[Senate Hearing 115-156]
[From the U.S. Government Publishing Office]
S. Hrg. 115-156
EVALUATING SANCTIONS ENFORCEMENT AND POLICY OPTIONS ON NORTH KOREA:
ADMINISTRATION PERSPECTIVES
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
ON
REVIEWING THE CURRENT SANCTIONS AGAINST NORTH KOREA, THE EFFECTIVENESS
AND ENFORCEMENT OF SANCTIONS AND ASSESSING WHAT ADDITIONAL SANCTIONS
ACTION, IF ANY, THE UNITED STATES SHOULD IMPOSE IN LIGHT OF NORTH
KOREA'S CONTINUED MISSILE TESTING AND ADVANCING NUCLEAR WEAPONS
CAPABILITY
__________
SEPTEMBER 28, 2017
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available at: http://www.govinfo.gov/
______
U.S. GOVERNMENT PUBLISHING OFFICE
28-660 PDF WASHINGTON : 2018
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
MIKE CRAPO, Idaho, Chairman
RICHARD C. SHELBY, Alabama SHERROD BROWN, Ohio
BOB CORKER, Tennessee JACK REED, Rhode Island
PATRICK J. TOOMEY, Pennsylvania ROBERT MENENDEZ, New Jersey
DEAN HELLER, Nevada JON TESTER, Montana
TIM SCOTT, South Carolina MARK R. WARNER, Virginia
BEN SASSE, Nebraska ELIZABETH WARREN, Massachusetts
TOM COTTON, Arkansas HEIDI HEITKAMP, North Dakota
MIKE ROUNDS, South Dakota JOE DONNELLY, Indiana
DAVID PERDUE, Georgia BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana CATHERINE CORTEZ MASTO, Nevada
Gregg Richard, Staff Director
Mark Powden, Democratic Staff Director
Elad Roisman, Chief Counsel
John V. O'Hara, Chief Counsel for National Security Policy
Sierra Robinson, Professional Staff Member
Elisha Tuku, Democratic Chief Counsel
Laura Swanson, Democratic Deputy Staff Director
Colin McGinnis, Democratic Policy Director
Dawn Ratliff, Chief Clerk
James Guiliano, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
(ii)
C O N T E N T S
----------
THURSDAY, SEPTEMBER 28, 2017
Page
Opening statement of Chairman Crapo.............................. 1
WITNESSES
Sigal Mandelker, Under Secretary for Terrorism and Financial
Intelligence, Department of the Treasury....................... 1
Prepared statement........................................... 27
Response to written questions of:
Senator Menendez......................................... 35
Susan A. Thornton, Acting Assistant Secretary, Bureau of East
Asian and Pacific Affairs, Department of State................. 2
Prepared statement........................................... 31
Response to written questions of:
Senator Menendez......................................... 36
Additional Material Supplied for the Record
List of DPRK Sanction Violators submitted by Senator Van Hollen.. 41
(iii)
EVALUATING SANCTIONS ENFORCEMENT AND POLICY OPTIONS ON NORTH KOREA:
ADMINISTRATION PERSPECTIVES
----------
THURSDAY, SEPTEMBER 28, 2017
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 9:30 a.m. in room SD-538, Dirksen
Senate Office Building, Hon. Mike Crapo, Chairman of the
Committee, presiding.
OPENING STATEMENT OF CHAIRMAN MIKE CRAPO
Chairman Crapo. Good morning. This hearing will come to
order.
Today we are going to proceed a little differently than
usual. One of our witnesses, Ms. Thornton, needs to leave by
10:30 in order to join Secretary Tillerson on a trip to China,
and we have a vote at 10:30. In order to allow more Senators
time to ask their questions, Senator Brown and I have agreed to
submit our opening statements for the record, and we have also
asked each of our witnesses to shorten their opening statements
to just a couple of minutes each so that we can get right to
the questions. Obviously, I am also going to ask the Senators
to be very careful to follow the 5-minute allocation for their
questioning.
Chairman Crapo. First, we will receive testimony from the
Honorable Sigal Mandelker, the Under Secretary of Treasury for
Terrorism and Financial Crimes. And following her, we will hear
testimony from Ms. Susan Thornton, Acting Assistant Secretary
of State for East Asian and Pacific Affairs. And without
anything further, let us proceed.
Under Secretary Mandelker, please proceed.
STATEMENT OF SIGAL MANDELKER, UNDER SECRETARY FOR TERRORISM AND
FINANCIAL INTELLIGENCE, DEPARTMENT OF THE TREASURY
Ms. Mandelker. Thank you. Chairman Crapo, distinguished
Members of the Committee, I am honored to appear before you to
discuss the Treasury Department's strategy to combat the
provocative, destabilizing, and repressive actions of North
Korea.
This Administration is applying maximum economic and
diplomatic pressure to counter this threat. Treasury's tools,
as you know, are central to this campaign and have become among
this Administration's top nonkinetic tools of choice. Today I
will share with you aspects of our strategy which we are
executing at a rapid pace.
We are focused on attacking North Korea's key financial
vulnerabilities:
First, any revenue that North Korea generates can be used
to support, directly or indirectly, its weapons development
programs, and so a key part of our strategy is to suffocate
North Korea financially by targeting the regime's most
profitable industries, including coal, labor, and the sale of
weapons and other goods. We have designated dozens of
individuals and entities that support these lines of business
and are also focused on the shipping networks that enable them.
Second, the regime needs to move funds through the
international financial system in order to acquire foreign
currency, transfer funds, and pay for goods. And so we are
intent on stopping this and on thwarting their ongoing efforts
to evade sanctions through front companies and other deceptive
means. Last week, the President issued a new Executive order
that gives us greater ability and leverage to target foreign
banks that support the Kim regime. On Tuesday, we took action
on North Korean banks and designated financial facilitators
across the globe.
In my first week on the job, we acted for the first time in
over a decade against a non-North Korean bank, China-based Bank
of Dandong, for facilitating North Korean financial activity
through the U.S. financial system. Banks worldwide should take
note. Of course, close collaboration with our international
partners is critical, and we are working very actively with
partners around the globe.
Time is not on our side. We have an incredibly dedicated
team at Treasury working around the clock on this urgent
problem. Our success in curtailing North Korea's revenue
streams and severing its access to financial systems is
essential to a peaceful resolution of this growing crisis.
I look forward to working closely with this Committee and
other Members of Congress as we seek to fulfill our shared
responsibility to keep America safe.
Chairman Crapo. Thank you.
Ms. Thornton.
STATEMENT OF SUSAN A. THORNTON, ACTING ASSISTANT SECRETARY,
BUREAU OF EAST ASIAN AND PACIFIC AFFAIRS, DEPARTMENT OF STATE
Ms. Thornton. Thank you very much, Chairman Crapo and
distinguished Members of the Committee, for the opportunity to
appear before you today to discuss the ever increasing threat
that North Korea poses, and I will just make a very brief
statement.
Today we face a North Korea that has demonstrated an
unwavering determination to achieve an intercontinental
ballistic missile capable of delivering a nuclear payload to
our homeland. And in the face of this escalating threat, we
have the ability to defend ourselves and our allies from any
attack, as the President and Secretary of Defense Mattis have
made clear. But we also have a clear and aggressive strategy to
counter this threat and bring about a diplomatic resolution
employing all available levers of economic and diplomatic
pressure on North Korea in order to change the Kim regime's
strategic calculus.
Our diplomatic pressure campaign is aimed at bringing the
DPRK back to the negotiating table where we hope to achieve an
agreement on the denuclearization of North Korea, and we
recognize that the success of this pressure strategy will
depend on heavy cooperation from our international partners,
especially Beijing. We are working closely with China to
execute this strategy and are clear-eyed in viewing the
progress growing, if uneven, that China has made on this front.
Our task now is to hold China and others to these
internationally binding obligations and to convince China's
leaders to more fully exert their decisive leverage over North
Korea.
We do not seek an accelerated reunification of Korea nor an
excuse to garrison troops north of the DMZ. What we seek is a
peaceful denuclearization of the Korean peninsula and a North
Korea that stops belligerent actions and does not threaten the
United States and our allies.
We appreciate the strong interest in this issue from
Congress, and we look forward to continuing our cooperation.
Thank you for inviting me to testify today. I am pleased to
answer any questions you may have.
Chairman Crapo. Thank you, Ms. Thornton, and I will begin
with you. Executive Order 13810, like other authorities before
it, empowers Treasury to go after--excuse me, I should probably
ask both of you this question--empowers Treasury to go after
North Korean facilitators and evaders. Press reports suggest
the United Nations was not able to pass stronger sanctions
because of the objections of China and Russia.
In your opinion, what must be done to put a hard stop on
those who continue to choose to enrich the Kim regime by
facilitating illicit transactions with North Korea? Are
secondary financial and trade sanctions the answer?
Do you want to go ahead, Ms. Mandelker?
Ms. Mandelker. Sure. Mr. Chairman, thank you for that
question. As you know, we have the ability now in the Executive
order to impose secondary sanctions against financial
institutions, and we take that new authority very seriously. We
believe that the UNSCRs, while they were the strongest measures
that have ever been passed by the United Nations, they
represent the floor and not the ceiling. And so we have to
constantly take additional measures to make sure that they are
implemented with full force and that we are holding all
countries accountable to cut off any revenue stream that is
going to North Korea. And we are doing that and will continue
to do so.
Chairman Crapo. Thank you.
Ms. Thornton, do you want to add anything to that?
Ms. Thornton. Sure. Thank you. I think what I would say is
that we are looking very hard now at implementation. The UNSCRs
we have passed have covered a lot of North Korea's export hard-
currency-earning trade, and what we are doing now is working
very hard to implement--the new Executive order gives us a much
greater tool to go ahead and work on implementing and trying to
ferret out these illicit underground networks that North Korea
uses that have been much of the lifeblood of their
proliferation networks. And so I think implementation is key.
We are working with international partners, as the Under
Secretary mentioned, and I think continuing a full-court press
with those international partners on implementation is going to
be the key to really upping the pressure on the Kim regime.
Chairman Crapo. And just quickly, Ms. Thornton, how
successful do you believe we can be in getting that
international cooperation?
Ms. Thornton. Well, what I would tell you is that we have
been raising this issue with every single international partner
that we have been meeting with, and we have had international
partners coming to us and volunteering their own national
measures that go beyond the U.N. Security Council resolutions.
So what I have seen--and I saw also up at the high-level week
at the U.N. in New York last week--is that all countries have
been--are seized with this matter. They are looking actively at
what more they can do to choke off illicit trade and other
kinds of diplomatic presence and labor presence in their
countries. So I think we will keep up that pressure, and we
need to keep it up. We need to keep a unified international
coalition on this. But having countries and our partners
raising it with other countries as well has proven to be very
effective.
Chairman Crapo. Thank you.
And, Ms. Mandelker, when the President announced Executive
Order 13810, he referenced a Chinese central bank directive
sent to other Chinese banks that sounded like the central bank
instructed the other banks to cut off new business with North
Korea and to wind down existing loans. There is even less known
about what will happen to China's current North Korean business
or future ability to deposit or transfer DPRK funds.
Can you shed any light on this directive by the Chinese
central bank? Basically the question is: Is the policy of China
truly changing?
Ms. Thornton. Thank you, Chairman Crapo. Look, I think that
China is sending very deliberate messages to its banks and to
other companies in China. There was an announcement today, in
fact, that the Chinese commerce department sent an announcement
that all North Korean firms and joint ventures with China had
to be shut down.
We are working very closely with the Chinese. We think that
they are taking this seriously. But we are going to continue to
monitor it. We continue to share information with them on
actions that we think that they need to take. This is obviously
a very serious problem, and the urgency with which China takes
it is going to be key to any successful economic pressure
campaign.
Chairman Crapo. Thank you.
Senator Brown.
Senator Brown. Thank you, Mr. Chairman. I thank you both
for testifying and for your service to our country.
I want to dig down a little deeper on the sanctions issues.
I will start with you, Ms. Thornton. You have testified that,
terms you use, ``maximum pressure,'' ``peaceful pressure,''
``strategic accountability'' describe our ongoing U.S. policy
toward Pyongyang, that the essential elements of the strategy
have not changed to push for further multilateral sanctions,
continue enforcement of U.S. sanctions authorities, improved
U.N. sanctions enforcement globally, and urging other nations
to cut off, what you said, ``normal political relations and
trade'' with North Korea.''
Are you taking full advantage of the sanctions authorities
you have, including those Congress enacted last month? Have we
seen concrete, quantifiable outcomes at this point, especially
in terms of reduction of Pyongyang's revenue streams and
significant impacts on the regime's ability to advance its
weapons program? For you, Ms. Thornton. Let us start with you.
Ms. Thornton. So I think we are taking maximum advantage of
all of the tools that we have been given, and we are also
taking maximum advantage of our diplomacy with countries all
around the world. I believe that we have instituted a number of
designations. We have had, you know, a series of designations.
We have been rolling out sanctions on various entities in
China, in other countries. All of these designations target
North Korean trade, North Korean entities, North Korean illicit
proliferation, and it certainly has had an impact on the ease
with which they are able to make transactions. It has cut down
on their ability to earn hard currency, and it is having an
effect of increasing pressure on the regime.
Senator Brown. Thank you. This is a question for both of
you, and I will start with you, Ms. Mandelker. Many of us here
in this body and all of our allies are concerned about the
President's statements about the JCPOA. The President indicates
he intends to blow up the Joint Comprehensive Plan of Action,
the Iran nuclear agreement. Many argue this will seriously
undermine U.S. credibility on nuclear issues with North Korea
and others. Are you concerned that the President's position
undermines our diplomatic efforts with North Korea?
Ms. Mandelker. No, Senator, I am not concerned. I think
these are two very different and distinct problems. North Korea
needs to understand that we are very serious when it comes to
applying our maximum--using our maximum authorities to applying
economic pressure. And, frankly, this is an area where the
world is coming together. We are seeing the strongest U.N.
Security Council resolutions we have ever seen, and we are
seeing countries take steps over and above our----
Senator Brown. That is surely good news, but the world came
together on the JCPOA, too. And do the Koreans think that,
well, if the United States is going to pull out of this
agreement, which clearly is working to keep nuclear--to stop
the nuclear program in Iran, why would we have that credibility
and why would the world think we have that credibility in your
dealings with the Chinese and only the North Koreans?
Ms. Mandelker. Again, Senator, we are having--I am
personally involved in working very closely with our allies in
Europe, Japan, South Korea, and elsewhere. And the message that
I am hearing is that we are very unified in this effort. We are
not equating one issue with the other. I cannot tell you----
Senator Brown. You are not equating one issue with the
other, but don't our allies see that when we as a Nation renege
on one nuclear agreement, we are not as trustworthy as they
thought we were as a Nation for the next round?
Ms. Mandelker. Again, I cannot tell you what our allies
think, but what I can tell you----
Senator Brown. Well, you just did. You said our allies are
all in the same place, and you just told us what they think.
Now you are telling us you do not know what they think.
Ms. Mandelker. What I can tell you is that we are very
unified in sending a joint message to North Korea that we are
all using our maximum economic pressures and diplomatic
pressures to get them to change their behavior.
Senator Brown. Do you disagree with our allies who all say,
virtually every one, that Iran is complying? I know this
hearing is not about Iran, but do you agree with our allies
when they say that?
Ms. Mandelker. Senator, I would defer to the IAEA and the
State Department with respect to Iran's compliance with the
JCPOA.
Senator Brown. Ms. Thornton, respond to that, if you would.
And, also, does it concern you that we are working with the
Chinese, as we should, in trying to work to get North Korea to
change its policy that our allies, some of our allies question
whether we are reneging on something we already did on nuclear
weapons just a year and a half, 2 years ago?
Ms. Thornton. Yes, thank you. I am not the Iran expert,
obviously, but I know that we have certified continuation of
the JCPOA in the most recent process.
I think on the connection between that and North Korea, the
thing that is important to remember is we have been down this
road with North Korea several times already and that they have
continually undermined, cheated, and disregarded the agreements
that we have entered into with them in an attempt to do what we
are also attempting to do, obviously, with Iran, which is stop,
freeze, and roll back an illegal nuclear program.
So I think what we want to do with North Korea is make it
clear that we are not going to go down the road again of being,
you know, cheated or fooled, and that we are going to enter
into this agreement and expect that they would live up to their
side of the bargain. And that is what the maximum pressure
campaign is about, to build that kind of pressure and leverage
which will convince them that they really need to engage
seriously in a discussion about freezing and rolling back their
program.
Senator Brown. OK. Thank you both.
Chairman Crapo. Thank you. And before we go to Senator
Toomey, since more Senators are here, I wanted to make an
announcement that I made at the beginning of the hearing, and
that is that Ms. Thornton has to leave at 10:30 for a trip with
Secretary Tillerson overseas, and we have a vote at 10:30. So
Senator Brown and I have both forgone our opening statements,
and I am going to ask the Senators to pay very close attention
to their time allocation.
Senator Toomey.
Senator Toomey. Thanks very much, Mr. Chairman, and thanks
to our witnesses.
I want to draw a different parallel with Iran, if I could.
But to back up just a second, I do not think anybody questions
how grave a threat North Korea poses to us. We have seen a
nuclear weapons program for over a decade, a tremendous
acceleration in their missile delivery capabilities. This
threat is growing, and it seems to be at an accelerating pace.
And despite the many sanctions that we have on North Korea, our
allies have joined us, the South Korean government reports that
North Korea's economy grew at the fastest rate in 17 years last
year, and that their GDP managed to expand by 3.9 percent--
admittedly off a low level, but they are experiencing economic
growth, and it is hard to imagine that they are going to
abandon these programs if they are discovering that they have
greater prosperity year in and year out.
So I want to commend--the work you guys are doing is
terrific. It is really important. I am grateful for it. I agree
fully with the Executive order to further pursue sanctions. But
we have had witnesses who have reported to us--and I do not
think that our current witnesses will disagree. We are not yet
at the maximum level of possible sanctions against North Korea.
For instance, we were told at past hearings that there are
financial institutions conducting transactions with North
Korean entities that are not subject to the secondary sanctions
today. Do you both agree with that?
Ms. Mandelker. Senator, any financial institution would be
subject to our authority----
Senator Toomey. OK, I understand that, but is it true that
there are financial institutions, including Chinese
institutions, that are conducting financial transactions and
have not had sanctions imposed directly on them?
Ms. Mandelker. Well, Senator, as you are probably aware, in
June we, in fact, took action against one----
Senator Toomey. Again, listen, I am in favor of that. I am
glad. My point is there are many other institutions that are
conducting transactions, and you have acknowledged today that
there is one Chinese bank that has had sanctions imposed
directly.
So my point in all this is we also have learned, I think,
that the mandatory sanctions of the Iran sanctions legislation
probably played a big role in bringing Iran to the table. And
it is my belief--and I think it is shared by my colleague, the
Senator from Maryland, with whom I am working on legislation,
and we have been working with Treasury, and we want to continue
to work with you on this. But the threat of mandatory sanctions
immediately once that legislation passes sends a very, very
powerful message to financial institutions. And I think that is
the tool that we need. That is the tool that worked with Iran.
We have not adopted that yet, and it is my hope that we will,
and I welcome your thoughts on it.
Ms. Mandelker. Senator, of course, we think that having the
authority to go after financial institutions is incredibly
important. That is why we had the strongest Executive order--
the President has just signed the strongest Executive order
that we have ever had, which gives us the authority on a going-
forward basis to impose secondary sanctions against financial
institutions. We think banks are taking note. We are very
carefully monitoring their
ongoing activity and behavior, and, look, the safety and
security of the American people come first, and we will not
hesitate to act where we think that it is warranted.
Senator Toomey. I understand that, but having the authority
to do something is not the same thing as being required to do
something, and the latter simply sends a stronger message.
Now, I think there should be a way for an institution that
ceases and desists, for instance, to no longer be subject to
sanction, right? I mean, we want to have a mechanism that does
not permanently disqualify an institution from U.S. markets if
they have ceased and desisted. But my own view is we have not
taken the most aggressive steps possible, and this is as
serious a threat as I can plausibly imagine.
So I hope you will continue to work with us in this effort.
I want to thank my colleague Senator Van Hollen for the great
work that he has done on this, and, Mr. Chairman, I think I
have come in 30 seconds short.
Chairman Crapo. Thank you, Senator Toomey.
Senator Reed.
Senator Reed. Well, thank you very much. I am tempted to
commend the Chairman and the Ranking Member for the best
statements they have ever given.
[Laughter.]
Senator Reed. Forgive me.
Secretary Thornton, in the past we have used the five-party
mechanism with South Korea, Japan, Russia, China, and the
United States, and at this point it seems that a lot of the
diplomacy is one-off. You go to China and talk to them. Someone
presumably is talking to Russia, et cetera. Why don't we, if we
are really serious about this, convene the five-party talks and
show not only strength but concerted effort?
Ms. Thornton. Yes, thank you. We are convening--I mean, we
do not have that specific mechanism invoked, but we are doing a
lot in the U.N. Security Council. We are doing a lot with
various multilateral partners. We had a very strong statement
out of ASEAN at the recent ministerial in October in Manila. We
have gotten a lot of different actors to step up and help us
with this effort. Certainly, we are doing a lot of consulting
with the regional stakeholders, especially our two very strong
allies, South Korea and Japan. The President met with them both
in a trilateral format last week in New York. But we have also
been consulting very closely and had long meetings and had
extended discussions with both Russia and China.
I think we are doing as much as we can with those regional
stakeholders, but we do not want to be tied to one particular
format, and we are certainly open to any formats or
opportunities that would put pressure, more pressure on North
Korea. And so I think we are open to it. We just have not found
it necessary to do it in that format.
Senator Reed. Do you concur with Ambassador Haley that the
United Nations has exhausted its usefulness?
Ms. Thornton. Well, I mean, I think she was referring to
the issue of UNSCRs that could be passed and increasing the
level of sanctions within the UNSCRs. I think we all agree that
almost all of North Korea's external hard-currency-earning
trade has been captured in one way or another through U.N.
Security Council resolutions. And I think there is probably
some more that could be done there, but mostly it has been
already incorporated into the UNSCRs we have so far. The main
task I see going forward is on implementation.
Senator Reed. I concur, and in that regard, Secretary
Mandelker, you have lots of authorities, but do you have a list
of priorities--I mean, most important is to go after this
company, second important is this company, and shipping is the
third, et cetera? Can you give us that strategy, not just, ``We
have lots of things we can do''?
Ms. Mandelker. Yes, Senator. So we are constantly thinking
about how we can exercise our authorities to achieve maximum
strategic impact. We are looking at the biggest revenue
generators to North Korea and taking action against those
revenue generators. We are very focused on sanctions evasion.
Of course, the reason we have gotten--part of the reason we are
in the place that we are today is that North Korea has been
incredibly adept at evading our sanctions, and we want to cut
that off at the pass. And so we are focusing on high-revenue
generators. We are focusing on going after those financial
facilitators that they have planted all over the world. We just
announced designations of 26 of those this week that were
situated in different countries. And, again, always focused on
maximum strategic impact.
So just as an example, in August we went after three coal
companies that had generated a half a billion dollars' worth of
revenue to North Korea, and we designated them to cut them off,
again, at the pass so that they can no longer generate that
sort of revenue. So, yes, focus on highest-priority impact
always.
Senator Reed. Those three companies, you have effectively
shut them down or you have just indicated to them, ``We are
going after you''?
Ms. Mandelker. We have indicated to them that they cannot
have access to the U.S. financial system, and we have sent a
very strong message that it is our view that no one should be
dealing with any company that is continuing to trade with North
Korea.
Senator Reed. But companies are still dealing with those
companies?
Ms. Mandelker. I cannot tell you in an open setting whether
or not companies are still dealing with those companies, but
the message is clear. We will go after any company that does
trade with North Korea.
Senator Reed. I think that is a good message, but, again, I
think apropos of some of the comments of my colleagues, you
know, specific evidence that it is working--I mean, Senator
Toomey mentioned that the growth in their economy was not
insubstantial last year. And, you know, we are messaging, we
have been messaging for two decades.
Ms. Mandelker. I agree with you, Senator. Look, that is why
in this Administration we are taking the strongest measures we
have ever taken. We have had many UNSCRs in the past, and they
have not worked. These are the strongest U.N. Security Council
resolutions we have ever had. The Executive order that the
President signed last week is the strongest across-the-board
Executive order that we have ever had. We are taking this with
utmost seriousness, and we are pushing countries all over the
world to do the same.
Senator Reed. Thank you very much.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Corker.
Senator Corker. Yes, sir, thank you. Thank you both for
being here.
Do we all agree that, in essence, North Korea is a de facto
nuclear state?
Ms. Thornton. Sorry. Is that for me?
Ms. Mandelker. Well, look, we all know what the threats
are, Senator, and they have been able to proliferate at an
unprecedented pace.
Senator Corker. I do not want to get into a long debate,
but we do agree they are a de facto nuclear state. Is that
correct?
Ms. Thornton. I do not think that is the position of the
State Department. It involves a number of different
technologies, and I do not think that we would be able to say
with concrete certainty that that is the case.
Senator Corker. Well, I am going to state that they are a
de facto nuclear state. That would be my position.
I applaud the efforts that are underway. I really do. And
as you know, I work closely with Secretary Tillerson and
others, and, you know, every one of our intelligence agencies
tells us, publicly even, that there is no amount of pressure
that can be placed on the leader of North Korea to get him to
stop. He views this as his ticket to survival, and he is
changing the balance in the peninsula. So I applaud the efforts
that are underway. I really do.
Is there any course of action, though--we have been doing
this now for 25 years. This is the most robust effort that I
applaud. But is there anything you see that is changing,
possibly changing the dynamic that exists, where they are in
the very short term going to have a deliverable to the United
States, nuclear weapon, without a change in trajectory? I mean,
Tillerson is working against--and I applaud what he is doing,
but he is working against the unified view of our intelligence
agencies which say there is no amount of pressure that can be
put on them to stop. And so I am just asking, is there some
dynamic out there that you see is going to overwhelm that
unified view and change the trajectory?
Ms. Thornton. I think that that is the intelligence
community's assessment, or at least the assessment of many of
them. But I think what we are doing is testing that assessment,
and I think what has changed is the sort of growing level of
international isolation and pressure, especially from the
leading enabler of North Korea up to this point, which is
China. And I think we do see China, as the Under Secretary
mentioned earlier, policy shifting. We are trying to turn
China's position from looking at North Korea as some kind of
asset to looking at them as a liability. I think that Secretary
Tillerson has made a lot of progress on that front, and so the
pressure that is being applied now to the Kim regime is greater
than at any time in the past. And we need to test that
proposition, I believe. So that is what we----
Senator Corker. Is denuclearization of the peninsula still
the absolute objective?
Ms. Thornton. Yes.
Senator Corker. Is it helpful--you know, Congress has taken
the lead on many things. There is no question that Congress
took the lead for years on Iran. I do not think there is any
way, without the pressure of many people in this Committee for
a long, long time, and on the Foreign Relations Committee, I do
not think there is any way that we would have ever gotten Iran
into a place to negotiate. Congress passed some sanctions on
Russia recently. Congress passed additional sanctions--the
House actually took the lead--on North Korea. I am at the point
personally where I wonder whether additional congressional
activities is helpful when we are on the brink of something
that could become a catastrophe. I applaud all those people who
want to play a role, I do, and I am not in any way being
pejorative as it relates to that effort. But from your
perspective, is it helpful for Congress to pass additional
legislation right now? And I know no Administration ever wants
Congress to do anything. I got that part. But are there
heightened concerns currently about Congress taking additional
steps as it relates to sanctions?
Ms. Thornton. Well, what I would say is that we all want
this to be resolved diplomatically and peacefully. We think
that this maximum pressure campaign is the last best chance to
resolve this peacefully, but what that also means is that
eventually we will need to get into some diplomacy, and we will
need flexibility when we get to that point. So I think we want
to keep in mind that, you know, we want to get to the
diplomatic solution, and when we get there, Secretary Tillerson
will want to, you know, have space to negotiate.
I think, you know, the Members of Congress I have spoken
to, I know many of them travel; many of them are going around
the world and talking to people about these issues. I spoke to
one last night who was just in Beijing and met with Chinese
officials for an hour and a half on North Korea alone. I think
that kind of message coming in a unified way from every single
Government official in the United States is very helpful, and
also we have been telling all of our global partners, coming
from all of them.
Senator Corker. You did not address sanctions. I am trying
to--you are avoiding that, and that is fine. But I know my time
is up.
Ms. Mandelker. I would be happy to quickly address--of
course, we are grateful for the authorities that Congress has
given us, and as I mentioned, the President has also signed the
strongest Executive order that we have ever had. I think that
it is also incredibly important that we have the ability to
remain flexible. We have to move and strike in the use of our
economic powers according to what the intelligence is telling
us will be the best targets to exact an enormous amount of
economic pressure. And when our hands are tied in different
ways, it keeps us from being agile in the way that you would
want us to be agile in order to maximize that economic
pressure. So we would be happy to work--of course, always happy
to work with the Congress on legislation. I would just caution
taking away our ability to be flexible because it inadvertently
could decrease our ability to exert maximum economic pressure.
Chairman Crapo. Senator Heitkamp.
Senator Heitkamp. Thank you. I will try to run through this
quickly.
Can we be effective in any kind of sanction policy or
regime without total cooperation from China? Yes or no.
Ms. Mandelker. I think total cooperation from China is key.
Can we be effective? Absolutely.
Senator Heitkamp. But I am saying--now I am going to get to
the point. Does the U.S. Government and the Chinese Government
have identical or at least wildly similar goals in dealing with
the Korean peninsula?
Ms. Thornton. So I think we do have broadly similar goals.
Senator Heitkamp. What would those be?
Ms. Thornton. The Chinese Government wants to see a
denuclearized Korean peninsula. That is one of their main key
objectives. They also want there not to be chaos, war, and war
on the Korean peninsula for obvious reasons. It is right on
their border. But their main goal for the current process is to
denuclearize and rid the Korean peninsula of those programs.
Senator Heitkamp. If that is true, then why isn't the
Chinese Government doing everything that it can to achieve that
goal?
Ms. Thornton. Well, I think that they have done a lot.
Senator Heitkamp. No. I am talking about, you know, full-on
maximum effort, maximum restrictions on trade, maximum
restrictions on doing business with North Korea. If that is
true, then why hasn't the Chinese Government exerted the kind
of authority and force on a diplomatic and on a sanction regime
that would achieve that result?
Ms. Thornton. It is hard for me to get exactly to inside
what their policy process is and what they are thinking, but
what I would say is that the calculus that they have about the
line between war and chaos and getting to denuclearization
might be slightly different than the line that we have, and
that they seem to prioritize very much the, you know--the
economy of North Korea is dependent on China, and so they have
said that they want to make sure that the people of North Korea
are not adversely affected. And, of course, we do not want that
either, but they seem to have a different calculation about
that, is how I would----
Senator Heitkamp. I think that is the ultimate challenge
here going forward, which is finding parallel purpose with the
Chinese in achieving this result and having a coalition of, you
know, extreme willingness to actually do everything that we can
to achieve that result. And short of that, I guess, Secretary,
short of that kind of collaboration and cooperation, how is
this going to work to actually change behavior in North Korea?
Ms. Mandelker. Senator, of course, we are intent on working
very closely with the Chinese to make sure that they are
likewise maximizing economic pressure. We are in very regular
discussions with them. We have seen some recent steps that they
have taken that suggest that they are increasing the economic
pressure that is going to be brought to bear, but we are
monitoring it very, very carefully. And I think the authorities
that we now have and the Executive order also send the message
that if countries--any
country does not take this as seriously as we think that they
should, then we will not hesitate to act.
So it is partially working closely, coordinating carefully,
collaborating, as we are doing, but also sending the message
that the President has sent, that Secretary Mnuchin has sent,
that we are constantly sending, that where we think it is
warranted, we are going to continue to up the pressure that
that strategy----
Senator Heitkamp. If the Chinese Government did everything
possible economically, with sanctions, with trade, with
relationships, would it effectively achieve a deterrence from
further progression in North Korea to acquire a nuclear weapon?
Ms. Mandelker. Well, Senator, that is the strategy. Time
will tell. What we are trying to do is change the strategic
calculus of North Korea, and we have to do that in concert with
all of our partners around the globe. I cannot tell you that it
is going to change the calculus, but I can tell you that that
is our ultimate objective: to achieve a denuclearized peninsula
by changing that calculus.
Senator Heitkamp. And you believe that is the Chinese
ultimate objective?
Ms. Mandelker. I cannot speak for the Chinese. I can just
tell you that they are working intently with us on this urgent
matter.
Chairman Crapo. Thank you.
Senator Scott.
Senator Scott. Thank you. Thank you both for being here
this morning.
In 1994, we struck the Agreed Framework with North Korea
with the goal of eliminating the regime's nuclear ambitions.
In 2000, President Clinton relaxed the sanctions under the
assumption that North Korea was upholding its end of the
bargain.
In 2005, the United States, China, Japan, North Korea,
Russia, and South Korea put out a joint statement celebrating
North Korea agreeing to abandon its nuclear weapons program
again.
In 2006, North Korea tested its first nuclear weapon. Since
then, North Korea has conducted five more nuclear weapon tests
and dozens of ballistic missile flight tests, threatening
American targets.
I will ask you both: If a denuclearization agreement is
reached, how can we ensure that the Kim regime does not fool us
again like they have over the last couple decades?
Ms. Mandelker. Senator, I agree with you that that is the
challenge. We are going to have to--if an agreement is reached,
we are going to have to very carefully hold them to account. We
cannot get to the same place--the place that we are in today.
And, again, we would maximize the pressure that we have put on
in a calibrated way to avoid the perilous situation that we are
in today.
Senator Scott. Care to comment?
Ms. Thornton. Yeah, I think what we would have to do is
make sure that we have the entire international community on
board for the enforcement of the agreement, and it is very
clear what the stipulations are in the enforcement, that we
have inspectors in, it would be an intrusive inspection regime.
And we would have to lay all of that out in the process of
getting to that agreement.
Senator Scott. Senator Heitkamp started to talk about the
Chinese influence on North Korea, and my last question goes in
that direction. The President's recent Executive order allowed
Treasury and State to impose secondary sanctions on financial
institutions who continue to do business with North Korea. But
the President gave your Departments discretion as to how to
implement such measures and who to go after. That latitude you
have been given is a deterrent to North Korea's enablers. Case
in point: The same day the Executive order was announced, the
People's Bank of China told financial institutions to wind down
their books of business with North Korean clients.
I have previously made the point that our deep economic
interdependence with China hurts our ability to incentivize
them to take action. Did the simple threat of secondary
sanctions bring about the bank's announcement?
Ms. Mandelker. Senator, I cannot tell you what has
motivated the Chinese, the various announcements that we have
seen from the Chinese. I can only tell you that, again, we are
continuing to work with them and to put pressure on them to
take the steps that they need to take. And I think that the
Executive order sends a very important and careful message,
that if we see continued evasion of our sanctions regimes, if
we see banks not complying with their obligations to restrict
this kind of activity, we will not hesitate to act. That in and
of itself should be sending a very clear message to banks
around the world.
Senator Scott. Anything else?
[No response.]
Senator Scott. Good. Have the Chinese--this is, of course,
in your opinion. I know that you cannot tell me what the
Chinese think. I have heard you say that a couple of times. But
my question is: Do you think the Chinese have come to a similar
conclusion about the interdependence of their economic future
on America?
Ms. Thornton. So you mean are they concluding because of
the interdependence that they can stop short of fully
implementing the sanctions?
Senator Scott. I mean the reverse of it. If they send $700
to $800 billion of goods to America----
Ms. Thornton. They need to comply.
Senator Scott.----part of their challenge is that they have
a lot to lose if we shut down.
Ms. Thornton. Sure, I think that is right. I think they
care a lot about the relationship with the United States. They
are very concerned about what is going on in North Korea and
very concerned about what it implies for their picture, the
strategic security picture in the region, and for them for
their own national security. And I think they also are
determined to comply with the international sanctions regime
that they voted for in the United Nations, and they have said
over and over again that they will strictly implement the
sanctions. And I think they care about being seen as strictly
implementing the sanctions, and so that is where I think a lot
of their recent efforts and initiatives have come from in
concert with that.
Senator Scott. It certainly seems to me if compliance of
the North Korean regime flows through the actions of China, we
should spend as much time delving into the relationship that we
have with China to make sure that we do everything possible to
control North Korea through that medium.
Thank you.
Chairman Crapo. Senator Donnelly.
Senator Donnelly. Thank you, Mr. Chairman. And I want to
thank you both for being here.
Secretary Mandelker, I was wondering if you have met with
Adam Szubin yet.
Ms. Mandelker. I have met with Adam a number of times, yes.
Senator Donnelly. I would recommend to you that you stay in
contact with him, that you stay in touch with him. He has
worked this side of the street for a long, long time. He is
extraordinarily talented, worked for both Republican and
Democratic administrations, and is a patriot above all. And so
whenever I have somebody who can help me as a resource, I try
to use them. He would be a great resource for you to use.
Senator Sasse and I held a Subcommittee hearing on this
subject in May. One of the key findings was that our sanctions
efforts cannot be effective unless they are within a clear,
comprehensive strategy. And, Ms. Thornton, in your written
testimony to the House Foreign Affairs Committee on September
12th, you wrote in regard to the Administration's strategy on
North Korea, ``We are not seeking regime change or collapse,
nor do we seek an accelerated reunification of Korea or an
excuse to send troops north of the DMZ.''
My question is that this week there was a statement from
the Commander in Chief that the North Korean regime will not be
around much longer. How do we put those two things together?
And how do we create a strategy when there appears to be two
different programs rolling around here?
Ms. Thornton. Thank you very much, Senator. So I think our
strategy has a primary goal of denuclearization, and that is
what we are working toward. The President's comments have been
directed more at the issue of threats emanating from North
Korea to our homeland and what would be our very reasonable and
likely response to an attack from North Korea. So I think these
two things are a little bit different, and I do not think that
the clear statements that we are trying to make in order to
make sure that the North Koreans understand what would happen
if they made a miscalculation and initiated an attack on us or
our allies, I do not think that that undermines our declarative
statement of our purpose in the negotiations and in the
diplomatic process of being aimed at denuclearization and not
the other things that you mentioned.
Senator Donnelly. Secretary Mandelker, are sanctions
efforts undermined if they do not follow with a clear message
as to what we are trying to achieve? Are we making that clear
message to everybody?
Ms. Mandelker. Yes, Senator, I believe we are making that
clear message.
Senator Donnelly. OK. Well, then let me ask you in regards
to oil exports from China to North Korea, where are we with
that? What are our success opportunities with that? Will it be
completely cut off and when?
Ms. Mandelker. Well, that is in part up to the Chinese, but
we are also, again, sending a message, writ large, that we will
cut off--or we are able and have the authority to target any
company that is continuing to trade with North Korea in any
industry. So that message is coming clear from the United
States.
Senator Donnelly. Isn't the oil exports the key sanction
that is needed to get the attention of Kim Jong-Un to grind
their economy up to actually make a dent?
Ms. Mandelker. I think the oil exports certainly are very
important, and, again, we are not limited in our ability to
target any oil company that is continuing to do business.
Senator Donnelly. I understand that, but the oil continues
to flow, doesn't it?
Ms. Mandelker. It does continue--my understanding is that
it does continue to flow, and I believe that it should stop.
Senator Donnelly. And what are the plans over the next 5
months to dry that up completely?
Ms. Mandelker. Senator, I am not going to prognosticate
what our next steps are going to be. All options are on the
table, and we are going to continue to aggressively implement
our sanctions regimes. We are going to continue to deploy other
economic tools that we have. We are going to continue to engage
very seriously with our allies and our partners. We are going
to continue to have discussions with China about measures that
we think that they should take.
We are also sending, as you know, an important message to
financial institutions that they need to cut off any activity,
ongoing financial activity with North Korea. And to that end,
we are also having conversations with banks around the world
about steps that we think that they need to----
Senator Donnelly. Let me ask you about the four or five
biggest banks in China. We have been able to obtain parts from
some of the North Korean missiles. We know who makes some of
those parts. We know the banks that finance the companies that
make those parts that are on the missiles that are aimed at our
friends and allies. We know the five most significant Chinese
banks that are the parent banks or banks with relationships to
these other banks. What are we doing to those five banks to put
pressure on them to make sure that these parts are no longer
built?
Ms. Mandelker. So, Senator, again, I am not going to
prognosticate the next steps that we are going to take. In
terms of specific actions----
Senator Donnelly. Well, what steps have you taken with
those five Chinese banks?
Ms. Mandelker. As a general matter, the steps that we have
taken are sending a very important signal through our action in
June and now through this new Executive order that we are not
going to tolerate continued financial activity that helps the
Kim regime, and we are----
Senator Donnelly. Have any sanctions been put on those
banks?
Ms. Mandelker. Not on those banks, Senator. Not at this
time.
Senator Donnelly. Thank you.
Thank you, Mr. Chairman.
Senator Brown. [Presiding.] Senator Cotton.
Senator Cotton. Ms. Mandelker, I have seen a report
recently that says North Korea is the fourth or fifth most
sanctioned nation in the world by the United States. Is that
accurate?
Ms. Mandelker. I cannot give you a comparative, Senator
Cotton, but at this time we have--we, the United States, have
maximum authorities to go after any problematic behavior or
activity, economic activity with North Korea.
Senator Cotton. Is there any reason why we should not throw
the kitchen sink at them economically, hit them with as much as
we can, as fast as we can, as hard as we can?
Ms. Mandelker. That is exactly what we are doing.
Senator Cotton. OK. Ms. Thornton, I want to turn to
something you said earlier that I am going to have to disagree
with, and I think it is a fundamental disagreement, and it
reminds me of what Yogi Berra said: ``If you do not know where
you are going, you might not get there.'' You said that you
believe that China seeks denuclearization of the peninsula. I
know that is what Chinese mouthpieces say to the United States
and Western audiences, but I just cannot agree with it. They
claim that, you know, they are worried about a war that would
lead to a refugee crisis on their border or a unified pro-
American Korean peninsula.
I just find this reasoning to be specious. Refugee crisis?
Say what you will about our country, I am pretty sure that the
Chinese Government can build a wall on their border. And they
have proven that they have a backup method to deal with a
refugee crisis as well, tanks and .50 cal's like they used at
Tiananmen Square.
Second, if they were really worried about a refugee crisis
or a pro-American unified state on their border, aren't there
numerous diplomatic measures they could take? I am pretty sure
that the United States would agree to no forced reunification,
as we did with East Germany and West Germany after 1989. I am
pretty sure that we would agree to no troops north of the
current DMZ, that we would work with the United Nations High
Commissioner on Refugees to set up refugee camps supported by
the United Nations inside of North Korea.
And then, finally, just look at China's actions. You know,
they blocked us from imposing those oil export sanctions at the
United Nations Security Council a couple weeks ago. North
Korea's economy has grown over the last 6 months. Trade with
North Korea was up earlier this year.
So all of these things suggest to me that when China says
they want a denuclearized North Korea, they are misrepresenting
their intentions, because what would be the consequences for
them if that were the case? North Korea would become like an
isolated, weird, Stalinist state the way East Germany or
Romania was in the cold war, but they would not pose any real
threat to the United States or to our allies in the region.
And what would we be having hearings about? We would be
having hearings about Chinese economic warfare and espionage
against the United States. The Armed Services Committee would
be having hearings about China's building and militarizing
islands in the South China Sea. The Senate Foreign Relations
Committee might be having hearings about their near diplomatic
embargo on Taiwan.
So I would say that it actually benefits China
strategically in their competition against the United States
that North Korea remain nuclearized, and, therefore, they are
not going to take steps to denuclearize North Korea unless the
costs of keeping a nuclear North Korea exceed the benefits they
get from it. That is my perspective on what China's motivations
are here. I would like to hear your perspective on mine.
Ms. Thornton. So I think where I probably would not share
exactly your assessment is what the Chinese assessment is of
the security implications for them of a continued nuclear
program in North Korea. They are very clear that would there be
a nuclear state in North Korea, there would be nuclear
proliferation in the region on their border, and that there
would likely be a catastrophic acceleration in the breakdown of
the nuclear nonproliferation regime around the globe, and that
that has far-reaching security implications for them. So I
think that is probably the place where I would have the most
difference with the assessment that you mentioned.
Senator Cotton. I agree that from a Beijing standpoint a
nuclear Japan or a nuclear South Korea, both of which could
probably achieve that aim in a year, maybe 2 years at most,
would be detrimental to their interests. But if that is the
case, why are they not doing the kinds of things that I just
outlined? Why do they make us water down the Security Council
sanctions? Why are they not seeking the kind of diplomatic
agreements with the United States that would allay their
concerns in advance of any effort to denuclearize, by force if
necessary, North Korea?
Ms. Thornton. Well, I think we have seen them adopt the
most far-reaching U.N. Security Council resolutions that we
have ever seen in the quickest amount of time that we have ever
seen. I think it is a reflection of their growing concern. I
think they change slowly, and they are getting increasingly
concerned about the behavior out of North Korea and about the--
and they are increasingly--it is becoming clear to them the
implications for them, which they had maybe not fathomed
clearly enough earlier.
Senator Cotton. My time is up. Thank you for the testimony.
I would just say, though, the consensus in Washington is that
China is a partner in this issue. I do not think that is the
case. They are a strategic competitor, and I believe they see
the current status quo as benefiting their interests as opposed
to a denuclearized North Korea, and I think that our Committee
needs to take that into account as we are crafting any
sanctions measures to bring more coercive pressure onto
Beijing.
Chairman Crapo. [Presiding.] Thank you.
Senator Schatz.
Senator Schatz. Thank you very much.
Ms. Thornton--and I know you have to go at 10:30, so if I
am still talking, I will not be offended. First of all, what is
U.S. policy with respect to the Korean peninsula specifically?
You say the primary goal is denuclearization. That is U.S.
policy?
Ms. Thornton. Yes.
Senator Schatz. OK. When you say primary goal, does that
indicate--should we infer from that that there is a secondary
goal?
Ms. Thornton. No. I mean, I think that is our overarching
goal in our current strategy that we are bringing the maximum
pressure to achieve.
Senator Schatz. So following up on what the Chairman of the
Foreign Relations Committee said, that the intelligence
community's assessment is that that is vanishingly unlikely--
and I understand that you have to do what you have to do, and
we appreciate it. But understanding that here we are with a
State Department representative and a Treasury representative,
and you are all in your own way doing that which is
strategically necessary in your own lane. And yet we have an
objective that may not be achievable at all.
So I guess the question is: Are there short-term
objectives--setting aside that goal and whether or not we are
going to argue about the extent to which it is realistic to
denuclearize the peninsula, do we have a short-term objective
that we are trying to achieve here?
Ms. Thornton. Well, I think the objective is to change the
calculus of the regime about their nuclear weapons program and,
indeed, show them that the cost of that program is unbearably
high and that they will not be able to maintain it.
Senator Schatz. But that sounds like a long-term objective,
and I guess it goes to my second question, which is: Is it fair
to say we are in a crisis situation right now?
Ms. Thornton. Well, I think almost every high-level
official in the U.S. Government has noted North Korea as our
most urgent and compelling national security challenge. So, you
know, it has been said that the timetable that North Korea is
moving on to develop its weapons program is much more rapid
than we had foreseen, and that, you know, we are working as
fast as we can and as intensively as we can to get sanctions
regimes put in place and implemented. That is why we have this
global pressure campaign. That is why we are engaging everybody
in the world----
Senator Schatz. And I want to be respectful of your time,
but those all still do not sound like crisis management
enterprises. Those sound like--I am with you on the strategic
objective of getting Kim Jong-Un to change his calculus. But I
do not see that happening in the next 3 to 6 months or even in
the next, you know, 6 to 18 months, and yet we are in a crisis
right now.
So the question is: Is the State Department, the Department
of Defense, the White House, the National Security Council in a
crisis management mode which integrates that which we are doing
for our long-term objectives, which, by the way, our
intelligence community is now saying may not even be realistic?
And the question becomes: We have these long-term objectives
which have, call it, a 30-percent chance of success, many say
zero. But whatever that percentage chance is, they have some
low likelihood of success. But they also may have the
unintended consequence of escalating the short-term crisis. And
so I think we need to know what we are up to right now, which
is that all of this sounds good and, to Chairman Corker's
point, it is incredibly politically satisfying for us to
criticize China and to pass new sanctions and to do our
oversight. But if we are in a crisis and the U.S. Government's
policy is to do something that most people think we cannot do,
then I think we are in a dangerous situation. And you compound
that with the fact that you basically have three levers: you
have the sanctions, which I think you are doing an incredibly
effective job with; you have readiness; and then you have
diplomacy.
But then you have this Commander in Chief who uses
belligerent rhetoric. And I do not want to ask you to comment
on that because you work in the Administration, but it has to
be recognized that your strategy may work in another time with
another President. But to the extent that you have coercive
diplomacy and you have got bombers flying across to send, I
think appropriately, the signal that we would be ready for any
contingency, it is viewed differently if that is concurrent
with a threat via Twitter that we are going to wipe them off
the map. I mean, we cannot view our strategy as separate and
apart from what the President of the United States says. And I
just ask you to consider the possibility that we are in a
crisis and that the Commander in Chief says things that are not
irrelevant to what we have to do.
My time is up. Thank you.
Chairman Crapo. Thank you. And, Ms. Thornton, Senator
Warren has asked if you could stay 3 minutes, and she promised
to stick to 3 minutes.
Senator Warren. I promise.
Chairman Crapo. All right.
Senator Warren. Thank you. I appreciate your doing that.
And thank you, Mr. Chairman.
Now, President Trump has made the North Korean nuclear
crisis worse by threatening fire and fury, by vowing to totally
destroy the regime, and by engaging in name calling with an
unstable leader in North Korea.
The President is struggling to deal with North Korea, which
already has nuclear weapons and is advancing its capabilities.
But he is also about to create another crisis by suggesting
that he may not certify to Congress by the October 15th
deadline that Iran is complying with the nuclear agreement,
which so far has prevented Iran from getting a nuclear weapon.
Now, the President has already certified twice that Iran is
complying with this deal, and if he fails to certify again next
month, then he could blow up the agreement and Iran may restart
development of a nuclear weapon. I get it. Iran supports
terrorism, engages in human rights abuses, works to develop
ballistic missiles. But I think it is easier to counter Iran's
destabilizing behavior if it has no nuclear weapon than it
would be if Iran had a nuclear weapon.
So, Ms. Thornton, if the United States causes the Iran
nuclear deal to fall apart, would it make it easier or harder
for us to resolve the North Korea nuclear crisis through
diplomacy?
Ms. Thornton. Well, I do not really want to speculate on a
hypothetical, but I do think that it is very important to hold
countries with which we have agreements to account for the
implementation of those agreements. And in the case of North
Korea and in the case of past agreements we have had with North
Korea, we have seen that these agreements have been undercut by
North Korean----
Senator Warren. Well, I understand you are concerned about
their undercutting. The question is about our undercutting. So
far, the Iranian nuclear deal is working, and my question is:
If we blow that up, does it make it harder to get to an
agreement that the North Koreans could believe in if we try to
negotiate with them?
Ms. Thornton. Well, our objective here is denuclearization
with the North Koreans. We know that they are engaged in a lot
of other nefarious behavior that is concerning. But I think
what we would want to focus on is that the agreement covers all
of the provisions needed to stop nuclear----
Senator Warren. OK, but I am asking about the relevance of
blowing up the Iran deal on trying to get a diplomatic solution
with Korea.
Ms. Thornton. I know that there is speculation about what
is going to happen with the Iran deal, and I am not the Iran
person, but we have--of course, the Secretary has certified
compliance the last two times. So I cannot get inside the head
of the North Koreans and tell you how they look at it, but----
Senator Warren. OK. I will just quit, because I promised I
would, by quoting Adam Szubin, who said:
Great nations do not play games when it comes to their
international agreements. Doing so would be especially short-
sighted when we are trying to convince the world to join us in
a North Korea sanctions campaign whose stated objective is
nuclear diplomacy.
I think he is right, and I think President Trump would be wise
to take his advice.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you. And, Ms. Thornton, you are
excused.
Ms. Thornton. Thank you.
Chairman Crapo. And thank you for making the effort to be
here today when you had this problem come up.
Senator Brown. Thank you, Ms. Thornton.
Chairman Crapo. Senator Van Hollen.
Senator Van Hollen. Thank you. Thank you, Mr. Chairman.
Senator Corker indicated in his questions that
Administrations, whether they are Republican or Democratic
administrations, prefer for Congress to give them the maximum
authority but also the maximum flexibility. In fact, back in
2009, when Congress was considering the Iran sanctions
legislation, the Obama administration indicated, ``The problem
with congressional measures is that you cannot turn them on and
off as you like.'' Similar to the response that you provided to
Senator Corker.
The Congress, nevertheless, on a bipartisan basis went on
to pass the Iran sanctions legislation, and as Senator Toomey
said, I think there is strong bipartisan consensus here in
Congress and also ultimately in the executive branch, that
those congressional sanctions backed up by the President's
signature are what brought Iran to the negotiating table.
Do you agree with that?
Ms. Mandelker. Senator, I think it was the full range of
authorities, from the executive branch and the Congress, that
brought Iran to the table. And, of course, we welcome working
closely with the Congress on these critical issues.
Senator Van Hollen. Right, but the distinction that you
have made many times this morning, as did Secretary Thornton,
is between authority and implementation. And you both indicated
that enforcement and implementation is the key right here, and
the question is whether we are fully implementing those powers.
And the purpose of having sanctions like the Iran sanctions
legislation is to make sure there is a constant driver there.
Have you had a chance to look at the U.N. Experts' report
from both February and then the interim report that lists a
whole bunch of Chinese firms and banks and from other countries
that they assess to be violating the U.N. sanctions? Have you
seen that?
Ms. Mandelker. I have seen the Panel of Expert reports, and
we have taken some action based on those reports. But the
importance for us is that we have the ability to remain agile
so that the Treasury Department can deploy our economic
authorities and tools in a way that is going to maximize our
strategic----
Senator Van Hollen. Look, I understand. I mean, it is
another version of, ``We want a lot of authority with maximum
flexibility.'' But I think the question is whether we need to
do more. I think that it was premature of President Trump to
sort of heap some congratulations on President Xi. I understand
we want the Chinese to work with us. As Secretary Thornton
indicated, they have been, and I am quoting here, ``the leading
enabler of North Korea.'' And as of today, there are a whole
lot of Chinese banks or firms that we believe are continuing to
violate the sanctions.
Why aren't you naming those banks? Why aren't you
identifying them publicly? Even if you are not taking action
against them now, isn't there a benefit in publicly shaming
those banks that are engaged in that kind of activity?
Ms. Mandelker. So, Senator, in June, of course, we did name
the Bank of Dandong which we thought was a gateway of funding
that was going to North Korea. We are very actively monitoring
the activity of the banks. We have this forward-looking
authority to allow us to impose secondary sanctions. We take
that authority very seriously. And we will continue to deploy
our economic tools in the way that we think enables us to----
Senator Van Hollen. Mr. Chairman, I----
Ms. Mandelker.----maximize economic pressure.
Senator Van Hollen. I appreciate that. The Executive order
could have been issued day one of this Administration. I mean,
there is nothing that would have stopped you from doing that.
If I could, Mr. Chairman, put in the record the full list
of the entities that were identified in the interim report of
the U.N. Panel of Experts that continue to evade sanctions?
Chairman Crapo. Without objection.
Senator Van Hollen. All right.
The Bank of Dandong is one--right?--and they have got over
58 here. There are others that I know that you have targeted.
But the point is if we are serious about getting China to work
with us and cooperate, we have got to increase the leverage.
And I understand the desire for maximum authority combined with
maximum flexibility from the Congress. But I also think on a
bipartisan basis most people agree that it was ultimately the
sanctions legislation that sent a message that we are very
serious about making sure that we implement these sanctions
going forward.
So I believe that there is a lot more we can do. This is
why Senator Toomey and I have introduced legislation really
patterned after the Iran sanctions legislation, and hope, Mr.
Chairman and Ranking Member, we can move in that direction.
Thank you.
Chairman Crapo. Thank you.
Senator Cortez Masto.
Senator Cortez Masto. Good to see you again.
Ms. Mandelker. Good to see you.
Senator Cortez Masto. I noticed it seemed like when Senator
Schatz was talking with you and kind of giving his
perspectives, you wanted to respond. I am going to open it up
to let you respond.
Ms. Mandelker. Thank you. I think Senator Schatz was asking
what are our short-term and long-term objectives. One of our
short-term objectives, of course, is to cut off all revenue
streams to North Korea to keep it from having the ability to
continue to fund its WMD programs, and that is what we are
constantly intent on doing, whether it is deploying our
sanctions effectively, going after the revenue streams, or
mapping out their efforts to evade sanctions, understanding how
they use front companies, financial facilitators around the
world. And we are tactically deploying those authorities and
tools and using our intelligence in a way that will provide
maximum strategic impact. That was what I was going to continue
to say. Thank you.
Senator Cortez Masto. Thank you. So this is one of many
hearings we have had, and thank you very much to the Chair and
Ranking Member. During those hearings some have argued that
imposing secondary sanctions on entities doing business with
North Korea could cause the North Korean regime to collapse. Do
you have concerns that imposing secondary sanctions could cause
that collapse?
Ms. Mandelker. What we want to do is change their strategic
calculus. We are not seeking a collapse. We are changing
strategic--the change in their strategic calculus so that they
stop escalating in the way that they have been escalating, and
that we ultimately achieve a denuclearized peninsula.
Senator Cortez Masto. And so you have talked about the
President's Executive order which gives Treasury the authority
to impose secondary sanctions. Have you imposed any sanctions,
secondary sanctions, pursuant to that Executive order?
Ms. Mandelker. The Executive order, of course, was just
signed last week. It is a going-forward--that particular
section is a going-forward authority, and we are going to
continue to monitor what the banks are doing very carefully.
Senator Cortez Masto. So you have to date, and do you
intend to in the near future?
Ms. Mandelker. Well, I am not going to--what I will tell
you is all options are on the table. I am not going to
prognosticate what future actions we might take.
Senator Cortez Masto. OK. And then just recently, as we
know--and we had talked about it here--the Chinese Government
issued a directive to Chinese banks on September 21st directing
them to stop certain financial transactions with North Korean
businesses. Do you have a copy of that directive? Do you know
specifically what is in that directive? Or can you share that
with us?
Ms. Mandelker. I do not have a copy of the directive.
Senator Cortez Masto. You have not seen it? Do you intend
to get a copy of the directive?
Ms. Mandelker. If the Chinese would share it, of course, I
would like to get a copy. But I do not have a copy of the
directive.
Senator Cortez Masto. OK. Thank you very much. I appreciate
your being here.
Chairman Crapo. Thank you.
Senator Warner.
Senator Warner. Thank you, Mr. Chairman. Secretary, it is
good to see you again. It has been a while.
Ms. Mandelker. Good to see you.
Senator Warner. I think you hear a lot of frustration, and,
obviously, I am--I will not officially comment, but what
Senator Corker said, where there may be a contradiction between
the conclusions of the intelligence community and what the
Secretary of State is trying to do is really--it is a really
thorny issue, and, Mr. Chairman, we may want at some point to
get a classified brief for the Members of the Committee,
because, sitting on the Intel Committee, some of the
conclusions are fairly chilling.
To Senator Cortez Masto, you said you have not seen the
Chinese order, but in terms of your view of it, are there any
gaps, any visible gaps or holes in the Chinese new restrictions
toward the North Koreans?
Ms. Mandelker. Again, Senator, I have not seen the order.
They did issue an announcement today that they are shutting
down all North Korean firms and joint ventures with China. I
think that is a welcome step. We are working very closely with
the Chinese, and to the extent that there are gaps--and, of
course, as I have also mentioned, we think the UNSCR is a
floor, not the ceiling, and it is incredibly important that
they take maximum efforts to enforce their obligations.
Senator Warner. We have seen testimony in this Committee
and elsewhere that the North Koreans are pretty good about
using front companies.
Ms. Mandelker. Yes.
Senator Warner. And in terms of our cooperation with the
Chinese at this point, how good are our efforts at ferreting
out those front companies so that we can really get at North
Korean sources?
Ms. Mandelker. So we are constantly working with the
intelligence community and with our financial institutions to
map out, detect, and cut off those front companies. It is
something that we are very, very focused on. We have been able
to identify certain front companies.
This week, in fact, we designated 26 financial
facilitators, North Korean financial facilitators that are
around the globe, to send a very--and these are financial
facilitators who have become experts in how to set up those
kinds of front companies. So we are sending a message that
nobody should be doing business with them. We are also sharing
various typologies with our banks to make sure that they
understand precisely what they should be looking out for to
ensure that front companies are not abusing the international
financial system.
So our efforts are increasing. We are working very closely
with the intelligence community, as I mentioned, with our
banks, we have--but we have to continue to escalate.
Senator Warner. I hope you will keep the Committee abreast
of that, and, again, I think----
Ms. Mandelker. We would be happy to do so.
Senator Warner.----it is a scenario where we ought to
collaborate with the Intel Committee.
I guess the final point, and let me echo some of the
comments made on this side of the aisle. I have been concerned
with the tenor of some of the President's comments. The back-
and-forth, you know, insult attacks do not make our Nation
safer and, frankly, I think it decreased the amount of
international support that the sanctions regime would have. But
I would also acknowledge that this is not a problem that, you
know, suddenly emerged upon the stage just with the beginning
of the Trump administration. I think there are many
Administrations going back, Democrat and Republican alike,
where this issue has not had a high enough focus, and now we
are reaping those results.
And I guess what I wonder is, you know, even presuming that
we now have a fresh approach from the Chinese, we are
ratcheting back. I look forward to joining bipartisan
legislation to even increase congressional sanctions. Kim Jong-
Un has got a history of not exactly succumbing to international
pressure or sanctions. He has not got a long record of--he is
willing to put his people through enormous challenges to
maintain his control.
Do we have any sense at all that we are going to have the
time for these sanctions to actually have real effect versus
the pretty remarkable progress he has made on the nuclear
front?
Ms. Mandelker. Well, Senator, I think what you are seeing
now on the international stage, and I am seeing it in my
conversations with my partners around the globe--and, frankly,
the President has been having very constructive dialogue with
our allies--is a unity of purpose. We have never had the UNSCRs
that were passed in succession in August and then in September.
It is going to be critical to be successful to have wide-scale
implementation of those sanctions, and we also think that
countries need to go over and above the obligations that are,
in fact, in those sanctions.
I think that economic pressure and diplomatic pressure,
those are the tools that we want to deploy to achieve the
change in strategic calculus that we are trying to achieve. And
we are putting our maximum efforts and resources to do so.
Senator Warner. I think we have made progress. I just
worry, Mr. Chairman, that this--it would have been great if we
would have done this, pick your number--2 years, 5 years, 10
years ago. Thank you, Madam Secretary.
Ms. Mandelker. Thank you.
Chairman Crapo. Thank you, Senator Warner. And that
concludes our questioning. We actually just had the vote
called, so that turns out that the timing worked out pretty
well for the hearing as well.
Ms. Mandelker, I want to thank you again for coming before
us again, and as many of the Senators indicated, thank you for
the great work that you are doing. And in her absence, I want
to thank Susan Thornton as well for the work that is going on
at State. So State and Treasury, we do deeply appreciate your
work here.
We would like to inform Senators that their questions--and
there will be further questions, I am sure, that we would ask
you to respond to in writing--that they submit those questions
within 1 week, and we would ask, because we are working on a
timeframe here for the legislation we are reviewing, that you
respond within 1 week as well.
Senator Brown. And if I could add, Ms. Mandelker, the
Ranking Members of the appropriate committees that worked on
the Iran issue, on the JCPOA, have sent a letter to the
Secretary of the Treasury, the Secretary of Defense, and the
Secretary of State asking if there is, in fact, evidence of
noncompliance with the Iranians with the agreement, that you
let us know what it is specifically, and I renew that request
for you to share with the Treasury Secretary and with the other
two. And the deadline, we asked for that answer by early
October, so I would like you to follow up with that with us,
please.
Ms. Mandelker. Thank you. I would be happy to do so. And
thank you for the hearing and our continued partnership.
Chairman Crapo. Thank you. If there is nothing further,
then this hearing is adjourned.
[Whereupon, at 10:50 a.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF SIGAL MANDELKER
Under Secretary for Terrorism and Financial Intelligence, Department of
the Treasury
September 28, 2017
Opening
Chairman Crapo, Ranking Member Brown, and distinguished Members of
this Committee, as the Under Secretary for Treasury's Office of
Terrorism and Financial Intelligence, I am honored to appear before you
to discuss the Treasury Department's strategy to combat one of the
gravest national security threats we face today: the provocative,
destabilizing, and repressive actions of North Korea.
Just this year, North Korea has conducted a nuclear test and
multiple ballistic missile tests, including two intercontinental
ballistic missile (ICBM) tests and two missile launches that overflew
Japan. Kim Jong Un continues to utter threats against American cities
and territories and those of our allies. We are determined to constrain
Kim Jong Un's capacity to act on such threats in the future. We must
not allow North Korea to extort the United States and our allies with
its nuclear and missile programs.
The Administration is applying maximum economic and diplomatic
pressure to counter this threat. Treasury's tools are central to this
campaign and have become among this Administration's top nonkinetic
tools of choice. We have the unique ability to map out and target North
Korea's trade and financial networks. We are doing so at an
unprecedented pace by executing a comprehensive campaign designed to
impose maximum pressure on North Korea's finances and economy. Today, I
will share aspects of our strategy.
Under the leadership of Secretary Mnuchin, my mandate is to make
sure that we are strategically and smartly deploying all of our
economic authorities--including sanctions, anti-money laundering (AML)
measures, enforcement actions, actions under Section 311 of the USA
PATRIOT Act, foreign engagement, private sector partnerships, among
other tools--to identify and disrupt the regime's ability to generate
revenue and move funds in support of its weapons programs. I have
directed each component within the Office of Terrorism and Financial
Intelligence to prioritize the North Korea threat; to be innovative and
strategic in our approach; to assess the impact of our actions so that
we adapt our strategy as circumstances dictate; and to stay agile as we
calibrate to ensure maximum impact against the regime's finances.
In the last 9 months, we have targeted dozens of individuals and
entities facilitating North Korea's weapons programs, including coal
companies, banks, and individuals who help North Korea evade
international sanctions. This, along with our other actions and those
of our international partners, is intended to have a significant impact
on North Korea's ability to continue raising and moving funds.
Actions taken just this past week further illustrate our
seriousness of purpose. On September 21, the President announced a new
Executive order that provides Treasury with the most robust set of
North Korea-related sanctions authorities yet. Executive order 13810
authorizes Treasury to impose a range of sanctions, such as suspending
U.S. correspondent account access to, or designating and freezing the
assets of, any foreign bank that, going forward, knowingly conducts or
facilitates significant transactions tied to trade with North Korea or
certain persons blocked in connection with North Korea. We can also
freeze assets of anyone conducting significant trade in goods,
services, or technology with North Korea and of anyone supporting North
Korea's textile, fishing, and manufacturing industries.
We are already using these new authorities to maximize our
leverage. Just this week, we took action on a number of North Korean
banks and designated 26 financial facilitators acting as
representatives for North Korean banks across the globe. These
individuals were part of North Korea's ongoing attempts to evade
sanctions in order to help the regime raise and move funds. We are
calling them out and working tirelessly to put an end to this practice.
We have an incredibly dedicated team at Treasury focused around-
the-clock on countering these threats. We will not relent until the
danger posed to the United States and our allies by Kim Jong Un's
nuclear and ballistic missile programs is eliminated.
Identifying and Targeting North Korea's Financial Vulnerabilities
Our strategy is focused on attacking North Korea's key financial
vulnerabilities: (i) the regime requires revenue to maintain and expand
its nuclear and ballistic missile programs, and (ii) the regime needs
to move funds through the international financial system in order to
acquire foreign currency (such as dollars and euros), transfer funds,
and pay for goods.
All components of my office are working in concert toward this
objective. Underpinning these efforts is our ability to rely on
financial intelligence and analysis. Treasury's Office of Intelligence
and Analysis (OIA)--a member of the Intelligence Community--provides
expert analysis of North Korea's financial networks, identifying key
nodes that enable us to take disruptive action and build impactful
strategies. The Office of Foreign Assets Control (OFAC)--the beating
heart of Treasury's sanctions programs--tirelessly investigates and
targets individuals and entities that support North Korea's weapons of
mass destruction (WMD) and ballistic missile programs. The Financial
Crimes Enforcement Network (FinCEN) exercises its information gathering
and analytical tools in novel ways to track the financial flows of
North Korean entities and front companies, and has used Section 311 of
the USA PATRIOT Act to further restrict North Korea's access to the
U.S. financial system. The Office of Terrorist Financing and Financial
Crimes (TFFC), our policy coordination office, leads our international
engagement efforts to work with partner countries, thereby hardening
the defenses worldwide and depriving North Korea of alternative
financial avenues.
Our goal is to strategically and tactically choke off North Korea's
revenue sources and safeguard the international financial system from
North Korea's illicit financial activity.
Targeting North Korea's Sources of Revenue
Any revenue that North Korea generates can be used to support,
directly or indirectly, its weapons development programs. As such,
President Trump and Secretary Mnuchin have made clear that all
countries must stop trading with North Korea. A key part of our
strategy to suffocate North Korea financially is to target the regime's
most profitable industries, including coal, exportation of overseas
labor, and sale of weapons and other goods.
Coal ($1 billion annually): By our estimates, prior to the latest
U.N. Security Council resolutions (UNSCRs), coal exports brought in $1
billion in revenue annually for the regime. We are constricting this
revenue source by targeting North Korean coal networks and the
individuals and entities that support them, as well as by working
multilaterally so that other countries also sever this economic
lifeline.
OFAC designations are a central part of this effort. On August 22,
OFAC designated 16 individuals and entities, including three Chinese
companies that are among the largest importers of North Korean coal. We
estimate that, collectively, these companies were responsible for
importing nearly half a billion dollars' worth of North Korean coal
between 2013 and 2016. These funds are used to support the Government
of North Korea and the Workers' Party of Korea, including its nuclear
and ballistic missile programs.
We are also working with the United Nations to dry up North Korea's
coal revenues. On August 5, 2017, the U.N. implemented a full coal ban
under UNSCR 2371. Of course, the success of this and other UNSCRs
depends on effective implementation. We will continue working with the
State Department to engage multilaterally and share detailed
information to assist other countries in disrupting sanctions evasion
and illicit trade.
Exportation of Overseas Labor ($500 million a year): North Korea
sends its people to countries across the globe, many of whom work in
slave-like conditions, in order to generate revenue for the regime.
Countries around the world employ North Korean overseas labor, which
entails the exploitation of tens of thousands of individuals. Despite
toiling for long hours under squalid conditions, most of their wages
are siphoned off directly to the North Korean regime.
This is unacceptable. We must put a stop to this inhumane practice.
UNSCR 2375, adopted on September 11, 2017, prevents the regime from
generating revenue for its weapons program through the exploitation of
its people. We call on all nations to implement their obligations and
put an end to this practice. Treasury and the State Department have
actively engaged a number of countries where North Korean workers were
employed, often by construction and information technology companies,
restaurants, textile manufacturers, and companies in other industries.
And we have used our authorities to counter this practice.
As an example, on June 1 of this year, we designated three
individuals and six entities, including the Korea Computer Center
(KCC), a state-run information technology research and development
center that was operating in Germany, China, Syria, India, and the
Middle East. Using overseas North Korean laborers, KCC was earning
foreign currency for North Korea's Munitions Industry Department, which
is responsible for overseeing the ballistic missile program. On August
22, 2017, Treasury also designated Mansudae Overseas Projects
Architectural and Technical Services (Proprietary) Limited, which is
linked to a U.S. and UN-designated entity that has engaged in,
facilitated, or been responsible for the exporting of workers from
North Korea.
Exportation of Additional Goods, Including Weapons and Missile
Technologies: Treasury is also tracking and targeting North Korea's
exports of textiles (about $800 million a year); iron, lead, and
seafood (about $500 million a year); and additional revenue from the
sale of weapons and missile technologies, among other areas. On June
29, 2017, Treasury designated Dalian Global Unity Shipping Co. Ltd.,
which reportedly transports 700,000 tons of freight annually, including
coal and steel products, between China and North Korea. According to a
2013 United Nations report, Dalian Global Unity was actively involved
in at least eight cases of luxury goods smuggling incidents. Middlemen
from Dalian Global Unity gave specific instructions about how shipments
and transactions could evade the UN-mandated luxury goods ban.
Shipping Networks: Our targeting of Dalian Global Unity also
highlights our focus on targeting the shipping networks that enable the
Kim regime to move goods in and out of North Korea. These shipping
networks engage in deceptive practices and circuitous routes to avoid
international sanctions. We are also actively increasing our
understanding of North Korea's shipping networks, and we will expose
individuals and entities that are providing insurance, maintenance, or
other services to North Korean vessels. Our experience mapping and
dismantling illicit shipping networks in the Iran context enables us to
effectively target commercial shipping moving in and out of North
Korea.
New authorities in the recent Executive order highlight the
importance of targeting North Korea's shipping networks. The new
Executive order directly targets North Korea's shipping and trade
networks and issues a 180-day ban on vessels and aircraft that have
visited North Korea from visiting the United States. This ban also
targets vessels that have engaged in a ship-to-ship transfer with a
vessel that has visited North Korea within 180 days. The Executive
order also allows Treasury to impose sanctions on persons involved in
the ownership, control, or operation of any port in North Korea,
including any seaport, airport, or land port of entry.
Countries should aggressively implement UNSCR 2375, which provides
member states new tools to stop high seas smuggling of prohibited
products (e.g., conventional arms, coal, textiles, seafood, etc.).
Restricting North Korea's Access to the International Financial System
Despite our relentless efforts and many years of U.N. Security
Council Resolutions, North Korea continues to evade sanctions and
generate and move money in support of its WMD and ballistic missile
programs. The regime accesses the international financial system
through front companies and other deceptive financial practices in
order to buy goods and services abroad. We are working to map out and
untangle these complex and opaque financial webs and target those
individuals and entities that facilitate them.
Financial Facilitators: North Korea maintains representatives
abroad who work on behalf of UN- and U.S.-designated North Korean banks
and trading companies, helping North Korea conceal their overseas
footprint. These operatives have expertise that they use to establish
front companies, open bank accounts, and conduct transactions that
enable North Korea to move and launder funds. Targeting these financial
facilitators strikes at the heart of North Korea's ability to continue
abusing the financial system for its illicit aims. That is why earlier
this week, Treasury took action on a number of North Korean banks and
designated 26 individuals who act as representatives of North Korean
banks. These representatives operate around the world, including in
China, Libya, Russia, and the United Arab Emirates. We call on all
countries that host these representatives to expel these individuals.
Foreign Banks: Banks that facilitate North Korean illicit financial
activity are another key node that we are focusing on. In my first week
on the job, Treasury acted for the first time in over a decade against
a non-North Korean bank for facilitating North Korean financial
activity through the U.S. financial system. On June 29, 2017, pursuant
to Section 311 of the USA PATRIOT Act, FinCEN found China-based Bank of
Dandong to be of ``primary money laundering concern'' and issued a
notice of proposed rulemaking, the finalization of which would
essentially sever Bank of Dandong's access to the U.S. financial
system.
Bank of Dandong is believed to have acted as a financial conduit
for North Korea to access the U.S. and international financial systems,
including by facilitating millions of dollars of transactions for
companies involved in North Korea's WMD and ballistic missile programs.
FinCEN assesses that at least 17 percent of Bank of Dandong customer
transactions conducted through the bank's U.S. correspondent accounts
from May 2012 to May 2015 were conducted by companies that have
transacted with, or on behalf of, U.S.- and UN-sanctioned North Korean
entities, including designated North Korean financial institutions and
WMD proliferators.
FinCEN also exercised its Section 311 authority in 2016 to identify
the entire jurisdiction of North Korea as a primary money laundering
concern. Under this authority, FinCEN imposed a rule prohibiting U.S.
banks from maintaining correspondent accounts with North Korean banks,
and requiring U.S. banks to undertake special due diligence to ensure
that North Korean financial institutions do not access the U.S.
financial system indirectly through banks in other countries.
Banks worldwide should take note that we are acting to protect the
U.S. financial system from North Korean illicit financial activity. The
new authorities granted to the Treasury Department by the Executive
order issued last week give us even greater ability and leverage to
target foreign banks that support the Kim regime. We now have the
ability to suspend correspondent account access to, or designate and
freeze the assets of, any foreign financial institution that knowingly
conducts significant transactions in connection with any trade with
North Korea or on behalf of any North Korea-related designated person.
These new financial sanctions will be forward looking, and will apply
to behavior that occurs following the date of the Executive order.
These types of sanctions were used to great effect in the Iran context,
and present a stark choice to banks around the world.
Interagency Collaboration: At Treasury, we work in close
partnership with other departments and agencies, including those within
the Intelligence Community, the Defense Department, the Justice
Department, the State Department, the Department of Homeland Security,
and the Commerce Department. This Administration's maximum pressure
campaign requires that we collaborate closely to detect and disrupt
evasive tactics by North Korea.
As just one example, Treasury has been working closely with the
U.S. Department of Justice (DOJ) to disrupt the ability of a Chinese
coal company, Dandong Zhicheng Metallic Co., to launder money for North
Korea. The Dandong Zhicheng case perfectly illustrates North Korea's
evasive tactics. Dandong Zhicheng imported coal from North Korea,
brokered the sale of this coal around the world, and moved the proceeds
from these coal sales into its front company accounts. North Korea
subsequently sent payment instructions to Dandong Zhicheng for items
the regime wanted to purchase from foreign suppliers, and Zhicheng used
its front companies and the proceeds from the brokered North Korea coal
sales to purchase the items that North Korea wanted. Once the front
companies had executed the payments, the foreign suppliers shipped the
items to the North Korean regime. These items included bulk commodities
(sugar, rubber, petroleum products, soybean oil), cell phones, luxury
items, and dual-use technology. By using a front company outside of
North Korea to help it to sell and buy goods, the regime was able to
make and spend money on goods that indirectly or directly support its
weapons programs. As part of our disruptive activities, on August 22,
2017, Treasury designated Dandong Zhicheng, and on the same day, DOJ
filed a complaint to seize more than $4 million related to the company.
Public-Private Partnerships: The private sector also plays an
essential role in identifying and disrupting illicit North Korean
financial activity. The safeguards that our banks put in place, and the
information they provide us about terrorist financiers, proliferators,
and criminals, is what helps prevent malign actors from abusing our
financial system. In this case, information provided by U.S. banks has
been critical to our efforts to map out and disrupt the illicit
financial networks upon which North Korea relies.
We are enhancing the ways that we communicate with our banks and
how they communicate with each other. We are sharing information with
U.S. financial institutions in a more targeted manner in order to
facilitate a more dynamic and iterative dialogue between the public and
private sectors. We also encourage banks to share information with each
other under Section 314(b) of the USA PATRIOT Act, which provides banks
with safe harbor when sharing certain information. This is particularly
important when combating North Korean illicit financial activity, where
a single network can cut across multiple institutions.
Two weeks ago, while in Europe, I held roundtable meetings in
London, Paris, and Berlin with global banks to discuss the urgent
threat posed by North Korea and to share with them typologies that they
can use to identify and stop the illicit flow of North Korea's
finances. We discussed the aggressive measures that we in the United
States have taken to protect our U.S. banks, and what else European
banks could be doing to ensure that they are not unwittingly clearing
euro transactions for North Korean representatives and their enablers.
International Cooperation
The success of Treasury's strategy to maximize pressure on North
Korea also depends on close collaboration with international partners.
In the last 2 months, our Administration worked with other Permanent
Members of the Security Council to unanimously pass U.N. Security
Council Resolutions 2371 and 2375. Both strike at the core of North
Korea's revenue generation and include embargoes on all importation of
North Korean coal, iron, lead, seafood, and textiles. They also
restrict North Korea's ability to acquire revenue from overseas
laborers, cut off over 55 percent of refined petroleum products going
to North Korea, and ban all joint ventures with North Korea to cut off
foreign investments.
But UNSCRs should be the floor, not the ceiling. Despite years of
increasingly restrictive UNSCRs, North Korea has been able to generate
the revenue it needs to make progress toward the goal of building a
nuclear-tipped intercontinental ballistic missile. As both the U.N. and
the U.S. sanctions regimes expand, North Korea remains adept at
sanctions evasion. All nations must join in implementing and rigorously
enforcing U.N. Security Council Resolutions. We are keeping close track
of North Korea's trading partners, and we will not hesitate to act when
we believe we must take additional measures to stop the flow of
funding.
Our strong bilateral and multilateral partnerships are critical in
ensuring that this is a global effort. When I was in Europe, I also
discussed with our European allies how we can increase our collective
pressure so that no person or entity that facilities North Korean
financial activity has a safe place to operate. I stay in close contact
with my European counterparts and continue to share information about
North Korean illicit finance so that they can identify the activity
themselves and take their own disruptive actions.
We are also working closely with partners in Asia. In particular,
we appreciate the efforts of Japan and South Korea to match our actions
with actions of their own. Following one of our actions this past
August, Japan issued its own domestic designations on some of the same
persons, and South Korea issued a public advisory cautioning all South
Korean nationals from conducting financial transactions with the U.S.
designated individuals and entities. These types of joint actions
maximize the impact of our collective efforts to pressure North Korea.
We are also pleased that, this year, Australia expanded its sanctions
programs to target additional sectors of the North Korean economy.
China and Russia are to be recognized for supporting adoption of
the most recent U.N. Security Council Resolutions. Nevertheless, both
countries can do much more--and with greater urgency--to implement and
enforce the sanctions called for by the United Nations. Their
enforcement and pressure are critical to stopping the North Korean
threat.
Finally, we work through multilateral fora such as the G7 and the
Financial Action Task Force to ensure that countries have the
regulatory frameworks in place to detect and freeze assets linked to
North Korea. Kim Jong Un must realize that he faces a united
international front.
Partnership With Congress
I want to emphasize the importance we place on working with
Congress to combat the threat posed by North Korea. I am grateful for
the Committee's work to counter the threats we face and for your great
appreciation of the importance of imposing maximum economic and
financial pressure on North Korea. I look forward to working with this
Committee and other Members of Congress as we seek to fulfill our
shared responsibility to keep Americans safe and secure.
Conclusion
We all recognize that time is not on our side. Treasury is pursuing
this pressure campaign against North Korea with utmost urgency. Our
success in curtailing North Korea's revenue streams and severing its
access to financial systems is essential to a peaceful resolution of
this growing crisis. We will not yield until our work is done.
______
PREPARED STATEMENT OF SUSAN A. THORNTON
Acting Assistant Secretary, Bureau of East Asian and Pacific Affairs,
Department of State
September 28, 2017
Introduction
Chairman Crapo, Ranking Member Brown, and Members of the Committee:
Thank you for the opportunity to appear before you today for this
timely hearing on North Korea. Thank you also for your attention to the
North Korea threat and our active policy response to it.
By now, it should come as no surprise that the Administration
recognizes North Korea's nuclear and ballistic missile program as the
paramount security threat facing the United States today. We have been
exceedingly vocal in our efforts to compel the Kim Jong-Un regime to
adjust its strategic calculus and cease its belligerent pursuit of
nuclear weapons. This is for good reason.
Today, we face a North Korea that has demonstrated an unwavering
determination to achieve an Intercontinental Ballistic Missile (ICBM)
capable of delivering a nuclear payload to our homeland. Each North
Korean missile launch and nuclear test furthers Pyongyang's weapons
program. The DPRK's multiple ballistic missile launches this year--
including two inaugural ICBM launches--and its sixth nuclear test
earlier this month bring the regime closer to its objective. North
Korea continues to make incendiary threats against Guam and our treaty
allies the Republic of Korea (ROK or South Korea) and Japan. We take
those very seriously. Let me emphasize that we continue to stand with
our allies, in particular Japan and South Korea, in the face of this
escalating threat, and are fully committed to defending Japan and South
Korea with the full range of U.S. military capabilities.
It is clear that we cannot allow such flagrant violations of
international law and regional order to continue.
Through clear, decisive actions, we must hold Pyongyang to account.
Our maximum pressure campaign does just that. This strategy employs
all available levers of economic and diplomatic pressure on North Korea
to make the Kim regime's adherence to its current behavior politically
painful and financially untenable, in order to compel it to revise its
strategic calculus.
As an example, last week's Executive order greatly broadened our
authority to target any foreign financial institutions that facilitate
significant transactions in connection with North Korean trade. Among
other new authorities, this action puts financial institutions on
notice going forward that they can choose to do business with the
United States, or with North Korea, but not both. We understand that
this action has the potential to make countries, including China and
Russia, uneasy, but we view it as the only logical step as we increase
pressure on North Korea. We call on all countries to join us in cutting
all trade and financial ties with North Korea.
Our Pressure Campaign
Our pressure campaign centers around three actions:
(1) Pressing for strong multilateral sanctions at the U.N. in
response to North Korea's reckless behavior. Recently, the U.N.
Security Council unanimously adopted the toughest two resolutions ever
to target the DPRK. UNSCRs 2371 and 2375 have slashed DPRK exports,
including full bans on textiles, coal, iron, and seafood. Cumulative
U.N. sanctions to date will deny the DPRK $2.4 billion in annual trade
revenue if properly implemented by all Member States.
(2) Galvanizing international action through diplomatic outreach.
Secretary Tillerson has made the DPRK a key issue in every engagement
with leaders and ministers around the world. That high-level message
from the Secretary is aggressively reinforced by our Ambassadors in
capitals everywhere and in meetings at every level. In daily diplomatic
engagements with partner countries, we press them to cut off the
sources of DPRK financial support, interdict WMD and arms-related
shipments, and end North Korea's ability to abuse commercial shipping,
banking, and other commercial nodes to violate, evade, and undermine
our sanctions. We expect all countries, at a minimum, to fully
implement UNSCRs, and we press them to take additional actions measures
to put diplomatic and economic pressure on Pyongyang.
(3) Maximizing our domestic authorities--including last week's
Executive order--to target North Korea's global proliferation and
financial networks through actions focused on individuals and entities
that support the regime's ability to acquire revenue in support of its
unlawful weapons and proliferation programs. In close coordination with
our counterparts in Treasury, we have sent a clear message across the
globe that we will not hesitate to take action where the evidence shows
that individuals and entities are enabling the DPRK's unlawful
activities.
Our pressure campaign is aimed at bringing the DPRK back to
negotiations on the denuclearization of the DPRK. We also stand ready
to respond to any acute threat from the DPRK. We are fully committed to
the defense of the United States and our allies, and are ready to
respond to any DPRK attack. We have deployed THAAD to the ROK and
continue to take other measures to prepare
ourselves, South Korea, and Japan to respond to a DPRK attack with
force. We are
unequivocal in our messaging to North Korea that any attack on the
United States or our allies will be met with an overwhelming response.
Throughout the execution of this strategy, we have been clear about
what our strategy is not: We are not seeking regime change or collapse.
We do not seek an accelerated reunification of Korea, nor an excuse to
garrison troops north of the Armistice Agreement's Military Demarcation
Line. We have no desire to inflict harm on the long-suffering North
Korean people, whom we view as distinct from the hostile regime in
Pyongyang.
We recognize that the success of the pressure strategy will depend
on heavy cooperation from international partners, especially Beijing.
We are working closely with China to execute this strategy and are
clear-eyed in viewing the progress--growing, if uneven--that China has
made on this front. We are encouraged by China's agreement to adopt
sanctions of unprecedented strength on North Korea at the United
Nations. Our task now is focused on ensuring that these internationally
binding obligations are implemented in full; and to convince China's
leaders to more fully exert its still considerable leverage over the
Kim regime.
Secretary Tillerson said it best when he called China's support for
the pressure campaign ``notable, but uneven,'' though we have recently
seen Chinese authorities take additional actions. We will work with
China and Russia on the threat posed by North Korea and will continue
to engage in a dialogue on how to further pressure the DPRK. We have
also made clear that if China, Russia, and others do not act, we will
use the tools we have at our disposal. While our actions are not meant
to target countries other than North Korea, we have consistently told
our foreign counterparts that we will continue to act multilaterally
and unilaterally to disrupt North Korea's illicit activities wherever
they are located.
Signs of Progress
While there is more work to do, we have achieved notable results
from our maximum pressure campaign to date:
The international community was unanimous in condemning
recent DPRK provocations. All U.N. Security Council members
voted to condemn DPRK actions, and almost all G-20 members
publicly condemned the DPRK.
Since the beginning of the Trump administration, more than
20 countries have acted to restrict DPRK diplomatic activities.
Mexico, Peru, Spain, and Kuwait recently announced the
expulsion of their resident DPRK Ambassadors.
Bans on the DPRK's exports of commodities continue to
deprive the regime of valuable export revenues previously
utilized to support its proscribed weapons program. Most
notably, since China's ban of coal imports in February, the
DPRK has forfeited over $690 million in revenue from coal
exports at current market prices.
We have convinced U.N. Security Council members and other
countries to take action to end the practice of employing DPRK
laborers overseas, which provides a key revenue stream to the
government and often involves serious human rights abuses.
Countries in the Middle East, Europe, and Southeast Asia halted
visa issuances to North Korean laborers and are phasing out the
use of these workers, whose wages are garnished to fund the
regime and its unlawful nuclear and missile programs.
The most recent UNSCR bans the issuance of new work visas
to DPRK laborers; several countries, including Kuwait, Qatar,
Malaysia, and Malta, took action recently to end the practice.
Poland is the only EU country still hosting significant numbers
of DPRK laborers. The vast majority of DPRK laborers remaining
outside of North Korea are in either China or Russia.
Other countries have recognized that U.N. sanctions are not
enough and have adopted additional autonomous measures--
including the European Union, Australia, ROK, Japan, and
Latvia. Pakistan issued an official government notice
prohibiting its companies from engaging with U.S. sanctioned
persons. Other countries, such as the ROK, Australia, and
Japan, have implemented their own unilateral sanctions on
individuals and entities violating U.N. sanctions.
Key European partners, particularly the United Kingdom,
France, and Germany, are collaborating with us on maximizing
pressure on the DPRK.
We have seen countries expel sanctioned North Korean
officials and North Korean diplomats engaged in illicit
commercial or arms-related activities, and many countries have
adopted measures to prevent certain North Korean individuals
from entering or transiting their jurisdictions. State has also
engaged in a sustained effort to shut down illicit DPRK
shipping activities, which the Kim regime could use to move
illicit cargoes or procure items for its prohibited nuclear and
missile programs.
Across the globe, countries are beginning to view visiting
North Korean official delegations with caution, recognizing
that welcoming these delegations not only lends tacit support
to North Korea's nuclear and ballistic missiles programs, but
comes at a cost to their international reputation and relations
with the United States and others.
Next Steps
Unfortunately, despite the international community coming together
to pressure the DPRK, we have yet to see a notable change in DPRK's
dangerous behavior, or any signs that it is willing or interested in
serious talks on denuclearization at this stage. That simply means we
must increase the pressure and isolation. If the DPRK indicates an
interest in serious engagement, and ends its missile and nuclear tests,
we will explore that option, but we will do so with a clear view about
the DPRK's track record of violating the spirit and the letter of
negotiated agreements and commitments.
We are sincere in our intent to assist the DPRK government in
achieving peace, prosperity, and international acceptance. However,
absent a tangible change of intent from Pyongyang, we will continue our
full-court press approach to diplomatically and financially isolate the
DPRK.
We will continue to make clear to Pyongyang that a better
alternative to belligerence, poverty and isolation exists, but that the
regime will need to make that choice. We will continue to urge
countries around the world to take actions to underscore to the DPRK
that its behavior is intolerable, and we will continue to build
pressure.
We appreciate the strong interest in this issue from Congress, and
we look forward to continuing our cooperation. Thank you for inviting
me to testify today. I am pleased to answer any questions you may have.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR MENENDEZ FROM SIGAL
MANDELKER
Q.1. In your testimony you note the United States invoked
Section 311 on the Bank of Dandong. Can you discuss the
effectiveness of sanctions--a different tool than the PATRIOT
Act--that target specific Chinese banks and companies? In what
ways can the United States employ more concerted pressure? Are
you considering sanctioning other Chinese banks that provide a
lifeline to the North Korean regime?
A.1. Treasury is deploying a maximum financial pressure
campaign on North Korea. On September 21, the President
announced new Executive Order (E.O.) 13810, which allows
Treasury's Office of Foreign Assets Control (OFAC) to target,
among others, any foreign financial institution that knowingly
conducts or facilitates significant transactions tied to trade
with North Korea or certain designated persons. Foreign
financial institutions are now on notice that, going forward,
they can do business with the United States or with North
Korea, but not both. Through our bilateral engagements we know
from governments and financial institutions that Treasury's new
authorities are having an impact. They recognize the power of
Treasury's tools and have received a clear message that we
stand ready to aggressively enforce these authorities. In
addition, E.O. 13810 allows OFAC to sanction a broad new range
of actors, such as persons who engage in significant trade in
goods, services, or technology with North Korea. Treasury used
E.O. 13810 on September 26 when OFAC designated eight North
Korean banks and 26 individuals linked to North Korean
financial networks.
In addition to clearly signaling that we will aggressively
enforce these authorities, these actions will further constrain
North Korea's ability to access the international financial
system. For example, two of the China-based persons who were
designated were operatives for Office 39, a secretive branch of
the North Korean government that manages slush funds and raises
revenue for North Korea's leadership. Likewise, a Dubai-based
representative who was designated was responsible for
collecting funds from North Korean workers and hand carrying
the funds back to Pyongyang. Treasury's steps to expose these
financial practices and individuals are vital to robbing North
Korea of the few individuals it trusts to operate outside of
North Korea. We will continue to use our authorities to disrupt
these activities.
Q.2. Despite prohibitions, we know that North Korea actively
exports weapons to a variety of actors throughout the world.
These sales in turn contribute to North Korea's ability to
access foreign capital. How can the international community do
a better job of tracking these weapons' sales?
A.2. I would refer your question about the tracking of weapons
to the Intelligence Community.
Regarding North Korea's ability to access foreign capital
from such sales, we are monitoring North Korea's activities and
will continue to take action to implement our powerful economic
authorities. For example, on March 31, Treasury designated
three overseas North Koreans who were involved in North Korea's
military-related sales. Two were based in China and one was
operating in China.
More broadly, Treasury has focused on cutting North Korea
off from the revenue it needs to maintain and expand its WMD
and ballistic missile programs. North Korea raises money not
just from exporting weapons but also from exporting missile
technology, coal, iron and iron ore, overseas labor, seafood,
and even bronze statues. Treasury is working to target all
sources of revenue, anywhere North Korea earns money.
In the last 9 months, we have targeted dozens of
individuals and entities involved in raising funds for North
Korea. For example:
LOn June 1, Treasury designated the Korea Computer
Center, a state-run IT research and development center
that was operating in Germany, China, Syria, India, and
the Middle East. Using overseas North Korean laborers,
KCC earned foreign currency for North Korea's U.S.- and
UN-designated Munitions Industry Department, which is
responsible for overseeing North Korea's ballistic
missiles.
LOn August 22, Treasury designated three Chinese
coal companies collectively responsible for importing
nearly half a billion dollars' worth of North Korean
coal between 2013 and 2016. North Korea used these
funds to support the Government of North Korea, the
Workers' Party of Korea, and the revenue may also have
benefited North Korea's nuclear or ballistic missile
program.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR MENENDEZ FROM SUSAN A.
THORNTON
Q.1. One major concern on a global level is North Korea's
sharing and transferring of nuclear technology. North Korea has
successfully subverted sanctions and export and import
controls, often through falsely flagging cargo ships: What
steps has the international community taken since March to more
rigorously monitor and control North Korean shipping vessels?
What steps can be taken to ensure that all countries are
complying with stricter controls the U.N. Security council
passed in March? Where are the weakest links in the system?
A.1. In August and September 2017, the U.N. Security Council
adopted two new resolutions imposing the strongest sanctions on
North Korea to date. In terms of provisions specific to
shipping, resolution 2371 (adopted 5 August 2017) authorizes
the UN's 1718 Committee to designate for a port ban vessels
that have been involved in activities prohibited by the U.N.
Security Council resolutions (UNSCRs) on the DPRK. A list of
ships for inclusion in such a port ban is under consideration
at the United Nations, and we continue to engage with the U.N.
on designating additional ships. The resolution also clarifies
measures set forth in last year's resolution 2270 that require
U.N. Member States to prohibit any entities or persons subject
to their jurisdiction from owning, leasing, operating, or
chartering any DPRK-flagged vessel. Previous resolutions also
require Member States to prohibit any entities or persons
subject to their jurisdiction from providing any sort of
classification, certification, or insurance service to such
vessels, and obligate Member States to de-register any vessel
owned, operated, or controlled by the DPRK--and also prohibit
another Member State re-registering such a vessel.
Resolution 2375 (adopted 11 September 2017) includes
maritime interdiction measures that call on all Member States
to inspect vessels on the high seas, with the consent of the
flag state, when a Member State has information that provides
reasonable grounds to believe that a vessel contains prohibited
cargo; if the flag state does not consent, the Member State
shall direct the vessel to a suitable port for inspection. In
addition, the resolution calls on Member States to cooperate
with such inspections. If such vessels and their respective
flag states fail to cooperate, the 1718 Committee is directed
to consider designating the vessels making them subject to
various measures, including a port ban and asset freeze.
Resolution 2375 further requires Member States to prohibit
anyone subject to their jurisdiction from facilitating or
engaging in ship-to-ship transfers that involve DPRK-flagged
vessels.
Over the past year, the Department of State, with strong
interagency support, has conducted multiple rounds of
engagement with many countries seeking to provide any sort of
service to, or to be the jurisdiction of record for a company
owning, a DPRK-associated vessel. This outreach has included
engagement with ship owners, flag registries, and providers of
insurance and classification services. The Department has also
increased similar pressure on any countries with jurisdiction
over ships visiting the DPRK or engaging in any UN-prohibited
export of DPRK-origin materials such as coal. The DPRK has
developed a variety of deceptive practices to evade this
pressure, and we continue to work bilaterally with key
countries on the receiving end of these practices. We have
prioritized engagement with the likely and historical port
states that receive DPRK-associated ships to make sure they are
aware of their U.N. obligations as well as the deceptions that
the DPRK is employing. We have provided these countries with a
list of approximately 250 DPRK-flagged and DPRK-owned vessels
and have recommended that they add these vessels to their watch
lists for denial of port entry. We consistently stress during
our bilateral security dialogues with partners the necessity of
fully implementing the tough measures directed in the relevant
U.N. resolutions, and we believe that many are realizing the
seriousness of the issue and taking action. When we have
information on specific shipments or ship-to-ship transfers
taking place, we notify countries involved as soon as possible
to ensure they terminate any association with the activity. Our
engagement is paying off. For instance, we have seen several
countries publicly announce investigations and the de-
registration of DPRK-associated vessels, while other countries
have taken such actions privately.
Q.2. Despite prohibitions, we know that North Korea actively
exports weapons to a variety of actors throughout the world.
These sales in turn contribute to North Korea's ability to
access foreign capital: How [can] the international community
do a better job of tracking these weapons' sales?
A.2. Disrupting North Korea's arms sales and depriving
Pyongyang of the revenue generated from these exports is an
important component of the President's maximum pressure
campaign. The Department of State, in coordination with other
U.S. Government departments and agencies, as well as our
international allies and partners, is working aggressively to
detect and interdict or disrupt suspected North Korea's arms
transfers and to sever the underlying political and commercial
relationships from which they result.
The best way to improve the tracking and interdiction of
DPRK arms transfers is for all states to strengthen
implementation of relevant United Nations Security Council
resolutions (UNSCRs). Multiple UNSCRs prohibit Member States
from importing any North Korean arms or related materiel or
contracting with North Korea for any support, assistance,
refurbishing, manufacturing, or services related to arms or
related materiel. In addition to the specific restrictions on
arms cooperation, the Security Council has also designated over
100 individuals and entities, including many involved in North
Korea's arms export enterprise. States have a binding legal
obligation to robustly implement these sanctions by freezing
the assets and stopping the activities of these entities and
individuals, as well as those acting for or on their behalf, in
their jurisdictions.
To assist states in these efforts, the U.N. Security
Council established the Panel of Experts (POE), pursuant to
resolution 1874. The POE is charged with monitoring UNSCR
implementation and investigating violations, as well as
scrutinizing and publicizing North Korea's arms transfers and
client base. While the DPRK has long engaged in deceptive
practices to hide its illicit WMD and conventional arms
proliferation and related revenue-generating activities, POE
investigations, supported by U.N. Member States, expose
violations and support implementation by highlighting how North
Korea's arms brokers are adapting to sanctions and holding
North Korea's arms clients accountable for violating the
resolutions. The United States strongly supports the efforts of
the POE in this regard and urges all other states to cooperate
with its efforts.
We are available to provide additional details on our
efforts to disrupt North Korea's arms exports in a classified
setting.
Q.3. We've seen some mixed messaging from the Administration on
the role of the United Nations in countering North Korean
aggression:
Is China a partner in developing and more importantly
implementing U.N. Security Council resolutions that aim to curb
North Korea's malign activities? Where are the United States'
best leverage points in the United Nations to counter North
Korean aggression? Outside the United Nations, what other
international or
multilateral fora could we use to best counter North Korean
aggression?
A.3. The U.N. Security Council continues to play a central role
in reinforcing the strategy of maximum pressure that we have
sought to bring to bear in countering the Democratic People's
Republic of Korea's (DPRK) continued development of its
unlawful nuclear and ballistic missile programs. The success of
this strategy will heavily depend on cooperation from key
international partners, especially Beijing. We are working
closely with China to implement this strategy and are clear-
eyed in viewing the progress--growing, if uneven--that China
has made on this front. Overall, we have been encouraged in
recent months by China's agreement to support two new sanctions
resolutions of unprecedented strength on North Korea at the
United Nations.
Since China's ban of coal imports in February, the DPRK has
forfeited over an estimated $805 million in revenue from coal
exports at current market prices. On August 14, the Chinese
government issued a notice announcing a comprehensive ban on
the import of coal, iron, iron ore, lead, and lead ore from
DPRK effective August 15 in compliance with UNSCR 2371, as well
as on the export of petroleum following the adoption of UNSCR
2375. Regional Chinese authorities have also tightened
restrictions on the import of seafood coming from the DPRK
after the adoption of UNSCR 2371.
We will continue to work with China on the threat posed by
the DPRK and will continue to engage in a dialogue on how to
further apply pressure. Our task now is focused on ensuring
that internationally binding obligations are implemented in
full, and on convincing China to take additional action to
exert its unique leverage to compel Pyongyang to return to
negotiations. We have also made clear that if China, Russia,
and others do not act, we will use the tools we have at our
disposal, and that all options are on the table. While our
actions are not meant to target countries other than the DPRK,
we have consistently told our foreign counterparts that we will
continue to act multilaterally and unilaterally to disrupt the
DPRK's illicit activities wherever they are located.
We have stressed to our international partners that U.N.
sanctions resolutions should be the floor, rather than the
ceiling, of the actions countries should take in order to
affect change in the DPRK, and our pressure strategy continues.
The results have been promising. Since the beginning of the
Administration, more than 20 countries have acted to restrict
DPRK diplomatic activities. Several other countries have
adopted autonomous sanctions measures against the DPRK,
including the European Union, Australia, ROK, Japan, Latvia,
and Singapore. Pakistan issued an official government notice
prohibiting its companies from engaging with individuals
sanctioned under U.S. domestic authorities. The United States
has also engaged in a sustained effort to shut down illicit
DPRK shipping activities, which the Kim regime could use to
move illicit cargoes or procure items for its prohibited
nuclear and ballistic missile programs. We facilitated public
identification by the 1718 Committee of four vessels for a port
entry ban due to the vessels' involvement in activities
prohibited under the resolutions, and continue our efforts to
see that any other vessel involved in such activities is
similarly listed.
Diplomatically, we have seen increasing numbers of
countries expel sanctioned North Korean officials and North
Korean
diplomats engaged in illicit commercial or arms-related
activities, and many countries have adopted measures to prevent
certain North Korean individuals from entering or transiting
their jurisdictions. Across the globe, countries are beginning
to view visiting North Korean official delegations with
caution, recognizing that welcoming these delegations not only
lends tacit support to North Korea's nuclear and ballistic
missiles programs, but comes at a cost to their international
reputation and relations with the United States and others. We
will continue to raise the need to counter the threat from the
DPRK's weapons of mass destruction and delivery programs across
all appropriate international and multilateral fora as part of
the Administration's maximum pressure strategy.
Additional Material Supplied for the Record
List of DPRK Sanction Violators Submitted by Senator Van Hollen
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]