[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
ILLICIT IT: BANKROLLING KIM JONG UN
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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
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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
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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
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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
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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:]
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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
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CRDF GLOBAL: The DPRK'S EVASION OF U.S. AND UN SANCTIONS
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NORTH KOREA'S HUMAN RIGHTS SITUATION: FOCUSING ON OVERSEAS WORKERS AND
DEFECTORS
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THE ROOT OF ALL EVIL
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