December 1-7, 2022 | Issue 26 - Illicit Finance and Economic Threats (IFET)
Christine Saddy, IFET Team
Jashanpreet Malhi, Editor; Claudia Santillan Vazquez, Senior Editor
Date: December 1, 2022
Location: South Korea
Parties involved: South Korea; Democratic People's Republic of Korea (DPRK); North Korean leader Kim Jong Un; six North Korean Bank employees; North Korean trade and shipping firms; Singapore-based shipping firms; Taiwanese national Chen Shih Huan; Singaporean national Kwek Kee Seung; companies; Japan
The event: The South Korean government has imposed sanctions on eight individuals and seven companies due to their involvement in illegal activities to finance North Korea's nuclear and missile programs. Among the individuals and companies listed are Huan, Seung, six officials from various North Korean banks, four North Korean trading and shipping companies, and three were Singapore-based shipping companies. The sanctions came amid North Korea's escalation of intercontinental ballistic missile tests in November 2022.
Analysis & Implications:
Reduction in funding due to sanctions will unlikely weaken North Korea's ability to fund its nuclear weapons program but will almost certainly impact North Korea's citizens. DPRK’s government will likely divert funds from its development programs, like social welfare and infrastructure projects, to fund its nuclear program, likely decreasing citizens’ resources. North Korea will almost certainly increase hacking campaigns targeting cryptocurrency platforms in South Korea to destabilize its economy and retaliate and compensate for lost federal revenue from the sanctions.
Sanctions will very likely incentivize other countries, like Japan, to issue sanctions on the same companies, which would potentially pressure other companies to stop shipping activities with sanctioned entities to avoid losing business in South Korea and Japan. Sanctions will likely discourage undetected companies that have been financing the North Korean government from funding the nuclear program. As investigations continue, more sanctions will likely go into effect. Kim Jong-un will likely condemn further sanctions and see them as a provocation.
Date: December 2, 2022
Location: Switzerland and South Africa
Parties involved: Switzerland; Swiss-based global technology company ABB; ABB stakeholders; ABB investors; South Africa; South African state-owned energy company; high-ranking African government officials; foreign companies operating in Africa
The event: ABB's subsidiaries in Switzerland and South Africa pleaded guilty to violating the Foreign Corrupt Practices Act (FCPA) and involvement in a bribery scheme of a high-ranking official at the South African state-owned energy company. ABB agreed to pay more than $315 million to provide information and resolve the investigation.
Analysis & Implications:
The court sentence will likely damage ABB’s reputation, which will likely deter foreign companies from continuing business with ABB's subsidiaries to avoid legal liabilities. Stakeholders and investors will likely reconsider future investments with the firm to avoid financial losses, leading ABB to suffer revenue losses and resulting in employee lay-offs. ABB will almost certainly seek to strengthen its compliance program and internal controls and begin to provide periodic reports on its efforts to combat corruption and bribery schemes.
African governments will almost certainly open investigations to reveal the officials who accepted bribery from ABB representatives. Public trials and accountability will likely set a precedent for companies operating in highly corrupt countries, like Somalia and South Sudan, to establish robust compliance programs and conduct rigorous due diligence measures on subsidiaries. This will likely strengthen the rule of law in South Africa and other countries in Africa with high corruption rates in the long term.
 Seoul places new sanctions on North Korea over arms buildup, AP News, December 2022, https://apnews.com/article/europe-seoul-south-korea-nuclear-weapons-north-dc2cf252f0886e73c8fcd07a4aad0e69
 ABB Agrees to Pay Over $315 Million to Resolve Coordinated Global Foreign Bribery Case, US Department of Justice, December 2022, https://www.justice.gov/opa/pr/abb-agrees-pay-over-315-million-resolve-coordinated-global-foreign-bribery-case