Tuesday, May 23, 2006

The Bush administration quietly imposed additional economic sanctions on North Korea earlier this month by barring U.S. companies from flying North Korea’s flag on freighters, tankers and fishing vessels, some of which are linked to illegal smuggling.

The sanctions took effect May 8 and were announced by the Treasury Department’s Office of Foreign Assets Controls. They prohibit U.S. companies or foreign companies based in the United States from owning, leasing, operating or insuring any ships that fly North Korea’s flag.

The sanctions were imposed in response to government reports that shipping companies were buying North Korean flag registry to evade other nations’ strict regulations and vessel-inspection rules.

“North Korea is aggressively selling its flag as a flag of convenience,” said one administration official, who noted that the number of ships using North Korean registry is growing. “One would think that in light of North Korea’s illegal activities, U.S. companies would not want to be registered in North Korea.”

Administration officials familiar with the sanctions said they are part of a series of “defensive measures” aimed at pressuring the Pyongyang government not to engage in illegal financial and arms-proliferation activities. They also seek to limit North Korea’s ability to earn hard currency.

North Korea has been linked by U.S. officials to counterfeiting U.S. currency, including high-quality fake $100 bills, called supernotes; drug trafficking; human smuggling; and money laundering.

Additionally, North Korea was found to be charging two to three times the normal rate for registering vessels, raising suspicions that the shipping companies were evading regulations, inspections and insurance requirements.

Officials would not identify the companies that flagged their ships in North Korea. However, the companies include U.S.-owned and foreign-owned subsidiaries, all registered in Delaware. The companies were given several months to reflag their vessels before the ban took effect.

An investigation by the U.S. government found that some of the shipping companies that flagged their vessels in North Korea were engaged in improper activities and that the practice was providing hard currency to North Korea, which has had a collapsed economy for more than a decade.

Many governments are reluctant to conduct inspections of North Korean-flagged ships, making them easier to use for smuggling. And the companies are taking advantage of North Korea’s very lax requirements for seaworthiness and safety.

More than 80 foreign ships had been flagged by North Korea, and at least 11 were U.S.-owned, or owned by foreign subsidiaries in the United States.

It could not be learned how much money the North Koreans will lose from being unable to register U.S. vessels, but the officials say it will be significant if U.S. allies also adopt the sanctions. The State Department has been working with other nations to follow suit, including South Korea and Japan.

Robert Joseph, undersecretary of state for arms control and international security, told the Senate Foreign Relations Committee in February that although the administration is committed to talks with North Korea, “we have also made clear that we … will expand as necessary and appropriate, our defensive measures to ensure that we can protect ourselves from the proliferation threats from North Korea, as well as from its illicit activities, including money laundering and counterfeiting.”

Economic sanctions were imposed on North Korea after the Korean War, but the Clinton administration loosened some in 2000 as part of its efforts to prompt the communist regime to halt long-range missile tests.

“In recent weeks and months, we started to look at the parameters of the sanctions, and this was one way to take a step back from the broad range of things we authorized in 2000,” a Treasury Department official said.

Officials said the State Department’s Asian affairs bureau opposed the sanctions because the office feared further upsetting Pyongyang, which has quit talks on its nuclear arms program.

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