[Viewpoint] Financial retribution on the North

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[Viewpoint] Financial retribution on the North

The sight of shattered, burnt debris on Yeonpyeong Island following Tuesday’s surprise artillery attack by North Korea breaks our hearts in many ways. We are angry and dumbfounded by the act of violence - shelling of a populated area - committed against people of the same heritage.

We are disheartened and embittered that we have been repaid for our economic generosity and political tolerance toward North Korea over the past 10 years with hundreds of artillery shells.

It hasn’t even been a year since we bade farewell to the 46 young sailors of the Cheonan, which was sunk by a North Korean torpedo. North Koreans have been destructive in the past, but the Yeonpyeong attack was different from previous provocations. This time it directly and deliberately targeted an area inhabited by civilians.

The government and military officials are under fire for their passive response to the attack. Experts are digging for new ways to put pressure on the North amid few feasible options.

Under a range of international sanctions, the Pyongyang regime raises money through illicit means such as drug trafficking and counterfeiting. Counterfeit $100 U.S. bills printed and circulated by the North Korean regime have easily passed banks’ electronic detectors. The fake bills are sold to Southeast Asian crime organizations and profit piles up in the personal accounts of the country’s leader, Kim Jong-il.

When such money goes into a bank account, there is the additional crime of money laundering. Banks therefore must take stringent measures to sift out and block such funds from being channelled into their legal operations. But there are some banks that are implicit in these illegal activities, such as the Macao-based Banco Delta Asia.

The bank came into the spotlight after Washington accused it of involvement in North Korean money laundering and ordered American financial institutions to sever ties with it. In 2005, the U.S. Treasury Department discovered about 20 secret accounts owned by North Koreans amounting to $25 million. The accounts were so loosely supervised that some of them were in the names of dead people.

Washington blacklisted Banco Delta Asia as a laundering suspect, sparking a run at the bank. It finally gave in and froze all North Korean accounts. With this external source of funds cut off, Pyongyang began to panic. Kim Kye-gwan, then chief negotiator to the six-party denuclearization talks, later spoke of how effective the measure had been.

“Money is like blood. When the blood does not circulate, the heart stops,” he said.

There are many ways to penalize North Korea for its harmful, illegal actions, but financial sanctions on a cash-strapped state can be very effective.

Once a bank is blacklisted for a suspicious deal with North Korea or for money laundering for the state, depositors are very likely to take their money and go somewhere safer. If no banks trade with North Korea, it cannot bring home any money from its illicit overseas operations to fund its military and its nuclear campaign.

The Workers’ Party’s Room 39 is in charge of managing Kim Jong-il’s personal accounts. The organization has been caught with accounts at a FirstCaribbean International branch in the British Virgin Islands, a renowned tax haven. The U.S. Treasury Department has been hunting down some 200 secret North Korean accounts since the sinking of the Cheonan.

The government is deliberating on ways to toughen punitive actions against North Korea for its attack on Yeonpyeong Island, and one way should definitely be financial sanctions.

It should seek U.S. cooperation in expanding and strengthening financial sanctions and at the same time exchange information with other nations. Cooperation from the intergovernmental Financial Action Task Force on Money Laundering can be instrumental in seeking sanctioning measures.

We must first ransack North Korea’s scattered financial accounts and investigate its overseas assets to select those that can be frozen or choked off.

We must come up with more creative and diverse ways to restrain North Korea in order to send a message that this time is different.

*The writer is a professor of business administration at the University of Seoul.


By Yun Chang-hyun

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