The Debate

North Korea Must Come Clean About Its Dirty Money

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The Debate

North Korea Must Come Clean About Its Dirty Money

For the goal of complete North Korean denuclearization to be successful, it must have a financial component.

North Korea Must Come Clean About Its Dirty Money

U.S. President Donald Trump, right, reaches to shakes hands with North Korea leader Kim Jong-un at the Capella resort on Sentosa Island Tuesday, June 12, 2018 in Singapore.

Credit: AP Photo/Evan Vucci

With the June 12 summit between Donald Trump and Kim Jong Un having concluded with a joint statement establishing the mutual desire for the “denuclearization of the Korean peninsula,” attention now shifts to building the framework to make those words a reality. From the U.S. perspective, the statement contained few signposts for how North Korea would cease its weapons program. For any process to succeed, Kim must commit to coming clean about North Korea’s systemic and ongoing dirty money habits that have sustained its illicit nuclear program.  

For the U.S. administration’s goal of complete North Korean denuclearization to be successful, it must have a financial component. The destruction of test facilities, closure of reactors, and dismantling of missiles are critical stages of any disarmament agreement. Beyond these measures, any complete denuclearization process must include an additional step: Pyongyang must fully disclose the illicit financial networks it has used to raise money and procure materials for its weapons programs.

For decades, North Korea has operated sophisticated overseas networks of shell companies. It has scores of trusted agents to illegally finance and obtain the goods and technology through these fronts for its clandestine weapons of mass destruction program. Over many years Pyongyang has directed significant financial resources through the banking sectors of regional financial centers, like Hong Kong, Singapore, and Kuala Lumpur, as well as through Europe and the United States. It has disguised the acquisition of prohibited items by masking purchases as legitimate trade by the companies in its trusted network. United Nations Panel of Experts reports have repeatedly documented these proliferation finance practices, highlighting the dire implications for international peace and security.

Many national governments have spent significant resources trying to track, disrupt, and seize this illicit funding. They have applied regulatory and legal pressures on their financial institutions to hunt for North Korean money. They have also dedicated intelligence resources to tracking these companies, including intense surveillance of maritime traffic around North Korea’s territorial waters. To date, North Korea’s networks have been nimble, adaptable, and often very difficult for one bank (even a large, international one) or one country to detect on its own.

Even if North Korea commits to a disarmament and denuclearization agreement, if it doesn’t come clean about its illicit financial networks it will be able to continue clandestine procurement and circumvention. Any meaningful agreement should require the Kim regime to disclose how and where its networks have operated, including naming front and shell companies, as well as vessels it has used for illegal ship-to-ship transfers.

There is precedent for such a process in Libya’s disarmament. As a condition of sanctions relief and restoration of normal diplomatic relations, Libya made numerous and significant disclosures about its WMD capabilities. This included what materials (including radioactive materials) it held (those materials were eventually turned over to the international community), and the methods it used to obtain them. Libya transferred goods and documentation to the IAEA and the United States in significant quantities — planeloads at a time. It was through this process that, among other revelations, the public learned the true extent of the activities of the procurement network operated by Pakistani nuclear scientist Abdul Qadeer (AQ) Khan.

As with the Libya precedent, the IAEA would be well-placed to fulfill a similar role in inspections and verification for the supervision of any agreement with North Korea. The IAEA could also facilitate the transfer of documentation about the sources and networks of illegal funding. This would help inspectors trace back to the origin sources of the materials they have removed. Simultaneously, the Kim regime should make identical disclosures to South Korea and the United States as part of a nuclear agreement. U.S. and South Korean authorities could then furnish relevant information from that disclosure to financial sector entities in order to improve their resilience to current and future evasion and abuse by illicit actors.

Such disclosures would offer a wealth of information to international financial regulators and law enforcement agencies. It would uncover significant hidden networks, providing valuable information about the weak spots in the global financial crime regulatory regime. Even if the information is not up-to-date, data indicating how North Korea set up illicit financing networks in the past would be of great forensic value to investigators.

In particular, sharing common typologies of proliferation finance would greatly aid in the prevention of future efforts — by any country — to procure dangerous weapons through abuse of the global financial system. This is especially true given Pyongyang’s long-standing relationships with Syria and Iran, partnerships that have included the proliferation of sophisticated weapons technology.

To be sure, North Korea’s declarations likely would be incomplete, or merely duplicative of the information contained in UN reports or already known by foreign intelligence services. Pyongyang invested tremendous time and resources in building those networks, and it will likely seek to shield its agents from legal action. It’s possible, for example, that North Korea would repatriate them back to North Korea prior to disclosure of their identity. North Korea may be under intense diplomatic pressure not to reveal the full extent of its operations in jurisdictions like China. North Korea can only have been operating through that country if its officials intentionally looked the other way.  

Nevertheless, Pyongyang’s provision of any such information would be a meaningful confidence-building measure. It would lend credence to its stated desire to join the community of nations, help to ameliorate long-standing tensions with the United States, and contribute to reconciliation with South Korea. It would also be an appropriate building block toward the easing of international sanctions, since so much of North Korea’s illicit financing activity has included the brazen flouting of international and U.S. sanctions.  

If Kim wants North Korea to be recognized as a legitimate state, he needs to assure the international community that his abuses of the global financial system — the activities of his criminal financial enterprise that enable his destabilizing proliferation activities — are in the past. Disclosing his illicit financial networks would be an essential step for the irreversibility of North Korean denuclearization.  

Neil Bhatiya is the Research Associate for the Energy, Economics, and Security Program at the Center for a New American Security. Elizabeth Rosenberg is a Senior Fellow and Director of the Energy, Economics, and Security Program.