Successive rounds of progressively tougher UN sanctions—in language, at least—have not put an end to North Korean nuclear tests, nor—as reports by the UN Group of Experts attached to the UN Sanctions Committee make clear—have they ended illicit transfers of North Korea-related conventional weapons and goods and technologies that could be used in the manufacture of weapons of mass destruction (WMD).
One reason is that the sanctions have targeted North Korean companies and state institutions that are impervious to sanctions because they are not embedded in the global economy. However, fundamental changes in the nature and modus operandi of the traffickers, and the location of many of the key actors and activities outside North Korea’s borders have in fact opened up new possibilities for the effective targeting of sanctions.
Ten years ago this week, the findings of the Stockholm Process were presented to the UN Security Council. The Stockholm Process was the third in a series of initiatives exploring how to make targeted sanctions—sanctions that seek to penalize named individuals and entities rather than a whole country—‘smarter’.
The first two initiatives, the Interlaken and Bonn–Berlin processes, had developed new models for financial sanctions, arms embargoes, and travel and aviation-related sanctions. The Stockholm Process looked at how best to implement them. The recommendations that came out of it were aimed at, among other things, making targeted sanctions more flexible and responsive; maintaining broad international support for the sanctions; and minimizing the negative impacts on civilian populations.
In the intervening years, much has been learned and applied. However, sanctions evasion and embargo violation are dynamic activities. North Korea-related proliferation networks have also been learning and innovating.
The relevance of the Stockholm Process framework to the case of North Korea, with its desperately poor population and relatively small number of individuals involved in arms smuggling and proliferation, is clear.
North Korean trafficking networks: decentralized, outsourced and offshore
With sanctions drawing unwanted attention to North Korean companies and fleets, actors seeking to continue North Korea-related arms trafficking and proliferation activities have gone global. Taking their cue from drug trafficking networks, they use the tools of global trade to camouflage cash flows, commodity transfers and end use strategies also reminiscent of the tax avoidance and evasion methods of transnational corporations.
The result is that North Korea-linked proliferation activity is now firmly established beyond North Korea’s borders and sometimes beyond the borders of any regulated state, in what can be described as the offshore economy: companies operating in deregulated business or free-trade zones, ports and financial centres that have proved so conducive to legitimate forms of international trade. Shipments involve the outriders of globalization: offshore bank accounts, flag-of-convenience ships and passports, honorary consuls, free-trade zones and containerization.
This decentralization has inevitably involved more UN member states in acts of sanctions evasion. Shipments of North Korea-linked arms and proliferation-related goods have been seized in emerging Asian mega-ports, shipped unwittingly by some of the most modern container ships owned by the world’s most prestigious shipping lines, including the Asian subsidiaries of European companies. At the same time, citizens of those states most vocal in their concern about North Korean WMD proliferation have been identified as playing key roles in the logistics of these illicit transfers. These roles have included registering or managing ships; and acting as directors, secretaries or sponsors of front companies used in multi-layered company holding processes used to camouflage the true identity and nature of the suppliers or end-users of the trafficked goods.
The Stockholm Process bears directly on such commercial actors. They can be vital partners in implementing and monitoring sanctions. Equally, if they are knowingly involved in sanctions evasion, they can be designated as sanctions targets.
Exploiting the transportation–proliferation financing nexus
In all this there remain some vestiges of North Korean state involvement: businesses operated from embassies, the use of diplomatic passports and bulk cash transfers by trusted couriers. These interact with foreign-based or roaming North Korean intermediaries whose associations, experiences and language skills may be traced back to the pre-1989 era when North Korea enjoyed foreign or military-to-military relations with a range of single party, Marxist-orientated states.
The entities that make up these decentralized logistical networks are by nature highly adaptable, amorphous and resilient. However, sometimes they must interact with the legitimate companies that ship their goods and with the banks that hold or transfer their funds or convert their currencies. These can be the weakest points of their secretive operations.
The key point of departure to improve the targeting of sanctions—but an area that remains underexplored—is the nexus between transportation and proliferation financing. The shipping documentation that accompanies an illicit cargo may provide clear indications of the identity of logistics actors that were knowingly complicit in the process. From these beginnings, detailed fieldwork and forensic financial analysis may be able to identify the fiduciaries, bank accounts and related financial transactions, together with the silent partners, engaged in this systematic but clandestine trade.
Making targeted sanctions work
There are also past examples from UN sanctions and related regional and unilateral measures that have successfully targeted actors operating in the offshore economy. These include sanctions enacted under the international embargoes on the Democratic Republic of the Congo Liberia and Sierra Leone (which forced the convicted arms trafficker Viktor Bout to transfer his aircraft fleet to a variety of other operators and curtailed his air cargo business). Another example is the ban on providing insurance to the ships of the Islamic Republic of Iran Shipping Lines (IRISL), which has restricted the movement of an operator reportedly used in shipments of proliferation concern.
Some of these measures have proved controversial—for example, IRISL claims that it is a victim of collective punishment and has pursued a case through the European Court of Justice—in part because the designation of particular individuals and businesses as sanctions targets has not always been transparent, being based on sensitive intelligence. A trail of court-admissible evidence that begins with publicly available transportation documents and ends with bank accounts linked to certain individuals or companies could allay much of the doubt in the international community.
The best chance for success for this process is if all states concerned are willing to join such investigations and implement agreed sanctions that properly target the offshore actors and extraterritorial processes that enable sanctions evasion beyond North Korea’s borders. For this, an agreed set of principles, such as those put forward by the Stockholm Process, may provide a basis for future action.
ABOUT THE AUTHOR(S)
Hugh Griffiths was Head of the Countering Illicit Trafficking–Mechanism Assessment Project and was seconded to the United Nations Panel of Experts on sanctions to North Korea.
Revisiting the Stockholm Process
Successive rounds of progressively tougher UN sanctions—in language, at least—have not put an end to North Korean nuclear tests, nor—as reports by the UN Group of Experts attached to the UN Sanctions Committee make clear—have they ended illicit transfers of North Korea-related conventional weapons and goods and technologies that could be used in the manufacture of weapons of mass destruction (WMD).
One reason is that the sanctions have targeted North Korean companies and state institutions that are impervious to sanctions because they are not embedded in the global economy. However, fundamental changes in the nature and modus operandi of the traffickers, and the location of many of the key actors and activities outside North Korea’s borders have in fact opened up new possibilities for the effective targeting of sanctions.
Ten years ago this week, the findings of the Stockholm Process were presented to the UN Security Council. The Stockholm Process was the third in a series of initiatives exploring how to make targeted sanctions—sanctions that seek to penalize named individuals and entities rather than a whole country—‘smarter’.
The first two initiatives, the Interlaken and Bonn–Berlin processes, had developed new models for financial sanctions, arms embargoes, and travel and aviation-related sanctions. The Stockholm Process looked at how best to implement them. The recommendations that came out of it were aimed at, among other things, making targeted sanctions more flexible and responsive; maintaining broad international support for the sanctions; and minimizing the negative impacts on civilian populations.
In the intervening years, much has been learned and applied. However, sanctions evasion and embargo violation are dynamic activities. North Korea-related proliferation networks have also been learning and innovating.
The relevance of the Stockholm Process framework to the case of North Korea, with its desperately poor population and relatively small number of individuals involved in arms smuggling and proliferation, is clear.
North Korean trafficking networks: decentralized, outsourced and offshore
With sanctions drawing unwanted attention to North Korean companies and fleets, actors seeking to continue North Korea-related arms trafficking and proliferation activities have gone global. Taking their cue from drug trafficking networks, they use the tools of global trade to camouflage cash flows, commodity transfers and end use strategies also reminiscent of the tax avoidance and evasion methods of transnational corporations.
The result is that North Korea-linked proliferation activity is now firmly established beyond North Korea’s borders and sometimes beyond the borders of any regulated state, in what can be described as the offshore economy: companies operating in deregulated business or free-trade zones, ports and financial centres that have proved so conducive to legitimate forms of international trade. Shipments involve the outriders of globalization: offshore bank accounts, flag-of-convenience ships and passports, honorary consuls, free-trade zones and containerization.
This decentralization has inevitably involved more UN member states in acts of sanctions evasion. Shipments of North Korea-linked arms and proliferation-related goods have been seized in emerging Asian mega-ports, shipped unwittingly by some of the most modern container ships owned by the world’s most prestigious shipping lines, including the Asian subsidiaries of European companies. At the same time, citizens of those states most vocal in their concern about North Korean WMD proliferation have been identified as playing key roles in the logistics of these illicit transfers. These roles have included registering or managing ships; and acting as directors, secretaries or sponsors of front companies used in multi-layered company holding processes used to camouflage the true identity and nature of the suppliers or end-users of the trafficked goods.
The Stockholm Process bears directly on such commercial actors. They can be vital partners in implementing and monitoring sanctions. Equally, if they are knowingly involved in sanctions evasion, they can be designated as sanctions targets.
Exploiting the transportation–proliferation financing nexus
In all this there remain some vestiges of North Korean state involvement: businesses operated from embassies, the use of diplomatic passports and bulk cash transfers by trusted couriers. These interact with foreign-based or roaming North Korean intermediaries whose associations, experiences and language skills may be traced back to the pre-1989 era when North Korea enjoyed foreign or military-to-military relations with a range of single party, Marxist-orientated states.
The entities that make up these decentralized logistical networks are by nature highly adaptable, amorphous and resilient. However, sometimes they must interact with the legitimate companies that ship their goods and with the banks that hold or transfer their funds or convert their currencies. These can be the weakest points of their secretive operations.
The key point of departure to improve the targeting of sanctions—but an area that remains underexplored—is the nexus between transportation and proliferation financing. The shipping documentation that accompanies an illicit cargo may provide clear indications of the identity of logistics actors that were knowingly complicit in the process. From these beginnings, detailed fieldwork and forensic financial analysis may be able to identify the fiduciaries, bank accounts and related financial transactions, together with the silent partners, engaged in this systematic but clandestine trade.
Making targeted sanctions work
There are also past examples from UN sanctions and related regional and unilateral measures that have successfully targeted actors operating in the offshore economy. These include sanctions enacted under the international embargoes on the Democratic Republic of the Congo Liberia and Sierra Leone (which forced the convicted arms trafficker Viktor Bout to transfer his aircraft fleet to a variety of other operators and curtailed his air cargo business). Another example is the ban on providing insurance to the ships of the Islamic Republic of Iran Shipping Lines (IRISL), which has restricted the movement of an operator reportedly used in shipments of proliferation concern.
Some of these measures have proved controversial—for example, IRISL claims that it is a victim of collective punishment and has pursued a case through the European Court of Justice—in part because the designation of particular individuals and businesses as sanctions targets has not always been transparent, being based on sensitive intelligence. A trail of court-admissible evidence that begins with publicly available transportation documents and ends with bank accounts linked to certain individuals or companies could allay much of the doubt in the international community.
The best chance for success for this process is if all states concerned are willing to join such investigations and implement agreed sanctions that properly target the offshore actors and extraterritorial processes that enable sanctions evasion beyond North Korea’s borders. For this, an agreed set of principles, such as those put forward by the Stockholm Process, may provide a basis for future action.
ABOUT THE AUTHOR(S)