    [House Hearing, 118 Congress]
    [From the U.S. Government Publishing Office]

                      ILLICIT IT: BANKROLLING KIM JONG UN

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

                                    HEARING

                                   BEFORE THE

                           SUBCOMMITTEE INDO-PACIFIC

                                     OF THE

                          COMMITTEE ON FOREIGN AFFAIRS
                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED EIGHTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 July 27, 2023

                                   __________

                               Serial No. 118-44

                                   __________

            Printed for the use of the Committee on Foreign Affairs

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

           Available:  http://www.foreignaffairs.house.gov/, http://
                                docs.house.gov,
                           or http://www.govinfo.gov

                                   __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    53-353 PDF                  WASHINGTON : 2024

    -----------------------------------------------------------------------------------

                          COMMITTEE ON FOREIGN AFFAIRS

    CHRISTOPHER H. SMITH, New Jersey     	GREGORY MEEKS, New Yok, Ranking
    JOE WILSON, South Carolina               	Member
    SCOTT PERRY, Pennsylvania	 	BRAD SHERMAN, California
    DARRELL ISSA, California		GERALD E. CONNOLLY, Virginia
    ANN WAGNER, Missouri			WILLIAM KEATING, Massachusetts
    BRIAN MAST, Florida			DAVID CICILLINE, Rhode Island
    KEN BUCK, Colorado			AMI BERA, California
    TIM BURCHETT, Tennessee			JOAQUIN CASTRO, Texas
    MARK E. GREEN, Tennessee		DINA TITUS, Nevada
    ANDY BARR, Kentucky			TED LIEU, California
    RONNY JACKSON, Texas			SUSAN WILD, Pennsylvania
    YOUNG KIM, California			DEAN PHILLIPS, Minnesota
    MARIA ELVIRA SALAZAR, Florida		COLIN ALLRED, Texas
    BILL HUIZENGA, Michigan			ANDY KIM, New Jersey
    AUMUA AMATA COLEMAN-RADEWAGEN,   	SARA JACOBS, California
      American Samoa			KATHY MANNING, North Carolina
    FRENCH HILL, Arkansas			SHEILA CHERFILUS-MCCORMICK,
    WARREN DAVIDSON, Ohio			 	Florida
    JIM BAIRD, Indiana			GREG STANTON, Arizona
    MICHAEL WALTZ, Florida			MADELEINE DEAN, Pennsylvania
    THOMAS KEAN, JR., New Jersey		JARED MOSKOWITZ, Florida
    MICHAEL LAWLER, New York		JONATHAN JACOBS, Illinois
    CORY MILLS, Florida			SYDNEY KAMLAGER-DOVE, California
    RICH MCCORMICK, Georgia			JIM COSTA, California
    NATHANIEL MORAN, Texas			JASON CROW, Colorado
    JOHN JAMES, Michigan			BRAD SCHNEIDER. Illinois
    KEITH SELF, Texas

                        Brenden Shields, Staff Director
                        Sophia Lafargue, Staff Director
                                     ------

                          Subcommittee on Indo-Pacific

                           YOUNG KIM, California, Chair

    ANN WAGNER, Missouri	    	AMI BERA, California, Ranking Member
    KEN BUCK, Colorado          	ANDY KIM, New Jersey
    MARK GREEN, Tennessee  	    	BRAD SHERMAN, California
    ANDY BARR, Kentucky	    	GERALD CONNOLLY, Virginia
    AMATA RADAWAGEN, American Samoa	WILLIAM KEATING, Massachusetts
    WARREN DAVIDSON, Ohio		JOAQUIN CASTRO, Texas
    MICHAEL WALTZ, Florida

                           Mary Vigil, Staff Director

                                C O N T E N T S

                                  ----------
                                                                       Page

                                   WITNESSES

    Klinger, Bruce, Senior Research Fellow for Northeast Asia, The
      Heritage Foundation's Asian Studies Center.....................     7
    Lee, Jean, Journalist, Former Pyongyang Bureau Chief, Associated
      Press..........................................................    20
    Scholte, Suzanne, President, Defense Forum Foundation............    29
    Jun, Jenny, Research Fellow, Center for Security and Emerging
      Technology.....................................................    39

                           INFORMATION FOR THE RECORD

    Information submitted for the record.............................    47

                                    APPENDIX

    Hearing Notice...................................................    87
    Hearing Minutes..................................................    89
    Hearing Attendance...............................................    90

                 ADDITIONAL MATERIALS SUBMITTED FOR THE RECORD

    CRDF Global: The DPRK'S Evasion of U.S. and UN Sanctions.........    91
    North Korea's Human Rights Situation: Focusing on Overseas
      Workers and Defectors..........................................    92
    The Root of All Evil.............................................   112

                      ILLICIT IT: BANKROLLING KIM JONG UN

                            Thursday, July 27, 2023

                              House of Representatives,
                      Subcommittee on the Indo-Pacific,
                          Committee on Foreign Affairs,
                                                        Washington, DC.

        The subcommittee met, pursuant to notice, at 2:22 p.m., in
    room 2200, Rayburn House Office Building, Hon. Young Kim (chair
    of the subcommittee) presiding.
        Mrs. Kim of California. The Subcommittee on the Indo-
    Pacific of the Foreign Affairs Committee will come to order.
        The purpose of this hearing is to examine how North Korea
    is using illicit cybertactics to undermine international
    sanctions and fund its nuclear weapons program. I now recognize
    myself for an opening statement.
        First of all, thank you so much for your patience. We had
    delays after delays in today's committee hearings we were
    involved in, and, as well as the vote series.
        So, we are here, thank you, Ranking Member, for being here.
    Today marks the 70th anniversary of the signing of the Korean
    War armistice, which ended hostilities on the Korean peninsula.
        In solemn recognition of this anniversary, I am holding
    this hearing entitled Illicit IT: Bankrolling Kim Jong Un to
    highlight the atrocities of the Kim regime and to shed a light
    on how the regime is able to circumvent international sanctions
    to fund its human rights abuses and its nuclear program.
        As a Korean-American with family members who fled North
    Korea during the Korean War, this is an issue that is deeply
    personal to me. Having grown up in South Korea in the aftermath
    of the Korean War, it is an honor for me to hold this hearing
    as Chairwoman of the Indo-Pacific Subcommittee.
        I salute this to South Koreans who bravely fought for their
    freedom and to American troops who answered the call to defend
    a country they never knew and a people they never met.
        Since the collapse of the 2018 peace talks in Hanoi, North
    Korea has significantly ramped up its nuclear aggression. It is
    launching intercontinental ballistic missiles more frequently.
    And, with each launch is improving its arsenal.
        Given that North Korea is one of the most heavily
    sanctioned countries in the world, this begs a careful
    examination from Congress as to how North Korea is able to
    generate enough revenue to continue expanding its arsenal.
        North Korea engages in a long list of illicit activities,
    including human trafficking, slave labor, drug trafficking,
    arms proliferation, and cybercrime to generate revenue and
    sabotage the free world. Today's hearing focuses on the latter.
        The North Korean Cyber Army works side by side with the
    Korean People's Army, supporting its espionage and sabotage
    missions. In March 2023, North Korean hackers launched a large
    scale cyberattack against the software firm 3CX, which affected
    thousands of businesses, including in the healthcare industry
    that stores sensitive information about their customers and
    patients.
        North Korea also uses cyberattacks to generate revenue for
    its nuclear program. We reasonably believe that North Korea was
    behind the 2017 WannaCry ransomware attack which affected
    300,000 users in at least 150 countries.
        In 2016, North Korean hackers attempted a billion-dollar
    digital heist on Bangladesh, Bangladesh's National Bank and
    managed to skirt off with $81 million. North Korea is also
    notorious for hacking cryptocurrency portfolios and laundering
    money through cryptocurrency platforms.
        It is important to note that these hackers are not sitting
    together somewhere in a dimly lit room somewhere in Pyongyang,
    because they're all over the world and mostly operating outside
    of North Korea, namely China.
        Despite these previous cyberattacks even affecting Chinese
    individuals and organizations, the People's Republic of China
    refuses to do anything about it.
        This is because the PRC actively helps to facilitate North
    Korea's cybercrime by providing it with the digital
    infrastructure it needs to carry out these attacks. And, it
    does so because it does not want to see the Kim regime fail.
        If you want to see the Kim regime fail in its illegal
    ventures, then we must ensure that we enhance our sanctions and
    law enforcement activities targeting North Korea's cybercrime.
        We must also remember that while hostilities on the Korean
    peninsula ended 70 years ago, North Korea is a still hostile
    actor. Kim Jung Un murders and terrorizes his own people to
    ensure that he can remain in power. And, he has no real
    interest in peace with the free world.
        We must be vigilant in ensuring there are no loopholes in
    our sanctions policies that he can exploit to denying his own
    people's basic human rights. And, we must work with our allies
    and partners in the Indo-Pacific to ensure that we send Kim
    Jung Un a strong and united message that his behavior will not
    be tolerated.
        I also call on the Administration to ensure that human
    rights in North Korea remains at the forefront of our Indo-
    Pacific policy. I introduced North Korea Human Rights
    Reauthorization Act, which authorizes activities to get outside
    information into North Korea and calls for the confirmation of
    a Special Envoy on North Korea and calls for the reunification
    of divided families.
        I believe this legislation will ensure that we do not let
    human rights in North Korea become a peripheral issue. And, I
    will push to get this legislation signed into law during this
    Congress.
        With that, the Chair now recognizes the Ranking Member, the
    gentleman from California, Mr. Bera for his opening statement.
        Mr. Bera. Thank you, Madam Chairwoman for holding this
    critical hearing. And, thank you to the witnesses for sharing
    your expertise with the Subcommittee.
        As the Chairwoman pointed out, today marks the 70th
    anniversary of the Korean Armistice Agreement. And, this gives
    us an opportunity to pay honor and the tremendous debt that we
    owe to those who sacrificed in the conflict, including the
    thousands of American, Korean, and U.N. troops who lost their
    lives.
        In addition though, it also allows us to pay homage to the
    partnership and friendship and alliance that was borne out of
    that shared sacrifice and the strength of the US-ROK alliance,
    friendship, relationship that continues to grow every day.
        As the Chairwoman pointed out, North Korean cyber activity
    represents a critical threat to the U.S., its allies, and
    international institutions. Given the country's resource
    constraints, the DPRK conducts asymmetric warfare through its
    cyber program.
        In recent years, North Korean cyber actors have targeted
    governments, banks, hospital systems, and private businesses,
    robbing those institutions of billions of dollars. Sources
    estimate that the financial gain to North Korea from their
    cyber-criminal activities has increased from about $1 billion
    in 2017 to $2 billion in 2020.
        These attacks have continued since the DPRK sealed its
    borders during the COVID-19 pandemic, with the U.S. Treasury
    estimating that North Korea stole at least $1.7 billion just in
    cryptocurrencies in 2022. This activity is used to evade
    sanctions and directly support Kim Jung Un's regime, including
    North Korean ballistic missile and nuclear activities.
        As a doctor, we've also seen troubling evidence of North
    Korean ransomware against our hospital and health systems. This
    undermines and threatens our ability to care for our patients
    and impacts every Member of Congress in every district, because
    we all have those hospitals.
        Finally, like many authoritarian governments, North Korea
    uses the cyber domain to extinguish threats to the regime. The
    2014 Sony Picture hack was a watershed moment when North Korea
    uses cyber tools to prevent the studio from showing a movie
    that was critical of Kim Jung Un's rule.
        While we may have been amused that the Kim regime was
    threatened by a Seth Rogen film, we should also understand the
    DPRK is willing to use these instruments to intimidate
    opposition outside its borders.
        We need to be aware of how the cyber domain can be used to
    shore up authoritarian regimes. In light of this, the Biden
    Administration is making a strong effort to counter North
    Korea's malign cyber activities.
        The Cybersecurity and Infrastructure Agency, CISA at the
    Department of Homeland Security has made North Korean cyber
    activity a priority, informing the public and private sector of
    DPRK malicious actions.
        President Biden has also strengthened our alliance with
    South Korea as well as our trilateral partnership with South
    Korea and Japan, making it easier to align our policies in
    response to the DPRK's provocative behavior.
        In 2022, Presidents Biden and Yoon established the first
    U.S.-ROK working group meeting on the DPRK cyber threat. During
    South Korean President Yoon's State visit in April, Presidents
    Biden and Yoon committed to establish a U.S.-ROK strategic
    cybersecurity cooperation framework to expand cooperation on
    deterring and combating cyber activities.
        With that, I applaud the foundation President Biden has
    laid. And, it is now time for more to be done. And, I think we
    can work in a bipartisan way as Members of Congress to continue
    to support these activities.
        And with that, I look forward to hearing from our witnesses
    and I'll yield back.
        Mr. Connolly. Madam Chair?
        Mrs. Kim of California. Yes?
        Mr. Connolly. I want to thank you for having the hearing.
    But, just a point of personal privilege if I may, I want to
    welcome my former constituent, I think you're now former, and
    my former opponent, Suzanne Scholte, who has been steadfast in
    her advocacy for human rights on the Korean peninsula and
    calling out the Korean regime. But also, trying to promote
    reconciliation.
        And, I really appreciate her presence here. And, I am doing
    this now, because I am nervous, we are going to have votes and
    we'll scatter to the four winds, because the Congress is out
    for 6 weeks once we have this vote.
        So, welcome Suzanne. And thank you, Madam Chair.
        Mrs. Kim of California. Thank you for mentioning that. We
    do have votes that are about to be called for. So, we're going
    to try to rush through this as fast as possible.
        But, we want to hear from our witnesses and have an
    opportunity for our members to ask questions as well. Other
    members of the Committee are reminded that opening statements
    may be submitted for the record. And, we are pleased to have a
    distinguished panel of witnesses before us today on this very
    important topic.
        First, Bruce Klinger is a Senior Research Fellow at the
    Asian Study Center at the Heritage Foundation. Thank you for
    joining us. Ms. Jean Lee is a journalist and former Pyongyang
    Bureau Chief with the Associated Press. Thank you for joining
    us.
        And, Ms. Suzanne Scholte, as said was a dear friend who
    were partners in crime, I guess, on this very important issue,
    currently serves as President of the Defense Forum Foundation.
    Thank you for being with us.
        Last, Ms. Jenny Jun, is a Research Fellow at the Center for
    Security and Emerging Technology. With that, I want to thank
    you all for being here. Your full statements will be made part
    of the record. And, I will ask each of you to keep your spoken
    remarks to 5 minutes or under in order to allow time for member
    questions.
        So, let me now recognize Mr. Klinger for your opening
    statement.

        STATEMENT OF BRUCE KLINGER, SENIOR RESEARCH FELLOW FOR
     NORTHEAST ASIA, THE HERITAGE FOUNDATION'S ASIAN STUDIES CENTER

        Mr. Klinger. Chairwoman Kim, Ranking Member Bera, and
    distinguished members of the Committee, I thank you for the
    opportunity to appear before you. I will summarize my written
    testimony.
        North Korea's cyberattack capabilities pose a multifaceted
    threat to national security since the regime has successfully
    penetrated and inflicted damage on military, government, media,
    and infrastructure computer networks.
        North Korea's sophisticated cybercrimes enable the regime
    to finance its prohibited nuclear and missile programs and
    evade international sanctions in ways that are more efficient,
    less risky, and far more lucrative then its past illicit
    activities.
        How successful have these cybercrimes been? By 2019, North
    Korean had cumulatively gained $2 billion from cybercrime.
        Last year, in the world's largest cryptocurrency heist
    ever, North Korean hackers stole $620 million from a crypto-
    token based online video game. And, as Representative Bera
    pointed out that North Korean hackers, just last year, stole
    $1.7 billion worth or cryptocurrency.
        By comparison, North Korea's legitimate international trade
    last year was only $1.5 billion. And, the U.S. has estimated
    that in the last 2 years alone, North Korea has largely funded
    its weapon of mass destruction programs through cyberheists of
    cryptocurrencies and hard currencies.
        Another cash cow for North Korean cybercrimes has been its
    IT workers operating overseas. The U.N. Security Council
    Resolution 2397 required all countries to repatriate all of
    their North Korean workers within their borders by December
    2019.
        Despite that edict, thousands of highly skilled North
    Korean information technology workers currently operate in
    China, Russia, and other countries. They use false identities
    and fraudulently gain employment as freelance computer
    engineers with tech and virtual currency companies around the
    world.
        Some North Korean IT workers can earn more than $300,000
    per year, with 90 percent of their wages going back to the
    regime. Overall, the program generates hundreds of millions of
    dollars annually for the regime to fund its nuclear and missile
    programs.
        In recent years, Washington and Seoul have both stepped up
    the law enforcement efforts to combat North Korea's cyberattack
    strategies. And, the inauguration of South Korean President
    Yoon Suk Yeol has been particularly noteworthy for South Korea
    upholding the rule of law.
        Under the Yoon Administration, South Korea issued its first
    ever independent sanctions targeting North Korean cyber
    activities. And, was the first country to sanction North Korean
    hacking group Kimsuky.
        Despite these recent efforts, more needs to be done. The
    U.S. should augment its engagement with international partners.
    One example would be utilizing the Quad senior cyber group to
    engage with other Indo-Pacific nations, especially South Korea,
    to coordinate enhanced cyber defenses.
        Also, target the North Korean overseas IT workers. The U.S.
    should pressure countries to eject or extradite North Korean
    workers to reduce the substantial source of illicit funding for
    the regime's nuclear missile programs.
        And, the U.S. should encourage or urge companies to conduct
    more rigorous identification checks and stringent
    authentication measures to prevent inadvertent hiring of North
    Korean IT workers as independent contractors.
        Also, need to enhance enforcement against illicit cyber and
    money laundering operations. Successive U.S. Administrations
    have refrained from significant actions against Chinese
    entities, providing technology, equipment, training, and safe
    haven to North Korean hackers.
        Washington should pressure China and other nations to
    dismantle North Korean hacking networks on their soil. And,
    Washington has yet to impose fines on Chinese banks for
    laundering North Korean illicit funds.
        And, the U.S. should target banks, financial institutions,
    and front companies that are used to launder money stolen by
    North Korea. We also need to augment regulation of
    cryptocurrency exchanges.
        The U.S. should review existing legislation and regulations
    to ensure cryptocurrency exchanges have sufficient security
    against cyberattacks and to prevent money laundering.
        We should support third-party civil suits against enablers
    of cyberattacks. Congress should enact legislation that
    facilitates civil suits against foreign States that have
    repeatedly sponsored or facilitated cyberattacks against U.S.
    critical infrastructure or any entity that willfully or
    negligently facilitates a cyberattack against a U.S. person or
    U.S. critical infrastructure.
        We should also enhance cyber administrative enforcement
    authority. Congress could grant an appropriate Federal agency,
    such as the Cybersecurity and Infrastructure Security Agency,
    administrative forfeiture authority to seize and forfeit
    hackers' infrastructure and other proceeds or facilitated
    property, which would reduce demand on limited judicial and
    prosecutorial resources.
        In conclusion, the U.S. in conjunction with foreign
    governments and the private sector, needs to augment cyber
    defenses and respond more forcefully to attacks. Failure to do
    so enables North Korea to continue undermining the
    effectiveness of international sanctions and leaves the U.S.
    and its partners exposed to a potentially devastating
    cyberattack. Thank you.
        [The prepared statement of Mr. Klinger follows:]

        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mrs. Kim of California. Thank you so much.
        Ms. Lee.

      STATEMENT OF JEAN LEE, JOURNALIST, FORMER PYONGYANG BUREAU
                        CHIEF, ASSOCIATED PRESS

        Ms. Lee. Chairwoman Kim, Ranking Member Bera, distinguished
    members of this Subcommittee, thank you so much for inviting me
    to testify today.
        I'm honored to be here on this day of all days, the 70th
    anniversary of the armistice that brought the Korean War to a
    halt. It also happens to be my father's birthday. He got the
    best birthday gift that a child of war could wish for when he
    woke up that day, a cease-fire. So, happy birthday, dad.
        But, that truce was never replaced by a peace treaty. So,
    the conflict remains unresolved. We call it the forgotten war.
    But, the Kim family in North Korea holds tight to the narrative
    of war and uses it to justify the building of nuclear weapons.
        Now, there's a new battleground, cyberspace. Kim Jung Un's
    warriors are using science and technology to fight and steal on
    his behalf through cyber theft, cyber espionage, and
    cyberwarfare.
        So, today I'd like to share observations based on years of
    watching North Korea not only from a distance as an analyst,
    but also as a journalist who spent many years reporting from
    Pyongyang.
        My first trip to North Korea was in 2008. My last was in
    2017. I was the first American journalist to join the Pyongyang
    press corps. And, in 2012 I opened an AP Bureau in Pyongyang,
    just as Kim Jung Un was coming to power.
        I had a front row seat to the making of the mythology
    around this young, new leader. The goal was to paint him as the
    reincarnation of his revered grandfather, but, a modern
    incarnation who would use computers to take his analog country
    into the future.
        Science and technology became a tool for building loyalty
    among his future power base. My North Korean staff loved
    gadgets, cell phones, laptops, blue tooth headsets, they were
    all status symbols in a country that doles out electronics as
    political prizes.
        Propaganda posters promote computers and mathematics and
    they link them to missiles. The main science center is shaped
    like an atom.
        I suspected that hacking was being promoted internally as a
    form of patriotism. And, those suspicions were confirmed with a
    series of bold cyberattacks blamed on North Korea, Sony
    Pictures in 2014, the Bangladesh bank heist in 2016, and
    WannaCry in 2017.
        There is a tendency to underestimate North Korean hackers.
    And, I wanted to find a way to scare the public into paying
    attention.
        So, in 2020, I joined the BBC to carry out investigative
    reporting on the Lazarus Group for a podcast series that we
    called the Lazarus Heist. And we explore who the hackers are,
    how they're trained, how they operate, where the money is
    going.
        We explore how cyber figures into Kim Jung Un's strategic
    thinking and planning. And, we put the attacks into political
    and historical context.
        After all, Kim Jung Un is a millennial. He spent time in
    Switzerland. He could see how computers were changing the
    world. He may have kept his--he may keep his people in the dark
    and disconnected, but he's an early adopter.
        He also grew up with sanctions and saw the opportunity in
    cyberspace for getting around these sanctions. He recognized
    cyber theft as a low cost, high yield form of robbery. And,
    that cyberspace offers a convenient cloak of anonymity.
        So, he sent his top math geniuses to China, to Southeast
    Asia, Russia, and the Middle East, to learn how we live, bank,
    and socialize online. Many went as legitimate IT workers. And
    the FBI says while they're programming by day, they are hacking
    by night.
        It's hard to get what is the extent of the theft, but the
    count is in the billions. In May, the Deputy National Security
    Advisor for Cyber said half the funding for North Korea's
    nuclear weapons maybe coming from cyber theft.
        To their credit, the FBI and the Department of Justice have
    been relentless in their pursuit. Treasury has been aggressive
    with targeted sanctions. The State Department has been holding
    cyber working group meetings with their South Korean
    counterparts.
        But, the challenge is multiplying. Illicit financing may
    have been a game of cat and mouse under Kim Jung Il. It is now
    more like whack-a-mole.
        Where the hackers fall short on sophistication, they make
    up for it in persistence, patience, and motivation. They're
    clever, resourceful, they target vulnerabilities in technology
    that is evolving quickly.
        So, the counter-strategy has to be more ambitious than
    simply whacking faster. This threat needs to be elevated among
    the public as well as policymakers.
        This is about national and global security. Keep in mind
    that Russia's Defense Minister is in Pyongyang right now
    touring a display of nuclear weapons.
        Cyber theft buys Kim time to shut the world out. And, that
    complicates prospects for diplomacy. That endangers us and
    imperils ordinary North Koreans who pay the price with their
    well-being when their leader prioritizes weapons.
        This hearing is a promising development. And, I hope it
    spears more strategic thinking on North Korea. I look forward
    to your questions.
        [The prepared statement of Ms. Lee follows:]

        [[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mrs. Kim of California. Thank you, Ms. Lee. And, happy
    birthday to your father too.
        I now recognize Ms. Scholte for your opening statement.

        STATEMENT OF SUZANNE SCHOLTE, PRESIDENT, DEFENSE FORUM
                               FOUNDATION

        Ms. Scholte. Thank you. And, thank you, Congressman
    Connolly for your kind words. And, thank you, Congresswoman Kim
    and Congressman Bera for hosting this hearing.
        It does come at an urgent time. And, is the 70th
    anniversary of the Armistice. But, there is different histories
    being told on the Korean peninsula on the Armistice Day.
        Tragically, the people north of the DMZ will be told lies
    to foment hate against our country and the Republic of Korea.
        Now, I've been asked to assess how North Korea manipulates
    economic aid and regime financing to conduct its human rights
    atrocities. We have two developing human rights atrocities that
    demand our urgent attention.
        First, is the 2000 children, women, and men currently in
    detention in China facing repatriation. And, of course, the
    ongoing tragedy facing the entire population of North Korea.
        North Korea is not just a communist dictatorship with its
    Juche religion as guiding principles. It's also a kleptocracy
    that is used its power and personal gain at the expense of the
    North Korean people.
        Kim Jong Un will never make a decision that would improve
    the lives of the North Korean people. His only concern is his
    own well-being and power. We must take the actions necessary to
    help the people of North Korea to stop these ongoing
    atrocities.
        During the North Korean famine for example, at the start of
    the 1990's, there was enough humanitarian aid that was sent
    from the international community that no North Korean should
    have starved. Instead, three million people died because Kim
    Jong Il used that aid as a weapon against the North Korean
    people.
        With my testimony I'm submitting a report recently produced
    by the Center for North Korean Human Rights of the INSS, which
    documents in addition to the illicit IT, disturbing and
    shocking findings about the ongoing overseas slave labor, the
    smuggling of coal, gold, and weapons, the proliferation of
    nuclear technology to Iran and Cuba, and insurance fraud.
        These illicit funds are used to support Kim's lavish
    lifestyle and develop his nuclear and missile development
    program. I want to quote a high-ranking defector, Lee. Mr. Lee
    who oversaw business deals for the Kim regime out of China, and
    he describes where the illicit money goes.
        It's typically the funds generated by IT workers goes
    directly into Kim Jung Un's personal account. Ninety percent of
    the current IT workers for example, are affiliated with Office
    313, the Guidance Unit, and 75 Guidance Unit under the Military
    Industry Department, which is the department that develops the
    nuclear weapons program and also the Reconnaissance General
    Bureau.
        So, the revenues these IT workers make goes to Office 39,
    which is handled by Kim Jong Un. It's personally controlled by
    him. And, he uses it to his own personal wealth, to maintain
    the system, and to develop his nuclear missiles program.
        And, I want to cite a statistic that was produced by the
    Korean Institute of Defense Analysis earlier this year, in face
    of the fears we have another Arduous March maybe starting in
    North Korea, that what they have spent on the nuclear program
    could feed the population of North Korea for 4 years.
        The root of all evil, money, crime, and law in North Korea,
    I'm going to submit this report written by Josh Stanton for
    this hearing, which documents--published by the Committee for
    Human Rights in North Korea.
        Josh Stanton, I quote from his report, North Korea is a
    nation rich in natural resources, yet among Pyongyang's long
    list of crimes against humanity, none has killed or harmed more
    of its people then its misappropriation of wealth from the
    enslaved people who extract it from its soil, seas, and mines.
    It uses this stolen wealth and the proceeds of its financial
    crimes to enrich the oligarchy, perpetuate enslavement and
    repression, proliferate weapons of mass destruction, and
    threaten peace in the region.
        Stanton has proposed trying--using the existing
    resolutions, the existing statutes that we have to find, freeze
    and forfeit and stop these funds.
        I'm also submitting a statement from Rosa Park-Takola,
    she's a Senior Project Lead for the DPRK Counterproliferation
    at CRDF Global. And, she manages the sanctions evasion
    portfolio.
        And, she cites another thing we need to be concerned about,
    maritime. The fact that they're labeling ships. And, they're
    getting in goods that have been sanctioned that way.
        So, what must be done? Very quickly, and I can go into a
    lot more detail later during Q&A, we've got to save the
    refugees.
        Our State Department should announce now that we will
    sanction any Chinese official involved with the repatriation of
    these children, women, and men.
        We should aggressively use the tools that we have, you
    talked about the sanctions. It's true, North Korea is heavily
    sanctioned.
        But, we're not enforcing the sanctions. Our sanctions
    against the North are extremely weak. And, I cite this report
    by Josh Stanton, third, the most important thing, we've got to
    make human rights our No. 1 priority.
        And, I'm submitting a report. This is just published citing
    ongoing atrocities. These are recent eyewitnesses and
    testimoneys.
        And, we need to tell the people the truth. We need to get
    information into North Korea by land, sea, and air.
        [The prepared statement of Ms. Scholte follows:]

        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mrs. Kim of California. Thank you, Ms. Scholte. Those three
    reports that you mentioned will be submitted into the record
    without objection.
        Let me now recognize Ms. Jenny Jun for your opening
    statement.

     STATEMENT OF JENNY JUN, RESEARCH FELLOW, CENTER FOR SECURITY
                        AND EMERGING TECHNOLOGY

        Ms. Jun. Thank you. Chairwoman Kim, Ranking Member Bera,
    and members of the Subcommittee, thank you for the opportunity
    to testify before you today on this very important and timely
    topic.
        My comments today are my own. Today I will highlight three
    points. First, if North Korea considers nuclear bombs to be the
    ultimate weapon, it considers cyber capabilities to be a Swiss
    Army knife.
        North Korea frequently uses its cyber capabilities as a
    means to further a variety of national goals. Hackers rob
    things and steal cryptocurrency, some of which trickles into
    funding for their nuclear missile program.
        They conduct industrial espionage related to COVID-19
    research. They punish movie makers when the regime perceives
    that they hurt Kim Jong Un's public image.
        How often North Korea uses cyber capabilities in all these
    cyber settings pose a different policy problem then responding
    to its nuclear threat. It is important not to underestimate
    their capabilities to echo Jean.
        North Korea's hackers have proven again and again they're
    persistent, bold, and creative. They keep tabs on the latest
    cybertech trends, and quickly adopt relevant tactics and
    techniques as part of their own tool kit.
        Their country's general political and economic isolation
    should not fool us into thinking that their hackers are also
    unaware of the latest hacking techniques.
        Perhaps what makes me most worried about North Korea's
    cyber threat is that they're occasionally not afraid to launch
    operations that are brazen and destructive.
        Figuratively, they will rob the bank and set fire to it to
    get rid of evidence instead of carefully going in and out
    without anyone noticing.
        North Korean hackers have a higher tolerance for
    operational risks. And, they're sometimes willing to tradeoff
    staying under the radar for fast grabs.
        This happens because they care less about their operations
    being attributed back to them, because they have no
    international reputation to preserve. This makes the North
    Korean cyber threat different from other sophisticated threat
    actors.
        Second, the proceeds from North Korea's vast cybercrime
    enterprise are a lifeline for the Kim regime. North Korea has
    come up with a long list of daring and innovative ways to use
    cyber means to earn cash.
        And, if they find a new method, they will exploit it
    quickly and widely to maximize gains from it before the window
    of opportunity disappears. They're not likely to stop any time
    soon.
        Cybercrime is a much more efficient and lower risk way of
    generating foreign cash then their previous illicit financing
    mechanisms. For an easy comparison, North Korea's total exports
    in 2022 were only $160 million with a heavy dependence on
    mineral exports to China.
        Their next export category was hair wigs. This pales in
    comparison to how much they can steal in a single cyberattack.
        For almost two decades, sanctions have been a main policy
    lever, vis-a-vis North Korea. Whether it was to change their
    behavior or to slow down their weapons program. However, North
    Korea has been able to stay resilient to this, in part through
    a cybercrime enterprise.
        Third, combating North Korea's cybercrime is a cat and
    mouse game. And, it is a problem that has been managed not
    deterred.
        The U.S. and its allies will not be able to persuade North
    Korea to cease activity in this space altogether. Instead, we
    should set two goals. The first goal should be to mitigate the
    frequency and scale of North Korea's cybercrime.
        Thankfully, the U.S. Government is already aware of this
    problem, and it has to take important steps through
    indictments, sanctions, and direct seizures. There is a broader
    effort toward regulating virtual assets and exchanges in
    general, which will certainly help to put pressure on North
    Korea.
        Over the past year, the U.S. and South Korea have also been
    in close coordination on this issue. At the same time, North
    Korea continues to innovate on their money laundering scheme to
    get around such crack downs. So far, North Korea is winning
    this cat and mouse game.
        The second goal should be to shape the way that North Korea
    conducts its cyber operations in such a way that reduces
    systemic risks of accidents and widespread collateral damage so
    as to prevent incidents such as WannaCry from happening again.
        The combination of these two goals are seemingly at odds
    with each other. And, maintaining a balance between them will
    be our key challenge.
        Our efforts to whack the mole faster than they appear will
    also encourage North Korea to engage in riskier tactics in
    cyberspace. And, because North Korea has a higher risk
    tolerance than others, we cannot lose sight of the second goal
    in lieu of the first.
        This concludes my remarks. I would like to thank the
    Subcommittee for convening the hearing on this pressing issue.
    I look forward to your questions.
        [The prepared statement of Ms. Jun follows:]

        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mrs. Kim of California. Thank you very much.
        We were kind of in consultation with the members and the
    Ranking Member to determine what to do, because we--our votes
    will be called any minute now.
        But, since the bell hasn't run, I think what I'll do is
    recognize myself for 5 minutes of questioning. And then, given
    time, we will go with the Ranking Member for questions. And
    then, we'll have to take a recess and come back.
        So, with your understanding, I want to ask the first
    questions to Mr. Klinger and Ms. Scholte. Regarding the
    sanctions, you know, how has the United States used the
    sanctions to try and deter DPRK cyberattacks?
        And, has the U.S. ever imposed secondary sanctions in
    relation to North Korea's cybercrime?
        Mr. Klinger. Thank you very much. Sanctions against
    cybercrimes as well as just overall against North Korea, you
    know, it's not a magic bullet. It's one tool of a comprehensive
    integrated strategy against North Korea.
        But, we have underutilized it. There's very strong
    legislation of the U.S. as well as U.N. Security Council
    Resolutions.
        But, the question, I think, has always been, why have not
    we fully enforced them? In the previous Administration, the
    President announced there were 300 North Korean entities that
    he was not sanctioning because we were talking so nicely to
    North Korea and it would be an insult to Kim Jong Un to impose
    them.
        After the talks broke down, we never imposed those. The
    predecessor of this Committee sent to the White House a list of
    12 Chinese banks that it felt were committing money laundering
    crimes in the United States. No actions were taken against any
    of them.
        And, we've imposed $9 billion in fines on European banks
    for money laundering for Iran. But, zero dollars in fines on
    Chinese banks for doing the same for North Korea.
        So, I think with cybercrimes, you know, we've seen that in
    the last several years there have been very extensive efforts
    by South Korea and the U.S. to sanction or impose fines. Or, to
    even be able to claw back some of the stolen cryptocurrency.
        But, it's always very difficult, particularly with
    cybercrimes, to identify the perpetrator or then to punish
    them. So, doing more of the same may not seem, you know,
    satisfying.
        But, it is a question with law enforcement, you have to
    constantly maintain pressure on the criminals in order to, in
    some cases, just maintain the status quo.
        Mrs. Kim of California. Ms. Scholte, do you want to add to
    that?
        Ms. Scholte. I echo exactly what Mr. Klinger said. We eased
    up on the Chinese banks. And, we never reimposed and enforced
    those things.
        And, there's a--some detailed information in this, the Root
    of Evil that Josh Stanton prepared. But, we just backed off.
        And, we have not been aggressive. And, we have these tools
    that we're not using. So, I just want to echo that.
        Mrs. Kim of California. So, you know, under that scenario,
    since our current sanctions are not being enforced properly, do
    you think secondary sanctions are, or will be an effective tool
    in holding actors like North Korea accountable?
        Mr. Klinger. I think we should. If someone is, some entity
    is in violation of our laws, sometimes indirectly in supporting
    direct criminals, then there should really be no hesitation in
    enforcing our laws.
        And, Chinese banks and businesses have been particularly
    egregious in their support of North Korean cybercrimes.
        Mrs. Kim of California. And, conceptually applying this,
    the secondary sanction type of the regime to other U.S. tools,
    like export controls, is something worthwhile that the United
    States policymakers should consider?
        Mr. Klinger. Very much so.
        Mrs. Kim of California. OK. Ms. Lee and Mr. Klinger, I want
    to also ask for your thoughts on what sort of coordination of
    illicit cyber activities, if any, is there between North Korea
    and the PRC?
        And, what about Russia? Do we have any coordination?
        Mr. Klinger. We know that North Korean government agencies
    and affiliated hacking groups have been in coordination with
    Russian criminal groups. And, they have provided the tools and
    software and other means for hacking that have supported North
    Korea.
        With China, they have provided safe haven to North Korean
    hackers. They presumably have also provided training and
    hardware and software for North Korea to engage in hacking
    activity on Chinese soil.
        Mrs. Kim of California. Ms. Lee, can you add to that,
    please?
        Ms. Lee. I would echo that as well. And, as you pointed
    out, as Bruce pointed out, North Korean workers were supposed
    to be back under U.N. Security Council Resolutions by December
    2019.
        However, it is understood that many of them are still in
    China and Russia. And, continue to carry out illicit activities
    that violate U.N. Security Council Resolutions.
        So, while China and Russia may refute that they provide any
    specific training, they are still violating U.N. Security
    Council Resolutions by allowing them to stay and operate in
    their countries.
        Mrs. Kim of California. Very good. Well, thank you. Let me
    now recognized Ranking Member Bera for 5 minutes of
    questioning.
        Mr. Bera. Thank you, Madam Chairwoman. I'm going to yield
    my 5 minutes to Representative Sherman, because I'll be
    returning, and will ask at that time.
        Mr. Sherman. I thank the gentleman. Seventy years, and
    we've had the most manifestly failed policy as we would have
    anywhere in the world.
        The North Korean people are starving and it's not every
    year. But, in some years. This human rights condition is beyond
    description.
        But, worse than any of that is the threat we face from
    their nuclear program. We pound the table and we say CVID,
    complete, irreversible, verifiable.
        And, then we pound the table again. We complement this with
    weak-ass sanctions that maybe annoy the North Koreans. They'd
    like to get out of them, but not enough to change their nuclear
    or other policies.
        And then, we sometimes trim around the edges and talk about
    how we can make this sanction a little tougher and that
    sanction a little tougher.
        I do not think we're--Mr. Klinger, if our sanctions were 10
    or 20 percent more effective, would that cause, you know, so a
    little tougher, would that cause North Korea to abandon its
    nuclear program?
        Mr. Klinger. I think I----
        Mr. Sherman. Or, would we need to do an awful lot more than
    that?
        Mr. Klinger. We have to enforce our own laws for the sake
    of enforcing our own laws. And, I do not see a benefit in not
    enforcing our laws.
        Mr. Sherman. Well, that is----
        Mr. Klinger. Out of the idea that it wouldn't help.
        Mr. Sherman. The one detriment about talking about
    enforcing our own laws a little better, is it distracts us.
    And, we get a little better at what we're doing that's
    ineffective.
        And, we'll have another 20 years where every year we pound
    the table and say CVID. And, North Korea develops even more and
    more nuclear weapons.
        My concern is, we put economic pressure on them. The one
    thing they have a surplus of that could be sold in the market
    is nuclear weapons.
        And, if they do not have a surplus now, they're producing
    more. And, at some point they'll have more than their own
    doctrines require.
        We had a conference earlier today that I put together on
    the Peace in Korean Peninsula Act, which would push the State
    Department to at least negotiate a peace treaty. Not that that
    would solve all problems.
        But, it's not a concession to North Korea any more than
    Eisenhower's decision to sign an Armistice 70 years ago today
    was a concession.
        When it comes to cyber, we tend to play defense. I do not
    know if anybody has the expertise here. But, how much harm
    could we do to the North Korean economy if we played offense
    and we tried to disrupt their economy?
        Does anyone have the expertise? I do not. I'm not sure that
    can be discussed in an unclassified setting in any case.

        Mr. Klinger. It would be difficult, I think, to assess.
    Because in large part, the North Korean economy is not as
    tightly connected to the internet as the United States system
    is.
        Mr. Sherman. OK. I'll point out when I say weak-ass
    sanctions that if we just sanction an individual Chinese bank,
    then they'll--and, we've been so weak they have not even
    bothered to react to that.
        They can have some of their banks do business with North
    Korea and some of their banks do business with us. And then,
    the banks that do business with us, we cannot sanction for
    doing business with North Korea.
        They have not even bothered to do that, because as Bruce
    just pointed out, we--what they cannot avoid is across the
    board tariffs on China to be maintained for as long as China
    plays the critical role it does in helping this regime continue
    its nuclear program.
        Of course, that would hurt Walmart profits. So, instead of
    doing something that might protect our State from North Korean
    nuclear weapons and a freezing of their missile program, we
    continue to keep doing what we have been doing, when it hasn't
    worked, and expect a different result.
        And, think that we can achieve a slightly better result if
    we just do it a little better. If we were close, you know, you
    get close and you think, gee, if I just work a little more,
    it's going to get there. I do not think we're close.
        Finally, Mr. Klinger, I spent this whole day trying to
    fight the idea of deregulating crypto and allowing that to
    become another currency. Right now, the number of transactions
    in crypto are not a thousandth of what they are on the dollar.
        But, more crypto transaction target is to follow. If
    cryptocurrency was a real currency, would that be a boon to
    North Korea?
        Mr. Klinger. It maybe a way for them to facilitate commerce
    without being reliant on the centrality of the U.S. dollar to
    the international financial system.
        We know that the majority of all international transactions
    in the world is denominated in dollars. Which means it has to
    go through a U.S. Treasury Department regulated bank in the
    U.S.
        And, we know that the majority of North Korean
    international transactions are denominated in dollars. So, if
    they can do it in cyber, it's a way of evading that form as
    well too.
        Mr. Sherman. That's why I got involved in the crypto--or,
    I'd like unanimous consent to put a packet of 20 different
    articles describing how North Korea uses cryptocurrency into
    the record.
        [The information referred to follows:]

       [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mrs. Kim of California. OK. Without objection. The
    gentleman's time has expired. But, because this is an important
    issue, I would like to give Ms. Scholte, who has been wanting
    to respond to the Congressman.
        Ms. Scholte. Yes. Congressman Sherman, you very much
    focused on the solution to this issue in 2017. You held a
    roundtable with the North Korean defector NGO leaders that were
    involved in the information campaign.
        It was powerful. That's the solution to this. Just focusing
    on the nuclear issue feeds the lie that that regime tells its
    own people, that we do not care about them.
        We have to communicate the truth to the people of North
    Korea. And, that roundtable, you were so moved by those people
    that were risking their lives to get information into North
    Korea.
        We need to be stepping up the information campaign. The
    people of North Korea need to know the truth, that there's a
    hearing like this where we're talking about the suffering
    that's happening to the people of North Korea.
        We need to put human rights at the forefront. We need to do
    everything we can to help support the North Korean defectors
    and the work that they're doing.
        Mrs. Kim of California. Thank you very much. The votes have
    been called. And, the Committee will now stand in recess.
        We'll be back in about 10 to 15 minutes. Don't go away.
        [Recess.]
        Mrs. Radewagen [presiding]. Thank you so much for your
    patience. And, it can be crazy on the Hill at this time of the
    year.
        So, let's see, let's just move right along here. I now
    recognize myself for 5 minutes. And, I represent American
    Samoa. Even though we're thousands of miles away from North
    Korea, we too have been fearful of their malign actions.
        A few years ago, my home hosted a North Korean freighter
    that we seized after it was caught illegally transporting
    goods.
        So, Mr. Klinger, how can security dialogs like the Quad or
    AUKUS impact DPRK activities? Do they escalate? Provide
    deterrence? Change nothing at all?
        Mr. Klinger. Well, I think efforts amongst the Indo-Pacific
    nations to coordinate on not only security threats but criminal
    activity, is beneficial. You know, it is not directed, you
    know, to escalate tensions or to undermine efforts at
    diplomacy.
        But, it's, you know, security we're trying to have a broad
    coalition of democracies and like-minded nations throughout the
    Indo-Pacific to address common security threats.
        It's not only nuclear weapons and missiles, but it's
    criminal activity as well as Chinese efforts to intimidate
    nations throughout the region.
        So, what we've seen is as the Chinese and North Korean
    threats have grown, nations throughout the Indo-Pacific have
    banded together more strongly to resist those efforts by not
    only North Korea, but also China.
        Mrs. Radewagen. So, Mr. Klinger, with the limited dialog
    between the U.S. and DPRK, how has the DPRK been increasing
    their collaboration in recent years with other State or non-
    State actors?
        Mr. Klinger. What we've seen is over the decades, even when
    the U.S. was engaged with North Korea, they continued
    developing and refining, expanding their nuclear and missile
    arsenals.
        So, even when we had treaties and agreements with them,
    they continued to build those weapons in defiance. The first
    four international agreements with North Korea on nuclear
    weapons were arms control. And, they ended, they failed,
    because North Korea was cheating on them.
        The second set of four failed international agreements on
    denuclearization failed because North Korea did not fully
    comply with them.
        We've also had 253 inter-Korean agreements. And, those have
    not moderated North Korean behavior. And, the U.S. is, right
    now, is repeatedly saying they're trying to engage not only in
    nuclear weapon issues, but on repatriation of war remains, or
    risk reduction, or tension reduction issues.
        And, North Korea is the one that has repeatedly rejected
    repeated end treaties for engagement. Not only by the U.S. but
    other nations.
        Mrs. Radewagen. So, do DPRK attacks have the potential to
    escalate or trigger a geopolitical incident or even potentially
    a war?
        Mr. Klinger. They certainly have very dangerous nuclear and
    missile and biological and chemical warfare capabilities. They
    also have very large conventional weapons force.
        We've seen in the last year when they've engaged in very
    extensive conventional force exercises, in some cases firing
    missiles south of the maritime demarcation line between the
    Koreas. They have flown large numbers of aircraft close to the
    DMZ.
        So, they have--and, even when the U.S. and South Korea
    stopped large scale military exercises in 2018, North Korea did
    not reciprocate. They continued their winter training cycle,
    summer training cycle, and other large scale exercises.
        Mrs. Radewagen. So, Ms. Scholte, what exactly does the DPRK
    do with the State or commercial secrets and money that they
    obtain through cybercrime?
        Ms. Scholte. Based on the testimony of North Korean
    defectors, high-ranking ones that have been involved in this,
    the funds that come from their illicit activities are used No.
    1, for the lavish lifestyle of the dictator.
        No. 2, to keep the security apparatus that keeps the people
    under surveillance. And, the third thing is, to develop their
    nuclear weapons program.
        Now, I wanted too just, if I may, just explain what I think
    the solution to this all is. I absolutely believe that when
    Hwang Jang-yop defected, he was the highest ranking defector.
    He was the creator of the Juche religion.
        He was the right-hand name of Kim Il Sung and the tutor for
    Kim Jong Il. And, when Hwang Jang-yop defected, he had
    completely turned against that regime.
        And, he said, human rights is their Achilles heel. Giving
    the people of North Korea the knowledge that they're entitled
    to human rights is the most important weapon that we have by
    getting information into North Korea.
        And, for too long we've focused on thinking that we can
    make a deal. As Bruce was pointing out, to making some deal
    with Korea, they've never abided by any agreement. They use
    north--they use talks to extract concessions and aid. They
    continue to threaten.
        And so, I think that we're losing the opportunity. We need
    to be focusing on getting information into North Korea by land,
    by sea, and by air.
        And, that's why we were winning the information campaign.
    That's why Kim Jong Un shut the border down. He's trying to--
    he's killing people for listening to K-Pop music.
        Mrs. Radewagen. Thank you. I would now like to recognize
    Ranking Member Bera.
        Mr. Bera. Thank you.
        Mrs. Radewagen. For 5 minutes of questions.
        Mr. Bera. Thank you, Chairwoman. Ms. Jun, in your testimony
    you State that North Korea's illicit financing through cyber
    means is a management problem, not a deterrence problem.
        Since North Korea has not really been persuaded to cease
    malign cyber activity through acts of punishment, you believe
    our goals should be to mitigate the frequency and scale of
    North Korea's cyber regime enterprise through various policy
    levers and cooperation with international partners.
        Can you highlight some of the policy levers that you think
    we ought to be using and, you know, how effective those
    measures would be?
        Ms. Jun. Certainly. Thank you, Congressman. So, I think
    there are basically two ways to look at this. A set of things
    we can do before the hack occurs, and a set of things we can do
    after the hack occurs.
        So, before the hack occurs, as my colleagues Bruce and Jean
    have mentioned, there are things we can do in terms of making
    sure that North Korean IT workers leveraging fake identities
    operating abroad, can no longer do so, because companies have
    stricter identity verification mechanisms, because third party
    States harboring these IT workers are now abiding by U.N.
    sanctions to, you know, stop harboring these people and
    repatriate them back to North Korea.
        There are things we can do in terms of regional, at a
    regional level. And, I think actually, the U.S. and South Korea
    alliance is a perfect segue into thinking about this from a
    more Indo-Pacific strategy.
        So, the U.S.-Korea alliance has been doing great in terms
    of responding to the North Korean cyber threat, in terms of
    issuing sanctions, advisories, everything. Reimagining and
    expanding the alliance to think about the cyber cooperation in
    terms of an Indo-Pacific strategy, would really help to help
    with things like capacity building in Southeast Asia, to help,
    to bolster our cyber defenses in this area.
        And also, there are things we can do after the hack occurs
    in terms of shorting the lag time between when the money is
    first stolen and the time it takes to end up in Kim's pockets.
        And so, there are a number of things that the U.S.
    Government, specifically OFAC has already done, such as
    designating certain cryptocurrency exchanges and cryptocurrency
    mixers and individual bit coin wallet addresses as under the
    SDN list.
        However, these are not being properly enforce. And, you
    know, for example if one wallet address is under the sanctions
    list, they can quickly transfer their money to a fresh new
    wallet that is not sanctioned and therefore, continue to
    launder that way.
        They also are wiring money through already sanctioned
    exchanges such as Russia-based Garantex Cryptocurrency
    Exchange, which is already under sanctions, but has no barriers
    to North Korea's criminal enterprise.
        Mr. Bera. OK. Mr. Klinger, you touched on the utilization
    of authorities that the Administration already has for
    secondary sanctions. You know, whether that's Chinese banks or
    other entities that, you know, maybe in some ways employing
    these North Korean workers, et cetera.
        Do you want to expand on Ms. Jun's answer and, you know,
    policies that we already have outside of just secondary
    sanctions on the banks?
        And then maybe policies that we do not have, that we should
    be thinking about, address this.
        Mr. Klinger. I always wonder why there would be any reason
    for hesitation in fully enforcing our laws. You know, we can
    debate about denuclearization or arms control and have good
    debates on that.
        But, to me it seems, when you come to cybercrimes, there
    should be no question as too fully enforce the laws. And, it's
    just how do you do that?
        Certainly, cybercrimes are very difficult to discern and
    identify sort of beyond a reasonable doubt who's the
    perpetrator. They're meant to be very difficult to discern.
        But, once you do, then you need to go after all of those
    that are involved or facilitating that behavior. And, I think
    the U.S. and South Korean have been doing that to a greater
    degree in recent years.
        So, we have the authorities, or even cybersecurity
    companies, have been able to claw back a large part of some of
    the money that has been stolen.
        So, you know, authorities that would--additional
    authorities that would enable U.S. law enforcement or
    regulatory agencies too more efficiently do that, I think,
    should be looked into.
        Mr. Bera. And, just kind of continuing, Ms. Lee, I think
    Mr. Klinger appropriately pointed out that while the Biden
    Administration said the door is open, you know, we're open to
    dialog, obviously Kim Jong Un has shut that door and is not
    willing to dialog.
        You know, an interesting thing obviously happened last week
    with the Private who ran across the border. A dialog is going
    to occur, I have to imagine.
        You know, again, whether that's a month from now, 2 months
    from now, et cetera. But, you know, given, you know, what--
    there's still a lot that remains to be seen for us to learn.
        But, just from your perspective, your expertise, your time
    in North Korea, how do you see this issue of dialog, and you
    know, and where we ought to go and what we ought to do?
        Ms. Lee. I do think, and I hope that things will shift
    after this big anniversary and these celebrations are over.
    And, that the visit by the Chinese and high-level Chinese
    delegation and the Russian Defense Minister suggests that the
    border will start to open up.
        I do not think that that means that outreach to the United
    States is imminent. I do believe that Kim Jong Un is going to
    sit back and wait to see what happens with the next U.S.
    Presidential election.
        But, I do think it's good to look back at what happened in
    2017, 2018, and 2019, to remember and put into context what
    we're seeing now.
        I do look at 2017, for example, as a year, I call it in my
    podcast, fire and fury, where Kim Jung Un wanted to buildup
    that, his nuclear program to the point where he felt that he
    could step out into the world as a figure of respect, standing
    shoulder to shoulder with the leaders of the countries around
    him.
        He was not in that position before 2017. He was the young
    heir to an impoverished country. He felt in 2017 that he had
    done enough. And he pivoted to diplomacy.
        But, unfortunately those negotiations did not succeed. And,
    he must have felt that it was not enough. So, he has shut
    himself off in order to expand that weapons program.
        I do hope that eventually there comes a time where he
    decides it is enough and it's time to pivot and open his
    country up. Because he knows that the North Korean people are
    tired of war. They're tired of resources being pumped into that
    program.
        He just wants to reach a point where he can claim the
    weapons without having to give them all up, negotiate them some
    for impression.
        Mr. Bera. Thank you. My time has expired. I yield back.
        Ms. Lee. Did you want to talk about the Private in North
    Korea? Can I take a few seconds to talk about that?
        Mrs. Radewagen. Yes. Go ahead.
        Ms. Lee. And, I do not think that we will--as you say, it
    maybe weeks. I hope it's not months.
        They are certainly trying to figure out how best to handle
    him. How best to make the most of having an American soldier in
    their custody.
        I do hope that it becomes an opportunity for diplomacy. It
    becomes an occasion for them, a face-saving moment for them to
    reach out to the United States because they have an American
    soldier in their custody.
        And, that it does not become an occasion for them to use it
    to their advantage in a more, in a way that would bring harm to
    him. But, it could go either way.
        I do not think he has the kind of value that they may
    think. And, once they make that decision, I hope that they will
    release him, or at least engage with the United States and use
    it as an opportunity for some contact.
        Mrs. Radewagen. I would now like to recognize Mr. Barr for
    5 minutes of questions.
        Mr. Barr. Thank you, Madam Chair. And, thank you to our
    witnesses. And, to any of our witnesses, I wanted to ask you
    about some of the sanctions evasion tactics of the regime in
    North Korea.
        Obviously you've testified that the cyber-criminal activity
    that is occurring allows not only for sanctions evasion, but
    for North Korea to finance its missile and nuclear programs.
        But, in 2020, in the Fiscal Year NDAA, we included
    legislation, my bill, the Otto Warmbier North Korea Nuclear
    Sanctions Act, that imposed at the time, the toughest financial
    sanctions ever directed at North Korea, in order to cutoff
    Pyongyang's ability to earn hard currency.
        And, it was a secondary sanctions bill. It targeted foreign
    banks. And, I think some of the testimony today is that there's
    not enough sanctions activity on banks that allow for the
    illicit financing of the DPRK.
        So, my question is, what's happening there? Why aren't
    these sanctions on banks proceeding?
        And, despite whatever sanctions are there, it's pretty
    clear that Chinese firms and banks are continuing to help North
    Korea circumvent U.S. sanctions.
        So, anyone want to comment on that? And, why we do not see
    more secondary sanctions on especially Chinese banks?
        Mr. Klinger. Well, I remember testifying before this
    Committee about a decade ago when people said why aren't we
    fully enforcing our laws against China? And, my answer was, I
    do not know.
        It's been through successive Administrations. Just to point
    out, back in, I believe, it was 2005 when the U.S. imposed
    measures against Banco Delta Asia, a bank in Macau, it led to
    at least two dozen financial institutions throughout the world
    to cutoff North Korea, including the Bank of China defying the
    government of China and cutting off North Korea, because they
    were afraid of secondary sanctions from the United States.
        So, a North Korean official told a White House official,
    you finally found a way to hurt us. Once the Bush
    Administration reversed that action to improve the atmosphere
    for six-party talks, then the Bank of China and the others went
    back to engaging with North Korea.
        So, it shows that if we enforce our laws, it can get
    financial institutions who are fearful of secondary sanctions,
    to even defy their own governments.
        And so, it can have an impact in reducing North Korea's
    ability to engage with the outside world.
        Mr. Barr. Well, in its March 2020 report, the U.N. Panel of
    Experts concluded that the DPRK continues to access
    international banking channels in violation of United Nations
    sanctions, mainly by using third-party intermediaries.
        But, now we have in a 2020 NDAA, 3 years ago, we had the
    toughest economic sanctions authorization. We authorized the
    executive branch to impose secondary sanctions on Chinese and
    other foreign banks facilitating the illicit finance of this
    regime. And, we see no action.
        Does anyone else besides Mr. Klinger want to comment on
    this? And, I mean, and confirm for me that Congress has given
    the Administration the authorities. But, is the Biden
    Administration actually using them?
        And, if not, why not?
        Ms. Scholte. I do not understand it. Because we have the
    tools and we're not abiding by our own sanctions. And, you have
    a situation now where it was all these other ways that they're
    making money, not just with illicit activities with IT, but
    also with the slave labor.
        I mean, there's people--that practice was supposed to end.
    And, there are countries where, I think you had it in your
    testimony, where there are North Koreans that are slave
    laborers.
        And, their income goes, they're cash cows for the regime.
    And, they are subjected to miserable working conditions.
        So, there's all kinds of things that are not being done.
    Why are they not being done? I do not know. But, I--well, I
    would like to mention about the information campaign.
        Mr. Barr. Well, I'd love for you to comment on that. But,
    just the secondary sanctions, the idea is, the foreign bank,
    whether it's Chinese or any other, would have a choice to make.
        You either do business with North Korea and the proceeds of
    their cyberattacks or whatever, you know, their laborers, you
    know, sending money back to the regime, however they do.
        They have a choice. This bank has a choice. They can do
    business with North Korea or they can have access to the U.S.
    financial system. But, they cannot do both.
        That is a powerful tool in our quiver. And, it is not being
    use. And, Congress has authorized the Treasury Department to
    utilize this tool. And, they're sitting on their hands over
    there.
        So, if--anyway, my time has expired. But, if anybody else
    wants to comment on that, I'd invite it.
        Ms. Scholte. I'm just going to add, there's a very
    interesting chart just totally illustrates your point that's in
    this book that Josh Stanton prepared which shows the drop of
    Treasury designations, sanctions dropping dramatically in 2020,
    after the Singapore and Hanoi summits. And then, hardly going
    back up again.
        So, yes, there's a whole gap there.
        Mr. Barr. Am I right that it is mainly Chinese banks that
    are facilitating?
        Ms. Scholte. I would say mostly. But, probably 80 percent.
    But, there's other banks.
        Mr. Klinger. Yes. I would say the Chinese banks are the
    largest facilitators of North Korean behavior. And, I mentioned
    earlier that this Committee several years ago sent a list of 12
    Chinese banks, they sent a list to the White House in 2017 that
    believed they were committing money laundering crimes in the
    United States and no action was taken against any of those
    banks.
        Mr. Barr. Well, a policy of chasing diplomacy without
    actually using the tools that we have, is attempting to
    negotiate from a position of weakness. And, we're not going to
    achieve diplomatic goals without actually using the tools that
    we have.
        So, with that I yield.
        Mrs. Radewagen. Thank you. Well, I want to thank all the
    witnesses for their valuable testimony and, of course, the
    members for their questions. The members of the Committee may
    have some additional questions and we will ask you to respond
    to these in writing.
        Pursuant to Committee rules, all members may have 5 days to
    submit statements, questions, and extraneous materials for the
    record, subject to the length limitations.
        Without objection, the Committee stands adjourned.
        [Whereupon, at 3:48 p.m., the subcommittee was adjourned.]

                                    APPENDIX
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

            CRDF GLOBAL: The DPRK'S EVASION OF U.S. AND UN SANCTIONS
    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    NORTH KOREA'S HUMAN RIGHTS SITUATION: FOCUSING ON OVERSEAS WORKERS AND
                                   DEFECTORS
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                              THE ROOT OF ALL EVIL
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                                     [all]