Lost in last week’s euphoria surrounding North Korea’s faux agreement to surrender its nuclear arsenal was the news that the Banco Delta Asia -- a Macao based investment bank -- had been cited by the U.S. Treasury Department as a willing partner in a wide range of illegal North Korean financial dealings. Savvy investors -- mindful of U.S. threats to crack down on Pyongyang’s overseas holdings -- immediately pulled their money from the bank, resulting in a run which cost BDA 10 percent of its capital in a single day.
If eventually proven to be complicit in the North Korean transactions, Banco Delta Asia will represent just one small component of North Korea’s overseas criminal enterprise, an apparatus which has grown to encompass dozens of illicit activities based in most of the world’s major nations. With the collapse of almost all economically viable domestic industries, crime has become North Korea’s main export, enabling the Democratic People’s Republic of Korea (DPRK) to reap large amounts of foreign hard currency which serve to maintain the luxurious lifestyle of Pyongyang’s small ruling elite. The funds also allow Pyongyang to purchase expensive military hardware, including materials for their burgeoning nuclear program.
North Korea’s efforts are far from a simple attempt to accrue quick capital; their illegitimate ventures have real strategic implications for the United States. The hermit kingdom has become one of the leading exporters of ballistic missile technology, transfers which have destabilized several of the world’s more dangerous hot spots. Perhaps most alarmingly, Pyongyang’s extensive illegal operations have allowed it to form reliable partnerships with powerful organized crime networks, relationships which could easily enable the transfer of WMD material or designs to anyone willing to pay the right price.
The nexus of North Korea’s criminal network is located in a drab six-story concrete compound in Pyongyang, headquarters of the Central Committee Bureau 39. The building -- in the heart of the capital’s “party” district -- is just a few blocks away from Kim Jong-Il’s central office. The proximity of the two structures serves as a cogent metaphor, indicative of the close relationship between the regime and its illicit activities. Bureau 39 was created in 1974, at a time when the North Korean economy was showing initial signs of collapse. The DPRK leadership quickly realized that the only way to maintain their elite status was to ensure regular infusions of foreign cash through “unofficial” channels. It was thus the mandate of Bureau 39 to do anything necessary to keep this currency flowing into the coffers of the leadership apparatus. The agents of Bureau 39, culled from the security and diplomatic services, quickly turned to the ever lucrative drug trade to fulfill their charge.
North Korea’s drug industry begins in the fields, where thousands of slave laborers and school children cultivate the poppies necessary for producing heroin. As many as 17,000 acres of arable farmland -- of which North Korea possesses precious little -- have been allocated for the express purpose of poppy production. In 1997, the Kim regime ordered that all state-run farms allot at least 25 acres for poppy production, indicating the increasing importance of heroin to the government of Kim Jong-Il. This forced allocation came at a time when millions of North Koreans were slowly starving to death, with recent estimates suggesting that 40 percent of North Korea children are “chronically malnourished.”
The raw crops are then moved to “pharmaceutical plants,” where they are processed into heroin under the watchful eyes of drug specialists brought in from Thailand. The North Koreans are thought to process approximately 50 tons of raw opium a year, a supply which represents a street value in the millions. Once refined, the bulk of the heroin is moved to North Korean ports for transportation to major Asian transport hubs, or across the northern border into China and Russia. Other smaller portions are doled out to Bureau 39 diplomatic assets overseas, dozens of whom have been arrested on charges of drug smuggling and distribution.
In the past, North Koreans have relied on foreign shipping to transport their drugs, the heroin often disguised in crates inconspicuously labeled as food or furniture. Now, increasingly desperate to accrue large amounts of capital at a faster pace, the North Koreans have started to cut out the middleman, moving their drugs -- along with drugs manufactured elsewhere in Asia -- in state-owned vessels. Such was the case with regard to the Pong Su incident in April 2003, when Australian special forces intercepted and boarded a North Korea freighter several miles off the Australian coast, discovering a number of North Korean party members and almost 300 pounds of heroin. Other smaller vessels, heavily laden with weaponry and narcotics, have frequently been intercepted and sunk attempting to infiltrate Japanese territorial waters.
The North Koreans have also moved into the booming Asian methamphetamine market, producing an estimated 15 tons of the easy-to-manufacture stimulants every year. Japanese authorities have stated that a third of the high-quality meth which finds its way to the streets of Japan is of North Korean origin, representing profits upward of three billion dollars. North Korean defectors who were involved in Bureau 39 operations recall meeting with high-ranking members of the Japanese Yakuza syndicate, where millions of dollars changed hands in exchange for large amounts of methamphetamine. Asian law enforcement agencies have noted that the North Korean government, through their import subsidiaries, has been purchasing large amounts of the prescription drug ephedrine -- a progenitor of methamphetamine -- far beyond the quantity needed by the North Korean populace, even if they were allowed access to medicine. All of these narcotic-related efforts are thought to produce as much as $500 million dollars for the Kim government annually.
In addition to their role as the foremost state-producer of narcotics, North Korea has also taken the lead in state-sponsored counterfeiting. The principal target of this counterfeiting operation has been the American $100 dollar bill. The counterfeiting efforts of Bureau 39 have become so refined as to produce nearly flawless reproductions of American currency, referred to as “Super-Ks” by law enforcement officials who are frequently humbled by their own inability to identify the fake dollars even upon close inspection.
Indeed, Bureau 39 puts such an emphasis on counterfeiting as a way to generate money for the Stalinist state that they have constructed several high-tech processing and printing plants for the express purpose of currency duplication. In the late 1990s, the North Korean government secretly invested $10 million dollars in the purchase of a European-manufactured imbroglio printing press, the identical model used by the U.S. mint. Defectors recall witnessing large numbers of chemists being trained specifically to reproduce nearly flawless copies of American dollars, Japanese Yen, and, increasingly, Euros.
The bills are then passed to North Korean diplomats or traders overseas, where they are interspersed with genuine dollars to foil investigators. These notes have been discovered in almost every corner of the world, with North Korean officials being arrested in a number of different countries, often in possession of tens of thousands of dollars in counterfeit notes. North Korean agents have also invested tens of millions of dollars in a complex network of complicit banks, especially in Macao, where the funds can easily be laundered and transferred to Pyongyang’s state accounts. This aggregate trade in counterfeit dollars is thought to bring the North Korean government around $100 million dollars per year.
The Missile Trade
In November of 2002, US intelligence began to track the So Sang, a stateless vessel which had recently visited North Korea. Upon leaving the DPRK, the ship embarked on a two-week journey to Yemen, a trip interrupted when Spanish commandos -- operating in conjunction with American authorities -- boarded the vessel. Hidden underneath sacks of concrete, the Spanish soldiers discovered 15 Scud-B missiles, purchased secretly from the North Koreans by the Yemeni government. The So Song incident exposed only a minor component of North Korea’s extensive ballistic missiles trade, a far-reaching enterprise which is thought to bring $500 million dollars into North Korea every year.
North Korea’s role as major missile supplier began in 1990, when an agreement was signed between Pyongyang and Tehran entailing the shipment of over 60 missiles to Iran, as well as additional technical support. Other nations took note and quickly penned deals with Pyongyang, including Syria, which hosted North Korean advisors who oversaw the construction of missile launching facilities throughout the early 1990s. Egypt and Libya both followed suite, purchasing additional weapons from Pyongyang while cooperating in extensive joint development efforts. North Korea’s missile engineers quickly became the DPRK’s de-facto ambassadors, traveling from nation to nation facilitating Pyongyang’s growing missile export initiatives.
North Korea’s ballistic missile efforts have led to two particularly dangerous developments, both found in the Middle East. Chief among them is the Iranian deployment of the Shehab-3 ballistic missile. First tested in 1998, the Shehab-3 has a range of 1,300 kilometers, well within effective striking distance of Israel. While Iranian propagandists hailed the weapons development as a realization of the Islamic Republic’s lofty technical aspirations, the Shehab-3 is -- in reality -- an almost exact copy of the North Korean No-dong missile. North Korea worked with Iran for years to perfect the model, while also constructing facilities in Iran which allow Tehran to mass produce their own weapons. North Korean officers were regular visitors to Iranian missile production plants, even observing the first tests of the system in the late 1990s. Their efforts have continued right up to the present, with deliveries of parts and engines facilitated by Pyongyang’s world-wide network of export front companies. In return, Iran has poured hundreds of millions of dollars into several anonymous bank accounts controlled by Kim Jong-Il.
The other worrisome development stemming from North Korean missile proliferation involves the rapidly evolving missile systems of Pakistan. While a nominal U.S. ally, Pakistan’s development of new, more powerful ballistic missiles such as the long-range Ghauri series is nevertheless a worrying trend, especially considering their often adversarial relationship with India. Pakistani advances in ballistic missiles have come, in large part, due to North Korean aid, which includes extensive engineering assistance as well as the delivery of as many as 25 No-dong missiles. The North Koreans also supervised the transfer of an entire missile production line to Pakistan, a feat for which they were handsomely rewarded by the Pakistanis. Even though Pakistan President Musharraf recently announced an end to defense cooperation between the two nations, North Korea experts are still thought to be heavily involved in the maintenance of Pakistan’s missile arsenal.
Simply put, North Korea is the most effective supplier and designer of ballistic missiles destined for the arsenals of rogue nations. This reality is even more disturbing when one considers the fact that Pyongyang has demonstrated a willingness to sell such weapons to any party which possesses the requisite funds. Such reckless dealing not only props up the Kim regime, but serves as a particularly effective agent of destabilization in such critical regions as the Middle East, where already delicate balances of power can be rapidly offset by the appearance of new, advanced ballistic missile systems.
Considering the extraordinarily repressive conditions within North Korea, Western intelligence officials can only proffer well-educated guesses at what the North’s illicit profits actually fund and who controls the cash flow. Some have suggested that North Korea’s criminal enterprises are not centrally controlled, that they are instead symptomatic of the endemic corruption within the Stalinist entity.
Recent signs, however, indicate that Kim Jong-Il himself directly oversees and benefits from North Korea’s growing criminal industry. The highest ranking defector ever to escape North Korea, ideology chief Hwang Jang-yop, admitted to CNN in an interview last year that the government facilitated the process at every juncture. Other defectors, many of whom were directly involved in Bureau 39 operations, have stated categorically that the money flowed directly to Kim himself, allowing the North Korean despot to accumulate a personal fortune -- according to some Western estimates -- of five billion dollars. Considering the fact that Kim’s influence pervades every facet of North Korean life, it is hard to envision a scenario in which he would not be in direct control of North Korea’s criminal activities.
Were Kim’s financial situation to degrade to a level where the survival of his regime was seriously threatened, the North Korean despot would undoubtedly be tempted to begin dealing in material such as processed uranium and advanced nuclear weapon designs, items which could fetch extremely high prices on the international arms market. If such a decision is made, North Korea will be in an advantageous position, already possessing extensive contacts with powerful criminal organizations such as the Yakuza, the Russian mafia, and the drug triads of southeastern Asia. Furthermore, nothing in Kim Jong-Il’s history of mass murder and terror would indicate an unwillingness to take such a step in order to ensure the survival of his regime.
This danger, however, should not deter the United States from doggedly pursuing North Korea’s criminal holdings and networks through counter-proliferation projects such as the Proliferation Security Initiative. As former Bureau 39 operative Kim Dong Hun told Time Magazine in 2003, "If you cut off Bureau 39, you can kill Kim Jong Il. Kim can't exist as leader of North Korea without it." Cutting off the personal finances of the Kim regime represents the most effective method of ending the nightmare that is North Korea, making it an extremely attractive initiative for the United States to energetically pursue.
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