Exclusive: Sanctions delay North Korea's atom bomb work, U.N. report says

By Louis Charbonneau and Michelle Nichols

UNITED NATIONS (Reuters) - Increasingly tough financial sanctions, an arms embargo and other international restrictions on trade with North Korea have significantly delayed expansion of Pyongyang's illicit nuclear arms program, according to a confidential report by a U.N. panel of experts seen by Reuters on Tuesday.

"While the imposition of sanctions has not halted the development of nuclear and ballistic missile programs, it has in all likelihood considerably delayed (North Korea's) timetable and, through the imposition of financial sanctions and the bans on the trade in weapons, has choked off significant funding which would have been channeled into its prohibited activities," the 52-page report said.

In the report to the U.N. Security Council's North Korea sanctions committee, the panel also recommended sanctioning three North Korean entities and 12 individuals. It will be up to the 15-nation council whether or not it follows the recommendations.

The three entities the panel said should be blacklisted are the newly created Ministry of Atomic Energy Industry, the Munitions Industry Department of the Central Committee of the Korean Workers Party (KWP), and the State Space Development Bureau.

The individuals the panel wants sanctioned include the atomic energy industry minister, once he is nominated, and four senior officials at the KWP Munitions Industry Department.

It also recommends the blacklisting of one national from Kazakhstan, Aleksandr Viktorovich Zykov, and two from Ukraine, Iurii Lunov and Igor Karev-Popov, for their involvement in North Korea-related arms deals.

"The DPRK (North Korea) has continued to defy the international community in a series of actions which have heightened concern about its intentions," it said.

The panel listed North Korea's February nuclear test and its rocket launches as examples of violations that have increased international concerns about Pyongyang. It was North Korea's third nuclear test since 2006.

Pyongyang is under U.N., U.S., European Union and other sanctions, including a U.N. ban on all arms exports, due to its nuclear weapons program.

IMPORT-EXPORT

Among potential violations the panel listed were the seizure by a U.N. member state of aluminum alloys suspected to be nuclear-related in August 2012 and the seizure of missile-related items bound for Syria in May 2012.

Previous breaches included shipments of arms-related material to Syria in November 2010 and rocket fuses for Iran in 2008, the panel report said.

"The DPRK has continued its efforts to import and export items relevant to missile and nuclear programs and arms," it said. "There was no major change in either the number or nature of the incidents investigated by the panel over the reporting period."

The panel said countries should be on the lookout for North Korean attempts to procure the following key items for Pyongyang's nuclear program - maraging steel, frequency changers, high-strength aluminum alloy, fibrous or filiamentary materials, filament winding machines, ring magnets, semi-hard magnetic alloys in thin strip form and other items.

U.N. diplomats said that China, North Korea's principal ally and trading partner, continues to play a key role in enabling Pyongyang to skirt sanctions, though this is not discussed explicitly in the panel's report.

Beijing has vowed to push for full implementation of the latest round of U.N. sanctions adopted by the council in March, though it remains unclear how much China was keeping that promise.

Recently Bank of China Ltd shut the account of North Korea's main foreign exchange bank, the state-run Foreign Trade Bank, which was hit with U.S. sanctions in March after Washington accused it of helping finance Pyongyang's nuclear weapons program.

That closure was the first significant, publicly announced step taken by a Chinese firm to curb dealings with North Korea.

TARGETING BANKS

The U.N. financial restrictions are working, the panel said.

"The panel is highly confident that financial measures of the resolutions in general are being effectively implemented by major banks," the experts wrote.

"It has concerns, however, about the ability of banks in states with less effective regulators and those unable to afford effective compliance to detect and prevent illicit DPRK transfers," said the report, citing a case involving the Bank of Congo in the Republic of Congo.

It said the Bank of Congo processed a wire transfer linked with an attempted arms shipment in 2009 to an account in the name of a diplomat at North Korea's embassy in Beijing, but Banque de France refused to accept the transfer.

"This case illustrates how the DPRK makes use of its diplomatic officials in the conduct of prohibited activities ... and in the using bank accounts to shield illicit fund transfers from bank's due diligence procedures," the experts said.

The report also said a diplomat at the North Korean embassy in the Republic of Congo has been actively involved in negotiating the contracts for the arms shipments.

The panel said that since May 2012 Japan has reported nine cases of suspected violations of the ban involving luxury goods including alcohol, tobacco, electronic items, automobiles and cosmetics.

The Security Council sanctions resolution adopted in March drew attention to North Korean bulk cash deliveries, an issue the expert panel also touched on in its report. [ID:nL1N0BZ6V1] U.N. envoys say such transfers are often carried out by North Korean diplomatic personnel.

The panel report referred to North Korea's "trade-based money-laundering via front companies and agents to pay for illicit procurements and to transfer proceeds of sales of weapons and WMD-related items."

"It (North Korea) uses company formation agents to establish firms off-shore in locales where laws make it difficult or impossible to determine beneficial ownership," the panel said. "It may often conduct its banking under a similar name in a different country."

The panel also said North Korea continues to violate the Security Council ban on luxury goods.

"The DPRK circumvented sanctions using ... false shipping and customs declarations and the use of intermediaries to make payments either through hand carrying or wire transfers. In at least two instances the end users were falsely declared as a diplomatic mission in Pyongyang," it said.

It said the panel had also requested information from China on six earlier luxury goods cases. "China's customs officials told the panel that goods covered by the panel's 2012 report were not considered luxury goods," the experts wrote.

(Reporting by Louis Charbonneau and Michelle Nichols. Editing by Christopher Wilson and Xavier Briand)

View the original article here

Exclusive: Aid groups to suffer if EU sanctions North Korean bank

By Megha Rajagopalan

BEIJING (Reuters) - European aid groups operating in North Korea might have to hand-carry cash into Pyongyang or stop work altogether if Washington convinces the European Union to sanction the reclusive country's main foreign exchange bank, aid workers said.

Germany and France had already expressed concern about the possible impact on aid groups as well as European embassies in Pyongyang should the EU sanction the Foreign Trade Bank, separate sources said. Many foreign entities with offices in North Korea use the bank.

Washington announced sanctions in March, saying the bank helped fund Pyongyang's banned nuclear program. Japan followed suit last week while Australia is expected to do the same. [ID:nL3N0CH0VZ] The U.S. measures prohibit any transactions between U.S. entities or individuals and the Foreign Trade Bank.

Embassies, non-governmental organizations and U.N. agencies such as the World Food Programme use the Foreign Trade Bank. It is the last major institution in North Korea for legal international transactions and Pyongyang specifically required NGOs to use it, aid workers said.

"You can't operate without the bank," said Katharina Zellweger, who headed the Swiss Agency for Development and Cooperation in Pyongyang from 2006-2011. "Except if you carry in suitcases of cash. But I don't think that is the right way to go."

NO EU PLAN ... YET

No firm EU proposal to sanction the bank has so far been put forward, diplomats in Brussels said, although they did not rule out that it could be added to the EU sanctions list against North Korea at some point.

A U.S. State Department official told reporters in Brussels on March 26 that Washington hoped the EU looked "hard" at imposing sanctions. The intention was not to hurt NGOs that did legitimate work, the official added.

"We will work through any concerns that arise related to purchases of humanitarian goods, but it is critically important that we isolate FTB for its facilitation of proliferation activities," an official from the U.S. Treasury Department told Reuters last week.

NGOS TAKE CONCERNS TO EU DIPLOMATS

About six European NGOs have offices in North Korea. Their work focuses largely on humanitarian aid and agricultural development projects. American NGOs work in North Korea but none have a permanent office in the country.

Countries with embassies in Pyongyang include Britain, Germany, Sweden, Poland, the Czech Republic, Romania and Bulgaria. France has a cultural affairs office in Pyongyang but it is not a diplomatic mission. Washington has no diplomatic ties with North Korea.

European NGOs in North Korea said they had told EU diplomats the Foreign Trade Bank was vital to their work. Two sources with knowledge of those talks said France and Germany expressed concern during meetings in Brussels about the impact of sanctions on aid groups and embassies should the EU adopt them. French and German aid organizations have offices in Pyongyang.

Romania's Foreign Ministry said its embassy in Pyongyang depended on the bank to pay for utilities and other services and would struggle to operate if it was sanctioned. Bulgaria said its mission would not be affected. Other European countries declined to make on-the-record comments.

An EU official in Brussels said the adverse impact on NGOs, embassies and other organizations would need to be considered if measures were taken against the Foreign Trade Bank.

Emilia Casella, a spokeswoman for the World Food Programme in Rome, said the agency used the bank to receive and make payments and expected it would continue to do so. The United Nations Development Programme (UNDP), which has an office in Pyongyang, declined to comment.

Even if the EU took no action or gave an exemption to certain organizations, non-U.S. banks sending money to the Foreign Trade Bank will have noted Washington's sanctions.

Indeed, experts have said the U.S. move against the bank was designed to make foreign banks that do business in the United States think twice about dealing with the bank, much the same way banks have become wary about having ties with financial institutions in sanctions-hit Iran.

If entities in Pyongyang had to use the Foreign Trade Bank, they would end up spending a lot of time seeking clarity or an exemption to avoid hassle from the U.S. Treasury and their homebase bank, said George Lopez, a former U.N. North Korea sanctions monitor, now at the University of Notre Dame.

"Usually the latter (the homebase bank) is the group most nervous and difficult because its own reputational status is on the line," Lopez said.

OBSCURE BANK

Little is known about the Foreign Trade Bank, whose assets and investments are a state secret. It is also unclear where it has branches. Visitors to North Korea said its headquarters is a stately Soviet-style building near Kim Il Sung Square in central Pyongyang.

Washington announced sanctions on the bank just days after fresh U.N. sanctions were imposed on North Korea for its February 12 nuclear test, the country's third. The U.N. sanctions tighten financial curbs on North Korea, including the illicit transfer of bulk cash, and crack down on its attempts to ship and receive banned cargo.

"If the EU extends sanctions to the Foreign Trade Bank, as the U.S. has done, then like all other embassies, U.N. organizations and NGOs in North Korea we too will have problems to implement our humanitarian projects here," said Bettina Beuttner, spokeswoman for the German NGO Welthungerhilfe, which has a base in Pyongyang. "If this happens, we do not yet know how we will be able to work."

A representative from another NGO in Pyongyang, who declined to be identified because of the sensitivity of the matter, said if it became impossible to send money to North Korea the organization would have to freeze its programs.

Washington has targeted North Korea's limited financial links to the global community before. In 2005, some $25 million in North Korean money was frozen in a U.S. Treasury-inspired raid on Macau-based Banco Delta Asia (BDA), which Washington alleged handled illicit funds for Pyongyang.

Besides the EU, Washington has also spoken to China about the Foreign Trade Bank. David Cohen, the U.S. Treasury undersecretary for terrorism and financial intelligence, told reporters he raised the issue with Chinese officials in Beijing last month, although he did not say what their response was.

It is unclear how much of the $6 billion in annual trade between China and North Korea goes through the bank. China is by far the North's biggest trade partner.

Felix Abt, a Swiss entrepreneur who has worked in Pyongyang and helped run a financial training programme for Foreign Trade Bank officials, said sanctions would be a "huge setback for economic development" in North Korea. "In the worst case scenario ... it would drive the economy underground. They would have to use cash couriers or other funny methods," he said.

Zellweger, who has studied small North Korean businesses and the country's economy, said local firms trying to do legitimate business would be pushed into what she called a "grey zone" if foreign companies stopped using the bank.

"It makes it so no one wants to do business with North Korea, even legal business," said Zellweger.

(Additional reporting by Adrian Croft and Justyna Pawlak in Brussels, Ioana Patran in Bucharest, Tsvetelia Tsolova in Sofia, Stephanie Ulmer-Nebehay in Geneva, Louis Charbonneau at the United Nations and Anna Yukhananov in Washington; Editing by Dean Yates)

View the original article here

North Korea says ready for combat as sanctions tighten

By Jack Kim and Ju-min Park

SEOUL (Reuters) - North Korea repeated threats on Tuesday to target U.S. military bases as Washington and its allies tightened economic sanctions against the isolated country by targeting Pyongyang's main foreign exchange bank with new measures.

The rhetoric from North Korea - which has threatened the United States with nuclear war and rehearsed drone attacks on South Korea - and Washington's hardening reaction, drew more concern from China, Pyongyang's only major ally, which said the situation was "sensitive".

Pyongyang says United Nations sanctions, agreed after North Korea carried out a third nuclear test in February, are part of a Washington-led plot to topple its leadership.

"From this moment, the Supreme Command of the Korean People's Army will be putting into combat duty posture No. 1 all field artillery units, including long-range artillery units and strategic rocket units, that will target all enemy objects in U.S. invasionary bases on its mainland, Hawaii and Guam," the North's KCNA news agency said.

The order was issued in a statement from the North Korea's military "supreme command."

The Pentagon condemned North Korea's rhetoric, saying it was designed to "raise tensions and intimidate others."

"They need to stop threatening peace on the peninsula. That doesn't help anyone ... and we stand ready to respond to any contingency," Pentagon spokesman George Little told reporters.

The Pentagon has declined to define the range of North Korea's rockets, saying it is classified. But Admiral James Winnefeld, vice chairman of the Joint Chiefs of Staff, acknowledged on March 15 that one type of North Korean missile likely had the range to reach the United States.

South Korea's defense ministry said it saw no sign of imminent military action by North Korea and most military analysts say Pyongyang will not risk a conflict with the United States that it would lose.

South Korea and the U.S. military are conducting military drills until the end of April, which they have stressed are strictly defensive in nature. The North accuses Washington of war preparations by using B-52 bombers which have flown over the Korean peninsula as part of the drills, and it has abrogated an armistice that ended the 1950-53 Korean War.

The Pentagon said there have been three such flights by U.S. B-52 bombers since March 8, with the most recent one on Monday.

BANK SANCTIONS?

Officials said Japan and Australia plan to sanction North Korea's Foreign Trade Bank as part of U.S.-led efforts targeting Pyongyang's funding for its nuclear program.

China again called on all parties to show restraint. "At present, the situation on the Korean peninsula remains complex and sensitive," said Foreign Ministry spokesman Hong Lei.

Pyongyang's aggressive rhetoric appears to mark a further attempt to boost the military credentials of Kim Jong-un, who took power in December 2011 after the death of his father. He has cemented the role of the military and the North's nuclear weapons and missile ambitions with the nuclear test and two long-range rocket launches.

KCNA said on Tuesday that Kim had guided a landing operation by combined units including the North Korean navy.

"This is a mythmaking for the (military) commander," said Jeung Young-tae, a senior analyst at the Korea Institute of National Unification in Seoul.

South Korea marked the third anniversary on Tuesday of the sinking of a navy ship that killed 46 sailors that it and the United States have blamed on the North. Pyongyang denied the charge.

On March 22, South Korea and the United States signed a "counter-provocation plan" meant to fine tune joint reaction to any future North Korean military strikes. The Pentagon said details of the plan were classified.

(Additional reporting by Phil Stewart in Washington; Editing by Ian Geoghegan)

View the original article here

U.S. extends waivers on Iran sanctions to 11 countries

WASHINGTON (Reuters) - The United States is expected to renew waivers on Iran sanctions for Japan and 10 European countries as soon as Wednesday in exchange for their reducing purchases of the OPEC nation's crude oil, U.S. government sources said.

A renewal from the State Department would mean banks in the 11 countries have been given a third consecutive 180-day reprieve from the threat of being cut off from the U.S. financial system under the sanctions designed to slash funding to Iran's disputed nuclear program.

"We expect all those countries to receive exceptions based on continued significant reductions or based on the fact certain countries are already at zero on imports," one congressional aide said.

The comments were confirmed by a second congressional source.

The West suspects Iran is trying to develop nuclear weapons. Tehran says its nuclear program is for power generation and medical purposes.

Japan, the world's third largest oil consumer, slashed Iranian imports last year by 40 percent to about 190,000 barrels per day, even as its total oil imports rose 2.7 percent.

The European Union implemented a full embargo on Iranian crude and petroleum products on July 1. The 10 countries expected to get renewals are Belgium, the Czech Republic, France, German, Greece, Italy, the Netherlands, Poland, Spain and the United Kingdom.

Under the sanctions law President Barack Obama signed in 2011, the State Department must review the waivers every six months. All of Iran's major buyers of crude were given the waivers last year.

The State Department extended the exceptions to China, India and a number of other countries on December 7.

(Reporting by Timothy Gardner; Editing by Andre Grenon and Leslie Gevirtz)

View the original article here

U.S. imposing new sanctions on North Korean bank: Obama aide

NEW YORK (Reuters) - The U.S. Treasury is imposing sanctions against North Korea's Foreign Trade Bank, the country's main foreign exchange institution, for its role in supporting Pyongyang's nuclear weapons program, President Barack Obama's national security adviser said on Monday.

In a speech to the Asia Society in New York, the White House aide, Tom Donilon, also said China should not conduct "business as usual" with North Korea while Pyongyang threatens its neighbors.

"The United States will not accept North Korea as a nuclear state," Donilon said in prepared remarks. "Nor will we stand by while it seeks to develop a nuclear-armed missile that can target the United States."

He said Washington was willing to negotiate with North Korea but Pyongyang must first take "meaningful steps" to meet its international obligations.

The State Department said on Monday it was designating for sanctions three individuals tied to North Korea's nuclear activities: Pak To-Chun, who heads the agency that manages North Korea's weapons production and arms exports; Chu Kyu-Chang, who directs that agency, the Munitions Industry Department; and O Kuk-Ryol, who is vice chairman of the North Korean National Defense Commission.

The Treasury Department on Monday also imposed sanctions on Paek Se-Bong, chairman of North Korea's Second Economic Committee, which oversees the production of North Korea's ballistic missiles.

North Korea uses the Foreign Trade Bank "to facilitate transactions on behalf of actors linked to its proliferation network, which is under increasing pressure from recent international sanctions," the Treasury said in a statement.

(Reporting By Matt Spetalnick; Editing by Christopher Wilson and Mohammad Zargham)

View the original article here

U.S., China agree U.N. sanctions draft; North Korea renews threats

UNITED NATIONS (Reuters) - The United States and China have struck a tentative deal on a draft U.N. Security Council sanctions resolution that would punish North Korea for its third nuclear test last month, U.N. diplomats said on Monday.

Separately, the U.N. press office announced that Russia, which holds the presidency of the 15-nation Security Council this month, will convene closed-door consultations on North Korea at 11:00 a.m. EST (1600 GMT) in New York on Tuesday.

Speaking on condition of anonymity, the U.N. diplomats said they hoped to receive the draft resolution at Tuesday's council session. They added that they hope the council will vote on the resolution by the end of this week.

(Reporting by Michelle Nichols and Louis Charbonneau; Editing by Eric Walsh)

View the original article here