The newly proposed U.S. financial restrictions on North Korea are expected to hamper the North’s access to the global banking network by warning the international community against any transactions with the communist regime.

Seoul on Thursday “welcomed” the U.S. designation of North Korea as a “primary money laundering concern” overnight, taking note of the Treasury’s portrayal as “the most significant measure available” under Section 311 of the Patriot Act.

“The government highly appreciates the step, which reflects the U.S.’ stern resolve to continue imposing strong individual sanctions against the North for its denuclearization and substantive change, while thoroughly implementing the U.N. Secretary Council resolution 2270,” Foreign Ministry spokesman Cho June-hyuck said, referring to the sanctions passed after Pyongyang’s latest nuclear and missile tests early this year. 

The measure would ban U.S. banks from opening or maintaining accounts with North Korean financial institutions, and foreign banks from using accounts that were opened for transactions with U.S. institutions on behalf of North Korean banks.

The announcement came less than two months after Washington levied a fresh set of standalone sanctions against Pyongyang, which included a sectoral ban, such as on mining and energy, as well as on labor exports. It was also in line with legislation enacted in February calling for the administration to consider the designation.

The focal point is whether the proposal would have the same repercussions as the U.S.’ embargo in 2005 against Banco Delta Asia, a family-owned bank in Macau known to be a money-laundering channel for the Kim dynasty.

The Treasury froze about $25 million in the bank’s accounts traced to Pyongyang in a bid to help dry up resources for its nuclear program. The step, even after its lifting, triggered a massive run on the institution’s deposits and a far wider impact across the globe.

Struck by a cash crunch, then-leader Kim Jong-il sought to thwart denuclearization pledges enshrined in the Sept. 19 statement reached at the six-nation forum.

“If finalized after a 60-day comment period, the measure could create a ripple effect among third-country banks, as their dealings with U.S. financial institutions could be affected unless they halt transactions with North Korea,” a senior ministry official told reporters on customary condition of anonymity.

“The designation itself may be interpreted as a warning not to do business with the North, while putting a label on those with North Korea ties and prompting them to be more cautious, all of which will make it difficult for the North to process financial transactions overseas.”

Chang Yong-seok, a senior researcher at the Institute for Peace and Unification Studies at Seoul National University, also called the action the “maximum possible economic sanction” that Washington could take, saying it would have a “decisive” impact on the credit of banks dealing with the North.

The measure was unveiled at a delicate time, hours after Chinese President Xi Jinping met with Ri Su-yong, vice chairman of the North’s ruling party’s central committee, who was on a three-day stay in Beijing.

During the meeting of some 20 minutes, Xi was seen to be more hospitable and apparently stopped short of highlighting Pyongyang’s denuclearization obligations, though he mentioned the need for “calm and restraint.”

In contrast, Xi stressed the country’s commitment to “realizing a nuclear-free peninsula” during his summit with President Park Geun-hye on the sidelines of the Nuclear Security Summit in March in Washington. He also said he would “never accept war and disorder” at a CICA conference in April in Beijing.

Concerns are now rising that with Beijing’s relatively softened approach, the North’s campaign may be proving effective in cracking the international community’s united front in ramping up sanctions and pressure to change its course.

Pyongyang’s state media Thursday reported that during the visit to Xi, Ri reaffirmed Pyongyang’s resolve for its parallel pursuit of nuclear and economic development, or the “byungjin line,” as part of the country’s feats made at last month’s party congress. The Chinese leader, for his part, gave “ardent” congratulatory messages for North Korean leader Kim Jong-un’s crowning as the party chairman, the state media said.

Some observers deemed Xi’s hosting of Ri to be directed more at Washington ahead of the U.S.-China Strategic and Economic Dialogue scheduled for June 6-8 in Beijing. The two powers are forecast to discuss North Korea’s nuclear program, the South China Sea dispute and other security, trade and economic issues.

“I think Ri’s visit was made possible because it catered to the interests of both sides -- the North wants to restart dialogue after the party congress and ease sanctions, whereas China would make strategic use out of Pyongyang in the face of intensifying U.S. pressure after (U.S. President Barack) Obama’s trip to Vietnam,” another senior Seoul official said, requesting anonymity.

“But they seemingly failed to reach consensus on the nuclear issue, and as for Beijing, it was more about managing the relationship, so any meaningful progress would be limited.”

By Shin Hyon-hee(heeshin@heraldcorp.com)