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Opinion

Talks with North Korea? Better to apply financial pressure (+video)

South Korea and the US must be skeptical about future talks, not least because North Korea has no incentive to change. However, the North is vulnerable to financial pressure, as seen when the US once sanctioned an Asian bank that handled North Korean money.

By Grant Newsham / April 18, 2013

Soldiers of the South Korean Air Force participate in a detoxification drill April 17 at an air base in Chungju, southeast of Seoul. Oped contributor Grant Newsham writes: 'South Korea is pushing for dialogue with the North, and the North this week signaled interest – accompanied by unrealistic preconditions. One has to be skeptical about future talks.'

Sluth Korean Air Force handout/Reuters

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Twenty years of negotiations with North Korea have not produced a more cooperative regime. North Korea continues to brutalize its citizens and engage in missile and nuclear proliferation. It threatens countries near and far with destruction and periodically attacks South Korea. Most troubling, the North is now dangerously close to an effective nuclear missile capability.

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South Korea is pushing for dialogue with the North, and the North this week signaled interest – accompanied by unrealistic preconditions, such as a cessation of American-South Korean military exercises. One has to be skeptical about future talks, not least because North Korea appears to have no incentive to change. Aid offers have never improved regime behavior. And a show of US military force has its limits since the North seems to believe it can hunker down and out-wait the Americans.

However, North Korea is vulnerable financially. Applying financial pressure has worked before and is more likely to create conditions for useful negotiations than the methods tried to date. Its demand that the United Nations lift newly imposed sanctions as a condition for talks illustrates its financial vulnerability.

North Korea is ruled by a family-based regime that resembles an organized crime group. The regime’s major income sources are via illegal activities – nuclear and missile exports, illicit drug dealing, and counterfeiting cigarettes and US dollars for export. And the entire racket is run by a ruthless boss who rules by violence, manipulation, and intimidation.

Take away any organized crime group’s financial lifeblood and it will fragment or implode – a point well recognized by US anti-organized crime statutes. 

Money is everything to the North Korean regime. When North Korea modified its currency system in 2009 it caused such turmoil, even in the country’s moribund economy, that the government – not known for publicly admitting fallibility – reversed itself and executed the official deemed responsible.

In 2005, under the administration of George W. Bush, the US Treasury sanctioned Banco Delta Asia in Macau for assisting North Korean money laundering. The Treasury declared the bank – at that time family-owned – off-limits for US companies and financial institutions. The Macao government then froze $25 million in North Korean money.

Banco Delta Asia severed its ties with North Korea, causing perhaps more fear within the regime than at any time since the Inchon landing of 1950, when UN forces reversed a string of North Korean victories and then moved to recapture the South Korean capital of Seoul. The crackdown on the Macao bank greatly worried other financial institutions cooperating with North Korea, some of which cut their ties with the North.

Yet, the Bush administration later inexplicably revoked the sanctions and returned North Korea’s money – apparently in exchange for a North Korean promise to reenter negotiations, and nothing more.

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