United Nations Security Council Resolution 2397 came into effect in December 2017 and restricts virtually all North Korean exports by building on previous resolutions that had already stifled 90% of the country’s trade.1 North Korean imports also received their strictest limits to date. The latest resolution caps North Korean imports at 500,000 barrels of refined petroleum and 4,000,000 barrels of crude oil per year.2 It is believed North Korea has been importing around 4 million barrels of crude oil (around 500,000 tons) and 4.5 million barrels of refined oil (around 640,000 tons) annually, mostly diesel and gasoline, according to the US Department of State3. While the majority of this trade is believed to originate in China, this report finds that a substantial amount also comes from Russia, which is not declared in the official trade statistics: The report found indications that 622,878 tons of refined oil has been transported to North Korea from Russia between 2015-2017, representing around one third of North Korea’s total refined oil imports during the same period.
Since North Korea’s first nuclear weapons test in 2006, the UN has levied 10 rounds of sanctions, including four in 2017 alone.4 At the same time, the US maintains a comprehensive unilateral ban on all North Korean imports and exports. There are indications that these sanctions are beginning to have an effect on the North Korean economy, particularly as China cracks down on cross border trade.5 But as this report will show, official records do not always reflect the full scope of North Korean dealings. Despite international efforts, at every step, North Korea has found ways to maneuver around the restrictions, aided by a wide network of multinational enablers and middlemen.
North Korea’s trade practices have two goals: to acquire foreign currency and to use that currency to import basic supplies for the regime’s survival, such as petroleum products, as well as luxury goods for elites and components for their nuclear and ballistic missile programs. While virtually all North Korean financial institutions are cut off from the global financial system directly, these entities funnel money through a network of shell companies and foreign accounts in order to pay for the required goods. Often money will pass through several layers of ownership in multiple countries before the final purchase occurs. In order to bring the goods into the country, North Korea relies on both the land borders between China and Russia, as well as maritime transport. At the key points of overland trade, particularly Dandong in China, traffic has fallen significantly and customs measures have improved, although there are still opportunities for illicit cross border trade. Maritime transport has also become increasingly difficult for the regime, as virtually all of the nation’s ships are sanctioned and subject to searches. So to get around these restrictions, North Korea takes advantage of legal and technical loopholes. North Koreans often use “flags of convenience,” by which they conceal the ownership of the vessel by registering the ships in third countries. North Korean ships also disable their Automatic Identification System (AIS) transponders in order to hide their location. They will frequently change vessel names and identification numbers, even painting over or altering the numbers on the ships’ exteriors.6 Recently North Korean ships have been observed transferring oil in open waters via ship-to-ship transfers. These and other practices are commonly used to manipulate the system and acquire the resources that the regime needs to survive.
Table of Contents
■ The Exporter: Independent Petroleum Company (IPC)
■ The Rise of Phantom Traders
■ The Shipping Connection
■ The connection between Pro-Gain Group Corporation and Victory International Ship Management
The views expressed herein are solely those of the authors and do not reflect those of the Asan Institute for Policy Studies.
- 1. https://usun.state.gov/remarks/8238
- 2. https://usun.state.gov/remarks/8238
- 3. https://usun.state.gov/remarks/7969
- 4. https://www.treasury.gov/resource-center/sanctions/Programs/pages/nkorea.aspx
- 5. https://www.wsj.com/articles/north-korea-finally-feels-the-sting-of-international-sanctions-1519923280
- 6. https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Documents/dprk_vessel_advisory_02232018.pdf