Page:U.S Congressional Testimony of Sung-Yoon Lee, Hearing on "North Korea’s Criminal Activities- Financing the Regime" (2013).pdf/3

 largest military in terms of manpower and defense spending proportional to its population and national income. The result is a most abnormal state, one that is able to exercise disproportionate influence in regional politics despite its relatively small territorial and population size and its exceedingly meager economic, political, and soft power, principally through a strategy of external provocations and internal repression.

But here also lies the potential bane of the Kim regime’s existence. Once we recognize the nature of the Kim regime and accept that the regime equates nuclear brinkmanship and criminal activities with its own existential identity, the way forward becomes clear.

First, recognize that Pyongyang’s overdependence on its shadowy palace economy makes the Kim regime particularly vulnerable to tools designed to counter international money laundering. The United States is in a position to take the lead in enforcing financial regulatory measures against North Korea's illicit activities and should immediately seize upon the opportunity. While UN sanctions are more symbolic, the U.S. is singularly well equipped to impose on Pyongyang measureable economic losses that have palpable political implications. This is due to the strength and attractiveness of the U.S. financial system and the North Korean regime’s low threshold for financial pressure.

The U.S. Treasury Department should strengthen its sanctions against North Korean banks and businesses that finance the Kim regime’s palace economy. To this end, the Treasury Departmentshould declare the entire North Korean government to be a Primary Money Laundering Concern, which is a legal term for entities that fail to implement adequate safeguards against money laundering. There are precedents for such actions, for example, against the governments of Nauru and Ukraine, which bore the effect of forcing both to implement significant anti-money laundering measures.

This designation would allow the Treasury Department to require U.S. banks to take precautionary “special measures,” substantially restricting foreign individuals, banks, entities, and even entire governments that are linked to the sanctioned entity access to the U.S. financial system. Treasury could also apply these measures to third-country business partners that finance Pyongyang’s palace economy. The U.S. should also ask allied governments to apply corresponding measures to third-country banks, businesses, and nationals doing business with North Korea. Moreover, by expanding the designation of prohibited activity to include those furthering North Korea’s proliferation, illicit activities, import of luxury goods, cash transactions in excess of $10,000, lethal military equipment transactions, and crimes against humanity, the U.S. can disconnect Pyongyang from the international financial system in ways that have a far more debilitating effect than the Treasury Department’s sanctions against North Korean-held accounts in Banco Delta Asia in September 2005. Such actions would in effect dam several, if