of the few Members of Congress that have been to 
North Korea, and I have been there twice. I visited the capital 
of North Korea, Pyongyang, and I can tell you that the North 
Korean regime would do better to help its own people and give 
them the things that they need, rather than spend its time and 
money on nuclear weapons and missile technology in defiance of 
the international community.
    The North Korean regime practices what experts have called 
``criminal sovereignty.'' In essence, Pyongyang uses state 
sovereignty to protect itself from outside influence and 
interference, while dedicating a part of its government to 
carrying out activities in violation of international law and 
the domestic laws of many other countries. For North Korea 
these criminal activities are viewed as necessary to maintain 
the power of the regime, with no regard for the fact that they 
are corrosive to international law and order. So the question 
is, what steps can we take to combat North Korea's illicit 
activities? And can our efforts to prevent these activities be 
used to pressure North Korea to abandon its nuclear weapons and 
ballistic missile programs?
    Now I just heard on the news this morning that the 
agreement has been made, ostensibly with China, to punish North 
Korea for its missile launching and nuclear tests. I hope that 
China will not do what it has done in the past and agree to 
sanctions and just erode those sanctions so the sanctions 
really never take hold. I hope that China will finally 
understand that the North Korean regime is a threat to 
stability in that region of the world, and in many regions of 
the world. Because as Chairman Royce pointed out, North Korea 
is a rogue state helping countries like Syria trying to obtain 
nuclear weapons, and collaborating with Iran.
    I want this committee to know that on this issue there is 
not a millimeter's worth of difference between the chairman and 
myself. We both view the North Korean regime as a threat and 
one that needs to be contained. I wanted to tell you the first 
time we took the trip to North Korea; it was probably about 8 
or 9 years ago. And one of the first things we noticed in 
Pyongyang was the billboards that were all across the country. 
One of the billboards still sticks in my mind. It showed a 
North Korean soldier bayoneting an American soldier in the 
head, in his helmet. And we knew it was an American soldier 
because on his uniform it said USA.
    So the regime is endemically hostile to the United States 
and warrants watching, and I look forward to our witnesses' 
testimony. This is really very, very important, and we have 
many pressing concerns all around the world but we ought not to 
forget about the pressing concern with North Korea. We ought to 
stay focused on the region. I thank you, Mr. Chairman.
    Chairman Royce. Thank you, Mr. Engel. This morning we are 
joined by a distinguished panel of experts. Dr. David Asher is 
a senior fellow at the Center for a New American Security. 
Previously, Dr. Asher served as a senior Asia advisor at the 
State Department. He was the coordinator for the North Korea 
working group that attacked Kim Jong-il's illicit activities 
and finances.
    Dr. Sung-Yoon Lee is a professor at the Fletcher School of 
Law and Diplomacy at Tufts University. Known for his ability to 
turn a phrase, he has written extensively on the Korean 
Peninsula including a recent piece entitled, ``Don't Engage Kim 
Jong-un, Bankrupt Him,'' which recently appeared in Foreign 
Policy magazine.
    Ambassador Joseph DeTrani is president of the Intelligence 
and National Security Alliance. He served as the special envoy 
for Six Party Talks with North Korea in 2003. From 2010 to 
2012, he was the director of the National Counterproliferation 
Center.
    Without objection, the witnesses' full prepared statements 
will be made part of the record, but I am going to ask each to 
summarize your testimony in 5 minutes. We will begin with Dr. 
Asher.

 STATEMENT OF DAVID ASHER, PH.D., NON-RESIDENT SENIOR FELLOW, 
CENTER FOR A NEW AMERICAN SECURITY (FORMER SENIOR ADVISER, EAST 
ASIAN AND PACIFIC AFFAIRS, AND COORDINATOR, NORTH KOREA WORKING 
                GROUP, U.S. DEPARTMENT OF STATE)

    Mr. Asher. Chairman Royce, Ranking Member Engel, and other 
distinguished members of the committee, I want to thank you 
sincerely for this opportunity to testify on a matter of truly 
grave concern, the growing nuclear proliferation risk of the 
North Korean regime and the need for a fundamental new policy 
approach that comprehensively addresses that threat that North 
Korea poses to Asia and the world. In short, our diplomatic 
efforts, which I was part of along with Ambassador DeTrani in 
the Six Party Talks, have objectively failed. Unfortunately, so 
have our efforts to counter the proliferation activities and 
nuclear procurement of the North Korean regime.
    I believe in the next 24 months North Korea's global and 
regional threat will go from bad to worse. Not only do I fear 
North Korea will deploy nuclear warheads on its expanding and 
increasingly sophisticated missile force, including directly 
against the United States and our allies, I am concerned that 
the chances of North Korea exporting nuclear weapons and 
nuclear capable missiles to Iran is alarmingly high, if indeed 
something has not already occurred.
    North Korea has one, and quite possibly two, weapons grade 
uranium production facilities. According to the Institute of 
Science and international studies, North Korea could accumulate 
enough weapons grade uranium for 21 to 32 nuclear weapons by 
the end of 2016 with one centrifuge plant alone. With two it 
could be 26 to 37 nuclear weapons. This is on top of the 10 to 
12 weapons that are publicly estimated to already be in North 
Korea's arsenal.
    North Korea does not need 30 to 40 or 50 nuclear weapons. 
North Korea does need money. And my concern is that the regime 
needs money--in particular as a young regent takes power--to 
cement his position, solidify his control over the military, 
and pay for his expanding and highly expensive WMD and missile 
programs which he has been putting on prominent display in the 
streets of Pyongyang and during these recent parades.
    The nation that has the money and the need for nuclear 
material, including enriched uranium and weapons, most 
obviously is the Government of Iran. In mid-July 2002, North 
Korean President Kim Yong-nam led a high level delegation to 
Damascus, Syria, for a mysterious purpose that we were 
monitoring closely at the State Department. On July 18, 2002, 
an agreement on scientific and technological cooperation was 
signed between the Government of Syria and the Government of 
North Korea.
    In hindsight, this scientific agreement was the keystone 
commencing the covert nuclear cooperation between North Korea, 
its General Bureau of Atomic Energy and its counterpart, the 
SSRC, inside the Syrian Government, which is in charge of 
weapons of mass destruction. Ominously, President Kim Yong-nam 
recently led a similar delegation to Tehran.
    On September 1, 2012, Iran and North Korea announced a 
signing of a Scientific Cooperation Agreement that appears 
almost identical to that signed between North Korea and Syria 
in 2002. The Iranian retinue attendant at the ceremony 
welcoming the North Korean President included the Minister of 
Industry, Mine and Trade; the Defense Minister; and most 
ominously, the head of the Atomic Energy Organization of Iran, 
Fereydoon Abbasi-Davani. They also had high level discussions 
on coordinating key strategic issues. We can only guess what 
those are.
    It is time to stop the complacency on countering, 
containing and disrupting North Korea's proliferation machinery 
and the malevolent regime before serious and enduring damage 
occurs to global security. Working closely with our allies, 
especially those on the front lines in South Korea and Japan, 
we need to organize and commence a global program of 
comprehensive action targeting Pyongyang's proliferation 
apparatus, its facilitators, its partners, agents, proxies, its 
overseas presence. We need to interfere and sabotage decisively 
with their nuclear and missile programs. We also need to revive 
an initiative identifying and targeting the Kim regime's 
financial lifelines, including its illicit sources of revenue 
and overseas financial nest egg bank accounts, especially in 
China. Chinese banks and trading companies who continue to 
illegally facilitate access for North Korea, themselves, should 
be targeted.
    Finally, the United States should commence a program to 
influence the internal workings of the North Korean regime to 
undermine the Kim dynasty, and ultimately lay the groundwork 
for a change in regime if it doesn't change course 
fundamentally. Bringing about change in North Korea will 
require a top-down, determined effort across the whole of 
government and among a league of willing foreign partners 
similar to the initiative that I had the opportunity to run 
during the Bush administration.
    Organizing such an initiative is not a trivial effort and 
it will require considerable energy and commitment including 
oversight by your committee. I appreciate this opportunity to 
make this testimony before you. Thank you.
    [The prepared statement of Mr. Asher follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                              ----------                              

    Chairman Royce. Thank you.
    We will go to Mr. Lee.

   STATEMENT OF SUNG-YOON LEE, PH.D., ASSISTANT PROFESSOR IN 
KOREAN STUDIES, THE FLETCHER SCHOOL OF LAW AND DIPLOMACY, TUFTS 
                           UNIVERSITY

    Mr. Lee. Thank you, Mr. Chairman, members of the committee. 
Sixty years ago today on March 5, 1953, the Soviet leader 
Stalin died, and the prospects for ending the Korean War 
improved dramatically. And we had a ceasefire agreement signed 
in July, July 27, and the past 60 years has been a history in 
dramatic contrast. South Korea has risen to be one of the 
world's most successful cases on how to build a free and 
affluent country, while North Korea has been a model, an 
exemplary failed state marked by a brutal regime that has 
maintained power through hereditary succession, extreme 
internal repression, and also military extortion.
    My point here is that the Kim dynasty, the DPRK, is engaged 
in a systemic contest for pan-Korean legitimacy: Which is the 
more legitimate representative government representing the 
entire Korean nation? It is a contest that North Korea cannot 
win. Hence, North Korea associates financial crimes, earnings 
derived from such activities, nuclear blackmail and repression 
as the ``sine qua non,'' a necessary condition to its self-
preservation.
    This odd approach to national policy practiced by the 
regime has created a country that is quite abnormal. I would 
call it, grammatical impropriety notwithstanding, ``uniquely 
unique.'' Let me illustrate. North Korea is the only country in 
the world, or rather, it is the world's sole hereditary 
Communist dynasty. It is the world's only case of an 
industrialized, urbanized, literate, peacetime economy to 
suffer a famine. It is the world's most cultish, isolated 
country, albeit one with the world's largest military in terms 
of manpower and defense spending proportional to its overall 
population and national income.
    The result is this abnormal state, one that is able to 
exercise disproportionate influence in regional politics 
commensurate with its territorial size, population size, 
economic power, exceedingly small economic, political or soft 
power. And this North Korea achieves principally through a 
strategy of external provocations and internal repression. In 
short, the leadership in Pyongyang will not make concessions on 
its nuclear and missile programs unless it is confronted with a 
credible threat that calls into question the need for its 
continued existence. And the United States is singularly well 
equipped to deliver this kind of pressure to the regime. This 
is due to the strength and attractiveness of the U.S. financial 
system and the Pyongyang regime's low threshold for 
withstanding financial pressure, because it is so overly 
dependent on illicit activities to maintain its own regime.
    The United States Treasury Department should declare the 
entire North Korean Government a primary money laundering 
concern. This would allow Treasury to require U.S. banks to 
take precautionary special measures substantially restricting 
foreign individuals, banks, and entities from gaining access to 
the U.S. financial system. Treasury could also apply these 
measures to third-country business partners that finance the 
Kim regime's, Pyongyang's shadowy economy. And the U.S. should 
also ask allied governments to apply corresponding measures to 
third-country banks, businesses, and nationals doing business 
with North Korea.
    Moreover, the U.S. should expand the designation of 
prohibited activity to include those furthering North Korea's 
proliferation, illicit activities, import of luxury goods, cash 
transactions in excess of $10,000, lethal military equipment 
transactions, and the perpetration of crimes against humanity. 
North Korea is the world's leading candidate for indictment for 
crimes against humanity. Such measures would effectively 
debilitate--present the North Korean regime with a credible 
threat that would far surpass what took place against Banco 
Delta Asia in 2005.
    I would urge Congress to pass a bill that gives Treasury 
investigative powers and requires the Treasury Department to 
investigate reports of suspicious activity, enforce U.N. 
Security Council resolutions, and also clamp down on further 
perpetration of crimes against humanity. By linking human 
rights violations with the national sanctions, the United 
States could deliver a potent threat, a credible threat to the 
regime. Thank you very much.
    [The prepared statement of Mr. Lee follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
                              ----------                              

    Chairman Royce. Thank you, Professor Lee.

   STATEMENT OF THE HONORABLE JOSEPH R. DETRANI, PRESIDENT, 
 INTELLIGENCE AND NATIONAL SECURITY ALLIANCE (FORMER DIRECTOR, 
 NATIONAL COUNTER PROLIFERATION CENTER, OFFICE OF THE DIRECTOR 
                   OF NATIONAL INTELLIGENCE)

    Mr. DeTrani. Mr. Chairman, Ranking Member Engel, thank you 
for the invitation, members of the committee. It is an honor 
being here with you.
    Chairman Royce. Thank you, Ambassador, we appreciate your 
willingness to testify.
    Mr. DeTrani. By way of background, in January 2003, North 
Korea pulled out of the NPT, the Non-Proliferation Treaty, and 
told the IAEA and monitors to leave the country. And that was 
after the United States told North Korea that we knew they had 
a clandestine uranium enrichment program, which was in 
violation of the NPT and other commitments they made with the 
Agreed Framework.
    We started the Six Party process in August 2003. It was a 
two-pronged approach. By way of background, in 2003 with the 
first plenary session, we told the North Koreans we are looking 
at denuclearization but we are also looking at your illicit 
activities. We are looking at you counterfeiting our $100 bill, 
counterfeiting pharmaceuticals, getting very, very much 
involved with the counterfeiting of cigarettes, human rights 
issues for which we need transparency and you need to make 
progress on.
    It was a dual approach. On September 19th--you cited that, 
sir. On September 19, 2005, we had a joint statement. We had 
two things on the 19th of September 2005. We had a joint 
statement committing North Korea to denuclearization--
comprehensive, verifiable denuclearization in exchange for 
security assurances, economic assistance, and ultimately 
normalization. But for normalization, before we would even talk 
about that, they had to make progress on their illicit 
activities and human rights.
    And on the same day, the 19th of September, on the Federal 
Registry, Treasury moved forward based on Section 311 of the 
Patriot Act, the predicate being money laundering--and that was 
what you cited, sir, Banco Delta Asia--where with Banco Delta 
Asia, the Macao authorities and the bank froze about $25 
million of North Korean currency. The impact was immense, 
because the message to international financial institutions was 
very clear: If you do business with North Korea and they are 
involved in money laundering, you could be affected also. The 
impact was immense. The North Koreans were upset, for obvious 
reasons, because as you described, it caused significant pain.
    That was a model. Unfortunately, we went back. 
Unfortunately, in the sense that we went back to negotiations 
and proceeded with negotiations, they eventually got the $25 
million back when the Banco Delta Asia was in compliance with 
our laws, and we moved forward. But what happened was what you 
described, missile launches and nuclear tests in 2006, 2009, 
and 2012. So we are looking at four launches, three nuclear 
tests.
    During this period of time we had three Security Council 
resolutions--U.N. Security Council resolutions looking at 
sanctioning them, they are moving their money. We have 
Executive orders from Treasury, Executive Order 13382, 
Executive Order 13551, which speaks to proliferation of weapons 
of mass destruction and their supporters, where we would 
sanction those who are involved with WMD proliferation and 
anyone supporting them: A state, a bank, any entity. So we were 
looking at it. We were pursuing it. And concurrent with that, 
we were looking at the proliferation security initiatives.
    That means the United States with over 90 countries have 
come together to say that if North Korea puts anything on the 
high seas, and we have any information indicating that they are 
proliferating something, they are moving something they 
shouldn't be moving in violation to Security Council 
resolutions, we would interdict those shipments. We have had 
how many Hill enquiries, a number of these vessels were turned 
around at sea. A few of them were going to Myanmar, and they 
went back to port in North Korea because of the determination 
to do something with that.
    But North Korea persists. North Korea persists with their 
human rights abuses; they persist with illicit activities, but 
they know very, very clearly if they want any progress, want 
any progress with the United States, certainly with the United 
States, illicit activities have to go by the wayside. This is 
causing them pain. And I concur fully with my colleagues here, 
and with your statement, Mr. Chairman. The sanctions are 
biting. They are biting. It is causing North Korea not to get 
access to the funds they need, not to move the money they need. 
They need to bite even more significantly, and they should have 
even more impact as we move forward with further, if you will, 
responses to their most recent nuclear test. There will be 
additional sanctions and additional activities.
    So the message is clear to North Korea. They have two 
paths. There will be further sanctions and they will become 
more of a pariah state, and they will find it even much more 
difficult to survive if they continue on the present path. Or, 
they can come back to the September 2005 Joint Statement and 
look to becoming a more legitimate nation-state and getting 
into the financial institutions and to get their economy back 
in shape, while caring about the people. And a sign of going 
on, on that one and basic to all of that is comprehensive, 
verifiable denuclearization and the ceasing of all illicit 
activities, and transparency and progress on the human rights 
issues.
    [The prepared statement of Mr. DeTrani follows:]

    
    
    
    
    
    
    
    
                              ----------                              

    Chairman Royce. Ambassador DeTrani, thank you very much for 
your testimony. I wanted to go back to an observation that 
Professor Lee made. He noted that if sanctions are effectively 
imposed and hard currency is cut off, the rise in the number of 
disgruntled men in the party bureaucracy in the military would 
more than any conceivable variation on artful nuclear diplomacy 
give the Kim regime reasons to rethink its long-term strategy.
    And in the same vein, looking back on your efforts, Dr. 
Asher, in the last administration, you say that the effect of 
the campaign ``froze North Korea out of key aspects of the 
international financial system.'' And that that produced a 
``destabilizing internal effect that could have been 
magnified'' to ``compel North Korea to abandon its nuclear 
program.'' A pretty definitive statement.
    I wondered if our panel might elaborate a little bit on the 
impact on the regime's financial lifelines and its effect on 
the regime's mindset, with an eye toward whether this could be 
done again if we went with legislation to try specifically to 
replicate what was done with Banco Delta Asia. I am working on 
legislation, and I wondered how Congress could help in this 
vein, and we will begin with Professor Lee.
    Mr. Lee. Thank you, Mr. Chairman. The notion that sanctions 
are not necessarily effective because they do not necessarily 
lead to regime change or a fundamental change in the behavior 
of autocratic states, I would say is not particularly relevant 
to North Korea. I would argue that North Korea is uniquely 
vulnerable to targeted financial sanctions, because unlike any 
other authoritarian government in the world the regime is so 
dependent on such revenue streams, illicit streams of revenue.
    So blocking, damming, if not all, even some of those 
streams of revenue would achieve secondary, tertiary effects in 
any sanctioned regime, which is to provide that regime, that 
target, with a psychological threat of prolonged sanctions that 
would lead to a rise, increase of the number of disgruntled men 
in the North Korean party, bureaucracy, military. This is an 
existential crisis for the regime.
    How much does the regime depend on such illicit earnings? 
Well, we don't know for sure, but I know that Dr. Asher and 
others have estimated that as much as perhaps one-third or even 
as high as 40 percent of the regime's total trade, and probably 
a much higher sum in terms of the regime's cash earnings, are 
derived from such criminal activities. So North Korea is 
singularly vulnerable to such targeted sanctions I would say.
    Chairman Royce. I will ask you, Dr. Asher, to chime in on 
that. I remember I was in North Korea in 2007, and afterwards 
had an opportunity to talk to a defector who had worked on 
their missile program. He told me how obtaining hard currency 
was so difficult that the whole production line at one point 
was shut down, I think he said, for 7 or 8 months because they 
couldn't get the hard currency to buy, on the black market, 
gyroscopes that they needed for the program. But let me ask you 
your thoughts.
    Mr. Asher. I think the key to the effectiveness of our 
program of action during the Bush administration's first term 
was that we created a very sophisticated model working with 
Ambassador DeTrani in his previous capacity and other members 
of the intelligence community as well as doing a lot of open 
source research on businesses. Businesses have public records 
associated with them.
    We understood that North Korea's financial lifelines were 
centered outside of North Korea. North Korea did not have its 
own internal banking system. It was largely resident in places 
in Southeast Asia, in Austria, and Hong Kong and Macao. Places 
that we could get to.
    And given the fact that there was a disproportionate 
association between the high level regime finances of Kim Jong-
il and his family, and illicit activities, we knew that by 
combining law enforcement as well as targeted regulatory 
actions involving the Patriot Act, we could affect those 
finances. And we did so in a way that was aiming at specific 
individuals, specific actors, specific institutions. We didn't 
just go willy-nilly at this. There is a sort of black art 
behind the way this was conducted. And I think that is why we 
had an effect.
    I believe the same could be done today, but it is going to 
require a use of coercive force against Chinese institutions 
and actors and trading companies that will require considerable 
resolve by the administration.
    Chairman Royce. Ambassador, your thoughts on that will 
close.
    Mr. DeTrani. No, I agree with Dr. Asher and Dr. Lee. I 
think they are biting. I mentioned the Executive order, 
Treasury's Executive Order 13382, proliferation of WMD and 
their supporters. I mean entities like the Tanchon Bank, KOMID, 
the Korea Mining Trading Corporation. These entities are being 
sanctioned, but anyone dealing with them would come under the 
same ruling and have the same consequences dealing with it.
    So yes, and in addition to the sanctions which are biting 
and are very, very important, I believe the Proliferation 
Security Intiative--by getting the countries, getting all our 
countries together to ensure that North Korea does not 
proliferate and does not receive the materials that are 
necessary to sustain their program is so vital. And I think we 
are moving, I think, pretty aggressively and with significant 
success in that area. And as Dr. Lee said, I think it is biting 
because eventually it is going to have consequences.
    You have been there, Mr. Chairman. There are two North 
Koreas, the provinces where the leadership in Pyongyang really 
doesn't care that much, and Pyongyang itself. Well, eventually 
these sanctions are biting those elites, those in Pyongyang who 
rely on this flow; and that is going to cause some significant 
pressure on the leadership. And that, I think, is powerful.
    Chairman Royce. Thank you. Mr. Engel?
    Mr. Engel. When Chairman Royce and I were in Asia a few 
weeks ago, we raised with the Chinese leadership the situation 
in North Korea. I'm wondering if any of you have thoughts about 
China and the role it has been playing and the role that it 
might play in the future.
    I mentioned before that this morning I heard that there was 
an agreement which China, ostensibly, was going along with, but 
we know that China has been propping up the regime for years. 
China is fearful that in case the regime were to collapse they 
would have 1 million North Korean refugees moving into China 
itself, and that China also would have a fear of South Korea 
dominating a united Korea and having a U.S. ally right up to 
its borders. I am wondering if any of you can give me your 
thoughts on China's actions and what we can expect.
    Mr. DeTrani. Mr. Engel, I think China, and you mentioned 
that, I think China is a key player on the North Korean nuclear 
issue. Certainly very, very instrumental in hopefully getting 
some resolution. I think China has been working it. They 
modulate their approach because of what you cited, the 
potential for instability, refugees coming across the border, 
and the concern about the nuclear weapons. But I think our 
objectives are similar, denuclearization. It is not in China's 
interest to see a nuclear North Korea for the same reasons. If 
there is instability there are weapons there, and that stuff 
can get into the wrong hands.
    One of the big issues we have and concerns we have is 
nuclear terrorism. The ability of some of this material--it was 
cited a minute ago by the chairman in his statement, al-Khobar, 
and you mentioned that also, sir, al-Khobar, what they did in 
Syria. I mean having this nuclear material in North Korea, it 
is not only North Korea having nuclear material and weapons, it 
is the potential for that proliferating. And China is very 
concerned about that.
    So I think with China, and now with the new government 
coming in, Xi Jinping, and now with the new Security Council 
resolution and additional sanctions, I believe that hopefully 
we will turn a page, and we will be more in concert with them 
and approach this issue in a very deliberate way to include a 
dialogue with Pyongyang so they understand what the 
consequences are. So that there are no surprises here; they 
know what is ahead for them. And they have a decision to make 
as to what path they want to take.
    Mr. Engel. Dr. Lee?
    Mr. Lee. Over the years it has become something of a 
shibboleth in the policy world as well as in the academic world 
that the Chinese Communist Party will never give up on the 
Korean Workers Party, on the DPRK. Sixty years ago, or in 1950, 
China had compelling reasons to intervene, to take a great risk 
and confront the United States-led U.N. forces in the Korean 
War. Today, China has compelling reasons not to take that risk 
and to continue to develop its economy and grow richer by 
protecting the integrity of the international financial system.
    Mao Zedong was viewed 60 years ago as the leader of the 
Asian revolutionary movement. For China not to take action as 
the DPRK was falling would have had implications on his 
intention to liberate Taiwan, and China had a fall-back plan in 
the Soviet Union. Today, the emergence, the eventual emergence 
of one free Korea, a single, united Korea that is democratic, 
pro-U.S., and pro-China, of necessity--it will be pro-China--
poses no threat to the Chinese. Of course, the Chinese won't 
move to destabilize Pyongyang on their own initiative, so we 
the United States can give China that incentive.
    Mr. Engel. Thank you. Any thoughts about the negotiations 
that the North would like to have, ostensibly, with the United 
States? One of the things that stick in my mind when I met with 
North Korean officials, again on two occasions, was that they 
seemed to be disinterested in the Six Party Talk and more 
interested in bilateral talks with the United States. Do you 
think that is still the case today? Dr. Lee or Ambassador, 
anyone?
    Mr. DeTrani. I definitely think that is the case. It has 
always been the case. North Korea has made it very clear they 
want a dialogue with the United States, and the U.S. position 
has been that this is a regional and multilateral issue. But 
there are issues, like the illicit activities we were talking 
about, that are very unique to the United States.
    In many ways, that is why the September 2005 Joint 
Statement has two pieces to it, resolving the nuclear issue, 
but also each country having a bilateral dialogue with the 
North Koreans on issues that are unique to their respective 
countries. And that has been our approach with the North 
Koreans, and they have reluctantly--given the fact they have no 
choice--accepted that reality. But they indeed would prefer 
just dealing with the United States.
    Mr. Engel. Thank you. I am wondering if I could ask Dr. 
Asher a question, and I will conclude with this. In your 
written testimony you talked extensively about the link between 
North Korea and Iran. I am wondering if you could tell us a 
little bit, what is your assessment of the effectiveness in 
crippling the North Korean regime if sanctions similar to those 
we are implementing against Iran are enacted against North 
Korea?
    Mr. Asher. Yes, it is a very good question. It is quite 
startling to me that the sanctions that are imposed and the 
action programs that are imposed against North Korea pale in 
comparison with those being pursued against Iran today. North 
Korea is a country that is not a theoretical enriched uranium 
producing, bomb making nation, it is creating a large stockpile 
right now. It has a proven track record of exporting every 
single military program it has ever developed, including its 
nuclear weapons program, as was evidenced in Syria.
    The fact that the CISADA (Comprehensive Iran Sanctions) 
eclipsed those imposed against North Korea, to me is a clear 
indication of why our policy is in some ways upside down. North 
Korea has a supply that Iran needs of basically untarnished, 
unvarnished, non-affected nuclear material and capabilities. We 
should have proposed, we did propose and we should have pursued 
an aggressive program of action against the North Korean 
nuclear network equivalent to which we pursued against the A.Q. 
Khan Network out of Pakistan. It was something that the 
Ambassador and I both believed fundamentally and we tried to 
convince the Bush administration to agree to. We failed to do 
that. As a result, North Korea is in a position to be 
relatively pristine in its ability to provide the supply that 
Iran and other nations may desire to fulfill their nuclear 
goals in the future.
    Mr. Engel. Thank you. Thank you very much, Mr. Chairman.
    Chairman Royce. Thank you, Ranking Member Engel. We now go 
to the chairman of the Middle East Subcommittee, Ileana Ros-
Lehtinen.
    Ms. Ros-Lehtinen. Thank you so much, Mr. Chairman. Thank 
you for convening this important hearing, and most importantly 
for getting such great panelists before us today.
    Our approach over the years in dealing with North Korea has 
resulted in complete failure, administration after 
administration. North Korea has held America and the world 
hostage because Pyongyang continues to pursue its goal of 
nuclear armament, thumbing its nose at the world while leaving 
its citizens malnourished, suffering from disease, and indeed 
starving. North Korea uses the same dangerous tactic time and 
time again. It dangles the idea that it is willing to 
denuclearize as a bargaining chip, and then the Kims reneg on 
this. It was the Bush administration's inability to see that 
evil trick that led to the erroneous and dangerous decision to 
remove North Korea from the State Sponsor of Terrorism, SST 
list, despite the fact that illicit activities continued. As we 
have seen in the last few months, North Korea has only further 
advanced its nuclear and ballistic weapons capabilities.
    I was vehemently against the Bush administration's decision 
to remove North Korea from the SST list, and have continued to 
call on the current administration to place North Korea back on 
the list for the sake of our national security and the security 
of our allies in the region including South Korea and Japan. 
The fact that North Korea warned today that it would cancel the 
Korean cease fire in retaliation for more sanctions only 
reaffirms the threat to our ally South Korea.
    Kim Jong-un has made his priorities clear. North Korea is 
perfecting nuclear capabilities, supporting and equipping rogue 
regimes such as Iran and Syria. Such support to other state 
sponsors of terrorism, because I believe North Korea belongs on 
that list, should be more than enough for the United States to 
redesignate North Korea on that list. I have introduced a 
bipartisan bill, the North Korea Sanctions and Diplomatic 
Nonrecognition Act, that would do just that. How extensive do 
you think the cooperation between these rogue regimes has been, 
I would ask the witnesses. And if North Korea is allowed to 
keep its nuclear and the ballistic missile program and 
successfully shares this material and technology with Iran, the 
world is looking straight in the face of the most dangerous 
nuclear arms race that we could ever imagine.
    We know that North Koreans need money, and one of the only 
ways that it can get that money is through these illicit 
activities, counterfeiting, drug trafficking, proliferation of 
nuclear and ballistic missiles techonology and expertise to 
other rogue regimes. If Iran is one of North Korea's main 
sources of hard currency, how effective have recent sanctions 
been in limiting Iran's access to cash, and what more needs to 
be done to ensure that it cannot continue to finance its, or 
North Korea's nuclear programs?
    Another main source of aid for Pyongyang is the help from 
China and Russia. Now we know the news that China has 
reportedly agreed to support new sanctions at the U.N. on North 
Korea, however, there have been no final agreements on the 
language. Do you think that China will agree to meaningful 
measures, or will the Chinese water down the sanctions to 
protect North Korea? How can the U.S. convince China and Russia 
to stop protecting North Korea both at the U.N. and 
domestically?
    We must begin to have a comprehensive approach to our 
sanctions capability when we attempt to cut off these regimes 
from their source of income. And that is why I introduced the 
Iran, North Korea, and Syria Nonproliferation Accountability 
Act which will prohibit assistance to any foreign government 
that has provided assistance to Iran, North Korea, or Syria, 
that would increase sanctions on any person or entity 
transferring goods, services, or technology for the chemical, 
biological, or advanced conventional weapons program of Iran, 
North Korea, and Syria.
    Now according to reports it may be possible that the 
Pyongyang's latest nuclear test was a test for Iran and North 
Korea. What are the possibilities that North Korea was testing 
an Iranian warhead, and would this be a game changer, and what 
implications would this mean for U.S. policy toward Iran and 
North Korea?
    But I am more interested in Dr. Lee's recommendations for 
legislation that we could file or pressure that we could bring 
to bear to Treasury, Commerce, and other agencies, to enforce 
stronger sanctions. Do you believe that those can be done 
through Executive order, they should be done by Congress? Do 
you believe that listing North Korea as a State Sponsor of 
Terrorism would then include all of the sanctions legislation 
that you recommended or action that you recommended, Dr. Lee?
    Mr. Lee. All of the above. But as Ambassador DeTrani 
mentioned, we have Executive Orders 13382 signed by President 
Bush in 2005, and 13351 signed by President Obama in 2010. The 
question is enforcement through the political will to enforce 
those measures to clamp down on proliferation activities and to 
punish third-country parties, institutions, Chinese banks and 
so forth.
    Ms. Ros-Lehtinen. Thank you very much. Political will. 
Thank you. Thank you, Mr. Chairman.
    Chairman Royce. Yes, we will go down to Mr. Faleomavaega. 
He is the ranking member on the Asia and the Pacific 
Subcommittee.
    Mr. Faleomavaega. Thank you, Mr. Chairman. Mr. Chairman, 
North Korea remains as Winston Churchill once said of the 
Soviet Union, ``A riddle wrapped in a mystery inside an 
enigma.'' We have only the slightest glimpse of what its 
leaders are like or what they are thinking. This includes the 
new 28-year-old leader, President Kim Jong-un. That is why the 
opportunity presented itself when the basketball star named 
Dennis Rodman's recent visit should not be completely dismissed 
as trivial. By my calculation, Dennis Rodman has now spent more 
face time with North Korea's new leader than any other 
American.
    As I recall, Mr. Chairman, we were dismissive of the 
invitation that the American's ping pong or table tennis team 
received to visit China, while playing in a tournament in 
Nagoya, Japan, in April 1971. China, with a legacy of the 
Korean War and ongoing great Cultural Revolution, was as much a 
pariah state then as North Korea is depicted today. However, it 
should be noted that this so-called ``ping pong diplomacy'' 
changed world history with the American President named Richard 
Nixon arriving in Beijing less than a year later. It is my 
understanding that President Kim Jong-un loves basketball. 
Sometimes sports, Mr. Chairman, can have a positive result on 
diplomacy.
    As I noted in a recent article in a Korean newspaper, as 
only Nixon can go to China, it now seems, in my opinion, at the 
height of the renewed tensions of the Korean Peninsula, in my 
opinion, only South Korean President Park Geun-hye can also 
move to seek national reconciliation between the two Koreas. 
She took a first step toward that reconciliation process by 
going to North Korea in 2002 to meet with Kim Jong-il, the man 
widely suspected as being responsible for the death of her own 
mother. Why did President Park embark on that journey for 
peace? In my opinion, she did it for love of country and for 
the tens of thousands of families divided by a demilitarized 
zone mandated by more powerful nations almost 70 years ago.
    Yes, the South Korean people are concerned about the 
nuclearization of the Korean Peninsula, but once again they 
will be the victims not of their choice. A resulting second 
suicidal war, and a nuclear one at that, would see the Korean 
people once again pay the greatest price with untold human 
suffering in a lose-lose situation for both North and South 
Korea. In my opinion, the leaders of both North and South Korea 
need to step up to the challenge. Step up to the plate to seek 
ways to resolve their differences, and to do so in their own 
way and not be dictated by other countries.
    Previous American Presidents have all called for a nuclear-
free Korean Peninsula, but all the rhetoric has not stopped 
North Korea from the development of a nuclear weapons program 
nor have all the sanctions. China, a permanent member of the 
United Nations Security Council, shares an 800-mile long border 
with North Korea. It remains Beijing's primary goal to preserve 
a friendly relationship with North Korea for obvious reasons 
and at whatever the cost.
    Adding more sanctions, in my opinion, Mr. Chairman, may 
threaten Pyongyang's survival but will not be seen as being in 
China's best interest. Therefore, China does not vigorously 
enforce sanctions and in doing so, sanctions, in my opinion, 
are largely meaningless. Indeed, financial sanctions aimed at 
Chinese banking institutions which do business with North Korea 
seem rather presumptuous coming from a country like ours which 
owes China a debt of some $1.3 trillion according to the latest 
report on national debt to other countries.
    Mr. Chairman, can you imagine that a heated situation among 
countries in Asia setting off a nuclear arms race where these 
front-line states will develop and acquire their own nuclear 
weapons, nuclear arsenals in Japan, in South Korea, in Taiwan, 
in Indonesia, and Vietnam, in the Philippines, and Malaysia--it 
is not a scenario that conjures up a peaceful, prosperous Asia. 
The same can be said of countries in the Middle East. Iran 
fears Israel's capability, nuclear capability. They're bringing 
by fear among the Arab countries. I mean the chain reaction 
continues. Where is nonproliferation in all this?
    If I will add one thing, Mr. Chairman, and let me make this 
one point clear, North Korea is already a nuclear state. Having 
its capacity now of a stockpile of some eight nuclear weapons, 
and I suspect it now has the capability to produce even more 
nuclear weapons. My time is up, Mr. Chairman. Thank you.
    Chairman Royce. If I could just ask, were you addressing 
the chairman when you said Iran fears Israel and therefore is 
developing a nuclear weapons capability?
    Mr. Faleomavaega. Yes, my point, Mr. Chairman, I wanted to 
say that this is what makes a sense of hypocrisy and a double 
standard of the whole nonproliferation policy. Why is it that 
we continue to allow the five permanent members of the Security 
Council to hold on to their nuclear weapons, nuclear bombs, and 
then telling the rest of the world you cannot have them? And 
this is where, in my opinion, I may be wrong, why this sense of 
strain and tension among the haves and have-nots? And that is 
what----
    Chairman Royce. I understand. But to quote former President 
Kennedy, sometimes the difference is attitude. The difference 
between states that are using something for defense, but other 
states that have avowed an intent to use it for offensive 
capability. And since you had addressed the question to me I--
--
    Mr. Faleomavaega. And I might add, Mr. Chairman, we have a 
saying at the islands, ``E le falala fua le niu,'' which means 
the coconut tree leaves do not move for nothing. There is a 
reason. There is a cause. And I think this is perhaps one of 
the issues to the whole nonproliferation movement and what we 
are trying to do is that what is the cause? What is causing 
countries like Iran and North Korea to cling onto their nuclear 
weapons system? And that was the basis of my--thank you, Mr. 
Chairman.
    Chairman Royce. Thank you. We are going to go now to Mr. 
Chabot who is the chairman of the Subcommittee on Asia and the 
Pacific.
    Mr. Chabot. Thank you, Mr. Chairman, and thank you for 
calling this very timely hearing. I look forward to working 
with you in an effort to create stronger and more effective 
sanctions on the North Korean regime. I think most of us agree 
that more needs to be done, aside from the issuance of strongly 
worded responses from the administration, the usual routine 
condemnation from the United Nations, and perhaps a slight 
tightening of sanctions from our Western allies.
    We know that the primary opposition to our efforts comes 
from North Korea's prime benefactor Communist China, and that 
without substantial cooperation from Beijing, our efforts to 
curtail this illicit activity of the Kim regime will be greatly 
hindered. This morning it was reported that the U.S. and China 
reached a deal in the United Nations on a new set of sanctions 
against North Korea. It is not clear what the new measures 
include beyond possibly adding new companies and individuals to 
the financial and travel ban list.
    Professor Lee, you discuss how the use of Executive Orders 
13382 and 13551 could actually freeze the assets of Chinese 
entities assisting North Korean proliferation activities, and 
that this pressure would induce Beijing, hopefully, to 
cooperate. Do you think this is an effective way to persuade 
China to work with the international community to pressure 
Pyongyang, or do you think it would cause a more negative 
reaction from China's new leadership? China has already said it 
will not embargo oil for fear that if the North Korean economy 
collapsed it could send waves of refugees to China. What is the 
most effective way for China to work with the international 
community and pressure the Kim regime while also protecting its 
borders?
    Mr. Lee. Thank you very much. The Chinese are supremely 
pragmatic. There is a reason, in my humble opinion, that the 
Chinese civilization is the oldest in the world on point of 
continuity, and it is due to their resilience, hard work, and 
profound pragmatism. If the Chinese were given financial 
disincentives, reasons, to put it crudely to lose money, I 
think that would be more effective in gaining China's attention 
than other channels of diplomatic action.
    Mr. Chabot. Thank you very much. Dr. Asher, let me ask you. 
North Korea earns a very large share of its income from illicit 
activities as you had mentioned. How important is it to the 
regime's survival and its military capabilities? Has the 
percentage of GDP originating from criminal activities changed 
in recent years? Does it remain at similar levels? What would 
you suggest that the administration and Congress do in this 
area that would actually do some good?
    Mr. Asher. I have no doubt that the interagency effort that 
we ran with over 15 government partners around the world and 14 
U.S. different agencies, including multiple Department of 
Justice agencies, to investigate and implicate and indict North 
Korean entities, including members of the leadership and 
leadership organs, in the conduct of a wide range of illicit 
activities, everything from counterfeiting to cocaine 
trafficking to counterfeit cigarettes, methamphetamine 
trafficking including into the United States--you might be 
aware that we had a sting operation going on within the Gambino 
crime family through our agent Jack Garcia, the 320-pound 
undercover FBI agent who was also in touch with North Korea, 
which we learned in the process that it was truly a Soprano 
State given their affinity for the partnership they formed with 
that crime family--I think we had a strategic level effect on 
their criminality.
    I think we cut the percentage of GDP considerably. I think 
we scared them. And when we say ``them,'' I mean the leadership 
of North Korea all the way up to the level of Kim Jong-il. But 
then in 2006 those efforts were abandoned by the Bush 
administration. And we have seen, based on what I have heard 
from defectors and from government colleagues, a slow recovery 
in the illicit activities of the North Korean regime.
    We have seen an even more protracted increase in the 
weapons of mass destruction proliferation activity, I believe, 
behind the scenes. These are not always in the same pots, but 
ultimately everyone has to kick up revolutionary funds to Kim 
Jong-il, and almost exclusively the source of those funds can 
be some type of illicit conduct. Conventional trade is just not 
very profitable for North Korea.
    Mr. Chabot. Thank you very much. My time has expired. Thank 
you, Mr. Chairman.
    Chairman Royce. Thank you. We go to Mr. Brad Sherman, 
ranking member on the Terrorism, Nonproliferation, and Trade 
Subcommittee.
    Mr. Sherman. Thank you. I usually agree with my colleague 
from American Samoa, but I do want to address briefly his view 
that there is hypocrisy in America's nonproliferation policy. 
The world has avoided the destruction that many predicted when 
the nuclear genie was unleashed in 1945, chiefly because of the 
Nonproliferation Treaty. Iran and North Korea are in violation 
of that treaty. The five permanent nations on the Security 
Council are in full compliance because they signed as nuclear 
states, and India, Pakistan, and Israel are nonsignatories.
    Defending that treaty is critical, since without it I am 
sure there would be dozens of nuclear states and we would have 
experienced several nuclear wars by now. I would also point out 
that Iran has no legitimate fears, not even illegitimate fears 
of Israel. They do not share a border. Israel has not called 
for a world without a Persia. Iran's nuclear program is not 
defensive.
    In fact, there are striking similarities between Iran and 
North Korea, but one striking difference is the degree of 
ambition. You have described a regime in North Korea that seems 
to be, and their number one goal seems to be make sure that 
fine Scotch is available to the elite. Iran has sought to 
influence affairs around the world, bombed the Jewish Community 
Center in Buenos Aires, which I believe is as far as you can 
get from Iran without going into outer space. So Iran both by 
action and rhetoric is intent on affecting things far outside 
its borders in ways that we would find unacceptable.
    I am going to ask our witnesses a question I will preview 
for a second, and that is, in terms of billions of dollars I 
want to break down North Korea's sources of foreign capital or 
funds into the following categories: Their military and nuclear 
exports; their illicit but nonlethal exports; their illicit 
activities, and in that I would include goods that are licit 
except for the fact that they are mislabeled and sold as made 
in some other country but actually made in North Korea or the 
Kaesong economic zone; the subsidies they receive from China 
including the reduced price on oil; and then finally, aid, 
which I realize is not completely under the control of the 
North Korean Government.
    But before I ask for that question I would say that it is 
going to be very hard to force this regime to change its 
behavior and to give up its nuclear weapons, because among 
other things that is what Gaddafi did. The sins of Ghadafi's 
past visited him notwithstanding his promise and his change in 
behavior. He did not have nuclear weapons and he is no longer 
with us. That is a good thing except to the extent that it 
shows the North Koreans what can happen.
    With that why don't I hear from the witnesses? Can you try 
to tell me roughly in terms of billions of dollars how that 
money shakes down? Does anybody have an answer? Dr. Lee?
    Mr. Lee. As you know, it is very hard to pin down numbers. 
There have been reports over the years that North Korea makes 
several hundreds of millions of dollars in the sales of 
weapons.
    Mr. Sherman. So less than a billion but hundreds of 
millions?
    Mr. Lee. Less than a billion. But the North Korean economy 
is very small. In terms of per capita GDP it is one of the 
lowest in the world. The only country in the Asia Pacific that 
has a smaller economy in terms of per capita GDP is Burma, and 
North Korea's economy compares unfavorably with many countries 
of Africa. It is a $40-billion economy.
    When North Korea was exporting, say, around the year 2000, 
only about $\1/2\ billion worth of goods, and this is soon 
after the famine years, South Korea gave North Korea, 
unconditionally, cash and other blandishments, including food, 
fertilizer, worth hundreds of millions of dollars per year. And 
over the course of 10 years during the so-called Sunshine 
Policy years, South Korea gave North Korea, unconditionally, 
over $10 billion in aid. Now I don't want to say that was a 
neccesary condition to prolonging the regime, to preserving the 
North Korean regime, but it was a factor. That kind of 
unconditional, nondiscriminating aid I don't think is in the 
best interest of the international community.
    South Korea still has a major joint economic venture with 
North Korea as you mentioned, the Kaesong Industrial Complex. 
The total sum that North Korea makes from that enterprise is 
perhaps about $20 million or so a year, not a huge sum. But as 
you raise, there are questions of Kaesong produced goods, North 
Korean made goods that are sold outside the Korean Peninsula.
    Mr. Sherman. And how much do they get from China?
    Mr. Lee. Well, probably over $1 billion worth of goods per 
year, which is a drop in the bucket for the Chinese economy.
    Mr. DeTrani. If I may, Mr. Sherman, the missile side of the 
ledger in North Korea has made significant money from selling 
missiles, and when they have missile launches, it is a 
marketing approach to telling everyone these things work and so 
forth. But with the Proliferation Security Initiative and 
things tightening up, the markets are not there for North 
Korea; so they are hurting with respect to missile sales. They 
must have made quite a bit of money with the al-Khobar program 
that was selling a missile nuclear technology to Syria; a five 
megawatt reactor similar to Yongbyon. So there is a bit of 
pressure, or more than a bit of pressure on North Korea with 
respect to foreign reserves and getting the capital necessary 
to sustain that element of lifestyle for the elites in 
Pyongyang.
    And I think on the China side, I think things are 
tightening up from China. The largesse from China is not there. 
I think China is looking at things very closely. So I think the 
Kim Jong-un government is looking at some significant financial 
problems.
    Mr. Asher. One very quick point. North Korea has been 
aggressively exporting monetary and nonmonetary gold. And if 
you are trying to tighten up the financial effect against North 
Korea you need to look at these tradable precious metals as a 
sanctioned item. They are typically marked with a North Korean 
emblem, and when they are not, the gold can be assayed 
precisely as to where its origin emanates from. So you could 
create a verification and compliance regime that could screen 
out the gold exports, which might be generating as much as a 
billion-plus a year for North Korea.
    Our estimate in 2005 of North Korea's illicit earnings or 
at large was between $800 million and $1 billion. And that was 
over the illegal acts. I do think that that has declined 
considerably, however, I think it is increasing.
    Chairman Royce. Thank you for the idea, Dr. Asher. It is a 
good one. We will go to Mr. Marino.
    Mr. Marino. Thank you, Chairman. Good afternoon, gentlemen, 
and thank you for being here. First of all, let me say that I 
personally do not consider a retired basketball player showing 
up at his own PR promotion in a wedding dress a serious, 
credible Ambassador representing the United States.
    And secondly, as far as the terrorist state of Iran is 
concerned, the U.S. to be sure will continue to stand shoulder-
to-shoulder with our Israeli friends and do whatever we have to 
do to protect Israel and the world from the fanatics who 
control Iran.
    Now my question is, in looking at this from six-degree of 
separation perspective, and I know you have been asked what can 
we specifically do, I am going to ask basically the same 
question again from a different angle. Can each of you address 
which countries and which businesses within those countries do 
business directly or indirectly with North Korea? Obviously 
that China is at the top of that list, and we do a great deal 
of business with China, and they hold most of our outside debt. 
It is complex. I know there is no single answer, but can you 
elaborate more on the specifics about what we do with those 
individuals, those other countries and businesses? And 
Ambassador, and just down the line.
    Mr. DeTrani. If I may, China as you said, sir, is key. I 
mean literally, with respect to trade and investment, it is 
China. The European Union in the past had considerable 
interaction with North Korea. I think that has diminished 
significantly given North Korea's bad behavior. So my simple 
answer is China. And without China, in my view, the North 
Korean economy just crumbles.
    Mr. Marino. Agreed. Dr. Lee?
    Mr. Lee. We do know of specific North Korean institutions 
that engage in proliferation and other illicit activities. 
There is a long list. Executive Order 13382 mentions 30 or so 
North Korean entities including individuals. And the most 
recent U.N. Security Council Resolution 2087 adopted in January 
lists four North Korean individuals by name, Paek Chang-Ho, 
Chang Myong-Chin, Ra Ky'ong-Su and Kim Kwang-il. A couple of 
those are associated with North Korea's so-called space 
program, science and technology. The other two are associated 
with a North Korean company, Tanchon Commercial Bank, which has 
a long history of engaging in illicit activities.
    There is also in the U.N. Security Council Resolution 2087 
a freeze on the assets owned by a North Korean bank, Dongbang 
Bank, East Land Bank. So the problem is not necessarily 
identifying sufficient number of targets but implementing those 
targets.
    Mr. Marino. Dr. Asher, I am going to expand just a little 
bit. Let us talk about the realities. What ramifications will 
the United States face in taking action against countries and 
businesses that are doing business or promoting North Korea 
whether that is through China or some other entity? What are we 
looking at?
    Mr. Asher. Objectively, it was only when we designated 
Banco Delta Asia in September 2005 that the Chinese finally 
began to act against both proliferation and illicit activity. 
They acted quite decisively. They sprang to life as a partner 
of ours for about a year, and then once we remedied that action 
it ended. I saw absolutely no blowback effects against the 
broader relationship with China over the designation of that 
bank. In fact, the Chinese were extremely scared that we were 
going to designate other banks where we made them aware that we 
had observed the exact same activities except at a larger 
scale.
    They acted in a very businesslike fashion, like the 
professor suggested. Their pragmatism reigned supreme. They 
didn't threaten to sell off their Treasury bond holdings or 
anything extreme, which I think would be self-defeating 
actually, and we got a responsible response from the Chinese 
Government. I believe that if we were to reimpose certain 
measures in a clear and consistent and transparent fashion of 
holding Chinese entities and other foreign trading entities 
responsible for their complicit activities or cooperative 
activities with North Koreans, they would shun their North 
Korean partners.
    Mr. Marino. Thank you. And I yield back my 9 seconds.
    Chairman Royce. Thank you. We go to Lois Frankel.
    Ms. Frankel. Thank you, Mr. Chair, and thank you, Panel, 
for your discussion today. I know we have heard some, it is 
quite horrifying to hear so many of the things you are talking 
about--human right violations, illicit activities of the 
counterfeiting of money, cigarettes, drugs. But the increasing 
nuclear capacity is disturbing, as is assisting Iran in its 
procurement of a nuclear weapon.
    My question to each of you is though, what is the end game? 
What do we in the end do we want to accomplish? North Korea has 
21 million people. It is in a strategic location. If we could 
cure these ills, what is the end game that we are looking for?
    Mr. Asher. Our policy is a complete verified, irreversible 
disarmament of the North Korean nuclear program, but I think 
that has become unfortunately instead, a fantasy. We all wish 
that could be the case. I believe that we need to take a range 
of measures to try to actively undermine the North Korean 
nuclear program, measures which I am not going to talk about in 
any detail, but one can guess what those are.
    It begins with an aggressive counterproliferation, counter 
network operations initiative equivalent to what we had against 
the A.Q. Khan Network. It would extend into any sort of special 
measures which could be taken to try to interfere with the 
integrity of North Korea's facilities as they threaten to be 
engaged in producing proliferation-grade material. And we are 
going to have to look at North Korea's Embassies and offices 
around the world and whether they should be allowed to have 
diplomatic sovereignty if they are engaged in commercial 
conduct, specifically the sale of weapons of mass destruction, 
which is not something which is necessarily allowed under the 
Geneva Convention's governing diplomatic conduct.
    Mr. Lee. The ultimate end game, in my view, is to 
encourage, take action to facilitate the emergence of a single, 
free Korean state. And this is a long-term project obviously. 
This year, again, marks the 60th anniversary of the Korean War, 
and I think the best way to honor those brave souls who 
answered the call to defend a country they never knew, a people 
they never met, as it is eloquently inscribed at the plaque in 
the Korean War Veterans Memorial, is for pragmatic and prudent 
policy makers in Washington and Seoul to come together to lay 
the foundation for a genuine, a permanent peace in the Korean 
Peninsula, and to deliver the long-suffering North Korean 
people from bondage.
    Mr. DeTrani. I think the first step is to come back to the 
September 2005 Joint Statement. We had Kim Jong-il commit to 
it. We had Kim Jong-il and Beijing committing to comprehensive 
denuclearization. Kim Jong-un has never said he is prepared to 
denuclearize or he is committed to the September 2005 joint 
statement--Kim Jong-un needs to commit to that joint statement 
as his father did, and commit to denuclearization.
    A nuclear North Korea given all the reasons we discussed 
this morning, with the potential for proliferation, and what it 
means to the NPT, the whole regime, the nuclear proliferation 
regime and the nuclear arms race that would engender if they 
retained those weapons, it is just not tolerable. And that 
should be, and one would hope that is where the DPRK is, that 
is the ultimate. But for that they need security assurances, 
economic assistance. Ultimately, when they get their act 
together on illicit activities they could then become a normal 
state. Then the two Koreas, the unification issue, because this 
is one Korea, this is the Korean Peninsula and so forth.
    But I think the first step has to be coming back to 
something they committed to in 2005, and they have conveniently 
walked away from it saying now they are a nuclear weapons 
state, and we are talking about, if you will, disarmament 
issues. Well, it is not nonproliferation of disarmament. It is 
denuclearization.
    Ms. Frankel. Thank you. And Mr. Chair, I yield back.
    Chairman Royce. Thank you. We go now to Mr. Weber. Randy?
    Mr. Weber. I don't remember which one of you it was that 
suggested, maybe it was you Dr. Lee, that we give the Treasury 
investigative authority. Can you restate, make that argument 
again? I want to follow that through and then I have a question 
for you.
    Mr. Lee. I think the United States should pass a bill that 
allows for the expansion of designation of prohibitive 
activity. That is, additional actions that would come under 
this new bill as prohibited, including actions furthering North 
Korea's proliferation, illicit activities, import of luxury 
goods, cash transactions--bulk cash smuggling basically--sales 
of lethal military equipment, small arms as well, and also 
actions that further perpetrate the continuation of crimes 
against humanity.
    Also I would urge Congress to pass a new bill that gives 
Treasury investigative powers that requires the Treasury 
Department to investigate suspicious actions, reports of 
suspicious activity.
    Mr. Weber. That is the question I have, but that is on the 
monetary part of it. That is not in any kind of violations of 
human rights, is that right?
    Mr. Lee. Well, any activity that is linked to violations of 
human rights, I would call for that as well. But the focus, 
yes, is on monetary illicit activity.
    Mr. Weber. Through the Treasury. But aren't those types of 
activities that you outlined already a part of what we watch 
pretty closely?
    Mr. Lee. Yes, but making it a law, bounding, requiring the 
Treasury Department to actually take action, I think, would 
make a difference.
    Mr. Weber. Okay. That is my only question. Thank you, Mr. 
Chairman.
    Chairman Royce. Thank you. We go now to Congresswoman 
Gabbard.
    Ms. Gabbard. Thank you very much, Mr. Chairman. Thank you 
to our panel here for being here today. I represent the 2nd 
Congressional District in Hawaii which as we have seen through 
the last couple of launches, experts have testified that Hawaii 
along with some of our northwestern states are within range, 
within missile range of North Korea. So this is an issue that 
is very real for us not only as a state, but also because of 
our military presence there and strategic location within our 
national defense.
    I am wondering your view on what the current estimate is, 
realistically, of when North Korea may have a warhead missile 
combination that could strike the United States, as well as 
your assessment of our missile defense and what we can do to 
prevent this from occurring or at least slowing down their 
progress.
    Mr. DeTrani. Well, I believe they are quite a ways from 
having that capability, Congresswoman. We are talking about 
miniaturization, miniaturizing that nuclear weapon and mating 
it to a delivery system and having that delivery system be 
successful in reentry, bringing that warhead into a target 
area. I think they are quite a distance from that. They are 
working toward it.
    I think this launch in December was significant, putting a 
satellite in orbit. I think this nuclear test was significant. 
It was quite a bit larger, much more significant than the one 
previous to that in 2009. So they are making progress, but I 
believe they are quite a ways. The testing has to be done. The 
mating is very difficult. So the science is there. It doesn't 
mean they are not seeking that. Obviously they are seeking 
that. But I think the distance is quite a ways.
    I think on missile defense, I think, with our capabilities, 
I think they are very robust. We are not talking about a 
significant arsenal. We are talking about four to six weapons, 
we are saying, and given the uranium enrichment program we 
could add additional weapons to that. So we are talking about a 
finite number of potential nuclear weapons that could be 
delivered again way down the road. I think we would be well 
prepared.
    Ms. Gabbard. Thank you.
    Mr. Lee. I replied to Congresswoman Frankel's question 
thus. The end game for the United States and for South Korea 
should be to seek the emergence of a united, free, open, 
democratic Korea with its official seat of government in Seoul. 
North Korea's end game is also unification under its own 
initiative. That is the ongoing North Korean revolution, and it 
is stated explicitly. Now, as hard for us as that may be to 
conceive, to imagine--North Korea suffers against South Korea, 
lags behind in every index of measuring state power except for 
military power--that is the ultimate objective of the North 
Korean state.
    And one key stepping stone in achieving that eventual 
unification, communization, is to evict the U.S. troops from 
South Korea. And this is tied to North Korea's nuclear and 
long-range missile programs. That is, if North Korea were able 
to demonstrate that it has achieved that capability to marry a 
nuclear warhead to an intercontinental ballistic missile, North 
Korea's bargaining power would be enhanced tremendously. And, 
in my view, the ultimate goal of the North Korean regime by 
systematically pursuing such weapons development program is not 
necessarily to attack the United States.
    North Korea is not suicidal. Self-preservation is its 
ultimate objective. But it seeks to be able to negotiate vis-a-
vis the United States from a position of strength on a host of 
matters, political matters, economic matters, and specifically 
on the matter of the continued presence of U.S. troops in South 
Korea that has played over the past 60 years, the most 
important, the essential road in keeping the peace in the 
Korean Peninsula.
    We have had de facto peace in Korea, unstable at times, but 
it has been the longest period of peace in the Korean 
Peninsula, in and around the Korean Peninsula since the mid-
19th century. And that is thanks to the continued presence of 
the U.S. troops. And North Korea's objective is to get those 
troops out.
    Ms. Gabbard. Thank you. Thank you very much, Mr. Chairman.
    Chairman Royce. Thank you. I grant your point, Professor 
Lee. I would just interject one point, and that is, you do have 
a habit here though to consider as well on the part of the 
government in North Korea, and that is the habit of 
proliferation. And so far they have proliferated every other 
weapons program they have gotten a handle on, including to 
Syria. So in this particular instance you have seismic activity 
which would indicate that yes, it is a much greater yield in 
terms of this explosion, and at the same time it is a smaller 
warhead. So they must be getting closer in terms of that 
capability of placing it on that three-stage ICBM that they 
have already mastered.
    We go now to Mr. Rohrabacher who is the ranking member on 
Europe, Eurasia, and Emerging Threats.
    Mr. Rohrabacher. Thank you very much, Mr. Chairman. And I 
would like to thank you personally as well as thank Chairwoman 
Ileana Ros-Lehtinen for the strong leadership that both of you 
have provided on this issue of North Korea. I remember many 
years ago when I first was elected and became a member of this 
committee, there was the debate as to what policies we should 
have, and the Six Party Talks and whether we were going to give 
North Korea aid or not.
    Can someone fill me in on, we see here that South Korea has 
given North Korea $10 billion in aid. Over the years the United 
States has provided food and oil, or fuel for North Korea. How 
much have we provided North Korea in that type of assistance? 
Anyone on the panel have a number on that?
    Mr. DeTrani. Well, on the food, I think the U.S. was the 
greatest donor nation on humanitarian food aid for an extended 
period of time to North Korea, and on the fuel, heavy fuel oil 
pursuant to the Agreed Framework with the Korean Energy 
Development Corporation, we provided significant amounts of 
heavy fuel oil----
    Mr. Rohrabacher. Well, I know that both of them are 
significant. Does anyone have a number for me? Are we talking 
about billions of dollars worth of food and oil?
    Mr. DeTrani. I would think we are close to that. Please, 
Professor Lee.
    Mr. Lee. According to the Congressional Research Service, a 
little over 1 billion.
    Mr. Rohrabacher. In food and oil?
    Mr. Lee. Yes.
    Mr. Rohrabacher. Okay, so we have provided over $1 billion 
of food and oil for North Korea over these last few years. Let 
me just note that I remember that several Members of Congress, 
me included, were very vocally opposed to this policy 
suggesting that it would be counterproductive and would be seen 
as a sign of weakness and actually would not bring about change 
in North Korea. And in fact, I think we have been proven 
correct in those aggressive oppositions to that policy.
    Let me just say we act like idiots. I mean the idiots are 
the people who do favors for their enemies. And when you act 
like idiots you have got to expect to be treated like an idiot 
by your enemy. And that is what is going on here with North 
Korea. They have been playing us, frankly, ever since we 
decided to start giving them money, and the fact that South 
Korea was willing to give them over $10 billion in aid. And now 
we see that this regime is what, is declaring that the truce is 
no longer going to be in place? I mean this is a slap in the 
face to the useful idiots all over the world that think you can 
buy off totalitarian enemies by being friends with them.
    And let me just suggest also, and this is to my dear friend 
Mr. Faleomavaega who, I might add, is a Vietnam veteran who is 
a heroic individual, but I am sorry that I think coconuts make 
good pina coladas but they make really bad policy. And it seems 
to me that what we--and one last thought before I get to my 
question, and that is, thank God we have missile defense. Over 
the years at the same time we are fighting to make sure we 
don't give our enemies money which they now have used to 
develop nuclear weapons, at the very least we fought through a 
missile defense system which may provide us some security in 
the United States against missiles launched from North Korea to 
Southern California. So thank God that we overrode that 
opposition to missile defense which was very strong in this 
Congress.
    And finally, I would just like to ask about China. Do you 
folks, Dr. Lee, you tended not to, sort of to poo-poo this 
but--and I agree with you. Regime change and one singular Korea 
has to be the goal. But isn't China really pulling a lot of 
strings up there in North Korea, and aren't they the ones who 
hold the key to changing the direction in North Korea? The 
peaceful change of direction.
    Mr. Lee. Indeed. The Chinese, again, won't take any kind of 
initiative to destabilize the DPRK and sees the continued 
existence of North Korea to be in their national interest. 
Having that North Korea card to play vis-a-vis the United 
States over the long term and having that buffer zone, China 
sees that to be in its interest.
    Mr. Rohrabacher. Let me note right here. So you would have 
us assume that when we hear things like, there is going to be 
no more truce and we are doing these--that the Chinese are 
actually in agreement with the North Koreans on that type of 
hostile act?
    Mr. Lee. The Chinese are not very pleased with North Korea 
because North Korea has always defied China. Even being such a 
beneficiary of Chinese largesse, North Korea has never caved 
into Chinese pressure throughout the past 60 years or so. The 
Chinese have reasons to be a bit displeased toward Pyongyang. 
But all vectors of national interest do not go on the same 
trajectory forever. They can diverge.
    And if we come to a situation whereby the Chinese 
leadership has to make a decision, to wave goodbye to the DPRK 
or to take a major risk in confronting the United States and 
other powers in the region, I think pragmatism would prevail.
    Mr. Rohrabacher. Thank you.
    Chairman Royce. Thank you, Chairman Rohrabacher. We now go 
to Grace Meng.
    Ms. Meng. Thank you, Mr. Chairman, and Ranking Member. 
Thank you to our witnesses for being here today. My question is 
to any or each of you.
    Former South Korean President Lee Myung-bak made many 
aspects of his overall approach to North Korea contingent upon 
progress toward denuclearizing North Korea. How can the new 
President Park link North-South Korean cooperation to progress 
on reducing nuclear and missile threats? Alternatively, what is 
your evaluation of Kim Jong-un's first year in power, and do 
you see any of his policies as deviating from his father's or 
toward any type of reform?
    Mr. Asher. I will say very briefly, I think that he is on a 
course of much more aggressive action than his father, largely 
because he is in a position of relative weakness. As a 28-year-
old he is not the eldest son. And he is in a position also 
where his revolutionary state requires a lot of resources. And 
as we have heard, they are economically in increased trouble 
and they are unwilling to go through some sort of conventional 
economic reform even though he has announced that as a 
priority. They just haven't demonstrated any serious intent to 
do this.
    So that leaves them in the situation where they are sort of 
riding a nuclear tiger, and once you are on that tiger it is 
hard to get off. So I am concerned that his next steps in the 
next year are going to be more provocative than we have even 
seen up until now. Perhaps after that we will have a diplomatic 
opportunity, but along the way it could get quite rough.
    Mr. Lee. In my view, one common misperception about North 
Korean behavior is that the regime merely reacts to external 
stimuli. That the regime reacts in a negative way to sanctions 
or even Security Council resolutions and so forth. North Korea 
has been, I would argue strongly, the far more proactive party 
in dealing with the U.S. and South Korea throughout the entire 
history of the Cold War and to this present day. North Korea 
will strategically provoke in a controlled, limited way, 
occasionally launching deadly attacks against South Korea and 
the United States, but in a controlled, limited way. Because, 
again, North Korea is not suicidal.
    So this pattern of provocations will continue whether we 
are nice to North Korea or we are firm on principles vis-a-vis 
Pyongyang. If we were to tighten down sanctions, put more 
pressure on the regime, it is quite plausible, perhaps even 
likely, that North Korea will react in a negative way, perhaps 
even launch a limited attack on the West Sea or elsewhere in 
and around the Korean Peninsula. But such provocations are a 
part of North Korea's long-term strategy. They will happen 
regardless of how generous we are.
    We had two naval skirmishes during the Sunshine Policy 
years despite South Korea's very generous engagement policy 
toward North Korea in the mid-2000s. We had a missile test, a 
long-range missile test in July, July 4, not so coincidentally, 
in 2006. And then later that year, North Korea's first nuclear 
test, thus raising the stakes dramatically. It will continue. 
So to shy away from a principled approach, I don't think would 
be more effective than pursuing a policy of unconditional aid.
    Mr. DeTrani. Let me just say, in North Korea, I think we 
all agree it is very opaque, the dynamics within the 
leadership, what is happening certainly with succession, this 
younger son coming in, Kim Jong-un. He had to feel under great 
pressure coming in, but he made some very significant decisions 
when he came in, personnel decisions. He removed a number of 
so-called hardliners, put some people in place in positions 
that were probably not expected by many of us. He put the party 
basically in charge of looking over the military. He moved his 
uncle up the ladder and so forth.
    So those first 3 months, seemingly he was moving in a 
direction, but that has been reversed. And I agree with my 
colleagues. I think what we are seeing now is the playbook of 
Kim Jong-il, and that is unfortunate, because I think during 
the first 3 months there was some optimism. Guarded optimism 
that maybe he is moving in that direction, maybe he is looking 
for not the military first but he is looking for some sort of 
reforms and rapprochement that may be going to this event in 
2005. We are not seeing that now.
    And I agree, I think with further sanctions there will be 
further reactions, and I think that would be intensifying and I 
think that would be disastrous for the DPRK. And he probably 
knows that, and I think that has been communicated to him and 
he needs to understand that.
    Mr. Lee. May I just quickly add, Kim Jong-un has been 
clamping down on border crossers, and the number of North 
Korean defectors who have made their way to the South has 
decreased by 100 percent. That is, the number of defectors 
coming to South Korea in 2012 is less than 50 percent of what 
it was in 2011. So that is another indication that Kim Jong-un 
is even more repressive than his father.
    Chairman Royce. We will go now to Mr. DeSantis.
    Mr. DeSantis. Thank you, Mr. Chairman. Thank you for your 
testimony and for answering our questions, and I do think this 
hearing has been useful. I think it is very important that we 
adopt policies to combat the illicit activity of this criminal 
regime.
    With respect to Kim Jong-un, and this is after hearing your 
responses of the panelists, with the decisions he has made 
particularly after the first few months, is it the sense that 
he has actually solidified his hold on power vis-a-vis when he 
first came in? And well, can we just start with the Ambassador 
and go down the line?
    Mr. DeTrani. I would say, sir, yes. I think, solidify, I 
wouldn't go that far. I would say I think he feels comfortable 
with his decisions. He has made a number of decisions. He has 
moved his minister of defense a few times. He has changed the 
number of ministers there. He has moved people around quite a 
bit.
    But I think the people around him, and I think even with 
the most recent visit of Dennis Rodman, we see some of those 
key players. A number of those key players are those who have 
interacted with the U.S., Kim Kye Gwan and others. Is that 
messaging? Probably it is a bit of messaging to the U.S. So I 
think he is feeling comfortable with the people around him, and 
I think the people around him now are more of the hardliners 
that one would have thought maybe 8-10 or 12 months ago he was 
trying to put on the sidelines.
    Mr. Lee. I think it is a common perception, the notion that 
there is some kind of policy difference or even conflict 
between the leadership and the North Korean military. No doubt 
there are competing interests in any government, but the North 
Korean system is unique in that the near total monopoly of 
power by the clan, by the Kim family and the party over the 
rest of the nation including the military, has been nearly 
perfected.
    And the North Korean founder, the founder of North Korea, 
Kim il-Sung, learned this from Chairman Mao of China. Make sure 
that the party controls the military, that the party maintain 
power to appoint and promote generals, making key personnel 
decisions. And that is a pattern that North Korea has adopted 
from China and has implemented for many years. So I don't think 
there is a high chance of any kind of coup d'etat or a direct 
challenge to Kim Jong-un anytime soon. But over the course of 
10 years, 20 years, 30 years from now, I think that likelihood 
would only increase with time.
    Mr. Asher. I agree with the professor and with Ambassador 
DeTrani. But in my mind, and only until Kim Jong-un's interior 
reality, his base of power, his very survival is imperiled do I 
think that he will consider any serious strategic deviation 
toward opening his system. It is basically, the system is 
inherently hard line. There is no incentive, really, for 
strategic accommodation unfortunately. We have looked at it for 
years. We have been doing analysis of this for over 20 years of 
our lives, and negotiating the Six Party Talks, then we have 
tried everything to really try to understand the opportunity 
for diplomacy, which I am a sincere believer in. But I think 
that there is just no credible solution diplomatically unless 
this regime feels at the highest of levels that it is 
imperiled.
    I think when they face peril, because I do not believe they 
are suicidal, I agree with you, Professor, I think they will 
make a strategic choice. I think one of the ways we are going 
to have to put them under peril though is by coercing our 
Chinese counterparts, and in other ways by directing a program 
of action against that interior reality that surrounds the 
newfound leader of North Korea in a way that he is going to 
have to make some hard choices.
    But as things stand I think his choice is going to be to up 
the escalation. That is sort of the initial indication, and 
that is what is giving his people the sort of bread and circus 
effects of space tests and nuclear tests that are making North 
Korea look all the more powerful in the world.
    Mr. DeSantis. And Professor Lee, you mentioned how the 
systematic oppression of the people in North Korea by the 
regime is actually one of its weaknesses, and maybe that is in 
the long term like you just said. How can this weakness be used 
against the regime, and is this something, is there any 
possibility that you would ever see something coming from the 
population? It just seems like the regime has an iron fist over 
its people.
    Mr. Lee. Today there is no doubt that North Korea operates 
vast gulags. Political prisoner concentration camps that are 
larger in size than entire towns or cities like Los Angeles or 
Houston. This the regime tries its best to shield from view. 
North Korea is the only country in the world that with a 
serious face maintains there are no human rights issues inside 
their country. So they are a bit sensitive.
    I think raising global awareness on North Korea's extreme 
human rights violations and redoubling our efforts to transmit 
information into North Korea is not only the right thing to do 
in terms of principle, but I think there is a practical value 
to it. Today, close to 50 percent of North Koreans surveyed, 
who have come to the South, say that they had come into contact 
with outside information. Information about the outside world 
through listening to radio, through watching South Korean DVDs, 
or DVDs of South Korean soap opera, movies, songs and so forth.
    So it is an incentive for the North Korean people: The more 
they learn about the outside world and their relative miserable 
conditions, the greater desire, the greater incentive to take a 
risk to escape their repressive country they will have.
    Mr. DeSantis. Thank you. Thank you, Mr. Chairman.
    Chairman Royce. We go down to Mr. Deutch, ranking member of 
the Middle East Subcommittee.
    Mr. Deutch. Thank you, Mr. Chairman. I would just like to 
follow on the excellent line of questions of my colleague from 
Florida, Mr. DeSantis, and Dr. Lee, your last response.
    It is little wonder, I think, just as on cable news shows, 
Dennis Rodman's visit to North Korea got some attention here. 
What is so disconcerting is that Rodman, the coverage of his 
visit even on cable television, even on the so-called news 
shows, didn't focus on anything other than the fact that he is 
a celebrity who was visiting. There was little coverage at all 
during his visit of exactly what you and Mr. DeSantis just 
brought up, and that is the fact that North Korea is the worst 
human rights violators in the world.
    According to Human Rights Watch, there are hundreds of 
thousands of North Koreans including children in prison camps. 
Arbitrary arrests, lack of due process, and torture are 
pervasive. We didn't hear about this in all of the coverage of 
this visit. There is no independent media. There is no 
functioning civil society. There is no religious freedom. And 
government policies have continually subjected the North 
Koreans to food shortages and to famine.
    Dr. Lee, if I could ask you to follow up on your last 
exchange, how do we change the narrative about North Korea so 
that the human rights situation is also at the forefront of all 
of our discussions? What do we do to make sure that we 
highlight this abysmal record as we talk about the future of 
North Korea, and what can the U.N. do to enable more of the 
naming and shaming that a lot of us think might be so helpful 
in really pursuing this agenda? Dr. Lee?
    Mr. Lee. The Rome Statute of the International Criminal 
Court defines crimes against humanity in this way: Systematic 
and widespread attack against the civilian population with 
knowledge of attack, with intent. What kind of attacks? Well, 
it defines 10 categories. Things like murder, extermination, 
enslavement, deportation, torture, and other forms of severe 
deprivation of physical liberty, crimes of sexual nature, 
persecution based on political, national, racial, ethnic, 
gender, religious grounds, and so forth. The only crime that 
North Korea does not fulfill perfectly is the crime of 
apartheid, institutionalized racial oppression, because North 
Korea has a high degree of ethnic homogeneity.
    It is global news. It is newsworthy, what North Korea has 
perpetrated over the last 60 years or more. But in my view, the 
reason that it does not get sufficient coverage in the news is 
because we don't see gruesome scenes of people dying and so 
forth on TV.
    Mr. Deutch. Dr. Lee, I have approximately 2 minutes left. 
Let us use this opportunity. You spoke about the crimes that 
are being violated and you spoke generally about the gulags. 
Take the last 1\1/2\ minutes, describe them in some detail, 
please, so that we can highlight these atrocities.
    Mr. Lee. The gruesome things that go on in the gulags are 
so gruesome they come across as unbelievable. There is a memoir 
that came out last year called ``Escape from Camp 14,'' and it 
details the life of a young man who was born inside one of 
these camps who was brainwashed into ratting on his own family, 
and ratted on his mother and older brother who had intentions 
of escaping, and witnessed the eventual public execution of his 
mother and brother and felt no remorse, no kind of emotion, 
whatsoever, because he was such a product of such a 
dehumanizing environment.
    These are matters that insult our basic morality that need 
to be told at greater length, reach a wider audience. And I 
think the media and intellectuals and governments have a basic 
duty to portray the North Korean regime as the criminal, 
oppressive regime that it is. And to discourage people from 
continuing to view North Korea as an oddity, a bizarre country 
run by a bizarre dictator. It is not an abstraction. It is a 
threat to humanity and we have to focus on purveying and 
sending that message.
    Mr. Deutch. I am grateful for that, Mr. Lee. Mr. Chairman, 
I am grateful for you holding this hearing.
    Chairman Royce. Thank you. And I do want to recommend for 
the members, and actually for the audience as well, Shin Dong-
hyuk's book, ``Escape From Camp 14.'' I have had a chance to 
meet with him, to interview him. And for those who question 
whether or not this is true, I saw the scars on his back from 
his torture.
    And this is a riveting account of how dehumanizing it is in 
a totalitarian system to live your life because of the presumed 
sins of your parents, in a situation where there is no hope. 
But this is one young man who did escape and did tell that 
story. And we owe it to ourselves, really, to familiarize 
ourselves with what is happening there. My father took 
photographs when they liberated Dachau. He had his brother's 
camera. The photos taken there are eerily reminiscent of these 
photos that you see that come out of these camps in North Korea 
where family members are held as well, including young 
children.
    But we go now to Mr. Messer, for your questioning.
    Mr. Messer. Thank you, Mr. Chairman, members of the panel. 
Building on that line of questioning, it is of course ironic 
that we are here this week having this hearing in the same week 
that we hear about Dennis Rodman's trip to North Korea and that 
on face would be a joke, something no one would care about. But 
it is not a joke, because frankly it trivializes a circumstance 
that ought not to be at all trivial. You mentioned the human 
rights violations, nuclear proliferation, organized crime. And 
it is important that we keep the public sentiment in America 
focused on this important topic to stay strong on the 
challenges that we face with North Korea.
    But I want to turn to another area of public sentiment. Dr. 
Lee, you mentioned several actions you would like to see South 
Korean leadership put forward. Of course those actions are 
somewhat dependent on public sentiment in South Korea. And I 
would ask you or any others on the panel to expand upon what 
the current public sentiment is in South Korea toward North 
Korea. Has that changed any in recent years?
    Mr. Lee. I think the South Korean perception of North Korea 
has changed in the wake of North Korea's two deadly attacks 
against South Korea in 2010. The sinking of the Cheonan in 
March, and the shelling of the inhabited island, Yeonpyeong 
Island, in November. At the same time, fundamentally, South 
Koreans have grown rich over the past couple of generations. 
They do not want to risk losing their assets, their wealth, and 
their security, and do not support escalating tension with 
North Korea. And North Korea does its best to exploit such 
sentiments in South Korea.
    In my view, the South Korean Government should make North 
Korean human rights a high priority. And Madam President Park 
Geun-hye as a candidate on November 5 last year, in her foreign 
policy platform statement, explicitly said that she would do 
her best to address the human rights situation, to reinforce 
resettlement programs for North Korean defectors coming to 
South Korea, finally passed a North Korean human rights act and 
so forth. And 3 days later North Korea gave her a ``ringing 
endorsement.'' That is, North Korea came out and harshly 
criticized Park Geun-hye for having the temerity to mention 
words like ``defectors'' and ``human rights.'' Again that 
indicates that North Korea is sensitive to its gross human 
rights violations.
    Ms. Ros-Lehtinen [presiding]. Thank you very much. Mr. 
Connolly is recognized from Virginia.
    Mr. Connolly. Thank you, Madam Chairman. Dr. Lee, I was 
struck by your testimony where you went sort of through a 
litany of overtures from the West, from the United States, from 
South Korea, all of which in a sense were rebuffed if you look 
at subsequent North Korean behavior in terms of violent 
incidents, military incidents, terrorist incidents, and the 
furtherance of the nuclear development.
    Is the suggestion, or is the inference to be drawn from 
that litany that we are wasting our time making overtures to 
the regime itself?
    Mr. Lee. North Korea views itself as the party wielding the 
proverbial carrot and stick. North Korea is the more proactive 
party, I would say again. Now that does not mean that we should 
completely abandon talking to North Korea. Of course, the 
Dennis Rodman affair, a few weeks from now we will come to view 
that as the way that we have come to view developments out of 
North Korea last July when Kim Jong-un apparently enjoyed a 
performance featuring Disney characters and rock music and so 
forth. Trivial personal preference.
    That is not to say that the Rodman affair was completely 
without utility. We learned that Kim Jong-un's spoken English 
is limited. There is some intelligence value, I suppose; 
although please feel free to criticize me that I am setting the 
bar low.
    Mr. Connolly. But Professor, I am sorry because I am 
running out of time. But my question had to do with, I thought 
you were suggesting, and you may be right, that frankly the 
overtures make us feel good but they lack efficacy if you are 
looking for results.
    Mr. Lee. That is right.
    Mr. Connolly. Well, the other thing I was struck by was you 
mentioned several times the pragmatism of the Chinese. That the 
Chinese are at the end of the day pragmatic. And yet if one 
looks at their continuing support for this pariah regime, it is 
hard to see pragmatism there especially as the Chinese get more 
and more intricately involved in market oriented investments, 
including here, North Korea seems to be a throwback, a cultish, 
pariah state throwback that can only over time embarrass the 
Chinese, and in fact, prove to be a liability on the Korean 
Peninsula, not an asset, not a buffer. If it made sense in the 
Cold War, it makes no sense, it would seem, in today's context. 
And therefore, it is hard to see that as a pragmatic policy on 
the part of the Chinese. And I wonder if you would comment on 
that, and I would welcome the other two panelists to as well in 
the limited time we have.
    Mr. Lee. Very briefly, I do believe that China will 
eventually come to view North Korea as more a liability. But 
that time, in my view, has not come yet.
    Mr. DeTrani. I totally agree. I think China is very close 
to that point. China has been trying to mediate sides, and 
China is realizing Kim Jong-un is going beyond the pale. So I 
think we will see more activity on the part of China to bring 
them back into the fold.
    Mr. Connolly. And if I could interject. I think if Dr. Lee 
is right, and I think he is, China is the key here, because we 
are not going to change directly North Korean behavior. I am 
sorry. Dr. Asher?
    Mr. Asher. I just think we have to change Chinese behavior 
to change North Korean behavior, and I say that with respect. I 
spent a lot of time in China. I am not anti-Chinese. But as a 
pragmatic American diplomat I see no choice but to impose 
greater consequences on China's complicity and cooperation in 
North Korea's regime and its nuclear program and missile 
programs.
    Mr. Connolly. Thank you. Right on time, Madam Chairman.
    Ms. Ros-Lehtinen. Thank you always. We can count on you, 
Mr. Connolly. And we are so pleased to hear from Mr. Bera now 
for his questioning time.
    Mr. Bera. Madam Chairman, I want to thank you and thank the 
panelists for being here. I think each of you have commented on 
this line in the sand scenario, where we draw a line in the 
sand and North Korea steps over it, we draw another line in the 
sand. So there is a policy on the part of the North Korean 
Government to always provoke.
    Knowing that and knowing that they will continue this 
policy of provocation, when we look at Kim Jong-un and those 
around him, are there members in the North Korean Government or 
in Kim Jong-un's inner circle who are sympathetic to this path 
of nonproliferation or disarmament in order to help the North 
Koreans? And is there anyone who we could work with or we can 
compel the Chinese to work with?
    Mr. DeTrani. Let me just comment. I don't know if anyone is 
sympathetic, per se, but I think there are some around Kim 
Jong-un who have been exposed to the West and exposed to China; 
exposed to Deng Xiaoping with his economic reforms in China, 
and how China went from the Cultural Revolution to where they 
are today. I think that has to be powerful.
    Dr. Lee mentioned what is happening in the Republic of 
Korea. That message has to be powerful. So yes, I believe there 
are some around Kim Jong-un who are witnessing this and realize 
North Korea needs to be moving in that direction.
    Mr. Bera. And so I will ask a follow-up question. Knowing 
that we have a stated policy, or many of us do including the 
administration, of unequivocally making sure that Iran does not 
acquire nuclear technology, and extrapolating on that I would 
say it is our unequivocal policy to make sure North Korea does 
not sell nuclear technology to Iran. Knowing that we cannot 
allow this, what would your recommendations be to make sure 
that China understands that that is an unmovable line in the 
sand and does engage in a way that does not allow North Korea 
to----
    Mr. Asher. Okay. I think that the Chinese in the middle, 
the Chinese companies that are operating on a beneficial basis 
or a front company basis for North Korean entities, need to be 
held accountable for being North Korean entities even if they 
are Chinese run and operated.
    There was a case where Shenyang Aircraft Company was 
publicly outed in a German court for procuring a sensitive 
aluminum tube technology for North Korea's nuclear program, and 
of course they denied, oh, we didn't know how that happened. It 
was just an accident. But when China's most sensitive and 
important military company is involved in fronting for the 
North Korea nuclear program, I think we have to take notice, 
and we have to assume that that sort of activity continues.
    Now was that orchestrated by the leadership of the Chinese 
Government? I don't know. But to me it doesn't really matter. 
The way we have applied the Iran sanctions, and I think this 
committee's leadership has been critical on that, is to hold 
people accountable for their actions not for their intentions. 
And I think that is going to be a policy we are going to have 
to apply toward the Chinese.
    Mr. DeTrani. Could I just comment on that, sir? There is a 
robust dialogue with the People's Republic of China in Beijing 
on these issues, these nonproliferation issues, certainly North 
Korea and North Korea's behavior and the concern about 
proliferation and so forth. And I mean a lot of information is 
being shared back and forth, so I think there is a dialogue, a 
very rich dialogue, and hopefully we will see greater traction 
on both sides.
    Mr. Bera. Great. Thank you for your answers.
    Ms. Ros-Lehtinen. Thank you very much. And although we have 
no further requests for time, I would like to yield to my 
colleague Mr. Faleomavaega who would like to make a statement 
of clarification. The gentleman is recognized.
    Mr. Faleomavaega. Thank you, Madam Chair. I just wanted to 
offer a couple of comments about what was mentioned that my 
name was mentioned there. My good friend from California, 
Congressman Sherman, said that he doesn't agree with my 
observation about the U.S. taking a hypocritical role on the 
nonproliferation issue. I want to be clear on this. It is not 
the United States, it is the whole concept of nonproliferation 
where the United States is a member of the nuclear super 
members of the Security Council.
    I want to commend President Obama for his efforts to try to 
limit or lessen the number of nuclear weapons that we now have 
in country. It is my understanding we now have enough nuclear 
weapons around the world, enough to blow this planet 10 times 
over. And I believe, and correct me, I think already that we 
have what, currently about 5,000 nuclear weapons in stockpile. 
The Russians have a little more. The British and the French 
have a couple of hundred here and there. So my point about this 
is the hypocrisy of the concept and not of my country, the 
United States.
    Secondly, my good friend Mr. Marino made reference to 
Dennis Rodman's visit to North Korea. He did not go there to 
represent the United States. Yes, he is a great basketball 
player who happens to be a U.S. citizen. But I don't think that 
anywhere Mr. Rodman has ever given any indication that he was 
there representing President Obama or anybody in our 
Government. I think we need to be clear on that.
    Then my friend from California, Mr. Rohrabacher, I don't 
know what he meant about coconuts. Yes, I am from the islands, 
we eat a lot of coconuts. Perhaps my colleagues in the 
committee could try and taste some of the coconuts. It is very 
juicy, delicious, nutritious. Maybe we need to take some of the 
coconuts and see that perhaps we can find better ways.
    One point of observation I want to say to our friends here. 
Last year, months ago, we had a hearing. We were talking about 
North Korea. Up and down the whole thing, North Korea this, 
North Korea that, and not one of our expert witnesses ever said 
anything about South Korea. If South Korea does not have any 
meaning or relevance to the issue when we talk about North 
Korea; this has been my concern. My concern, personally, Madam 
Chair, the only way we are going to resolve the problem is that 
the leaders of the people of North and South Korea have got to 
do it themselves. Because what happens, 23 million people live 
in North Korea, but 12 million Koreans live in Seoul, only 30 
miles away from the demilitarized zone.
    So where do you think that it is so simple that by giving 
sanctions that all of this is going to solve the problem? It is 
not. But I do want to commend our witnesses for the tremendous 
advice and the expertise that they have offered us, and thank 
you, Madam Chair.
    Ms. Ros-Lehtinen. Thank you for that statement. And in 
South Florida we share a lot of information through what Jimmy 
Buffett calls the ``coconut telegraph,'' so it is very 
important. And I want to commend the chairman for an excellent 
hearing, wonderful witnesses, and great suggestions for the 
legislation. And with that the committee is adjourned.
    [Whereupon, at 12:10 p.m., the committee was adjourned.]
                                     

                                     

                            A P P E N D I X

                              ----------                              


     Material Submitted for the Hearing RecordNotice deg.




               \\ts\





                                 
