Roll-Royces, the latest Ipad, and… purses? The things the US won’t allow
Kim Jong Un and the rest of North Korea to buy might leave you scratching your head.
North Korea has been under sanctions for a long time, starting in the 1950s during the Korean War.
The Communist government - ruled by the Kim family since its founding - has never recognized or been
recognized by its neighbor to the south, and the peninsula has been in a constant state of tension.
After bombings in the 1980s against South Korean targets, the United States tightened
the sanctions and declared North Korea a sponsor of terror. But surprisingly,
South Korea wasn’t always on board and their liberal government called for engagement.
But that was about to change in an explosive way.
While Bill Clinton signed a bill in 1994 lessening the sanctions, the country ramped up its nuclear
program. In 2003, they withdrew from the Nuclear Non-Proliferation Treaty and began conducting
nuclear tests. This time, the sanctions would be international - passed by the UN Security Council.
While they originally focused on weapons-related items, they were expanded to luxury goods and
financial assets, as well as restricting the travel of top North Korean officials. The goal was
to take away the comforts that the regime was used to and make them more likely to come to the table.
Easier said than done.
It was 2018 and the Trump Administration was hoping to improve diplomatic conditions
between the US and North Korea. Secretary of State Mike Pompeo visited the isolated country to press
Kim Jong-un to give up his country’s nuclear weapons and liberalize the country. Instead,
the veteran diplomat got in-your-face proof that the latest ruler of the country was violating
the sanctions - he was riding around in a custom Rolls-Royce Phantom limousine,
one of the many luxury brands that aren’t allowed to do business with North Korea.
So exactly how easy is it to get around international sanctions?
It’s not easy - but it’s far from impossible. UN official Hugh Griffiths had been tracking
North Korea’s business dealings around the world for years, tracking all their
violations. Most of the violations were in hard-to-track resources like petroleum,
as well as in currency transfers that allowed them to make purchases clandestinely.
But a Rolls-Royce was something else entirely - this was a large, visible purchase that
could only come from one source, one that knew better than to deal directly with the regime.
And officials worried that if they could sneak in a luxury car, they could sneak in anything.
Doing business with North Korea is tricky. Not only are businesses hesitant to send
representatives to a country where one wrong move could land you in prison, but violating
the sanctions could land you in serious trouble back home. First, you’ve got to have a license to
even buy from them - not that the Hermit Kingdom has many exports. While there isn’t a blanket
trade restriction on the country like there are on other nations in conflict with the US,
there are a lot of regulations to follow. First, about a hundred individuals and
companies have been specifically banned from trade due to their links to banned activities.
And even if you’re not violating those, be careful what you sell.
The US and European Union both have lists of goods that can’t be sold to the isolated country. This
includes items as obvious as weapons and energy supplies that might boost their nuclear program,
and as random as expensive cigars. Many vehicles are banned from sale as well - not just cars like
the mysterious Rolls-Royce, but including the luxury yachts plutocrats love to sail around on.
Certain electronics like computers are banned as well, possibly for security reasons
as access could help Kim Jong-Un’s cyber-experts target major systems.
But the banned items also include high-end handbags and even caviar. Bad news for any
fish with tasty eggs within North Korea’s borders. Ofcourse the fact that these items
are banned from sale to NOrth Korea only means that when they get smuggled into the country,
they become a huge status symbol. If you thought rocking that new Gucci bag was a big flex,
imagine rocking it in a country where it’s literally against international law to sell one.
And there are several other stumbling blocks in the way.
People who want to trade with North Korea may be able to do it legally, but they
won’t be encouraged. The federal government has programs for loans to fund trade deals,
but organizations like the Export-Import Bank won’t participate if the seller is looking
to do business with a Marxist-Leninist state. North Korea also doesn’t have much spare money
lying around - that we know of - so overall trade with the country remains very low.
In 2012, there was only twelve million dollars worth of trade to North Korea - compared to a
massive thirty-nine billion dollars to South Korea, a country with twice its population.
But just because the sanctions are in place, doesn’t mean everyone follows them.
The United Nations requires member nations to report on their trade to North Korea, but this
isn’t regulated as strictly as you might think. With 195 UN member states and observer states,
a majority of them haven’t filed the proper reports on their trade with the Hermit Kingdom.
Maybe some don’t have any and there isn’t anything to report - but for others,
they may be trying to cover up some dirty little secrets. North Korea is
getting its supplies from somewhere, and the world is starting to look a little closer.
And most people are looking in the direction of one country.
China has long been playing both sides of the fence when it comes to North Korea.
The Asian juggernaut has one of only two borders with North Korea and the only one
that isn’t heavily militarized. The countries have a mutual aid and cooperation treaty and regular
diplomatic relations, although North Korea’s nuclear program has caused serious tension.
But not serious enough to stop China from being North Korea’s top trade partner.
In 2009 alone, China sold $136 million dollars in luxury goods
to their neighbor - including banned goods like tobacco, electronics, and vehicles.
But how do they get away with it in the face of the international sanctions?
Where does a bear go first in a town? Anywhere it wants to. China is a powerful and
influential country, and they’ve had several brushes with international pressure. They
provide a significant portion of trade to most countries on Earth including the United States,
and sanctioning them for violating the North Korean sanctions could backfire if they take
their business elsewhere. And the ban on luxury goods in the UN sanctions doesn’t list exactly
what they are - it leaves that up to each country - so there’s no way to police exactly
what China sells North Korea as long as it’s not something actively dangerous like weapons.
But even beyond China, North Korea is finding a way.
It’s estimated that the Hermit Kingdom spends over half a billion dollars importing luxury
goods every year. So where do they get the money, and how do they get them into the borders? The
answer is usually - with a lot more steps. When it comes to importing vital energy supplies like coal
and petroleum, which are strictly capped to stop the country from using them on weapons programs,
the country usually gets them off-shore. By doing transfers of petroleum and coal on the open seas,
the country keeps the transfers from being logged against their yearly limits.
The ships then head back to home base and unload while flying the North Korean flag.
And there’s another big way they skirt sanctions.
Shell corporations. These are companies that exist only on paper. They don’t have an office or even
employees, which means they’re extremely hard to trace if they commit any illegal activities.
They usually have a bank account and own assets, which can be seized if they get caught in the act,
but this is normally a write-off for a larger and more powerful company. There is no higher level to
sanction or punish - no matter what they do. This is why shell companies are often clandestinely set
up through third parties for some of the most powerful people and companies in the world.
And when it comes to getting around sanctions, there’s no better way.
The most common purposes for shell companies include tax evasion and money laundering,
as well as hiding assets from lawsuits or an angry ex-wife. But a company could easily
pass their luxury goods from their main company to a hard-to-trace shell company,
to another one until it reaches North Korea and Kim Jong-Un finally gets to enjoy that
caviar he’s been craving. With no paper trail between the original seller and the company
that finally delivers it, it’s one of the best ways to get away with an illegal transaction.
But if that transaction is a little too visible, watch out.
When Kim Jong-Un arrived at the summit in his flashy Rolls-Royce Limo, it wasn’t just a nice
ride - It was a blatant admission that he was violating the sanctions and he didn’t
care if the US and UN knew it. It was also a prominent luxury item that could be immediately
identified - and was a massive black eye for the company behind the high-end cars and limos,
BMW. The German corporation was under a lot of pressure to explain how one of their cars
wound up behind North Korean borders in violation of international sanctions.
The problem was, no one was sure if they even knew.
Luxury goods change hands often, and the limousine may have fallen out of
the parent company’s hands long ago. The images were public, and investigators
quickly looked over the limousine for any indications of how it got there.
They had previously traced another limousine in North Korea back to the Chinese businessman
who sold it and started cracking down on the smuggling ring that delivered it. They hoped
to duplicate the same success here, but North Korea had gotten better at covering its tracks.
This was big business, after all.
The car was worth almost half a million dollars, and the investigators weren’t going to get any
answers out of the reclusive leader. They were able to identify that it was in fact an authentic
Rolls-Royce limo and went to the manufacturer, but the company was tight-lipped - either not
wanting to admit to any liability, or not wanting to admit that their security had let this slip by.
They were only willing to give some information about when the limo could
have been made - between 2012 and 2017 - and then they clammed up about further details.
Was BMW in bed with the North Korean government?
In the past, the UN officials had quizzed other companies about how their cars wound
up in the Hermit Kingdom, and the answers led the authorities to large smuggling rings. While
punishing governments - especially powerful ones like China - for violating the sanctions can be
near-impossible, it’s a lot easier to nab the small fish who make the smuggling rings work.
And with those guys facing lengthy prison terms,
they’re often willing to flip on who’s pulling the strings behind the scenes.
But for the mystery Rolls-Royce, a lot of questions are unanswered.
The company has failed to give the UN its vehicle ID number, and the investigation has stalled.
And it seems like Kim’s taste in luxury cars hasn’t gotten any cheaper - not long after the
Rolls-Royce, he was seen riding around Pyongyang in an armored Mercedes. So the pipeline is still
going strong, as Kim Jong-Un snubs his nose at the international sanctions and demonstrates to
the world that they might be able to keep him from importing things above board, but they can’t ruin
his champagne tastes. Even as North Korea suffers from widespread food and electricity shortages,
smuggling keeps its leader in luxury. But reports from within the kingdom indicate that even
powerful government agencies may be struggling to find the money they need to keep operating. As the
sanctions work, those looking for a connection to the outside work will turn to back channels.
After all, there’s money to be made,
and where there’s an opportunity, the smugglers will find a way.
For more on the Hermit Kingdom’s secrets,
watch “Weird Things That Only Exist In North Korea” or check out this video instead.