To inject life into an economy made moribund by the fall of the Iron Curtain, failed centralized policies and sanctions, Kim Jong Un needs foreign currency to pay for equipment from abroad, such as the recent purchase of Russian jets to upgrade the national airline.
For decades North Korea has built networks of front companies and foreign intermediaries to channel currency in and out, circumventing attempts to isolate it over its nuclear-weapons program. Court documents and interviews with investigators, banks and prosecutors show the cornerstone of those networks is China. “China is a very important piece in making sure that blockages work,” said William Newcomb, a former member of a panel of experts assisting the United Nations’ North Korea sanctions committee.
North Korea relies on China, its biggest trading partner, for food, arms and energy. The countries describe their ties as “friendship forged by blood” during the 1950-1953 Korean War where the U.S. was a common foe. China has criticized North Korea for provocative actions but historically opposed harsh sanctions that might precipitate a regime collapse and a flood of refugees across its 870-mile (1,400 kilometer) shared border.
About 70 percent to 80 percent of North Korea’s foreign earnings have in the past come via China, said Kim Kwang Jin, who ran the Singapore branch of North Korea’s North East Asia Bank before defecting in 2003. “That huge trade volume means there are more people in China who are willing to cooperate with the regime,” Kim said by phone from Seoul.
But China is no longer turning a blind eye to illicit North Korean activities, according to Richard Nephew, a former principal deputy coordinator for sanctions policy at the State Department until last year. “In the last 10-15 years, they actually really do care about trying to prevent some of these bad acts.”
David Asher, a former George W. Bush administration official who was involved in freezing North Korean assets at Banco Delta Asia, said sanctions can only be effective when China is coerced into cooperating. “The only way to cut off North Korea’s illicit cash flow is by interdicting these intermediaries,” said Asher, now an adjunct senior fellow at the Center for a New American Security. “That requires the cooperation of China, the biggest domicile for this type of integrated, clandestine, business-to-business relationship with North Korea.”