NK munitions factories supplying Russia; Seoul sanctions; CryptoRial has arrived; Russian gas to Iran
Prohibited Transactions for the week of 24 June 2024 (#53)
This image was created in Microsoft Copilot Designer on 28 June 2024 using the prompt “Iranian shadow banking network, abstract drawing.”
//Hi everyone, thanks for reading! I will be taking a publishing break next week. The next issue of Prohibited Transactions will come out on 12 July 2024.
North Korea
North Korea has at least 20 munitions factories likely operating at full capacity to supply ammunition to Russia. This allows Kim Jong-un to enhance the country’s production capacity and improve their own weapons systems, while also increasing revenue for the DPRK’s nuclear programs. Four policy recommendations to make sanctions more effective against North Korea’s illicit arms shipments to Russia include:
Not just focusing on Russia as the receiver of the munitions, but identifying and shutting down the supply chains and export corridors of electronic components from Western countries that have made their way into the North Korean missiles. //As previously noted in Issue #38, an examination of a North Korean ballistic missile used by Russia in Ukraine identified 290 unique components sourced by 26 companies based in the US, Europe and Asia. Though, the difficulty is that many of these components can be easily purchased and surreptitiously shipped to the DPRK, as they are are commercially available and sold off the shelf.
Better understanding the supply routes of munitions from North Korea to Russia in order to disrupt them.
Move quicker to sanction the DPRK’s munitions factories and the people associated with the munitions industry.
Continue the work of the now defunct UN Panel of Experts (PoE) to investigate, monitor and restrain the North’s munitions industry, perhaps via a new mechanism set up by the US, South Korea, and Japan. //The risk for international financial institutions isn’t in directly banking a North Korean munitions factory, but in providing financial services to subsidiaries or front companies conducting transactions on behalf of said weapons manufacturer.
According to covert reporting from inside North Korea, North Korean workers prefer factory work involving electronics, as opposed to hair products. The former pays more and typically involves simpler tasks. However, Chinese customs authorities are wary of allowing North Korean-made electronics into the PRC, making it harder for DPRK factories to find contract work.
//More commentary on the treaty signed by the DPRK and Russia, as well as views on the PRC’s reaction, and what the US sees as Beijing’s waning influence on its neighbors. Also, a good overview about Russia’s evolving position on sanctions against the North.
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South Korea imposed sanctions on four Russian vessels, eight North Koreans, and five entities based in Russia and the DPRK. The sanctions are targeting North Korea’s missile development program, as well as illicit trade between Pyongyang and Moscow.
According to customs data, the Russian-made Aurus limousine gifted to Kim Jong-un likely contained components that were originally sourced from South Korea.
Starting in July, Russia will resume direct passenger rail service with the DPRK.
Iran
Iran’s oil minister stated that Tehran exports oil to 15 countries, and made USD65 billion in revenue from oil, gas, and petrochemicals between March 2023 and March 2024. The minister also dismissed the idea that lax enforcement of sanctions by the US is what has facilitated Iran’s oil exports, stating that 400 sanctions have been imposed against Iran’s oil industry during the Biden administration.
In announcing sanctions against an Iranian shadow banking network which moved millions on behalf of Iran’s Ministry of Defense and Armed Forces Logistics (MODAFL) and the Islamic Revolutionary Guard Corps (IRGC), a US official did state “We have sanctioned hundreds of targets involved in Iran’s illicit oil and petrochemical-related activity since President Biden took office…” //For the White House, the desire to impose stronger US sanctions against Iranian (and Russian) illicit oil networks is counterbalanced by the need to ensure gas prices remain low for US consumers.
The US State Department sanctioned three entities and 11 vessels for their roles in Iran’s illicit oil trade.
According to Russian media, Moscow sent coal for the first time to India via the International North-South Transport Corridor (INSTC). //The coal would have passed through the Iranian port of Bandar Abbas.
The Iranian National Gas Company (NIGC) and Russia’s Gazprom signed a memorandum of understanding which will result in Russian gas being transferred to Iran. The actual terms of the agreement were not revealed. //Russia needs new customers for its gas as Europe is no longer a viable market.
Iran has rolled out the pilot launch of the CryptoRial, Tehran’s central bank digital currency (CBDC) on Kish Island. It will first be used for retail transactions. //Of course it’s not the same as your average digital currency, and it will take a while to see if Iran’s CBDC will play any sort of meaningful role in the country’s economy, or in its illicit activities.
The issue of Iran’s acceptance of FATF recommendations came up as a topic in Iran’s presidential election, with one hopeful revealing that another candidate prevented Iran’s acceptance of two key conventions in 2016.
As noted in the “High-Risk Jurisdictions subject to a Call for Action” report from the FATF Plenary in Singapore this week, Iran has yet to enact the Palermo and Terrorist Financing Conventions in line with FATF Standards, and is subject to countermeasures. //This has been a longstanding issue, and considering the state of Iran’s economy, it’s not too shocking that it would come up during the presidential debates.
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The Islamic Development Bank is offering Iran a EUR700 million (USD750 million) credit line, following Tehran’s payment of previously owed funds.
A Singaporean official stated that they are ready to improve bilateral ties, as well as cooperate more on a regional and international levels, with Iran.
Iranian customs reports that 6.6 metric tons of gold entered the country between March and June of this year.
The Central Bank of Iran (CBI) stated that talks have begun with Bahraini banking officials over funds frozen in Bahrain-based Iranian banks. //As noted in Issue #33, this is likely related to Future Bank.
A former head of Iran’s Chamber of Commerce said that sanctions cost the country over USD1.2 trillion between 2011 and 2023. It’s unclear if the amount is from an official source or just a loose estimation.