Blog: DPRK Sanctions Evasion Not Being Captured by Regulation – Regulation Asia

Gatekeeper professions play an important role in facilitating North Korean sanctions evasion, RUSI says in a new paper.

RUSI (Royal United Services Institute) has published a new paper offering recommendations for international organisations and governments to adapt their regulation to better capture North Korea’s sanctions evasion activities.

“North Korea has become increasingly skilled at evading financial sanctions and accessing the global financial system by using front company bank accounts and financial intermediaries,” the paper says. “So far, most strategies to counter this have focused on financial institutions … Less understood is the role of DNFBPs [designated non-financial businesses and professions] in countering proliferation finance.”

While financial institutions may be required to conduct background checks on new customers and check names against international sanctions lists, the same due diligence and record-keeping requirements in many cases may not apply to DNFBPs.

The paper says there is a lack of DNFBP-specific guidance that can help the various DNFBP sectors take the steps necessary to incorporate counter-proliferation financing into their compliance programmes. “There is an urgent need to understand how proliferators use DNFBPs and to close the gaps in supervision that are being exploited.”

To address this gap, the paper seeks to facilitate a better understanding of the relevance of DNFBPs to North Korea’s proliferation financing activities.

“This is important as the FATF [Financial Action Task Force] has recently amended its standards to require countries and private sector entities (including DNFBPs) to identify, assess and take effective action to mitigate the risk of potential breach, non-implementation or evasion of targeted financial sanctions related to proliferation, including those targeting North Korea.”

Using a dataset of 87 identified cases of North Korean sanctions evasion and proliferation financing activities involving DNFBPs obtained from UN Panel of Experts reports, the paper identifies gaps in DNFBP supervision and related policies that North Korea can exploit.

The cases include attempts by North Korea to procure and sell luxury goods, precious metals and stones, global property investments, and use casinos and gatekeeper professions (legal, accounting and company services) to obfuscate the traceability of funds.

A notable factor identified across all cases used in the paper is the extent to which the current FATF Standards do not adequately capture the DNFBP-related sanctions evasion activities employed by North Korea, resulting in key exploitation vulnerabilities.

The paper also explores the current legal and regulatory obligations that apply to each DNFBP type as they relate to North Korea. This is accompanied by insights on each DNFBP sector’s proliferation finance vulnerabilities.

The paper offers recommendations for international organisations such as the FATF, and individual governments, can adapt their existing regulatory frameworks for the DNFBP sectors to capture North Korean
sanctions evasion activities.

The full paper is published here.

The paper comes as global concerns mount over North Korea’s firing of a suspected ballistic missile towards the Sea of Japan on Wednesday (5 January), the country’s first missile test since October.

In a New Year’s address, North Korean leader Kim Jong Un vowed to continue strengthening the country’s defence capabilities due to the destabilising situation on the Korean Peninsula.

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