On June 1, the U.S. Treasury Department issued a ‘‘‘Notice of Finding‘ ‘‘‘ a necessary preliminary step to an official ruling ‘‘‘ designating North Korea as a jurisdiction of ‘‘‘primary laundering concern.‘ This designation (created by Section 311 of the USA Patriot Act) has long been viewed by the policy community as the ultimate financial weapon, at least within the boundaries of traditional sanctions and designations. The designation puts at risk access to the U.S. financial system ‘‘‘ including the clearing of U.S. dollar-denominated transactions ‘‘‘ for any financial institution doing business with North Korea. In practice, however, these designations also have a track record of causing even the non-targeted clients and partners of targeted financial institutions to flee, putting the viability of any targeted bank at significant risk.
This move is expected to affect primarily Chinese entities, as most other countries have abandoned their financial ties to North Korea. While this designation has been in the works for some time (with Congress having mandated review of such a decision in legislation passed in February), an array of recent provocations by North Korea (i.e., missile tests, hacking and cyber-theft revelations, nuclear weapons program developments, etc.) likely accelerated the timetable. A growing sense among policy-makers that the situation on the Korean peninsula is deteriorating and the risk of conflict increasing has also likely altered the risk calculus for taking more aggressive actions of this kind.
That said, the lack of public identification of which individual Chinese banks are active in North Korea and the imposition of a 60-day window before the rule goes into effect provides a window for diplomacy — and sanction dilution. Although the identity of Chinese banks active in North Korea is not available in the open source, IntelTrak has documented both China Development Bank and China Construction Bank having such ties at some point in the past.
Although not directly targeted by this measure, a number of Chinese state-owned enterprises have been documented working in North Korea by IntelTrak, including: China Railway Construction Corporation (CRCC), China Aerospace Sciences and Industry Corporation (CASIC), China Nonferrous Metal Mining Company (CNMC), China Iron and Steel Association (CISA), China Minmetals Corporation, the Chaungli Group and the China Northern Heavy Industries Group.