March 8, 2017 11:44 am JST

Swift bars North Korean banks, DJ reports

Pyongyang's access to international financial messaging service further curtailed

SWIFT logo © Reuters

WASHINGTON (Dow Jones) -- Several North Korean state banks have been recently banned by the world's most important financial messaging service, amid growing calls in Washington and Europe for the complete isolation of Pyongyang from the international financial system.

The Society for Worldwide Interbank Financial Telecommunication, known as Swift, banned the North Korean banks in recent weeks, the Belgian company told The Wall Street Journal. The move came as United Nations investigators uncovered evidence that the banks had continued to use Swift's global services despite being on U.N. sanctions lists. The U.N. published the report earlier this week.

The Swift network is the lifeblood for most international commerce and banking transactions. Without it, countries under sanctions, as Iran recently was, have been forced into conducting barter trade or smuggling operations.

Although North Korea's access to global financial markets was already constricted by longstanding international sanctions, the country continued to access it either overtly or through front companies in China, Southeast Asia and Africa, the U.N. said in its report.

Members of Congress have suggested Swift could be in violation of U.S. law by conducting business with North Korean firms, according to congressional staffers. Last year, the Treasury Department designated North Korea's entire financial system as a primary money-laundering concern.

According to the U.N. report, seven blacklisted North Korean banks continued to use the Swift network in recent years. Four of the banks voluntarily exited, but three continued to be active on Swift throughout 2016, the report said. It wasn't clear how the three banks kept using Swift despite being blacklisted.

The U.N. named the banks as: Bank of East Land, Korea Daesong Bank and Korea Kwangson Banking Corp. Efforts to reach the banks in Pyongyang were unsuccessful.

The Treasury Department has sanctioned all three banks for their alleged role in illicit businesses.

Swift, in a statement provided to the Journal on Monday, said it stopped providing services to all U.N.-sanctioned North Korean banks after receiving instructions from the Belgian government earlier this year.

The company didn't state how many nonsanctioned North Korean firms still have access to its system.

"As a global utility designated as a critical service provider, Swift has no authority to make sanctions decisions," the company said. "Any decision to lift or impose sanctions on countries or individual entities rests solely with the competent government bodies and legislators."

U.S. senators have called for Swift to completely ban North Korea in response to the string of nuclear and missile tests it has conducted in recent months.

"Pyongyang's blatant disregard for international law must be met with a coordinated and determined strategy by the U.S. and the United Nations to close all sanctions loopholes," Sen. Cory Gardner (R., Colo.) said Tuesday. "Furthermore, I call on Swift to revoke all banking privileges for all North Korean institutions."

The U.S. and European Union successfully pressured Swift in 2012 to ban most Iranians entities from the network. U.S. and European officials have said the move was a critical step in forcing Tehran to negotiate caps on its nuclear program. A comprehensive agreement was reached in mid-2015.

Current and former U.S. officials have recommended that the Trump administration apply financial pressure against North Korea as severe as that used against Iran. They said the Treasury Department's designation and U.S. legislation passed by Congress last year provide the legal structure to sanction any entity that continues to do business with Pyongyang, pointing particularly at China, through which North Korea conducts around 90% of its trade.

"There shouldn't be any loopholes anymore," said Anthony Ruggiero, a former State and Treasury Department official who focuses on North Korea at the Foundation for Defense of Democracies, a Washington think tank. "Much more pressure can be exerted."

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