U.N., U.S. move to increase pressure on North Korea

North Korean soldiers guard the bank of the Yalu River near the Chongsong County of North Korea, opposite the Chinese border town of Hekou June 15, 2009.

UNITED NATIONS/WASHINGTON (Reuters) - The U.N. Security Council neared agreement on Wednesday on North Korean firms and individuals to be added to a blacklist for involvement in Pyongyang's nuclear and missile programs, diplomats said.

Japanese Ambassador Yukio Takasu told reporters "we are very close" to agreement on the expanded sanctions list. Diplomats said a council committee that has been discussing the issue for a month was on target to meet a weekend deadline for completing its task and could do so as early as Thursday.

As diplomats put the finishing touches on expanding U.N. sanctions, U.S. officials said they had succeeded in increasing international awareness of methods North Korea uses to disguise its trade in illicit weapons as legal business transactions.

"North Korea engages in a variety of deceptive financial practices that are intended to obscure the true nature of their transactions," said a senior Obama administration official.

A U.S. team is traveling to key world capitals to warn governments and banks that North Korean practices make it "virtually impossible to distinguish between legitimate and illegitimate business," the official said in Washington.

Firms and governments in China, Hong Kong and other places North Korea does business were taking seriously the U.S. warnings about Pyongyang's practice of using front companies and unusually large cash transactions, he added.

The official said the goal was to bring scrutiny and thwart suspicious activities, not to hit all North Korean trade. Humanitarian aid would not be affected.

Arms sales are a vital source of foreign currency for destitute North Korea, with a yearly GDP of about $17 billion and a broken economy that produces few other items it can export.

The U.S.-based Institute for Foreign Policy Analysis estimates North Korea earns some $1.5 billion a year from missile sales. Other studies said the figure may be in the hundreds of millions of dollars and prior sanctions have cut into exports.

Analysts said the new U.N. measures will make it more costly for the North to trade arms but they will not likely deter customers, including Iran, who have shown little interest in joining international plans to punish Pyongyang.

North Korea's annual legitimate trade is estimated at about $3.8 billion, with China being its largest partner with exchanges of about $2.8 billion a year. Previous U.N. sanctions have not dented trade.

Beijing has been reluctant to cut trade, a lifeline to its impoverished neighbor, fearing it could cause a collapse of the North's government and lead to chaos on its border.

"Countries that actually do business with North Korea may find loopholes in the interpretation as to what is legitimate or not," said Shin Sang-jin, a professor at South Korea's Kwangoon University who specializes in North Korean-China relations.

NORTH KOREAN FRONT COMPANIES

The U.N. Security Council passed a resolution on June 12 that expanded U.N. sanctions against North Korea in response to a nuclear test it carried out on May 25, and asked the committee to add more names to the sanctions list.

The committee in April placed two North Korean firms and a bank on the list in its first action in two years. That move followed a long-range rocket launch earlier in the month by Pyongyang.

This week's blacklisting is expected to go further by specifying individuals and goods to be subject to sanctions, as well as additional companies.

The measure would prohibit companies and nations from doing business with the named firms and require them to freeze assets and impose travel bans on the individuals.

The steps described by the U.S. official were in addition to the U.N. measures and targeted counterfeiting, narcotics trafficking and other North Korean activities in addition to illicit weapons proliferation, officials said.

CHINA ON BOARD

"There's a broad consensus, including by China, that this is the right way to go and I don't think the Chinese would take this stuff lightly," said a second U.S. official.

The official said there was a growing international consensus that tightening sanctions on North Korean entities is "the best chance we have to influence their calculations."

"We're confident of an outcome which will be commensurate with DPRK (North Korea) actions and will be effective and will significantly improve the (sanctions) regime," said one Western diplomat, speaking on condition he not be identified.

The sanctions are intended to target only companies and individuals connected to Pyongyang's nuclear weapons and ballistic missile programs, and diplomats said the proposed goods to be sanctioned were also all weapons-related.

The June 12 sanctions resolution banned all weapons exports from North Korea and most arms imports into the reclusive communist state.

It also authorized U.N. member states to inspect North Korean sea, air and land cargo, requiring them to seize and destroy any goods transported in violation of the sanctions.

North Korea responded by saying it would take "firm military action" if the United States and its allies tried to isolate it.

(Additional reporting by Jon Herskovitz and Christine Kim in Seoul, Editing by Eric Beech and Dean Yates)