North Korea Using Large Smuggling System to Evade Sanctions, Import Luxury Goods, Report Says

Global export controls and international sanctions are not stopping luxury goods from entering North Korea, which is employing a significantly larger smuggling scheme than previously known, according to a July 16 report from the Center for Advanced Defense Studies (CADS), a nonprofit research organization in Washington. The 56-page report details how North Korea works with intermediaries, freight forwarders, private financiers and others to smuggle luxury goods into the country. The report also places North Korea’s smuggling system into context: Between 2015 and 2017, at least 90 countries “served as luxury goods procurement sources” for North Korea, the report said.

The report comes amid questions about how North Korean leader Kim Jong Un has been receiving luxury cars that are subject to multilateral international sanctions. Kim has been seen emerging from armored Mercedes-Maybach limousines for several meetings with international leaders, including at summits with President Donald Trump (see 1904290215).

In its report, CADS investigated “previously unreported” shipments to North Korea of more than 800 luxury vehicles. The cars originated in Germany, the Netherlands and Thailand before being transshipped to China, Japan, South Korea and Russia, the report found. North Korea works to import the cars with “commercial entities,” all of which “have significant freight handling capabilities, and engage with North Korea in other prohibited commercial activities like ship-to-ship transfers, coal exports, overseas labor, and arms sales,” the report said.

Some of the most important players in North Korea’s ability to smuggle luxury goods and evade sanctions are the “facilitators” in transportation and logistics industries, “especially freight forwarders,” the report found. The highly specialized products coming in “require capable intermediaries who can securely transport sensitive freight from limited suppliers across multiple jurisdictions,” the report said. “Our research suggests that, for these ‘precise procurements,’ freight forwarders with special cargo handling capabilities and access to key rail and sea delivery routes directly consign for shipments before diverting the cargo to a North Korean end-user.”

North Korea may also be importing the goods through domestic companies that “procure luxury goods through representatives” and their international branch offices, the report found. “Quasi-private entities with liquidity and international market access have become an increasingly important pathway for delivering a wide array of consumer products to North Korea,” the report said. “The full extent and implications of North Korean market reforms are beyond the scope of this paper.”

The report issues several recommendations for international law enforcement and policymakers. Banks should be required to “scrutinize transactions” for exports of high-end luxury goods “involving freight forwarders in high-risk jurisdictions” such as Russian and China, the report said. In addition, insurance companies for “at-risk vessels” in northeast Asia should “include contractual language” that requires consistent transmission of the vessels’ automatic identification system (AIS). The report also suggested that the United Nations Panel of Experts publish a list of all “accredited overseas branches of North Korean companies” and “verify their compliance” with UN Security Council resolutions.