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

By Patrick Worsnip and Paul Eckert

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.