Foreign Affairs Committee on Nov. 28th, 2016

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Okay.

[The Chair, Liberal, Bob Nault]

I have to cut you off.

Colleagues, on behalf of the committee, I want to thank both Mr. Nephew and Mr. Juneau. It would be nice if we had another hour, because I was enjoying the conversation between the members and the witnesses, but I have to call it a day.

Thank you both for your presentations and your open dialogue with the committee.

Colleagues, we're going to take a little break and set up for the next hour.

[The Chair, Liberal, Bob Nault]

Colleagues, I want to bring this meeting back to order.

For our second hour, by video conference from New York, New York, we have Andrea Berger, who is the deputy director of proliferation and nuclear policy and senior research fellow at the Royal United Services Institute.

Andrea, I want to welcome you to the committee. Our general practice is to give you some time for opening comments, and then we'll go straight to questions from there. We're limited as to time, so I want to turn it right over to you for your opening comments.

[Andrea Berger, Deputy Director, Proliferation and Nuclear Policy, Senior Research Fellow, Royal United Services Institute, As an Individual]

Thank you so much for having me speak with you today. It's a real pleasure.

I'll give you the usual caveats to start. The first is that, while I'm a Canadian born and raised, it's been quite a while since I've worked on the Canadian policy from the heart of it. From the perspective of the two pieces of legislation that you're looking at today, I really am just an interested outsider.

That said, I do work extensively on North Korea and on a range of other proliferation threats, and I look at the measures that we've imposed to restrict the ability of those actors to operate. I'm happy to discuss those in detail.

As a way of opening, I thought I would start with a plea: We have every reason to be extremely concerned and very attentive to the North Korean threat, which is the subject that I was asked to speak about, specifically. Really, that threat knows no geographical boundaries. It has affected Canada, both directly and indirectly, and will continue to. Often when I do presentations on this subject I put up a slide that shows, basically, everywhere that North Korea has had money-laundering cases, smuggling cases, or other forms of illicit activity in the world in the last five years. What that slide shows is that that activity covers an enormous swath and has, indeed, included Canada.

That threat, to characterize it, is growing in terms of its component parts. We've talked for a long time about the North Korean nuclear missile programs and, indeed, its other weapons of mass destruction programs at home. Coupled with that, of course, North Korea's behaviour is generally destabilizing. Barely a day goes by when it's not threatening to turn Seoul or Washington or Los Angeles into a sea of fire, but there are other concerning parts to this problem, as well. North Korea continues to sell ballistic missile goods, conventional weaponry, and related services to a very large number of customers around the world, given the strength of the sanctions regimes that we have against the country. One of the more recent manifestations of the North Korean threat is a major cyber issue. North Korea has shown itself willing to conduct sophisticated cyber-attacks against major multinational corporations, and is now regularly hacking banks around the world in a way that's destabilizing the international financial system. As I said, we have every reason to be concerned about this problem.

At the same time, in terms of your deliberations, it's important to acknowledge that while Canada is affected indirectly and directly by this issue, it's not the heart of the issue. Canada is always, in effect, going to be playing a supportive role in its solution, so it's important to talk about how we can bring life to a Canadian policy that recognizes that limitation.

Canadian policy towards the DPRK, from my view over years, has been extremely strong and firm, particularly in the last few years. As we know from a few years ago, Canadian policy has included a trade ban between Canadians and North Korea that's fairly all-encompassing, allowing only a number of limited exemptions for humanitarian trade, etc. Canadian policy, from my view, is also fundamentally low maintenance. Its sort of core tenets of limited engagement, essentially no trade, and a strong stance on human rights means that on a day-to-day basis, there's little active monitoring required for the implementation of Canadian policy.

I'm happy to talk a bit more about what that looks like. That policy has not shifted substantially between governments, at least not yet, from what I can see. The core framework that Canada has put in place over the past few years seems to still stand largely, and in my view, that is actually quite sensible. I don't see a reason necessarily for that core framework of approaches, the trade approach, the engagement approach, and the human rights approach, to actually change.

At this moment, given the developments in the North Korean threat, there doesn't seem to me to be a reason to be actively encouraging more trade with North Korea. Similarly, I can't see a convincing argument that Canada should put itself at the centre of a security focus discussion with North Korea and try to have an engagement and outreach program that does that. For me, the question is more about trying to think about what lies behind the core framework of Canadian policy. There are two specific angles that I think will be really interesting to work on and look at going forward.

The first is on intelligence and monitoring. This relates to North Korea's elicit behaviour pretty much across the board, because over the years North Korea has developed extremely sophisticated evasive techniques and patterns. Without going too much into the details, although I'm very happy to, in effect, North Korea is not doing business as North Korea when it's operating overseas, and that presents an enormous challenge for our sanctions implementation and for the general prevention of the listed activity as it relates to Pyongyang. Similarly, there are a number of countries around the world, indeed the majority of the world, that are struggling to implement the very extensive and quite complicated restrictions that we've put in place at the UN level on North Korea.

I'm sitting in New York right now, because on Wednesday we're slated to vote on a new UN Security Council resolution that will make this even more complicated. Really, we have an implementation problem. For me, it's worth thinking about whether countries like Canada can do more to help address that particular issue. It's the life behind the policy, if you will. Do we have the expertise that we can contribute to Southeast Asian nations, or African nations, which really are the holes in the sieve at this moment for the geographical areas that North Korea continues to be able to to operate in and conduct its elicit activity with the assistance of?

I'll leave it there, but I very much look forward to your questions, and I'm happy to delve into detail on any aspect of that, or indeed other aspects.

[The Chair, Liberal, Bob Nault]

Thank you very much, Ms. Berger.

I'm going to go straight to Mr. Kmiec, please.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Thank you for joining us. It's nice to see Canadians being successful overseas and showing off our talent that we have here.

[Andrea Berger]

Thank you.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Can you explain more about the North Korea regime's money-laundering exploitations, and that they do happen in Canada? Can you provide us with some more details?

[Andrea Berger]

What I was referring to on that isn't so much on a money-laundering threat, and I don't have specific evidence related to Canada that North Korea has used Canadian financial institutions, etc. in that way.

What we have seen in the past few years is North Korea's ability to procure goods and components from Canada that should have been restricted pursuant to Canada's export control legislation. As a good example, the UN mentioned in a report not that long ago that it had discovered that Canadian flight control computers were being used to pilot North Korean drones. That's an example of a way that North Korea has been able to access Canadian technology.

As a disclaimer on that, to be fair, it is partly a result of the sophistication of North Korean evasive behaviour. North Korea is fantastically good at establishing front companies in China and other places around the world, where on paper, if you look one level deep, you will never see that the North Koreans are involved. As a consequence of that, and if a Chinese small or medium-sized enterprise reaches out for some of these goods, it's difficult to know that the end users behind it may be someone else.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Can you talk about China's role? Are they, not as a state policy, but companies that are doing this, is this part of the sanction busting that they're doing in North Korea? Are they making it more difficult to apply western sanctions on them? China also has a vested interest in ensuring the stability of the Korean Peninsula, so how do they manage that relationship between on one hand supporting their ally, and on the other hand not supporting them so much that it destabilizes the region even more?

[Andrea Berger]

I could take up the whole remainder of your hour just talking about this.

As to actual trade flows, I think this is the starting point for this discussion, because in essence everything that North Korea exports pretty much flows via China. That includes to a large extent funds as well, where financial flows are overlaying and related to tangible goods flows.

North Korea has also established a significant business network in China. It co-operates with Chinese nationals, and there's a large Korean diaspora in China itself. That network is really the starting point, the gate, if you will, to North Korea's access to the world in terms of business. From that point forward, North Korea can convey everything as being of Chinese origin or Chinese end-use.

It's an important aspect to discuss from that perspective, the China business relationship. That's at the ground level as well as on a person-to-person level. It's facilitating North Korea's ability to access global trade and finance.

Now in terms of—

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Could I interrupt you? We have an allotted time, but I don't have that much.

Those individuals in the diaspora, Koreans or members of the Chinese business community, as large as it is, are typically not the target of sanctions themselves. Is that correct?

[Andrea Berger]

It happens only rarely. It depends which level of sanctions you're talking about. At the UN level, traditionally what we've seen is that the majority of the sanctions list is composed of designations on North Koreans themselves. That may include North Koreans who operate abroad, but it tends to focus on North Korean parent companies, North Korean diplomats, and so on. Rarely at this stage do you see the UN designating a non-North Korean national facilitator. It has happened, but it's less frequent than the designation specifically on North Koreans. When you turn to the U.S. national level, or EU level, for sanctions, it's a different picture.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

In the United States, there's a piece of legislation making its way through the system called the Global Magnitsky Human Rights Accountability Act. We also have an act being proposed in our Parliament, Bill C-267, the Magnitsky act. Is this going to be a means for a government like the United States to target these organizations, whether they're a Chinese or North Korean chambers of commerce or whatever, in order to apply additional pressure to coerce them into obeying sanctions or to constrain their ability to do business?

Is that something that's ever been discussed in the field of work you're in, in London? Has it been discussed as an extra tool that would be available? Would it be useful as a tool to try to contain North Korea's ability to get around the sanctions by using these illicit organizations and front groups?

[Andrea Berger]

I haven't looked at the legislation being proposed in the U.S. It's not clear to me what the novelty of the measures would be. The U.S. already has the ability to sanction foreign companies that are not North Korean. Indeed, it has done so on many occasions. The EU has that ability as well. If you look, for example, at the U.S. designation of companies and individuals in Singapore that are facilitating North Korean trade, that's a perfect example of where they have already taken that measure.

That legal authority already exists for them. Indeed, they make fairly good use of it. It is essential. There's a limitation of designations in general in terms of effectiveness. It's both necessary and insufficient to be doing individual designations. It's quite easy for North Korea to quickly transform its appearance. So it's critical when designating an entity as part of a network to designate the bit of the network that has assets that can't be easily moved or shifted. That's critical.

In most cases, North Korea will be able to come up with a different front company name or change the way it operates much quicker than we'll be able to get a legislative package in place to be able to make a case for designation.

[The Chair, Liberal, Bob Nault]

Thank you.

We'll go to Mr. Fragiskatos now, please.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you very much, Ms. Berger, for testifying today.

We've been examining sanctions for a number of weeks now and I'm particularly interested in the idea that sanctions serve as some kind of panacea: impose sanctions and our problems will go away. That's a simplistic generalization, but this is the view that many within the international community seem to have.

I happened to notice today in 38 North, your piece on Canada and how we can help deal with the security threat that North Korea poses.

As far as the effectiveness of sanctions goes and the idea that they can somehow be a panacea, I noted that, and you've mentioned it already, in 2013, drones using Canadian flight control computers made their way into North Korea. There's also the case in 2014 of Dow Canada, whose shipment of chemicals ended up in North Korea. Although you've touched on this already with my colleague's question, could you speak to this? How exactly is it that these products find their way into North Korea, despite the fact that there is already a very strong sanctions regime in place?

[Andrea Berger]

Regarding your initial point about sanctions being a panacea, I would agree with your assessment, to the extent to which sanctions are becoming a tool that's deployed more frequently for a range of international security and threats, whether it's a human rights issue, or it's Russia meddling in Crimea, or it's nuclear proliferation, or it's terrorism. Sanctions are simply part of our lexicon to respond to those threats.

At the same time, I don't think our view of the utility of sanctions has changed, in the sense that we still understand that sanctions are nothing if not a tool for behavioural change. If they're not there to change the behaviour of a target, or an entity, or an individual, then really, they're just there to make ourselves feel good and that's not useful from a policy perspective.

Regarding how North Korea gets around these types of restrictions, I'll come back to the point about their ability to create a facade when they act overseas, which is really at the heart of all North Korean illicit activity in their approach. They are very good at being able to create a veil to suggest that they are foreign in nature, so non-North Korean in nature. If it's a North Korean network in Singapore, they will involve Singaporeans, who will create companies with completely generic names, who will open bank accounts with fairly reputable banks. Unless you spend a lot of time doing your due diligence on those companies and entities and the nature of their business, you may never realize that actually there's a North Korean puppet master sitting behind the scenes probably in a very nice apartment somewhere in Singapore.

This comes back to my point about the importance of intelligence and monitoring. We have to get collectively much better at monitoring North Korea's ability to create those facades. That may be something we do in partnership with financial institutions or between countries, but it does require a lot more co-operation and activity on our part.

[Peter Fragiskatos, Liberal, London North Centre, ON]

I agree with you on the part about sanctions. The reason I asked the question that I did is I see them as a tool, but an imperfect tool, obviously, because of the examples that I cited at the outset. This is not to say that sanctions have no place. They certainly have a role, but this idea that they are somehow the mechanism that is going to secure international peace and security, I think, is very much misguided. I think you've done a good job of illustrating that.

In your piece that you've put forward, and correct me if I'm wrong, but my interpretation of what you're saying is that engagement has its place. The North Korean regime is a very particular regime, a dangerous regime, although Canada can still engage to deal with the security threat that North Korea poses and we can engage by reaching out to the international community. You touched on this by talking about the need for collaboration, for co-operation. In your piece, you talk about collaborating with other states, sharing our expertise. You've also mentioned in your testimony here the usefulness, the merit of reaching out to even financial institutions.

I'm interested in that idea of collaboration, because I think if we simply look at these issues in isolation, if we have a regime with a bad human rights record that is posing a threat to international security, there might be a tendency to say that we are going to simply cut ourselves off and not engage in any dialogue. However, there is a robust dialogue that can take place between Canada and other states who are like-minded and concerned about international peace and security when we're dealing with North Korea. I think it's diplomacy through the back door, so to speak, a different way of engaging and maybe not directly with North Korea, but through this other avenue that I mentioned and that you wrote about in your article.

I wonder if you could elaborate on that.

[Andrea Berger]

I think you've touched on an excellent question, which is engagement with whom? I'll be the first to say that I also support the inclusion at the international level of engagement with North Korea as part of the solution. To me, sanctions are about getting North Korea back to the negotiating table, which is something we generally agree on internationally. Few would dispute that is something we would like to see happen. If that's the objective, we have to have a negotiating table to come back to.

We learned this with the Iran case quite well, I think. I know that you spoke to Richard shortly before me about his experiences with that.

I agree that broadly speaking—and this is not a policy prescription for Canada specifically—we do need to have engagement be part of a policy discussion on North Korea.

I think Canada's engagement can best be felt in reaching out to others, and they need not necessarily be like-minded states. In fact, some of the most intensive work we have to do is with states who don't feel threatened by North Korea. To some extent I've had conversations with foreign government officials to explain that there's a North Korea and a South Korea. It's that basic of a conversation in some places.

We do have a lot more work to do. Many countries don't prioritize this issue. They allow North Korean diplomats to operate on their territory fairly unscrutinised. They allow them to open companies and bank accounts, and are not necessarily taking a close look at what those are being used for.

Then you have countries around the world that actually need a bit of pressure to cut off destabilizing ties with North Korea. There's a large portion of Africa that still buys weapons and related goods and services from North Korea, completely in violation of UN Security Council resolutions.

If we get them to disengage at a political level, we're also going to have to make sure that their regulations and internal laws ensure that those policies are sustained. Those are the types of conversations in which Canada can be helpful, in my view.

[The Chair, Liberal, Bob Nault]

Thank you, Mr. Fragiskatos.

Madame Laverdière, s'il vous plaît.

[Hélène Laverdière, NDP, Laurier—Sainte-Marie, QC]

Thank you very much, Mr. Chair.

Ms. Berger, thank you for your presentation. It was very interesting.

In your last reply, you touched on something I would like to discuss with you. In your presentation, you used the phrase “holes in the sieve” with regard to Africa and these issues.

Which are the main countries that are problematic in this regard and what can we do in very practical terms? We can begin a dialogue to raise their awareness, but what technical assistance could we provide to certain countries?

[Andrea Berger]

That is a fantastic question. Yes, holes in the sieve is, I think, what I referred to.

There are different gaps in different parts of the world and various levels of severity depending on where we're looking. Broadly, I would say the three largest regions we need to focus on, not only because they are critical pathways for North Korea, but also because of the implementation gaps, are Southeast Asia, the Middle East, and Africa. I realize that covers a large section of the world, but it gives you a sense of the scale of the problem. Issues in those jurisdictions are quite wide ranging.

I'll give you a very small sample. Finance is one of the areas that we need to be able to restrict with regard to North Korea. North Korea has become very good at circulating money offshore. Measures that restrict North Korea's ability to have North Korean bank accounts operate overseas are only going to be partially effective, because they're already putting their money overseas into accounts that don't have a North Korean label on them and circulating it in that way. To be effective in implementing some of the restrictions that acknowledge that limitation at the national level, you need to have regular communication with banks. You need to make sure that banks know that they can and can't do certain things related to North Korea. When you travel to parts of Southeast Asia and have conversations with monetary authorities and financial regulators and indeed with the banks in those jurisdictions, it's quite clear that those conversations are just not happening. In some places you still even have North Korean companies creating joint venture banks with other foreign companies, so we have some work to do.

In some places gaps in legislation mean that when a country does want to take enforcement action, it doesn't have the legal ability to. Scrutinizing the movement of North Korean diplomats or cash couriers is one example of how legislation and gaps therein frequently create obstacles rather than facilitate action. Model legislation, outreach on export controls, outreach on countering financial crime, and specifically counter-proliferation finance if we're talking about the most important part of the threat picture in the financial space, are all extremely important initiatives that we need to advance. You can pretty much choose your place in Africa, Southeast Asia, or the Middle East where you want to do that outreach.

[Hélène Laverdière, NDP, Laurier—Sainte-Marie, QC]

Thank you very much.

You know that, in communications with banks, for instance, we try to explain what they can or cannot do. In this very committee, we are realizing that we in Canada are perhaps not necessarily always an example for the implementation of measures and outreach.

That said, as you pointed out, the North Koreans are very clever at circumventing the system. I appreciate your comments on the need for monitoring and for information about what they are doing. I also appreciate your comments on the need for countries to share this information rather than each country doing the same work on its own.

I am wondering what the UN itself does in this regard.

[Andrea Berger]

The United Nations, in terms of its support system for the sanctions regime that we've created against North Korea, I will put it mildly by saying it's under-resourced. By the end of this week, it's going to look even more under-resourced because we're expanding the sanctions again to include new obligations that the UN will have a role in assessing international compliance with.

At the UN level, the North Korea sanctions regime still benefits from a panel of experts which is composed of eight members, nationally selected, who spend all of their waking hours tracking global compliance with the North Korea sanctions regime. They initially started as a panel that was focused just on assessing compliance with an arms embargo that was fairly limited. They've expanded now to focus on everything from coal trade to vanadium trade, to North Korean cash smuggling to, again, weapons-related or proliferation-related activity. Their job has grown enormously, and the resources to support them haven't.

Similar things could be said for the sanctions committee at the United Nations, which is also related to the relevant resolutions. I think our problem is that we've, if you will, created a sieve—to continue the metaphor—and now we're just making the sieve much larger without necessarily increasing the resources necessary to monitor the situation alongside that expanded regime.