U.S. Prepares to Act Alone Against North Korea

By Ian Talley Features Dow Jones Newswires

The Trump administration is moving toward unilaterally tightening sanctions on North Korea, targeting Chinese companies and banks Washington says are funneling cash into Pyongyang's weapons program.

Continue Reading Below

Cabinet-level officials in recent days have signaled the White House is ready to use its own powers to cut off the flow of cash to Kim Jong Un's regime, though officials say they would prefer collective action through the United Nations and support from China. North Korea's ballistic missile test on July 4 will hasten U.S. unilateral efforts, analysts say.

North Korea has resisted such pressure for years and many experts question whether this time would be any different. Pyongyang has become proficient at evading sanctions, including by disguising its international trade and financial entities through firms in neighboring China.

The U.S. has almost no direct trade or other ties to North Korea after imposing wide-ranging bilateral sanctions in response to previous missile and nuclear tests by Pyongyang. North Korea's chief trade partner, Beijing, has also resisted tightening the screws against its neighbor because the status quo gives it geopolitical leverage, analysts say.

The George W. Bush administration brought North Korea back to the negotiating table in 2007 after escalating sanctions but many analysts say it relented too quickly, allowing Pyongyang to continue its nuclear-weapons program.

U.S. officials say the stakes are greater after last week's missile launch revealed Pyongyang's ability to put Alaska within reach and current efforts will be more stringent than in the past.

Continue Reading Below

Tucked away in several documents linked to recent Treasury and Justice Department actions are clues to Chinese entities the administration may target.

The Justice Department, in a federal-court decision granting the administration warrant authorities unsealed on Thursday, pointed to "offshore U.S. dollar accounts" associated with a network of five companies linked to Chinese national Chi Yupeng. That included one of the largest importers of North Korean goods into China, Dandong Zhicheng Metallic Material Co.

The Justice Department, citing people including two North Korean defectors, said the so-called Chi Yupeng network hid transactions which helped finance North Korea's military and weapons programs.

That network isn't under U.S. sanctions but analysts say its a vital source of funds that can be choked off, in the same way the U.S. targeted another Chinese company late last year, Dandong Hongxiang Industrial Development Co. Ltd. Nearly two-dozen Chinese banks that allegedly laundered money from Dangdong Hongxiang could be targeted, analysts said.

China's Foreign Ministry didn't respond to a request to comment and Mr. Chi and Dandong Zhicheng couldn't be reached to comment.

Even before the July 4 launch, the Trump administration began trying to tighten sanctions to cut off "all illegal funds going to North Korea," Treasury Secretary Steven Mnuchin said. "We will continue to look at these actions and continue to roll out sanctions."

Late last month the U.S. Treasury said it would move to cut off China's Bank of Dandong from U.S. financial markets, saying North Korea was using bank accounts under false names and conducting financial transactions through banks in China, Hong Kong and Southeast Asia.

The Treasury also added to its North Korea sanctions list two Chinese citizens accused of working for front companies designed to evade existing North Korea sanctions.

Trump administration officials have warned that North Korea's latest missile test warranted an escalation in international pressure, seeking first collective action through the United Nations Security Council and urging Beijing to use its own powers to stem cash flows to Pyongyang.

"The United States is prepared to use the full range of our capabilities to defend ourselves and our allies," Nikki Haley, U.S. ambassador to the U.N., told the Security Council last week. Ms. Haley said past sanctions regimes proved insufficient.

Citing China's dominant role as North Korea's prime international trade and finance partner, she said Washington is ready to target any country doing business with North Korea.

U.S. Secretary of State Rex Tillerson said Friday that fresh sanctions issued last week against Chinese entities are a measure of the administration's resolve to bring more pressure to bear on the country by directly going after entities doing business with North Korea. He said the U.S. preferred for Beijing to use its own powers to curb North Korea financing.

But while Mr. Tillerson said the U.S. would apply "calculated increases in pressure," there was a limit to the administration's "strategic patience."

The Trump administration asked China to take action against a list of nearly 10 Chinese companies and individuals to curb their trading with North Korea following President Donald Trump's Mar-a-Lago summit with Chinese leader Xi Jinping in April, according to senior U.S. officials.

But U.S. officials say they have been disappointed by Beijing's response. The topic will be a focus of high-level U.S.-China talks next week in Washington, Mr. Mnuchin said.

Many former U.S. diplomats, including Juan Zarate, the top sanctions diplomat in the Bush administration, say Washington must ratchet up the pressure on Chinese firms and banks.

The U.S. has so far been wary of prodding Beijing too hard.

North Korea's latest missile test changes the administration's calculus, said Nicholas Eberstadt, a North Korea security expert at the American Enterprise Institute. He expects the White House to accelerate its sanctions against Chinese firms.

A central aim of the strategy of freezing out a Chinese bank from the U.S. financial system is to chill transactions by other Chinese institutions. Access to U.S. financial markets and the dollar are critical for trade and finance around the globe. But for that effort to be perceived as a credible, said Mr. Eberstadt, the administration will have to list other Chinese banks to instill broader fear.

"If I wanted to send a message, I'd probably send several postcards," Mr. Eberstadt said.

Analysts and senior officials from two previous administrations say the existing sanctions regime against North Korea have so far been elementary compared with the thicket of actions applied against Iran at the height of the Obama administration's punitive actions against Tehran.

That effort pushed the country into recession and forced the country back to the negotiations table, although many foreign-policy experts question the effectiveness of the subsequent deal the U.S. reached with Iran.

--Jeremy Page in Beijing contributed to this article.

Write to Ian Talley at ian.talley@wsj.com

(END) Dow Jones Newswires

July 10, 2017 13:45 ET (17:45 GMT)