U.S. Targets North Korea in Retaliation for Sony Hack

U.S. Targets North Korea in Retaliation for Sony Hack

New Sanctions Target Individuals Working for Arms Industry

By Carol E. Lee And Jay Solomon in the Wall Street Journal

HONOLULU—The Obama administration renewed a U.S. campaign of financial pressure against North Korea, imposing sanctions against the country’s lucrative arms industry in what American officials said was a first step in retaliation for Pyongyang’s alleged cyberattack on Sony Pictures Entertainment.

President Barack Obama signed an executive order on Friday widening his authority to further punish a country that is already the world’s most isolated. The move returns the U.S. to a posture of open hostility with its oldest remaining Cold War adversary after the American leader last month initiated a détente with Cuba.

Treasury Secretary Jacob Lew said the moves were designed to “further isolate key North Korean entities and disrupt the activities of close to a dozen critical North Korean operatives.” He said the U.S. would defend its businesses and citizens from “attempts to undermine our values or threaten the national security of the United States.”

The new moves come despite lingering questions over whether North Korea was behind the November attack by hackers who released thousands of embarrassing internal emails and threatened Sept. 11-like attacks on movie theaters if the studio released “The Interview,” a comedy about the assassination of North Korea’s leader Kim Jong Un. The Obama administration has discounted those attacks.

Some nongovernmental cybersecurity experts have challenged the U.S. conclusion that North Korea was behind the hacking, arguing the attack would make more sense as the work of an aggrieved former Sony employee. Some security researchers not involved in the Sony probe argue the government didn’t prove its case.

However, the White House has stood by the Federal Bureau of Investigation’s assessment. “We remain very confident in the attribution,” an administration official said Friday during a conference call with reporters.

Another senior official suggested Friday that private cybersecurity firms can’t properly assess the source of the attack because they lack access to classified U.S. intelligence. The government says it doesn’t want to share this evidence because it could jeopardize U.S. spying on North Korea, this person said.

Rep. Ed Royce, a Republican from California, supported the White House move and said legislation he sponsored would allow the U.S. to further squeeze North Korea’s leadership. “We need to go further to sanction those financial institutions in Asia and beyond that are supporting the brutal and dangerous North Korean regime,” he said in a statement.

North Korea didn’t publicly react to the U.S. announcement, but experts said it seemed certain to respond.

“The question is whether they are going to do some sort of [nuclear] testing?” said Victor Cha, former Asian affairs director for the National Security Council in the George W. Bush administration.

There are two potential opportunities for a North Korean response in January, said Mr. Cha: Mr. Kim’s birthday is next week, and Mr. Obama’s State of the Union address is scheduled for later in the month. In 2013, the North Koreans conducted a nuclear test on the eve of the State of the Union.

U.S. officials said the actions announced Friday were specifically aimed at curbing North Korea’s arms trade, the country’s primary foreign exchange earner, the U.S. says.

North Korea deals in ballistic missiles, small arms and ammunitions, Western officials say. U.S. and Israeli officials say they have tracked in recent years North Korean missile sales to Iran, Syria, Yemen and numerous African countries.

South Korea’s foreign ministry said in a statement Saturday that the U.S. measures were “an appropriate response to North Korea’s consistent provocations,” including the recent Sony breach.

The U.S. and United Nations have previously sanctioned the companies named Friday. But now the Obama administration for the first time targeted 10 North Korean officials who the U.S. says are arms dealers working in Pyongyang’s key markets, including Iran, Syria and Sudan, as well as the country’s intelligence operations. The U.S. sanctions also target its leading arms dealer, Korea Mining Development Trading Corp.

The U.S. also imposed new restrictions on North Korea’s intelligence operations, the Reconnaissance General Bureau, which the Treasury Department said is heavily involved in cyber operations as well as arms trade.

The North Korean arms dealers weren’t sanctioned because the U.S. believes they were directly involved in the Sony attack, but rather because sanctioning them will have a significant impact on the North Korean government, American officials said.

It is unclear how much of an impact the measures will have on North Korea, or whether it will rival the impact of 2005 sanctions that targeted specific banks that were conduits for North Korea’s foreign exchange dealings.

Steps taken then to blacklist one Macau-based bank, Banco Delta Asia, had the effect of freezing Pyongyang out of the international financial system, even though the bank was only estimated to be holding $25 million in North Korean assets.

The George W. Bush administration unwound some of the measures beginning in 2007 in a bid to complete an agreement with North Korea to dismantle its nuclear weapons program. The U.S. took North Korea off the list in 2008 during the effort to curtail its nuclear program. North Korea pulled out of the deal in 2008.

Some current and former U.S. officials have been calling for the White House to relist North Korea as a “state sponsor of terrorism,” and to bar any financial dealings with Pyongyang by activating provisions of existing legislation.

Mr. Obama has said the U.S. is considering redesignating North Korea as a state sponsor of terrorism, which would carry international financial ramifications.

The president, who is on vacation in Hawaii until Sunday, had vowed to retaliate against North Korea for its role in the alleged hacking, which Pyongyang has denied.

White House press secretary Josh Earnest said Friday’s moves were only the first step in the U.S. response to the Sony Pictures cyberattack.

“We take seriously North Korea’s attack that aimed to create destructive financial effects on a U.S. company and to threaten artists and other individuals with the goal of restricting their right to free expression,” Mr. Earnest said in a statement.

Eight of the 10 individuals sanctioned in Mr. Obama’s executive order work for the state-owned Korea Mining Development Trading Corp., or KOMID. Another is a North Korean government official, and a 10th is listed by the U.S. as an official of Korea Tangun Trading Corp. in Shenyang.

The White House’s new executive order allows the U.S. to sanction any entity or person alleged to be part of the North Korean state, a platform that could be used to significantly widen the financial campaign again Pyongyang in the coming months, U.S. officials said.

The Obama administration drafted a similar order last year against Russia following the Kremlin’s annexation of Crimea.

—Felicia Schwartz and Danny Yadron contributed to this article.