The Office of Foreign Assets Control of the U.S. Treasury Department recently added a phrase “secondary sanctions risk” in the organization and individual information section on the Specially Designated Nationals list on its webpage. Secondary sanctions are the same as secondary boycott, which means independent sanctions of the U.S. that punish individuals and organizations in third countries that traded with North Korea.
This measure, which ratcheted up the level of warning against violating North Korea sanctions, seems to be related to the fact that the U.S. Treasury Department held a teleconference with seven South Korean banks including government-run banks and asked to observe the sanctions. The U.S. Treasury Department emphasized many times to “not violate the sanctions and South Korea should not get ahead of itself” on a phone call with South Korean banks right after the latest inter-Korean summit in Pyongyang. It is clearly a warning against violation of the sanctions.
There has been a lot of discordance between the U.S. and South Korean governments regarding ease of North Korean sanctions. South Korea’s Foreign Minister Kang Kyung-wha talked about “lifting May 24 sanctions,” which led to an official warning of U.S. President Donald Trump. The mistrust is now spreading towards South Korean banks. In July, the U.S. suspected that South Korean banks were involved in the smuggling of North Korean coal to South Korea. Even if they do not directly trade with North Korea, funding businesses in Korea and abroad that trade with North Korea can be violation of the sanctions.
If they become the target of secondary sanctions by violating the North Korea sanctions, they will not only be kicked out from the international financial network led by the U.S., but also could go belly up. The influence of the U.S. financial sanctions was demonstrated by the case of Banco Delta Asia in 2005. The U.S. designated BDA in Macau as a “primary money laundering concern” as it was trading with North Korea. All financial institutions stopped trading with the bank, which caused blood-freezing pain to the North and bankruptcy of the bank.
“I would like to start working on the inter-Korean relations within the boundaries of international sanctions,” said President Moon Jae-in at an interview with BBC last week before going onto a tour in Europe. Moon talked about mutual research and discussion on future plans. Those are measures to prepare for ease of the sanctions, not to ease the sanctions, but the boundary seems fuzzy. The U.S. planning on the second summit with North Korea is closely monitoring South Korea, emphasizing strict implementation of the sanctions. The South Korean government should earn trust of the U.S. first.