[Senate Hearing 114-714]
[From the U.S. Government Publishing Office]


                                                       S. Hrg. 114-714

                  THE PERSISTENT THREAT OF NORTH KOREA
               AND DEVELOPING AN EFFECTIVE U.S. RESPONSE

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

                                HEARING


                               BEFORE THE


                     SUBCOMMITTEE ON EAST ASIA, THE
                       PACIFIC AND INTERNATIONAL
                          CYBERSECURITY POLICY


                                 OF THE


                     COMMITTEE ON FOREIGN RELATIONS

                          UNITED STATES SENATE



                    ONE HUNDRED FOURTEENTH CONGRESS


                             SECOND SESSION

                               __________

                          
                          SEPTEMBER 28, 2016

                               __________


       Printed for the use of the Committee on Foreign Relations


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                          COMMITTEE ON FOREIGN RELATIONS               

             BOB CORKER, Tennessee, Chairman              

JAMES E. RISCH, Idaho                BENJAMIN L. CARDIN, Maryland
MARCO RUBIO, Florida                 BARBARA BOXER, California
RON JOHNSON, Wisconsin               ROBERT MENENDEZ, New Jersey
JEFF FLAKE, Arizona                  JEANNE SHAHEEN, New Hampshire
CORY GARDNER, Colorado               CHRISTOPHER A. COONS, Delaware
DAVID PERDUE, Georgia                TOM UDALL, New Mexico
JOHNNY ISAKSON, Georgia              CHRISTOPHER MURPHY, Connecticut
RAND PAUL, Kentucky                  TIM KAINE, Virginia
JOHN BARRASSO, Wyoming               EDWARD J. MARKEY, Massachusetts


               Todd Womack, Staff Director              
         Jessica Lewis, Democratic Staff Director              
           Rob Strayer, Majority Chief Counsel              
         Margaret Taylor, Minority Chief Counsel              
                 John Dutton, Chief Clerk              



                         --------              




                SUBCOMMITTEE ON EAST ASIA,THE                                             
                PACIFIC AND INTERNATIONAL              
                   CYBERSECURITY POLICY              

             CORY GARDNER, Colorado, Chairman              

JAMES E. RISCH, Idaho                EDWARD J. MARKEY, Massachusetts
MARCO RUBIO, Florida                 JEFF MERKLEY, Oregon
JOHN BARRASSO, Wyoming               CHRISTOPHER MURPHY, Connecticut
JOHNNY ISAKSON, Georgia              TIM KAINE, Virginia


                              (ii)        

  
                            C O N T E N T S

                              ----------                              
                                                                   Page
Gardner, Hon. Cory, U.S. Senator From Colorado...................     1

Cardin, Hon. Benjamin L., U.S. Senator From Maryland.............     3

Russel, Hon. Daniel R., Assistant Secretary of State, Bureau of 
  East Asian and Pacific Affairs, U.S. Department of State, 
  Washington, DC.................................................     4
    Joint prepared statement of Ambassador Fried and Assistant 
      Secretary Russel...........................................     7

Fried, Hon. Daniel, Coordinator for Sanctions Policy, U.S. 
  Department of State, Washington, DC............................     5
    Joint prepared statement of Ambassador Fried and Assistant 
      Secretary Russel...........................................     7

              Additional Material Submitted for the Record

Statement submitted by Senator Barbara Boxer.....................    35

Responses to Questions for the Record Submitted to Ambassador 
  Fried by Senator Rubio.........................................    35

Responses to Questions for the Record Submitted to Ambassador 
  Fried by Senator Gardner.......................................    38

Responses to Questions for the Record Submitted to Ambassador 
  Fried by Senator Perdue........................................    39


                             (iii)        

  

 
                        THE PERSISTENT THREAT OF
                       NORTH KOREA AND DEVELOPING
                       AN EFFECTIVE U.S. RESPONSE

                              ----------                              


                     WEDNESDAY, SEPTEMBER 28, 2016

                               U.S. Senate,
       Subcommittee on East Asia, the Pacific, and 
                International Cybersecurity Policy,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:03 a.m. in 
Room SD-419, Dirksen Senate Office Building, Hon. Cory Gardner, 
chairman of the subcommittee, presiding.
    Present: Senators Gardner [presiding], Rubio, Johnson, 
Barrasso, Cardin, Udall, Menendez, and Markey.

            OPENING STATEMENT OF HON. CORY GARDNER, 
                   U.S. SENATOR FROM COLORADO

    Senator Gardner. This hearing will come to order.
    Let me welcome you all to the seventh hearing for the 
Senate Foreign Relations Subcommittee on East Asia, the 
Pacific, and International Cybersecurity Policy in the 114th 
Congress.
    As always, I want to thank Senator Cardin for his 
cooperation and support for holding this important hearing. He 
has got a busy job on this committee, and it is much 
appreciated.
    This committee has done a great amount of work on North 
Korea. Thank you to Senator Menendez and Senator Cardin and my 
colleagues, all of us for the work that we have done on North 
Korea.
    North Korea just conducted its fifth nuclear test, which is 
the regime's fourth since 2009. It is the regime's second test 
this year and the largest weapon they have ever tested yet, 
with an estimated explosive yield of 10 kilotons of TNT.
    The rapid advancement of North Korea's nuclear and 
ballistic missile program represents a grave threat to global 
peace and stability and a direct threat to the United States 
homeland in the immediate future.
    While failure to stop Pyongyang has been a bipartisan 
venture over the last 20 years, this administration's policy of 
strategic patience, crafted under Secretary of State Hillary 
Clinton, has resulted in the most rapid advancements in North 
Korea's arsenal of mass destruction.
    As the ``Washington Post'' editorialized on February 9th, 
2016, President Obama's policy since 2009, strategic patience, 
has failed. The policy has mostly consisted of ignoring North 
Korea while mildly cajoling China to pressure the regime.
    We are now witnessing the consequences of that failure. 
Nuclear experts have reported that North Korea may currently 
have as many as 20 nuclear warheads and has the potential to 
possess as many as 100 warheads within the next 5 years. 
Director of National Intelligence James Clapper has stated in 
his testimony to Congress that North Korea has also expanded 
the size and sophistication of its ballistic missile forces 
from close-range ballistic missiles to intercontinental 
ballistic missiles and is committed to developing a long-range 
nuclear-armed missile that is capable of posing a direct threat 
to the United States.
    This regime is one of the world's foremost abusers of human 
rights and maintains a vast network of political prison camps 
where as many as 200,000 men, women, and children are confined 
to atrocious living conditions and are tortured, maimed, and 
killed. On February 7th, 2014, the United Nations Human Rights 
Commission of Inquiry found that North Korea's abuses 
constituted a crime against humanity.
    We also know that Pyongyang is quickly developing its cyber 
capabilities, as demonstrated by the Sony Pictures hack in 2014 
and the repeated attacks on the South Korean financial and 
communication systems. According to a recent report by the 
Center for Strategic International Studies, North Korea is 
emerging as a significant actor in cyberspace with both its 
military and clandestine organizations gaining the ability to 
conduct cyber operations.
    So given the record of aggression from North Korea and the 
fecklessness of this administration's policy, this Congress 
came together on February 10th, 2016 to pass the North Korea 
Sanctions Policy and Enhancement Act. This legislation, which 
President Obama signed into law, on February 18th, 2016 was a 
momentous achievement, the first time ever Congress imposed 
standalone mandatory sanctions on North Korea. This legislation 
was also an implicit recognition from the administration that 
strategic patience has failed and it was time for a new policy 
of strength.
    Now that we are more than 6 months out from the Enhancement 
Act becoming law, I hope to hear from the administration today 
regarding its record of compliance with the law. We know that 
nearly 90 percent of North Korea's trade is with China, and I 
also hope to hear today from our witnesses a detailed 
examination of the Peoples Republic of China's record of 
compliance with U.N. Security Council resolutions regarding 
North Korea, whether Beijing has utilized any loopholes to 
avoid faithful compliance and what the United States has done 
about it.
    Sanctions, however, are not the only tool in our arsenal to 
deal with Pyongyang. First and foremost, we must reassure our 
allies in South Korea and Japan that aggression against our 
allies will result in unwavering diplomatic and military 
support from the United States. As Secretary Ash Carter stated 
on September 9th, 2016 to his Republic of Korea's counterpart, 
the United States and the Department of Defense are standing 
guard 24/7 to deter and defend against the North Korean threat 
with all aspects of our extended deterrent capabilities, 
including conventional capabilities, missile defense, and the 
nuclear umbrella. We must repeat these assurances often to our 
allies and back them up with actions.
    We must continue with the show of force exercises near 
North Korea to demonstrate to the regime that it will bear a 
heavy price for any aggression. The B-1 nuclear bomber 
overflights last month were a good start, and it is my hope 
that these actions will be consistent and unambiguous in their 
intent.
    We must expedite the placement of terminal high altitude 
area defense, or THAAD, in the Republic of Korea. And I want to 
thank our partners in Seoul for their decisiveness and 
commitment to this critical capability, especially in light of 
the pressure from Beijing and Moscow.
    We must strengthen and build a genuine and lasting 
trilateral alliance between the United States, Seoul, and 
Tokyo. There have been encouraging signs, including closer 
high-level diplomatic consultations and even joint missile 
defense exercises. I thank both Seoul and Tokyo for wisely 
pursuing this path of cooperation and partnership.
    We must also explore possibilities for asymmetrical actions 
to put additional pressure on the regime, such as the 
redesignation of North Korea as a state sponsor of terror, 
stripping Pyongyang of its United Nations seat or imposing a 
genuine and enforceable global trade embargo on Pyongyang.
    The gravity of the North Korean threat necessitates these 
conversations, both to guide the actions of this 
administration, as well as to set parameters for the next 
administration.
    With that, I yield to my good friend and colleague, Senator 
Cardin.

             STATEMENT OF HON. BENJAMIN L. CARDIN, 
                   U.S. SENATOR FROM MARYLAND

    Senator Cardin. Well, Senator Gardner, first of all, thank 
you for calling this hearing. It has been a pleasure to work 
with you during this Congress on the subcommittee. Clearly, 
North Korea presents one of our greatest challenges.
    To our two witnesses, I thank you. I know that we had to 
adjust schedules, and thank you very much for being willing to 
be here today to share your vision as to how we could be more 
effective in regards to our policies concerning North Korea.
    This committee has taken action, as the chairman has 
indicated, and Congress has passed legislation giving 
additional tools to the administration to deal with the 
activities of North Korea, including its most recent tests.
    The United Nations has taken action. They have passed 
Security Council Resolution 2270, and it was our hope that 
China, working with the Republic of Korea, the United States, 
Japan, and others in the international community, that we would 
be able to put sufficient pressure on North Korea to change its 
behavior. That has not happened. So despite all of our efforts, 
the current policy is not deterring North Korea's activities in 
acquiring greater nuclear weapon capacity.
    So the question today is what more do we do. How can the 
administration, working with Congress, provide the leadership 
internationally to change North Korea's activities?
    We know we need to have more effective action by China. 
What will it take to get China to really exercise the leverage 
it has over North Korea to change that behavior?
    North Korea's current trend presents not just a security 
challenge to the Korean Peninsula, not just a security 
challenge to that region of the world, but directly to the 
United States. What plans do we have in order to protect the 
security of our allies, as well as our own security, as a 
result of North Korea's activities?
    These are questions that we want to explore today, and we 
have two incredibly talented people who have given public 
service over a long period of time. We thank both of you for 
that, and we look forward to sharing your observations as to 
what we can do to prevent North Korea from destabilizing that 
region and presenting a security threat to the United States.
    Senator Gardner. Thank you, Senator Cardin.
    And again, thank you to the witnesses for being here. I 
would ask our distinguished witnesses to keep their oral 
remarks to no more than 5 minutes. Your full remarks will be 
entered into the record.
    Our first witness is the Honorable Daniel R. Russel who 
serves as the Assistant Secretary of State for East Asian and 
Pacific Affairs. Mr. Russel?

  STATEMENT OF HON. DANIEL R. RUSSEL, ASSISTANT SECRETARY OF 
     STATE, BUREAU OF EAST ASIAN AND PACIFIC AFFAIRS, U.S. 
             DEPARTMENT OF STATE, WASHINGTON, D.C.

    Mr. Russel. Chairman Gardner, Ranking Member Cardin, 
members of the subcommittee, thank you for holding this very 
timely hearing on North Korea. And thank you also for your 
consistent bipartisan support of U.S.-Asia policy.
    The threat from North Korea's missile programs has posed a 
serious challenge to the last four administrations. Today we 
are using all of the tools at our disposal, including tools 
that the Congress has made available to us, to counter that 
threat and to roll it back. Our strategy is based on 
deterrence, on diplomacy, and on pressure.
    We deter North Korea through a strong defensive military 
posture rooted in our alliances with South Korea and Japan, and 
we have strengthened our alliances and our defense cooperation 
with both those countries to an unprecedented degree. We have 
expanded our deployments, our exercises, and our weapon systems 
in order to meet the growing threat.
    Diplomatically we have united the world so that North Korea 
is denied regular access to the international system, so that 
North Korea is isolated and is widely condemned. But at the 
same time, we continue to make clear to the North that we are 
ready at any time to engage in credible negotiations on 
denuclearization and to offer a path to security, to 
prosperity, respect, a path that others like Burma have chosen 
to take.
    The third component of our strategy has been pressure, and 
the tremendous pressure that we have applied through both 
multilateral and national sanctions has generated serious 
headwinds for the DPRK regime and significantly impeded its 
ability to generate desperately needed hard currency, to 
proliferate arms or nuclear material, to attract international 
investment or economic assistance, or to extract concessions 
and aid from the outside world.
    Together with our partners in response to the latest 
nuclear and ballistic missile tests, we will develop a new U.N. 
Security Council resolution that squeezes North Korea even 
harder. Together we will expand and coordinate our unilateral 
sanctions and impose escalating costs on North Korea until it 
agrees to negotiations on denuclearization and to comply with 
its international obligations and commitments. Together we will 
shine a light on the egregious human rights violations and push 
for accountability by the DPRK's leaders. Together we will 
defend ourselves and our allies against North Korea's 
threatening behavior and make clear that there is a high price 
to pay for provocations.
    Mr. Chairman, our strategy has ensured that Kim Jong-un has 
nothing to show for his intransigence. Yes, he has made holes 
in the ocean with missiles. Yes, he has detonated nuclear 
devices in holes in the ground. These are bad things. But it 
has netted him nothing in terms of what North Korea has 
indicated that it needs, respect, security, economic support, 
diplomatic recognition. He has failed to extract material or 
political benefits from his threats. As President Obama has 
made clear, we will not reward bad behavior and we will use all 
the instruments of national power to defend our homeland and 
our allies against threats from North Korea.
    It may well be that negotiating an end to his nuclear 
program is the last thing on earth that Kim Jong-un wants to 
do, but if so, we are determined to show him that 
denuclearization is the only viable option available, that only 
negotiations offer him a pathway out of danger and isolation.
    So I thank the committee for your attention to this 
critical challenge and, with your permission, would turn to my 
colleague, Dan Fried. Thank you.
    Senator Gardner. Thank you, Secretary Russel.
    Our second witness is Ambassador Daniel Fried who serves as 
Coordinator for Sanctions Policy at the State Department, a 
position he has held since January of 2013. Prior, Ambassador 
Fried served in a various distinguished positions, including 
Assistant Secretary of State for European Affairs, as Special 
Assistant to the President, and Senior Director for European 
and Eurasian Affairs at the National Security Council, and also 
as United States Ambassador to Poland.
    Welcome, Ambassador Fried, and thank you for your service. 
I look forward to your testimony this morning.

   STATEMENT OF HON. DANIEL FRIED, COORDINATOR FOR SANCTIONS 
       POLICY, U.S. DEPARTMENT OF STATE, WASHINGTON, D.C.

    Ambassador Fried. Thank you, Chairman Gardner, Ranking 
Member Cardin.
    I will continue where my colleague left off. Sanctions are 
a key component of our strategy, and the sanctions applied to 
North Korea to date have created significant problems for the 
regime. Because sanctions work over time as their impact 
accumulates, the administration, in close coordination with key 
allies, is examining our sanctions toolkits and identifying 
ways to prove their efficacy. We are working through the U.N. 
with our allies and nationally. And this year has been a year 
of intensifying pressure in all three areas.
    Security Council resolutions play an important role because 
they have the power to impose universally binding sanctions. 
The five previous Security Council resolutions on North Korea 
between 2006 and 2013 targeted North Korea's missile and 
nuclear programs. They did what they did, but their targets 
were narrowly focused.
    In March 2016, after the January 2016 nuclear test, U.N. 
Security Council Resolution 2270 imposed, for the first time, 
measures targeting economic activities generally that supported 
the Kim regime broadly, not just revenue streams directly 
connected to nuclear and ballistic missile programs. This is 
the first time the U.N., with the support of all the Security 
Council permanent members, including China, took this step. 
That crossed a line in a good way.
    In addition, Congress and the administration, especially 
after the January 2016 nuclear test, worked together to adopt 
broad domestic authorities that operate on the principle of 
that we must go after the revenue streams that support the 
North Korean regime. And sanctions, as the saying is, as used 
to be said in Washington, follow the money. The North Korea 
Sanctions and Policy Enhancement Act was signed by President 
Obama. We have vigorously used its principles and requirements. 
The administration has implemented the act including by 
designating Kim Jong-un himself. Most recently on September 
26th, the Treasury Department designated four Chinese nationals 
and one entity complicit in sanctions evasion activities 
consistent with the mandatory sanctions in the act. That was a 
significant and hopefully effective step.
    Working with our partners and allies around the world, 
especially South Korea, Australia, and Japan and increasingly 
the European Union, we are encouraging and pushing, when 
necessary, third countries to curtail their own economic ties 
with North Korea. We have had some good results. We have 
essentially shut down the operations of North Korean Ocean 
Maritime Management Company, its shipping line. We have 
restricted the landing privileges of Air Koryo. Several 
governments around the world have imposed visa restrictions on 
North Korean passport holders. South Korea closed the Kaesong 
Industrial Park in February 2016. Taiwan has halted its imports 
of North Korean coal. There is more to say about this.
    But there is also more to do. China is, by far, North 
Korea's major economic partner, and North Korea's coal exports 
mostly to China generate over $1 billion in revenue for the 
regime annually and account for about a third of all North 
Korean export income. We are working to curtail North Korea's 
ability to export coal and iron ore and limit its foreign 
currency earnings. We are also looking at North Korea's export 
of labor which provides a source of revenue for the regime.
    Secretary Kerry affirmed last week at the UNGA that every 
country has a responsibility to vigorously enforce U.N. 
sanctions so that North Korea pays a price for its dangerous 
activities. We intend to pursue a global pressure campaign on 
North Korea more generally and to urge, where necessary push, 
other countries to join that effort. And I look forward to 
discussing this further with you.
    [The joint prepared statement of Ambassador Fried and 
Assistant Secretary Russel follows:]


          Joint Prepared Statement of Ambassador Daniel Fried 
                 and Assistant Secretary Daniel Russel

                              introduction
    Chairman Gardner, Ranking Member Cardin, and members of the 
subcommittee, thank you for the opportunity to appear before you today 
to testify about the U.S. response to the threat from North Korea.
            the challenge posed by a belligerent north korea
    The continued development of North Korea's nuclear and ballistic 
missile programs is a threat to the United States homeland, our allies, 
and the peace, security, and stability of the region. Two nuclear tests 
and an unprecedented series of ballistic missile launches this year 
flagrantly violate United Nations Security Council Resolutions 
(UNSCRs). Moreover, North Korea has repeatedly threatened to attack the 
United States and our allies with nuclear weapons.
    The threats have become more frequent and the rhetoric more 
alarming. Mere days ago, North Korea's foreign minister delivered a 
defiant speech to the U.N. General Assembly, stating that the United 
States will ``face consequences beyond imagination'' from North Korea. 
During August's annual military exercise with the Republic of Korea 
(ROK) and following the announcement of the planned deployment of the 
Terminal High Altitude Aerial Defense (THAAD) system, Pyongyang 
explicitly warned of pre-emptive nuclear strikes against the United 
States and our allies.
    Significant advances in North Korea's nuclear weapons and ballistic 
missiles programs underpin this bellicosity. These programs are funded 
at the cost of the well-being of the North Korean people, who suffer 
economic deprivation and horrific human rights abuses at the hands of 
the Kim Jong Un regime.
                  our comprehensive north korea policy
    The goal of our policy towards North Korea is the denuclearization 
of the Korean Peninsula in a peaceful manner. The North Korea itself 
committed to this goal in the September 19, 2005 Joint Statement of the 
Six-Party Talks. However, since making that pledge, North Korea 
abandoned the Six-Party Talks, rejected negotiations on 
denuclearization, and conducted five nuclear tests and a series of 
ballistic missile launches, in flagrant violation of its international 
obligations and commitments.
    Our policy is grounded in three tracks: deterrence, pressure, and 
diplomacy. It seeks to convince Pyongyang to return to the negotiating 
table and agree to complete, verifiable, and irreversible 
denuclearization.
    To deter a North Korean attack, we maintain a strong defensive 
military posture, rooted in our ironclad alliances with the ROK and 
Japan. We consistently and publicly reaffirm our commitment to our 
Allies and continue to work with the ROK and Japan to develop a 
comprehensive set of Alliance capabilities to counter the multiple 
threats, including in particular the North Korean ballistic missile 
threat.
    We have pursued a comprehensive, sustained pressure campaign - of 
which sanctions are a key part. The goal of this pressure is to raise 
the cost to North Korea for violating international law and to impede 
the North's ability to participate in or to fund its unlawful 
activities. We are steadily tightening sanctions in an effort to compel 
the Kim regime to return to credible negotiations on denuclearization 
by targeting the regime's revenue and reputation.
    We have made repeated diplomatic overtures to North Korea signaling 
our commitment to the 2005 Joint Statement and our willingness to 
engage in credible and authentic talks aimed at restarting negotiations 
on denuclearization. We also are engaged in diplomatic effort to build 
more rigorous and universal enforcement of Resolution 2270's sanctions 
measures, and to block illicit North Korean WMD and proliferation-
related actions.
    North Korea views diplomatic meetings and visits as important 
markers of its international legitimacy. This month, we instructed our 
embassies around the world to ask host governments to condemn the test 
and take further additional actions to downgrade or sever diplomatic 
and economic ties. As of September 25, 75 countries have issued 
statements condemning the test and several others have cancelled or 
downgraded planned meetings or visits with officials from North Korea.
                   sanctions as a foreign policy tool
    Sanctions are an important component of our strategy for impeding 
the DPRK's unlawful programs and, ultimately, compelling it to 
negotiate a freeze, rollback, and elimination of its nuclear program. 
The sanctions applied to date have created significant problems for the 
North Korean regime, but they have not yet caused the DPRK to change 
course. The Administration in close coordination with our key allies is 
continually examining our sanctions toolkit and identifying ways to 
improve their efficacy.
    North Korea poses particular challenges from a sanctions 
perspective, given its relative economic isolation. Unlike Iran, whose 
mid-sized economy was predicated on an industry that needed access to 
the international financial system, North Korea is one of the least 
developed economies on the planet. The country prides itself on an 
ideology which values self-reliance above all. This isolation and 
economic immaturity preclude a sanctions response based solely on U.S. 
domestic authorities.
    North Korea's economy is heavily dependent on China. The 
Administration has engaged Beijing at the highest levels to seek 
greater Chinese cooperation is imposing costs on North Korea for its 
threatening behavior. We regularly urge China to do more to prevent 
North Korea from using Chinese companies or infrastructure in ways that 
can benefit the DPRK's illicit activities. We have also taken a number 
of actions in conjunction with partners around the world to close off 
revenue streams from outside China.
    multilateral sanctions through u.n. security council resolutions
    UN Security Council Resolutions have played an important role in 
our pressure campaign on North Korea, because they have the power to 
impose universally binding sanctions. The five UNSCRs on North Korea 
(1695, 1718, 1874, 2087, and 2094) adopted between 2006 and 2013 target 
North Korea's missile and nuclear programs. While these resolutions 
have an impact, their targets were narrowly focused.
    However, in March 2016, UNSCR 2270 imposed for the first time 
measures targeting economic activities that support the Kim regime 
broadly, not just revenue streams directly connected to the nuclear and 
ballistic missile programs. UNSCR 2270 includes unprecedented 
inspection and financial provisions, including mandatory inspections of 
cargo to and from North Korea, and a requirement to terminate banking 
relationships with North Korean financial institutions.
    In order to maximize global implementation of UNSCR 2270, the 
Administration has strengthened efforts to provide information and 
expertise to the Security Council's North Korea Sanctions Committee and 
its Panel of Experts. We continue to engage in vigorous outreach to 
member states to highlight these new international obligations, build 
capacity globally, and bring attention to implementation gaps.
             u.s. authorities and other national sanctions
    In the wake of the January 2016 nuclear test, Congress and the 
Administration worked together to adopt broad domestic authorities that 
operate on the principle that we must go after all revenue streams that 
support the Kim regime. The North Korea Sanctions and Policy 
Enhancement Act (NKSPEA or the Act) was signed by President Obama in 
February 2016.
    In the seven months since its enactment, the Administration has 
been vigorously implementing the Act.


   March 15: The President issues EO 13722, which implements aspects 
        of NKSPEA. The Treasury Department makes 12 additions to the 
        Specially Designated Nationals (SDN) list, consistent with 
        authorities outlined in NKSPEA. The State Department designates 
        five North Korean individuals and entities under EO (Executive 
        Order) 13382, which targets Weapons of Mass Destruction 
        proliferators and their supporters.

   May 17: The State Department publishes an enhanced travel warning 
        with respect to North Korea.

   June 2: The Treasury Department identifies North Korea as a 
        jurisdiction of primary money laundering concern, and proposes 
        new prohibitions on North Korean banking activity.

   June 9: The State Department transmits a Report to Congress on 
        actions taken to implement the U.S. strategy to improve 
        international implementation of U.N. sanctions on North Korea.

   June 30: The Treasury Department, with support from the State 
        Department and the Office of the Director of National 
        Intelligence, submits a report to Congress on North Korea's 
        activities undermining cybersecurity, as one of a number of 
        reports mandated by the Act. In the report, the State 
        Department outlines the U.S. government's strategy to engage 
        foreign partners to combat such activity.

   July 6: The State Department publishes the NKSPEA-mandated Report 
        to Congress on human rights abuses in North Korea. Based in 
        part on information contained in the report, the Treasury 
        Department makes 16 additions to the SDN list, including Kim 
        Jong Un.

   August 11: The State Department transmits a Report to Congress on 
        U.S. policy toward North Korea based on a complete interagency 
        review of policy alternatives.

   August 24: The State Department transmits a Report to Congress 
        regarding the U.S. strategy to promote initiatives to enhance 
        international awareness and address the human rights situation 
        in North Korea.

   September 1: The State Department transmits a Report to Congress 
        detailing a plan for making unrestricted, unmonitored, and 
        inexpensive mass communication available to the people of North 
        Korea.

   September 26: The Treasury Department designates four Chinese 
        nationals and one entity complicit in sanctions evasion 
        activities, consistent with mandatory sanctions in the Act.


    Further, our partners and allies around the world have also 
implemented their own strong domestic sanctions regimes, going far 
beyond that required by UNSCRs. These include South Korea, Australia, 
Japan, Canada, the EU, and other countries.
                                progress
    Our diplomatic campaign to leverage UNSCRs, other multilateral 
efforts, and national authorities has produced results. Recent 
successes include:


   The operations of North Korea's U.N.-designated shipping line, 
        Ocean Maritime Management Company have been essentially shut 
        down and its ships are denied access to ports, scrapped, 
        impounded, or confined to their homeports.

   Air Koryo's landing privileges at foreign airports have been 
        reduced.

   Several governments have imposed visa restrictions on North Korean 
        passport holders.

   South Korea closed the Kaesong Industrial Park in February 2016, 
        closing off an important source of foreign currency to the 
        regime.

   Bangladesh, South Africa, Burma, and other countries have expelled 
        North Korean diplomats involved in illicit activities.

   Taiwan has halted its imports of North Korean coal.

   Malta ended its visa extensions for North Korean workers.

   Mongolia de-flagged North Korean ships and Cambodia recently 
        instituted rules prohibiting foreign-owned ships from flying 
        the Cambodian flag.

   As recently as June 2016, the State Department used the Iran, North 
        Korea, and Syria Nonproliferation Act (INKSNA) to impose 
        additional sanctions on North Korean persons for their 
        proliferation activities.
                               challenges
    There is more to do. North Korea's coal exports, mostly to China, 
generate over $1 billion in revenue for the regime annually and account 
for about a third of all export income. We are working to build on 
previous UNSCRs to address loopholes that allow North Korea to export 
coal and iron ore, earning precious foreign currency for the Kim regime 
on the backs of enslaved workers, including children. North Korea's 
shipping lines limp along, despite years of sanctions and key victories 
like the seizure of arms aboard the Chong Chon Gang and the impoundment 
of the Mu Du Bong. North Korea's export of labor continues to provide a 
source of revenue for the regime.
    We are not yet satisfied and believe there is more we can do. Much 
will depend on China, which is by far North Korea's greatest trading 
partner. China consistently says that it opposes North Korea's 
ballistic missile launches and nuclear weapons programs. China has 
supported the adoption of UNSCRs on North Korea, including UNSCR 2270. 
China also supported the Security Council's press statement in response 
to the latest nuclear test, which stated that the Security Council will 
begin work immediately on sanctions in a new Security Council 
resolution. Securing increased cooperation and application of pressure 
on North Korea is a major goal of our diplomacy with China.
    We recognize China's concerns that pressure on North Korea could 
precipitate a crisis, but we point out that its nuclear and missile 
programs pose a far greater threat to regional security. We acknowledge 
China's steps to implement U.N. sanctions but repeatedly urge China to 
improve implementation and apply pressure needed to effect a change in 
North Korean behavior.
    China has objected to U.S. actions intended to strengthen our 
defenses against North Korean military threats to ourselves and our 
allies, but we make clear that we will take all necessary steps to 
deter and defend against those threats. We closely coordinate with 
China on sanctions and other measures to counter North Korea's 
problematic behavior, but we have not shied away from unilateral 
actions against North Korean actors, including those located in China.
                               conclusion
    Today's hearing provides us an opportunity to send a strong, clear 
message of resolve to hold North Korea accountable to its commitments 
and international obligations. As Secretary Kerry affirmed at the U.N. 
General Assembly, every country has a responsibility to vigorously 
enforce U.N. sanctions to ensure that North Korea ``pays a price for 
its dangerous actions.'' With the U.N. and our allies, more remains to 
be done; we intend to pursue the global pressure campaign on North 
Korea more generally, and to urge, and where necessary push, other 
countries to join that effort.


    Senator Gardner. Thank you, Ambassador Fried.
    We will begin the questions.
    I commend the administration for finally designating a 
Chinese entity and four Chinese individuals this week, as you 
mentioned in your opening statements, for North Korea sanctions 
violations. I do wonder, though, if these designations would 
have taken place without the studies, the groundbreaking work 
released by the Center for Advanced Defense Studies and the 
Asian Institute for Policy Studies that publicly identified 
these very same entities and networks and received widespread 
media coverage. Would it not have happened without those 
studies?
    Regardless, it is my hope that this action will send a 
strong message to Beijing and to all of Pyongyang's enablers. 
It is also important to see the change in the administration's 
work and policy as a result of the heavy involvement from 
Congress beginning with the Enhancement Act passage and 
continued oversight.
    This round of designations, though, should only scratch the 
surface of the eligible violators. In a new study called 
Stopping North Korea, Incorporated, Harvard and MIT researchers 
found that the North Korean state trading company's managers 
have shifted their strategy by, one, hiring more capable 
Chinese middlemen who can more effectively handle financing, 
logistics, and doing business with private Chinese firms and 
foreign firms operating in China; number two, taking up 
residence and embedding themselves on the mainland, which 
increases their effectiveness; number three, expanding the use 
of Hong Kong and Southeast Asian regional commercial hubs; and 
four, increasing the use of embassies as a vehicle for 
procurement.
    It is my hope that State and Treasury are carefully 
reviewing the recommendations from both studies and taking 
appropriate action and strategy adjustments.
    So, Ambassador Fried, how many investigations are active 
and currently ongoing pursuant to the North Korea Sanctions and 
Policy Enhancement Act?
    Ambassador Fried. We are current, to my knowledge, in 
providing the mandatory reports in that act. That is, we have 
sent up all of them that we are required to do so. And frankly, 
we appreciate the opportunity.
    The administration and the Congress are moving in the same 
direction, and to the degree we send a signal of a united 
American position, the stronger we all are. So I thank you for 
that.
    The Treasury Department, State Department are active in 
pursuing a number of potential North Korean targets. My 
Treasury colleagues are working diligently and may I say 
aggressively in tracking down violators of sanctions both U.N. 
sanctions and American sanctions. Parts of the State 
Department, particularly my colleagues who work on 
nonproliferation, have their own stream of activities and 
investigations. They follow arms shipments. They follow ships. 
They do this in great detail. And I can assure you that they 
are aggressive. I cannot give you a number of specific 
investigations, but there are a lot of them. We follow both 
public material. You mentioned one. There are others. We also 
use intelligence information. We are in a forward-leaning mode.
    Senator Gardner. And how many of these investigations that 
are taking place are of Chinese entities or individuals?
    Ambassador Fried. I do not want to get into specific 
numbers in this session, but let me say this because it is an 
important question and comes to the heart of the matter. It 
would be best if China itself came to the conclusion that it 
needed to put increased pressure on the North. My colleague 
knows this better than I do, but China has expressed concern 
about an opposition to North Korea's nuclear testing 
especially. So the best option is if China does this itself.
    It would also be useful if Chinese banks and companies 
understood that increasingly dealing with North Korean 
companies, especially those that are sanctioned, is going to be 
risky, frankly not worth it.
    The best sanctions are those that do not have to be applied 
because the credible threat of sanctions acts as a deterrent.
    The U.S. Government's action earlier this week demonstrates 
that we are in earnest, and I can assure you that we are. There 
is more we could say in a classified setting, but I think you 
understand the direction that we are headed.
    Senator Gardner. Let me just ask this before I turn to 
Senator Cardin. Maybe a simpler way to ask it is, are 
additional Chinese firms under investigation?
    Ambassador Fried. Treasury and State are investigating a 
number of companies around the world. I will put it this way. 
There are no limits and there is no administration redline of 
exempt countries or companies. We go where the evidence takes 
us.
    Senator Gardner. And so I think the answer is yes, 
additional Chinese firms are under investigation.
    Ambassador Fried. I would not argue with you.
    Senator Gardner. Thank you.
    Senator Cardin?
    Senator Cardin. Well, once again, thank you for your 
testimony and for your service to our country, both of you.
    Secretary Russel, I agree with you that we have done a lot 
in leadership on imposing global sanctions against the regime 
in North Korea, and it has had a major economic impact on North 
Korea. There is no question about that. But it has not worked. 
It has not worked. North Korea continues to accumulate enriched 
materials. It continues to nuclearize weapons. It continues to 
develop delivery systems that could threaten not only the 
region but the United States.
    Ambassador Fried, you mentioned countries that have been 
very helpful to us, and we appreciate what Australia is doing 
and the Republic of Korea is doing and Japan is doing, Canada 
is doing, and now you mentioned even the EU. But it was notable 
that you did mention China in that list of countries that have 
gone beyond the U.N. resolution. In fact, China appears to look 
for ways to weaken the impact of the Security Council 
resolution.
    We know about the livelihood exemption. You mentioned coal 
exports. You mentioned how dependent North Korea is on the 
exports of coal. But this is perplexing because China does not 
want to destabilize the Korean Peninsula and does not want 
North Korea to have its nuclear arsenal that it has and is 
growing, and it could do so much more. It could.
    So what can the United States do? It is for both of you. 
What can the United States do to get China to take the steps it 
could take that will put the type of pressure on North Korea 
that they will change their behavior in regards to their 
nuclear program?
    Mr. Russel. Well, thank you, Senator Cardin.
    I first started working on North Korea 25 years ago under 
the George H.W. Bush 41 administration and have a healthy 
appreciation of the challenge that has faced four successive 
administrations dealing with North Korea and motivating China 
to cooperate with us. The difference between 25 years ago and 
today is dramatic. The difference between 8 years ago and today 
is dramatic in terms of the extent to which China has begun 
cooperating with the United States in an effort to freeze, roll 
back, and eliminate North Korea's nuclear and missile programs.
    Senator Cardin. But do you not agree that China could very 
easily put the type of pressure on North Korea that would 
change the equation here?
    Mr. Russel. We all know--we certainly agree that a change 
in China's behavior is a prerequisite for getting a change in 
North Korea's behavior, that China has potentially tremendous 
leverage over North Korea even though it has relatively little 
influence.
    Senator Cardin. So what can we do to get China to move? 
What can we do to get China to move?
    Mr. Russel. Well, first, unfortunately, North Korea's 
actions and increasingly egregious behavior, which we do not 
like, are generating a change in China's behavior.
    Senator Cardin. What are we seeing that indicates China is 
changing its fundamental position in regards to North Korea? 
Coal exports are up. Are they not?
    Mr. Russel. China is changing its behavior, not necessarily 
its fundamental position towards North Korea. And that behavior 
is manifest in its cooperation with the United States in trying 
to stem proliferation and trying to enforce resolution 2270 and 
in creating barriers to North Korean programs.
    Senator Cardin. But when you have the livelihood exemption 
being interpreted in a way that China is interpreting it, it is 
a loophole that effectively takes China out of the equation 
when it comes to putting pressure on North Korea. And without 
Chinese pressure--we could have the strongest possible sanction 
regime globally--North Korea is protected.
    Mr. Russel. We fully agree that placing restrictions on the 
DPRK's ability to export coal to China or anywhere else is a 
priority and it is a focus of the negotiations that are 
currently underway over a new U.N. Security Council resolution.
    Senator Cardin. Is it correct that North Korea's exports to 
China have grown by--I have 27.5 percent by value in August, 
making it the sharpest increase? They are not only not helping 
us, they are helping North Korea. Are they not?
    Mr. Russel. We believe--and President Obama, after meeting 
with President Xi Jinping, in which he had a very, very direct 
and forceful exchange on the DPRK and sanctions policy, said 
publicly that China can and should do more to tighten 
sanctions. This is a goal of U.S. diplomacy. This is only one 
facet, however, of China's behavior vis-a-vis the DPRK, and 
there are significant improvements in China's cooperation with 
the U.S. and the Republic of Korea in both implementing the 
2270 U.N. sanctions and in pushing back against the risk of 
either provocations or proliferation.
    Senator Cardin. Well, that is a pretty general statement, 
and I would like to drill down on it. And I will ask that you 
get our committee information on how China has been so helpful. 
But it seems to me that because of its economic relationship 
with North Korea--its economic relationship with North Korea--
that all the work we are doing on sanctions globally is being 
compromised dramatically because of China's economic 
relationship with North Korea. That does not seem to make any 
sense.
    Mr. Russel. We share the concern, Senator, that China's 
purchases of coal and other economic activities create a 
lifeline that reduces the impact of global sanctions, and we 
are working directly with Chinese senior leadership to 
encourage and persuade them to tighten up and to toughen up for 
the purpose of bringing about a change in the DPRK's behavior.
    Senator Cardin. Thank you, Mr. Chairman.
    Senator Gardner. Thank you, Senator Cardin.
    It is hard to believe that China is serious about effecting 
change in North Korea's behavior when they continue to share a 
billion dollars' worth of coal exports and continue to share 90 
percent of their economy. I think Senator Cardin--what he was 
getting at was Chinese cooperation and are they going to be 
willing in this new security resolution that you are talking 
about to narrow or limit the livelihood exemption in the new 
Security Council resolution that you mentioned several times 
now.
    Mr. Russel. That is what is under negotiation now. We 
certainly hope so, and we are working to that end. At the same 
time, we are pursuing law enforcement cooperation and other 
forms of sanctions enforcement and implementation in an effort 
to continue to tighten the net on the DPRK for the purpose of 
changing their behavior and bringing them to real negotiations.
    Senator Gardner. Well, perhaps we can get further into 
this.
    Senator Barrasso?
    Senator Barrasso. Well, thank you very much, Mr. Chairman, 
for holding this hearing.
    And to Senator Cardin, I think you are absolutely right on 
all of the issues that you have raised. I mean, I think about 
what is happening. I look at September 9th, 2016, Defense 
Secretary Carter discussed the most recent nuclear test by 
North Korea. He says, quote, China has and shares important 
responsibility for this development and has an important 
responsibility to reverse it. He goes on and he says, and so it 
is important that it use its location, its history, its 
influence to further the denuclearization of the Korean 
Peninsula and not the direction things have been going.
    So I ask you, Assistant Secretary Russel, is China willing 
to impose any consequences, any additional sanctions against 
North Korea for this most recent nuclear test? And what 
specific actions--specific actions because, as Senator Cardin 
said, you know, we hear kind of general answers. What specific 
actions did the administration ask China to take in response to 
these nuclear tests and the missile launches?
    Mr. Russel. Thank you, Senator.
    I agree 100 percent with what Secretary Carter said.
    The President has met repeatedly with President Xi Jinping 
over the course of 2016, as recently as early this month, in 
Hangzhou, China, and very forcefully presented our specific 
asks and recommendations in terms of practical ways that China 
can enhance the effectiveness of sanctions through border 
controls, through limiting access to Chinese banks, through 
limits on Air Koryo and other modes of transportation, shutting 
down North Korea's cyber bad actors, including on Chinese 
servers and soil. The list goes on. President Obama met again 
in New York last week with Premier Li Keqiang and again pushed 
very forcefully.
    We have both a strategic and economic dialogue in which 
Secretary Kerry with his counterpart, the State Counselor of 
China, have delved into this. And at every level below that, we 
have worked directly with China to enhance and improve their 
cooperation and their implementation.
    We are not fully satisfied. There is much more that we 
believe China can and should do. We look for ways to 
demonstrate that it is very much in China's interest to do 
more, and we have demonstrated, including through the decision 
to deploy the THAAD system, that the United States and our 
allies will take the steps necessary to protect us against the 
threat posed by the DPRK even when those steps are unwelcome by 
the Chinese. We have pointed out that the solution to their 
concerns about the behavior of the U.S. military in Northeast 
Asia is for them to act more assertively in changing the DPRK's 
behavior and ending the missile and nuclear programs.
    Senator Barrasso. Mr. Chairman, what we heard is that the 
President I think he said pushed forcefully, but it has not 
been very effective. So I want to talk specifically about trade 
between China and North Korea. And, Ambassador, you may want to 
weigh in on this.
    China is North Korea's largest trading partner. China has 
worked hard to put loopholes, as Senator Cardin referred to, 
and exemptions to many of the North Korea sanctions at the 
United Nations Security Council. I mean, that seems to be the 
way that China is working. There is an exemption under the UNSC 
Resolution 2270 that allows North Korea to sell coal and iron 
ore. China continues to import North Korea's coal, iron, iron 
ore.
    So I would ask, Mr. Ambassador, what would be the impact of 
a complete ban on China's import of North Korea's coal, iron, 
and iron ore, and is the administration working to this end, to 
get rid of these loopholes and exemptions?
    Ambassador Fried. Yes, we are, indeed, working to address 
the problem of North Korean coal exports generally and 
specifically to China. If in sanctions you follow the money, 
the money takes you to coal. It also takes you to some other 
sectors. But your question was to coal, so I will stick with 
that.
    The most effective way would be, of course, to address this 
through a new UNSCR, a new Security Council resolution. UNSCRs 
generally are the gold standard because they are universally 
accepted and legally binding.
    If that is not possible, there are other options. We can 
seek to convince Chinese individual companies that it would be 
in their own best interest to avoid dealing with the most 
suspect North Korean coal exporters. And the administration's 
actions on Monday designating Chinese companies demonstrates 
that nothing is off limits, including this.
    I do not want to get more specific at this point, but the 
questions from Chairman Gardner and Ranking Member Cardin are 
exactly the right ones. I take it as a good sign that those are 
the questions the administration is grappling with right now 
actively.
    Senator Barrasso. Let me ask a final question. I know my 
time is expiring.
    According to the Congressional Research Service, this year 
alone, North Korea has conducted almost 30 missile tests, 
double the number of last year. What are we hearing from our 
friends in Japan and South Korea about what is happening over 
there?
    Mr. Russel. There is immense and appropriate concern in 
Japan and in South Korea about the accelerating tempo of North 
Korea's ballistic missile activity and a commensurate 
willingness to work closely with the United States to promote 
military interoperability, information sharing, joint 
exercises, and a variety of other defense-related programs that 
are increasing our ability to deter and to defend against this 
significant threat.
    Senator Barrasso. Thank you, Mr. Chairman.
    Senator Gardner. Senator Menendez? And I want to thank 
Senator Menendez for his work on the legislation that so much 
of this hearing is focusing on. Thank you.
    Senator Menendez. Well, thank you, Mr. Chairman, for 
holding the hearing. I want to commend you on your active 
leadership in this regard. We worked together on the North 
Korea Sanctions and Policy Enhancement Act, and I appreciate 
that that is one of the vehicles that we are using to try to 
push back against North Korea's not only promotion of its 
nuclear weaponry but also my concern of proliferation as well.
    And I think all of my colleagues from what I gather, 
because I was having meetings in my office but had the TV on, 
have asked the same questions. What is that we need to do to 
get China? And I must say that one of the things that I am 
convinced that we are unwilling to do--and it is from my 
experience as one of the authors of the Iran Sanctions Act--is 
to sanction the universe of financial transactions because 
those would lead to Chinese banks. And when we do that, that 
had some of the toughest and most consequential actions on 
Iran.
    Now, we have not pursued the financial transactions center 
as an element of getting those who want to facilitate North 
Korea's actions and creating pressure on them as the world 
created pressure on Iran from disengaging with it financially.
    So, Ambassador Fried, have we, meaning the administration, 
contemplated the type of financial sanctions that we levied 
against Iran as it relates to those who would be doing business 
with North Korea and who would be permitting them access to 
their banking centers?
    Ambassador Fried. We are looking at all possible points of 
leverage and pressure against North Korea and the North Korean 
economy. We have abundant tools.
    You are quite right that the financial sanctions against 
Iran, combined with the oil and gas sanctions, were powerful. 
So there is no question about that.
    Senator Menendez. I did not ask you about all tools. I am 
asking specifically about these tools.
    It seems to me that we are reticent to pursue the type of 
financial transactions because they would largely lead to 
Chinese banks. And so in the absence of doing that, one of the 
most powerful tools that you might have left to get North Korea 
to observe international norms and the will of the 
international community, as expressed by the United Nations, is 
missing. Why is it that the administration has not come forward 
and sought specifically that type of either tool or implement 
it if they think they have the power to do so themselves?
    Ambassador Fried. We actually have sanctioned--we have 
designated a number of North Korean banks. And the action which 
the administration took on Monday demonstrates that we are 
willing to take the next step of designating third country 
entities which are cooperating with designated North Korean 
banks. So we have crossed that line, and we are actively 
looking and constantly looking at additional targets.
    Senator Menendez. Which Chinese banks have you sanctioned?
    Ambassador Fried. Well, this Monday, there were Chinese 
financial institutions sanctioned by the Treasury Department. 
It was four Chinese nationals and one entity complicit in 
sanctions evasion.
    Senator Menendez. Nationals is good, but I am talking about 
institutions.
    Ambassador Fried. And an institution. This was a financial 
institution.
    Senator Menendez. Well, I would like to know whether you 
have all the authorities you need to go after Chinese banks 
that are engaged in dealing with the financial transactions 
that North Korea would ultimately need because it seems to me 
that if we are going after those banks, that that is an 
incredibly powerful tool. So if you can just explicitly tell 
me, do you have all the authorities that you need, and if so, 
is it the intention of the administration to use those 
authorities against whatever bank, whether they be Chinese or 
others, as it relates to transactions with North Korea?
    Ambassador Fried. Yes, we believe we have the authorities 
we need, and yes, we are looking at all possible pressure 
points, including financial.
    Senator Menendez. So if that is the case, then the onus is 
on the administration, not on Congress, to provide you 
additional authorities that you obviously do not need based 
upon your answer.
    Let me ask one other question. One of my main concerns is 
North Korea's level--and, Mr. Secretary, maybe you could speak 
to this--about sharing and transferring nuclear technology. 
North Korea has successfully subverted sanctions and export and 
import controls often through falsely flagging cargo ships. I 
want to get a sense from you what steps are we taking, what 
steps our international partners are taking since March to more 
rigorously monitor and ensure that all countries are complying 
with the strict controls the U.N. Security Council passed in 
March.
    Mr. Russel. Senator, I would go one step further than 
merely the U.N. Security Council resolution. Because 
proliferation is a paramount concern of the Obama 
administration, we are working through a variety of 
intelligence and law enforcement channels to significantly 
enhance the monitoring of DPRK activities to establish 
telltales and tripwires for the purpose of making it harder and 
harder for the DPRK to successfully sell or transfer either 
technology or fissile material and to try to ensure that we are 
able to detect efforts they may undertake to do that. That 
involves close cooperation not only with North Korea's 
neighbors but also ensuring that it is constrained in terms of 
its ability to move ships, cargo, planes, and people. So 
increased scrutiny at international airports, greater 
verification of passport information, the requirement of visas, 
as well as close government-to-government information sharing 
are among the steps that we are taking.
    If I could add, Senator, to your important point about 
China. We are working our way through the suite of options in 
terms of steps that we can take vis-a-vis China's behavior 
towards North Korea. We have begun, obviously, with the goal of 
persuading China to take more and more action in part because 
China can do far more effectively and usefully, from our point 
of view, willingly than we can achieve indirectly through 
direct sanctions against China, but we have, as my colleague, 
Dan Fried, mentioned, not balked at taking direct action 
against Chinese entities or people when the evidence is there. 
We make a point of bringing information to the Chinese and 
encouraging the Chinese to act on that information and to 
develop it further in their own law enforcement and security 
channels. They have abundant tools of their own to put 
restrictions on the DPRK.
    I am not in the business of defending China. We think that 
there is much more that they need to do. As I mentioned, 
President Obama stood up in China and made that point directly 
and explicitly in public, as he has in private. But the fact is 
that the trend line of Chinese action against DPRK 
proliferation, missile and nuclear activities, and the trend 
line of China's cooperation with the international community 
generally through the U.N. and with the United States on a 
bilateral basis is improving.
    Senator Gardner. Senator Rubio?
    Senator Rubio. Thank you.
    Mr. Fried, I want to talk about this report, a recent study 
by the Center for Advanced Defense Studies. It is called In 
China's Shadow. And basically it is clear from this report that 
China has allowed a Chinese company and its front company to 
conduct about $532 million in trade volume. The report 
identified six companies. You discussed here the sanctions 
against one. Why did Treasury only designate one of those six 
companies?
    Ambassador Fried. We are actively looking at all possible 
targets. I will not speak for Treasury and its individual 
decisions, but in my experience, Treasury is both effective and 
aggressive in identifying targets and pursuing them. We have to 
have sufficient evidence to meet Treasury's legal threshold. 
But I will tell you that we are in the mode of gathering 
information and we will go where the information takes us.
    Senator Rubio. But that just sounds like--I mean, I get it.
    Ambassador Fried. I do not want to talk about a specific 
company and a specific designation, at least in this session.
    Senator Rubio. Why? They are out there in this report. I 
mean, they are named. The world and everyone knows who these 
companies are. There is not a mystery here.
    Ambassador Fried. Well, as a general rule, it is best not 
to talk about current investigations----
    Senator Rubio. That is true in a court of law.
    Ambassador Fried:--in an open session.
    Senator Rubio. No. That is absurd. This is a report that is 
out there for the world to see. Everyone knows this. This is 
not a secret.
    Ambassador Fried. I will tell you what. I will consult with 
my Treasury colleagues and try to get you whatever we can----
    Senator Rubio. And that is why these hearings often--I 
mean, they are just so hard to sit through sometimes because 
you just get all this--and I do not mean to be disrespectful. I 
know you are towing the company line or whatever, the Secretary 
of State's line on this stuff. But I think everyone can see 
what this is. I mean, we are afraid to press the case against 
too many Chinese companies because of the broader situation 
between China and the United States.
    Let me ask you for the record. Has the White House or the 
State Department ever pressured the Justice Department or 
Treasury to delay designations and law enforcement actions to 
avoid embarrassing China?
    Ambassador Fried. Not to my knowledge, no, sir.
    Senator Rubio. Because we have a Department of Justice 
indictment that was unsealed in civil forfeiture actions. The 
criminal indictment lists transactions of millions of U.S. 
dollars going all the way back to 2009 where there were these 
front companies that served as financial intermediaries for 
U.S. dollar transactions between North Korean-based entities 
who were being financed by KKBC, which is a designated North 
Korean bank, and suppliers in other countries. And it was done 
in order to evade restrictions on U.S. dollar transactions.
    I do not understand. From 2009 to 2016, why did we wait to 
act against these persons? And the only conclusion one could 
draw is that beyond the issue of sanctions, we have here the 
issue of pressure because of the broader situation with China 
and our foreign policy. And I got to be frank. This just looks 
to me like an administration that is saying let us not go too 
hard on some of these Chinese companies because it is going to 
destabilize our broader relationship with China on a series of 
other topics. And that is what it looks like.
    Here is another point that I do not understand. There are 
three times as many Iran-related persons designated by the 
United States than North Korea-related persons. Can anyone 
describe for me the reason for this discrepancy? I have no 
problem with there being a lot of Iran-related designations, 
but why are there so many more Iran-related designations than 
North Korean-related designations when in fact North Korea has 
already not only developed weapons but are demonstrating it and 
using them in all sorts of tests? Why the discrepancy?
    Ambassador Fried. The first point to make is that the 
administration's action on Monday to designate the Chinese 
banks was an important step. And as I said earlier in the 
hearings, we are actively looking at a number of targets.
    With respect to the numbers and comparing Iran and North 
Korea, the Iranian is both much larger and much more connected 
to the rest of the world than the North Korean economy, and the 
North Korea economy was--despite huge areas that are hidden 
beyond the various walls of secrecy in Iran, is generally more 
open. That may have something to do with the numbers.
    But to answer what I think, Senator, is your larger point, 
the administration shares Congress' view that the North Korean 
threat and North Korean actions, including especially the 
recent nuclear tests, compels us to intensify our pressure 
campaign working both through the U.N. with third countries 
such as the Japanese, South Koreans, Europeans, Australians, 
Canadians and using our national authorities in a coordinated 
fashion to increase the pressure. We welcomed the legislation 
earlier this year. We have put it to good use, and we intend to 
pursue North Korean targets aggressively.
    Senator Rubio. All I can say is that what this looks like 
from watching it is that what we are basically involved in here 
is a provocation-response cycle with North Korea. And you talk 
about the sanctions. I know my time is up. And you talk about 
the bill that Congress passed earlier this year, that we passed 
this year. But it was only until then that we finally 
designated North Korea as a primary money laundering concern.
    Again, this whole thing looks like to be a combination of 
things. This provocation cycle that we have gotten ourselves 
into with North Korea, we are holding back on sanctions and 
able to use them if they provoke us in a different setting, and 
this cycle continues. North Koreans have played this 
brilliantly over the last few years buying time for themselves 
to reach the point they have reached.
    And the other is, quite frankly, what this looks like is 
that the United States is holding its diplomatic fire and its 
sanctions fire on some of these issues for fear of impacting 
our relationship with China and our fear of offending the 
Chinese government or going after some of their entities who, 
by the way, are also involved in all sorts of other endeavors 
that are questionable.
    So, again, Mr. Chairman, I do not know why it has taken so 
long and why so little has been done. It is no surprise we are 
at the point we are at today.
    Ambassador Fried. Just one point, Senator. You mentioned--
my words, not yours--the trap of the provocation and response 
cycle. That is not what we are doing. This year especially, 
working through the U.N. and other channels, we are in a 
position of intensifying pressure independent of a provocation-
response cycle. We are in earnest. We intend to increase 
pressure on North Korea. To do so, we also have to work around 
the world with third countries and with the Chinese, as my 
colleague pointed out. That is our intention. So I agree that a 
provocation-response cycle and staying within such a cycle 
would not be the right approach, and that is not our approach.
    Mr. Russel. Mr. Chairman, with your permission, I would 
just add, Senator Rubio, that if it were the administration's 
policy to tiptoe around China in dealing with the North Korean 
threat, we would never have decided with the Republic of Korea 
to deploy the THAAD system. We would never have designated a 
Chinese entity and Chinese national. We would never have taken 
the decision to send a B-1 bomber or aircraft carrier to the 
Korean Peninsula.
    It is very much the case that we seek active Chinese 
cooperation. We recognize that a change in China's behavior is 
a prerequisite to getting a change in North Korea's behavior. 
And the President, the Secretary of State, and others have made 
crystal clear directly in private to Chinese leaders and in 
public that we think there is much more that China needs to do 
and can do and should do to tighten the screws on the DPRK, 
given their significant leverage and their special 
relationship.
    Senator Rubio. And all those moves are important, but we 
are talking about sanctions here. And yes, we sanctioned one 
company. There are multiple companies from China, China-related 
companies, who we have just as much evidence against. Everybody 
knows. I mean, everyone knows who they are. And when you look 
at how long it has taken to get to this point and you look at 
the limitations that have been placed where only one company 
has been designated so far when there are multiple companies of 
equal status and some actually are involved in even more of 
these sorts of deals, it starts to look like we are trying to 
not do too much too soon. And this notion of standard of 
proof--I understand about that if you are going to prosecute 
someone in Federal court, but from this perspective is a very 
different situation. This not even a secret. The world knows 
who these companies are.
    And quite frankly, they do not necessarily take great steps 
to try to hide it on many occasions because the interest of the 
Chinese Government ultimately, beyond anything else, is 
stability in North Korea. They do not want to see a regime 
collapse and millions of people pouring over the border and in 
addition to a profit motive that is involved here as well for 
some of these companies. We know who these companies are. We 
have not moved fast enough on it. There is no reason not to 
have moved faster. There are plenty of targets of opportunity 
and plenty of information out there about them.
    Senator Gardner. And thank you, Senator Rubio. I would just 
remind Secretary Russel and the administration that under the 
sanctions act that we passed, these are mandatory 
investigations required and mandatory sanctions required unless 
the administration provides a waiver to Congress. At this 
point, do you intend to provide us with waivers of companies 
that you are investigating?
    Ambassador Fried. No.
    Senator Gardner. And so why have we only designated one 
company then?
    Ambassador Fried. As I said earlier, the Treasury 
Department, the State Department, and our intelligence 
community are all involved, engaged in investigations.
    As Assistant Secretary Russel said, of course, the 
preferred option is for China itself to do more as we think it 
should.
    A second option is to have Chinese companies independently 
come to the conclusion that it would be a lot better for them 
if they avoided interaction with North Korean companies.
    But clearly our actions on Monday indicate that we are 
willing to sanction Chinese companies who are evading U.N. or 
U.S. sanctions. So we are pursuing all of these avenues.
    Senator Gardner. Senator Markey?
    Senator Markey. Thank you, Mr. Chairman, very much.
    We know that Kim Jong-un's goal is to die as a very old man 
in his bed. So that does not really work for him if there is an 
all-out nuclear war in that region because he would probably 
not become a very old man.
    And so my concern here is the plans which are in place to 
use preemptive force against North Korea's nuclear arsenal or 
its leadership which could actually increase the risk of 
accidental nuclear war in a crisis.
    Recently South Korea's Defense Minister informed the 
parliament that South Korea has forces on standby that are 
ready to assassinate Kim Jong-un if South Korea feels 
threatened by nuclear weapons. He said this. South Korea has a 
plan to use precision missile capabilities to target the 
enemy's facilities in major areas, as well as eliminating the 
enemy's leadership.
    If North Korea fears that South Korea intends to use 
preemptive force to kill its leaders, then that could create 
huge pressures for Kim to delegate control over his nuclear 
weapons to frontline military commanders. And if North Korea 
believes that South Korea plans to preemptively take out its 
nuclear weapons, that could create pressure to use them or lose 
them in a crisis. Both of these pressures could drastically 
increase the risk of inadvertent nuclear war on the Peninsula.
    Secretary Russel, in your view, is there a risk that 
military plans focused on preemptive attacks on North Korea's 
leadership and its nuclear arsenal could increase the risk of 
uncontrolled nuclear escalation? As part of your strategy for 
managing the North Korean nuclear threat, is the administration 
working on plans to deescalate a military crisis so that it 
does not spiral out of control and result in a nuclear war? And 
do you foresee potential arrangements for crisis communications 
with the North Korean regime to defuse and deescalate such a 
situation that could lead to an accidental nuclear war?
    Mr. Russel. The short answer, Senator Markey, is yes. We 
are concerned lest there be an escalatory cycle on the Korean 
Peninsula.
    Yes, we have in place very serious counter-escalation plans 
in the U.S.-ROK alliance. The commander of the combined forces, 
General Vince Brooks, one of America's best soldiers, is, as 
his predecessors have been, working with the ROK military and 
national leadership on a day in and day out basis. They are 
very tightly stitched together.
    And yes, the alliance has very specific plans to deal with 
a variety of contingencies with a view to, in the first 
instance, deescalating and defusing. This has been a big part 
of our joint defense strategy.
    Now, there is a lot of hyperbole and rhetoric in the way 
that certainly North Korea speaks always and the way that some 
South Korean officials occasionally speak when they are out 
testifying or speaking before the press. I do not think that 
the comments of the defense minister, taken by themselves, 
represent an intent on the part of the Republic of Korea to 
take precipitant or provocative action.
    Senator Markey. I appreciate that. My concern, obviously, 
is how the North Koreans react to it. Whether or not South 
Korea intends on doing it is separate from the paranoia that is 
induced in an individual or group of people that could then 
lead to an escalation. That is what we were always concerned 
about during the Cold War between the U.S. and USSR. It was an 
escalation of rhetoric that then could be used, unfortunately, 
by those that would think that nuclear weapons are usable. And 
so that is always a concern.
    And what we are seeing actually following the 2013 North 
Korea nuclear test--a poll found that 66 percent of the South 
Korean public favored acquiring an independent nuclear 
deterrent.
    After North Korea's test in January of this year, Won Yoo-
chul, a senior South Korean figure in President Park's party, 
suggested that South Korea should acquire its own nuclear 
weapons. Referring to our nuclear umbrella that we provide, Won 
said, quote, we cannot borrow umbrellas from next door every 
time it rains. We should wear a raincoat of our own. We should 
get our own nuclear weapons.
    How would you assess pressures in South Korean society to 
acquire nuclear weapons? How would you assess pressure inside 
of the Japanese society for them to acquire nuclear weapons? 
And what actions are we taking to reduce the likelihood that 
they move in that direction?
    Mr. Russel. Senator, I think that the pressure in the main 
stream political society in either the Republic of Korea or in 
Japan to contemplate the acquisition of nuclear weapons is 
directly commensurate with their faith in America's commitment 
as an ally to their defense and to the extended deterrence or 
the nuclear umbrella provided by their alliance with the United 
States.
    Senator Markey. So you are saying they would have to 
believe that if there was, for example, a nuclear attack on 
South Korea, that we would then launch a nuclear attack on 
North Korea. They would have to believe that.
    Mr. Russel. I would put it the other way, Senator. If the 
Japanese and the Korean publics and their leaders lost faith in 
America's resolve, in our absolute determination to use all of 
these tools of national security to deter and to defend against 
an attack from North Korea, then yes, I think the----
    Senator Markey. So how do you interpret this poll that says 
that 66 percent of the South Korean public favors acquiring an 
independent nuclear deterrent? Does that not indicate to you 
that there is some increasing lack of confidence in the 
American nuclear umbrella, that is, that we would actually use 
nuclear weapons against North Korea if there was such an attack 
or even a biological attack on South Korea?
    Mr. Russel. Well, I cannot speak to a particular poll. I 
think there is an ebb and flow among the Korean public. But 
certainly the concerns driven by North Korea's pattern of and 
tempo of testing is driving anxiety.
    However, steps by the United States, such as the strong 
message of reaffirmation of our alliance commitments that 
President Obama made in his immediate phone calls to both 
President Park and to Prime Minister Abe, the deployment of our 
strategic bombers to the Korean Peninsula, the plans for 
bilateral and trilateral exercises, and the other 
manifestations of America's unshakeable determination to defend 
and protect ourselves and our allies, I believe keeps that kind 
of thinking----
    Senator Markey. So you are saying that we are sending 
strong signals that you would use nuclear bombs on North Korea 
and that we are assuring the South Koreans that they do not 
have to have their own nuclear deterrent because we would use 
them in the event that there was a nuclear attack on South 
Korea. Is that what you are saying?
    Mr. Russel. No. Senator, what I am saying is that we are 
giving enough confidence to our allies----
    Senator Markey. Confidence that what? That we would do 
what?
    Mr. Russel. That our deterrence----
    Senator Markey. That our nuclear bombs----
    Mr. Russel.--and our willingness to utilize----
    Senator Markey. To use them?
    Mr. Russel.--the full range of U.S.----
    Senator Markey. Right. That is what I am saying. We are 
giving them confidence that we would use nuclear bombs against 
North Korea. Is that what you are saying?
    Mr. Russel. I am not going to say. I leave it to the 
President to decide if and when the United States is going to 
use a nuclear weapon. What I am saying is----
    Senator Markey. But that is what I am hearing you say. 
Those are exactly the words that you are using. You are not 
saying ``nuclear bomb'' but you are using every other word but 
that to describe the use of a nuclear bomb.
    Mr. Russel. The way, Senator, that I think it should be 
understood is that the certainty on the part of the DPRK that 
the United States would either prevent their use of nuclear 
weapons or retaliate in a devastating manner is an effective 
deterrent, and the credibility of the U.S. deterrent is such 
that neither government intends to pursue nuclear weapons.
    Senator Markey. I guess what I would say is we should 
really intensify our efforts to make sure that there is no 
accidental situation that develops that could increase 
tensions, that we are working very closely, that we are 
creating close communications with the North Korean Government 
in terms of the deployment of their weapons so that we do not 
have that accident and we do not have to ever have to use a 
nuclear weapon ourselves against the North Koreans because we 
do not know where that would end.
    Thank you, Mr. Chairman, very much.
    Senator Gardner. Senator Udall?
    Senator Udall. Thank you, Mr. Chairman.
    And thank you both for being here.
    Retired Admiral Mullen and former Senator Sam Nunn recently 
made recommendations with regard to how to deal with the threat 
from North Korea. These included many recommendations for how 
to get North Korea back to the negotiating table. Has the State 
Department reviewed these recommendations, and do you believe 
that it is possible to restart negotiations?
    Mr. Russel. Thank you, Senator.
    I recently sat down with both Admiral Mullen, with whom I 
had previously worked when he was Chairman and whom I deeply 
admire, and Senator Nunn to work through in some detail their 
recommendations in the report. I had been in touch with them 
during the process of writing the report, as well as with other 
important members of the committee. I think that we see things 
in a generally consistent manner.
    The goal of U.S. policy has been to try engineer 
negotiations with North Korea over their nuclear program on the 
simple grounds that that is the only peaceful way forward to 
achieve denuclearization.
    But the terms of those negotiations are very important. 
There is not only no value in talk for talk's sake, but the 
experience of the first Bush presidency, the Clinton 
presidency, the Bush 44 presidency, and our own experience has 
demonstrated that unless the negotiations are about North 
Korea's nuclear program and unless they include discussion of 
IAEA access and monitoring, North Korea simply cannot be 
trusted to honor its promises.
    What the North Koreans have done is to, number one, abandon 
the Six Party Talks, renounce the commitments they have made 
under those talks, reject and defy international law in the 
form of the U.N. Security Council resolutions, and continue 
their violations while fitfully occasionally offering to hold 
discussions with the United States about the withdrawal of U.S. 
forces from South Korea. That is an utterly unacceptable basis 
for talks.
    But we have worked consistently to show the North Koreans 
that we want to negotiate, that we are willing to talk, that 
the door is open to a process that can net them the benefits 
that were on the table in 2005 in the Six Party Talks process, 
which includes discussions about a successor agreement to an 
armistice, that includes the process of diplomatic 
normalization, economic assistance, and so on. And Secretary 
Kerry has gone out of his way both publicly but also in 
international meetings where the North Korean foreign minister 
was present to emphasize our interest and willingness to 
negotiate.
    Senator Udall. Do you have any additional comments on that?
    Ambassador Fried. No.
    Senator Udall. No.
    How can we strengthen our monitoring capabilities to 
prevent North Korea from obtaining nuclear materials and 
equipment that it could use to create additional nuclear 
weapons? Does Congress need to invest more in technology and 
equipment to better monitor such transfers?
    Ambassador Fried. Senator, monitoring the materials that go 
into North Korea and that come out of North Korea, monitoring 
the movement of DPRK scientists and officials who might be 
involved in proliferation is a top priority for our national 
security agencies, as it is for those of Japan, Korea, and I 
believe China. We are working to share information. We are 
working to tighten the safeguards and the monitoring.
    As for what additional funding, authorities, or Congress 
action would assist that effort, I would have to consult with 
my colleagues in other agencies and propose they respond in a 
classified setting.
    Senator Udall. Okay. Thank you very much.
    Thank you, Mr. Chairman.
    Senator Gardner. Thank you, Senator Udall.
    We will go to a second round of questioning. I will begin 
with Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman.
    Ambassador Fried, I pride myself on my preparation for 
these hearings. So I went back to my office after your answer, 
and I looked at OFAC's statement of Monday. You said in 
response to my question, we just sanctioned a bank on Monday. 
Well, I read from OFAC's statement that they imposed sanctions 
on Dandong Hongxiang Industrial Development Company and four 
individuals.
    Now, is that company a bank?
    Ambassador Fried. Sir, it is not a bank. It is a financial 
company that worked with a sanctioned North Korean bank.
    Senator Menendez. It is different than saying that you 
sanctioned a bank.
    Ambassador Fried. Yes, sir.
    Senator Menendez. You did not sanction a bank on Monday.
    Ambassador Fried. We sanctioned a Chinese financial 
corporation.
    Senator Menendez. All right. Well, that is different from a 
bank.
    Ambassador Fried. Yes, sir.
    Senator Menendez. Let me ask you this. How many banks--
banks--has the administration sanctioned as it relates to North 
Korea?
    Ambassador Fried. Do you mean banks in general or Chinese 
banks?
    Senator Menendez. Let us talk about Chinese banks.
    Ambassador Fried. No Chinese banks.
    Senator Menendez. No Chinese banks.
    Ambassador Fried. Not in China.
    We have designated a number of North Korean----
    Senator Menendez. That is my point. That was the point that 
I was trying to drive at earlier. You have sanctioned no 
Chinese banks at the end of the day, and they are probably the 
major financial institutions for North Korea.
    What this company, as I understand, did was made purchases 
of sugar and fertilizer on behalf of a designated Korean bank. 
It is a trading company, not a financial company.
    So when I take testimony as a member of this committee, I 
need to make sure that testimony is accurate because I make 
decisions based upon it. And I must say that the information 
you gave me is not accurate. This was not a bank. This is a 
trading company. And finally, I got the answer that I wanted to 
hear, which is what I knew, is that you sanctioned no Chinese 
banks as it relates to North Korea.
    And it is our hesitancy to do so that takes away one of the 
major instruments possible to change Chinese thinking. I am all 
for persuasion, if you can achieve it, but when you cannot and 
North Korea continues to advance its nuclear program in a way 
that becomes more menacing in its miniaturization in its 
missile technology, I do not know at what point we are going to 
continue to think that we can stop them when in fact they are 
pretty well on their way, and we allow them to continue to do 
so, and we do not use some of the most significant tools that 
we have.
    So I am disappointed that you did not give me the right 
information.
    Now, one final question to you, Mr. Secretary. I think the 
chairman had a separate private panel that suggested that the 
Chinese have basically created a preference over stability in 
the Korean Peninsula versus the challenge of North Korea 
pursuing this nuclear power, nuclear weapons, and missile 
technology.
    Now, I am never for nuclear proliferation. But do you agree 
that that is the view that China has?
    Mr. Russel. Senator, what I have heard Xi Jinping say 
repeatedly is that China's three noes are no war, no chaos, and 
no nuclear weapons on the Korean Peninsula. So I think they 
have multiple objectives that are in conflict with each other, 
and we see, in part depending on North Korean behavior, in part 
depending on the pressure or the persuasion from the United 
States, some ebbs and flows, some shifts in the Chinese from a 
bias towards maintaining civility and preventing----
    Senator Menendez. War and chaos are in my mind equally the 
same to some degree. When you have war, you generally have some 
degree of chaos. No nuclear weapons. Because there are some who 
suggest that if that is their dynamic, then allowing South 
Korea to pursue the possibility of nuclear weapons changes 
China dynamics as to how far it is willing to push North Korea.
    Mr. Russel. I think that the Chinese are very mindful of 
the risk that either South Korea or Japan might distance itself 
from the U.S. nuclear umbrella and pursue their own 
capabilities, and that I believe ought to motivate China to 
redouble its efforts to push back on the North Koreans. That is 
only one of many examples of why we believe it is so in the 
best interest of China to tighten up on the North, to expand 
their cooperation with us, and to really abandon an old pattern 
of tolerating a significant amount of provocative and dangerous 
behavior by the DPRK.
    The greatest driver of instability in Northeast Asia is 
North Korea's nuclear and missile program, and the actions that 
the United States is taking and will take, hand in hand with 
our allies, that China opposes, which China perceives as 
somehow containing it, are all driven by the growing threat 
from the DPRK. Secretary Kerry has said again and again if that 
threat diminishes, if that threat is eliminated, the rationale 
for the United States to take a more robust military posture in 
Northeast Asia goes with it.
    Senator Menendez. Thank you, Mr. Chairman. Thanks for your 
courtesy.
    Senator Gardner. Thank you, Senator Menendez.
    I want to follow up on Senator Menendez's question on this 
issue of banks. I believe in the testimony--I am trying to look 
into the testimony. Perhaps you can just refresh my memory. The 
statement was made that North Korea is exporting about a 
billion dollars' worth of coal to China that is benefiting the 
North Korean nuclear activity. Is that correct?
    Ambassador Fried. Yes, that is our belief.
    Senator Gardner. Okay. And so let us assume that $1 billion 
is coming from--give or take some, is coming into North Korea 
from China for the purchase of coal that is benefiting the 
nuclear program. I assume they are using Chinese banks--is that 
correct--for this coal and the importation and the payment of 
that coal?
    Ambassador Fried. The North Korean export of coal is 
certainly the largest single generator of foreign currency for 
the North Korean economy generally. It is a slightly different 
question as to whether that money directly funds its nuclear 
weapons and missile programs. However, for the purposes of our 
sanctions, that difference--and because money is fungible, that 
difference is not dispositive.
    Senator Gardner. And so are they using Chinese banks?
    Ambassador Fried. We are looking into exactly the 
mechanisms by which the coal goes from North Korea to China. I 
do not way to say specifically the role of banks versus the 
role of trading companies or other institutions. But we are 
looking hard and actively at the coal trade generally.
    Senator Gardner. So earlier in this conversation, I asked 
if we were actively investigating Chinese entities.
    Ambassador Fried. Yes.
    Senator Gardner. Okay. So we are actively investigating 
Chinese entities.
    Ambassador Fried. Yes.
    Senator Gardner. So we can expect and should expect 
sanctions to be issued against a number of Chinese entities. Is 
that correct? And if that is not correct, then when will the 
administration be sending waivers to Congress? And you said 
earlier that we do not anticipate waivers to be issued.
    Ambassador Fried. That is true.
    Senator Gardner. So when can we anticipate these additional 
sanctions to be made?
    Ambassador Fried. As my colleague and I said, the best 
option, the most effective way to put sustained and sustainable 
pressure on North Korea, which is our objective here, is to 
have China itself decide for its own purposes that this is 
where it wants to go.
    A second way to proceed is to convince Chinese companies, 
including banks, that it would be in their best interest not to 
deal with sanctioned or sanctionable activities.
    The option of directly sanctioning Chinese entities is 
available.
    Senator Gardner. And mandatory if they violate the terms of 
our legislation.
    Ambassador Fried. Well, that is right.
    What we are looking at is the most effective means to 
achieve this end. Our purpose is to put pressure on North 
Korea. The purpose of sanctions is to support a policy. My 
colleagues has spoken to the policy. I am just the sanctions 
guy. The purpose of sanctions is pressure on North Korea. We 
want to find the best tactics to do that. We are looking at all 
of the tools. That includes sanctions. That includes high-level 
discussions with the Chinese.
    I look forward to being in touch with you, sir, with your 
committee, about our thinking as this progresses. But I can 
tell you that this is not a ``go through the motions'' 
exercise. We are serious about this in general and specifically 
with respect to coal.
    Senator Gardner. Then let me ask you this next question. 
Has the administration designated any actors/entities in North 
Korea for their cyber actions, cyber attacks against the United 
States?
    Ambassador Fried. Not specifically for cyber. However, some 
of our designations are so broad, I suspect that they capture 
cyber actors.
    Senator Gardner. So do we plan to issue any cyber sanctions 
under the terms of section 209 of the legislation, the North 
Korea Sanctions Enhancement Act?
    Mr. Russel. Mr. Chairman, the administration did levy 
sanctions against a number of North Korean individuals and 
entities in the wake of the Sony hack under our own 
presidential executive order that preceded the adoption and the 
signing of the North Korea Sanctions Act. We have not yet 
developed a case under the law against North Korean cyber 
actors, but we are working towards that end. There is no 
question that North Korea's cyber activities, both those that 
emanate directly from North Korea and from servers in third 
countries, represent a serious threat to us and to others. We 
are on it.
    Senator Gardner. Because I mean, as reported this summer, 
North Korean hackers steal blueprints for U.S. fighter jets. 
Have they been sanctioned under the legislation--these actors?
    Mr. Russel. The intelligence and the law enforcement 
community in the U.S. Government is looking at and seeking to 
develop cases in order to sanction North Korean actors for any 
transgression.
    Senator Gardner. You talked a little bit about Air Koryo. 
Has the administration initiated investigations for designation 
of Air Koryo under the law, and does it believe it is engaged 
in activities that would make it eligible for designation?
    Ambassador Fried. In this setting, Mr. Chairman, I do not 
want to discuss specific investigations. It is true that we and 
our allies have curtailed Air Koryo's activities and restricted 
its ability--third governments have restricted its ability to 
land. I do not want to discuss in this session, in an open 
session, particular investigations, but we are well aware of 
Air Koryo's role in the North Korean system.
    Senator Gardner. Secretary Russel, we talked earlier in the 
hearing about United Nations Security Council Resolution 2270. 
Can you tell me a little bit more about China's implementation 
of 2270, particularly as it relates to coal? And Ambassador 
Fried maybe.
    Mr. Russel. Yes. I will make a general comment and then 
turn it over to Ambassador Fried.
    The general comment is that I would characterize China's 
implementation of 2270 as incomplete, as a mixed bag. We have 
seen some clear indications that China has strengthened 
sanctions enforcement. That includes improved customs 
enforcement. The Chinese have publicly and privately asserted 
unequivocally that they consider themselves fully bound by the 
terms of 2270. But as I have said repeatedly and quoted 
President Obama and Secretary Kerry saying, we think that there 
is much more that they can do.
    I have had quite a number of conversations with a variety 
of Chinese counterparts on this very subject both in China and 
elsewhere. They point out the not inconsiderable challenges 
that they face, given the extent of the Chinese-North Korean 
border and the degree of commerce and their concern about the 
livelihood and the welfare of North Korean people, so they say.
    But right now, Mr. Chairman, I think our principal focus is 
the next generation of sanctions that we are seeking to obtain 
through a new U.N. Security Council resolution in New York, and 
that includes making some adjustments to provisions under 2270 
to address some of the problems that you have flagged.
    Senator Gardner. And, Ambassador Fried, before you answer 
the question, I think in our briefing material given to every 
member of this committee it talked about China's announcement 
number 11, instructions to businesses on implementation of U.N. 
Security Council Resolution 2270. And it talked about the 
sample letter that an entity could provide to the government to 
basically claim the livelihood exemption, and it basically says 
my company is importing blank product. I hereby solemnly commit 
that this transaction is--with no documentation required.
    So when it gets to the issue of the livelihood exemption, 
Ambassador Fried, the second United Nations Security Council 
resolution, what will it do to change China's behavior so that 
it can fully implement the sanctions and deprive the regime of 
foreign currency used to further develop its nuclear program?
    Ambassador Fried. Your question, Mr. Chairman, is the right 
one, but because this involves negotiations in the U.N. with 
the Chinese, I cannot predict where we will come out.
    But I will say this. Security Council resolutions are the 
gold standard in sanctions because they are universal. They 
have unchallenged legitimacy and they are binding. But we are 
not bound by what the Security Council will accept. We have our 
national sanctions.
    We would prefer to see an UNSCR address this issue. If not, 
we have options. And as I said earlier today, we are actively 
developing our options.
    Senator Gardner. And do those options involve actions at 
the United Nations? Are there other options, I mean, compliance 
mechanisms within the United Nations to enforce----
    Ambassador Fried. Certainly, sir. We work through the U.N. 
North Korea Sanctions Committee. We work with them on a regular 
basis. This spring I spent a day with them in a very detailed 
session with experts from Treasury, State Department, other 
agencies. So certainly we do that.
    But we have to pursue all of the avenues.
    Senator Gardner. I want to get into some of those other 
avenues here in just a second. But does that committee have the 
ability to determine what nations are and are not fully 
enforcing 2270, and have they made that determination?
    Ambassador Fried. The Sanctions Committee does issue 
reports, and governments submit to that committee reports on 
their own implementation of 2270.
    Senator Gardner. And what is the finding of that report in 
regards to the country that is responsible for 90 percent of 
North Korea's economy?
    Ambassador Fried. I would say Assistant Secretary Russel 
summed that up pretty well: a mixed picture, although far 
better in action than before. There is a way to go.
    Senator Gardner. And so are there mechanisms within the 
United Nations to--compliance mechanisms--to enforce the 
resolution, and has the United States utilized those mechanisms 
and do we intend to?
    Ambassador Fried. We intend to use all avenues, including 
at the U.N., including the Sanctions Committee, to work to 
identify sanctionable activity to use this to improve 
everyone's enforcement--well, first, recognition of the 
provisions of 2270 and the enforcement of it. So certainly.
    Senator Gardner. And could you address some of the other 
options that you referred to in your answer?
    Ambassador Fried. Certainly.
    What I said earlier about convincing Chinese companies that 
it is in their best interest to avoid sanctionable activity is 
not just a phrase. Our actions on Monday indicate that Chinese 
companies, you know, the financial company and the individuals, 
that Chinese persons fiscal, legal, and physical are not off 
limits. That news will spread around the Chinese community. We 
can also use various means to get the word out to Chinese 
businesses and banks that we are serious.
    The Congress has given us and we have given ourselves under 
IEEPA wide authorities to act against sanctionable activity. 
The best sanctions are those that do not have to be used 
because the activity stops. The purpose of sanctions is not 
punish but to change behavior. If sanctions serve their purpose 
and behavior changes, to be specific, the exports of coal 
diminish because the costs and risks of doing so increase, so 
much the better. But the credibility of that kind of a message 
will grow as our determination becomes apparent.
    When the Congress and the executive branch are pointed in 
the same direction, we are at our most powerful, which is why 
the legislation is so useful to us. We intend in the coming 
weeks and in the life of this administration to pursue all of 
these avenues with the objective of squeezing the North Korean 
economy in the service of the political objective that my 
colleague laid out.
    Mr. Russel. Mr. Chairman, if I could add, in addition to 
coal, North Korea has other revenue streams that we target. An 
important one is overseas labor, the export of workers both in 
restaurants and in forestry and agriculture, et cetera, which 
generates significant revenue for the country and for the 
regime.
    We have under our executive orders the authority to target 
North Korea's export of labor on a unilateral basis, and we 
also have launched a worldwide effort to persuade recipient 
countries, contracting countries, and companies to end this 
practice and to forego the use of North Korean labor. We have 
had some successes. The media has also covered the defection of 
some of the North Korean restaurant workers, which has forced 
the North Koreans to double down on their security restrictions 
and limit themselves in who they send and how many they send. 
This is another area where we are continuing to work to close 
off a revenue stream.
    Senator Gardner. And what more can be done on the human 
trafficking, labor trafficking front? I think that is a very 
serious issue that a number of countries are involved in 
perhaps unwittingly but most likely knowingly.
    Mr. Russel. Oh, yes.
    Senator Gardner. What more can the United States do? And do 
you have all the authorities that we need through U.N. as well 
as U.S. law to intercede?
    Ambassador Fried. Senator, a number of companies are 
sensitive to this issue and when a light is shined on it, they 
have reacted well. So we, State Department and Treasury 
colleagues, have been going around to third country 
governments. We are working with third governments about this. 
We also intend to pursue this with the Chinese and the Russians 
because they are significant importers of North Korean labor. 
So we are prepared to advance this issue just as my colleague 
said.
    We have the authorities we need, but since, Mr. Chairman, 
you asked, it would be useful I think if you were sending 
similar messages, and we are happy to stay in touch about this.
    Senator Gardner. Sending messages to----
    Ambassador Fried. Third countries.
    Senator Gardner.--third countries about their--I think we 
have made it very clear through our actions on this committee 
that we condemn any such activity, particularly the access or 
the abuse that those workers encounter abroad, as well as the 
contribution that they are again unintentionally providing to 
the North Korean regime and its ballistic missile program 
through work abroad, two-thirds of their wages then or more 
being utilized by the Government of North Korea.
    Ambassador Fried. I could not agree more, sir. And it is, 
as I said, enormously helpful when the executive branch and the 
Congress are pointed in the same direction.
    Senator Gardner. Do you believe you need additional 
authorities?
    Ambassador Fried. I do not think we need additional 
authorities. We need to continue work with potentially 
cooperative third governments, and that is what we are doing. 
And we are working, of course, closely with the Japanese and 
South Koreans to approach other governments. And we are working 
through the issue of Chinese and Russian imports of labor, 
particularly Chinese.
    Senator Gardner. So China and Russia. What other allies, 
though, do we have a close working relationship that need to 
hear that message from Congress?
    Ambassador Fried. Well, there are governments in the Middle 
East and a couple in Europe, but some of them have started 
taking action already, partly because they were responsive to 
our concerns and I believe yours.
    Senator Gardner. The issue of labor--has it extended into 
other--restaurants you talked about. Has it extended into other 
fields that perhaps we are worried about from other 
considerations?
    Ambassador Fried. We believe so. We are looking into the 
details of the use of North Korean labor. Some of this is 
classified, and I am happy to discuss it in another setting. 
But as we discover in specific information, we may have 
opportunities to approach both governments and companies.
    Senator Gardner. Thank you.
    Could you elaborate further a little bit on any ongoing or 
previous cooperation between North Korea and Iran in their 
ballistic missile programs?
    Mr. Russel. Well, Mr. Chairman, we monitor and review all 
information, open source and intelligence information, on 
potential WMD activities and cooperation by both North Korea 
and Iran and definitely any potential nexus whereby either 
would seek to acquire proliferation-sensitive information or 
materials from the others.
    As you know well, the U.N. Security Council Resolution 2231 
prohibits the sale or transfer to or from Iran of ballistic 
missiles and related items. We have unilateral and other 
multilateral sanctions against that.
    So please rest assured that this is a focus of intense 
scrutiny on the part of U.S. national security agencies.
    Senator Gardner. So at this point, we do not believe there 
is any cooperation between Iran and North Korea on their 
ballistic missile program.
    Mr. Russel. Mr. Chairman, I think any deeper dive into this 
question should be done in a classified setting. But I myself 
am not aware of any evidence of cooperation currently on 
nuclear or missile programs.
    Senator Gardner. Ambassador Fried, do you wish to answer 
that?
    Ambassador Fried. A closed session would be a better place 
to discuss the past relationship between North Korea and Iran 
and our current projections.
    Senator Gardner. The new government in Burma, the 
cooperation between possible North Korean activities, the new 
government in Burma--how has that changed?
    Mr. Russel. There is not a change in terms of cooperation 
with the government of Burma on DPRK dealings, or to the extent 
that there is a change, it is for the better.
    The problem continues to be the gap between the government 
and the Burmese military, and for that reason when the de facto 
leader of Burma, or Myanmar, Aung San Suu Kyi, was in 
Washington just 2 weeks ago, the U.S. senior officials, 
including the President, underscored the importance of her and 
the duly elected civilian government working with the Burmese 
military to root out and to stop any vestiges of cooperation 
that may have remained.
    We also talked directly to the Burmese military leadership 
about the DPRK. I myself have met with the commander-in-chief 
during my visits to Burma, as have several of my colleagues, 
and our talented Ambassador, Scot Marciel, has met with him as 
well. We think that there are potentially a few residual 
pockets within the Burmese military of people who might still 
have some ongoing interactions, but we are----
    Senator Gardner. Ongoing interactions with?
    Mr. Russel. With DPRK that are, in effect, leftovers from 
5-plus years ago, the era of the military dictatorship. But we 
think that as far as the government is concerned and the 
military leadership is concerned that they are fully onboard, 
and this is something that they are working to prevent and 
eradicate.
    Senator Gardner. I know that the conversations that we have 
had, though, with Burma recently, of course, talk about lifting 
of sanctions, the U.S. lifting of sanctions. Now, if they are 
still interacting or doing business with North Korea, that 
would be a violation of these sanctions.
    Mr. Russel. Right. Any actor in Burma found to be doing 
business with the North Korean military would be in violation 
both of our executive orders and legislation and of the U.N. 
Security Council resolutions and would be subject to sanctions. 
I believe that the government and the military leadership in 
Burma is firmly opposed to any of that activity and is actively 
seeking to ascertain whether any continues and, if so, to stop 
it.
    Senator Gardner. Thank you.
    I want to stick with the subject of Burma here as we close 
out the hearing.
    As you will recall, Secretary Russel, during the 
confirmation of Ambassador Marciel that you just mentioned to 
be Ambassador to Burma, I asked and received a letter from the 
State Department. The letter from the State Department stated 
that--and I quote--the Department is committed to full, robust, 
and timely consultation with you and your staff regarding U.S. 
policy toward Burma in general and sanctions policy in 
particular.
    On September 14th, while Burma leader Aung San Suu Kyi was 
visiting Washington, President Obama announced that he will 
terminate the national emergency with regard to Burma and lift 
the remaining U.S. sanctions on the country. It was claimed 
this action was closely coordinated with Aung San Suu Kyi and 
approved by her as well.
    Can you describe the time frame, the extent of the 
congressional consultation with regard to lifting those 
sanctions on Burma?
    Mr. Russel. My deputy and my staff, Mr. Chairman, including 
during the period where I was traveling overseas, met with 
members of the committee staff and other Senate and House staff 
to describe the trend line in our thinking in the run-up to 
Aung San Suu Kyi's visit.
    The actual decision by the President to lift the state of 
national emergency, the IEEPA sanctions on Burma, was made 
within a day or a couple of days of the arrival of Aung San Suu 
Kyi. And it was subject to confirmation that that indeed was 
her request.
    A couple of days or maybe a day or so--as soon as I learned 
about this, you will recall, I put in a phone call to you 
personally, in an effort to fulfill both that obligation but 
also in light of the good cooperation that we have had, to let 
you know where it was heading.
    And the morning of Aung San Suu Kyi's meeting with 
President Obama, she attended a breakfast meeting hosted by 
Vice President Biden; with Senator Corker, the chairman of the 
full committee; and the Senate Majority Leader, Leader 
McConnell; and other members in which they asked her very 
directly if she wanted the sanctions lifted, and she said yes. 
So on that basis, in the subsequent meeting in the Oval Office, 
President Obama announced, after confirming it with her 
personally, to the press his intention to lift sanctions.
    Senator Gardner. Do you feel the State Department met the 
full, robust, and timely standard pledged to this committee?
    Mr. Russel. Well, Mr. Chairman, what really matters is 
whether you feel it, and if you do not, I will promise to do 
better. But it is my firm intent and desire to be responsive 
and open in sharing with you our policy, our thinking, and to 
ensure that there is an opportunity to consult with you and to 
take your views into account.
    Senator Gardner. Well, I do not think breakfast and a phone 
call are full, robust, and timely.
    Do you support retaining sanctions on Burma military-
controlled entities MEC and MEHL, which Aung San Suu Kyi 
herself said she supports?
    Mr. Russel. What I heard her say, Mr. Chairman, is that the 
time has come to lift all the sanctions and for the United 
States not to serve as a prop for Burma, but to be a supporter 
of the civilian government's exercise of authority over the 
military. So what we seek to do is to ensure that our programs 
and policies reinforce the restrictions on investment and on 
business, the controls and the regulations pertaining to 
business activities by the military and by MEC and MEHL 
specifically, that the Burmese Government chooses to put in 
place.
    Senator Gardner. Let me just cut through that. So you 
support continuing the sanctions on these military-controlled 
entities.
    Mr. Russel. No. I support finding practical ways that we 
can continue to discourage irresponsible investment and 
business activities with entities like MEC and MEHL, but to do 
so in support of the Government of Burma's own policies. And 
they are in the process now of making decisions in that regard.
    Senator Gardner. Thank you very much, Ambassador Fried, 
Secretary Russel. I appreciate your time today, with the thanks 
of the committee, providing us testimony and responses today.
    Information for the members. The record will remain open 
until the close of business this Friday, September 30th, 
including for members to submit questions for the record. We 
ask the witnesses to respond as promptly as possible. Your 
responses will also be made part of the record.
    I thank you very much for your service and thank you for 
the opportunity to be before the committee today. Thank you.
    [Whereupon, at 11:59 a.m., the hearing was adjourned.]

                              ----------                              


              Additional Material Submitted for the Record


              Statement Submitted by Senator Barbara Boxer

    Mr. Chairman, Ranking Member Cardin, thank you for convening this 
important hearing today on North Korea.
    Few issues pose as immediate a threat to the United States, and 
international stability, as North Korea's nuclear program. This will, 
without question, be one of the most pressing issues facing the next 
U.S. president.
    One that will not--as some have recklessly suggested--be solved by 
encouraging Japan and South Korea to develop their own nuclear arsenals 
and triggering a catastrophic arms race in the region.
    Although the North Korean regime has continued its dangerous and 
provocative behavior, I do commend President Obama for putting in place 
such a stringent regime of sanctions. I hope we, the Senate, can 
continue to work with the President on these efforts.
    However, North Korea's escalating nuclear and ballistic missile 
tests demonstrate that we need to do much more to contain and halt the 
activities of this oppressive regime.
    I look forward to hearing from our witnesses today on our best 
options, moving forward, to dismantle North Korea's nuclear program.

                               __________

            Responses to Questions for the Record Submitted
                  to Ambassador Fried by Senator Rubio


    Question 1.  Even in this time of the failed JCPOA, there are three 
times as many Iran-related persons designated by the United States than 
North Korea-related persons, can you describe the reason for this 
discrepancy? When are we going to get into the regular habit of 
sanctioning North Korea-related persons and move beyond the 
provocation-response cycle?

    Answer. Since 2010, we have been steadily ramping up the pressure 
on North Korea. There are five executive orders that impose sanctions 
specifically against North Korea. There are also other executive orders 
that are not specific to North Korea, but have been used to impose 
sanctions in connection with our twin goals of obstructing the nuclear 
program and bringing North Korea back to the negotiating table.
    The administration intends to continue to move forward with new 
sanctions against North Korea as part of our comprehensive effort to 
address the country's malign behavior and obstruct its nuclear 
proliferation activities, independent of a provocation-response cycle. 
As of early November, the administration had issued four rounds of 
sanctions rollouts, Executive Order 13722, as well as other restrictive 
measures this year. These designations are the basis of our continued 
efforts to build pressure against North Korea in a consistent way, 
without being limited to a provocation-response cycle, and they follow 
four tranches of new sanctions designations rolled out in 2015.
    North Korea poses particular challenges from a sanctions 
perspective, given its relative economic isolation and given that the 
regime prides itself on an ideology that values self-reliance above 
all. North Korea is a pariah state with a population of 25 million and 
a GDP of just $28 billion and therefore, it presents a more limited 
number of potential targets and opportunities to gather information 
about potentially sanctionable activities. Despite these challenges, we 
believe that viable targets can be identified will continue to look for 
opportunities to use economic and financial sanctions to compel the Kim 
regime to change its course.


    Question 2.  The conclusions in a recent study by the Center for 
Advanced Defense Studies and the Asan Institute for Policy Studies 
called ``In China's Shadow,'' are concerning and encapsulate this 
administration's failed policy of ``strategic patience.'' It is clear 
that China has allowed a Chinese company and its front company to 
conduct $532 million in trade volume. I want to ask a few questions 
about this activity. I am assuming that we were aware of these 
activities before they were exposed by these organizations, so why did 
we wait so long to act against these persons given the timeline of 
activities in the report date back to January 2011?

    Answer. North Korea's economy indeed is heavily dependent on China. 
The administration has engaged Beijing at the highest levels to seek 
greater Chinese cooperation on imposing costs on North Korea for its 
threatening behavior. We regularly urge China to do more to prevent 
North Korea from using Chinese companies or infrastructure in ways that 
can benefit the DPRK's illicit activities. In addition, the 
administration uses other tools, including restrictive measures like 
sanctions, export controls, and criminal charges to increase the 
pressure on the DPRK and those aiding it in its illicit and dangerous 
activities.
    We have seen the report by Asan Institute and the Center for 
Advanced Defense Studies (C4ADS), which shines light on North Korea's 
networks overseas. In addition to the DHID-related designations, State 
and Treasury have also taken steps to curb North Korea's shipping 
operations. Specifically, Treasury designated Ocean Maritime Management 
(OMM) and several of its front companies; OMM is highlighted in the 
Asan-C4ADS report as being a key conduit of North Korean overseas 
activity. The administration has also identified and blocked 18 vessels 
connected to OMM, while the Department of State has led diplomatic 
efforts to ensure the implementation of UN obligations on Member States 
related to prohibitions on flagging, owning, and operating DPRK-
affiliated vessels.


    Question 3.  U.S. designated Ma Xiaohong is the chairwoman of the 
Liaoning Hongxiang Group, which is made up of six companies: U.S. 
designated Dandong Hongziang Industrial Development Co. Ltd. (DHID), 
Hongxiang International Freight, Liaoning Hongxiang International 
Travel Service Co Ltd., Dandong Hongxiang Border and Trade Consultant 
Service Co., Qibaoshan (Chilbosan) Hotel, and Pyongyang (Liujing) 
Restaurant.

   Have you initiated an investigation of Hongxiang 
        International Freight, Liaoning Hongxiang International Travel 
        Service Co Ltd., Dandong Hongxiang Border and Trade Consultant 
        Service Co., Qibaoshan (Chilbosan) Hotel, and Pyongyang 
        (Liujing) Restaurant as required by Section 102 of the North 
        Korea Sanctions and Policy Enhancement Act of 2016 (P.L. 114-
        122)?

   If so, why have these companies not been designated as 
        required by the mandatory sanctions in P.L. 114-122?

   If not, why?

    Answer. On September 26, 2016, the Treasury Department and the 
Justice Department moved in concert to investigate the sanctions 
evasion activities undertaken by a Chinese entity and four Chinese 
nationals: Dandong Hongxiang Industrial Development Company Ltd (DHID), 
Ma Xiaohong, Zhou Jianshu, Hong Jinhua, and Luo Chuanxu. The Treasury 
Department added these persons to OFAC's List of Specially Designated 
Nationals and Blocked Persons, while the Justice Department unsealed 
criminal charges against the same for conspiring to evade U.S. economic 
sanctions and launder money, and violating OFAC's Weapons of Mass 
Destruction Proliferators Sanctions Regulations. We have not shied away 
from imposing sanctions on third-country actors, nor do we intend to.
    The sanctions applied to date have created significant problems for 
the North Korean regime, but they have not yet caused the DPRK to 
change course. The administration is in close coordination with our 
allies and key partners, especially Japan and South Korea, and 
including China as well, and is continually examining our sanctions 
toolkit and identifying ways to improve its efficacy and increase 
pressure on the DPRK.
    Consistent with the North Korea Sanctions and Policy Enhancement 
Act, and as a priority matter of sanctions implementation, the Treasury 
Department and other parts of the interagency continue to look for 
credible, well-sourced, and recent evidence to support future 
designations and diplomatic actions--including those involving third-
country parties. We would be happy discuss the specifics of these 
matters in a classified, interagency briefing.


    Question 4.  In the report referenced in question #2, the 
``Chilbosan Hotel in Shenyang, one of Liaoning Hongziang's joint 
ventures with the DPRK, is alleged to be the staging area for Bureau 
121, a group of North Korean hackers. It has been widely reported that 
Bureau 121 may have been responsible for the 2014 Sony hack''

   In an additional question to question #3, does the 
        investigation of Chilbosan Hotel include its links to DPRK 
        cyber activities as required by Section 104 of the North Korea 
        Sanctions and Policy Enhancement Act of 2016 (P.L. 114-122)

    Answer. Consistent with the North Korea Sanctions and Policy 
Enhancement Act, and as a consistent matter of sanctions maintenance, 
the Treasury Department and other parts of the interagency continue to 
look for credible and well-sourced evidence to support future 
designations and diplomatic actions--including those involving third-
country parties. We would be happy to discuss the specifics of these 
matters in a classified, interagency briefing.


    Question 5.  (Pg 33.) In the report referenced in question #2 
Liaoning Hongbao Industrial Development Co. Ltd. is a joint venture 
between U.S.-designated Dandong Hongziang Industrial Development Co. 
Ltd. (DHID) and Korea National Insurance Corporation (KNIC), the German 
branch of KNIC was designated by the EU.

   Have you initiated an investigation of Liaoning Hongbao 
        Industrial Development Co. Ltd.as required by Section 102 of 
        the North Korea Sanctions and Policy Enhancement Act of 2016 
        (P.L. 114-122)?

   If so, why have these companies not been designated as 
        required by the mandatory sanctions in P.L. 114-122?

   If not, why?

    Answer. Consistent with the North Korea Sanctions and Policy 
Enhancement Act, and as a consistent matter of sanctions maintenance, 
the Treasury Department and other parts of the interagency continue to 
look for credible and well-sourced evidence to support future 
designations and diplomatic actions--including those involving third-
country parties. We would be happy to discuss the specifics of these 
matters in a classified, interagency briefing.


    Question 6.  Please provide a reason why the Obama administration 
has not provided a waiver of the requirement to impose sanctions under 
the North Korea Sanctions and Policy Enhancement Act of 2016 (P.L. 114-
122) for the following entities:

   Dandong Hongxiang Border and Trade Consultant Service Co.

   Liaoning Hongxiang International Travel Service Co. Ltd.

   Hongxiang International Freight

   Chilbosan Hotel

   Liujing Restaurant

   Liaoning Hongbao Industrial Development Co. Ltd.

    Answer. The administration has vigorously and faithfully 
implemented the North Korea Sanctions and Policy Enhancement Act 
(NKSPEA) in all matters, including with regard to the entities listed 
above. A few examples of the administration's efforts include:

   June 9, 2016: The State Department transmitted a NKSPEA-mandated 
        Report to Congress on actions taken to implement the U.S. 
        strategy to improve international implementation of UN 
        sanctions on North Korea.

   June 30, 2016: The Treasury Department, with support from the State 
        Department and the Office of the Director of National 
        Intelligence, submitted a NKSPEA-mandated report to Congress on 
        North Korea's activities undermining cybersecurity, as one of a 
        number of reports mandated by the Act. In the report, the State 
        Department outlines the U.S. government's strategy to engage 
        foreign partners to combat such activity.

   July 6, 2016: The State Department published the NKSPEA-mandated 
        Report to Congress on human rights abuses in North Korea. Based 
        in part on information contained in the report, the Treasury 
        Department makes 16 additions to the SDN list, including Kim 
        Jong Un.

   August 11, 2016: The State Department transmitted a NKSPEA-mandated 
        Report to Congress on U.S. policy toward North Korea based on a 
        complete interagency review of policy alternatives.

   August 24, 2016: The State Department transmitted a NKSPEA-mandated 
        Report to Congress regarding the U.S. strategy to promote 
        initiatives to enhance international awareness and address the 
        human rights situation in North Korea.

   September 1, 2016: The State Department transmitted a NKSPEA-
        mandated Report to Congress detailing a plan for making 
        unrestricted, unmonitored, and inexpensive mass communication 
        available to the people of North Korea.

   September 26, 2016: The Treasury Department designated four Chinese 
        nationals and one entity complicit in sanctions evasion 
        activities, consistent with mandatory sanctions in the Act.

    We would be happy to discuss the activities of the above-mentioned 
entities in a classified, interagency briefing.


    Question 7.  The Department of Justice unsealed indictments and a 
civil forfeiture action related to these transactions. The criminal 
indictment lists transactions in millions of U.S. dollars going back to 
2009 where these front companies ``served as financial intermediaries 
for U.S. dollar transactions between North Korean-based entities who 
were being financed by KKBC [a designated North Korean bank] and 
suppliers in other countries in order to evade the restrictions on U.S. 
dollar transactions,'' why did we wait to act against these persons? 
Will you state for the record that the White House or State Department 
did not pressure the Justice Department or Treasury Department to delay 
these designations and law enforcement actions to avoid embarrassing 
China?

    Answer. As a matter of policy, the State Department does not 
interfere in matters of law enforcement. We refer you to the Department 
of Justice for more information on the evolution of the criminal case 
involving sanctions evasion in support of KKBC.


    Question 8.  I would like to turn to the decision by the Treasury 
Department in June to finally designate the jurisdiction of North Korea 
as a primary money laundering concern, an action that only occurred 
after Congress passed the North Korea Sanctions Enforcement Act of 
2016. In the notice of finding, it stated that ``In 2013, senior North 
Korean leadership utilized a KKBC front company to open accounts at a 
major Chinese bank under the names of Chinese citizens, and deposited 
millions of U.S. dollars into the accounts. The same KKBC front company 
processed transactions through U.S. correspondent accounts as recently 
as 2013.'' Are these the same persons in this week's actions? If so, 
why did we wait several months after the June Treasury action before 
addressing this illicit use of the U.S. financial system? The same 
finding stated that another designated North Korean bank used a front 
company to process financial transactions through the U.S. financial 
system more than a year after its designation, again why did we wait so 
long to address these activities?

    Answer. The Treasury Department finalized its Section 311 
rulemaking with respect to North Korea on November 4, 2016. We believe 
that the Section 311 final rule regarding North Korea was an important 
step in further isolating North Korea from the international financial 
system. In addition to being consistent with the North Korea Sanctions 
and Policy Enhancement Act, it also amplifies the sanctions imposed by 
United Nations Security Council Resolution (UNSCR) 2270, which was 
unanimously adopted on March 2, 2016. Among other significant 
restrictions, UNSCR 2270 requires Member States to sever correspondent 
banking relationships with North Korean financial institutions by May 
31, 2016 (90 days).


                                 ______
                                 

            Responses to Questions for the Record Submitted
                 to Ambassador Fried by Senator Gardner


    Question 1.  On March 18, 2016, New York Times reported they 
uncovered documents, which showed how a ZTE, a Chinese firm, ``would 
set up seemingly independent companies--called `cut-off companies'--
that would sign the deals in other countries. That could enable it to 
continue to do business in Iran, North Korea and other countries placed 
under American restrictions.''
    On June 2, 2016, New York Times reported that the U.S. Commerce 
Department is also investigating the Chinese company Huawei, including 
demanding that the company ``turn over all information regarding the 
export or re-export of American technology to Cuba, Iran, North Korea, 
Sudan and Syria, according to a subpoena sent to Huawei and viewed by 
The New York Times. The subpoena is part of an investigation into 
whether Huawei broke United States export controls.''

   What are ZTE and Huawei's dealings with North Korea?

   Are North Korean nationals, or individuals working at the 
        behest of the North Korean regime, utilizing any Huawei or ZTE 
        equipment to conduct cyberattacks?

    Answer. We do not comment on ongoing investigations. Generally 
speaking, the recent Executive Order signed by President Obama (EO 
13722) imposed prohibitions on the exportation from the U.S. or the re-
exportation from abroad of goods, services, and technology to North 
Korean entities, except where licensed by the Commerce or Treasury 
Department, as appropriate. In addition, Commerce has long required 
licenses for all exports and reexports, except for food and medicine, 
to North Korea. We refer you to the Treasury and Commerce Departments 
for more information about their efforts.
    EO 13722 also authorizes new sanctions designations for those 
engaging in significant activities undermining cybersecurity against 
targets outside of North Korea on behalf of the Government North Korea 
or the Workers' Party of Korea. This includes the ability to impose 
sanctions on persons providing material assistance, sponsorship, or 
financial, material, or technological support for, or goods and 
services to or in support of any person undermining or attempting to 
undermine cybersecurity on behalf of the Government of North Korea or 
the Korean Workers Party. This authority is consistent with those 
outlined in the North Korea Sanctions Policy Enhancement Act.
    Dealings with North Korea by ZTE and Huawei is a topic that would 
be best addressed via an interagency briefing in a classified setting 
after the investigation has concluded.


    Question 2.  If there is evidence that ZTE or Huawei have 
collaborated with the North Korean regime to conduct illicit 
activities, would you support their designation under the North Korea 
Sanctions and Policy Enhancement Act or any other legal authorities?

    Answer. We do not comment on ongoing investigations. We have used 
our sanctions authorities and other restrictive measures against third-
country nationals and entities, including Chinese. For example, on 
September 26, 2016, the Treasury Department imposed sanctions on four 
Chinese nationals and one Chinese entity that were found to be 
supporting North Korea's WMD proliferation activities.
    We will continue to use all tools at our disposal in order to halt 
North Korea's nuclear proliferation activities, deprive the Kim regime 
of hard currency, and protect the United States from threats to our 
national security.


                                 ______
                                 

            Responses to Questions for the Record Submitted
                 to Ambassador Fried by Senator Perdue


    Question 1.  The importance of China's role in enforcement of these 
sanctions cannot be overstated. Between 2011 and 2015, more than 90% of 
North Korea's trade with the outside world is believed to have been 
with China and South Korea. Can you describe the administration's 
current efforts to influence China to leverage its relationship with 
North Korea (DPRK) to fully implement sanctions?

    Answer. The administration has engaged Beijing at the highest 
levels to seek greater Chinese cooperation in imposing costs on North 
Korea for its threatening behavior. We regularly urge China to do more 
to prevent North Korea from using Chinese companies or infrastructure 
in ways that can benefit the DPRK's illicit activities. All options, 
including sanctions, remain on the table. We are not shying away from 
their use.
    On September 26, the Treasury Department and the Justice Department 
moved in concert to check the sanctions evasion activities undertaken 
by a Chinese entity and four Chinese nationals: Dandong Hongxiang 
Industrial Development Company Ltd (DHID), Ma Xiaohong, Zhou Jianshu, 
Hong Jinhua, and Luo Chuanxu. The Treasury Department added these 
persons to the Specially Designated Nationals List, while the Justice 
Department unsealed criminal charges against the same for conspiring to 
evade U.S. economic sanctions and violating OFAC's Weapons of Mass 
Destruction Proliferators Sanctions Regulations as well as conspiracy 
to launder money.
    We will continue to urge China to exert its leverage as North 
Korea's largest trading partner. We seek to force Kim Jong Un come to 
the realization that the only viable path forward for his country is 
denuclearization.


    Question 2.  The U.N. Sanctions Committee has difficulty with 
collecting the data necessary to properly enforce sanctions against 
North Korea. A major reason analysts give for this is that it is 
broadly suspected that China's border with North Korea is significantly 
porous, allowing any flow of goods between the two countries to go 
undocumented. Is the administration looking into ways to influence 
China to a) fully comply with reporting requirements under DPRK 
sanctions, and b) to begin to enforce their border with North Korea 
more stringently?

    Answer. We agree that more work is needed to limit the flow of 
illicit goods over the China-North Korea border and we continue to work 
closely with the Chinese to achieve greater cooperation and application 
of pressure on North Korea. While we are aware of China's concerns that 
pressure on North Korea could precipitate a destabilizing crisis, we 
consider North Korea's nuclear and missile programs as posing a far 
greater threat to regional security. We acknowledge steps China has 
taken to implement U.N. sanctions but have repeatedly urged China to 
improve its implementation and apply pressure needed to effect a change 
in North Korea's behavior.
    China has objected to U.S. actions intended to strengthen our 
defenses against North Korean military threats to ourselves and our 
allies, but we have made clear that we will take all necessary steps to 
deter and defend against those threats. We closely coordinate with 
China on sanctions and other measures to counter North Korea's 
problematic behavior.


    Question 3.  We also know that U.N. sanctions have, in some ways, 
had the perverse effect of actually boosting revenue flows to North 
Korea. Due to certain sanctions exemptions, such as those allowing the 
importation of goods from North Korea when the profits from such 
imports are generated ``for the people's livelihood,'' trade with China 
and South Korea has increased by 90% in 2011. Further, China has 
exploited these exemptions to increase their North Korean imports of 
irons and iron ore by 64 percent. However, certification that these 
imports comply with sanctions exemptions are enforced by China's own 
custom's authorities, creating a significant conflict of interest.

   How has the administration gone about addressing the issue 
        of exemptions with China?

   Has the administration discussed the possibility of 
        defining ``for the people's livelihood'' exemption with the 
        Sanctions Committee or with China? If so, how?

   Alternatively, has the administration sought to persuade 
        China to raise the bar for businesses seeking to take advantage 
        of the ``livelihoods'' exception by requiring some type of 
        documentation? If so, what kind? Would there be any possibility 
        of an oversight mechanism outside of Chinese customs 
        authorities?

    Answer. The administration is deeply troubled by the increase in 
the exports of North Korean coal to China, including under the 
``livelihood'' exception. Not only is North Korean coal in many cases 
mined by essentially enslaved workers--including children--it helps to 
prop up the Kim regime at the expense of everyday North Koreans, making 
coal harder to obtain for those seeking to heat their homes and cook 
their food.
    We are taking immediate steps to address this problem. 
Specifically, the U.S. Mission to the United Nations in New York is 
seeking ways to limit DPRK exports of coal that benefit the regime. If 
those efforts fail to produce the desired narrowing of the UNSCR 2270 
livelihoods exception, the administration stands ready to continue 
high-level diplomatic engagement with all importers of North Korean 
coal, iron and iron ore, and consider the best way to promote stronger 
and global implementation of UNSCR 2270, potentially including by using 
domestic sanctions authorities.


    Question 4.  A key question for implementation of sanctions 
continues to be whether China will inspect shipments on its border, 
through its ports, and in its air space, for shipments of illicit goods 
and materials to and from North Korea. China is not a participant in 
the Proliferation Security Initiative (PSI), which holds regular 
information-sharing and ship-boarding exercises to improve 
international coordination and facilitate timely interdictions. Has the 
administration explored increasing cooperation with other PSI 
countries, namely at key transshipment points, to improve intelligence 
collection and information sharing on illicit shipments to and from 
North Korea?

    Answer. North Korea's economy is indeed heavily dependent on China. 
The administration has engaged Beijing at the highest levels to seek 
greater Chinese cooperation on imposing costs on North Korea for its 
threatening behavior. We regularly urge China to do more to prevent 
North Korea from using Chinese companies or infrastructure in ways that 
can benefit the DPRK's illicit activities. At times, the administration 
turns to other tools, including restrictive measures like sanctions, 
export controls, and criminal proceedings.
    We have seen the report by Asan Institute and C4ADS, which shines 
light on North Korea's overseas networks. In addition to the recent 
DHID-related designations, State and Treasury have also taken steps to 
curb North Korea's shipping operations. Specifically, Treasury 
designated Ocean Maritime Management (OMM) and several of its front 
companies; OMM is highlighted in a recent report by the Asan Institute 
and C4ADS as being a key conduit of North Korean overseas activity. The 
administration has also identified as blocked 18 vessels connected to 
OMM.
    Furthermore, the administration secured the listing of 31 vessels 
controlled or operated by OMM in UNSCR 2270, along with many new 
maritime sanctions authorities that better enable a global campaign to 
shut down North Korea's maritime activities. The administration is also 
seeking to further strengthen U.N. sanctions in this realm. The 
Department of State has led diplomatic efforts to ensure the 
implementation of U.N. obligations on Member States related to 
prohibitions on flagging, owning, and operating DPRK-affiliated 
vessels.
    PSI partners in the region have hosted several bilateral and 
multilateral events, workshops, and exercises. In September 2016, the 
third annual PSI Asia-Pacific Exercise Rotation (PSI-APER) event was 
held in Singapore, which included an at-sea live boarding exercise, an 
in-port interdiction demonstration, and a tabletop exercise and policy 
discussion. A key focus of the tabletop exercise was on the importance 
of timely and accurate intelligence and information to fulfill 
commitments that countries make when they endorse the PSI Statement of 
Interdiction Principles. These commitments include undertaking 
``effective measures, either alone or in concert with other states, for 
interdicting the transfer or transport of WMD, their delivery systems, 
and related materials to and from states and non-state actors of 
proliferation concern.'' Australia will host the next PSI APER event in 
2017.


    Question 5.  Why has Treasury not yet cut off North Korea, 
financial institutions that facilitate transactions for the government, 
as well as third parties that use those institutions, from any access 
to the U.S. financial system? In June of this year, the Treasury 
Department announced its finding that DPRK is a jurisdiction of primary 
money laundering concern. At the same time, Treasury also released a 
notice of proposed rulemaking recommending a special measure to 
prohibit covered U.S. financial institutions from opening or 
maintaining correspondent accounts with North Korea financial 
institutions, and prohibiting the use of U.S. correspondent accounts to 
process transactions for North Korean institutions.

   What is keeping Treasury from implementing this rule?

   What steps is the administration taking to educate U.S. 
        financial institutions about this new policy?

   Has Treasury considered also targeting third-party banks 
        that use those financial messaging services?

    Answer. We believe that the Section 311 final rule regarding North 
Korea will be an important step in further isolating North Korea from 
the international financial system, despite the fact that it was 
already one of the most heavily sanctioned countries. In addition to 
being consistent with the North Korea Sanctions and Policy Enhancement 
Act, it would also amplify the sanctions imposed by United Nations 
Security Council Resolution (UNSCR) 2270, which was passed on March 2, 
2016. Among other significant restrictions, UNSCR 2270 requires Member 
States to sever correspondent banking relationships with North Korean 
financial institutions by May 31, 2016.
    While North Korea's financial institutions do not maintain 
correspondent accounts with U.S. financial institutions, the North 
Korean government continues to use state-controlled financial 
institutions and front companies to surreptitiously conduct illicit 
international financial transactions, some of which support the 
proliferation of weapons of mass destruction and the development of 
ballistic missiles. While current U.S. law already generally prohibits 
U.S. financial institutions from engaging in both direct and indirect 
transactions with North Korean financial institutions, we anticipate 
that the final rule under Section 311 will support international 
sanctions already in place against North Korea and provide greater 
protection for the U.S. financial system from North Korean illicit 
activity.
    While we cannot comment publicly on future sanctions actions, we 
can assure you that we will continue working with our international 
partners to cut off services to North Korea's banking sector.


    Question 6.  After DPRK conducted its 5th nuclear test, the U.S. 
flew several B1 stealth bombers over South Korea as a showcase of our 
military force. In your opinion, have these flights had an effect in 
North Korea's decision-making?

    Answer. Yes. The B1 bomber flights had two purposes. First, to 
deter DPRK aggression and second, to assure the ROK public. The two 
separate B1 flights in September demonstrated both the regular 
availability and rapid responsiveness of U.S. strategic capabilities 
and was intened to deter DPRK aggression against the ROK and Japan. The 
U.S. ability to project power onto the Korean Peninsula was a signal 
that was heavily publicized and successfully communicated to the DPRK 
through USG press releases. These flights were also designed to assure 
the ROK public of the U.S. ironclad commitment to their defense.


    Question 7.  An opinion editorial in the Wall Street Journal 
recently compared current U.S. policy failures with North Korea to 
U.S.-Soviet Union tensions in the 1980's when the U.S. moved Pershing 
II medium-range ballistic missiles to bases in West Germany in response 
to the Soviets' growing nuclear capability. Has the administration 
considered other shows of force that might incentivize and stimulate 
China to be more active in trying to remove the Kim regime? For 
example, has the administration considered placing mid-range nuclear 
cruise missiles in Japan or South Korea to offset North Korea's 
possible future mid-range missile capability?

    Answer. The United States has executed numerous flexible deterrence 
operations in 2016, both in response to the DPRK threat and in an 
effort to assure our South Korean allies. These operations have 
included, but are not limited to, B-52 and B-1 bomber flights over the 
Korean Peninsula, publicizing the visit of a nuclear ballistic missile 
submarine to Guam and inviting ROK defense officials to tour it, the 
agreement to deploy a THAAD battery to South Korea and the rotation of 
a high-end conventional capabilities like the fifth generation F-22 to 
Osan Air Base for joint training. Additionally, the growing threat 
posed by the DPRKs nuclear and ballistic capabilities has also been a 
central factor in fostering greater trilateral cooperation with Japan.
    We believe the increased presence of U.S. strategic capabilities in 
Northeast Asia and the enhanced trilateral cooperation with Japan have 
incentivized China to work harder to constrain DPRK aggression and 
provocations.


    Question 8.  North Korea's nuclear cooperation with Iran is well 
documented. Iranian officials reportedly traveled to North Korea to 
witness each of its three nuclear tests--in October 2006, May 2009, and 
February 2013. Just before North Korea's third test, a senior American 
official said that ``it's very possible that the North Koreans are 
testing for two countries.'' Noted North Korea expert Bruce Bechtol 
wrote earlier this year that ``North Korea continues to supply 
technology, components, and even raw materials for Iran's HEU [highly-
enriched uranium] weaponization program.'' And, Director of National 
Intelligence Clapper's 2015 Worldwide Threat Assessment stated that 
Pyongyang's ``export of ballistic missiles and associated materials to 
several countries, including Iran and Syria, and its assistance to 
Syria's construction of a nuclear reactor illustrate its willingness to 
proliferate dangerous technologies.''

   Can you inform me of the State Department's current efforts 
        to halt this sharing of nuclear technology between North Korea 
        and Iran? What more can be done?

   As North Korea remains strapped for cash due to sanctions, 
        do you expect to see more efforts to sell nuclear technology 
        and material?

    Answer. The United States continues to work closely with our 
partners and the international community to address the threats posed 
by North Korea's nuclear and ballistic missile programs. The United 
States closely monitors and reviews all available information on North 
Korea's WMD programs and its proliferation activities worldwide, 
including any efforts to provide Iran with proliferation-sensitive 
materials or technologies.
    We continue to take concerted steps, both unilateral and 
multilateral, to impede North Korea's proliferation activities, 
including through the imposition and enforcement of sanctions under 
relevant U.S. authorities, and United Nations Security Council 
resolutions concerning North Korea.
    We also continue to closely monitor Iran's activities to ensure 
they are consistent with Iran's nuclear commitments under the Joint 
Comprehensive Plans of Action (JCPOA) and with the requirements of U.N. 
Security Council resolution 2231 (2015). We have been clear with Iran 
that the sanctions relief provided under the JCPOA is contingent on 
Iran's continued fulfillment of its nuclear-related commitments for 
their full duration.
    While we cannot predict whether North Korea will increase its 
efforts to sell nuclear technology and material, we do know that 
sanctions have been effective in both limiting North Korea's access to 
cash and thwarting its efforts to export technology and material.


    Question 9.  Reports also suggest that North Korea has received 
cooperation from and has cooperated with both Russia and Syria on 
ballistic missile and nuclear development.

   Is the State Department aware of the transfer of any 
        materials to or from Russia or Syria that violate U.N. 
        sanctions and resolutions?

   Is the State Department looking into tracking this 
        cooperation and reporting to Congress on these fronts?

   If not, what resources might State need to track this data?

   If this is classified information, would you provide me and 
        my staff with a briefing on this topic in a classified setting?

    Answer. The United States rigorously and continuously monitors 
North Korea's efforts to cooperate with other nations in violation of 
the DPRK's commitments and its obligations under U.N. Security Council 
Resolutions. We would be happy to provide you and your staff with a 
briefing on these efforts in a classified setting.


                                 ______
                                 

            Responses to Questions for the Record Submitted
             to Assistant Secretary Russel by Senator Rubio


    Question 1.  It has been over two weeks since North Korea's fifth 
nuclear test and the best that we were able to get from the United 
Nations was a press statement condemning the test and pledging to work 
on appropriate measures. I understand that a press statement is 
probably the lowest level of Security Council reaction available.

   Why has the Security Council not acted to address this 
        situation?

   Will we accept a resolution that does not eliminate the 
        loopholes in the previous resolution?

    Answer. The United States Mission to the United Nations is working 
with partners to achieve consensus on how to best limit importation of 
those North Korean exports that benefit the regime, vice those which 
benefits the livelihoods of everyday North Koreans. If those efforts 
fail to produce the desired narrowing of the UNSCR 2270 so-called 
``livelihood'' exemption, the administration stands ready to continue 
high-level diplomatic engagement with all importers of North Korean 
coal, iron and iron ore, and consider the best way to promote global 
implementation of UNSCR 2270 using domestic sanctions authorities.


    Question 2.  Will we accept a resolution that does not sanction the 
Chinese entity and individuals we designated this week?

    Answer. The United States Mission to the United Nations is working 
diligently to negotiate new sanctions against North Korea in response 
to its latest nuclear test. We are well aware that North Korea's 
economy is heavily dependent on China. The administration has engaged 
Beijing at the highest levels to seek greater Chinese cooperation on 
imposing costs on North Korea for its threatening behavior. We 
regularly urge China to do more to prevent North Korea from using 
Chinese companies or infrastructure in ways that can benefit the DPRK's 
illicit activities. At times, the administration turns to tools beyond 
UN sanctions, including restrictive measures like U.S. domestic 
sanctions, export controls, and criminal proceedings.


    Question 3.  The Center for Strategic and International Studies 
Beyond Parallel program reported last week that from 1994-2008 North 
Korea conducted 17 missile events and one nuclear test and during the 
Obama administration those numbers increased dramatically to 58 missile 
events and four nuclear tests. Now that we know China is not an honest 
partner in countering North Korea, what are our plans for protecting 
the United States and our Allies in the region against this growing 
threat?

    Answer. Our policy is grounded in three tracks: deterrence, 
pressure, and diplomacy. It seeks to convince Pyongyang to return to 
the negotiating table and agree to complete, verifiable, and 
irreversible denuclearization.
    To deter a North Korean attack, we maintain a strong defensive 
military posture, rooted in our ironclad alliances with the ROK and 
Japan. We consistently and publicly reaffirm our commitment to our 
Allies and continue to work with the ROK and Japan to develop a 
comprehensive set of Alliance capabilities to counter the multiple 
threats, including in particular the North Korean ballistic missile 
threat.
    We have pursued a comprehensive, sustained pressure campaign--of 
which sanctions are a key part. The goal of this pressure is to raise 
the cost to North Korea for violating international law and to impede 
the North's ability to participate in or to fund its unlawful 
activities.
    We are aware that North Korea's economy is heavily dependent on 
China. The administration has engaged Beijing at the highest levels to 
seek greater Chinese cooperation to impose costs on North Korea for its 
threatening behavior. We regularly urge China to do more to prevent 
North Korea from using Chinese companies or infrastructure in ways that 
can benefit the DPRK's illicit activities.


    Question 4.  During the September 28 SFRC Hearing you stated: ``I 
myself am not aware of any evidence of [Iran and North Korea] 
cooperation currently on nuclear or missile programs.'' A Treasury 
Department press release in January 2016 stated that: Sayyed Javad 
Musavi, a Shahid Hemmat Industrial Group (SHIG) ``commercial director . 
. . has worked directly with North Korean officials in Iran from U.N.- 
and U.S.-designated Korea Mining Development Trading Corporation 
(KOMID). SHIG also coordinates KOMID shipments to Iran. The shipments 
have included valves, electronics, and measuring equipment suitable for 
use in ground testing of liquid propellant ballistic missiles and space 
launch vehicles. Within the past several years, Iranian missile 
technicians from SHIG traveled to North Korea to work on an 80-ton 
rocket booster being developed by the North Korean government.'' The 
Treasury press release also stated that Seyed Mirahmad Nooshin, the 
director of SHIG, and Sayyed Medhi Farahi, deputy of Iran's Ministry of 
Defense for Armed Forces Logistics (MODAFL), ``have been critical to 
the development of the 80-ton rocket booster, and both traveled to 
Pyongyang during contract negotiations.'' SHIG and MODAFL are both 
designated by the United States.

   Are Iran and North Korea working together on an 80-ton 
        ballistic missile as described in the January 2016 press 
        release?

    Answer. Our understanding of this activity is consistent with the 
information contained in the Treasury Department's press release issued 
in January 2016. For more details on any ballistic missile related 
cooperation between North Korea and Iran, we would recommend that you 
obtain a briefing from the Intelligence Community (IC).


    Question 5.  If so, have you reported this to the United Nations 
Security Council as a violation of Iran-related and North Korea-related 
resolutions?

    Answer. We do not have sufficiently detailed information on this 
activity to provide to the UN Security Council at the required 
classification level. However, we continue to call attention to North 
Korea and Iran's ballistic missile related activities at the United 
Nations. For example, we reported Iran's March 2016 missile launches to 
the Security Council and requested the Council review this matter to 
determine an appropriate response. With regard to North Korea, we are 
currently working to reach agreement on another UNSCR targeting its 
weapons of mass destruction (WMD) and ballistic missile-related 
proliferation programs. Such efforts help raise awareness among other 
governments of Iran and North Korea's missile development efforts and 
raise the political costs to these countries for provocative missile-
related activities.


    Question 6.  Have you or do you intend to submit Sayyed Javad 
Musavi, Seyed Mirahmad Nooshin, and Sayyed Medhi Farahi for designation 
under UN Security Council Resolution 1718?

    Answer. We have an ongoing process in place to identify 
proliferation-related entities and individuals and to recommend them to 
the UN Security Council 1718 Committee for designation. These 
individuals will be evaluated as part of that process.


    Question 7.  If not, why did the Obama administration designate 
these individuals?

    Answer. Sayyed Javad Musavi was designated pursuant to E.O. 13382 
because he provided or attempted to provide financial, material, 
technological, or other support for, or goods or services in support 
of, Iran's Shahid Hemmat Industrial Group (SHIG).
    Seyed Mirahmad Nooshin was designated pursuant to E.O. 13382 for 
acting or purporting to act for or on behalf of SHIG, and because he 
provided, or attempted to provide, financial, material, technological, 
or other support for, or goods or services in support of, SHIG.
    Farahi was designated pursuant to E.O. 13382 for acting or 
purporting to act for or on behalf of Iran's Ministry of Defense Armed 
Forces Logistics (MODAFL), and because he provided, or attempted to 
provide, financial, material, technological, or other support for, or 
goods or services in support of, MODAFL.


    Question 8.  Was this an effort to answer critics of the Joint 
Comprehensive Plan of Action that the United States has not acted 
against Iran's ballistic missile activities?

    Answer. Our resolve to counter Iran's ballistic missile program and 
other destabilizing regional activities has not changed since the JCPOA 
entered into effect. We continue to use a wide range of multilateral 
and unilateral tools to counter Iran's ballistic missile development 
efforts, including disrupting and interdicting missile technology going 
to or from Iran.


    Question 9.  Have you initiated an investigation of Sayyed Javad 
Musavi, Seyed Mirahmad Nooshin, and Sayyed Medhi Farahi as required by 
Section 102 of the North Korea Sanctions and Policy Enhancement Act of 
2016 (P.L. 114-122)?

    Answer. The functions and authorities under section 102(a) 
regarding initiation of investigations pursuant to the North Korea 
Sanctions and Policy Enhancement Act of 2016 (the Act) were delegated 
to the Secretary of the Treasury. For questions regarding current 
investigations under this section, we refer you to the Department of 
the Treasury.


    Question 10.  If so, why have these individuals not been designated 
as required by the mandatory sanctions in P.L. 114-122? If not, why?
    Please provide a reason why the Obama administration has not 
provided a waiver of the requirement to impose sanctions under the 
North Korea Sanctions and Policy Enhancement Act of 2016 (PL 114-122) 
for the following individuals:

          Sayyed Javad Musavi

          Seyed Mirahmad Nooshin

          Sayyed Medhi Farahi

    Answer. We cannot comment on future potential designations. 
However, please note that these individuals have already been 
designated under E.O. 13382, resulting in the blocking of their 
property and interests in the United States.


    Question 11.  Given that the IAEA has no visibility into the North 
Korean nuclear program and our own poor track record in catching North 
Korean nuclear cooperation with other rogue actors early, what tools do 
we have in place to ensure that Iran is not continuing its prohibited 
nuclear activities inside North Korea?

    Answer. Despite the DPRK's expulsion of IAEA inspectors from North 
Korea in 2009, the IAEA has continued to monitor the DPRK's nuclear 
activities and keep Member States informed of developments in the 
DPRK's nuclear program through the Director General's annual reports.
    The IAEA also remains dedicated to maintaining its readiness to 
resume its monitoring and verification presence in the DPRK, efforts on 
which the IAEA has the United States' full and steadfast support.
    The United States continues to work closely with our partners and 
the international community to address the threats posed by North 
Korea's nuclear and ballistic missile programs. We continue to take 
concerted steps, both unilaterally and multilaterally, to impede North 
Korea's proliferation activities, including through the imposition and 
enforcement of sanctions under relevant U.S. authorities and UN 
Security Council resolutions and by urging all countries to implement 
UN Security Council resolutions concerning the DPRK.
    We also continue to do the same with respect to Iran, both 
unilaterally and multilaterally, in accordance with UNSCR 2231 (2015) 
and the provisions of the Joint Comprehensive Plans of Action (JCPOA).
    We are committed to ensuring that Iran fulfills all of its nuclear-
related commitments in a verifiable and complete manner. Because there 
is comprehensive IAEA monitoring of the entire fuel cycle within Iran, 
we are confident we will know if Iran attempts to cheat, including 
through the introduction of foreign technology or material into Iran's 
nuclear fuel cycle that is contrary to the JCPOA.


    Question 12.  Are you working to coordinate investigations with 
China, Japan, and South Korea? If not, do you commit to do so?

    Answer. We reviewed media articles released in August 2016 claiming 
David Sneddon, a U.S. citizen who went missing from the Tiger Leaping 
Gorge area of China's Yunnan province since some time after August 10, 
2004, had been kidnapped by the DPRK regime and was alive in Pyongyang. 
The U.S. Consulate in Chengdu has been in regular contact with regional 
Chinese officials since David Sneddon was reported missing in August 
2004. We have spoken with officials from the South Korean and Japanese 
governments. We have also contacted the DPRK government regarding the 
media reports, but received no official response. Thus far, we have not 
been able to verify any of the information suggesting that Sneddon was 
abducted by North Korean officials or is alive in North Korea, but we 
will continue our efforts to search for any verifiable information.


    Question 13.  When is the last time you raised this case with 
China? What was the reaction?

    Answer. Senior officials at our Embassy in Beijing and at the U.S. 
Consulate in Chengdu have consistently discussed the disappearance of 
David Sneddon with Chinese officials. Most recently, in September 2016, 
Consulate Chengdu sent a diplomatic note to Chinese officials seeking 
any additional information about his case. In response, Chinese 
officials reported that China continues to devote resources to the 
search for Mr. Sneddon, but no progress has been made. This remains an 
open missing person case in China, thus a death certificate has not 
been issued. The Department of State has not been able to verify any of 
the information suggesting that Sneddon is alive in North Korea, but 
continue our efforts to search for any verifiable information.


    Question 14.  In June a North Korean agent was captured by Chinese 
officials in Dandong with $5 million in counterfeit $100 bills. Are we 
seeing an increase in North Korea's efforts to counterfeit currency?

    Answer. We take all efforts by North Korea to evade U.S. and 
international sanctions seriously. In order to check these attempts, 
the U.S. has used domestic sanctions to highlight these activities, 
consistent with the North Korea Sanctions Policy and Enhancement Act. 
For more information about activities specific to countering the threat 
of counterfeit currency, we refer you to the U.S. Secret Service.


    Question 15.  What are we doing to stop this and other DPRK illicit 
activities?

    Answer. We are well aware that DPRK officials and other nationals 
are engaged in many illicit activities around the globe. Whenever we 
become aware of such activities, we work with like-minded partners 
including the ROK and Japan to alert the host country. We then press 
the host country to take appropriate action, including law enforcement 
measures or, in the case of individuals with diplomatic immunity, 
removing them from the country.


    Question 16.  Are we working with China to understand whether North 
Korea has used other counterfeit U.S. currency inside China?

    Answer. Our cooperation and dialogue with China in reference to 
North Korea's unacceptable and destabilizing activity is wide ranging. 
For questions regarding North Korea's use of counterfeit currency, we 
refer you to the U.S. Secret Service.


    Question 17.  Executive Order 13551 provides a mechanism for 
designation of those who counterfeit U.S. currency, are we preparing to 
designate the North Korean agent arrested in China?

    Answer. We take all efforts by North Korea to evade U.S. and 
international sanctions seriously. Any ongoing investigations in 
connection with this activity would be undertaken by the Department of 
Treasury.


    Question 18.  A recent press article described brokers who lure or 
abduct North Korean women and bring them to China where they are then 
sold into marriages in China. These women fear both the North Korean 
regime for its brutality and that China or North Korean agents will 
return them back to North Korea. Have we raised this issue with China? 
Are we pressing Beijing to stop sending North Korean refugees back to 
the brutal Kim regime?
    The Report of the Commission of Inquiry on Human Rights in the DPRK 
in February 2014 recommended: ``The Security Council should refer the 
situation in the Democratic People's Republic of Korea to the 
International Criminal Court for action in accordance with that court's 
jurisdiction. The Security Council should also adopt targeted sanctions 
against those who appear to be most responsible for crimes against 
humanity.''

    Answer. The State Department continues to encourage the Government 
of China at the highest levels to provide appropriate protections for 
victims of human trafficking, including those arriving from the DPRK. 
Secretary Kerry has raised our concerns with Chinese officials on 
multiple occasions, including at the annual Strategic and Economic 
Dialogue, and Ambassador Coppedge will travel to China later this year 
to continue our efforts to improve China's anti-trafficking practices 
and facilities.


    Question 19.  Has China blocked the Security Council's referral of 
the DPRK to the International Criminal Court?

    Answer. No, China has not blocked the Security Council's referral 
of the DPRK to the International Criminal Court.


    Question 20.  If so, when will the United States publicly force 
China to veto the referral and once and for all reveal that it is 
covering for this brutal regime?

    Answer. The State Department regularly evaluates the human rights 
abuses committed by the DPRK and continuously reviews appropriate 
measures to address them via the United Nations.


    Question 21.  Also related to North Korean refugees, we're hearing 
from sources on the ground in China that the Chinese are repatriating 
North Koreans and raising bounties for turning in North Koreans. We've 
even heard reports that Chinese officials are processing asylum seekers 
for the North Korean government who then immediately sends them to 
labor camps or worse. Can you confirm this? What are we doing to press 
China on this issue?

    Answer. We are aware of reports prior to April 2015 stating that 
Chinese authorities were forcibly repatriating North Korean refugees by 
treating them as illegal economic migrants. There were no reports of 
the forced repatriation of North Koreans between April 2015 and March 
2016--the latest time period for which confirmed data is available--but 
media outlets have reported a resurgence of repatriations in recent 
months, which we have not yet verified.
    We will continue to urge China to uphold its commitments with 
regard to North Korean refugees as a state party to the 1951 Convention 
on the Status of Refugees and its 1967 Protocol.
    We are in regular touch with the ROK government on this issue. The 
ROK routinely asks us to avoid publicizing defector cases, as it makes 
it more difficult to get them safely to the ROK. ROK officials have 
said they are satisfied with Chinese cooperation on defectors and are 
not aware of any new cases of forced repatriation. We continue to 
encourage the Government of China to provide protections for victims of 
human trafficking and refugees, including those arriving from the DPRK.


    Question 22.  A growing problem is North Korea's export of slave 
labor which constitutes a grave human rights abuse and also serves as a 
source of cash flow to the regime. What is the Department doing to stop 
the trafficking of North Korean laborers for hard currency?

    Answer. North Korea's export of labor generates significant revenue 
for the DPRK government and enables the development of its illicit 
nuclear and missile programs. Under Executive Order 13722, the 
Department of Treasury, in consultation with the Department of State, 
has authority to designate individuals and entities determined to be 
responsible for the exportation of workers from North Korea. We work 
closely with other governments to document and disseminate information 
about the living and working conditions of North Korean workers in the 
DPRK and overseas. We have also raised our concerns with governments 
around the world about the use of DPRK workers in their countries, and 
some governments have modified their policies. As our efforts in these 
countries demonstrate, our embassies around the world are deeply 
engaged with host governments on the issue of DPRK laborers and the 
revenue they generate for the regime.

                                 ______
                                 

            Responses to Questions for the Record Submitted
            to Assistant Secretary Russel by Senator Gardner


    Question 1.  On March 18, 2016, New York Times reported they 
uncovered documents, which showed how a ZTE, a Chinese firm, ``would 
set up seemingly independent companies--called `cut-off companies'--
that would sign the deals in other countries. That could enable it to 
continue to do business in Iran, North Korea and other countries placed 
under American restrictions.''
    On June 2, 2016, New York Times reported that the U.S. Commerce 
Department is also investigating the Chinese company Huawei, including 
demanding that the company ``turn over all information regarding the 
export or re-export of American technology to Cuba, Iran, North Korea, 
Sudan and Syria, according to a subpoena sent to Huawei and viewed by 
The New York Times. The subpoena is part of an investigation into 
whether Huawei broke United States export controls.''

   What are ZTE and Huawei's dealings with North Korea?

   Are North Korean nationals, or individuals working at the 
        behest of the North Korean regime, utilizing any Huawei or ZTE 
        equipment to conduct cyberattacks?

    Answer. We do not comment on ongoing investigations. Generally 
speaking, the recent Executive Order signed by President Obama (EO 
13722) imposed prohibitions on the exportation from the U.S. or the re-
exportation from abroad of goods, services, and technology to North 
Korean entities, except where licensed by the Commerce or Treasury 
Department, as appropriate. In addition, Commerce has long required 
licenses for all exports and reexports, except for food and medicine, 
to North Korea. We refer you to the Treasury and Commerce Departments 
for more information about their efforts.
    EO 13722 also authorizes new sanctions designations for those 
engaging in significant activities undermining cybersecurity against 
targets outside of North Korea on behalf of the Government North Korea 
or the Workers' Party of Korea. This includes the ability to impose 
sanctions on persons providing material assistance, sponsorship, or 
financial, material, or technological support for, or goods and 
services to or in support of any person undermining or attempting to 
undermine cybersecurity on behalf of the Government of North Korea or 
the Korean Workers Party. This authority is consistent with those 
outlined in the North Korea Sanctions Policy Enhancement Act.
    Dealings with North Korea by ZTE and Huawei is a topic that would 
be best addressed via an interagency briefing in a classified setting 
after the investigation has concluded.


    Question 2.  If there is evidence that ZTE or Huawei have 
collaborated with the North Korean regime to conduct illicit 
activities, would you support their designation under the North Korea 
Sanctions and Policy Enhancement Act or any other legal authorities?

    Answer. We do not comment on ongoing investigations. We have used 
our sanctions authorities and other restrictive measures against third-
country nationals and entities, including Chinese. For example, on 
September 26, 2016, the Treasury Department imposed sanctions on four 
Chinese nationals and one Chinese entity that were found to be 
supporting North Korea's WMD proliferation activities.
    We will continue to use all tools at our disposal in order to halt 
North Korea's nuclear proliferation activities, deprive the Kim regime 
of hard currency, and protect the United States from threats to our 
national security.


                                 ______
                                 

            Responses to Questions for the Record Submitted
            to Assistant Secretary Russel by Senator Perdue


    Question 1.  The importance of China's role in enforcement of these 
sanctions cannot be overstated. Between 2011 and 2015, more than 90% of 
North Korea's trade with the outside world is believed to have been 
with China and South Korea. Can you describe the administration's 
current efforts to influence China to leverage its relationship with 
North Korea (DPRK) to fully implement sanctions?

    Answer. The administration has engaged Beijing at the highest 
levels to seek greater Chinese cooperation in imposing costs on North 
Korea for its threatening behavior. We regularly urge China to do more 
to prevent North Korea from using Chinese companies or infrastructure 
in ways that can benefit the DPRK's illicit activities. All options, 
including sanctions, remain on the table. We are not shying away from 
their use.
    On September 26, the Treasury Department and the Justice Department 
moved in concert to check the sanctions evasion activities undertaken 
by a Chinese entity and four Chinese nationals: Dandong Hongxiang 
Industrial Development Company Ltd (DHID), Ma Xiaohong, Zhou Jianshu, 
Hong Jinhua, and Luo Chuanxu. The Treasury Department added these 
persons to the Specially Designated Nationals List, while the Justice 
Department unsealed criminal charges against the same for conspiring to 
evade U.S. economic sanctions and violating OFAC's Weapons of Mass 
Destruction Proliferators Sanctions Regulations as well as conspiracy 
to launder money.
    We will continue to urge China to exert its leverage as North 
Korea's largest trading partner. We seek to force Kim Jong Un come to 
the realization that the only viable path forward for his country is 
denuclearization.


    Question 2.  The UN Sanctions Committee has difficulty with 
collecting the data necessary to properly enforce sanctions against 
North Korea. A major reason analysts give for this is that it is 
broadly suspected that China's border with North Korea is significantly 
porous, allowing any flow of goods between the two countries to go 
undocumented. Is the administration looking into ways to influence 
China to a) fully comply with reporting requirements under DPRK 
sanctions, and b) to begin to enforce their border with North Korea 
more stringently?

    Answer. We agree that more work is needed to limit the flow of 
illicit goods over the China-North Korea border and we continue to work 
closely with the Chinese to achieve greater cooperation and application 
of pressure on North Korea. While we are aware of China's concerns that 
pressure on North Korea could precipitate a destabilizing crisis, we 
consider North Korea's nuclear and missile programs as posing a far 
greater threat to regional security. We acknowledge steps China has 
taken to implement UN sanctions but have repeatedly urged China to 
improve its implementation and apply pressure needed to effect a change 
in North Korea's behavior.
    China has objected to U.S. actions intended to strengthen our 
defenses against North Korean military threats to ourselves and our 
allies, but we have made clear that we will take all necessary steps to 
deter and defend against those threats. We closely coordinate with 
China on sanctions and other measures to counter North Korea's 
problematic behavior.


    Question 3.  We also know that UN sanctions have, in some ways, had 
the perverse effect of actually boosting revenue flows to North Korea. 
Due to certain sanctions exemptions, such as those allowing the 
importation of goods from North Korea when the profits from such 
imports are generated ``for the people's livelihood,'' trade with China 
and South Korea has increased by 90% in 2011. Further, China has 
exploited these exemptions to increase their North Korean imports of 
irons and iron ore by 64 percent. However, certification that these 
imports comply with sanctions exemptions are enforced by China's own 
custom's authorities, creating a significant conflict of interest.

   How has the administration gone about addressing the issue 
        of exemptions with China?

   Has the administration discussed the possibility of 
        defining ``for the people's livelihood'' exemption with the 
        Sanctions Committee or with China? If so, how?

   Alternatively, has the administration sought to persuade 
        China to raise the bar for businesses seeking to take advantage 
        of the ``livelihoods'' exception by requiring some type of 
        documentation? If so, what kind? Would there be any possibility 
        of an oversight mechanism outside of Chinese customs 
        authorities?

    Answer. The administration is deeply troubled by the increase in 
the exports of North Korean coal to China, including under the 
``livelihood'' exception. Not only is North Korean coal in many cases 
mined by essentially enslaved workers--including children--it helps to 
prop up the Kim regime at the expense of everyday North Koreans, making 
coal harder to obtain for those seeking to heat their homes and cook 
their food.
    We are taking immediate steps to address this problem. 
Specifically, the U.S. Mission to the United Nations in New York is 
seeking ways to limit DPRK exports of coal that benefit the regime. If 
those efforts fail to produce the desired narrowing of the UNSCR 2270 
livelihoods exception, the administration stands ready to continue 
high-level diplomatic engagement with all importers of North Korean 
coal, iron and iron ore, and consider the best way to promote stronger 
and global implementation of UNSCR 2270, potentially including by using 
domestic sanctions authorities.


    Question 4.  A key question for implementation of sanctions 
continues to be whether China will inspect shipments on its border, 
through its ports, and in its air space, for shipments of illicit goods 
and materials to and from North Korea. China is not a participant in 
the Proliferation Security Initiative (PSI), which holds regular 
information-sharing and ship-boarding exercises to improve 
international coordination and facilitate timely interdictions. Has the 
administration explored increasing cooperation with other PSI 
countries, namely at key transshipment points, to improve intelligence 
collection and information sharing on illicit shipments to and from 
North Korea?

    Answer. North Korea's economy is indeed heavily dependent on China. 
The administration has engaged Beijing at the highest levels to seek 
greater Chinese cooperation on imposing costs on North Korea for its 
threatening behavior. We regularly urge China to do more to prevent 
North Korea from using Chinese companies or infrastructure in ways that 
can benefit the DPRK's illicit activities. At times, the administration 
turns to other tools, including restrictive measures like sanctions, 
export controls, and criminal proceedings.
    We have seen the report by Asan Institute and C4ADS, which shines 
light on North Korea's overseas networks. In addition to the recent 
DHID-related designations, State and Treasury have also taken steps to 
curb North Korea's shipping operations. Specifically, Treasury 
designated Ocean Maritime Management (OMM) and several of its front 
companies; OMM is highlighted in a recent report by the Asan Institute 
and C4ADS as being a key conduit of North Korean overseas activity. The 
administration has also identified as blocked 18 vessels connected to 
OMM.
    Furthermore, the administration secured the listing of 31 vessels 
controlled or operated by OMM in UNSCR 2270, along with many new 
maritime sanctions authorities that better enable a global campaign to 
shut down North Korea's maritime activities. The administration is also 
seeking to further strengthen U.N. sanctions in this realm. The 
Department of State has led diplomatic efforts to ensure the 
implementation of U.N. obligations on Member States related to 
prohibitions on flagging, owning, and operating DPRK-affiliated 
vessels.
    PSI partners in the region have hosted several bilateral and 
multilateral events, workshops, and exercises. In September 2016, the 
third annual PSI Asia-Pacific Exercise Rotation (PSI-APER) event was 
held in Singapore, which included an at-sea live boarding exercise, an 
in-port interdiction demonstration, and a tabletop exercise and policy 
discussion. A key focus of the tabletop exercise was on the importance 
of timely and accurate intelligence and information to fulfill 
commitments that countries make when they endorse the PSI Statement of 
Interdiction Principles. These commitments include undertaking 
``effective measures, either alone or in concert with other states, for 
interdicting the transfer or transport of WMD, their delivery systems, 
and related materials to and from states and non-state actors of 
proliferation concern.'' Australia will host the next PSI APER event in 
2017.


    Question 5.  Why has Treasury not yet cut off North Korea, 
financial institutions that facilitate transactions for the government, 
as well as third parties that use those institutions, from any access 
to the U.S. financial system? In June of this year, the Treasury 
Department announced its finding that DPRK is a jurisdiction of primary 
money laundering concern. At the same time, Treasury also released a 
notice of proposed rulemaking recommending a special measure to 
prohibit covered U.S. financial institutions from opening or 
maintaining correspondent accounts with North Korea financial 
institutions, and prohibiting the use of U.S. correspondent accounts to 
process transactions for North Korean institutions.

   What is keeping Treasury from implementing this rule?

   What steps is the administration taking to educate U.S. 
        financial institutions about this new policy?

   Has Treasury considered also targeting third-party banks 
        that use those financial messaging services?

    Answer. We believe that the Section 311 final rule regarding North 
Korea will be an important step in further isolating North Korea from 
the international financial system, despite the fact that it was 
already one of the most heavily sanctioned countries. In addition to 
being consistent with the North Korea Sanctions and Policy Enhancement 
Act, it would also amplify the sanctions imposed by United Nations 
Security Council Resolution (UNSCR) 2270, which was passed on March 2, 
2016. Among other significant restrictions, UNSCR 2270 requires Member 
States to sever correspondent banking relationships with North Korean 
financial institutions by May 31, 2016.
    While North Korea's financial institutions do not maintain 
correspondent accounts with U.S. financial institutions, the North 
Korean government continues to use state-controlled financial 
institutions and front companies to surreptitiously conduct illicit 
international financial transactions, some of which support the 
proliferation of weapons of mass destruction and the development of 
ballistic missiles. While current U.S. law already generally prohibits 
U.S. financial institutions from engaging in both direct and indirect 
transactions with North Korean financial institutions, we anticipate 
that the final rule under Section 311 will support international 
sanctions already in place against North Korea and provide greater 
protection for the U.S. financial system from North Korean illicit 
activity.
    While we cannot comment publicly on future sanctions actions, we 
can assure you that we will continue working with our international 
partners to cut off services to North Korea's banking sector.


    Question 6  After DPRK conducted its 5th nuclear test, the U.S. 
flew several B1 stealth bombers over South Korea as a showcase of our 
military force. In your opinion, have these flights had an effect in 
North Korea's decision-making?

    Answer. Yes. The B1 bomber flights had two purposes. First, to 
deter DPRK aggression and second, to assure the ROK public. The two 
separate B1 flights in September demonstrated both the regular 
availability and rapid responsiveness of U.S. strategic capabilities 
and was intended to deter DPRK aggression against the ROK and Japan. 
The U.S. ability to project power onto the Korean Peninsula was a 
signal that was heavily publicized and successfully communicated to the 
DPRK through USG press releases. These flights were also designed to 
assure the ROK public of the U.S. ironclad commitment to their defense.


    Question 7.  An opinion editorial in the Wall Street Journal 
recently compared current U.S. policy failures with North Korea to 
U.S.-Soviet Union tensions in the 1980's when the U.S. moved Pershing 
II medium-range ballistic missiles to bases in West Germany in response 
to the Soviets' growing nuclear capability. Has the administration 
considered other shows of force that might incentivize and stimulate 
China to be more active in trying to remove the Kim regime? For 
example, has the administration considered placing mid-range nuclear 
cruise missiles in Japan or South Korea to offset North Korea's 
possible future mid-range missile capability?

    Answer. The United States has executed numerous flexible deterrence 
operations in 2016, both in response to the DPRK threat and in an 
effort to assure our South Korean allies. These operations have 
included, but are not limited to, B-52 and B-1 bomber flights over the 
Korean Peninsula, publicizing the visit of a nuclear ballistic missile 
submarine to Guam and inviting ROK defense officials to tour it, the 
agreement to deploy a THAAD battery to South Korea and the rotation of 
a high-end conventional capabilities like the fifth generation F-22 to 
Osan Air Base for joint training. Additionally, the growing threat 
posed by the DPRKs nuclear and ballistic capabilities has also been a 
central factor in fostering greater trilateral cooperation with Japan.
    We believe the increased presence of U.S. strategic capabilities in 
Northeast Asia and the enhanced trilateral cooperation with Japan have 
incentivized China to work harder to constrain DPRK aggression and 
provocations.


    Question 8.  North Korea's nuclear cooperation with Iran is well 
documented. Iranian officials reportedly traveled to North Korea to 
witness each of its three nuclear tests--in October 2006, May 2009, and 
February 2013. Just before North Korea's third test, a senior American 
official said that ``it's very possible that the North Koreans are 
testing for two countries.'' Noted North Korea expert Bruce Bechtol 
wrote earlier this year that ``North Korea continues to supply 
technology, components, and even raw materials for Iran's HEU [highly-
enriched uranium] weaponization program.'' And, Director of National 
Intelligence Clapper's 2015 Worldwide Threat Assessment stated that 
Pyongyang's ``export of ballistic missiles and associated materials to 
several countries, including Iran and Syria, and its assistance to 
Syria's construction of a nuclear reactor . . .illustrate its 
willingness to proliferate dangerous technologies.''

   Can you inform me of the State Department's current efforts 
        to halt this sharing of nuclear technology between North Korea 
        and Iran? What more can be done?

   As North Korea remains strapped for cash due to sanctions, 
        do you expect to see more efforts to sell nuclear technology 
        and material?

    Answer. The United States continues to work closely with our 
partners and the international community to address the threats posed 
by North Korea's nuclear and ballistic missile programs. The United 
States closely monitors and reviews all available information on North 
Korea's WMD programs and its proliferation activities worldwide, 
including any efforts to provide Iran with proliferation-sensitive 
materials or technologies.
    We continue to take concerted steps, both unilateral and 
multilateral, to impede North Korea's proliferation activities, 
including through the imposition and enforcement of sanctions under 
relevant U.S. authorities, and United Nations Security Council 
resolutions concerning North Korea.
    We also continue to closely monitor Iran's activities to ensure 
they are consistent with Iran's nuclear commitments under the Joint 
Comprehensive Plans of Action (JCPOA) and with the requirements of U.N. 
Security Council resolution 2231 (2015). We have been clear with Iran 
that the sanctions relief provided under the JCPOA is contingent on 
Iran's continued fulfillment of its nuclear-related commitments for 
their full duration.
    While we cannot predict whether North Korea will increase its 
efforts to sell nuclear technology and material, we do know that 
sanctions have been effective in both limiting North Korea's access to 
cash and thwarting its efforts to export technology and material.


    Question 9.  Reports also suggest that North Korea has received 
cooperation from and has cooperated with both Russia and Syria on 
ballistic missile and nuclear development.

   Is the State Department aware of the transfer of any 
        materials to or from Russia or Syria that violate U.N. 
        sanctions and resolutions?

   Is the State Department looking into tracking this 
        cooperation and reporting to Congress on these fronts?

   If not, what resources might State need to track this data?

   If this is classified information, would you be provide me 
        and my staff with a briefing on this topic in a classified 
        setting?

    Answer. The United States rigorously and continuously monitors 
North Korea's efforts to cooperate with other nations in violation of 
the DPRK's commitments and its obligations under U.N. Security Council 
Resolutions. We would be happy to provide you and your staff with a 
briefing on these efforts in a classified setting.

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