Barack Obama and Sen. John McCain clearly agree on one thing: Bill Richardson and Eric Schmidt should not have visited Pyongyang this week. A State Department spokeswoman said last week that the timing, coming just four weeks after a rocket launch that violated three U.N. Security Council Resolutions, was not helpful. McCain tweeted that Richardson and Schmidt were "useful idiots." Richardson is among the staunchest advocates of appeasing North Korea after billions of dollars in U.S. and South Korean aid have bought little more than attacks, provocations, threats, and broken promises to disarm.
This could be the Hermit Kingdom's year of living provocatively. North Korea's dynastic ruler, Kim Jong Un, who turned 29 (or possibly 30) on Jan. 8, is very likely to act aggressively toward his neighbors in 2013 to burnish his leadership credentials at home and to deal with the new South Korean president-elect, Park Geun Hye, from a position of strength. New administrations in Washington, Beijing, Tokyo, Seoul, and Moscow will seek to avoid foreign crises as they consolidate their power domestically, creating a less confrontational and more appeasement-prone neighborhood in 2013.
The provocations have already begun. North Korea's rocket launch in December was calculated to intimidate the U.S. and South Korean governments: The rocket was theoretically capable of reaching the United States, and North Korea carried out the test on Dec. 12, seven days before South Korea's presidential election. Pyongyang's announcements that it might postpone the test due to technical difficulties in the days leading up to the launch appear to have caught Obama's Asia team off guard.
So far, the Obama administration's response to the North Korean test has been to return to the United Nations to ask for more Security Council sanctions, but the test already violated three Security Council resolutions that China won't enforce. Despite prior U.N. condemnations, North Korea followed its 2006 and 2009 missile tests with nuclear tests three and two months later, respectively. Beijing's new leadership will likely keep funding the Kim regime and letting it smuggle missile parts and sanctioned luxury goods through Chinese ports. (China claims to "resolutely" oppose North Korea's nuclear programs, but probably sees its behavior as useful in keeping the United States distracted and Korea divided, while it pursues territorial ambitions elsewhere in the Pacific.) If the pattern holds, North Korea's next nuclear test could occur around the time of the late Kim Jong Il's Feb. 16 birthday, or president-elect Park's Feb. 25 inauguration.
This does not mean, however, that Obama lacks non-military options. Pyongyang has vulnerabilities that Washington can exploit without resorting to force. Although the sectors of the North Korean economy that feed most of its people collapsed in the 1990s, the privileged elite in Pyongyang continue to live in luxury. The regime can afford to maintain its nuclear and missile programs, and relatively luxurious lifestyles for its ruling class, thanks to a "palace economy" financed through a global network of shady bankers and businesspeople. This palace economy not only sustains the North's military and internal security forces; it finances a system of class privilege that stands in appalling contrast to the deprivation imposed on North Korea's lower classes. The central role of this shadow economy in regime preservation makes the Kim dynasty particularly vulnerable to tools designed to combat international money laundering.
If Obama wants to offer a credible deterrent to North Korea's provocations, he should shift his focus away from the U.N. and ask the Treasury Department to sanction the banks and businesses that finance the Kim regime's palace economy. Because these instruments of pressure can be applied in concert with U.S. allies and without U.N. approval, China's power to obstruct them is substantially diminished. There is a precedent for this: In September 2005, Treasury declared the Macau-based Banco Delta Asia a "primary concern" for North Korean money laundering, and a haven for drug dealing and counterfeiting proceeds. Treasury's action only directly affected $25 million in deposits, but its indirect effects were far greater, causing a run on Banco Delta and damming one of North Korea's main streams of illicit revenue.