Time for Trump to Get Tough on China

On July 4, North Korea launched an intercontinental ballistic missile, fulfilling the threat Kim Jong Un delivered in his New Year’s Day message this past January. At the time, Donald Trump responded directly to Kim’s threat, insisting “It won’t happen!” But now that it has, the U.S. must get tough with the Chinese banks and companies who enable North Korea to evade sanctions and pay for its missile program.

For far too long, the U.S. has hamstrung its own sanctions regime in the misguided hope that China would restrain North Korea. The thinking among top U.S. officials has been that Beijing would decrease cooperation on North Korea if the U.S. sanctioned China. But Beijing will take action if Chinese banks and companies have to pay the price for aiding and abetting North Korea’s illicit weapons programs, as China did last September following U.S. indictments against a Chinese company and four Chinese individuals.

On early Tuesday morning, Pyongyang announced it had successfully launched the Hwasong-14 ICBM. The missile’s flight lasted 37 minutes, traveling more than 930 kilometers on a lofted trajectory and reaching an altitude of more than 2,800 kilometers. Preliminary analysis suggests the Hwasong-14 could travel at least 6,700 kilometers on a standard trajectory, enough to reach Alaska.

North Korea released images of the launch, which revealed the missile was transported on a vehicle China sold to North Korea in 2010 for its “logging industry” a clear violation of U.N. sanctions. Despite Chinese efforts to divert attention from its failure to enforce sanctions, this is the clearest indication that Beijing’s passivity directly supports the ICBM program.

Last week, the Trump administration imposed sanctions on a Chinese bank accused of money laundering for North Korea as well as two Chinese individuals and a Chinese company accused of sanctions evasion. In the last 13 months, the U.S. government has identified the disturbing extent to which Chinese banks help North Korea leverage the U.S. financial system to evade sanctions. From 2009-2016, North Korea used the Chinese banking system (including Hong Kong) to process at least $296.12 million in illicit financial transactions through the U.S. financial system. In May 2016, the Treasury Department declared that North Korea’s financial activity was a “direct threat to the integrity of the U.S. financial system.”

Further afield, a Singaporean court found that a local firm, Chinpo Shipping, used its bank accounts – including in Bank of China – from April 2009 to July 2013 to process more than $40 million through the U.S. for North Korea.

These disclosures make it painfully clear how North Korea continues to exploit both the U.S. financial system and China’s deliberate failure to enforce sanctions. When such embarrassing information comes to light, Beijing relies on a carefully choreographed diplomatic dance to pacify and distract Washington.

Here’s how it usually works. First, China issues a tough statement blaming the United States and North Korea for failing to negotiate while also sounding out tougher U.N. sanctions. Yet China will never allow the U.N. to sanction Chinese entities and individuals, even though the U.N.’s own Panel of Experts has clearly identified their role in evading sanctions. Instead, Beijing likely will support a new restriction on oil exports to Pyongyang, but only with enough loopholes to make the “sanction” ineffective. China will not support strong sanctions because it fears instability in North Korea even more than it fears a nuclear Kim regime.

The Trump administration should ignore such distractions and move against another Chinese bank using the full suite of Treasury’s tools. Treasury should issue significant fines to one or more medium-sized banks as a means of signaling there is a systemic problem inside China’s financial system.

The purpose of such moves is not simply punitive; it is to drive a wedge between Chinese banks that covet their access to the U.S. financial system and Chinese leaders who indulge North Korea. If the banks fear they will be the next target of U.S. sanctions, they will pressure political leaders to change course.

Second, a report from C4ADS, a non-profit organization that uses data-driven analysis of the China-North Korea relationship, last month found that North Korea’s sanctions evasion network is centralized, limited and vulnerable. The Trump administration should sanction elements of the network, preferably with near simultaneity for maximum effect. Chinese entities and individuals are at the heart of this network and Beijing will object to the sanctions, but the time for accepting China’s excuses are over.

The July 4th ICBM launch is a game changer, as the United States must assume North Korea can use the missile to deliver a nuclear weapon to the homeland. Kim Jong Un murdered an American citizen, routinely tortures and starves his own people in pursuit of these weapons. The idea of him using them against America is not a far-fetched scenario. The Trump administration must increase pressure on China and North Korea to contain, and reverse, the damage.

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