UN Panel of Experts Report on Sanctions, part 3 of 3

Stephan Haggard (PIIE) and Marcus Noland (PIIE)
May 28, 2011 7:45 AM

We have been blogging on the leaked UN Panel of Experts report at some length, both because of the interesting international politics it has generated and because it provides a great introduction to the political economy of illicit activities. One of the more interesting sections of the report in this regard deals with foreign direct investment. The drive for FDI is sometimes taken as a possible leading indicator of economic reform, a view of which we are increasingly skeptical. But the Panel report raises another important issue: that much FDI may be controlled by the military.

Earlier this year, Pyongyang established a State Development Bank to serve as the financial counterparty to foreign investments as well as the Korea Taepung International Investment Group to attract investment and finances to the State Development Bank. As the Panel notes, the National Defence Commission of the Democratic People’s Republic of Korea plays a central role in each institution. The report raises the question of the fungibility of income from foreign-invested projects in a very clear way:

“Because the Democratic People’s Republic of Korea is a highly centralized State-owned economy and its leadership has developed other sanctions evasion tools, the prospect of diversion of investment revenue for illicit ends is extremely likely.” Implication: virtually any investment—and certainly those going through these channels—is potentially contributing to the country’s weapons programs. Moreover, the report pulls no punches with respect to who the largest investors are: China and South Korea, the latter almost entirely through the Kaesong Industrial Complex.

An interesting feature of the 1874 sanctions is that they permit the “designation” of institutions and individuals involved in proscribed activity. Since 2009, eight entities and five individuals have been so designated and subject to travel ban and/or assets freeze. But the Panel report says that this is only a token and that many more companies and individuals are involved in these activities and should be targeted. Moreover, they name names, generating an interesting list of some of the key players in the military-industrial complex. Although some of these entities have been designated by the committee, and the US and Europeans have taken steps to designate others independently, the report suggests that more can be done on this front:

  • The Second Economic Committee of the National Defense Commission headed by Paek Se-bong plays a central role both in WMD programs and arms exports; it has already been designated on a bilateral basis by both the US and the European Union.
  • The Military Arms Production Department of the Korean Workers’ Party headed by Pak Do-chun, the successor of Jun Byung-ho (also designated by the US);
  • The General Bureau of Atomic Energy (headed by Ri Je-son), the Yongbyon Nuclear Research Centre (headed by Ri Sang-kun), and the new Uranium Enrichment Workshop are the core of the nuclear program; some of these entities and their leaders have been designated by the committee or by the US and Europeans;
  • The Second Academy of Natural Sciences is in charge of research and development, and missile-related exports and given the mechanical engineering and metallurgy requirements is probably implicated in a range of suspect activities;
  • The General Bureau of Surveillance of the Korean People’s Army is involved in production and sales of conventional arms which are also proscribed under 1874.
  • A host of companies have supported the illicit weapons trade, including those affiliated with the Namchongang Trading Corporation, the Korea Mining Development Trading Corporation (also known as KOMID and Changgwang Trading Corporation) and the Korea Tangun Trading Corporation. But the report notes that over the last year, Pyongyang has moved to create new entities or simply change the name of existing ones.
  • Diplomatic missions are also believed to be in engaged in such activities.

But the Panel goes well beyond this list by recommending that all Member States provide the committee with names of all suspect individuals. On May 24, the US imposed new sanctions on the (North) Korea Tangun Trading Corporation, accused of having "transferred to or acquired from North Korea, Iran, or Syria equipment and technology listed on multilateral export control lists (Australia Group, Chemical Weapons Convention, Missile Technology Control Regime, Nuclear Suppliers Group, Wassenaar Arrangement) or otherwise having the potential to make a material contribution to WMD or cruise or ballistic missile systems.”  Tangun had previously been listed in connection to missile proliferation activities; the new sanctions under the Iran, North Korea and Syria Nonproliferation Act will be effective for two years against Tangun, two Belarusian entities, three Chinese entities and one individual, five Iranian entities and one individual, two Syrian entities and one Venezuelan entity, according to the State DepartmentYonhap quotes Deputy Secretary of State Jim Steinberg to the effect that "These entities were sanctioned for the transfer to or acquisition from North Korea, Syria or Iran of goods, services or technologies controlled under the various export control regimes or otherwise have the potential to make a material contribution to the developments of WMD or cruise or ballistic missile systems"

Given the incredibly dense networks emerging across the Chinese border, an equivalent list would easily run into the thousands were the Chinese to comply. As we always say, don’t hold your breath.

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