Targeted sanctions are an increasingly attractive method for the U.S. to accomplish its foreign policy goals. More agile and customizable to different cases across varying degrees of illicit activity and different geographic and geopolitical contexts, the approach has many advocates in Washington and has rapidly expanded in application over the last two decades.
However, such sanctions are not a perfect solution, and can have disruptive and obstructive effects that go far beyond the stated parameters. Such considerations are no doubt understood by Pyongyang, as leader Kim Jong-un seems sincere about reforming his economy.
The breadth, scope, and sequencing of sanctions roll-back in exchange for relinquishing parts or all of the North’s nuclear assets was the reason for the collapse of the Hanoi summit and represent a primary obstacle to furthering inter-Korean cooperation projects.
The following piece seeks to examine one such instance where what might be seen at first glance as laser-targeted constrictions of an individual and his revenue streams ultimately having wide-ranging economic, political, and social impact. It helps better understand, perhaps, why sequential rollback of these sanctions was apparently an inarguable position for Kim in Hanoi, as well as why such a rescission may not have the immediate positive effects Pyongyang seems to believe they will.
The U.S. Treasury’s designation of John Zabaneh on the “Kingpin” blacklist had far-reaching economic, political, and societal spillover effects
In 2012, Belizean nationals John Zabaneh, his nephew, Dion Zabaneh, and a close associate, Daniel Moreno were added to the Specially Designated Nationals And Blocked Persons List (SDN) by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC).
The designations, enabled by the Kingpin Act, were made due to the “prominent role that [Zabaneh] and his organization play in narcotics trafficking in Central America, particularly Belize, as well as their role in the drug trafficking operations of Joaquin “El Chapo” Guzman and the Mexico-based Sinaloa Cartel (itself designated under the Kingpin Act in 2009).”
In addition, five companies under the ownership or control of John Zabaneh or Daniel Moreno were added to the SDN list: Mayan King Limited, a banana grower and exporter, Mid-South Investments Limited, a contracting business, Crown Paradise Enterprises Limited, a resort and marina management firm, Belize Chemicals Limited, a pharmaceutical company, and lastly D’s Supermarket Company Limited, a grocery store the Treasury says belongs exclusively to Moreno.
According to the department, interactions with persons or entities on the SDN list, under most circumstances, are “prohibited if they involve transferring, paying, exporting, withdrawing, or otherwise dealing in the property or interests in property.”
Violators face substantial legal and financial penalties, effectively scaring off – or at the very least, raising the stakes to what most rational actors would consider an unacceptable degree – the blacklisted person or entity’s commercial, monetary, and social relationships.
John Zabaneh fiercely denied the allegations, and although he and his nephew were eventually removed from the OFAC list in 2017, along with four of the aforementioned companies (Moreno and his grocery store remain sanctioned), the episode presents a snapshot of the economic, political, and social implications that targeted sanctions of private individuals and entities can have on the broader economy and society, including North Korea.
Zabaneh is a businessperson with extensive reach across several sectors of the Belizean economy, as demonstrated by the diverse nature of businesses named in the Treasury list. In particular, his banana cultivation and export business, Mayan King Limited, was perhaps the most impactful.
Belize is a small, upper-middle income country, with a per-capita income of $4,971, according to the World Bank. Nevertheless, the poverty rate hovers at around 40 percent, and the Central American country’s economy is less than dynamic and heavily reliant on exports.
Reuters reported in 2016 that a whole 20 percent of these exports were bananas, and that Zabaneh’s blacklisting “had a marked impact on the country’s overall banana exports”. After the official OFAC designation Zabaneh, along with Mayan King, relinquished management of the banana farms to a firm called Meridian Enterprises, which continued to export the bananas to a single international buyer.
After Zabaneh suggested he was still connected to the banana operation through family in 2015, the buyer ceased buying bananas from the farm, leading to a 42 percent drop in outbound shipments of Belizean bananas in the first quarter of 2016 and an overall two percent drop in overall output for the Belizean economy in the same time frame. Abetted by natural disasters, annual banana exports fell 28.5 from 2015 to 2016, according to the Belize Statistical Institute.
North Korea is the extreme end result of a country with few options and truncated economic flexibility
Though North Korea is not so comparable with Belize in numbers – a recent Bank of Korea estimate pegged North Korea’s GNI per capita at just $1,315, and the country has much higher poverty rates – they are both somewhat similar in their lack of diversity in economic exports and the concentration of wealth among a small portion of the population.
Sanctions against North Korea are particularly robust. The OFAC database shows 125 individuals, most of them North Koreans themselves, and 148 entities (primarily banks and shipping companies) on the SDN list related to North Korea as of June 12. Moreover, the U.S.’ Countering America’s Adversaries Through Sanctions Act and other recently-enacted legislation further distinguishes the extraordinary (and well-deserved) punitive nature of trade and economic restrictions on North Korean decisionmakers.
However, as the Zabanah case demonstrates, the effects of sanctions can trickle down from the top. And in North Korea, the limitations of targeted sanctions are shifted onto the people in the form of chronic malnourishment, an unmatched low quality of life, and very little upward mobility. In fact, North Korea is far too willing to sacrifice its people to enable a life of luxury for its elite, with experts pointing out that no economic sacrifice is too big to ensure that the North’s nuclear program remains in place and that the haves and the have-nots remain as they are in the country.
Thankfully for the North Korean people, the idiosyncratic nature of the Kim Jong Un economy may actually prevent the full redistribution of consequence below the most influential in the regime.
As Peter Ward has documented extensively for NK Pro, a tiered classification system divides North Korea’s economy, with the state monopolizing “strategic” industries such as mining, munitions, infrastructure, and overseas trade – sectors that heavily populate the SDN individual and entity list.
Sectors with relatively less state involvement – retail, textiles, low-end manufacturing and services – are increasingly defined by decentralized market activity that gives it better insulation against geopolitical developments (not to mention the off-the-books transactions that are an increasing part of people’s everyday lives). In other words, targeted sanctions have proliferated less in the areas of the North Korean economy that the general public engages with the most.
That may be why it appears that the North Koreans have been weathering the storm thus far. One scholar put it as maintaining a “veneer of relative prosperity”. Nonetheless, international sanctions are clearly having some impact on the people, particularly in non-urban areas. And despite the difficulties of comparing North Korea to any other state, demonstrable downstream impacts of sanctions in other parts of the world suggest similar phenomenon must be occurring in some shape or form.
Such sanctions are not a perfect solution, and can have disruptive and obstructive effects that go far beyond the stated parameters
The Zabaneh case demonstrates the U.S.’s increasing preference for non-kinetic solutions to foreign policy problems. The individual and/or entity-specific controls administered by OFAC are seen as a way to further mitigate spillover risk, as broader embargos or boycotts (Cuba, Iran, North Korea, etc.) are believed to have a stunting effect on national populations.
Nonetheless, blacklisting just one individual connected with an operation that matters so much to a particular country’s economy, particularly an institutionally fragile and relatively impoverished nation-state, may only serve to generate greater instability.
Such instability may in fact enable or incentivize the very activities targeted sanctions are designed to prevent. For example, it is estimated that some 90 percent of cocaine consumed in the United States makes its way through Central America, and, according to the Los Angeles Times, “every nation in the region is on the U.S. list of major drug transit or major illicit drug producing countries.”
Some Belizeans, faced with job loss and pessimistic outlooks caused by the sudden contraction in the economy brought on by the sanctioning of a single individual, may see greater appeal in illicit activities.
North Korea is the extreme end result of a country with few options and truncated economic flexibility. It has resorted to illicit activities as a workaround to sanctions for years. A non-exhaustive list includes illicit ship-to-ship transfers that breach UN-imposed oil caps, smuggling goods in and out of the country, counterfeiting and other financial crimes, surreptitiously built statues in Africa, and drug trafficking (especially crystal meth).
In a more normal state, such as Belize, such a development would siphon resources into anti-crime campaigns and rules enforcement, depriving other sectors of the state much-needed financial and human capital. In North Korea, such illicit activities are run by the state.
A principal function of the SDN list is to influence the behavior of those outside US jurisdiction through a series of coercive steps or penalties for those on the list and anyone seeking to engage in a commercial or financial transaction with them.
The U.S. dollar’s position as the standard global currency empowers the Treasury Department with a natural enforcement mechanism it can take advantage of with or without the support of other states. Financial institutions, both domestic and abroad, don’t want to be affiliated with blacklisted companies and people, nor do private firms or most individuals.
Of course, such abilities are aided by changes in the international system that dilute its traditional state-centric character. However, as the Zabaneh case shows, there are risks to such developments.
Because OFAC compliance produces are “not well defined” and individually applied on a case by case basis, “specific parties or organizations are blacklisted arguably without any direct connection to any particular state or geography whatsoever”.
This ‘slipperiness’ of OFAC application and execution procedures has kept would-be investors at bay in Belize and other Latin American states with top-heavy economies, and figures to be a primary hurdle (among many) that Kim Jong-un will have to overcome in his apparently genuine desire to attract inward cash flows to help grow the economy.
The Treasury faces relatively few repercussions in its decisions to apply OFAC blacklist designations or rescind them
For example, though Zabanah was removed from the sanctions list in 2017, the sole international buyer of bananas from Meridian Enterprise – the firm that took over management of Zabaneh’s banana farms after he was blacklisted – was, understandably, spooked by the situation. This had tremendous consequences for Belize’s economy, society, and political decision makers.
And there is unlikely to be any exception made for Pyongyang. The Treasury faces relatively few repercussions in its decisions to apply OFAC blacklist designations or rescind them. Indeed, as others have pointed out, OFAC remains opaque about its enforcement actions, and many compliance officers the world over struggle to accurately identify whether a particular action is enough to invite OFAC penalties.
The U.S. Treasury’s designation of John Zabaneh on the “Kingpin” blacklist had far-reaching economic, political, and societal spillover effects that continue to reverberate for many in Belize. The economy noticeably contracted when his business was shuttered, thousands lost their jobs, and decision-makers had to respond accordingly.
The case is an educational opportunity for any interested in examining the diverse toolset the United States has to pursue its geopolitical goals via targeted sanctions, while also contextualizing the effects of Washington’s decisions and how they are executed.
If and when sanctions are rolled-back (perhaps as the result of a ‘big deal’ advocated by Washington), it will be hard for North Korea to overcome years of institutional sanctions that are becoming more normalized by the day.
Edited by James Fretwell and Oliver Hotham
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Featured Image: Belize by Suzanne Schroeter on 2013-07-26 12:56:32