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North Korea: Witness to Transformation

Financial Sanctions: Evidence of the Squeeze?

by | August 12th, 2013 | 07:00 am

In the course of doing some research on our sanctions project, we came across a small item from the Financial Action Task Force (FATF) that we found intriguing. The FATF is a global standard-setting body that coordinates among its members on money laundering and the financing of terrorism; the core of their activities centers on the so-called Forty Recommendations (.pdf here). According to a report issued back in April, the DPRK has been “reaching out” to the 41-member Asia-Pacific Group on Money Laundering (APG) since 2012 and has also engaged directly with the FATF. Neither organization provides details on these approaches, but North Korea is a member of neither. Could it be trying to sign up?

To date, these efforts appear to have been unsuccessful as the FATF “remains concerned by the DPRK’s failure to address the significant deficiencies in its anti-money laundering and combating the financing of terrorism (AML/CFT) regime and the serious threat this poses to the integrity of the international financial system.”

But we operate on the simple theory that North Korea—or any state—will not pursue multilateral obligations if there isn’t some material benefit from doing so; states don’t cooperate for the sake of cooperating. The FATF information is thus another small sign that North Korea’s financial isolation is carrying some costs. In this case, the FATF and APG have continued to designate North Korea as a violator; as with the Banco Delta Asia measures, such designations raise the costs of doing business with the country by scaring institutions away.

The precise language:

“The FATF reaffirms its 25 February 2011 call on its members and urges all jurisdictions to advise their financial institutions to give special attention to business relationships and transactions with the DPRK, including DPRK companies and financial institutions. In addition to enhanced scrutiny, the FATF further calls on its members and urges all jurisdictions to apply effective counter-measures to protect their financial sectors from money laundering and financing of terrorism (ML/FT) risks emanating from the DPRK. Jurisdictions should also protect against correspondent relationships being used to bypass or evade counter-measures and risk mitigation practices, and take into account ML/FT risks when considering requests by DPRK financial institutions to open branches and subsidiaries in their jurisdiction.”