On textile exports. Among the witnesses were former cia and Treasury Department officials. This hearing is just under two hours. Ask to declare a recess at any time. All members will have five days to submit extraneous material to the record. This hearing is entitled a legislate iive proposal to impe north koreas access to finance. I recognize myself for five minutes to give an opening statement. Todays hearing will examine draft legislation that would impose secoese secondary sancti foreign banks whose business supports the north korean regime whether directly or indirectly. By encompassing all of north koreas Economic Activity these measures would represent the toughest financial sanctions yet directed at pyongyang. This means going after coal as well as north korean laborers abroad. The bill would incentivize greater compliance with u. N. Sanctions by leveraging our vote at Financial Institutions where certain countries with lax enforcement go to seek assistance. This bill puts those countries on notice. This has been informed by the committees ongoing work on north korea as well as the u. N. Panel of experts vaegs of existing sanctions effectiveness. Needless to say, north koreas sixth nuclear test on september 3rd coupled with its repeated launching of intermediate and long range Ballistic Missiles underline that more must be done. As a result, the legislative draft will be looking at lays out a choice. Foreign banks can do business that benefits north korea or they can do business with the United States. They cannot do both. As many of us here today are aware, this is a similar approach to one taken in 2010 against iran. There are difrss of opinion over how successful those negotiations were, there is consensus, i believe, that in the absence of secondary sanctions affecting banks, tehran would have been far less incentivized to engage in talks. A focus on banks is especially important given how north korea has evaded sanctions in the past. The North Koreans have moved much of their trading activity offshore using third country brokers and Front Companies. The specter of financial sanctions may concentrate the minds of foreign banks so the entities identified by dr. Park and others have fewer options to carry out transactions and mask north korean involvement. Having said that, this bill would expand the scope of our sanctions to encompass even actors engaged in conventional trade with the north. Given north koreas unchecked hostility, broadening our efforts this this way appears essential. Chinas response to stronger sanctions has been sited as a concern as the country accounts for 90 of the north koreas trade. I would submit those critics should be far more sensitive to a quarter century of failed multilateral efforts to rein in pyongyang. There comes a time with caution becomes a euphemism for selfdelusion. As the u. N. Security Council Talks following the norths sixth nuclear test have demonstrated, its still unclear if china is committed to meaningfully tackling the north korean threat. We are curiously asked to believe that its hands are tied when it comes to a small economically depen dent state next door. Well, if chinese officials hands are tied, then we should proceed with secondary sanctions so their banks can assist International Efforts to cut off north koreas access to finance. I want to thank our witnesses for appearing today. I look forward to their testimony. Thank you so much. Id like to share some thoughts shes committed to paper regarding todays hearing. I want to thank our witnesses for joining us. Pressuring the International Community to enforce those restrictions as well. The situation in north korea is the most you aurgent and danger threat to peace and security. It grows more dangerously as they per sursue to capacity to extend its reaches. Theres are no good options for dealing with north korea. I like the idea of having china lean hard on north korea. We should not confuse either of those things with a coherent strategy. Any ramp etting up of sanctions must be coupled with aggressive diplomatic engagement with the United States and with a frame work that entailed nuance negotiations. It concerns me that just as the crisis is accelerating, you are diplomatic are diminished. The president has yet to nominate a permanent secretary of state. The legislative proposal before us today rightly recognizes the need to exert massive and immediate pressure on the north korean regime and enlist china and others in this effort. Such a powerful approach towards sanctions. However, that have the capacity to reverberate throughout the glob Global Economy must allow for a careful calibration. We look forward to the witness views as well as your views on how the u. S. Can most effectively use its leverage to contain the alarming danger north korea presents. I reserve my time. The chair now recognizes the gentleman from washington. Thank you for the time. Thank you all for convening this important hearing. Responding effectively to north koreas provocation will require a variety of tools. We have jurisdiction over sanctions opinion i believe its important that we always keep the broader picture in mind as we work to perfect the discussion draft which has been put forward today. A regime that relies on force to stay in power. Sanctions are make further north korean advances slower and more costly giving more times to other policy tools to work. I look forward to hearing from our distinguished witnesses about how this proposed draft fits into a larger strategy. My constituents in the south puget sound includes the Service Members are counting on us to respond to this crisis in a responsible manner. So too are our allies like south korea and japan. We cannot afford to fail them. We have to get this right. Im hopeful that with steady American Leadership working in a bipartisan manner, we will get this right. I yield back, mr. Chairman. The gentleman yields back. Because of the significance of the issues under consideration and the north korean threat, a number of members from the full committee have expressed interest in participation in todays Sub Committee hearing. I ask for unanimous consent that members on the full committee but not on this Sub Committee may join in this hearing. Wi we welcome david albright. He has written numerous assessments on the secret nuke her Weapons Program throughout the world. Mr. Albright has published assessments in numerous technical and policy journals. Hes also coauthored four books. How the secret nuclear trade arms americas enemies. Prior to founding the institute h he worked as a senior staff scientist. Anthony ruggiero spent 17 years in government. Hes a Foreign Policy fellow in the office of marco rubio. Prior to joining treasury, mr. Ruggiero spent over 13 years in various capacities at the state department including chief of the defensive measures and wmd finance team. He was also nonproliferation advisor to the 2005 rounds of the Six Party Talks in beijing and participated in u. S. North korea meetings. Hes also served as an Intelligence Analyst covering north Korea Nuclear and missile programs. Bruce klingner specializes in Japanese Affairs at the heritage foundations Asian Studies center. Mr. Klingnersage sis are by his 20 years in service. From 1996 to 2001 mr. Klingner ease Deputy Division chief for korea. In 1993 and 1994 he was the chief of the cia branch during a Nuclear Crisis with north korea. From may 2009 to september 2013 many rosenberg serve and as a Senior Advisor for terrorist financing and financial crimes. Then to the undersecretary for terrorism and financial intelligence. She helped to develop and implement financial and energy sanctions. She also helped to formulate antiMoney Laundering and oversee enforcement activities. Each you have will be recognized for five minutes to give an oral presentation of your testimony. Each of your written statement will be made part of the record. Mr. Albright youre recognized for five minutes. Thank you for the opportunity to testify today. During the last few years, north korea has embarked on an intensive Nuclear Weapons testing and Production Campaign that is included the construction and operation of many Nuclear Facilities and tens of Ballistic Missile launches. Few doubt that north korea can launch missiles that can strike our allies. Its making progress toward that goal. I continue to believe that north korea can be peacefully denuclearized. Substantive negotiations appear unlikely unless north korea changes its path. Theres little choice but to exert more pressure. The uchl n. Security Council Resolution passed on monday is an important step in that direction. A near term priority is to far more effectively isolate north korea from the regional and International Financial system. A central problem is many countries are not enforcing sanctions effectively or willfully disregarding them. Punitive measures are needed to encourage compliance and deter violations. Additional u. S. Legislation that supports that goal is useful. North korea appears to target entities and persons in engaging in active ities in tens of countries with weak or nonexistent train control systems or Proliferation Finance controls or higher than average corruption. Although a range of remedies are needed to fix the poor performance in general of many of these countries, the creation of punitive measures may be an effective means to accelerate more compliant behavior in the short term among a wide range of countries where entities and individuals see north korea as a quick way to make money or obtain military or other goods more cheaply or unavailable elsewhere. North korea has depended on a legal or questionable procurements for decades. Theyve gone offshore quite successfully to be able to acquire those goods. They dont just acquire them in the country such as china. They are able to get those goods from the United States, europe and japan by operating this china and exploiting chinas weak export control and sanctions legislation. I provided several examples in my system. China remains north koreas central, perhaps, unwitting supply conduit for its nuclear Weapons Program. One of the priorities is to change that. The Trump Administrations efforts to sanction chinese and for that matter russian owned companies and individuals that significantly support north koreas Weapons Program are a positive step. Unless china and russia show dramatic improvements, United States should go further and sanction major russian and chinese banks for any dealings. North korea has a dip low matsic path out of its isolation and sanctions. Any suggestion negotiations would need to repair past mistakes where north korea was able to evades inspections, continue expanding its nuclear programs. Agreement would need to allow unprecedented inspections and access allowing for a full accounting of the program as part of a denuclearization process. This prospect seems unlikely in the short term, its important to keep this goal available as a matter of u. S. Policy in case increased sanctions cant convince north korea to negotiate in earnest. Like wise the Trump Administration should continue to make clear that regime change is not its goal and particular if the goal is to seek cooperation from china that becomes even more important. Gentlemans time has expired. Thank you. Well look forward to the remainder of your testimony during the question and answer session. Mr. Ruggiero youre now ris recognized for five minutes. Thank you. We must ensure that u. S. Response to every north korean provocation advances our goal of denuclearizing north korea. Some experts will call for the white house to negotiate a freeze of north Koreas Nuclear program with claims it will reduce the threat and lead to denuclearization. We have seen this movie before and its ending is not encouraging. Its only for the purpose of extracting concessions in exchange for promises that will quickly violate. I noted that u. S. Sanctions did not have a serious impact because they have insufficiently targeted enough of pyongyangs international business. This work is not done. As i note in my written testimony recent actions reveal three methods pyongyang uses. In slide one the first starts with north korean revenue in china following the sale of commodities brokered by chinese firms and individuals. The payment moves through a north korean bank. From there moving left to right from there the funds move to a Chinese Company and then a Front Company that accesses u. S. Banks. The method relies on a system between north korea and china where the chinese firms and individuals hold these Bank Accounts. Slide two, please. The second method was identified by the Justice Department based on information from an unnamed north korean defector. Chinese entity one on the left side. Chinese entity one owes money while north korean entities two owes a similar amount to chinese entities two. The entities pay each other given the difficulties of moving money over the border. The third method was used by a Russian Company to receive u. S. Dollars for shipment of gas oil to north korea. This is very important given the new resolution that restricts energy sales. Providing a key vulnerability that washington can exploit. This is why its crucial for the Trump Administration to issue fines against chinese banks that are facility north korean sanctions. Matching the successful u. S. Policy as the chairman said used to pressure european Financial Institutions that were facilitating iran sanctions violations. The fines will prompt chinese banks to increase scrutiny. To be clear, if Nongovernmental Organization ks find these transportati transaction, im confident the largest banks in china can find them too. Pyongyang is trying to decouple our closest allies. Sanctions approach that focus on north Korea Financial actives has the best chance of success. Thank you for inviting me to testify. I look forward to your questions. Financial sanctions should be a core part of a pressure strategy along with projection and complemented by diplomatic engagement. I applaud the work of congress to impose new sanctions authorities this summer. To tighten financial pressure along with complementary sanctions from the United Nations. To apply pressure on north korea and international enablers. Avoiding pitfalls and using secondary sanctions is is primary of the u. S. Administration. The body that implements and enforces sanctions to Congress Must oversee aggressive sanctions implementation but give the administration adequate flexibility. Currently, only large u. S. Banks and some major european and asian banks pursue Proliferation Finance leaving all other global banks significantly vulnerable to abuse by north korean or other proliferators. Lack of knowledge and resources means they often take a mechanical approach to Proliferation Finance in the form of checking customers or transactions against entities sanctioned by the u. N. Or national governments. Sometimes but not always including the u. S. The glow ball setting standard body, the Financial Action task force. This limited approach is i inadequate and we need much Stronger Leadership from the United States. There must be stronger public, private information exchange. I out line several specific points in response to your legislative discussion draft and some ideas for additional measures. I support your tough approach on secondary sanctions and encourage the inclusion of me meaningful provisions. I urge you to consider ways to provide additional Financial Support for the treasury and state departments and the u. S. Intelligence community to expand the group of experts a crafting and enforcing u. S. Sanctions and offering Technical Assistance to Foreign Countries related to sanctions enforcement. Financially, congress should mandate new Bank Supervision requirements for u. S. Bank extending to their foreign branches, subsidiaries and correspondence. Thank you for the opportunity to testify and i look forward to answering any questions you may have. Its truly an honor to be asked to salespeople before ype. Pyongyang maintains covert access through a global of