American diplomats should be proud of the new sanctions on North Korea that the United Nations Security Council passed last week. In response to a nuclear test in January and missile launch in February, the Council, at the United States’ urging, agreed to a ban on North Korean imports of jet fuel and to mandate inspections of all cargo coming into or out of North Korea. These are the toughest sanctions the North has ever faced.
But before celebrating the beginning of the end of North Korea’s nuclear and missile programs, it is worth remembering the recent history: Since 2006, the Council has passed five major sanctions resolutions. In 2013, the United Nations adopted sanctions that were, at the time, the toughest ever imposed on North Korea. And yet the nuclear tests and missile launches continue.
What accounts for this? Some people argue that North Korea’s leaders are not just intransigent but irrational. (We believe that is an inaccurate characterization.) Others say the problem is that individual governments are left responsible for enforcing sanctions. (They have a point: A United Nations panel found last month that many governments have failed to implement sanctions that are already on the books.) And some policy makers blame China for blocking even more stringent sanctions that could bring North Korea to heel. (It’s true that the government in Beijing fears that too much sanctioning could cause a North Korean collapse, leaving a nuclear-armed failed state on China’s border.)
But there’s another reason that North Korea, in spite of years of sanctions, has proceeded with its weapons programs: The government has found sophisticated and effective ways to evade sanctions thanks to what we call North Korea, Inc., a cadre of elite state-owned trading companies that keep the flow of cash and supplies steady.
Over the last three years, we have conducted more than 40 interviews with defectors who worked for these trading companies. We looked at North Korea’s sanctions evasion as a business case study — rather than the work of a rogue state — and documented the pathways, partners and practices North Korea uses to procure materials for its banned weapons programs.
North Korea, Inc. has evolved. Before 2000, the North focused on procuring machine parts for its nuclear weapons program. These were obtained in cross-border trade with private Chinese firms, often involving Chinese citizens of Korean ethnicity. North Koreans sold coal and iron ore to China and used the cash to buy illicit goods. After 2000, North Koreans increasingly set up shop inside China’s commercial hubs, including Hong Kong. They contracted with larger and more capable Chinese partners and moved from importing parts to procuring systems.
It turns out that sanctions have actually improved North Korea’s ability to procure components for its nuclear and missile programs. That might sound counterintuitive, but it’s a pretty straightforward business calculation: As the United States and its allies imposed sanctions, the risk of doing business with North Korea increased. North Korea adapted by moving more of its operations onto Chinese territory and paying higher fees to its private Chinese business partners. These higher fees, in turn, attracted more sophisticated Chinese middlemen. The net result: North Korea’s capabilities improved.
Last week’s sanctions resolution notes that North Korea “frequently uses front companies, shell companies, joint ventures and complex, opaque ownership structures for the purpose of violating” sanctions resolutions. And yet the only thing the resolution does about this problem is single out half a dozen North Korea-based companies for censure. Unfortunately, the North Koreans can create companies faster than the United Nations can try to punish them. And in any case, the key to stopping North Korea’s weapons program is stopping the private Chinese firms that help import illicit goods.
North Korea, Inc. must be dismantled completely. This will require hard work, and the United States and China, especially, must cooperate. China already recognizes that reducing corruption is in its national interest; the United States should realize that this is an opportunity on the North Korea issue and help China focus part of its anti-corruption campaign on companies doing business with North Korea. For example, Washington could offer to return corrupt Chinese officials who are hiding in the United States if they are found to work with North Korea.
But it’s not enough to go after the bad guys. The United States should help nurture the small but growing culture of corporate compliance in China and elsewhere in Asia by providing assistance and incentives, such as giving preferential treatment to companies that refrain from illicit business with North Korea, Inc. Technology could help encourage compliance, too: Digital transaction records are easier to trace; open-access databases of trade records help regulators and others keep track of which companies are abiding by sanctions and which aren’t.
Ultimately, stopping North Korea’s dangerous nuclear program can be done only with diplomacy. That’s painstaking work and far more difficult than slapping on another round of sanctions. But in the meantime, the United States and its partners need to pay closer attention to North Korea, Inc. In the face of new sanctions, the North will adapt. The rest of the world needs to make sure that we actually undermine — not improve — North Korea’s procurement abilities. If we don’t, the next nuclear and missile tests may come sooner rather than later.
Jim Walsh is a research associate at M.I.T.’s Security Studies Program. John Park is a faculty affiliate with the Project on Managing the Atom at the Harvard Kennedy School of Government.