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tv   Hearing Focuses on Impeding North Koreas Access to Funding  CSPAN  September 15, 2017 1:48pm-3:50pm EDT

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it great job let's replace him with a stronger operator. >> watch operator communicators. >> a look at propose legislation to strengthen u.s. sanctions against north korea and some of the countries in which it suspected of money laundering like china and russia. the house financial services subcommittee hosted scholars and two of them were former federatfederal government advisors. also those from the united nations security council. this is about two hours.
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[inaudible conversations] >> we need to declare recess of the committee and members will have five legislative days in which to submit extraneous materials in the record. this hearing is entitled a legislative proposal to impede north korea's access to finance. we now recognize myself for five minutes to give an opening statement. today's hearing will examine draft legislation that would impose secondary sanctions on foreign banks whose business supports the north korean regime. whether directly or indirectly. by encompassing both the economic activity in north
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korea, these measures would represent the toughest financial sanctions yet directed at north korea. this means going after coal, petroleum, textiles and minerals as well as north korean laborers abroad. in addition, the bill would incentivize greater by leveraging our vote at the international financial institutions were certain countries with lax enforcement go to seek assistance. this bill puts those countries on notice. this proposed legislation has been informed by the committee's ongoing work on north korea, as well as the un panel of experts evaluation of existing sanctions effectiveness. needless to say, north korea's sixth nuclear test on september 3, coupled with its repeated launching of intermediate and long-range ballistic missiles underlines that more must be done. as a result, the legislative draft will be looking at plays out a choice. foreign banks can either do business that benefits north korea, or they can do
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business with the united states. they cannot do both. as many of us here are aware, this is a similar approach to the one taken in 2010 against iran which helped compel the ayatollah negotiate over the nuclear program. while there are differences of opinion over how successful those negotiations were, there is consensus, i believe, that in the absence of secondary sanctions affecting banks, tehran would've been less incentivized to even engage in talks. a focus on banks is especially important given how north korea has evaded sanctions in the past. as doctor john park testified before the subcommittee in july, the north koreans have moved much of their trading activity offshore using third country brokers and front companies. the specter of financial sanctions may concentrate the minds of foreign banks so that the entities identified by doctor park and others
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have fewer options to carry out transactions and mask north korean involvement. having said that, this bill would expand the scope of our sanctions to encompass even actors engaged in conventional trade with the north. kevin north korea's unchecked hostility, broadening our efforts in this way appears essential. nevertheless, china's response to stronger sanctions has been cited as a concern as the country accounts for an estimated 90% of north korea's trade. some have therefore argued that harsher sanctions may damage cooperative efforts with chinese leaders to curb north korea's weapon program. i would submit those critics should be far more sensitive to a quarter-century of failed multilateral efforts. there comes a time when caution over ways strategic
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patience and it becomes a euphemism for self-delusion. as the subcommittee learned from its hearing in july, if china is not part of the solution to north korea, it is part of the problem. chinese officials have fallen short on enforcing un sanctions to beijing. beijing itself has signed on to it. as the un security council talks following the nuclear tests, it is still unclear if china is committed to meaningfully tackling the north korean threat. finally, we should acknowledge that kim jong-un's eagerness enforcing the withdrawal of u.s. troops in the region may not be entirely inconsistent with chinese interests. for all the reckless talk of china exerting influence around the globe at arrival to u.s. power, we are curiously asked to believe that their hands are tied when it comes to a small, economically dependent state
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next door. well, if chinese officials hands are tied, then we should proceed with secondary sanctions so there banks can assist international efforts to cut off north korea's access to finance. if, on the other hand, china could do more than it has been secondary sanctions may finally inspire it to do so. i want to thank our witnesses were appearing today and i look forward to their testimony. the chair now recognize the ranking member of the subcommittee, when more for five minutes. >> thank you so much. in the absence of ranking member of the full committee, i would like to share some thoughts that she had committed to paper regarding today's hearing. i want to thank our witnesses for joining us to discuss the legislative proposal aimed at expanding the united states sanctions against north korea and pressuring the
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international committee to enforce those restrictions as well. the situation in north korea is the most urgent and dangerous threat to peace and security that we face. it is one that grows more dangerous as north korea aggressively pursues the capacity to extend its nuclear region, the united states. in fact, there are no good options for dealing with north korea. most experts agree that a preemptive strike, at this point, on north korea would be reckless beyond belief. of the least bad options, i like the idea to lean more heavily on north korea, and i like the idea of tougher sanctions, but we should not confuse either of those things with a coherent strategy, and we should be clear upfront about our goals and objections and what we expect sanctions can
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accomplish. any ratcheting up of sanctions must be coupled of aggressive diplomatic engagement by the united states and within a framework that would entail the nuance negotiations with north korea, u.s. allies and china. this would require unprecedented policy making capacity in coordination across the united states government as well as skills, policy coronation with our allies. it concerns me therefore that just does this crisis is accelerating, a diplomatic capability, which opens channels for crisis medication and reduce the risk of miscalculation are diminished. not only our u.s. ambassador ships to japan and south korea still vacant, the president has yet to nominate a permanent assistant secretary of state for east asia pacific affair. the proposal before us today rightly recognizes the need to exert massive and immediate pressure on the
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north korean regime and importantly and list china's another's in this effort. such a powerful approach toward sanctions, however, that has a capacity to reverberate across the global economy and produces potentially disastrous consequences must also allow for careful calibration and implementation. we look forward to the witnesses views on the proposal before us as well as views on how the u.s. can most effectively use leverage on the danger that north korea presents. i yield my time. >> the chair now recognizes the gentleman from washington for an opening statement. >> thank you, mr. chairman and ranking member for the time and thank you all for convening this important hearing. responding effectively to north korea's provocations will require a variety of tools. credible deterrence, skillful diplomacy and a careful
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design of nonmilitary sanctions. here we have jurisdiction over only one of those tools, sanctions. i believe it's important we always keep the broader picture in mind as we work to perfect the discussion draft which has been put forward today. even with perfect compliance, i believe it's difficult to stop any country from pursuing a course of action which it views as vital to its survival through sanctions alone. these challenges are even greater when dealing with the regime like north korea. the regime which relies on force to stamp our, a regime which has demonstrated indifference, the incredible suffering of its own people, a regime which can easily make sure its nuclear program are the last to feel any pinch. done right, however, sanctions can make further north korea advances slower and more costly. it gives more time for other policy to tools to work.
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i look forward to hearing from our distinguished witnesses about how this proposed draft fits into a larger strategy. >> my constituents in the south will include service members at the joint base lewis mccord are counting on us to respond to this crisis in a responsible manner. so too are our allies like south korea and japan and in asia-pacific region which has enjoyed decades of peace and prosperity in large part because of the credibility of u.s. security guarantees in a broader commitment to the region. we cannot avai afford to fail them. we have to get this right. i am hopeful that was steady american leadership workingwe i yield back. >> the gentleman yields back and because of the significance of the issues under consideration in this hearing and the importance of
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the north korean threat to our homeland and to the interest of our country, a number of members from the full committee have expressed interest in participation in today's subcommittee hearing. i asked for unanimous consent that members on the full committee, but not on the subcommittee may join in this hearing. >> without objection, that is ordered. today we welcome the testimony of a distinguished panel of witnesses, first david who is the founder and president of the institute for science and international security. he has written numerous assessments on the secret nuclear weapons program throughout the world. he has published assessments in numerous technical and policy journals including the bulletin of the atomic scientists, scientific american on the science and global security, washington quarterly, and arms control today. he has also co-authored four books including the world inventory of petroleum and highly enriched as well as
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peddling peril, how the secret nuclear trade arms america's enemy. prior to founding the institute he worked as a senior staff scientist at the federation of american scientists and as a member of the research staff of preston university for energy and environmental studies. anthony spent more than 17 years in the u.s. government as an expert in the use of targeted financial measures. most recently he was a foreign-policy fellow in the office of senator marco rubio and a senior advisor on issues relating to the senate foreign relations committee. he has also served in the treasury department as deputy director and then director of the office of global affairs and financial crime. prior to joining treasury, he spent over 13 years in various capacities at the state department including as chief of the defensive measures in wmd finance team. he was also nonproliferation advisor to the u.s. delegation to the 2005 round
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of the six party talks in beijing and participated in north korea meetings following the identification of the primary money-laundering concern. he also served as an intelligence analyst covering north korea nuclear missile programs. mr. klinger specializes in korean and japanese career. he's a freak and commentator on foreign media. the analysis and writing about north korea, south korea and japan are informed by his 20 years of service and the defense intelligence agency. from 1996 until 2001, he was cia deputy division chief for korea, responsible for the analysis of political, military, economic leadership issues for the president of
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the united states and other senior policymakers. in 1993 and 1994 he was the chief of the cia korea branch which analyze military departments during a nuclear crisis with north korea. elizabeth rosenberg is a senior fellow and director of the energy economic and security program at the center for a new american security. in this capacity she publishes and speaks on the national security and foreign policy implications of energy market shifts and the use of sanctions and economic statecraft. from may 2009 until septembe september 2013, mrs. rosenberg served as a senior advisor to the assistant secretary and then to the undersecretary for terrorism and financial intelligence. in these roles, she helped to develop and implement financial and energy sanctions. she also helped formulate anti- money laundering policy and oversee financial regulatory enforcement activities.
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each of you will be recognized for five minutes to give an oral presentation of your testimony. without objection your written statement will be made part of the record. mr. albright you are now recognized for five minutes. >> german bar, ranking member and other members of the committee, think you for the opportunity to testify today. north korea's september 3 nuclear test, by far it's the largest in terms of explosive yield demonstrated to resolve and commitment to developing a nuclear arsenal able to strike its enemies. during the past two years, north korea has embarked on an intensive nuclear weapons testing and production campaign that is including the destruction and operation of mediocre facilities, three underground tests and tons of ballistic missile launches. it's apparent goal is to have tens of nuclear weapons of many varieties made into ballistic missiles with
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ranges stretching to intercontinental distances. few doubt that north korea can now launch ballistic missiles that can strike our allies, japan and south korea. there is rightly more skepticism that north korea is yet able to deliver nuclear warhead to american city. it is making rapid progress toward that goal. >> i continue to believe that north korea can be peacefully denuclearize to, however substantive negotiations appear unlikely unless north korea changes its path. given north korea's own willingness, and its provocative behavior, there is little choice but to exert more pressure including harsher sanctions and trade cutoffs. the security council resolution passed on monday as an important step in that direction. a near-term priority is to far more effectively isolate north korea from the regional and financial system. a central problem is that
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many countries are not enforcing sanctions effectively or in some cases willfully disregarding them. punitive measures are needed to encourage compliance and deter violations. additional u.s. legislation that supports that goal is useful. north korea appears to target entities and persons in engaging activities in violation of un security council sanctions intensive countries with weak or nonexistent control systems for proliferation financing controls or higher than average corruption. although a range of remedies are needed to fix performance in general of many of these countries, the creation of unitive measures may be an effective means to accelerate more compliant behavior in the short-term among a wide range of countries where entities and individuals see north korea as a quick way to make money or obtain military or other goods more cheaply or unavailable elsewhere.
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dealing with china's trade with north korea is in a different category. morsnorth korea has depended on illegal procurement for decades for its nuclear and other military programs. as the chairman pointed out, it has gone offshore quite successfully to be able to acquire those goods and they don't just acquire them in the country of such as china, they are able to get those goods from the united states, europe and japan by operating in china and exploding china's week export control and sanctions legislation. although china is improving its export control laws, have not done an adequate job of enforcing the laws. i've provided several examples in my testimony. china remains north korea's central supply conduit for its nuclear weapons program.
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one of the priorities is to change that. the trump administration's efforts to sanction chinese, and for that matter russian owned companies and individuals that significantly support north korea's weapons program are a positive step. unless china and russia show dramatic improvement in ending their trade with north korea, united states should go further and sanction major chinese and russian banks and companies for any illicit north korea dealings. both countries have gotten away for far too long and have haste to view consequences for turning a blind eye to the sanctions busting business activities of their citizens and those of north korea and using their economies for nefarious purposes. north korea has a diplomatic path out of its isolations and sanctions. if it negotiates a full verified denuclearization of its nuclear and long-range missile programs. any such negotiations would need to repair mistakes when
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north korea was able to evade inspections and continue expanding its nuclear programs. an agreement would also need to allow an president as access allowing for full accounting as part of the denuclearization process. although this prospect seems unlikely in the short term given north korea's current trajector trajectory, it is important to keep the scope available as a matter of u.s. policy in case increased sanctions can't convince north korea to negotiate. likewise the trump administration continue to make clear that regime change is not its goal and particularly if the goal was to seek cooperation from china, that becomes even more important. >> the germans time has expired. >> thank you. we look forward to the remainder of your testimony during the question and answer session. you are now recognized for five minutes. >> german bar, ranking member and distinguished member of the subcommittee, thank you for the opportunity to address you today on this
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important issue. often u.s. policy toward north korea get stuck in a cycle whereby a north korean provocation is met with the strong american rhetoric or token increase in sanctions. it's a pattern that's repeated over and over. if we don't break the cycle, the kim regime can keep distracting the united states with its repeated provocations. we must ensure that u.s. response to every north korean provocation advances our goal of denuclearize in north korea. some experts will call for the white house to negotiate a freeze of north korea's nuclear program. it has claims that it will reduce the threat and eventually lead to do the engine denuclearization. we have seen this movie before and the ending is not encouraging. north korea's made it clear that it has not, it has no interest in denuclearization to the extent that pyongyang is interested in the gay negotiation, it's only for the purpose of the promises that it will quickly violate as it did with the 1994 framework.
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in testimony before the subcommittee in july i noted that u.s. sanctions did not have a serious impact because they have been sufficiently targeted enough of north korea's international business and have been targeted enough sanctions. this appears to be changing. the trump administration has started to sanction their international business partners. since march 31 the u.s. has sanctioned 43 persons of whom 86% operate outside north korea and 54% are non- north koreans. this work is not done. as i note my written testimony, actions against north korea reveal three methods north korea uses for financing prohibited activity. the first method starts with north korean revenue in china following the sale of commodities brokered by chinese firms and individuals. the payment then moves through north korean bank. from there moving left to
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right. from there the funds moved to a chinese company and a front company that accesses u.s. bank banks. this only happens because the u.s. banks archer to into processing the north korean transactions. this is how payment is made for the original u.s. dollars. this method is important to highlight with recent reports that chinese banks have cut off north korean accounts. the method relies on the ledger system between north korea and china where the chinese firms and individuals hold these bank accounts. the second method was identified by the justice department based on information from an unnamed north korean defector. chinese entity one on the left side of the slide, they owe money to north korean entity one while north korean entity to close a similar amount to chinese entity two. the entities pay each other given the difficulties of moving money over to the
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china north korea border. slide three please. the third method which is used by russian company to receive u.s. dollars for shipment of gas, oil and north korea, this is very important given the dail new resolution that restricts energy sales. they would not process this between non- sanction parties. front companies were created in singapore to obscure the nature of the transaction, allowing almost $7 million in payments for this transfer. all three methods show that north korean suppliers prefer u.s. dollar payments providing a key vulnerability that washington can exploit. this is why it is crucial for the trump administration to issue fines against chinese banks that are facilitating north korea sanctions of asia , matching the successful policy as a chairman said used to pressure european financial institutions that were facilitating iran sanction violations.
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the fines will likely prompt chinese banks to improve scrutiny of north korean transactions. to be clear, nongovernmental organizations here in washington, i'm confident the largest banks in china with significant mind power can find them as well. they need to do more face consequences. it's important to remember there's other political considerations at play. they're trying to decouple the united states from our closest ally in south korea and japan. the ultimate goal was not a suicidal nuclear attack on the u.s. homeland, but rather using that threat to bolster north korea's effort to unify the korean peninsula and intimidate our japanese ally. a sanctions approach that focuses on the north korean activity has the best chance of success. thank you again for inviting me to testify and i look forward to your questions. >> thank you. ms. rosenberg, your recognize for five minutes. >> thank you.
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ranking member more, distinguish members of the committee, i appreciate the opportunity to testify before you today. north korea's alarming and dangerous recent ballistic missile launches and at six nuclear test highlight the need for much stronger pressure on the regime to limit its proliferation activities and faces provocation. it should be a core part of a pressure strategy along with projection and complement it by diplomatic engagement. the move north korea towards stability and deep nuclear station. i applaud the work of congress to impose new sanction authorities this past summer, to tighten financial pressure on north korea, along with complementary sanctions from the united nation. nonenforcement innovation is gravely concerning, particularly when it comes to china for which throat flows over overwhelming trade. for some observers, this is an immediate indication that the current sanctions is inadequate and that the united states should make secondary sanctions mandatory
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to force other countries to comply with sanctions. while current sanctions authorities are already very aggressive to apply pressure on north korea and its international enablers, i support the effort for to consider how mandatory secondary sanctions should be deployed to enhance pressure. let's not forget that secondary sanctions required delicacy in their operation. they may be counterproductive if they are so aggressive or politically incendiary that partners become utterly defined, uncooperative and create invasion schemes or economic punishments or trade war. ultimately, avoiding pitfalls is primarily the responsibility of the u.s. a ministration, the body that implements and enforces sanctions. congress must oversee aggressive sanctions but also give the administration
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adequate taxability, even within the framework of mandatory secondary sanctions to impose these measures and also manage the consequence for the united states and its partner. in addition to sanctions, policy leaders must apply another form of economic statecraft to target north korea, pushing for rigorous risk based approaches for global banks to identify and curtail proliferation finance. this leaves all other global banks. [inaudible] these global banks and expectation and lack of knowledge of the threat means that they often take a mechanical approach to proliferation finance in the form of checking customers or transactions against entity sanctions by the un, sometimes including the u.s.
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this includes obvious opportunities to use proxies to get around sanctions and controls and we just heard that described in some of the examples offered by my colleague. the global standard for countering illicit finance endorses an approach along the lines of checking customers instead of the risk based evaluation of suspicious conduct. [inaudible] there must be information exchange around known entities and high. in my written testimony i outline several points in response to your registration draft and some additional ideas for measures.
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to summarize, i support your approach and encourage meaningful waiver provision to manage unintended consequences. i urge you to consider ways to provide additional financial support for the treasury and state department and the u.s. community to expand the group of efforts and offering technical assistance related to sanctions. congress should mandate u.s. banks extending to their form branches, subsidiaries and correspondence related to proliferation finance and facilitate greater public, private information sharing on this topic to enhance global compliance. thank you for the opportunity to testify. i look forward to answering any questions you may have. >> thank you. you are now recognized for five minutes.
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>> distinguish members of the panel, it's an honor to be asked to speak before you. although the north korean programs are indigenous, the regime requires access to foreign currency. they maintain access through global access and shell companies. they continue to be denominated in u.s. dollars and that's still going through u.s. banks. while the challenges in imposing targeted measures on north korea may appear overwhelming, a close examination involves various characteristics. north korea uses a limited number of trusted individuals to run their networks. individuals responsible for establishing have remained for years.
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north korean agents leave behind a digital trail making them vulnerable to targeted sanctions. china accounts for almost 90% of total north korean trade and the entire trading system consists of 5000 companies. they are centralized on a smaller number of large-scale trading firms so the top ten importers of north korean goods in china control 30% of the market, and those trading firms themselves are controlled by a smaller number of individuals. the network in china is centralized, limited and therefore vulnerable. therefore targeting a relatively small number of strategic chokepoints can have it proportionate affecting multiple networks in multiple countries. it could induce them to change roots, bank accounts
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and procedures to less effective means. even legitimate businesses will become more fearful of being entangled in illicit activity and more fully implement required due diligence measures. cumulatively these efforts reduce the foreign revenue services, increase strains on the regime and internal pressure on the regime. sanctions enforcement must be flexible, innovative and adaptive to the changing tactics of the target. as north korea, when they shifted to chinese brokers, they should've begun including them on sanctions list. to raise it they must go on to have a full-court press to isolate north korea and introduce tremors. for too long success of the u.s. a ministration says you sanctions as a calibrated response to north korean
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provocations, rather than a law-enforcement measure defending the u.s. financial system. the u.s. should target any entity suspected of aiding or abetting north korea missile and conventional arms development, criminal activities, money laundering or the importance of luxury goods. the u.s. should also and de facto chinese immunity from u.s. law. beijing is not paid a price for turning a blind eye to north korean proliferation and it was activity occurring on chinese soil. washington has long towered from targeting them out of fear of undermining perceived assistance in pressuring north korea for economic retribution against u.s. economic interests. the north korea sanctions and policy enhancement act mandates sanctions on banks and companies that violate u.s. sanctions on law. they should penalize institutions and businesses that trade with those on the sanctions list, export
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prohibited items or maintain accounts for north korean entities. washington should impose significant fines on china's four largest banks at a commensurate level to the $12 billion in fines the u.s. levied on european banks for money laundering for iran. the u.s. should designate as a money laundering concern any medium or small chinese banks or businesses complacent in north korean activities. in conclusion, the most pragmatic u.s. policy is a comprehensive integrative strategy using all the instruments of national power to increase pressure in response to the repeated defiance of the international community to expand information operations against the regime, to highlight and condemn the crimes against humanity, to ensure the u.s. has sufficient defenses for itself and its ally while leaving the door open for diplomatic efforts. sanctions require time and the political will to maintain them in order to work. it is a policy constriction rather than a rapid cobra strike. thank you for the privilege
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of appearing before you. >> thank you for your testimony and the chair recognizes himself for five minutes. earlier this month, russian president vladimir putin argued that the potential for north korea sanctions to be effective remains limited. he claimed that the north koreans would prefer to eat grass than give up their nuclear weapons. how would you respond to those who claim that north korea can always whether sanctions, that they are not effective means of providing substance and meaning to our diplomacy and that the kim regime will never care if it's economy will suffer in order for him to advance his weapons. i will ask all of you to briefly respond to that question. >> i think sanctions can have a very big impact in north korea partly for what you've been focusing on. they are not implemented. there's a lot of room to really press north korea to
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change its behavior. i think it's an extremely valuable tool. i think part of the purpose of sanctions, i would like to seen it north korea eat its nuclear weapons if that's what they choose. sanctions should start to have a cost and i think that can actually be done, and particularly in north korea i think it's more vulnerable because it surrounded by very big powers. this isn't like india and keswick stand or even iran. there are relatively weak state that is surrounded by very powerful neighbors who increasingly, even with the case of russia do not like it's behavior. when you entered this question, could you also address the issue that of course north koreans have been very creative in using third country brokers as you testified and front companies to mask their illicit transactions. as you answer the question, could you address our draft
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bill and whether you think the banks and third countries above all china actually possess the capacity to identify these brokers, middlemen and front companies. >> on russia, i would start with perhaps present prudence should focus on his russian companies that are facilitating sanctions. the ones that are working with north korean proliferation entity, it was designated by the un in 2009 that the u.s. sanctioned twice in the last couple of months. perhaps, if he had his own company he was implementing sanctions, they would do a little bit better. i would also go back to 2005 in my experience, the delta asia was very effective in targeting north korea's financial activities, now there's a difference here because north korea's frankly not stupid enough to concentrate all their financial activities in one bank. in terms of being creative,
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certainly people could criticize sanctions because at the game of lacrimal and certainly it takes a lot of resources, it did with iran, but they're not invisible as mr. klinger said, yes can find them, the largest banks in the world can find them. that's the part i would highlight amongst other things in the legislation is the due diligence. if we are not having chinese banks and u.s. banks looking for these activities, that is the problem. that is the serious problem here. >> i would add that they have strong reasons, strong interest in ensuring there is no money laundering occurring in their own economy, not just related to their support or relationship appropriate. i agree china has the capability to go after, investigate and take action on north korean money laundering, and of china, a
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country with extensive and sophisticated capital control has taken measures including installing facial recognition cameras at atms in order to manage the flow of currency outside china, then they can certainly do a lot more to recognize these trusted asians of the north korean government that changed their names and their legal entities. :
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>> it gets north korea to abide by resolutions and laws. so i believe in doing the right thing even if it's difficult rather than throwing up our hands in despair. i believe in rolling up our sleeves and getting to work. >> thank you. on implementation -- >> times has expired. i'll have to yield to the gentleman from illinois at this point, mr. foster. maybe you can follow up during the remainder of the time. >> thank you, mr. chairman, and thank you to our witnesses. the financial sanctions we're talking about have two, seem to be having two strategic goals. first is to cut off access to the technical components necessary for the development of
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what looks like to be many dozens of deliverable nuclear weapons in the next several years. what is the rough estimate? it has been widely reported that there's a lot of indigenous capability to make components inside north korea at this point. so what is the rough amount of -- what is the dollar figure, a decent ballpark estimate for the dollar figure for how much they have to purchase outside their country to execute that program that everyone's worried about? >> i must confess we don't -- when we watch their business of acquiring equipment and we focus most toly on the nuclear weapon -- mostly on the nuclear weapons program, they're buying things in orders of millions of dollars, and they're buying a lot. what they pay -- >> it's, for example, it's a small fraction of a billion dollars? >> yes, i would say. because they also have an infrastructure that's been in
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place for 40 or 50 years that they've been paying for incrementally. so while i see -- they seem to have no shortage of cash to buy things for the nuclear program. it's not huge amounts of money that they're -- >> yeah. so, but in terms of trying to understand how, what sort of leaks we could tolerate in a sanctions regime designed to shut down their nuclear program, the answer is it would have to be really prohibitively tight. >> well, but it -- these objects aren't, we have found anyway, and even in the case of iran where they were put in place more deceptive practices in their procurements, companies, governments are pretty good at detecting these things. i mean, we get a pretty good readout on a lot of what north korea has has acquired over the years. and we use that both strategically to understand their program and where it's going, but also tactically you get a lot of information about the networks that you can then act on. i mean, the problem has been
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china is not cooperating. so company, let's say a german company in china is getting help from its own government to try to defeat the north korean efforts, but the chinese government isn't doing very much. and they're the ones who should be doing the most. and so is -- >> yeah. so the goal rather than to actually cut off money which is a tough thing is to actually increase information and increase our shaming ability towards -- >> well, but if you can -- once you identify the goods, you can then move to cut off the financing. because they've got to pay for it, as my colleagues have talked about. and so i think these things build upon each other. and i think i would agree that going after the money is the way to hurt them most. >> well, the chinese are well known to be sort of task masters at shuffling around money in black markets if you look at the crypto-currencies alone are enormous compared to the fund
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transfers that we're talking about having to detect. so that's my -- the second part of the question, the second strategic goal is actually to put pressure on the general economy. you know, you'd mentioned, you know, fuel, luxury goods, things like that. and the strategic goal there seems to be to put the fear in the leadership in north korea of some sort of general unrest. and, you know, my big worry on that is that if that actually comes to fruition, that it will be interpreted as a decapitating strike or something like that that may trigger, you know, may trigger even a pre-existing plan to retaliate certainly against our allies which, as you mentioned, are very hard to defend against even their current nuclear capability. and so i was wondering if you have any thoughts on that, on the sort of risks that we're heading for. >> well, i think, again, if the question was directed at me -- [inaudible conversations] >> ms. rosenberg. >> i'd answer that, in addition
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to the two goals that you outlined, i would add a third which has become what i see as a primary goal for congress in contemplating mandatory secondary sanctions now. that third goal is putting pressure specifically on the foreign or third-country enablers of north korea's either pacific proliferation programs or their economy more broadly. so going after china in particular, chinese government entities or private institutions, banks and companies, to encourage or compel their greater activity to advance your, as you outlined, the goals one and two. >> yep, mr.-- >> one of the functions of the pressure tactics along with increased information operations and insuring defenses is to put greater pressure on the regime's stability. we want to make kim jong un fearful of regime stability if he continues down the path of defying the international community. that said, i disagree with those who advocate a regime change
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through a decapitation strike, either special forces or limited military strikes or a more jenin vegas. you know, i think -- general invasion. i think we are in a long-term game. it's like the long cold war strategy against the soviet union. we are deterring, defending, pressuring and seeking to undermine. >> thank you. >> the gentleman's time has expired. the chair now recognizes the vice chair of the subcommittee, the gentleman from texas, mr. williams. >> thank you, mr. chairman, and thank you to all of you witnesses for your testimony this morning. north korea continues to destabilize southeast asia and threaten the safety of the united states and our allies in the region. the aggression shown by kim jong un is equally as concerning as the methods he uses to finance his hostile activity. as the united states develops its strategy to further curb the threat posed by the dprk, we must consider to profound effect that other nations have in enabling their actions. because kim has proven unresponsive to sanctions, we must consider actions to target and cut off the governments that
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prop him up. nations that are unwilling to cut ties with the rogue regime that encourage mass destruction suppress their people should not be in business with the united states of america. so with that, mr. klinger, can you explain the decision that china's faced with when determining what to do business with the united states or continue financial and technological support with north korea? and furthermore, is this geopolitical issue for china, or is this investment -- is their investment in north korea so substantial that there are severe financial applications to cutting -- implications to cutting them off? >> what i would focus on is those entities that are acting against the u.n. resolutions as well as international and u.s. law. so entities that are violating our laws by misusing the u.s. financial system, the money laundering and other criminal acts, or that are engaging in facilitating the north korean
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nuclear and missile program. so i would focus on more of a law enforcement basis of going after those entities -- banks, businesses, individuals -- that are violating laws and resolutions. >> okay. another question, let me follow up. if the dprk eventually falls, what do you believe will be the fate of the north korean people who have been exposed to decades of propaganda and to oppression? and do you believe that they can adapt to a new way of life or a new form of governance? >> i think the answer really, sir, is we don't know. they have been isolated for decades. they have been fed a daily diet of propaganda. that said, increasingly information from the outside world is getting in. so whether they believe the prop p began da is a question we debate amongst ourselves. i think it varies by individual and by, certainly, the access they have to outside information. so that's one of the reasons like with east europe and the
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soviet union we're trying to get information into the regime as much as we can to have the citizens question the propaganda that their government gives them. >> thank you. mr. albright, can you discuss the level of nuclear cooperation that north korea has with other countries and who, outside of china, do you believe to be of the greatest concern? >> the -- north korea had considerable nuclear cooperation with syria including, essentially, building a nuclear reactor which was bombed by israel in 2007 prior to its operation. after that it's been much harder to track any nuclear cooperation. there are suspicions that something could happen between north korea and iran, and that's a very, well, very active area. but as far as i know, nothing substantial has been found. during the six-party talks, north korea committed in the
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singapore minute not to engage in proliferation. obviously, we don't believe that is true. but i think it's on notice that if it does engage in significant nuclear cooperation, it'll be incredibly significant and could, can trigger or cross a red line that would be very hard for the united states not to take very draconian action including even military action if it involved plutonium, weapon-grade uranium or a nuclear weapon. >> okay, thank you. and, mr. ruggiero, can you discuss the ways in which the u.s. government exposes and then targets money laundering activity related to the dprk, and if we impose secondary sanctions, are you confident that we can identify illicit transactions and stop them? >> well, i think what we're seeing now in particular with china is that the trump administration is using a combination of the justice department tools and the
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treasury department tools. on six occasions since late may, they have used those tools to target money launderers, in particular those who are trying to do financial transactions through the united states whether it's designations, requests for asset forfeiture or the new one was what's called damming warrants which were setting that up in u.s. banks understanding that chinese banks were going to do the transactions through u.s. banks. we need more of that. we need non-governmental organizations exposing these networks, and we need the u.s. government in particular putting the right amount of resources like we had on iran on this problem. and i'm not sure that that latter part is happening yet. >> thank you. thank you, mr. chairman. >> gentleman's time has expired. the chair recognizes the gentleman from california, mr. sherman, for five minutes. >> mr. chairman, i want to commend you on this bill draft. i look forward to working with
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you on it, look forward to cosponsoring it. >> thank you. >> but i've been doing this for 20 years, and for 20 years -- i want to applaud you for getting these witnesses here. i've heard them often. they have enlightened me. for 20 years i've sat on the foreign affairs committee, and administration after administration, expert after expert has come forward. and we've gone from no nuclear weapon in north korea to hydrogen bombs and near icbms in north korea. what is less well known is that we've seen a 50% increase in the real gdp of north korea even while this regime is subject to sanctions, and then we're told we're going to change this with, quote, unprecedented sanctions which just means a little bit more than what we've been doing before.
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now, hydrogen weapons, icbms, 50% gdp growth, some would say our policy has been a failure: but viewed another way, our policy has been a tremendous success. a success for the political class in washington. we've been able to tell americans we're doing all we can to protect them and don't blame us, and at the same time we've avoided doing anything that's difficult for the political class in washington. what would those two difficult things be? the first would be to move beyond company sanctions to country sanctions. because these gentlemen and lady are experts in how we can tell china go after this bank instead of that bank, but as long as china wants north korea to be relatively stable, they'll find a bank that will do business with them, or they'll set one up, or they'll have, you know. and yet company sanctions -- country sanctions would be very difficult for the political class here in washington because
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that would really concern big companies who would wonder whether this is some risk to their supply chain. the other thing we haven't done because it's politically difficult is set realistic objectives. we keep banging the table and say we're going to get this regime to give up all its nuclear weapons. saddam's dead, gadhafi's dead, and kim jong un does not want to join them, and he's not going to give up all his nuclear weapons. and if he thought his regime was falling, he'd use them. so i want to commend you, mr. chairman, for the more realistic objective you have in this bill. because you sunset it upon verifiable limits on the nuclear weapons program. we might achieve those. so you've done something that those who spend their time on foreign affairs have been unwilling to do, and you've taken a very constructive step. but i've seen this go on.
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let me ask mr. albright, kim jong un really thought his regime was going down, would he shrug his shoulders and go to the hague for trial, or would he use his nuclear weapons? >> i think if there was a conflict going on, i would imagine that he would use them. but if he's, you know, knocked off by some of his military generals, they very well may not use them. so i think it depends on concern. >> we could hope that they are saner and more peaceful than he is -- >> yeah. i think they would be moving to survive, and i think they would want to accommodate the neighbors. >> i will point out saddam's people didn't do that to him, gadhafi's people didn't do that to him, and many of the people around saddam and gadhafi would have been worse than their leader. let's -- i've got -- how's the north korean economy grown by 50%?
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i'm trying to achieve 50% economic growth for my country, in spite of all these sanctions, ms. rosenberg or anybody else? >> well, the first, best answer to that is because they've been howed to do that by a broad culture of -- allowed to do that by a broad culture of noncompliance with sanctions. >> yeah, i also want to put this in context. their economy's only $15 billion today. they use as much oil in the whole country as 150 gas stations. i've got 150 gas stations on ventura boulevard. this is -- they grew from a very small base, and they are still very small which makes the whack-a-mole a little more difficult because we're dealing with relatively small moles. i yield back. >> gentleman yields back.
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the chair recognizes the gentleman from north carolina, mr. pittinger. >> thank you, mr. chairman. and thank each of you for your expert witness today and for the very important role that you play in these areas. as you may know, i authored an amendment to ndaa that was adopted that would prohibit the defense department from doing business with chinese entities that provide material support to north korea's cyber attacks. earlier this year i also led efforts to punish the chinese government affiliated firm zte located in the usa for violating controls and selling embargoed technologies to the north korean government which resulted in a billion dollar fine. mr. ruggiero, in your opinion, should my amendment capture zte? is this an appropriate response? and would selling embargoed technologies to north korea be presumably used for cyber capabilities qualify as material support for north korean cyber
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attacks? >> on the amendment in terms of anything that, anything that suggests that firms need to do better at identifying north korea transactions and north korea companies -- and i think an amendment like that and the bill that's on the floor or that is proposed by the committee, the main goal is diligence and making sure that dod and others do not do transactions with companies in china. on cyber i would just point out, you know, that there's been some focus on north korea's cyber. there have been some reports recently, i believe this month or this week, excuse me, that north korea is looking at bitcoin and other cyber-enabled technologies to avoid sanctions including trying to steal bitcoin, i believe, from south korea for, you know -- so that's certainly a different turn on their illicit activities.
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>> do you believe these fines are an effective deterrent? >> zte is a very interesting case. i think that everybody would equate zte with a large chinese bank or a large -- or a medium-sized chinese bank. and i think as you well know but others might forget, zte actually agreed to that fine, and it was, it was because zte was caught doing the transactions. and i would also point out that there are some north korean front companies that are caught up in the zte -- >> do you think, though, that it will be a deterrent? >> >> i think, again, zte -- and i think for the chinese leadership, look, if you're a senior official in the c suite of a chinese bank, you've got to be worried right now. >> sure. >> mr. klinger, what other entities like zte provide the most material support to north korean cyber attacks? >> well, i think a lot of the north korean programs, as i said before, are indigenous, but they do need technology and
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components -- >> any specific ones you have in mind? >> i don't know specific companies right now, sir. >> would you support blocking those firms from doing business with the u.s. or with the department of defense? >> i think we should have a provision where you can do business with north korea or have access to the u.s. financial system. i think that is a choice that companies should have to make. >> yes, sir. from a strategic standpoint, whenever we discuss responses to north korea, as you said earlier, we're really talking about u.s./china policy. and how can we better pell the chinese -- better compel the chinese government to work with us on this issue? >> i think we need to separate law enforcement from diplomacy. we can continue on the u.n. path on cajoling and pressuring china to do more to implement required u.n. sanctions, but we don't need chinese permission to enforce u.s. law. we make clear to them that we are not going to negotiate away our law enforcement which -- so we can have, or we have had incrementally better u.n.
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resolutions, but we should not incrementally enforce u.s. law. >> thank you. ms. rosenberg, if you could pull your mic up a little closer when you respond, could you elaborate on data sharing between the private and public sector that you mentioned in your testimony and what we could do, what type of enhancement and capabilities that could provide us and assist you our efforts? >> sure, thank you for the question. in my written testimony, i outlined a couple ideas that i think would be a good opportunity for congress to take action on increasing data sharing among financial institutions, so pursuant to 314b of the usa patriot act, offering -- instructing the administration to offer some new guidance and adaptation in order to facilitate more information sharing between financial institutions within u.s. jurisdiction that will also transfer to their --
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>> if you don't mind me, could this be done protecting our privacies while enhancing our capabilities? >> i believe that's absolutely feasible. to be sure, it's not an easy, not a walk in the park. there's a lot of serious civil liberties and privacy considerations here. but if we can pioneer this as has been successfully done for the sharing of terrorism financing information, then it can and should be done for proliferation finance information as well. >> thank you. my time's expired. i appreciate your comments. >> the chair now recognizes the gentleman from arkansas, mr. hill. >> thank the chairman for this hearing, and i particularly appreciate the expertise of our witnesses, and i share mr. sherman's compliments of their longstanding or work on this issue and appreciate your service for our government in office and out.
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bill newcomb was here a few weeks ago to talk on this topic from johns hopkins, and he basically in response to my question, i asked him, i said, you know, we've been dealing with this, as you have, for three decades now, four presidencies. and i asked him, are we ever going to get serious about sanctions on north korea? and why, why weren't these great sanctions proposed to president clinton? or president bush? or president obama? and he said i think the united states did too little for too long, and they're just now thinking about getting serious about it. but again, it depends on establishing this -- meaning north korea -- as a national security vital interest. and, boy, that confused me. because i watched tv in 2002 when president bush declared
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north korea a part of the axis of evil. so i'm confused about why we, north korea's so low on your chart, mr. ruggiero. you've been in government. why is it we're just now getting serious about north korea. tell me your top three reasons why for 20 years we have not sanctioned north korea in an effective way? >> sure. it has not been a, it has not been the foreign policy priority. i mean, that, that is the bottom line. whether you look at getting rid of the sanctions against -- or to giving the money back on bank codel that asia in 2005, whether it's -- and this is going to be bipartisan -- whether it's removing north korea from the state sponsor of terrorism right after we discovered they built a reactor in syria or when it's looking at this congress approving, insisting that north
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korea be evaluated as a primary money laundering concern. and when you look at that detailed information provided last year, you see that financial transactions went back all the way to 2009. you start to ask the question, what have we been doing over the last ten years? and the answer, unfortunately, is that it has not been the foreign policy priority. and when i, you know, when i hear that people suggest that this administration -- this new administration policy is the same as the prior one, that is just, frankly, not true. as i said, they've gone after china six times, they've gone after russia, they've moved north korea up the chart. but there is a lot more to do. and the question, to the question of how are we going to get from this point to denuclearization, the point i would make on this administration is, you know, secretary tillerson said it's a dial, and it's at 5 or 6. it's the united states that's determining that it's not 5920 right now -- not at 20 right now. and that's what we really need, and it should be moved to an
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extreme level so that north korea will start to feel -- >> appreciate that, i appreciate that, and i appreciate the work ambassador haley's doing in the united nations, but i don't think it is a substitute for increased pressure by the united states. and i thank the chairman for bringing this draft bill before us. you said, mr. ruggiero, that another suggestion was mandated inspection for north korean vessels. is that a united nations sanction? is that an american sanction? how does one do that and be lawful? how does one do that in a legal manner? >> right. i think the u.n. sanctions use the phrase, and even the new resolution uses this phrase, reasonable grounds that some kind of sanctions violation or prohibited material are being transferred. i believe just as we did with iran, you can create a group of like-minded countries -- probably south korea, japan, australia, u.k., france and germany -- that say we interpret
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that clause to now say there are reasonable grounds that every shipment that north korea puts back and forth from north korea is a violation and that it's subject to inspection. of course, there are, you know, international law with regard to flag state consent and master consent and all of that. that would have to be worked out. but that would be a key element. just like the proliferation security initiative in the 2000s. >> thank you, mr. chairman. i have other questions, but i yield back. >> gentleman yields back. the chair now recognizes the gentleman from ohio, mr. davidson. >> thank you, chairman, and thank you to our guests. i really appreciate your testimony, written and verbal here. i've enjoyed your dialogue on the questions. and i just want to say that, you know, perhaps we're shooting for too low of a goal. it seems that our goal there is a non-nuclear peninsula in korea except that most of the parties
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don't really want that outcome. and so it makes it a pretty hard outcome to attain. we seem to desire it, but we may be one of the few. south korea doesn't want the north to have it, and as long as we've got their back, i guess their okay they -- they're okay they don't have them themselves. japan doesn't want it, but the list might stop there, frankly. and so is i think it might make sense to set a higher goal which should have been our goal since 1950 which is an end state that does not have the united states defending the north korean peninsula or the korean peninsula altogether. what would it take to do that? well, it would take peace. it would take the same sorts of conditions that led to the united states minimizing our presence in germany where the east and the west have reconciled. and so we haven't really move down a path that pursues that. we've moved down a path that continues to escalate and continues to make seeking
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nuclear weapons somewhat rational for a really irrational guy generation after generation. so i think that begin with the end in mind may be, perhaps, why we have failed. along with lots of other things my colleague, mr. hill, highlighted, failure to act in the past. i do feel that we have a good track record or in iran to build on, and we've had good track records in other situations to use economic action to, hopefully, pursue a peaceful outcome to our desired end states. and i get that there's some concerns about trade with china. they're certainly a key part of our supply chains, but they're also a vital part of north korea's supply chain. and at some level when you look at the risk on supply chain management, i think we need to get to the point where we use
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all of the levers of u.s. power to force no -- just like banks are forced to know your customer, the rest of the world needs to be forced to know your supplier. and part of that will be hard in china. but to enforce these good sanctions that i think are highlighted in the north korea sanctions and policy enhancement act, it may take that. and, mr. klinger, i think you highlighted a number of those things in your testimony, and i'd like to ask how is it that we can take action down to, you know, the state of the small manufacturing company in china that's allied themselves with someone from north korea, and they're moving products, services and cash back and forth? what tangible steps can we take to make that, to close off that pipeline? >> well, i think there are a number of things and, first of all, it's really having the political will to do it. you know, i have been surprised over the years that, you know,
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the u.s. has hesitated to enforce its own laws on the same degree to north korea as we have done to a greater degree on other countries for far less egregious violations. so i think mr. hill's three, you know, what were the three reasons, i might say naivete, wishful thinking and lack of political will. we've gone down the diplomatic path a number of times, we've tried freeze z before, and they didn't work -- freezes before, and they didn't work. going against companies, i think we need to give greater resource s to the state department and treasury department and unleash the law enforcement. if you talk to officials in the government, they'll say, yeah, for years i've had a list of chinese and north korean violaters, and i'm sort of allowed to take out ten or so every time there's a provocation, and then i have to put the rest back in the drawer. i think it's time to empty the drawer, as it were, of going against all those enemies we have evidence for. >> yes, mr. albright.
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>> [inaudible] >> of these companies are becoming multi-national, and some of them come to the united states, and they're subcomponents. i think what u.s. companies should be doing and they haven't been doing it is gaining assurance from those chinese companies in writing that they will control the end use of their product that contains u.s. goods. >> yes. >> and i think it's in u.s. law, but it should be applied much broader to start to push these chinese companies if they want to do business with the u.s., they have to meet our ethical and legal standards that you're not arming, in essence, our adversaries. >> thank you. my time has expired, but i get that my conclusion is that we have an existing law in place. we don't really need more laws, we need to enforce our existing laws. i look forward to any other feedback with our office to help bridge that gap, so thank you for your testimony. mr. chairman, i yield back. >> thank you. the gentleman's time has expired. the gentle lady from utah, ms. love, is recognized. >> thank you.
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thank you all for being here. in the wake of north korea's sixth nuclear test, the proposal was circled among u.n. members that would have frozen north korean leaders' assets. could our witnesses just very quickly comment on the desirability of expanding the prohibition in our draft legislation to include the members of north korean government and the dprk's workers' party? just, we can start with you, mr. albright, just -- >> yeah, i think it's useful to do. >> okay. >> i think, yeah. >> i think there's already, there's already an executive order on that. i would go in a different direction. i would say the issue on leadership assets is identification of those assets. so anything that can be done to incentivize those folks and banks in europe in particular that might have information on leadership assets, i think that
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would be more beneficial. >> ms. rosenberg? >> i would certainly agree. and not just create, gathering that information and reporting back to the united states as a law enforcement matter, but also being able to share that among other banks because there's never an instance where money laundering exists only in one financial institution. that will allow the variety of banks where these different assets are located to understand the network and to stop it. >> okay. >> i'd absolutely go after leadership assets. last year the u.s. finally designated kim jong un and, believe, nine others for human rights violations. so we have identified kim jong un in the past. so, you know, there is an executive order january 2015 that gives us the authority to sanction any member of the north korean government simply for being a member of the north korean government. so i think we can and should go after not only kim jong un, but the other senior leaders. >> okay. along those same questions,
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mr. klingner, is that right? okay, sorry, could you discuss the potential for north korea to assist countries such as iran in developing nuclear weapons and advance ballistic missiles? >> as mr. albright was saying before, i think there's clearly been a missile relationship between north korea and iran. i mean, the first missiles that iran paraded were actually 100% made in north korea. they were no-dongs and given a local paint job. the information on nuclear cooperation is much more difficult to get. we know north korea was engaged in, you know, nuclear cooperation with pakistan through the aq khan network in libya and others, but the information on cooperation with iran is much more difficult to get, particularly outside of government. i think there clearly is a relationship on the nuclear side between the two countries, but it's very hard to get particularly unclassified information on it. >> with, mr. albright, here's my connection between the two.
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i am concerned that if we continue to just try and be as -- and we want to be as diplomatic as possible. we want to be able to work with people who are willing to work with us. however, we've seen north korea incredibly defiant. we've seen them go test after test after test. to me, and i don't know if you have these same concerns, but it seems as if they're not a threat by itself, that the proliferation of these activities can support nuclear ambitions for other foreign regimes. do you, are you concerned about that at all? >> certainly. no, you have to be concerned with north korea. i mean, because they like to go and sell things of value, and their nuclear assets are of increasing value. so you have to worry about that a great deal, and that has to be part of what's watched for and in the messages delivered to north korea. i don't think it was a coincidence that the director of the cia was on fox news the other day raising this issue.
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and so i think it's important to send the signal that if north korea crosses that line and is willing to sell weapon-grade uranium, plutonium or nuke.-- nuclear weapons, that we will probably respond militarily to take out that regime. it may be a bluff, but it's important that that line be maintained and i would say enforced. north korea will get the message. they don't want to commit suicide. >> i just have one more question. given beijing's reluctance to take a harder line with north korea, what arguments should be brought to bear in order to convince the chinese that pressuring the dictators of china is in their self-interest? >> well, one, china wants to be a responsible member of the international community. to so a lot of these arguments are the same arguments we used in the 1980s against germany who was at that point arming
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pakistan, iraq, libya, iran and probably several others with the wherewithal to make nuclear weapons. so i think these are not new arguments. and china wants to be responsible to, and so it should start to act that way. >> thank you very much. my time has expired. >> the gentlelady's time has expired. the chair now recognizes the gentleman from indiana, mr. hollingsworth. >> well, good morning. i really appreciate everybody being here. everyone has reiterated already this is an important and timely topic and something we need to take with grave earnestness, and so i appreciate the consistent testimony that everybody here has provided. one of the things that i really wanted to talk about was making sure that we've got partners that are engaged in this as well, and russia comes to mind. my concern has continued to be that they don't have an interest in enforcing sanctions at the same level that we do and a willingness to combat this issue.
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the more the united states continues to be i'll use the word distracted, and i don't mean that lightly, but distracted by north korea, the better off they may see themselves. so can you talk a little bit about what we can do to engender some cooperation and willingness on behalf of russia to be able to participant -- to participate in whatever solution? and that's for any of the panelists. >> i think a good strategy is one that we've discussed here primarily with regard to china, but in this case applying it to russia which is using sanctions or other law enforcement actions to go after specific russian entities that are acting in violation of sanctions or specifically in violation of the u.n. sanctions so there -- >> to what extent do you think the russian government would be able to shield those companies from the ill effects of those? >> it's possible that they would try and do that.
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certainly rhetorically such as the dismissive rhetorical gestures that we were discussing from president putin. nevertheless, if those companies want to use u.s. dollars, then they won't be able to if u.s. sanctions enforcement or law enforcement measures prevent them from doing that. and any russian company or bank that wants to stay in the good graces of the united states will be very reluctant to facilitate such sanctions-evasion activity going forward. notwithstanding what their political top cover may offer them at home. >> so you really believe that these can be efficacious even without participation from the political sector in russia, i guess. >> i do. >> okay. >> and we've seen that in ore instances -- other instances not related to north korea. for instance, in iran in the era before there was broad international consensus about the need for strong sanctions, going after companies and speaking directly to them was a way to have them get out far in front of their own governments on their willingness to abide by
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sanctions. >> great. so the second question i have, and i really, i'm just a business guy at heart, so one of the things i think about is what does success look like? when will we know this has been successful, and what's the next step after that? so, obviously, we want to the greatest extent possible to either slow down or stop the technical progress both with icbms and nuclear/hydrogen weapons. but what does it look like after that? what's the next step? we put in place these very, very tight sanctions, and we just continue them forever? tell us a little bit about what phase two would look like beyond putting in sanctions that three relate chi would work? >> i -- theoretically would work? >> one is, i should emphasize we haven't talked about this that much. the point of this is to have meaningful negotiations. i mean, that would be a sign of success. if north korea, without accepting benefits, that's one new change in this
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administration compared to others. the benefits come after the concrete actions, not a reward for negotiating. but if there are meaningful negotiations that are, toward denuclearization, creating limits on their nuclear program, you see intrusive inspections, i mean, inspectors have never gone outside of pyongyang in north korea, and yet we know there's other sites. and also if there is movement toward a peace treaty, i mean, that's also something that is actually important to work into this whole process. so i think on that side i think we know when we'll see it. and with the new criteria that are being used that are really built on avoiding the mistakes of the past, i think that we'll know it when we see it. >> i would just, i mean, i agree with most of that. i would caution that we want to make sure that we get out of the trap of negotiations for negotiation's sake.
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i think from my perspective a freeze is not as valuable as some people think it is. i think the next step if we're talking about negotiations is a demonstratable step by north korea of its commitment to denuclearization which would flip the negotiations on its head. and it used to be we freeze, then we drag them to denuclearization. we need to flip that on its head. but we also have to recognize this might not be the regime that's willing to do that. and if sanctions can't get them there, then perhaps we need to start having that conversation. >> well, your second point notwithstanding, i very much agree with the first as well. i just wouldn't comment on the second, in that making sure that we don't just freeze here at the precipice of icbm, at the precipice of being able to launch a nuclear attack but instead move them back, because we've seen their willingness to renege on promises before. i don't want us to be a month, a year, a year and a half away from an icbm and find them reneging in the future and with that, mr. chairman, i will yield back. >> thank the gentleman.
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the gentleman's time has expired. the chairman now recognizes the chairman of the oversight and investigations subcommittee and also a member of the foreign affairs committee, the gentlelady from st. louis, missouri. recognized for five minute, ms. wagner. >> thank you, mr. mr. chairman,r hosting this very timely hearing. in august i traveled to korea and japan and china to dialogue with our allies in the peninsula, and i had the opportunity to visit not only the dmz, but also to visit dendong where i watched chinese trucks loaded with goods drive across the china/korea friendship bridge into north korea. 70% of north korea's trade passes over that bridge. and it was a stark reminder that the united states should prioritize secondary sanctions against the chinese companies and banks that sustain the
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regime. mr. ruggiero, i had the pleasure of hearing your testimony in the foreign affairs committee before. you wrote that north korea is the fourth most sanctioned country in the world. and given the recent september u.n. security council resolution, how would you rank north korea today given that certain chinese investments and trade efforts are grandfathered in or exempted from the august and september u.n. sanctions? how effective do you think the resolutions will be? please. >> sure. and i would just point out that february 2016 was number eight, and when i testified before the subcommittee in mid july, it was number five. so it's moving, moving up the ranks. but it's got a long way to go, unfortunately. the way i like to look at it is very similar to iran. in 2010 we had resolution 1929. that was really the foundation
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of sanctions passed by this u.s. congress and implemented by the prior administration were what put iran over the edge and led it back to the negotiating table. we need that here. we have the u.n. foundation, but what we need is u.s. sanctions. and i would just say, you know, it's concerning to hear the treasury secretary say, well, we're going to wait and see if the chinese implement the u.n. resolution. i think that's the wrong approach. i think what we should be moving forward with right now is u.s. sanctions against chinese banks. we should not give china a veto over u.s. sanctions. they might have a veto in the u.s., but they should not have a veto over u.s. sanctions. >> i agree. mr. klingner, barring a threat to the kim regime's very survival, kim will never come to the negotiating table in good faith. i believe. we must change kim's financial calculus as we've discussed
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here, which is why comprehensive secondary sanctions are so critical, i believe. i appreciated your statement on increasing inspection and interdiction of north korean shipping. would you support mandatory secondary sanctions on ports that don't implement required inspections? i agree we must pay much more attention to this. >> i agree. and that's something that the congress has been looking at, is particularly if a port doesn't implement required sanctions, then measures such as they could -- any ship cannot transit that port and enter the united states' waters for six months or so. so it is an area that has been looking at. one thing we've been hamperedded by in the u.n. resolutions is that all of them have been padsed with what's called chapter 7, article 41 authority where we're not allowed to board a ship on the high seas even if it's suspected of carrying
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nuclear missile contraband. so we've been advocating chapter 42 which would give us the authority to have coast guard or law enforcement agencies intercept and board -- >> doesn't the recent package allow us to board now? and others on the high seas? in terms of member states? i think they have some new tools, don't they, to stop high seas smuggling of these prohibited -- >> i believe that was included in the original u.s. draft, but it was something that, i think, was tossed overboard, as it were, that did not make it in the final resolution. >> yes, mr. ruggiero. >> i think it's the reasonable ground standard, but it till goes back to what he is saying, you need masters consent in order to board the ship. >> okay. real quickly here, mr. albright, in my view, north korea already has nuclear weapons. for my constituents without access to classified information, it would be helpful
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if you can explain from public sources how many nuclear weapons the kim regime may have and where they may be. >> yeah. we estimate they have 13-30 as of the end of 2016. i mean, it's a rough estimate. we have no idea where they are. >> 13 to -- >> 30. 30. and it, i think the u.s. government estimate estimates, i believe, are higher than that. but i think i've worked on this problem since 1985, and i've visited north korea a couple times, met their nuclear people. i think they're not giants technologically, and they encounter problems. so that estimate tends to be lower than the u.s. government one, but it's still a significant number. and it's growing. >> the gentlelady's time has expired. >> okay. >> thank you, mr. chairman, for your indulgence. >> thank you. because of the interest in the witnesses' testimony, members here i think are interested in a
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second round of questioning if we can seek the indulgence of the witnesses for a brief second round, we would appreciate that. and with that, i'll recognize myself for an additional five minutes of questioning. just to revisit this issue of effectiveness of sanctions, and you all heard the comments and questions of my colleague from california, mr. sherman, on that point that other the last several -- over the last several decades there has been maybe a lower priority, but there have been sanctions nonetheless on north korea, and yet we've seen a continuous belligerence, a continuous development and an acceleration of the development of the nuclear program and the capabilities of the kim regime. particularly in recent years. so my question to anyone who wants to answer is what is different about, if anything, about the foreign policy, the sanctions efforts of the current
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administration, particularly the efforts of ambassador haley and the u.n. sanctions packages that she's been able to secure at the united nations? we'll start with that question and start with mr. albright. >> yeah, i think one is i'd like to go back. u.s. policy has been to try to stop north korea acquiring goods, and in the '80s and '90s a lot of effort was made to kick them out of europe. because their missions would go to companies and buy the goods for the nuclear program. and they were kicked out. what was not anticipated was that they would move to china and set up shop there and buy the same goods from european company, get them to china and then send them by truck up to the nuclear program. and so the problem has been -- and this is, i would say, the most important change to me in this administration -- is they're willing to risk trade conflict with china to solve this problem.
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and since china -- north korea set up shop in north korea, the administrations have not been willing to do that until this one. and i think that's critical. >> mr. ruggiero, as you answer that question, you've read the draft bill that we've presented to you. could you comment on, on that bill and the extent to which it would ratchet up this pressure through secondary sanctions on the regime. >> you know, from my approach they, you know, we tend to get ourselves in this provocation response cycle, but i agree with dr. albright. you know, this administration has gone after china and russia to an extent that we haven't seen before. it needs to be sustained. i think in the past we've convinced ourselves we, i mean, i personally have written, i've delivered, i've been in the same room when these have been
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delivered, we give china a list, and we convince ourselves we've cone -- done a tough way forward, and the chinese just sort of hand wave, and we're okay with that. in terms of the legislation, i noted earlier the due diligence component, but i would also beyond the various legislations that are out there, it's oversight. because i think that the key aspect here is insuring that these bills that eventually become law are actually implemented. there are many companies that are still not sanctioned and should be subject to sanctions even from the sanctions law last year. >> and could i just ask mr. klingner on the heels of that answer, again, revisiting your comment that the importance of the distinction between the u.n. incremental enforcement and the u.n. sanctions, the two rounds of u.n. sanctions and congress and the administration and the united states acting independently, how much more
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pressure would the legislation being proposed or u.s. independent additional action on secondary sanctions, how much of a difference would that a make above and beyond the most recent round of u.n. sanctions? >> right. as i've said, the u.n. sanctions are -- each one is incrementally better than the last. we can be cynical or positive about moving the ball a few yards down the field. but the u.s. actions, i think, are critical. it's ones we can do ourselves. we don't need permission by china. and to be honest, i don't see why we're having a debate about whether we should be implementing secondary sanctions. they're enforcing u.s. law, why should anyone be existence enforcing our -- against enforcing our law to the full degree? so this legislation as well as the oversight through which congress can hold the executive branch's feet to the fire to try to push them to fully enforce the laws that are either on the books or could be on the books, the three main actions the obama administration did last year were really because they were
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pressured through the north korea sanctions and policy enhancement act. >> well, i think the difference here is -- it is, it's the things that you mentioned, but it's also an issue of lax enforcement. enforcement is very, very critical. the u.n. panel of experts points to continued lax enforcement of sanctions by foreign countries, so these secondary sanctions, i think, are absolutely critical in applying the additional peaceful pressure. and just i'll let ms. rosenberg conclude on that point. these secondary sanctions, you think, would make a difference from previous efforts. >> i do. i think we've seen that happen in the last year and this year as well, and i think it would do more. one of the challenges about the new u.n. security measures passed this week are that they're not, of course, they're not self-reinforcing, and where they rely on a reduction or a cap on, for example, petroleum, that's something that the u.n. will have to do accounting on. we have problems with inaccurate
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or unavailable data with countries, member states not feeding the data to the united nations. so i think there's a very high likelihood that we're not going to see compliance with this even just as a matter of arithmetic and slow and poor reporting. what that means is that when the united states can impose its secondary sanctions to call out and highlight where foreign countries are not undertaking their requirements as u.n. member states, it will have a major and significant effect in bringing them where they are willing to cooperate to do so. >> my time has expired, and i'll now recognize the gentleman from arkansas for a second round of questioning, mr. hill. >> thank you, chairman. so we also learned in the standing committee in the politboro in china that two of the seven members are from provinces that abut north korea and that the presumption is that one gets on the standing
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committee of the politboro by hitting goals established on economic development, etc. so i'm interested in your view on china's seriousness here, and do you think that they can recognize what secretary tillerson has laid out quite clearly, that we don't have aims for u.s. presence or western presence at their, at their border? and so given that, comment on that politboro political view from your point of view, and also do you anticipate that china would be more helpful after they have their significant party congress that i believe is held, to be held in october? talk about, in other words, let's talk about the politics in china about them understanding the united states' sincerity in ending this issue once and for all.
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mr. klingner, you want to start? >> yeah. i think china is as helpful as it needs to be to prevent the u.s. from taking further action on its own. the message that has been given to china is you don't want a crisis on your border, but your lack of pressure on north korea is only encouraging pyongyang to continue going down that path that you don't like. it's also inducing the u.s. and its allies to take defensive measures, missile defense, etc., that china doesn't like, but we are being pushed into it by your ally. so you can pay me now or pay me later. there's either you need to increase pressure, or we're going to head toward that christ city -- crisis you don't want, china. >> your assessment of their position be any different after they complete their party congress? >> i've become pretty cynical about north korea and china, and i think it's just they talk well, they implemented for about 1-4 months after each u.n. resolution, and then they back off. >> mr. ruggiero to, comment on that?
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>> i agree 100%. i think that anyone who believes that china will be more cooperative after the party congress is falling into beijing's trap again. everybody said, you know, they had a good summit at mar-a-lago, and the chinese, they're onboard. and what turned out, they were not onboard. i mean, i, unfortunately, i can do that over the last ten years. that has happened time and time again. and to your question on how do we measure seriousness, i think that's a good question. how i measure it is the chinese should not be closing north korean accounts, they should be closing their own nationals' account, and they should be stopping those trucks from going over the bridge. they should be in those companies and saying here are the sanctions, how are you implementing them. they should be in those banks doing the same thing. until they do that, they are not serious. >> appreciate it. dr. albright? >> i agree. i can't read the -- i don't know chinese politics, so i can't really say.
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but i would agree with mr. ruggiero that we do need signs of seriousness. and i can give an example of a country wanted to inspect the customs areas at the border with china and north korea, a country with vital trade arrangements with china, and they weren't allowed in. so i think they were literally blocked by the private company running the store, the customs storage area. so i think it's these signs that we're looking for. and i'd love to see some chinese busted. i've been involved in federal prosecutions of chinese nationals, at least one chinese national prosecuted successfully here. he was never, or his colleagues were never prosecuted in china. and so i think it's, these signs are critical. >> so, ms. rosenberg, so enforcement we know and upping the ante, but talk about who the bigger trading partner of china, united states or north korea.
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and we use that stick? >> there's certainly no question there. and to refer back to the question posed by the chair at the beginning, what has changed, one thing i will say in apropos of what you've just said, the willingness of the current u.s. president to offer tough rhetoric on north korea including raising the possibility of whether trade and should occur between the united states and china, even if that is just meant to send a really strong signal, that is different, and that has clearly been a huge wake-up call. so obviously now the devil's in the details, how do you do implementation. and to be frank, when we've seen china comply with other international sanctions frameworks for iran and russia even, others, when they have gotten with the program, it hasn't -- it has never looked like them saying to u.s. diplomats who go sit there, pass them intelligence, we got this, we're with you.
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>> >> i am concerned about the sanctions than they do have some questions that have already been opposed so please forgive me for being redundant or superfluous of my initial question is if we can perfect those sanctions as codified what is the impact on china first and then the secondary portion on north korea? so what about china? i will leave this to whoever would like to respond. >> i think one way to
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improve upon those sanctions is to go after them with a strategy of implementation that could be secretary sanctions with other proliferation and entities that is a strong way. >> the efficacy of the sanctions than?. >> i would it take a step back because there is an impact on chinese companies and north korean companies
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that there has the the problem for a long time whether iran or north korea and the unsuccessful goal could be that china finally realizes that to be on notice from the commerce department is not enough. they need to do more to engage their own companies and banks and law-enforcement actions and inspect mitt -- inspection at the border, the chinese are the center of the market proliferators and that is a problem. until they realize they have to change their ways unfortunately we will not be successful. >> let me follow-up to perfect those sanctions in their entirety, what will be the impact on north korea?.
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>> one impact is the gas centrifuge is program that makes weapons-grade uranium with stopping some point. it would take a year or two but they do consider that perishable goods in iterate those so if we had a perfect set of sanctions we could cause serious damage. you could not stop with the already have. and these are the things that we need to hear answers to. if north korea becomes a government they raised as a
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possibility could they create such a circumstance? would that create the of breakdown of government?. >> there is some new bird talking in china and that it end anticipation to occupied north korea with those refugees coming into china with the expectation. >> there is discussion of that.
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there is the instability of north korea so it was that the crux of the matter to solve the problem for china. >> i yield one minute to the chairman. with that legislative proposal that has been discussed with savvier introduction to impose the secondaries sanctions would that give secretary to listen additional leverage in their negotiations with
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china with respect to north korea?. >> looking at that investment act of 2010 only two banks were decimated and there were many threats associated with that to change of compliance procedures. >> south korea announces that they plan to use state decapitation exercises and into have a special forces unit and to an end to
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demonstrate the attack so they would conduct such an attack if they detect science is to stumble across that red line with that military action based on the of very difficult to discern intelligence. so to have that nuclear deterrence with their massively weaker military stature but that choice is
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dave reaction to the north korea strakes the sinking of of of ship but they did the respond to be put in context saddam had enemies but career doesn't have anybody that wants to invade them. >> you can understand our perspective and our ability in they could not understand that frankly. and it was like they were preparing to you do that.
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so the next piece to take that that massive differential and of that $15 billion the economy economy, much of that has access? windows parsifal and antiquated. and as those conditions are deteriorated they compensated by the asymmetric capabilities with the special forces. day are dependent upon the sea for their oil?. >> not necessarily. they have capacity to take tanker or delivery from
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china. >> so the pipeline but they do get a fair bit by the ocean?. >> tanker trucks. paper co. >> so with that ability to use naval power and is there the ability to have that discernable impact?. >> i would imagine. so to consider that possibility of a submarine launched ballistic missile you have to worry about the submarine force but in answer to your question with that embargo.
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>> that is the question with that kinetic force. i yield back. >> your time is expired. things to the witness is for your testimony you have five legislative days to submit additional written questions that will be forwarded for their response please respond as promptly as your able. we are richer and -- adjourned. [inaudible conversations]
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is still acute us a pretty violent temper. can you explain the?. >> yes. i think is because i was thinking about the end they are in my space when i was 14 i tried to stab them with day camping knife it had a big belt buckle if it had such force that broke. he was terrified that i was more terrified because i tried to take somebody's life over nothing. that was a profound effect.
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it to turn things around academically. and vaguer then to come to the understanding to react violently the you to be manipulated by people in your environment
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. >> nobody will deny that private debtor campaign contributions were made that senator menendez did lobby with various branch officials because of this
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corrupt relationship they are claiming otherwise. 40 minu. [applause]


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