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Kim Jong Il Unplugged, Part 17

After North Korea showed up at last month’s disarmament talks just long enough to give the United States the finger, you wouldn’t expect us to go wobbly on our financial measures against North Korea’s financing of WMD’s, counterfeit currency, and other illegal proceeds.  With the passage of U.N. Security Council Resolutions 1695 and 1718, those measurements have become requirements.  The good news is that we’re not going wobbly.

Treasury, mainly in the physical form of Undersecretary Stuart Levey, has been the instrument in that new policy, which started here.  Since then, Levey  has traveled to various nations making polite requests of bankers to cease their suspicion transactions with North Korea (and that’s just about all of them).  Since last August, when Treasury made a vivid example of Banco Delta Asia, polite requests have worked remarkably well in such places as Japan, Singapore, and even some South Korean banks.  The latest bank to offer its cooperation was based in Vietnam   (much more here). 

It was inevitable, of course,  that a polite request would eventually be refused.  That regrettable choice was made by Iran’s Bank Sepah, so Stuart Levey politely unholstered his weapon, squeezed the trigger, and recaptured  everyone’s undivided  attention  with the pool of Sepah assets that’s spreading across the lobby floor.  Here’s a quote from  Levy’s official statement today:

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Kim Jong Il Unplugged, Part 16

East Asia Commercial Bank of Vietnam closed all accounts linked to North Korea on Wednesday after the Macau government indicated it will keep the North’s accounts in its own Banco Delta Asia frozen “as long as legally possible. EACB has been acting as a correspondent bank for customers to remit money to and from North Korea. The U.K. Financial Times on Thursday quoted a letter from EACB deputy general director Nguyen Thi Ngoc Van to its North Korean customers and companies dealing with the communist state. “Recently, we have worked with American partners in strategic co-operation. Therefore, we apology that we must close all your nostro [correspondent] accounts with our bank,” it quoted the letter as saying.  [link]

Since the North Koreans showed up in Beijing with instructions to be “confident” — meaning, to concede nothing — we should expect the U.S. to impose more financial pressure on them.

The flaw in that strategy, however, is that impoverishing the ruling class will only jostle the same old organization chart.  Replacing them with something better begin with non-permissive political engagement with the North Korean people.

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Kim Jong Il Unplugged, Part 15

The United States has leaked a new set of sanctions on “luxury items” that can no longer be exported to North Korea, in accordance with U.N. Security Council Resolution 1718:

[T]he list of proposed luxury sanctions, obtained by The Associated Press, aims to make Kim’s swanky life harder: No more cognac, Rolex watches, cigarettes, artwork, expensive cars, Harley Davidson motorcycles or even personal watercraft, such as Jet Skis.

Electronic goods like I-pods and plasma TV’s are also banned.  Defectors helped compile the list of Kim Jong Il’s favorite goodies.  There are a few ways of looking at this.  One is that it’s easy to evade, because the Chinese will certainly opt for a narrow interpretation of the meaning of “luxury items” and won’t halt transshipments through its territory.  That’s almost certainly true, although it  might divert some of Kim Jong Il’s arms procurement efforts in less destructive directions.   Here is the conventional view: 

“If you take away one of the tools of his control, perhaps you weaken the cohesion of his leadership,” said Robert J. Einhorn, a former senior State Department official who visited North Korea with Albright and dined extravagantly there. “It can’t hurt, but whether it works, we don’t know.”

My own view is that these sanctions, by themselves,  are unlikely to have a significant impact on the regime in the short or medium term.  I also believe that North Korea has no business spending its resources on items like these while its people are starving, and from that springs the real genius of this provision — the way it tends to reshape  our conversations about North Korea:

The population in North Korea, one of the world’s most isolated economies, is impoverished and routinely suffers widescale food shortages. The new trade ban would forbid U.S. shipments there of Rolexes, French cognac, plasma TVs, yachts and more — all items favored by Kim but unattainable by most of the country.

….

Responding to North Korea’s nuclear test Oct. 9, the U.N. Security Council voted to ban military supplies and weapons shipments — sanctions already imposed by the United States. It also banned sales of luxury goods but so far has left each country to define such items. Japan included beef, caviar and fatty tuna, along with expensive cars, motorcycles, cameras and more. Many European nations are still working on their lists.

 

U.S. intelligence officials who helped produce the Bush administration’s list said Kim prefers Mercedes, BMW and Cadillac cars; Japanese and Harley Davidson motorcycles; Hennessy XO cognac from France and Johnny Walker Scotch whisky; Sony cameras and Japanese air conditioners.

 

Kim is reportedly under his physician’s orders to avoid hard liquor and prefers French wines. He also is said to own an extensive movie library of more than 10,000 titles and prefers films about James Bond and Godzilla, along with Clint Eastwood’s 1993 drama, “In the Line of Fire,” and Whitney Houston’s 1992 love story, “The Bodyguard.”

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Dance, Little Piggy! (Kim Jong Il Unplugged, Part 14)

Most observers had speculated, since at least 1994 or so, that North Korea has the capacity to create a crude nuclear weapon. That appears to be exactly what they demonstrated recently, meaning that the only real news was our need to recalibrate Kim Jong Il’s brass-to-brains ratio. I didn’t guess whether he’d actually go through with it, but I did believe that he’d try to time it just before the U.S. election if he did. I also guessed that if he did, it would create big problems for those who would adhere to the idea of supporting this noxious regime, and ultimately, for the regime itself. The results we see today are a more focused version of the absurd and tragic story of North Korea since the mid-1990’s, when the North’s people experienced their lowest depths of misery, and when the policies of neighboring nations did so much to prolong it.

Of South Korea’s part in this, I have written extensively of the costs: the nearly complete destruction of its alliance with the United States, the cultivation of long-term enmity among North Koreans they chose not to welcome, and possibly, a contest with China over control of the North. The old expression just doesn’t do this one justice; a thousand words could not capture the metaphorical splendor of the head of South Korea’s ruling party dancing for the North Koreans’ amusement just days after their nuclear test provoked an international crisis.

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The dancing buffoon is Kim Geun-Tae, and what I wouldn’t give for video of this. Kim heard that Secretary of State Condoleezza Rice was coming to coordinate South Korea’s compliance with Resolution 1718, which is designed to deny the regime funds to build more nukes and missiles. Denials notwithstanding, she was probably there to exert some pressure, too. It seems reasonable enough for Ms. Rice to ask the South Koreans to be sure they’re not funding the very weapons American taxpayers spend billions of dollars each year to defend South Korea from.

As it happens, suspicions are that South Korea is doing exactly that. Two of the main pipelines of hard currency running into Kim Jong Il’s coffers start at the Bank of Korea — the government-subsidized Kumgang tourism project, and the Kaesong Slave Labor Industrial Park. The North Koreans aren’t known for their financial transparency, but the best evidence we’re likely to get under the circumstances suggests the reason for America’s concerns.

In an October 2000 conference paper, Marcus Noland of the Washington-based Institute for International Economics asserted that money owed by South Korea’s Hyundai company to the North Korean government had gone “into the Macau bank account of ‘Bureau 39’.” The payments were for permission to operate tourist trips to Mt. Kumgang in the North. An official at Hyundai Asan, which organizes the tours, says only that royalties are paid to North Korea through Korea Exchange Bank’s branches in unspecified third countries.

The Congressional Research Service–which provides United States congressmen with background briefings–reported on March 5 last year that “the U.S. military command and the Central Intelligence Agency reportedly believe that North Korea is using for military purposes the large cash payments, over $400 million since 1998, that the Hyundai Corporation has to pay for the right to operate [the] tourist project.”

Noland, an expert on Korean affairs, asserted in his paper that this income was used for “regime maintenance,” or to strengthen the government and its armed forces. Bankers and Western security officials believe this is also the case with money earned from the operations in Europe and the Middle East.

The South Korean response to this is more of the same unilateralist(!) “don’t ask, don’t tell” approach we saw Lee Jong-Seok take after Resolution 1695. This is particularly dishonest in the case of 1718, which leaves no room for that; it requires governments and businesses to “ensure” that they aren’t subsidizing the North’s WMD programs. Whoever picked Lim Dong Won‘s son to defend this warped interpretation on PBS’s News Hour may claim one cup of the coffee of his choice coffee on demand, although it might have been too uncomfortable for Ray Suarez to actually mention that the elder Lim was convicted of being the bagman who illegally sent hundreds of millions of dollars to Kim Jong Il, leading up to the 2000 summit and Kim Dae Jung’s Nobel Prize. Lim Wonhyuk is with Brookings. Watch his head explode when Professor Lee Sung-Yoon of Harvard’s Korea Institute explains precisely what 1718 requires of South Korea:

I don’t know whether he’s read the resolution itself, but it doesn’t say it’s a general economic embargo on North Korea, but rather it aims at materials associated with weapons of mass destruction programs.

Besides, unless you make cash payments zero, whether, you know, North Korea sells fish or tourist pay entrance fees and Kumgang and so on, unless you make cash payments zero — money’s fungible, Ray, so there’s no way around this.

Lee then whips a copy of the resolution out of his pocket , reads the relevant text, and displays Lim’s severed manhood on national television :

… Chapter 8 Article D of the resolution … “demands on the member states to prevent the transfer of funds, financial assets, and economic resources that can go into the making of weapons of mass destruction and nuclear weapons.”

….

[W]ith this U.N. Security Council Resolution 1718, now South Korea has to prove to the world, not only to the United States but to the United Nations, that its cash transfer to North Korea does not go toward the building of weapons of mass destruction. The burden of proof now is on South Korea. While to this point South Korea has been maintaining, there’s no proof that our money given to North Korea is diverted toward the building of nuclear weapons and weapons of mass destruction, so the situation has changed.

[Actually, Lee wrote in a few days later to clarify that he didn’t actually have a copy in his possession, which means the man has a near-photographic memory on top of everything else.]   Professor Lee, who kindly forwarded the link to the transcript, is someone worth watching. He has authored some of the clearest, hardest-hitting prose I’ve seen on North Korea, anywhere (here, here, and here). Although Lee isn’t a native English speaker, his writing puts mine to shame.

Well, you know, to use a proverbial analogy of sticks and carrots, etymologically speaking, you know, this is a carrot dangling before the donkey. It’s an unattainable phantom carrot.

I think in the case of the North Korean nuclear issue, it’s really North Korea that has been dangling before the international community this carrot, the possibility of dismantling its program and reaping rewards over the years.

Empirically speaking, we are at this point, not because of the Bush administration or the Clinton administration, but because of North Korea’s relentless pursuit of weapons of mass destruction and nuclear weapons over the years. This did not happen overnight.

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The reports are in conflict as to whether Rice’s visit was successful. The New York Times conveniently places both versions within easy graffing distance of each other:

The government of South Korea told Secretary of State Condoleezza Rice on Thursday that it had no intention of pulling out of an industrial zone and a tourist resort in North Korea, even though the operations put hard currency into the pocket of its government.

During a news conference with Ms. Rice, the South Korean foreign minister, Ban Ki-moon, said he had explained “the positive aspects” of the industrial park at Kaesong and described how the tourism zone around Mount Kumgang was “a very symbolic project” for reconciliation between the Koreas.

At the end of a dinner here on Thursday that united Ms. Rice with her South Korean and Japanese counterparts, a senior State Department official, speaking on the customary condition of anonymity when traveling with the secretary, said the South Korean government had said it would review its support for the industrial and tourist projects — in particular the subsidies for the Mount Kumgang zone.

“We never expected them to announce steps today,” the official said.

And why wouldn’t the South Koreans be at least as accomodating to their friends as they were willing to be for their enemies?

The senior State Department official said after the dinner that the South Koreans had said they would “have a full program in place” to carry out the resolution in about three weeks, and would not want to announce new steps while Ms. Rice was in town for fear of appearing to bow to American pressure.

They bow to none (but dance for some).

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In one of the Sung Yoon Lee pieces I linked above, Lee claimed that the missile tests had left South Korea more isolated than anyone. Well, I’d objectively say that the North is still the most isolated, but his broader point about the South’s isolation holds up. Look, for example, at what China has been doing. Will China really clamp down on or topple Kim Jong Il? I really, really doubt it. But is it exerting pressure to bring him to heel? The preponderance of the available evidence says that it is, although that evidence isn’t conclusive.

* Exhibit A: its vote for 1695.

* Exhibit B: the Bank of China’s blocking of North Korean accounts, probably under 311 pressure.

* Exhibit C: its vote for 1718.

* Exhibit D: Chinese banks, probably also under the cloud of U.S. Treasury actions, have stopped financial transfers to North Korea.

Today, we have a new and interesting development (thanks to a reader for forwarding).

* Exhibit E, via the Yomiuri Shimbun: “Sources in China said Beijing also reduced the flow of crude oil to North Korea. Without the oil, daily life and industry will be paralyzed, and Pyongyang’s efforts at intimidation will be undermined.” Another report from the Yomiuri quotes a cross-border oil trader in the border city of Dandong: “The volume of transport has declined for a long time. The trip is now made only occasionally–once every three to five days.”

While I read this with a degree of skepticism, I don’t consider it implausible. Trust, but verify.

 

 

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U.N.S.C.R. 1718: Who Won, Who Lost (Kim Jong Il Unplugged, Part 13)

John Bolton: Winner. I’d like to hear John Bolton’s critics deny that, as with Resolution 1695, he has wrung far more effectiveness from the U.N. than we had come to expect. Not only should we confirm this man, pronto, we should clone him. Madeleine Albright never got results like these.

The United States: Winner. We got everything we really wanted here:

  • help constricting Kim Jong Il’s financial arteries
  • the right to search his ships and planes.
  • an embargo on the purchase and sale of heavy weapons and WMD components.
  • something to hurt Kim Jong Il and his loyalists — the ban on luxury goods.
  • the real capacity to investigate, monitor, and enforce all of the above, including pursing them to Iran.

You don’t have to take it from me, either.

The United Nations: Winner (With a Caveat). Every time we go back to the U.N., we reenforce the expectation that we’ll go back next time. Bush made that decision, and by passing something fairly tough, the U.N. preserves this as a plausible policy option.

On closer examination, however, the U.N.’s role as executor of its own resolution is limited to a compliance monitoring committee. It is not acting as peacekeeper, enforcer, or (thank God) accountant. Execution is left to the navies and air forces of a more limited group of nations that are members of the Proliferation Security Initiative. The U.N.’s own role was merely one of delegating authority to more effective institutions. In a sense, you could describe it as a consensual devolution of the U.N.’s role, or, as John Bolton described it, “In a way, it is a kind of codification of the PSI, specifically with respect to North Korea.”

Still, this gives the U.N. a more important role than it seemed to be headed for, and by passing a tough resolution, it has preserved its relevance.

Japan: Big Winner. Japan seems to have had almost as much pull as one of the P-5. Key provisions, such as the compliance monitoring committee, appear to have been put in pursuant to its demand. Its navy will play a major role here, and under a cloak of U.N. legitimacy, which will make South Korea’s predictably silly comparisons to the Rape of Nanking seem even sillier. In fact, the South Koreans have only North Korea to blame for Japan’s reemergence as a world power.

South Korea: Loser. It will now be required to “ensure” that its Kaesong and Kumgang funds aren’t being spent on WMD’s, which it can’t do unless Kim Jong Il opens Bureau 39’s books to South Korean auditors. Not a chance. And already, South Korea is trying to lie its way out of complying:

South Korea’s Unification Ministry, which handles inter-Korean affairs, indicated the sanctions would not affect a tourism venture and a joint industrial complex in the North, saying the “projects have nothing to do with the weapons of mass destruction program.”

Critics have urged the South Korean government to halt the two projects, saying that funds may be diverted for the North’s nuclear weapons program.

Once again, however, it looks like UniFiction got ahead of facts. At the same time, the Foreign Ministry “welcomed” the resolution and promised to implement it “in good faith,” and the cabinet as a whole still hadn’t decided what its policy or its interpretation of 1718 would actually be:

It is still unclear how the resolution will affect South Korea’s initiative for joint ventures with its communist neighbor.

“Seoul will take appropriate measures in line with the resolution,” Foreign Ministry spokesman Choo Kyu-ho told Yonhap News Agency by phone.

Suh Choo-suk, senior presidential secretary for security affairs, and other senior officials held a meeting earlier in the day to evaluate the ramifications of the resolution on inter-Korean relations and economic projects and come up with the measures.

South Korea is considering holding a higher-level meeting to be presided over by the office of Prime Minister Han Myeong-sook or the presidential office Cheong Wa Dae, according to officials.

Han, for her part, called North Korea’s test “an unpardonable provocative act which threatens stability in Northeast Asia and global order.” That’s pretty stong language for this government. Uri Party leader Kim Geun-Tae, trying to position himself to the left of everyone including the preserved corpse of Kim Il Sung, insisted that Kaesong and Kumgang would continue unaffected. On top of this South Korea will have to reconsider its refusal to join the Proliferation Security Initiative. So the only conclusion you can really draw from all of this is that the ruling party is in a state of mass confusion. Think: chicken farm under mortar fire.

This, despite having its man confirmed as U.N. General Secretary. Although he had just been confirmed, Ban Ki-Moon should have had some pull with his fellow ambassadors vis-a-vis positions he might take over the next five years, but it didn’t work that way. Ban’s utter pliability and spinal deficiencies served Uri well on its infamous North Korea human rights absentions, but it denied Ban the ability to protect Kaesong, Kumgang, and other unifiction projects. And while it might have been willing to stand up to the United States on those issues, it will have much more trouble standing up to the U.N.

China: Big Loser. China has historically seen itself as the motherland of all surrounding states in Asia, and that’s particularly so for North Korea, which depends on China for its survival. Many analysts have already noted how North Korea’s missile and nuke tests have humiliated China, and the fact that so many of them have said it makes it all the more true. This was obviously a bitter pill for the Chinese to swallow.

China is uncomfortable with the possibility of the U.S. interdicting ships near its coasts, though Bolton has said he expects most inspections would be performed at ports.

The U.S. ambassador said North Korea’s apparent nuclear test “had to have been humiliating to China. After all of the efforts they’ve made over the years to protect North Korea from international approbation, for the North Koreans in the face of all that to test had to get quite a reaction in Beijing. And I think we’re still seeing that play out.”

China reiterated it would not conduct any inspections and called for caution.

“China strongly urges the countries concerned to adopt a prudent and responsible attitude in this regard and refrain from taking any provocative steps that may intensify the tensions,” China’s U.N. Ambassador Wang Guangya said.

North Korea: Big Loser. Even if you think North Korea’s disengagement is studied, you can’t believe they can be happy with the domestic or financial consequences this could have. I increasingly lean toward there being a less rational explanation for why North Korea does what it does, and in that regard, the Marmot has put up one of his best posts ever, drawing a comparison I’ve wanted to write about but never did — the Shinto genes of North Korean ideology (I have written about the Shinto / fascist genes in South Korean ideology). If the North Koreans really think that they can accomplish their objectives by “using the force,” the implications are incredibly scary. On one hand, you might not want to rile them, except that if you don’t get in their way, they’re determined to gather strength for the Great Gotterdammerung.

So what will this cost the North Koreans?  According to the CIA World Fact Book, North Korea exported $1.275 billion in 2004, and imported $2.819 billion worth, in the same year. In South Dakota, this is known as “eating like a sparrow and shitting like a goose.” It’s either unsustainable or inaccurate. I vote for the latter both, after having read the thoughts of former State Department official and Illicit Activities Initiative head David Asher. Asher broke it down this way:

In 2003 the DPRK ran a trade deficit of at least $835 million and that if more broadly measured to exclude concessionary trade with the ROK was more like $1.2 billion. Even making a very bold estimate for informal remittances and under the table payments for that year, the DPRK probably ran a current account deficit of at least $500 million. Moreover, North Korea’s accumulated trade deficit with the ROK and China alone since 1990 is over $10 billion. North Korea has not been able to borrow on international markets since the late 1970s and has at least $12 billion in unrepaid debt principal outstanding. Yet, until recently – at least – it has managed to avoid self-induced hyper-inflation (which should have occurred given the need to reconcile internal and external monetary accounts, even in a communist country). Instead, the street stalls in Pyongyang and other North Korean cities seem to be awash in foreign made cloths, food, and TVs and the quality of life of the elite seems to have improved. What’s apparently filling the gap and accounting for the apparent improvements to the standard of living for the elite? The short answer as I see it: Crime. And if I am right, then the criminal sector may account for as much as 35-40% of DPRK exports and a much larger percentage of its total cash earnings (conventional trade profit margins are low but the margin on illegal businesses is extremely high, frequently over 500%).

Breaking this down further, citing both Asher and Balbina Hwang (from 2003, using figures for 2001), who put North Korea’s total GNP at $15.7 billion in 2001. Remember, these are just estimates:

  • Missile sales — approximately $560 million. Gone. Missiles are not easy things to hide.
  • Legit exports — $650 milion. Scratch the substantial percentage of this that was with Japan ($200M?), and remember that the North Koreans won’t have legitimate trade to cover for the $300 million worth of dope they sell in Japan each year.
  • Dope — probably $500 million. Asher’s figures are more current than Hwang’s. Asher doesn’t give a precise estimate for North Korea’s dope income, but if you add the estimate of $300 million it makes that way in Japan alone to the Pong Su seizure in Australia ($150M), you can conservatively estimate $400-$500 million per year. That’s not far off from Hwang’s estimate of $500 million to $1 billion. Expect that to be curtailed sharply.
  • Cigarette smuggling — $500 to $700 million.
  • No estimate is available for what North Korea earns through conflict diamond and ivory smuggling, but that will probably also fall.
  • Remittances, mainly from Japan — $100 million. Gone.
  • Counterfeiting — $15 million or so. This will be somewhat harder to stop, although most customs services have dogs that can smell currency. Usually, the movement of bulk cash is an indicator of money laundering, tax evasion, or the evasion of transaction reporting requirements.

If we find any of that on the ships we search, we certainly aren’t going to just let it go. In a matter of days, the regime has lost several major sources of income. It’s hard to say exactly how much, but it could easily be half, and it could be more. Then, consider that North Korea also will have much more trouble recouping its earnings, because of growing financial restrictions on its bank accounts, which tend to be dual-use (legal and otherwise).

How will we enforce this in practice? Bolton is probably right that we would prefer to do most of the interdiction of North Korea’s traffic in port. Incidents like this seizure in a Taiwanese port will become more common. What if the North Koreans decide to go non-stop from Nampo to Bandar-e-Abbas? Then we can expect to see a series of naval skirmishes on the high seas.

The big crisis will come when the North Koreans try to fly non-stop from Pyongyang to Tehran. Would we really shoot down the airplane that might be carrying fissile plutonium, and might have had its cargo switched to schoolkids under cover of darkness or weather?

The ban on luxury items will certainly not mean a coup in the short term. The regime can weather this for a while. The gifts are probably a way of buying the loyalty of party members over the longer term, as they rise through the ranks. It’s unlikely that we’ll see much tangible effect from it for a few years. Over the long haul, Kim Jong Il, like any other Machiavellian prince, would rather be loved than feared. This will make it much harder for him to be loved.

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Kim Jong Il Unplugged, Part 12

“If the U.S. keeps pestering us and increases pressure, we will regard it as a declaration of war and will take a series of physical corresponding measures,” the North’s Foreign Ministry said in a statement carried by the official Korean Central News Agency.

Well, what on earth did they expect?  Applause?  Mind you, they still have the chutzpah to say they want to disarm, but the last time they said that was just hours before their alleged nuke test.  Meanwhile, North Korea has just lost one of its biggest trading partners, just like that:

A news report said Wednesday that Japan will impose a total ban on North Korean imports and prohibit its ships from entering Japanese ports in response to Pyongyang’s declaration of a nuclear weapons test.

The sanctions, which will include expanded restrictions on North Koreans entering Japan, were to be announced after some Cabinet ministers meet to discuss security issues Wednesday, public broadcaster NHK reported.

All of which just makes North Korea more dependent on China, right?  Maybe.  Even China seems to have had it with North Korea, but isn’t sure where to go from here:

“China has very limited options,” said Shi Yinhong of Renmin University in Beijing. “What will China do if the U.S. government and Japan call for sanctions in the U.N. Security Council? China is a U.N. member and will have to implement the sanctions. If that happens, Chinese-North Korean relations will be destroyed.”

….

Beijing is likely to agree to a strong U.N. resolution and, perhaps, limited sanctions, as it did after North Korea’s July missile tests, while counseling the other U.N. powers to not further irritate a testy, isolated state, analysts said.

My sense is that this will only go so far with China.  It’s not just me:

North Korea provides a strategic buffer against U.S. troops in South Korea and ties down those American forces should Beijing attack Taiwan, a democratically ruled island China claims as its own. A North Korean collapse could also send refugees pouring over the Chinese border, straining the resources in the northeastern industrial rustbelt.

China doesn’t want the North Korean regime to collapse, but if I were Kim Jong Il, I would keep a particularly close eye on my senior military officers.

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Kim Jong Il Unplugged, Part 11: Eyes on Seoul

Green eyeshades are turning toward Seoul, Kaesong, and Kumgang.  If you think things were bad before, this is where U.S.-Korea relations will be severely tested.  The U.S. Treasury Department isn’t going to put up with Seoul acting as Kim Jong Il’s financier for long, and  with the  likely exceptions of some shady  Russian banks  and whatever China is secretly providing at the state-to-state level, South Korea is Kim Jong Il’s last cash cow.

Kumgang

That poll yesterday — the one that showed the ruling Uri Party’s approval rating at nine percent — also showed that only 15% support continued government support for Kumgang.   That’s bad news for the project, which is a congenital money-loser due to Kim Jong Il’s demands  for a bigger part of the take, even as the number of visitors declines.  Kumgang needs government support, and after the  2007 elections, it may not be able to count on it.

Hyundai Asan, which organizes package tours to North Korea’s Mt. Kumgang, has seen the fee it pays Pyongyang per visitor grow a whopping 78.3 percent over the last two years. It paid US$33.75 a head in 2004 but $59.50 now.

Documents the Unification Ministry submitted to Grand National Party lawmaker Chin Young on Friday say Hyundai Asan agreed to pay an entrance fee to Mt.Kumgang according to the number of tour days as of July 1, 2004 and set the fee at $10 for a day trip, $25 for a two-day trip and $50 for a three-day trip. On May 1 last year, it agreed to raise it to $15 for a day trip, $35 for the two-day trip, and $70 for a three-day trip. On July 1 this year, after a fractious period in relations between Pyongyang and the firm, it agreed to another hike to $30 for the day trip, $48 for the two-day trip and $80 for the three-day trip.

[….]   It was the first time the breakdown has become public.

Even without Treasury in the picture, the trends were not working in Kumgang’s favor.  Besides the aforementioned, there’s  also the public rift between the North Koreans and Hyundai Asan and  a public strong-arm of Hyundai Asan by the UniFiction Ministry.  This endeavor isn’t going to turn a profit anytime soon.  Enter the Treasury Department, which will soon ask  what no one in South Korea really wants to say: “How  does Kim Jong Il  spend that money?”  Some think they know the answer, and that answer puts Kumgang on a collision course with U.N. Security Council Resolution 1695.

Kaesong

Kaesong’s new troubles  were reflected in a decision to delay a planned expansion of the industrial park.   First,  its  inclusion in a proposed Free Trade Agreement with the United States is a dead letter. That means that  Kaesong’s main  advantage, cheap labor, may  be offset  by a competitive disadvantage against other Korean manufacturers, whose products  would receive lower import duties at U.S. ports, thus setting them up for other advantages that go with the economics of scale.  Without FTA treatment, it’s hard to see what  manufacturer wouldn’t prefer China, where the authorities at least understand the value of keeping their commitments.

The U.S. government is also  reiterating its seriousness about the enforcement of U.N.S.C.R. 1695, and I predict that Kaesong  will  soon start  getting more of the wrong kind of attention from the  U.S. Treasury Department.  The Finance Ministry,  which seems to be the one part of the Korean government that’s still on good terms with America, has sometimes seemed to reflect Treasury’s concerns, even when that required it to contradict the UniFiction Ministry. Recently, it  sent a warning letter to businesses  operating in North Korea, reflecting  a stricter  reading of  U.N.S.C.R. 1695,  which requires states to exercise “vigilance” in avoiding funding for North Korean weapons programs.  This contradicted  Lee Jong-Seok’s  “don’t ask, don’t tell” interpretation.  This sets us up for the widening of that rift to Kaesong. 

The dispute involves the Kaesong Industrial District Management Committee, which is legally a North Korean entity, but whose membership is either composed of South Korean investors in Kaesong and North Korean officials.  The investors use the Committee’s accounts at the Woori Bank to pay the North Korean regime for the workers’ wages.   This is interesting to me  in two ways:  first, Kim Jong Il presumably doesn’t pay them in dollars, so the mystery about what the workers are really paid deepens; second, you have to wonder where the money really does go.

The South Korean papers  seem more interested in finding a scandal that will hurt Roh in the sunset of his deeply unpopular presidency.  Their angle was the compliance of those transfers with South Korean law.  The papers implied, but never really explained, that South Korean law prohibits North Korean entities from controlling South Korean bank accounts (I looked for the law myself, with no luck.  Anyone?).   This week, the Joongang Ilbo  claimed to have  “government documents” proving that UniFiction Minister Lee Jong Seok and his underlings  “pressured Woori Bank to consider allowing North Korea to open a bank account.”  The JI also had confirmation from an unnamed  Unification Ministry official, who tied to characterize this as “just a discussion and not formal pressure against the bank,” and claimed that “the bank made its own decision, without being pressured by the ministry.”  If the law actually says what the JI implies it says, this alleged  letter from the UniFiction Ministry  does seem like (1) subtle pressure, and (2) a slippery, obfuscating interpretation of the law.

“The committee is composed of South Korean members, thus opening the account under its name is within the scope of approved inter-Korean cooperation projects,” the ministry told the bank in the letter.

The committee, however, is a North Korean corporation established under North Korean laws. Contrary to the ministry’s claim, North Korean officials are also working there. Minutes of a meeting on March 7, where government officials discussed the issue, were also provided to the JoongAng Ilbo, showing the Unification Ministry apparently pressured the bank despite objections from other ministries. “We urge the bank to make a wise decision,” the ministry said, according to the minutes.

Minister Lee  denies  pressuring Woori or violating the law, saying that “[n]o South Korean bank has opened accounts for exclusive use by North Korea or its officials.”   Ordinarily, Lee’s word would not move my meter very far, particularly with all of the qualifications in that denial.  Later, Lee admits that  the holder of the account  is legally a North Korean entity, but says  that we should  ignore that and listen to  him instead.

The organization, the Kaesong Industrial District Management Committee, is a North Korean entity by legal definition, according to the minister. But, he said, it is a South Korean body, established and managed “by our people and for our convenience.”

“Naturally, (the bank) opened accounts for the management committee, headed by (South Korean) Chairman Kim Dong-keun,” Lee said in a regular press briefing.

“It is a very fanciful story to say (the bank) opened the accounts for North Korea and that this may be linked to North Korea’s efforts to evade U.S. financial sanctions, but one that helps no one,” the minister said.

The Joongang Ilbo is now backing off the story of UniFiction Ministry pressure on the Kaesong Committee account, but asserting that the Ministry applied pressure elsewhere:

But the ministry apparently did try to use its influence in a related but separate matter; other documents provided by Representative Kwon showed that it pressed the bank to allow the North Korean General Bureau of Special Zone Development, which oversees Pyongyang’s capitalist experiments in operating special economic zones, to open other accounts. Woori Bank, supported by the finance and foreign ministries and the National Intelligence Service, objected strongly and prevailed at a meeting in Seoul on March 7.

Meanwhile, the Finance Ministry was voicing its  disapproval of the financial  arrangements surrounding Kaesong  in documents leaked to the Chosun Ilbo:

In the documents, the ministry points out that anonymous dollar transactions could lead to trouble in tax collection, and be used as means for money laundering, customs evasion and payments for smuggling. They could also distort the international account balance, since they are not included in foreign exchange statistics, the ministry said. “To speak extremely, with the transaction method, the North can make a camouflage purchase of a South Korean company and use it as a channel for surreptitious remittances of illegal money from foreign countries,” Lee said.

Can you say, “money laundering concern?”  In other words, this probably is  bad policy,  very risky business for Woori,  and  contrary to  an honest reading of  U.N.S.C.R. 1695, but it’s not at all clear that we have the makings of Kaesong-gate here. 

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Kim Jong Il Unplugged, Part 10: The First Shoe Drops

Japan and Australia have imposed sanctions on a series of the companies Kim Jong Il uses to collect foreign currency and dual-use items. In Japan’s case, this includes shutting off a substantial income source for the North: cash remittances from ethnic Koreans in Japan:

The sanctions will effectively freeze North Korea’s assets in Japan by banning withdrawals and overseas remittances from the targets’ accounts in Japanese banks.

This is about as robust an option as I had predicted here, although the North Koreans will likely try to smuggle the cash anyay (tip: the Japanese should invest in some currency-sniffing dogs). And the cost of Kim Jong Il’s fireworks display continues to escalate:

Meanwhile, Australia imposed financial sanctions on 12 companies and one individual suspected of involvement in North Korea’s development of nuclear weapons. Australia is one of the few Western countries that maintain official diplomatic ties with Pyongyang. Australian Foreign Minister Alexander Downer said “This supports and complements similar action taken by Japan today and previous actions taken by the U.S., and sends a strong message to North Korea.”

Australia’s rapproachement with North Korea was probably doomed from the moment the Pong Su was intercepted.

The other shoe that hasn’t dropped is the announcement of U.S. sanctions. The State Department isn’t saying what those will be, but it did break the silence of its deliberations to thank Japan and Australia, and to urge other nations to join in. South Korea isn’t likely to be one of those nations if it can help it, but it’s not willing to let its banks replace Banco Delta as the money laundering venue of choice, either. Stay tuned.

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Kim Jong Il Unplugged, Part 9

The Treasury Department is not through with Kim Jong Il. Undersecretary Stuart Levey has set his sights on two of North Korea’s last two lifelines, South Korea and now, Russia:

The United States is not yet satisfied with the results of sanctions aimed at changing North Korea despite the impact the sanctions have had, a senior Treasury official said Friday. The U.S. will watch how the situation develops with Russia, which reportedly has become one of the very few havens for North Korea to hide illicit funds, Undersecretary Stuart Levey said.

The U.S. sanctions on Pyongyang have been “more powerful than many thought possible,” he said. “I think our sanctions have had real impact, but the real goal, I think, is to see a real change in North Korea,” he said at the American Enterprise Institute.

Why, what a fascinating — and encouraging — choice of words at that forum.

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Kim Jong Il Unplugged, Part 8

Nigel Cowie, North Korea’s most “legitimate” banker, is selling out, and this time, that’s not just a moral judgment. Richardson links this piece, written by none other than Bradley K. Martin, indicating that he’s selling his Daedong Credit Bank to the British-based Koryo Group, but will stay on to help manage the bank. As for the issue of Daedong’s much-proclaimed legitimacy, Martin adds what strikes me as a highly salient fact:

The minority owner of Daedong Credit is Korea Daesong Bank, a unit of North Korea’s Daesong Group. A 1995 U.S. government study cited close ties between Daesong and Room 39, an office of the ruling North Korean Workers’ Party said to handle foreign exchange-gathering projects for the country’s leader.

Now, there’s the kind of jaw-dropping understatement you don’t read every day. Bureau 39’s function is “foreign exchange-gathering” in the same sense that Heidi Fleiss was a physical therapist and Gotti’s bag was alternative dispute resolution. That’s a disappointment from Martin, a first-rate journalist who wrote a must-read book, well worth its high price for its defector interviews alone (and mainly for them). By more-or-less universal acclaimation, Bureau 39 is suspected of being North Korea’s primary dealer in counterfeit currency, missiles and WMD components, and dope (more). And what of its “close ties” to Korea Daesong Bank? According to a report from the Far Eastern Economic Review, this close:

Kim Dok Hong, a top North Korean official who fled to South Korea in 1997, says that both banks [wholly-owned KDB subsidiary Golden Star Bank being the other] come under the jurisdiction of Bureau 39.

Another interesting fact reported in this article:

The Congressional Research Service–which provides United States congressmen with background briefings–reported on March 5 last year that “the U.S. military command and the Central Intelligence Agency reportedly believe that North Korea is using for military purposes the large cash payments, over $400 million since 1998, that the Hyundai Corporation has to pay for the right to operate [the] tourist project.”

I did not find the Treasury report referenced in Martin’s article, but I did find a U.S. Embassy document that relays a South Korean government conclusion that Bureau 39 controls Korea Daesong Bank. If those reports are accurate, Mr. Cowie’s bank, Daedong Credit Bank, is a direct business partner of Korea Daesung Bank. This, in turn, arguably makes Mr. Cowie an indirect business partner of the men at Bureau 39 who are printing supernotes and dealing in dope, and of the man in direct control of Bureau 39 — Kim Jong Il himself. That would make this spirited protestation of Daedong Credit Bank’s independence from the regime misleading in the extreme. As for the financial prognosis of that regime, it’s a bleak day when a bitter-end promoter like Cowie decides selling his interest in the bank, especially now. With most of its assets still frozen in Banco Delta Asia and unlikely to be unfrozen soon, you have to believe that he’s getting a less-than-optimal price.

In the end, however, Stuart Levey may just be hastening what what Kim Jong Il has been doing all along — breaking its agreements and scaring away investors.

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Kim Jong Il Unplugged, Part 7 (Updated)

[Update: My closing comment below about an expansion of our goals was an understatement:

The U.S. Treasury Department, in a shift in its policy toward North Korea, has decided to treat all transactions involving the nation as suspect and subject to sanctions while dictator Kim Jong Il develops nuclear weapons.

“Given the regime’s counterfeiting of U.S. currency, narcotics trafficking and use of accounts worldwide to conduct proliferation-related transactions, the line between illicit and licit North Korean money is nearly invisible,” said Stuart Levey, Treasury’s undersecretary for terrorism and financial intelligence.

Levey’s statement to Bloomberg News departs from Treasury’s earlier position that it was targeting only overtly illegal activities by North Korean companies. The policy change, which may impinge on foreign banks, coincides with an effort by President George W. Bush to pressure North Korea to return to talks aimed at scrapping its nuclear-weapon and ballistic- missile programs.

It looks like my calls in this post are holding up pretty well. This is essentially a PATRIOT 311 approach without the formal designation. I can’t say whether it’s the opaque dullness of international finance or the fact that George W. Bush finally has an effective North Korea policy, but almost no one seems to have taken note of the most important U.S. policy initiative toward North Korea in decades. H/t NKZone.]

==============================================================
Now, it’s Russia:

Fresh U.S. and Japanese economic sanctions against North Korea are becoming more likely with signs that the reclusive country may be preparing for a nuclear test. A government official in Seoul said Friday the U.S. regards Pyongyang’s outrage at earlier financial sanctions as feigned, implying that the freezing of the North’s accounts in a Macau-based bank last September may have just been the first step.

Peter Beck, a North Korea expert at the International Crisis Group in Seoul, says the next target of U.S. investigations will be North Korea’s accounts in Russia. He added the Bush administration was very pleased with the results of the investigation in Asia. Beck said the U.S. chased accounts and financial transactions in Asia, then in Europe, and now for the final stage will be moving on to Russia.

After having its accounts in Macau frozen, North Korea attempted to open accounts in Vietnam, Mongolia and Hong Kong but was turned down everywhere. Increasingly desperate, the Stalinist state turned to Luxemburg and Germany but was rebuffed there too. “The U.S. has the ability to put all kinds of pressure on European banks,” a government official here said.

This sort of pressure makes the re-imposition of trade sanctions we lifted in 1999 seem meaningless. What we’re doing now is cutting off everyone’s trade with Kim Jong Il, not just ours. Eventually, this will result in a direct confrontation between the United States and South Korea over trade with the North.

To further show just how dramatically the U.S. has moved toward squeezing the North Korean regime, the State Department’s chief negotiator is getting behind the effort:

The top U.S. point man with North Korea will urge Asian powers to end arms-related trade with Pyongyang as ordered by the U.N. on a tour of the region next week, U.S. officials say.

Assistant Secretary of State Christopher Hill, who departs on Sunday for Japan, China and South Korea, will assure them that despite the U.N. order increasing pressure on the North, the United States still backs six party talks to persuade it to abandon its nuclear activities, one official said.

The United Nations order to choke off weapons-related trade with North Korea passed after Pyongyang launched multiple missile tests on July 5.

The U.N. vote did not signal a new U.S. attitude to the six-party talks. “Our problem is that we don’t have a negotiating partner” in Pyongyang, said the official, who spoke on condition of anonymity because of diplomatic sensitivities.

That sounds about right to me. I also sense an expansion of the goal here, from choking off the missile trade to the arms trade as a whole. I’m certainly not going to criticize that.

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Kim Jong Il Unplugged, Part 6

From the AP:

The financial noose is tightening around North Korea as international banks sever ties with the nation – a move championed by the United States, a top Treasury Department official says.

[….]

“There is sort of a voluntary coalition of financial institutions saying that they don’t want to handle this business anymore and that is causing financial isolation for the government of North Korea,” Stuart Levey, the Treasury Department’s undersecretary for terrorism and financial intelligence, said in an interview Monday with The Associated Press.

“They don’t want to be the banker for someone who’s engaged in crime, as the North Korean government is,” he said.

Banks in Singapore, Vietnam, China, Hong Kong and Mongolia are opting not to do business with North Korea, Levey said.

“Is there a complete cutoff, so that they can’t get banking anywhere? No, that’s not the case, but they’re having a very difficult time finding banking services,” he said. “You’re seeing a near complete isolation.”

Remember — the feds brought Al Capone down with a tax evasion charge.

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Kim Jong Il Unplugged, Part 5

Stuart Levey’s visit to Asia last month is paying off. Yet another nation is cutting off Kim Jong Il’s finances.

Vietnamese banks have already closed down North Korean accounts over the past few weeks, most likely forcing Pyongyang to move its money to its last remaining haven, Russia, said Peter Beck, head of the International Crisis Group’s Seoul office, on Tuesday.

Beck said Nigel Cowie, general manager of North Korea’s Daedong Credit Bank in Pyongyang, e-mailed him last week and said Vietnamese banks have shut down Daedong’s and other North Korea-held accounts.

[….]

“The only financial window they (North Koreans) have left now is Russia, I am told,” Beck said at a roundtable on North Korea hosted by the Mansfield Foundation.

Somewhere, the world’s smallest violin is playing an adagio for Nigel Cowie, although I still count Switzerland and Luxemburg as two countries that may yet harbor North Korean accounts. I also recommend Andy Jackson’s post here, which discusses North Korea’s most “legitimate” banker. Cowie and his constituency of defenders in the comments probably set a record for most uses of the word “legitimate” per column inch, which I suppose depends on how you define the term. Whether Cowie is laundering money, wittingly or otherwise, is a matter I’ll leave to the Treasury Department, since there’s really little point in speculating in a factual vacuum about an investigation I can only assume to be ongoing, based on the media reports. You may also choose to accept Cowie’s explanation of why his bank’s “legitimate” transactions are conducted with large bundles of cash.

Third, there are good reasons why much of the international trade of the DPRK for these sorts of goods is cash-based. This relates mainly to the fact that the local currency is not convertible (and indeed we do not handle local currency), so imported goods are bought and sold for hard currency. The absence of the normal system of reciprocal correspondent bank accounts that exists in other countries which enables transactions to be settled by electronic book entry; the shortage of liquidity in the local market, which means that people are reluctant to deposit money in banks because they don’t know when they’ll be able to get the money out, so they would rather carry cash – and so on. This is quite a big subject in itself, and I have done a separate paper on this issue, but the bottom line is that people do tend to transact largely in cash, which in itself is not illegal – in this market, it is in fact often the only way.

Most of this could just as well apply to the Taliban in 2000. What all those conditions have in common is that they’re self-inflicted by the North Korean regime itself, out of a combination of economic dysfunction, repressive statism, recalcitrant lawlessness, and no small measure of concealment. But let’s make Nigel Cowie the only man in North Korea entitled to a presumption of innocence and assume that his bank’s transactions are all lawful. He has chosen to set up shop among stacks of dope money, suspicious dual-use imports, and counterfeit Benjamins. Then, Cowie complains when he winds up in Treasury’s impact zone as a result. In a regime as intentionally opaque as North Korea’s, some “collateral damage” to a relative sliver (veneer? perish the very thought!) of “legitimate” activities is inevitable. Things seems particularly murky in the wake of U.N. Security Council Resolution 1695, which demands that North Korea’s financiers exercise “vigilance” in assuring that their funds don’t go to the missile fund.

What we do know about Mr. Cowie’s business is that he aspires to profit by financing this regime, and that he knows damned well how Kim Jong Il will spend those finances. And won’t. If this is legitimate, then the world owes Walther Funk a historical absolution. Or, as Stuart Levey puts it:

“You don’t want to be the one ten years from now who’s got (Korean leader) Kim Jong Il’s money,” Treasury Undersecretary for Terrorism and Financial Intelligence Stuart Levey said in an interview with Reuters.

“(It’s) just like we saw during the (former U.S. President Bill) Clinton administration when they exposed the Nazi banks,” Levey said. Swiss banks were embarrassed in 1997 by revelations that the German government had passed funds through the Swiss National Bank and other Swiss banks during World War II to finance the Nazi war effort.

“You don’t want to be on the wrong side of that. I think banks understand that. I just don’t know whether they are taking all the steps that they can and we would encourage them to do it,” he said.

There’s no laundering the culpability that goes with enabling some things.

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Kim Jong Il Unplugged, Part 4: Smoke ‘em While You’ve Got ‘em.

Several months ago, some misguided BBC staffer asked me to fight above my weight and debate former Ambassador Donald Gregg about the allegation that British American Tobacco was secretly making cigarettes in North Korea. (The debate was for a pilot program and never aired.) At the time, I argued that the decision to grow or import tobacco should also be viewed as a decision not to grow or import food. Amb. Gregg, now president of the Korea Society, is a strong proponent of “engaging” North Korea. His argument was that smoking is bad. I saw that argument as having marginal moral relevance, a dodge of the question of whether this kind of engagement was really good for North Korea or the world. Amb. Gregg also touted his Society’s exchange programs with North Korea. On further investigating their Web site, I learned that the Korea Society’s contribution to North Korea opening itself to legitimate commerce consisted, in part, of teaching the North Koreans digital watermarking (useful for counterfeiting intellectual property) and secure fax technology. I’d love to show you, but that page later disappeared from the Korea Society site.

[Update: Here is a link to the paper, entitled “Bilateral Research Collaboration Between Kim Chaek University of Technology (DPRK) and Syracuse University (US) in the Area of Integrated Information Technology.” Among the signatories on the front cover are “Donald P. Gregg and Frederick F. Carriere, The Korea Society, Han Song Ryol and An Song Nam, Permanent Mission of the Democratic People’s Republic of Korea.” Ah, Han Song Ryol. Remember him? Here is the relevant passage, which appears on Page 3:

At the invitation of KUT, SU sent a delegation to Pyongyang in mid-June 2002. During this time, SU researchers met again with their KUT counterparts and were given tours of research labs and facilities and provided an overview of KUT research priorities in information technology. Areas of particular interest included a secure fax program (this is now being marketed through a Japanese company), machine translation programs, digital copyright and watermarking programs, and graphics communication via personal digital assistants.

I don’t claim to know what technology was actually transferred, nor do I claim to be an expert on digital copyright or watermarking programs, beyond having found that it’s designed to protect intellectual property. If you can fill us all in on the legitimate and other uses of this technology, please drop us a comment. Thanks much to The Oriental Redneck and his wayback machine.]

One of the reasons BAT kept that business relationship secret was the effect it had on one of BAT’s executives, who was running for the leadership of Britain’s Conservative Party. Another was the likely fear of litigation by BAT’s competitors, who might want to know where the North Koreans acquired the specialized knowledge to make so much money by counterfeiting their top-selling brands:

North Korea is believed to earn between US$500 million and $700 million a year by making and selling fake U.S. and Japanese cigarettes, a U.S. radio station reported Wednesday, quoting a former U.S. official.

“Counterfeit tobaccos are one of the largest, probably the largest single source of income for the North Korean regime,” David Asher said in an interview with the Washington-based Radio Free Asia.

Asher, who until July 2005 had served under former Assistant Secretary of State for East Asia and Pacific Affairs James Kelly, said the North’s communist regime operates as many as 10 plants to make fake U.S. and Japanese cigarettes.

Those plants are scattered throughout North Korea, including its capital, Pyongyang, and its eastern industrial zone, Rajin, he said.

The counterfeit cigarettes, Asher said, are usually packed and sent in containers to China and then to other Asian countries for sale.

The largest source of income? Staggering.

It would be interesting to see which tobacco companies would try to sue the North Koreans for counterfeiting their brands. Since the Foreign Sovereign Immunities Act wouldn’t seem to offer much protection for their commercial activities, the next question is whether they’d even make an appearance to contest the suit. My bet is that they wouldn’t, meaning that we’re looking at a potential default judgment and the attachment of their assets, wherever they can be found. This presumes, of course, that the tobacco companies can get the evidence to meet the “preponderance” standard, and that the North Korean pocket is in fact deep enough to justify litigation. The frozen North Korean assets identified by the U.S. Treasury Department should be sufficient to pay the lawyers. And although I’d prefer to see that money go for North Korea’s reconstruction, a new RJR Headquarters is probably still a better use than propagating Kim Jong Il’s racketeering tyranny.

This revelation also fuels my suggestion that we lower the PATRIOT 311 boom on them, in addition to whatever other sanctions Rep. Dana Rohrabacher thinks we’re about to impose.

“We are going to discuss with the regional leaders here and determine what is appropriate (as a sanction) but we’ll make sure that North Korea realizes that if they do launch missiles (again) they will be shot down by the U.S.,” Rep. Dana Rohrabacher told Yonhap News Agency in an interview.

The Republican from California declined to disclose the nature of the new sanctions being considered by the U.S. government but said there will be in addition to financial sanctions clamped down on the communist country last year.

With so much of the wrong kind of attention focused on North Korea’s cigarette counterfeiting, don’t expect it to go on long. After all, the Japanese are reporting that they’ve shut down most of North Korea’s ampetamine racket there.

(Kyodo) _ The amount of illegal amphetamines seized by Japanese police in the first half of this year marked an 85.6-percent year-on-year decrease to a record-low 13.1 kilograms as the police have targeted key trafficking routes from North Korea, the National Police Agency said Thursday.

In particular, a crackdown on sea routes contributed to the decrease, with NPA officials saying the amount of amphetamines seized during the period was the smallest since 1991, when they began keeping half-year tallies.

The police plan to use sting operations to stop drug couriers flying to Japan with amphetamines hidden in their luggage, the officials said.

According to the NPA’s survey, 6,319 people were arrested or sent papers during the period on suspicion of being involved in stimulant drug cases, down 1.6 percent from a year earlier. Of the total, 54 percent, or 3,413, up 3.1 percent, were gangsters or those close to crime syndicates in Japan, it indicated.

The survey also showed fewer people in their 20s or younger were involved in illegal drug cases in the January-June period, but the number involving people of all other ages increased.

Due to the supply shortage, the black-market price of amphetamines has risen to about 60,000-65,000 yen per gram, the officials said.

How serious is the United States about stopping North Korean counterfeiting? This serious:

The White House accused North Korea on Thursday of counterfeiting dollars to support terrorism and said the United States would continue to try to stem such illicit activity as well as Pyongyang’s nuclear ambitions.

Well, it would be nice if Mr. Snow would give us some details of his allegation, and if Reuters would report them. Surely this can’t be it:

“The North Koreans have walked away because they are doing money laundering to finance global terror. We don’t want them to have money to finance global terror, sorry, period,” Snow said.

“We don’t think it’s in our interest to allow them to be selling weapons that could be used to destroy innocent human lives,” he said.

That’s it? Well, I don’t think it’s accurate to say “finance global terror” is the same thing as “support terrorism” without more details that this report doesn’t contain. Conventional weapons like the Taepodong II, after all, can create a state of “global terror,” particularly given who North Korea’s customers are. The North Korean connection to the Hezbollah and the Bekaa Valley goes way, way back, of course. I’d like more details. And of course, Snow was talking about dollars, not Marlboros, but if the issue is what North Korea buys with its ill-gotten gains, it’s really a distinction without a difference.

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Kim Jong Il Unplugged, Part 3

Two interesting reports from the region this week. One is this report that Japan is considering money laundering sanctions against North Korea, similar to those the United States has used with apparent success.

There is also a new report that China, directly confronted by U.S. satellite photos, forced the cancellation of a flight that was to have carried North Korean missile parts to Iran. While I doubt China would sign on to a general boycott or sanctions effort, China is probably unwilling to risk a sharp confrontation with the United States to protect North Korea’s proliferation racket.

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Kim Jong Il Unplugged, Part 2

During Treasury Undersecretary Stuart Levy’s recent visit to a series of Asian nations, I wondered just how Treasury’s green eyeshades had landed on a particular series of bank accounts that attracted his attention. Via a U.S. Treasury official who spoke with the Donga Ilbo, we now know that the answer is linked to the first two questions I asked after the mass arrests that came of Operation Smoking Dragon last August:

1. Were any North Korean nationals caught or implicated?
2. Were other branches of the same organization operating in third countries? What countries?

Now we learn:

“It is true that some North Korean were among the arrested 87. However, they will not be punished because they cooperated with the investigation.

That’s fairly earth-shaking, and it would suggest that the North Koreans are under the protection of the U.S. government, since they must have known when they talked that they wouldn’t have much of a chance back in North Korea.

One of the stops on Undersecretary Levy’s itinerary was Singapore, where government officials then held some curious meetings with North Korean Foreign Minister Baek Nam Soon:

At the time, the South Korean government explained, “Minister Baek stopped by Singapore for kidney dialysis. It wasn’t for any particular reason. Nevertheless, on his journey back home, Minister Back spent three days, from August 1 to 3, in Singapore, meeting with Singapore government officials.

When asked by Dong-A Ilbo if Minister Baek’s stay in Singapore was related to O Bank, the U.S. government official answered, “Don’t you think that it would be logical to think so?”

From this, I infer that while in Singapore, Levy fired a shot over the bow of one bank that appears not to have responded constructively to polite requests:

Recently, a source in Washington D.C. said, “With the American administration raising its pressure on North Korea’s funds in Macao, North Korea attempted to change its bank to Singapore, and the new haven is known as a small bank referred to as O Bank.

On August 3, a U.S. government official also said in an interview with Dong-A Ilbo, “O Bank is a problem bank. This bank is on the list of banks related to North Korea, which the U.S. government keeps a close eye on. With the U.S. tracing its funds, North Korea tried to disperse them, and by the official’s statement it was officially confirmed that Singapore, an international finance city, has become one of the safe havens.

Given the effect that this kind of attention had on Banco Delta Asia last year, I would expect that O Bank would rapidly issue a denial, along with promises of cooperation. I’d also expect it to show up in Singaporean newspapers for having attracted the wrong kind of attention from its depositors. Neither event has occurred so far, and it’s interesting that O Bank doesn’t even have a Web site. Stay tuned.

Postscript: Even in South Korea, home of Kim Jong Il’s last unrepentant financial backers, the mood is souring. The number of South Korean tourists who visited the Kumgang Resort in North Korea last month fell by 43%. That can’t be helpful to a project that’s consistently struggled to show a profit.

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Kim Jong Il, Unplugged Again

First, I’ll just say that I have nothing to say about Eric Clapton that I didn’t say more than two years ago. We’ve already heard Eric Clapton unplugged. The economic unplugging of Kim Jong Il is a more consequential thing, one that I see as closely related to domestic discontent inside North Korea. My suspicion, though it is not yet supported by much direct evidence, is that these recent developments have reduced him to new lows of extortionate desperation.

When I posted the other day about Kim Jong Il’s Austrian shopper, the story mentioned that he’d attempted to purchase yachts for His Dessicated Majesty. This more recent story confirms that the seller was Azimut-Benetti, which cooperated in the investigation of violations of UNSCR 1718 and 1874, and which I first wrote about here. The “shopper,” who was not named but should have been, claims he is merely a businessman, which is what Don Corleone also said if I recall correctly. Maybe the violation of two U.N. Security Council resolutions isn’t malum in se, but the diversion of resources from the starving certainly is.

Meanwhile, on the other side of the foreign exchange ledger, there are several new stories about hard times for the industries that earn North Korea that Earth money it needs to buy all that … infant formula. The Daily NK interviews a former manager of North Korean logging camps in Russia about why so many loggers have defected that the 20,000 of them were recently called home. Separately, the Chosun Ilbo also reports that a North Korean military translator, obviously the scion of an elite family, has defected in Russia:

Choi told Kyodo the North Korean regime “makes people suffer. People are executed or sent to labor camps all the time, and most ordinary people are starving.” He claimed he “wanted to contribute to changing the situation from outside.”

Choi reportedly lived in the Soviet Union in the 1980s between the ages of 13 and 17 years old, when his father worked at the North Korean Embassy in Moscow.

“I was there in January last year when the North Korean government announced Kim Jong-un as the successor of Kim Jong-il in front of high military officials in Pyongyang,” Choi claimed. “Kim Jong-il is going to die in a few years, and it’s impossible for the young and inexperienced Jong-un to rule the country. My dream is to go back to my country, which will be free some day, and live with my family.”

And in Nepal, the manager of the local Pyongyang Okryugwan Restaurant has absconded to India with the contents of the till. Enraged (and probably fearful) diplomats at the North Korean embassy then exerted pressure on the Nepalese authorities, who arrested two South Korean nationals, possibly on “kidnapping” charges. South Korea says it’s negotiating with the Nepalis for their release.

The Chosun Ilbo reports that these restaurants bring in a substantial amount of cash for the regime, but have recently suffered from a rash of defections. I’ve speculated before that they could also serve as a good cover for money laundering. I wonder how much of the stolen money is counterfeit.

I’m beginning to sense a great disturbance in The Force. That sense may change tomorrow, but today, it is that something truly dramatic, horrible, and/or hopeful will surely happen in North Korea, or because of North Korea, in the next six months.

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