Secondary Sanctions Against Chinese Institutions: Assessing their Utility for Constraining N. Korea

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Chairman Sasse, Ranking Member Donnelly, and distinguished members of the Senate Banking, Housing, and Urban Affairs Subcommittee on National Security and International Trade and Finance, I am honored to be with you today to discuss the urgent need to pressure North Korea and the utility of secondary sanctions against Chinese institutions in such a strategy.

This is a timely and important hearing.  The international security challenge from North Korea has grown more dangerous and direct for the United States. The regime in Pyongyang remains intent on developing ballistic missile and nuclear capabilities that will allow it to reach and threaten the United States directly.  In defiance of international sanctions and pressure, North Korea has quickened the pace of missile and nuclear tests, demonstrating ever-expanding capabilities and claiming to have the ability to place a nuclear warhead on the tip of an intercontinental ballistic missile.  Despite recent missile launch failures, the regime continues its march toward these capabilities.

What was once seen solely as a threat to peace and stability on the Korean Peninsula and our regional allies has now become a looming, direct threat to the U.S. homeland.

All the while, North Korea proliferates its technology for profit, engages in illicit financial and commercial activity, exploits forced labor to make money for the regime, and has deployed cyber tools to attack adversaries and the private sector, including U.S. companies and the banking system.  North Korea remains a threat to international security and to the integrity and stability of the financial system.

The threats from North Korea require a sober, more comprehensive, and urgent response, including the use of financial and economic tools and pressure.  This in turn requires a more aggressive and imaginative approach leveraging new tools and mechanisms, including secondary sanctions against Chinese and other businesses, entities, and networks still doing business with North Korea.

China is North Korea’s economic and diplomatic lifeline, and its principal interest is ensuring the stability of the North Korean government and avoiding regime collapse.  As a result, China has maintained ties with North Korea and been unwilling to bring overbearing pressure on its ally in Pyongyang.  Over the years, North Korea has found outlets and connectivity to the financial and commercial system through Chinese banks, companies, and agents – to circumvent sanctions, serve their economy, and enrich the regime. 

Because China remains the regime’s backstop, the United States needs Chinese cooperation and support to slow and stop North Korea’s missile and nuclear programs.  The Chinese calculus has not changed in the past and will not change unless its own interests are fundamentally threatened or affected.  Chinese and American interests do not yet align with respect to North Korea.

This is a moment for China to assume its role as a great power and to influence its North Korean ally to stop its nuclear and missile programs and contain the threats from proliferation.  This Administration and Congress will need to grapple with how best to obtain, coerce, and sustain Chinese cooperation in order to maximize pressure on North Korea.  Ultimately, the United States must find a way to change Pyongyang’s calculus and the trajectory of their nuclear program.  This testimony addresses how to leverage financial and economic pressure, including secondary sanctions, to increase the chances of changing the calculus in North Korea and China and avoiding conflict.

My testimony has benefited directly from the ongoing work and contributions of Anthony Ruggiero at the Foundation for Defense of Democracies, along with the scholarship of Victor Cha and Bonnie Glaser at the Center for Strategic and International Studies, John Park at the Harvard Kennedy School of Government, and the Council on Foreign Relations’ Task Force on North Korea led by Chairman Mike Mullen and Senator Sam Nunn, on which I served.