Exclusive: Sanctions delay North Korea's atom bomb work, U.N. says By Louis Charbonneau and Michelle Nichols UNITED NATIONS (Reuters) - Increasingly tough financial sanctions, an arms embargo and other international restrictions on trade with North Korea have significantly delayed expansion of Pyongyang's illicit nuclear arms program, according to a confidential report by a U.N. panel of experts seen by Reuters on Tuesday. The latest annual report by the U.N. sanctions-monitoring group comes as the United States seeks to persuade China that applying economic and other sanctions against its neighbor is crucial to halting the program. "While the imposition of sanctions has not halted the development of nuclear and ballistic missile programs, it has in all likelihood considerably delayed (North Korea's) timetable and, through the imposition of financial sanctions and the bans on the trade in weapons, has choked off significant funding which would have been channeled into its prohibited activities," the 52-page report said. The document covers the period up through last month, diplomats said, so it was too early to measure the effect the latest round of U.N. sanctions adopted in March. In the report to the U.N. Security Council's North Korea sanctions committee, the panel also recommended sanctioning three North Korean entities and 12 individuals. It will be up to the 15-nation council whether or not it follows the recommendations. The three entities the panel said should be blacklisted are the newly created Ministry of Atomic Energy Industry, the Munitions Industry Department of the Central Committee of the Korean Workers Party (KWP), and the State Space Development Bureau. The individuals the panel wants sanctioned include the atomic energy industry minister, once he is nominated, and four senior officials at the KWP Munitions Industry Department. It also recommends the blacklisting of one national from Kazakhstan, Aleksandr Viktorovich Zykov, and two from Ukraine, Iurii Lunov and Igor Karev-Popov, for their involvement in North Korea-related arms deals. The panel listed North Korea's February nuclear test and its rocket launches as examples of violations of Security Council resolutions that have increased international concerns about Pyongyang. It was North Korea's third nuclear test since 2006. Pyongyang is under U.N., U.S., European Union and other sanctions, including a U.N. ban on all arms exports, due to its nuclear weapons program. Among potential violations the panel listed were the seizure by a U.N. member state of aluminum alloys suspected to be nuclear-related in August 2012 and the seizure of missile-related items bound for Syria in May 2012. Previous breaches included shipments of arms-related material to Syria in November 2010 and rocket fuses for Iran in 2008, the panel report said. "The DPRK has continued its efforts to import and export items relevant to missile and nuclear programs and arms," it said. The panel said countries should be on the lookout for North Korean attempts to procure the following key items for Pyongyang's nuclear program - maraging steel, frequency changers, high-strength aluminum alloy, fibrous or filiamentary materials, filament winding machines, ring magnets, semi-hard magnetic alloys in thin strip form and other items. U.N. diplomats said that China, North Korea's principal ally and trading partner, continues to play a key role in enabling Pyongyang to skirt sanctions, though this is not discussed explicitly in the panel's report. Beijing has vowed full implementation of the latest round of U.N. sanctions adopted by the council in March, though it remains unclear how much China was keeping that promise. Recently Bank of China Ltd shut the account of North Korea's main foreign exchange bank, the state-run Foreign Trade Bank, which was hit with U.S. sanctions in March after Washington accused it of helping finance Pyongyang's nuclear weapons program. That closure was the first significant, publicly announced step taken by a Chinese firm to curb dealings with North Korea. Washington has urged Beijing to apply economic sanctions against North Korea to help cripple a nuclear arms program that Beijing has made clear it disapproves of, diplomats say. The U.N. financial restrictions are working, the panel said. "The panel is highly confident that financial measures of the resolutions in general are being effectively implemented by major banks," the experts wrote. "It has concerns, however, about the ability of banks in states with less effective regulators and those unable to afford effective compliance to detect and prevent illicit DPRK transfers," said the report, citing a case involving the Bank of Congo in the Republic of Congo. It said the Bank of Congo processed a wire transfer linked with an attempted arms shipment in 2009 to an account in the name of a diplomat at North Korea's embassy in Beijing, but Banque de France refused to accept the transfer. "This case illustrates how the DPRK makes use of its diplomatic officials in the conduct of prohibited activities ... and in the using bank accounts to shield illicit fund transfers from bank's due diligence procedures," the experts said. The report also said a diplomat at the North Korean embassy in the Republic of Congo has been actively involved in negotiating the contracts for the arms shipments. The Security Council sanctions resolution adopted in March drew attention to North Korean bulk cash deliveries, an issue the expert panel also touched on in its report. U.N. envoys say such transfers are often carried out by North Korean diplomatic personnel. The panel report referred to North Korea's "trade-based money-laundering via front companies and agents to pay for illicit procurements and to transfer proceeds of sales of weapons and WMD-related items." The panel also said North Korea continues to violate the Security Council ban on luxury goods. It said that since May 2012 Japan has reported nine cases of suspected violations of the ban involving luxury goods including alcohol, tobacco, electronic items, automobiles and cosmetics. The DPRK circumvented sanctions using ... false shipping and customs declarations and the use of intermediaries to make payments either through hand carrying or wire transfers. In at least two instances the end users were falsely declared as a diplomatic mission in Pyongyang," it said. It said the panel had also requested information from China on six earlier luxury goods cases. "China's customs officials told the panel that goods covered by the panel's 2012 report were not considered luxury goods," the experts wrote. (Reporting by Louis Charbonneau and Michelle Nichols. Editing by Christopher Wilson and Xavier Briand)