The most recent UN Panel of Experts (PoE) report on DPRK sanctions enforcement noted North Korea’s evolving evasion mechanisms in the maritime sector, with Pyongyang now reportedly to be employing multiple techniques to circumvent restrictions on oil imports and coal exports.
The outgoing Panel coordinator Hugh Griffiths, too, recently emphasized the importance of tracking the DPRK’s maritime illicit activity, as it underpins many of North Korea’s sanctions evasion practices and illegal trade.
And just last week, the British and Japanese governments released new evidence of North Korean vessels engaging in illicit ship-to-ship transfers at sea — highlighting the fact that beyond the ongoing diplomatic detente lies a complex web of DPRK-linked organizations dedicated to helping Pyongyang flout sanctions.
In an interview with NK News, Neil Watts — who worked as the Panel’s maritime expert from 2013 to 2018 — details how North Korea’s sanctions evasion practices have developed, the challenges they represent, and how member states can combat the DPRK’s sophisticated and well-oiled sanctions-busting mechanisms.
This interview has been lightly edited and condensed for clarity and readability
NK News: How did North Korean sanctions evasion techniques and methodologies change during your five-year tenure there at the Panel?
Neil Watts: They started off slowly by simple manipulation of the AIS [automatic identification system] and then added things such as the phenomena of registry-hopping. As these things became known and people started watching, they started moving to other techniques. They’ve settled on ship-to-ship transfers, which is the most prevalent activity right now, and combined that with extensive falsification of documents.
Previously, it was just sections of documents that were falsified, so some information that was falsified, but now, they are falsifying entire documents – bills of lading, manifests, certificates of origin.
The degree of sophistication in terms of falsification of documentation has increased. They’ve moved on from registry-hopping to false registration documents in registries that were not previously open – registries like Fiji and so on. They also read the Panel’s reports and they also have been adapting and evolving and changing their tactics.
NK News: How could someone set up a fake registry complete with its own website?
Neil Watts: What happens is a lot of small nations, they subcontract out control of the registry thinking that it’s just administrative process. But in fact when you accept vessels into your registry, you are actually giving them a passport, in other words, they become a member of your country. And I don’t think that that’s fully understood by these small registries.
They were fully taken advantage of when these subcontractors were attracted by the money of all these vessels being added. But Fiji is a closed registry for only Fiji vessels, and because they weren’t monitoring it, it just ballooned to 70 plus vessels that should not have been in the registry. And then you’ve got cases like the Maldives where people were falsely portraying themselves as a company that was managing the registry, when in fact, there was no such a registry. So this time they were not even aware that they had a registry.
“They’ve settled on ship-to-ship transfers, which is the most prevalent activity right now”
NK News: These companies were creating completely fake documentation?
Neil Watts: Yes. It was some individual through who based himself in a couple of countries, I think he was from India, that set up these fake registries.
NK News: He wasn’t specifically North Korea-linked, he was an opportunist?
Neil Watts: Yes. And you also get opportunists, whom I call sanctions profiteers, who take advantage of loopholes, who take advantage of opportunities that they see to make money, not because they are assisting North Korea of course, but invariably North Korean actors get wind of this and then they participate.
NK News: What do you think are the major new challenges faced by your successors in the PoE and enforcement bodies?
Neil Watts: Their challenges will be determining the identity of vessels. A lot of vessels are falsifying their identity, like false names, false AIS transmissions, painting over distinctive features, et cetera, to hide what their identity is when they are caught or photographed doing ship-to-ship transfers.
Some vessels are small and they never get an IMO number because they move between domestic ports of countries and so it makes them difficult to identify. Because in order to designate, you need to know the identity of the vessel, first of all, and second of all, the companies that are behind the vessel.
But without the identities, it makes it very difficult. The proliferation now of completely false documents also makes it very difficult to trace the origin or destination of cargo as well. So, that makes the investigation even more difficult.
All of this means that a lot more cooperation is required from the various member states involved because typically when it involves a ship, it involves multiple jurisdictions because the vessel could be flagged in Country X, it could be owned by a company in Country Y, it could be operated by Company Z, and so on.
So they will be crossing multiple jurisdictions, but the receiver of the cargo could be the fifth country, so you’ve got this multi-jurisdiction problem, which means that a lot more cooperation and information sharing is required.
And the matching of vessels becomes even more important because by tracking the vessels’ movements you’re more likely to come across the true identity of the vessel because it would likely have undergone a Port State Control inspection in one port during the previous voyages, et cetera, and in that way, try to find the vessel and track down its identity.
NK News: Do you think the sanctions campaign is still at this maximum pressure level we hear about in the public sphere, or do you think it was ever at maximum pressure?
Neil Watts: I think, relative to previous periods, it was closer to what’s called maximum pressure. But I think during periods when, especially when there are talks between Kim Jong Un and other leaders, such as the President of China, or the President of the U.S., during those periods of time, a lot of countries do not report, or suppress information, or hold on to the information, so as not to be spoilers in the process.
Because everyone wants to give peace and negotiation a chance. So what happens is when you have spikes of activity, you also have lows of non-reporting.
So reports on illicit activity involving vessels is a direct correlation in terms of what is happening globally in terms of initiatives to come to a negotiated pathway forward. There’s no doubt about that.
NK News: How would you characterize the Chinese or Russian participation in reporting to the Panel of Experts?
Neil Watts: Russia and China don’t typically report, specific incidences, unless there’s one that’s been broadly publicized. What normally happens is they respond to Panel inquiries, and they respond to Panel letters in terms of requests for information. The degree of response received depends on many factors, such as the size of the company because it can be affected if it’s a very big company, and there could be a total lack of information if it’s a very small company.
So the response is always uneven in that respect, but they do respond to inquiries. Many would always like to mention Russia and China, but if you look at the latest OFAC notification, you’ll see there is a lot of vessels flagged in Singapore, Togo, Sierra Leone. So many always want to characterize China and Russia but there is a lot of countries involved.
“Everyone wants to give peace and negotiation a chance”
NK News: But even though the OFAC advisory mentions ships flagged in those jurisdictions, their owners and managers won’t be in those jurisdictions, they’ll often be in China.
Neil Watts: This is the issue that I mentioned earlier about multi-jurisdiction. And it’s done deliberately like that. It’s not only done by North Korea, but it’s being done in the shipping industry because it’s beneficial to them to be as vague as possible.
In most cases, it’s either to avoid tax or to avoid liability in the event of something going wrong. But you’ll see that the challenge has always been multi-jurisdictional, particularly so in the last four or five years, I would say.
NK News: Do you think North Korea’s activities in certain parts of the world go underreported or under-investigated?
Neil Watts: Yes, absolutely. Not necessary because of complicity from member states or them turning a blind eye, it’s simply because they’re not aware of these transactions in the midst of many other transactions.
But to my mind there is no doubt that countries that have had exchange trade links before, even though the country, in compliance with the resolutions, clamps down and makes local legislation with regards to compliance to sanctions, those old links persist.
They persist through front companies, and they persist through complicit companies. In my mind, the difference between a front company and a complicit company is, a front company is a false company established by a DPRK entity whereas a complicit company is a company that has a DPRK individual embedded.
And this is fairly common too – to have an individual embedded and they continue the trade. Very often it’s normal trade that is permissible, but now and again they will slip in an illicit cargo when necessary. So it makes it very hard to detect an illicit cargo because it’s interwoven with legal cargo.
NK News: Where should investigators look for this kind of activity?
Neil Watts: They should look at North Korea’s trade statistics and have a look at countries where they have had their most trade because that’s where the exchange of trade links will be. In the past, it used to usually be where they had a diplomatic presence but that’s not necessarily the rule anymore because a lot of their diplomatic presence was reduced or shut down.
But what happens is diplomats do travel to do business. So I think there should be vigilance with regards to DPRK travelers, in particular, ones with diplomatic passports because if they are found to be carrying out illegal activities they will not be jailed, they will simply be deported.
So the risk is less for the diplomatic passport. But we’ve seen as in the case of Southern Africa, the embassy is in Pretoria, South Africa, but all their illicit dealings are outside of the country – in neighboring countries.
NK News: Do you think that cases like the Chong Chon Gang and the Jie Shun are still going on, though are better hidden now and harder to detect?
Neil Watts: Cases like that were information-driven in terms of the capture. What happens now is there are containers with illicit goods, we’ve seen quite a few interdicted by countries such as UAE, on route to Eritrea, et cetera. So it’s still happening all the time, it’s just harder now because they’ve distributed the routes the containers take, so they don’t put them all on one ship.
They are distributed so the risk becomes less because it becomes part of normal route checking at these container ports that transship literally thousands of containers. Many are just hiding in plain sight but the problem is you don’t know what’s in a container because it has come through a second, third or fourth company.
NK News: And the containers are carried by vessels which have no ties to North Korea’s networks?
Neil Watts: Yes. So one would look at containers that are mixed. You get containers that are filled by one company, the entire container, and then you get containers that the available space is divided up. So there may be an avenue there that once again a complicit company could say all the goods that they are selling – one company’s goods are contained in one container, so if they are complicit they will add some North Korean goods to their container.
NK News: Specifically, with the Jie Shun case, it seemed like there were two different government ministries tripping over each other. What happened there?
Neil Watts: In most countries, there is often a disconnect between different government departments, usually between the foreign affairs and industry or the military. We know that Egypt has a large military industry and factories that report to the military, I think there are nine or 12 factories.
In any event, the shipment came via China, who is also a manufacturer of RPGs, so it could easily have been construed not to have been North Korean. But in that case, what happened is there was a broker who was in China, pretended to be a Chinese individual. So he arranged for the RPGs to come from North Korea into China, and then from China exported to Egypt.
NK News: Do you think the Chinese authorities are abiding by paragraph 18 of Resolution 2270 on the inspection of cargo coming to and from North Korea?
Neil Watts: If you look at the resolution, the resolution doesn’t say ‘all cargo’. It says ‘cargo going to or from North Korea’. So that gives countries the opportunity not to stop every single container suspected of coming out of North Korea but they do a risk management approach in terms of what they’re going to stop and open.
NK News: But won’t the risk with North Korean cargo be extremely high?
Neil Watts: Of course. But these are very busy ports. So it’s not necessarily a case of just turning a blind eye, it’s a case of not disrupting port operations. It’s a much more practical thing. So they’ll do a risk management approach saying, for example, I don’t know the exact figure or how the risk management profiles are structured, but let’s say there are 100 containers, they will do a sample search of let’s say four or even ten. And if they find nothing, it’s allowed to go through.
They won’t search three containers and say, “ah, we found nothing, let’s search another three.” They will settle on a number and search that number. And that applies to all cargos in terms of random searching.
“You must remember that it’s a lot of money involved”
NK News: But the percentage of searched containers would typically be a small, even in North Korea’s case?
Neil Watts: Yeah, even in North Korea’s case. Because you must remember that if there were 100 containers in a particular shipment – or let’s just say fifty – they won’t all be grouped and bunched together.
They would be dispersed and you’d have to move all other containers to get to your container. Or you’d have to specifically redirect containers to the search area and then return them. So all of that creates a delay that is not conducive to the fast turnover of containers.
NK News: What do you think is happening with South Korea’s UN sanctions enforcement at the moment?
Neil Watts: I don’t think they’ve let up. And in fact, they recently impounded another ship.
I think South Korea is really trying to go through rapprochement in terms of trying to make headway with North Korea on a number of other issues that they have common interests in – family issues, cultural issues, all of those things – trying to make headway to bring North Korea to the table.
They are in a very difficult position because North Korea just wants to talk to the U.S. without South Korea present, so they are in a difficult position.
But I don’t believe that they are flaking on sanctions. They’ve prosecuted some people for complex sanctions evasion involving coal and iron, and people are being prosecuted for sanctions violations. But they’re just being quiet about it.
NK News: The one Seoul recently arrested was the P-Pioneer, which was a South Korean-flagged oil tanker. Do you think that these South Korean companies are being deceived and aren’t performing the necessary due diligence?
Neil Watts: You must remember that it’s a lot of money involved. And ship-to-ship transfers have been happening way before sanctions happened, the reason being that it’s nobody’s jurisdiction, so you don’t have to go through having to pay taxes and state monitoring. That’s why they do it on the high seas. It’s profitable, apart from filling other vessels at sea, which means they don’t have to go into a port to bunker and fishing vessels don’t have to return to port to refuel.
It was common practice, it’s just that North Korea has seized upon it as a very opportunistic way of getting what they need without having to worry about the jurisdiction of countries and the customs data that doesn’t get reported. So there are about four or five absolute benefits for doing ship-to-ship transfers. There obviously are risks in terms of ships being found to be involved in ship-to-ship transfers being designated or seized, but it’s very lucrative and very attractive.
What happens is a lot of ships fill up the fuel without a particular customer in mind, and brokers all over the world, or in that region, will make an arrangement for a transfer at short notice, as long as there’s money in the bank account, because the money is always prepared beforehand because the value of the shipment is so high.
Money is made available through bank entities or various bank credits, put into the account beforehand that they draw from. So as long as the money is there, the brokers do a deal. And the brokers, because it’s in the high seas and nobody’s jurisdiction, they are under no obligation to do due diligence. Right now, the risk is on the shoulders of ship owners. They are not always aware of who is getting the transfer fee.
NK News: North Korea must be paying a premium on this oil, do you have an estimate of how much that would be, as a percentage?
Neil Watts: No. In the interviews that I have had with people, they weren’t able to tell. But the spot market price of oil or petroleum products varies quite a bit. And sometimes they just want to get rid of the cargo because they’ve been sitting on it for a while without a buyer. So it’s all about timing, and not necessarily always about a very attractive price.
“It’s very difficult to know how much fuel is actually being stockpiled”
But there is no doubt that they pay a bit more, especially for 500 parts per million because then it doesn’t have to be refined further. They can often get 5000 parts per million, but it just needs to be refined further to get to 500 parts per million, because that’s the kind of fuel used by trucks and tanks and armored vehicles, et cetera. That’s the most commonly used diesel.
NK News: Where do you stand on Washington’s estimates of the amounts of fuel transferred to North Korean ships at sea?
Neil Watts: They gave a range of between 30 percent and 80 percent or so? I think the answer is somewhere in between. I think the amount of fuel taken on is often determined by time because they want to do this as quickly as possible.
But if you look at the price of fuel in Pyongyang, there haven’t been any significant spikes. So one can deduce from that, that they’re receiving the fuel that they need. I think there is also a fair degree of stockpiling of fuel to tide over the times when they can’t get as much fuel, like let’s say, there’s been bad weather for a period of time and you haven’t been able to do ship-to-ship transfers, the stockpiling tides them over that period.
So it’s very difficult to know how much fuel is actually being stockpiled.
NK News: Given the premium or the fact that people want to offload it, should we surmise that most of this is happening in the private sector or is there some state involvement?
Neil Watts: I personally doubt that there is state involvement. There may be inducements to specific shipments during periods let’s say when there are talks, but there is no proof of that. But there is a possibility that there are inducements in terms of some fuel being made available.
I think it’s mostly profiteering, given the value of these cargoes – it’s sometimes in millions of dollars – it’s too difficult to pass up especially in a highly competitive environment where there are a lot of ships doing these offshore ship-to-ship transfers.
And of course, it’s difficult to monitor because it never gets included in trade statistics. One of the reasons why ship-to-ship transfers was one of the key sanctions additions was because there’s absolutely no visibility in terms of how much is being transferred and what is being transferred in ship-to-ship transfers.
So that’s why it’s one of the few measures that’s actually been clear that it’s prohibited because of the lack of monitoring and lack of data that emanates from those kinds of transfers.
NK News: In the latest PoE report it mentions how the case of the Yuk Tung is the most sophisticated case of vessel identity fraud we’ve seen. Do you think that we’re going to see more of that?
Neil Watts: I think it’s likely it will happen again. You must remember that since the previous economic slump in about 2011 or so, it created a glut in the market of ships because a lot of companies had orders on their books for new ships expecting the global economy to grow at the rate that it was growing and then suddenly there was a slump.
The global slump created a surplus of vessels in the market because companies already had new ships ordered and they still had these old ships on their hands which they couldn’t sell.
So there was suddenly a lot of secondhand ships available. And I think that that’s still the situation. Therefore, that kind of thing is likely to be more prevalent. But one of the biggest problems involving ship-to-ship transfers right now is that nobody, except for South Korea, is taking action against these ships. So a lot of ships that are designated are continuing to do ship-to-ship transfers with impunity.
NK News: How do the vessels that have been deregistered and have no flags continue to move around international waters and ports?
Neil Watts: What happens is that they fake a flag or they used their old documents because the documents were originally valid and they are original. But because time elapsed after they were deregistered, port authorities aren’t necessarily aware that the vessel is no longer part of that flag.
NK News: Should they not have a blacklist?
Neil Watts: It’s not really a blacklist, it’s verification. Prior to entry, every ship sends the port an arrival notification. And I think what happens is they aren’t doing their due diligence in terms of is this vessel still under that flag.
They are more concerned about what cargo the vessel has. A port state control inspection is actually more geared to safety and cargo. But safety is the major aspect in terms of whether the vessel will be detained or not. It depends on the number of safety violations or what is not carried.
NK News: North Korea imports fuel and exports coal, do you think there are any differences between the fuel and the coal smuggling ecosystems in terms of how they’re embedded in global supply chains?
Neil Watts: Yes, I think there are two completely separate ecosystems. Coal has to be landed in a port somewhere. And the due diligence there is about the certificates of origin, whereas oil and petroleum products are going to Nampo or another North Korean port where no due diligence is required.
So with the coal, theoretically, there should be greater monitoring, there should be greater vigilance with regards to that particular aspect because the coal has got to be landed somewhere, and received somewhere. And it should go to that particular country’s trade statistics in terms of being reported. It’s got to be checked by customs, whereas the fuel is not.
NK News: Even when the fuel is exported, no one is checking the destinations?
Neil Watts: Yes. Because what happens with the fuel is the tanker will fill up somewhere – in some cases, it’s in South Korea, some cases in Taiwan – the tanker will fill up and then put a false destination. In the case of the vessels that were found to be doing transshipment that filled up in South Korea, they put Taichung in Taiwan as the destination for that fuel but the fuel never gets there.
So they just put in an arbitrary destination because that particular field has to be filled in when you leave. So according to the export data, all that is being exported to Taiwan, when in fact it never gets there, in that particular example. That was the Lighthouse Winmore and the Billions No.18. They all put the destination as Taichung.
“South Korea seems to be the only country that’s taken action in terms of impounding ships”
NK Pro: How do we enhance and monitor sanctions implementation within the ship chartering community when people are contracting privately, to have sufficient incentives to conduct enhanced due diligence or any due diligence before signing a charter agreement?
Neil Watts: So normally with chartering, unless it’s a bareback charter and you supply the crew, normally the crew goes with a ship. So the owner’s got his man who is the ship’s captain and they should be sending daily reports to the owner. In there, the ship’s captain should be saying where he’s going, and he should be saying, “today I’m loading coal … today I’m going to do X”. So in that way, the owner monitors what his ship is doing. Because at the end of the day if something happens to the ship, the owner actually carries the risk of any action taken against the ship, not the charterer.
NK News: If that’s not happening, do we assume that the captain or the owner is complicit?
Neil Watts: Well, that’s a challenge for the Panel, to determine whether the owner is complicit, or whether the owner is turning a blind eye, or the owner simply doesn’t know. The challenge is determining that, in terms of the culpability of the owner. Actually, in many cases, the owner is not fully in the picture. And that is the type of culture we need to change.
We also need to change the fact that these repeat offenders are continually plying the high seas and continually offending. Some action needs to be taken. Right now, South Korea seems to be the only country that’s taken action in terms of impounding ships. They don’t call it ‘seize’, they call it ‘impounding’. And in those cases, they’re not actually applying UN implementation of the resolution, but their own law.
NK News: So we need to see more of that from China and Russia and the Southeast Asian countries?
Neil Watts: It’s Asian countries in general because if the ship’s flag is Singapore — and flags all over the world, Sierra Leone, Togo — action needs to be taken. But there’s always a reluctance to take action because countries don’t want to be saddled with the problem of having a ship on their hands.
NK News: The “Mu Du Bong” problem,” then, when Mexico seized a sanctioned North Korean ship, and they didn’t know what to do with it?
Neil Watts: The “Mu Du Bong problem”, yeah. Because you’ve got issues of the crew, you’ve got issues of cargo, you’ve got issues of cost, you’ve got issues of maintenance. Because if you seize an asset you’re actually obliged to maintain that asset in the same condition that you seized it in, so that, theoretically, when the day comes to return that asset it’s in the same shape as what it was when you seized it. In South Korea the ships are anchored they’re not on the berth, but in some countries, that’s not always an option.
“I think it’s a matter of national will”
And besides, the ship could become a navigational hazard because when a ship is anchored it’s got to have some people on board to make sure it doesn’t sink where it is. So it’s a problem that countries would prefer to avoid having.
And that is a big reason why a lot of countries aren’t seizing ships – they don’t want to be saddled with that problem. But if one wants to increase that pressure that you referred to, ships have got to be seized because it’s the only way to signal that the ongoing evasion and violation of sanctions has got to stop.
NK News: What about interdictions at sea?
Neil Watts: The sanctions provide for interdiction on the high seas, and, theoretically speaking, if a ship is not registered with a particular country or has a false flag, that ship is stateless, so you can take whatever action that you deem fit under your own laws against that vessel, even if it’s on the high seas.
But the resolutions do allow for interdiction on the high seas with the permission of the flag state, so if it is flagged, you can also do it.
But they’re not doing it for the same reason that you know once you’ve found that ship, what are you going to do then? You’ve got to take it somewhere.
I think it’s a matter of national will by countries. It would require a bit of will to do that. And right now the indications are that no country is willing to do that.
Edited by Oliver Hotham