December 19, 2014 / 5:08 PM / in 3 years

Washington is limited in its response to North Korea over Sony hack

WASHINGTON/SEOUL (Reuters) - President Barack Obama’s threat of a “proportional” response to North Korea’s hacking of Sony Pictures shows once more the limits of Washington’s options as it seeks to rein in one of the world’s most unpredictable and isolated countries.

Various lights are cast on a logo of Sony Corp on a podium during its high resolution audio products unveiling event in Tokyo September 25, 2014. REUTERS/Yuya Shino

U.S. authorities said on Friday investigators had determined that North Korea was behind the devastating cyber attack on Sony Pictures, setting up a further possible confrontation between the United States and the impoverished state.

“In concrete terms, there’s not a heck of a lot they can do because one, North Korea doesn’t have an economy, and two, we’ve already got every sanction known to man against them,” said Jim Lewis, a senior fellow at the Center for Strategic and International Studies who focuses on cyber security.

Although successive U.S. presidents have imposed decades of restrictions on Pyongyang, whose main economic ties are with China, the U.S. Treasury has so far directly sanctioned only 41 companies and entities and 22 individuals.

Those sanctions relate to North Korea’s development of weapons of mass destruction, including nuclear arms, which has been the most contentious issue between Washington and Pyongyang.

The United States may be able to further isolate Pyongyang economically, although it is unclear whether this would have any impact on the behavior of a country whose annual gross domestic product per capita is just $1,800, according to CIA estimates.

Pyongyang has decades of experience in hiding its often criminal money-raising activities, largely avoiding traditional banks. While sanctions may have slowed its nuclear weapons program, they have not derailed it.

Some U.S. lawmakers have called for North Korea to be cut off from the SWIFT banking network that allows international financial transactions. This is unlikely to be effective. While financial sanctions had a big impact on Iran and Russia, which are tied in to the global banking industry, North Korea is not.

Another possible response would be to pressure private companies that provide North Korea’s cellular and television services to curtail them, or to persuade China to close Internet connections, something Beijing has been loath to do.

Egypt’s Orascom and Thai company Loxley Pacific are both invested in North Korea’s telecommunications industry.

PYONGYANG ADAPTS

With limited trade and natural resources, Pyongyang’s revenues are heavily reliant on money-making scams, which have ranged from counterfeiting $100 bills to illicit arms sales and drugs smuggling, according to reports by the U.S. government.

In 2005, $25 million of the regime’s cash was frozen at Macau-based Banco Delta Asia, which was designated a “primary money laundering concern” by the U.S. Treasury.

That case stands as practically the only public success in seizing funds from the country, which is now led by Kim Jong Un, the third of the Kim dynasty to rule.

Kim Kwang-jin, now a defector in South Korea, worked for the North’s state insurance company in Singapore. He recalls stuffing $20 million in cash into a suitcase in 2003 and sending it to then ruler Kim Jong Il.

That money came from exaggerated claims from reinsurers for weather damage, ship and aircraft losses.

Kim, speaking from Seoul, said it would be difficult to detect these cash transfers, often made by individuals and North Korean companies.

Unlike oil-exporting Iran, which is heavily sanctioned by the United States, the United Nations and others, North Korea’s puny $50 billion economy produces few goods other than minerals and seafood sold to China. Its trade with China was put by Beijing at $5.7 billion in 2011.

Washington has begun consultations with Japan, China, South Korea and Russia seeking their assistance in reining in North Korea’s cyber activities.

These countries are already working as a group to try to denuclearize North Korea, a process that has been stalled since 2009 and that shows little sign of re-starting due to differences in the approaches of the partners.

Russia, for example, recently invited Kim Jong Un to make an official visit next year. That would be the young North Korean leader’s first foreign trip and comes after Moscow forgave Pyongyang’s debts and pledged investment in the country.

Additional reporting by David Brunnstrom and Arshad Mohammed in Washington, Jumin Park in Seoul; Writing by David Chance; Editing by David Storey, James Dalgleish and Bernard Orr

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