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Cutting North Korea's cash flow

1,000 and 500 North Korean won

KAI RYSSDAL: Nobody's actually saying the word sanctions today. But the State Department did say Iran's counterproposal on its nuclear program falls far short of what the United Nations is looking for. Meanwhile, South Korea's foreign minister warned North Korea not to conduct a nuclear test. He said any test would isolate North Korea. Which is funny, because it's already kind of isolated and about to become even more so.

This week, a US Treasury official said North Korea has stashed away a fortune in bank accounts all over the world — mostly the proceeds from counterfeiting and weapons smuggling. The White House is trying to cut North Korea out of the international financial system.

University of Georgia history professor Stephen Mihm says Pyongyang is a pretty easy target.


STEPHEN MIHM: Well, they have a lot of hard currency. And by they I refer specifically to Kim Jong Il and a fairly small circle of elites that are clustered around him. And that money, which has been obtained through a variety of means — some legitimate, some not — has been deposited in these banks scattered throughout the world. And this is what the regime draws upon to keep itself well-supplied and stocked with luxury items and with any of the other "necessities." So, when those accounts get frozen, it deals a very serious blow to the regime.

RYSSDAL: The US freezing those accounts and taking economic measures against North Korea you could sort of understand. China, though, while not certainly an ally of North Korea, has traditionally been reluctant to take harsh steps.

MIHM: That's right. Up until recently, the Chinese have been willing to tolerate a considerable amount of bad behavior on the part of the North Koreans. They have, however, been under tremendous pressure to assist the United States in its countermeasures against North Korea. And it looks as though that pressure is beginning to pay off. Because, the Bank of China has begun a process by which it is designating some of those same accounts and effectively freezing them.

The reason it's doing this is fairly simple. It wants access to the international financial community. And as part of a requirement of that they have to clean up some of their act.

RYSSDAL: What's the threat from Washington, though? What leverage does Washington have over Chinese banks?

MIHM: Well, to put it really bluntly, they could designate Bank of China as a primary money laundering concern and refused to do business with it, and order all US banks to not do business with it. Which would have a calamitous effect on the Chinese economy.

RYSSDAL: There are, nominally anyway, six-party talks trying to get going again between the North Koreans and some other countries. What is it that's keeping those negotiations from going forward? I think the common perception is that it's the missile tests, and so that's what the stumbling block is.

MIHM: Well, it seems to be, actually, that the North Koreans want their accounts unfrozen. And until those accounts are unfrozen, they're refusing to return. And the missile tests to some extent were an attempt to coerce or push the United States to release the accounts and allow them to rejoin the talks under those conditions.

RYSSDAL: And what then do you think is the final goal of freezing all these accounts?

MIHM: Well, it depends who you talk to. Some people in the government will tell you — in the US government will tell you — that this is simply a countermeasure meant to express displeasure about the fact that North Korea has been counterfeiting US currency, and has been engaged in elicit activities. There are others who will tell you that this is an attempt at regime change.

RYSSDAL: You mention regime change. And I'm wondering if you think that this is what we are forced to do now — we, the United States, in order to get something to happen internationally — is use economic measures since we're stretched militarily in several other places in the world.

MIHM: That's an interesting question. And what's maybe even more interesting about it is, judging from the North Koreans' response, there does seem to be evidence that these things actually work. Because, the US economy is still the largest economy in the world. And, if the Treasury Department forbids US banks from doing business with a bank overseas, it can send shockwaves through the global economy in a way that a military strike might not always do.

RYSSDAL: Stephen Mihm is a professor of history at the University of Georgia. Professor Mihm, thanks a lot for your time.

MIHM: Thanks a lot for having me in.

About the author

Kai Ryssdal is the host and senior editor of Marketplace, public radio’s program on business and the economy.
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