NKorea foiling sanctions with shell game
The rusting seaport called Kholmsk is one of the sleepiest harbors in Russia’s Far East, a place that sees more full moons than coal ships in a typical year. Yet for a few weeks late last summer, this tiny port was chockablock with vessels hauling outlawed North Korean coal.
At least four ships of different flags showed up in August and September to dump North Korean anthracite onto a pile near the harbor’s southern tip, maritime records show. Then, six other ships arrived to pick up coal from the same spot and deliver it to foreign markets. Between the voyages, the harbor was witness to a kind of magic trick: Illicit North Korean coal was transformed into Russian coal, which can be legally sold anywhere.
Some of it ended up in the most unexpected of places: South Korea and Japan, two of Pyongyang’s main rivals.
“They literally ‘laundered’ the coal,” said a Western diplomat, speaking on the condition of anonymity to describe new details from a confidential U.N. investigation of the incident. “It’s the same tactic criminals use to launder ill-gotten cash.”
It was hardly the first time that North Korea has used subterfuge to fool its adversaries and flout international trade restrictions. But independent analysts say the movement of coal through Russia’s Kholmsk port last year was remarkable, because of the timing – it came just as the U.N. Security Council imposed new sanctions on the sale of North Korean coal – and because of the ruse’s elaborate, multilayered deceptions.
To get around the ban, North Korea developed a complex scheme that depended on stealth, falsified documents and the heavily choreographed participation of officials and businesses in at least three countries, according to documents and records compiled by private investigators and a team of U.N. experts.
Ultimately, North Korea was able to sell the coal – a crucial export commodity that accounts for about 40 percent of the country’s foreign income – in an episode that experts say illustrates the limits of U.S. policies intended to force changes in Pyongyang’s bellicose behavior. Confronted with new obstacles to its vital commerce, North Korea consistently adopts new tactics, with the help of an ever-shifting array of front companies and partners eager to make a profit.
“It’s a shell game that constantly changes,” said David Thompson, a North Korea specialist and senior analyst at the Center for Advanced Defense Studies, a nonprofit organization in Washington that tracks illicit networks. In the case of the Kholmsk affair, he said, “you’re looking at adaptation taking place in real time.”
It is precisely these kinds of sanction-busting schemes that prompted the Trump administration to impose new economic sanctions last month on North Korea-related shipping. The measures announced by the Treasury Department specifically targeted dozens of shipping companies, individuals and vessels suspected of past involvement in practices such as transshipment, or the movement of illicit goods between vessels to conceal the identities of the original suppliers.
Ships registered in nine countries were blacklisted in a move that Treasury Secretary Steven Mnuchin said would hobble North Korean leader Kim Jong Un’s ability to buy and sell the commodities most essential to his country’s economy. “This will significantly hinder the Kim regime’s capacity to conduct evasive maritime activities that facilitate illicit coal and fuel transports, and erode its abilities to ship goods through international waters,” Mnuchin said.
But while such measures will make it harder for North Korea to conduct foreign trade in the short term, the effects will last only until Pyongyang and its business part- ners develop new methods for circumventing them, experts say. Despite decades of economic isolation, North Korea nearly always finds a way to get what it needs, because there are always companies willing to take the risk, said Andrea Berger, a London-based specialist in proliferation networks and export controls with the James Martin Center for Nonproliferation Studies in Monterey, California.
“We spend so much of our time trying to put obstacles in the way of North Korea, and in making the obstacles higher and wider,” Berger said, “but the North Koreans are simply very practiced at getting around whatever we put in their path.”
How North Korea managed to launder its coal in Russia – and then sell it to two of its biggest adversaries – is essentially a tale of two ships. The Togolese-flagged Yu Yuan and the Panamanian-flagged Sky Angel, both Chinese owned, were among two separate sets of cargo vessels that passed in and out of Kholmsk harbor in late summer and early fall of last year, carrying coal that at least partly originated in North Korean mines.
A chronology of the operation was pieced together by researchers from the Center for Advanced Defense Studies, using data supplied by Windward, a private company that analyzes ship-tracking data collected by satellites.