“Harshest.” “Strongest.” “Toughest ever.” How many times have we heard such sanctions hyperbole before?
The new measures announced by the Trump administration on Friday are in fact significant. But in the sanctions enforcement game, “significant” suggests something more modest. The reasons have to do with the economics of sanctions evasion.
As sanctions tighten, the returns on doing risky business with North Korea actually go up. We can thus expect the same mixed report card on these sanctions as on the past ones. As North Korea faces new constraints, new evidence on evasion will also continue to surface.
The more important issue is not whether these sanctions will be the straw that breaks the camel’s back. Rather, the question is how China will respond to this and other initiatives that are lurking. Will Beijing cooperate in shutting down business with the new designated entities and seizing the ships in question if they enter Chinese ports?
Or will it prevaricate, as it did when the U.S. sought to raise the issue at the UN Security Council during the debate on UNSC 2397? And how might China respond to the Trump administration’s veiled threat of a “Phase Two” if these sanctions do not succeed, which could include steps to interdict ships suspected of sanctions violation?
The more important issue is not whether these sanctions will be the straw that breaks the camel’s back
And perhaps above all, if the sanctions do grant a new advantage to the U.S. and South Korea, how will that card be played?
THE FINE PRINT
So what are the Treasury measures precisely? As Secretary Mnuchin outlined at his press conference, the sanctions add 27 entities, 28 ships and one individual to the so-called Specially Designated Nationals (SDN) list. According to the treasury secretary, the list reflected U.S. intelligence on all entities and ships engaged in so-called “ship-to-ship” transfers, replete with pictures. Japan has also provided similar information and is stepping up patrols.
Entities on the SDN list are not only vulnerable to the direct freezing of assets—an unlikely outcome–but also the imposition of secondary sanctions against any firms engaged in illicit trade or financial transactions with them. The list of entities and ships contained the usual number of shape-shifting North Korean entities and DPRK flagged ships (for example, 16 of the 27 entities were North Korean and 19 of the 28 ships were DPRK-flagged vessels).
But the designated entities also included five Hong Kong entities, as well as those with addresses in Taiwan, Panama, Singapore and two in China itself.
Presumably, such entities are more vulnerable both to home government scrutiny and to the financial pressure such designations bring than the North Korean ones, unless their counterparties can also be identified. As with prior sanctions, however, Treasury is ultimately depending not on what the U.S. intelligence community knows, but what money center banks in the United States and elsewhere do in monitoring their vast clearing operations.
In the understated language of the announcement, “parties subject to U.S. and/or United Nations (UN) sanctions should be aware of these practices in order to implement appropriate controls to ensure compliance with their legal requirements. ”
Yet the success of these sanctions will also depend on what the Chinese government does, as Leo Byrne has pointed out here. Put differently, the sanctions are not self-enforcing. If China does not seek to punish those engaged in the trade, and the entities doing the business are not adequately internationalized to be vulnerable to U.S. secondary sanctions, the business will not only go forward but will become more lucrative.
The new designations were not the only U.S. action to get attention, however. The State Department and U.S. Coast Guard also issued a wide-ranging advisory alerting not only private firms but port managers as well. Shortly, new authorities will kick in that allow U.S Customs and Border Protection to identify entire ports that are not cooperative with the multilateral sanctions effort.
The advisory and these new measures, which have largely flown under the journalistic radar, could have a wider effect than the new designations themselves. The advisory will immediately engage not only port operators but national and local authorities that rely on trade with the U.S.
Lurking behind these measures has been the usual Trump administration uncertainty over whether a more substantial policy departure might be in the works. Most of the press in the U.S. appears to have given a military interpretation to the President’s remarks about a “Phase Two” of North Korea policy if sanctions fail, in effect a return to the “bloody nose” option.
But there is an economic equivalent to a pre-emptive strike. Reuters has broken the story that interdiction measures, undertaken with regional partners, could be next. Although the White House has been silent and Secretary Mnuchin danced around the issue, neither did he rule it out.
The slow, steady ratcheting of sanctions—imposed with significant Chinese assistance—is having an effect
From the perspective of U.S. sanctions enforcement, UNSC Resolution 2375 struck a frustrating compromise. The resolution “calls upon” member states to inspect vessels on the high seas, but with two significant loopholes: that they can do so only with the consent of the flag State; and if they have reasonable information—think “probable cause”—that the cargo is illicit.
Given that more and more of North Korea’s commercial trade is now sanctioned multilaterally, probable cause is less of a constraint. If the flag state does not consent to search on the high seas, then the flag state is called on to direct the vessel to a port where it can be searched.
This complex legal dance—while in clear conformity with international law in which the United States has a strong interest—can effectively limit searches. Tracking vessels believed to be engaged in illicit activity is one thing; interdicting them on the high seas against the stated wishes of the flag state would be quite another. When asked point blank whether U.S. policy might go in this direction, Secretary Mnuchin refused to rule it out.
Taking such steps would be crossing a Rubicon no less than undertaking a pre-emptive strike, and because of the likely Chinese response as much as the North Korean one. Beijing is unlikely to acquiesce, and it has a powerful trump card in simply turning a blind eye to further derogations.
Sanctions are an odd policy instrument: the purpose of imposing them is to subsequently lift them in order to secure a diplomatic objective. North Korea’s Olympic jaunt was interpreted as a public relations masterstroke. But the message carried by the North Korean delegation to the closing ceremonies suggests a quite different interpretation: that the slow, steady ratcheting of sanctions—imposed with significant Chinese assistance—is having an effect.
This tranche will no doubt add to the pressure. The question now turns to how the United States and South Korea exploit their advantage.
Edited by Oliver Hotham
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Featured Image: Treasury Department - 2012-09-20 by Tim Evanson on 2012-09-20 18:17:23