Three Key Takeaways from the Latest Panel of Experts Report on North Korea

Last month, the UN Security Council (UNSC) released the latest report by the Panel of Experts for North Korea sanctions. The report, which the Panel produces bi-annually, gives key updates on North Korea’s WMD programmes and its sanctions-evasion activities, as well as making recommendations for new designations. Consistent with previous findings, the report shows that North Korea continues to make improvements to its nuclear weapons and ballistic missile programmes, while funding these through overseas revenue-generating activities in contravention of international sanctions.

Here are three key takeaways on the report’s findings and implications for the future of the sanctions regime.

North Korea Continues to Pursue WMD, but the UNSC is Unlikely to Act

According to the Panel’s report, satellite imagery and evidence provided by member states showed that North Korea continued to make improvements to its nuclear and ballistic missile infrastructure. New construction activities, for example, were observed at the pilot nuclear fuel fabrication plant, as well as unspecified activities at a site that experts suspect is a clandestine nuclear enrichment facility. Moreover, the country continued to conduct illicit missile tests throughout 2021, including the ‘exhibition of several new missiles’, which the Panel assessed to be a demonstration of North Korea’s ‘high level of commitment to sustaining and developing its ballistic missile programme despite the country’s severe economic situation’.

North Korea also continued to illicitly procure export-controlled and dual-use goods and technologies for its nuclear and ballistic missile programmes. In one case, a Moscow-based North Korean operative – Mr O Yong Ho – was heavily involved in procuring Russian-made aramid fibre, stainless steel, bearings and other materials used directly in the production of liquid-propellant ballistic missiles. Mr O, who is presumed to be living in Moscow as an accredited diplomat, was recommended for designation.

The odds of the UNSC taking up the Panel’s designation recommendations, however, are slim. Recently, on 24 March, North Korea tested an intercontinental ballistic missile in violation of UNSC Resolutions. Leaders of the G7 were quick to condemn the launch as reckless, calling on all members to fully implement international sanctions and other restrictive measures. Despite these provocations, however, China’s UN Ambassador Zhang Jun stated that ‘no party should take any action that would lead to greater tensions’ – signalling that China would not support additional sanctions. Apparently failing to recognise the irony, Russia’s deputy ambassador to the UN claimed that any additional sanctions would ‘expose the people of North Korea to risks of inadmissible socio-economic and humanitarian turbulence’.

Implementation Efforts are Still Lacking, Enabling Sanctions Evasion

Consistent with its previous findings, the report describes how North Korea uses networks of front and shell companies to disguise its myriad revenue-generating activities overseas – from illicit labour networks to the theft of digital assets through hacking. The report is littered with examples of sanctions-evasion activities that exploit jurisdictions with weak financial monitoring and oversight – but most of these continue to be concentrated in China and Russia.

Last year’s ‘Pandora Papers’ leak – another in a now long and growing list – shined a light on how wealthy elites hide their cash behind companies with opaque ownership structures. It should come as no surprise that North Korean operatives use the same channels and infrastructure to disguise their identities – enabling access to otherwise restricted financial services. This was especially apparent in the report’s summary of the country’s illicit import of refined petroleum in breach of the 500,000-barrel cap. In each case, vessels’ ownership records, purchase orders and other pertinent records were all obscured behind layers of shell companies registered in secrecy jurisdictions ranging from the Seychelles and Samoa to China and Hong Kong.

While the Financial Action Task Force (FATF) – the international standard-setting body for countering financial crime – has emphasised the need for countries to ensure that their legal, regulatory and monitoring authorities have proper access to beneficial ownership information, many states continue to lag significantly behind in this regard.

A review of data collected during the FATF’s fourth round of mutual evaluations – the process by which member countries are graded on their implementation of the organisation’s anti-money laundering and counter-terrorist financing recommendations – shows that 65% of evaluated countries are deemed ‘compliant’ or ‘largely compliant’ with the requirement to ensure proper access to beneficial ownership records. While this figure seems high, it only tells part of the story. When broken down by income class, nearly 80% of high-income countries are largely compliant or compliant, while the same is true for only 15% of low-income countries.

North Korea Continues to See Cryptocurrency Exchanges as Low-Hanging Fruit

Since 2018, North Korea has seen cryptocurrencies as an opportunity to generate easy revenue for the cash-strapped regime, and according to the report, the country shows no sign of slowing its hacks against exchanges globally. In line with their previous attacks, North Korea’s cyber groups relied on phishing, code exploits, malware, and social engineering to steal nearly $400 million worth of cryptocurrency in 2021 – a marked increase from 2020.

Despite these persistent and often successful attacks, most states still lag behind when it comes to regulating and monitoring the abuse of cryptocurrencies. One issue is that states have been slow to bring cryptocurrencies and other types of digital assets under relevant anti-money laundering and terrorist financing regulations. But much of this is somewhat moot when it comes to North Korea – namely because while most regulations require exchanges and other virtual asset companies to monitor for suspicious activity, North Korea is concerned with targeting the companies themselves. This is like expecting anti-money laundering regulations to safeguard against bank-robbers.

What Needs to be Done?

Once again, the release of the UN report paints a stark picture of a country committed to pursuing WMD over the welfare of its own people, and an international system unable to effectively implement sanctions. Still worse, two permanent members of the UNSC – Russia and China – seem content with a ‘do-nothing’ approach, despite the grave risks that North Korea poses.

There have been no new designations since 2017, despite numerous recommendations and ample evidence provided by the Panel. The most recent report, for example, recommends one individual and nine vessels for designation. In light of Russia and China no longer supporting the sanctions regime – and in some cases actively working to undermine it – governments should make informed decisions about including Panel recommendations for designations in their own sanctions regimes or regulatory frameworks.

Finally, governments must continue to assess exposure to North Korea’s sanctions-evasion and proliferation financing activities. Doing so can help to inform appropriate and effective prevention and mitigation strategies – ultimately depriving North Korea of the revenue it needs to support its nuclear weapons and ballistic missile programmes.

The views expressed in this Commentary are the author’s, and do not represent those of RUSI or any other institution.

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