Russian oil to DPRK, US & SK to work harder to cut off NK nuclear/missile funds; Iranian UAVs; Raisi to Latin America
Prohibited Transactions for the week of 12 June 2023 (#8)
North Korea
Updated figures from the UN 1718 Committee reveal that Russia exported approximately 67,000 barrels of oil to the DPRK between December 2022 and April 2023.
Some experts believe the oil is payment for North Korean weapons used in Russia’s invasion of Ukraine.
Under UN resolutions, the DPRK is allowed to import up to 500,000 barrels of oil per year. According to the 1718 Committee data, between January and April 2023, Pyongyang imported approximately 99,473 barrels, all from the PRC or Russia. //Just as a comparison, below are the numbers reported to the 1718 Committee in pre-COVID times, for the same four-month period. In both years, Russia and the PRC are the only two listed suppliers of petroleum products to the DPRK.
January-April 2018 — 191,821 barrels
January-April 2019 — 106,602 barrels
//Of course, those figures only represent legal imports to the DPRK. In the 2020 UN Panel of Experts Report (S/2020/151), a US government provided “non-paper” (in Annex 1 of the report) estimated between 1.4 and 3.8 million barrels were illicitly delivered to North Korea between 1 Jan and 31 Oct 2019.
According to North Korean media, Kim Jong-un sent a message to Russian president Vladimir Putin, praising the friendship between their two nations as a “precious strategic asset,” and affirmed Kim’s “willingness to strive for closer strategic cooperation between the DPRK and Russia, holding hands firmly with the Russian president.” Washington is concerned Pyongyang will continue to send weapons to Moscow.
North Korea’s Lazarus Group appears to be using a sanctioned Russia-based virtual currency exchange, Garantex, to launder stolen funds.
Pyongyang made over USD3 billion in five years of digital heists.
The US and South Korea agreed to “strengthen our efforts to more definitely cut off funds to North Korea's nuclear and missile development programs.” //Without more details, hard to say what this actually means, and what sort of impact it will have on DPRK illicit activities. Are Washington and Seoul talking about increased covert actions to stop North Korean fundraising? More sanctions? More coordination with banks and the private sector to identify DPRK funds?
South Korea’s military raised a 50-foot (15 meter) sunken section of the rocket North Korea recently launched, and will be conducting a joint probe with the US into the wreckage. Chinese vessels also appear to be engaged in salvage operations in the area. //Beijing would have an interest in retrieving the debris, to prevent other countries from identifying any potential Chinese involvement in the building of the rocket or satellite. This topic is discussed a bit further in the Iran section.
The US sanctioned two North Koreans based in China for being involved in the procurement of equipment and materials used in the DPRK’s ballistic missile program.
One of the sanctioned individuals is also accused of purchasing electronic equipment for Iranian customers.
In 2020, North Korea’s embassy in China coordinated the smuggling of consumer goods into the DPRK for high-ranking government officials, despite COVID-19 border lockdowns. //Another reminder of the central role North Korean diplomatic outposts play in smuggling goods into the country.
Seoul filed a lawsuit against Pyongyang for approximately KRW44.7 billion (USD35 million) for the latter’s destruction of the inter-Korean liaison office in the North Korean border city of Kaesong in 2020.
Sanctions against the DPRK have not reached their stated political goal of ending Pyongyang’s nuclear weapons program, but they are indisputably hurting the country’s economy. //This journal article — part of a whole issue discussing “An age of sanctions” — is from a policy perspective, but useful for compliance staff at banks and fintechs when thinking about the broader unintended consequences of sanctions against Pyongyang. How would a financial institution’s understanding of these dynamics — such as the risk premium North Korea must pay to induce Chinese, Taiwanese, and Singaporean trading companies to smuggle oil into the country, or how China can pay below market rates for North Korean coal — play into risk mitigation strategies (if at all)?
North Korea is estimated to have around 30 nuclear weapons, and enough fissile material for between 50 to 70 nuclear devices. Secret interviews conducted with people in North Korea indicate that starvation could be approaching levels last seen during the 1990s famine. //Those interviews are a stark reminder that doing what we can to stop North Korean illicit activities isn’t just about their nukes, but about the people who have suffered under the regime and are now facing another humanitarian disaster.
Iran
A UK-based organization which tracks global weapons supply chains identified a Chinese-made component in an Iranian unmanned aerial vehicle (UAV) used by Russian forces in attacks on Ukraine in April 2023. The component – a voltage converter – appears to have been made in China in January 2023. //This shows the speed of which Chinese parts can be acquired by Iran, integrated into a UAV, and then shipped to Russia for use in their invasion. The UK researchers are not yet publicly identifying the Chinese company which supplied the part until their formal tracing process is complete. The part is a “commonly available DC-DC converter,” and even if there was a transaction tied to the sale of the part from China to Iran, it seems unlikely to be subject to the policy controls international banks have regarding defense industries. Though the US has sanctioned Iranian drone procurement networks based in China, it’s unclear if this Chinese company would face sanctions in the future, since the part appears to be generic and could have been unwittingly sold to a procurement network.
The US government released a guidance document to private industry which provides background about Iran’s drone program, what components they are seeking, the export control and sanctions issues involved, some red flags, and a reminder about penalties and enforcement actions.
The US is accusing Iran of helping Russia build a drone manufacturing plant near Moscow.
Iranian president Ebrahim Raisi completed a three-nation, five day trip to Latin America, visiting Venezuela, Nicaragua and Cuba. Raisi signed 19 agreements with Venezuela — worth USD3.6 billion, and advocated setting up Iranian technology office in the country to boost economic cooperation — as well as a number of agreements with Nicaragua and Cuba.
Iran’s oil minister said Tehran exported more than 2.8 million refinery installation parts to Venezuela.
After being given a sanctions waiver from the US, Iraq is transferring approximately USD2.76 billion to Iran, to pay off debts owed for Iranian gas and electricity exports. The funds will be transferred through the Commercial Bank of Iraq and used for the expenses of Iranian religious pilgrims, as well as foodstuffs imported by Iran. //As of April 2023, Iraq owes Iran approximately USD11 billion for gas imports.
The sanctions waiver from the US could be part of a broader attempt by Washington and Tehran to try to ease tensions via an informal agreement. //This could also be tied to the previous talk (as discussed in issue #6) of Seoul releasing the USD7 billion of Iranian money held in South Korean banks.
Approximately USD18 billion worth of goods were exported from Iranian free trade zones (FTZ) and special economic zones (SEZ) between March 2022 and March 2023. An official also stated that Iran has negotiated to set up joint FTZ’s and SEZ’s with 18 neighboring and non-neighboring countries – such as China and Uzbekistan – which is “an important model in nullifying the sanctions.”