North Korean Proliferation Financing and Designated Non-Financial Businesses and Professions by RUSI

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By Sasha Erskine

This paper offers recommendations for international organisations and individual governments to adapt their regulation to better capture North Korea’s sanctions evasion activities.

North Korea has become increasingly skilled at evading targeted financial sanctions (TFS) and has often exploited or used designated non-financial businesses and professions (DNFBPs) to do so. Despite this, there is a lack of guidance available for this sector on the sanctions evasion risks they face.

This gap needs to be urgently addressed, as the Financial Action Task Force (FATF) now requires the private sector – including DNFBPs – to ‘identify and assess the risks of potential breaches, non-implementation or evasion of the targeted financial sanctions related to proliferation financing’.

Understanding how North Korea has evaded TFS through DNFBPs will be key to fulfilling this requirement. This is of particular importance as North Korea-related DNFBP typologies do not appear to be aligned with the money-laundering and terrorist-financing vulnerabilities faced by DNFBPs more broadly, upon which the FATF Standards’ preventative measures and record-keeping obligations are based.

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

A notable factor identified across all cases used in this paper is the extent to which current FATF Standards do not adequately capture the DNFBP-related sanctions evasion activities employed by North Korea, resulting in key exploitation vulnerabilities. The cases also provide a useful snapshot of the kinds of activities North Korea undertakes in these sectors.

p/o Virginie Gastine Menou

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Publié le 5 janvier 2022 par

Virginie GASTINE MENOU

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North Korean Proliferation Financing and Designated Non-Financial Businesses and Professions by RUSI

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By Sasha Erskine

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This paper offers recommendations for international organisations and individual governments to adapt their regulation to better capture North Korea’s sanctions evasion activities.

North Korea has become increasingly skilled at evading targeted financial sanctions (TFS) and has often exploited or used designated non-financial businesses and professions (DNFBPs) to do so. Despite this, there is a lack of guidance available for this sector on the sanctions evasion risks they face.

This gap needs to be urgently addressed, as the Financial Action Task Force (FATF) now requires the private sector – including DNFBPs – to ‘identify and assess the risks of potential breaches, non-implementation or evasion of the targeted financial sanctions related to proliferation financing’.

Understanding how North Korea has evaded TFS through DNFBPs will be key to fulfilling this requirement. This is of particular importance as North Korea-related DNFBP typologies do not appear to be aligned with the money-laundering and terrorist-financing vulnerabilities faced by DNFBPs more broadly, upon which the FATF Standards’ preventative measures and record-keeping obligations are based.

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

A notable factor identified across all cases used in this paper is the extent to which current FATF Standards do not adequately capture the DNFBP-related sanctions evasion activities employed by North Korea, resulting in key exploitation vulnerabilities. The cases also provide a useful snapshot of the kinds of activities North Korea undertakes in these sectors.

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