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Malaysia’s Front Office Role in Enabling North Korean WMD Procurement

March 6, 2017

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North Korea continues to evade UN sanctions designed to prevent its weapons of mass destruction (WMD) development by embedding its agents and intermediaries within the international trading system, according to the latest assessment of the UN Panel of Experts set up to monitor North Korean compliance with international sanctions.

In fact, North Korean sanctions evasion has largely eviscerated the intent and impact of UN sanctions resolutions designed to block international financial and material support for North Korean nuclear and missile development efforts. Aside from the obvious Chinese loophole, the assassination of Kim Jong Nam has shone a bright light on another major portal for North Korean illicit actions and sanctions evasion: Malaysia.

The visa-free access to Malaysia that North Korean citizens have enjoyed until it was rescinded earlier this month following the murder of Kim – the half-brother of the isolated regime’s leader, Kim Jong Un -- had provided Pyongyang with a base for both illegal procurement and financing activities that have enabled it to import sensitive materials and finance its WMD development. The Panel of Exports report identifies Glocom as a North Korean front company that relies on an extensive international commercial network to market radio communications equipment for military and paramilitary organizations.

More importantly, Glocom is a contact point for Pan Systems Pyongyang, an international firm that has played a major role in procurement and financing of sensitive and dual-use goods on behalf of the Democratic People’s Republic of Korea. As part of its investigation, the panel identified two Malaysian-based companies, International Golden Services Sdn Bhd and International Global Systems Sdn Bhd, which have served as front companies and contact points for Pan Systems Pyongyang in Malaysia.  Earlier this week, local media reported that Malaysian police had taken preemptive action against the two entities “to ensure that Malaysia is not used for activities detrimental to national security.”

’Prominent regional arms fairs’

The Pan Systems Pyongyang network includes offices in Malaysia and China that were used to procure components and sell completed systems through relationships with suppliers in China and Hong Kong. North Korean citizen Ryang Su Nyo with support from Pyun Won Gon, Kim Sung Su, Kim Chang Hyuk, and others directed these activities. According to the panel, the network was able to build up “significant international recognition including through participation in prominent regional arms fairs and selling high-end arms and related materiel in multiple countries.” The panel asserts that the network was coordinated by the Democratic People’s Republic of Korea (DPRK) Reconnaissance General Bureau, which has been responsible for some of North Korea’s most notorious provocations.

Although the UN resolutions have highly restricted North Korea’s access to the financial system on paper, the report suggests that these sanctions have not affected the ability of North Korean networks such as Pan Systems Pyongyang to finance its operations, asserting that the network maintains bank accounts in China, Malaysia, Singapore, Indonesia, and the Middle East. By conducting financial transactions under the names of its affiliates such as Pan Systems Singapore, the company has been able to maintain sufficient financial access to the international financial system that it was able to transfer funds to a supply chain of more than twenty companies in China, and has also used front companies to conduct transactions via Hong Kong-registered companies that were cleared through U.S. correspondent banks in New York.

Suez arms interception

The Panel of Experts report also provides details on the interception in the Suez Canal of the Cambodian-flagged and North Korean-crew piloted Jie Shun in what it categorizes as the “largest interdicted ammunition consignment in DPRK sanctions history,” superseding the 2013 interdiction of the North Korean flagged Chong Chon Gang ship that was loaded with vintage Cuban munitions and airplane parts. The interdiction of the Jie Shun by Egypt revealed a cargo from North Korea through the Suez Canal containing 30,000 PG-7 rocket propelled grenades (RPG) and related sub-components shipped in wooden crates concealed under 2,300 tons of limonite (iron ore). The Jie Shun evaded detection by cutting off GPS during most of its journey, with the exception of transit through heavily trafficked straits and ports. The shipment from Haeju in North Korea to an undisclosed Middle Eastern destination were falsely labeled as “assembly parts for an underwater pump,” and the bill of lading showed the address of the “Dalian Haoda Petroleum Chemical Company, Ltd.”

Finally, the Panel of Experts report provides an initial assessment of the latest front in North Korean sanctions implementation through monitoring of coal and iron exports to China. The panel finds that North Korean coal and iron ore exports to China have continued to increase year-on-year despite adoption of new UN Resolutions in March and December 2016. In fact, North Korea’s January exports of coal amounted to one-fifth of the UN-mandated quota for 2017, leading to a February announcement by the Chinese ministry of commerce that it would ban imports of North Korean coal for the rest of 2017.  This earned Beijing a rare rebuke from Pyongyang, who accused China of going along with North Korea’s enemies to "bring down its social system."

But the pattern to date shows that enforcement of past Chinese announcements has not had a decisive effect on North Korean trade. Instead, whack-a-mole efforts by the international community have come up short, when some countries continue to enable North Korea to evade sanctions, embed its international supply chains in the global system, and defy efforts to squeeze North Korea into compliance with international nuclear norms.

A version of this post originally appeared on Forbes.

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