North Korean Economy Watch

UPDATE 12: Thailand to release pilots.  According to the AP (via the Washington Post):

Thai prosecutors dropped charges against the five-man crew of an aircraft accused of smuggling weapons from North Korea, saying Thursday the men would be deported to preserve good relations with their home countries.

The Attorney General’s Office said the decision was made after the governments of Belarus and Kazakhstan contacted the Thai Foreign Ministry and requested the crew’s release to face prosecution at home.

“To charge them in Thailand could effect the good relationship between the countries,” said Thanaphit Mollaphruek, a spokesman for the Attorney General’s Office. “We have decided to drop all the charges and deport them to their home countries.”

“To charge them in this case would not be a benefit to Thailand,” he added.

The crew - four Kazakhs and a Belarusian - were expected to be released later in the day, said their lawyer Somsak Saithong.

…

Thailand’s Foreign Minister Kasit Piromya indicated earlier this month the men would be released, telling reporters in Geneva the government had “suggested to the office of the attorney general to release them because the U.N. resolution does not oblige Thailand to … bring up charges on the pilots and the crew.”

Thursday’s decision was likely to spark international criticism. The weapons’ ultimate destination remains a mystery, though Thailand has said the plane’s final destination appears to have been Iran. Experts have also voiced concerns that authorities in the former Soviet republics have turned a blind eye to illicit activities of air freight companies that use Soviet-era planes to fly anything anywhere for a price.

A Thai government report to the U.N. Security Council, leaked to reporters in late January said the aircraft was bound for Tehran’s Mahrabad Airport.

But Thai government spokesman Panitan Wattanayarkorn said subsequently that “to say that the weapons are going to Iran, that might be inexact.”

“The report only says where the plane was going to according to its flight plan, but it doesn’t say where the weapons were going to,” he said. “It’s still under investigation, and the suspects are under our legal system.”

Investigations by The Associated Press in several countries showed the flight was facilitated by a web of holding companies and fake addresses from New Zealand to Barcelona designed to disguise the movement of the weapons.

Read previous posts on this topic below: 
(more…)

The UN panel responsible for implementing UNSC resolutions pertaining to the DPRK has written a report (which is not yet publicly available) claiming that the DPRK continues to evade UN sanctions. According to two different Bloomberg stories :

“The Democratic People’s Republic of Korea has established a highly sophisticated international network for the acquisition, marketing and sale of arms and military equipment,” said the report by a Security Council panel established in June to assess the effectiveness of UN sanctions.

The report said arms sales banned by the UN “have increasingly become one of the country’s principal sources for obtaining foreign exchange.” North Korea has used “reputable shipping entities, misdescription of goods and multiple transfers” to hide arms smuggling, according to the report, which has been circulated within the Security Council and not yet publicly released.

…

North Korean companies and banks that have been barred from foreign transactions are circumventing the prohibition through subsidiaries, according to “indications” from some member governments, the report said. The Korea Mining Development Trading Corp., cited in April for violations of UN sanctions, “continues to operate through its subsidiary companies,” according to the report.

The Kwangson Banking Corp. and Amroggang Development Bank substitute for or act on behalf of Tanchon Commercial Bank and the Korea Hyoksin Trading Corp., the UN panel said authorities in unspecified countries have determined. The U.S. earlier this year froze the assets of the Kwangson and Amroggang banks.

The UN panel said North Korea is believed to have exported arms to countries in Africa, Southeast Asia, the Middle East and Latin America. Only a “very small percentage” of North Korea’s illegal arms trade has been reported or discovered, the report said.

An example of attempted trade in contraband was reported in August by the United Arab Emirates, which seized a ship carrying North Korean-manufactured munitions, detonators, explosives and rocket-propelled grenades bound for Iran.

According to Reuters:

The Security Council imposed the sanctions, including arms embargoes, asset freezes and travel bans, in resolutions in 2006 and 2009, in response to North Korean nuclear tests and ballistic missile launches. This year for the first time, it listed eight entities and five people who were being targeted.

A report obtained by Reuters on Wednesday was the first to be written by an expert panel set up by the Security Council in May to vet implementation of the sanctions. It is due to be discussed in closed-door council consultations on Thursday.

The six experts said there were several different techniques employed by the isolated communist state to conceal its involvement.

“These include falsification of manifests, fallacious labeling and description of cargo, the use of multiple layers of intermediaries, ’shell’ companies and financial institutions to hide the true originators and recipients,” the report said.

“In many cases overseas accounts maintained for or on behalf of the DPRK are likely being used for this purpose, making it difficult to trace such transactions, or to relate them to the precise cargo they are intended to cover.”

The experts said North Korea likely also used correspondent accounts in foreign banks, informal transfer mechanisms, cash couriers “and other well known techniques that can be used for money laundering or other surreptitious transactions.”

On illicit arms shipments, the report raised the case of the seizure of a “substantial cargo” of weapons from North Korea. It was apparently referring to arms seized in August by the United Arab Emirates from an Australian-owned ship.

The report also said the North continued to import luxury goods intended for its leadership, despite a U.N. ban. It noted that in July, Italy blocked the sale of two yachts that police said were destined for North Korean leader Kim Jong-il.

The panel, which began work just two months ago, said it would work on recommendations to the Security Council for further firms and individuals to be put on the sanctions list as well as goods whose import by North Korea should be banned.

It also promised more exact definitions of small arms — the only kind of arms Pyongyang can import under existing sanctions — as well as of luxury goods.

Marcus Noland has cleverly named the strategy of tracking down North Korean military financiers and arms dealers “Wac-a-mole“.

Read the full stories below:
North Korean Global Arms Smuggling Evades Ban, UN Panel Says
Bloomberg
Bill Varner
11/18/2009

North Korea Arms Trade Funds Nuclear-Bomb Work, UN Panel Says
Bloomberg
Bill Varner
11/19/2009

North Korea maneuvers to evade U.N. sanctions: experts
Reuters
11/18/2009

UPDATE: According to Yonhap, Chinese and Australian ships were shipping the arms:

North Korean cargo carrying arms exports to Iran left a western port five days after Pyongyang’s nuclear test in May and was transferred aboard Chinese and Australian freighters before being seized by the United Arab Emirates (UAE) in July, according to an Italian company that handled the delivery.

Mario Carniglia, head of the international freight-forwarding firm Otim, said the containers, reportedly loaded with rocket launchers, detonators, and munitions, were shipped via the Chinese cities of Dalian and Shanghai and were transferred to an Australian vessel just after the U.N. Security Council adopted Resolution 1874 which bans the North from engaging in arms trade.

“(The containers) left the Nampo Port on May 30,” he said in a recent interview with Yonhap News Agency in Rome on Wednesday. A North Korean ship carrying the 10 containers arrived in Dalian two days later and a Chinese cargo ship moved them to Shanghai on June 13, he said.

“The containers were placed on (the Australian freighter) ANL-Australia in Shanghai,” he said, flipping through related documents.

The cargo was on its scheduled course until the UAE intercepted the ANL-Australia on July 22. The U.S. Navy had been focusing on trailing another North Korean vessel, the Kangnam 1, which appeared to be headed to Myanmar also carrying weapons exports.

The seizure was the first made under Resolution 1874 that calls upon all states to inspect cargo to and from North Korea if they have “information that provides reasonable grounds to believe the cargo contains” illicit weapons.

The Australian government said earlier, based on its own probe, that there were rocket-propelled grenades and other weapons in the seized containers, though Carniglia said his firm did not know the contents of the cargo.

He said North Korea provided documents identifying the content as “Oil Pumping Equipment.”

“We couldn’t see the contents as the containers were sealed when shipped from Nampo,” he said in the interview conducted in Italian. He refused to identify the exporter in North Korea, citing business ethics.

“All we were responsible for was handling the shipping from China to Iran,” Carniglia said.

He added that North Korea has not filed a complaint or asked for the return of the cargo, held at the UAE now for more than 50 days.

The UAE is reportedly in consultation with the U.N. sanctions committee on how to handle the seized shipment.

In a related move, the U.N. committee demanded an explanation from North Korea last month for the apparent arms export attempt.

The head of the North’s mission to the U.N., Sin Son-ho, sent a reply letter reiterating his country’s position that it is not bound by any U.N. resolution.

Sin also said that North Korea’s experimental uranium enrichment program is in a “completion phase,” claiming the country has made advancements in mastering an alternative route to producing nuclear weapons apart from its plutonium-based program.

ORIGINAL POST: According to Bloomberg:

The United Arab Emirates has seized a ship carrying North Korean-manufactured munitions, detonators, explosives and rocket-propelled grenades bound for Iran in violation of United Nations sanctions, diplomats said.

The UAE two weeks ago notified the UN Security Council of the seizure, according to the diplomats, who spoke on condition they aren’t named because the communication hasn’t been made public. They said the ship, owned by an Australian subsidiary of a French company and sailing under a Bahamian flag, was carrying 10 containers of arms disguised as oil equipment.

The council committee that monitors enforcement of UN sanctions against North Korea wrote letters to Iran and the government in Pyongyang asking for explanations of the violation, and one to the UAE expressing appreciation for the cooperation, the envoys said. No response has been received and the UAE has unloaded the cargo, they said.

…

he Security Council voted on June 12 to adopt a resolution that punishes North Korea for its recent nuclear-bomb test and missile launches through cargo inspections and enforcement of restrictions on financial transactions. The measure calls for the interdiction at seaports, airports or in international waters of any cargo suspected of containing arms or nuclear or missile-related materials going to or from North Korea.

According to the Wall Street Journal:

According to the Security Council diplomat, the weapons were carried on an Australian vessel, the ANL-Australia, which was flying under a Bahamian flag. According to an Aug. 14 letter sent to the U.N. sanctions committee, the exporting company was an Italian shipper, Otim, which exported the items from its Shanghai office.

“The cargo manifest said the shipment contained oil-boring machines, but then you opened it up and there were these items,” the diplomat said. ANL and Otim officials couldn’t immediately be reached to comment.

…

A spokeswoman for the Australian Department of Foreign Affairs and Trade said the Australian government is aware of the incident and is investigating to determine whether any Australian laws may have been broken.

The seizure could also raise fresh questions about North Korea’s intentions. After taking an aggressive stance against the West earlier this year, Pyongyang appears to have softened its rhetoric, releasing two captive American journalists and sending a delegation to meet with South Korea’s president.

Read more here:
UAE Seizes North Korean Weapons Shipment to Iran
Bloomberg
Bill Varner
8/28/2009

Cargo of North Korea Matériel Is Seized en Route to Iran
Wall Street Journal
Peter Spiegel and Chip Cummins
8/29/2009

On January 21, the day after the Obama administration took office, the White House approved certain trade sanctions–initiated by the Bush administration–to be printed in the Federal Register.  These sanctions targeted specific Chinese, Iranian, and North Korean companies that the US believes were/are violating arms export regulations governing missile technology and other proliferation activities.  [Read more, including Federal Register text, here]

After North Korea conducted a long-range missile test in April, the US pushed the UN Security Council to adopt a presidential statement which blacklists several additional North Korean firms. [Read more here].

After North Korea conducted a second nuclear test, in violation of UNSC resolution, the UNSC adopted a resolution which tightened sanctions on the DPRK. [Read more here]

In June, the South Korean government imposed sanctions on these DPRK companies for the first time [Read more here]

The US followed up the UNSC resolution by announcing an inter-agency team that will focus exclusively on enforcing DPRK sanctions [Read more here] 

Today, the US Treasury Department announced it was targeting Hong Kong Electronics (Kish Island, Iran) [from where a former FBI agent is still missing] for supporting the balcklisted North Korean organizations.  According to Market Watch:

The Treasury Department said Tuesday that it has targeted another player in North Korea’s missile proliferation network. The agency designated Hong Kong Electronics, located in Kish Island, Iran, for providing support to North Korea’s Tanchon Commercial Bank and Korea Mining Development Trading Corp. Those two firms have been targeted by the U.S. and the United Nations as part of North Korea’s nuclear proliferation network. “Today’s action is a part of our overall effort to prevent North Korea from misusing the international financial system to advance its nuclear and missile programs and to sell dangerous technology around the world,” said Stuart Levy, Treasury under-secretary for terrorism.

What does this mean? It means that any bank accounts or other financial assets found in the United States belonging to the company must be frozen. Americans also are forbidden from doing business with the firm. This probably does not amount to much economically, but is probably intended to discourage banks outside of the US from doing business with these firms.

UPDATE 1: It looks like the State Departmet is also going after a North Korean company believe to be involved in weapons proliferation today.  According to a statement by the Treasury Department:

The U.S. Department of the Treasury today targeted North Korea’s missile proliferation network by designating Hong Kong Electronics under Executive Order 13382.  E.O. 13382 freezes the assets of designated proliferators of weapons of mass destruction and their supporters and prohibits U.S. persons from engaging in any transactions with them, thereby isolating them from the U.S. financial and commercial systems.  Hong Kong Electronics, located in Kish Island, Iran, has been designated for providing support to North Korea’s Tanchon Commercial Bank (Tanchon) and Korea Mining Development Trading Corporation (KOMID).

Tanchon and KOMID have also been designated by the United States under E.O. 13382 and the UN Security Council under Resolution 1718. The Department of State also today targeted North Korea’s nuclear proliferation network by designating Namchongang Trading Corporation (NCG), a North Korean nuclear-related company in Pyongyang, under E.O. 13382. 

“North Korea uses front companies like Hong Kong Electronics and a range of other deceptive practices to obscure the true nature of its financial dealings, making it nearly impossible for responsible banks and governments to distinguish legitimate from illegitimate North Korean transactions,” said Stuart Levey, Under Secretary for Terrorism and Financial Intelligence. “Today’s action is a part of our overall effort to prevent North Korea from misusing the international financial system to advance its nuclear and missile programs and to sell dangerous technology around the world.”

Since 2007, Hong Kong Electronics has transferred millions of dollars of proliferation- related funds on behalf of Tanchon and KOMID. Hong Kong Electronics has also facilitated the movement of money from Iran to North Korea on behalf of KOMID. Tanchon, a commercial bank based in Pyongyang, North Korea, is the financial arm for KOMID - North Korea’s premier arms dealer and main exporter of goods and equipment related to ballistic missiles and conventional weapons.

Tanchon plays a key role in financing the sales of ballistic missiles for KOMID. Tanchon has also been involved in financing ballistic missile sales from KOMID to Iran’s Shahid Hemmat Industrial Group (SHIG), which is the Iranian organization responsible for developing liquid-fueled missiles. SHIG has been designated under E.O. 13382 and sanctioned by the United Nations under UN Security Council Resolution (UNSCR) 1737. Since 2005, Tanchon has maintained an active relationship with various branches of Iran’s Bank Sepah, an entity designated under E.O. 13382 and sanctioned by the United Nations under UNSCR 1747, for providing financial services to Iran’s missile program. The U.S. has reason to believe that the Tanchon-Bank Sepah relationship has been used for North Korea-Iran proliferation-related transactions.

Here is the press release by the State Department:

The U.S. Department of State today targeted North Korea’s nuclear proliferation network by designating Namchongang Trading Corporation (NCG) under Executive Order 13382. E.O. 13382 is an authority aimed at freezing the assets of proliferators of weapons of mass destruction and their supporters, and at isolating them from the U.S. financial and commercial systems. Entities designated under E.O. 13382 are prohibited from engaging in all transactions with any U.S. person and are subject to a U.S. asset freeze.

NCG is a North Korean nuclear-related company in Pyongyang. It has been involved in the purchase of aluminum tubes and other equipment specifically suitable for a uranium enrichment program since the late 1990s.

The Department of the Treasury also today designated Hong Kong Electronics, located in Kish Island, Iran, for providing support to North Korea’s Tanchon Commercial Bank (Tanchon) and Korea Mining Development Trading Corporation (KOMID). Tanchon and KOMID were designated by the United States under E.O. 13382 on June 28, 2005 and the UN Security Council under Resolution 1718 on April 24, 2009.

North Korea’s April 5, 2009 launch of a Taepo Dong-2 (TD-2) missile and May 25, 2009 nuclear test demonstrate a need for continued vigilance with respect to North Korea’s activities of proliferation concern. The designations add to continuing U.S. efforts to prevent North Korean entities of proliferation concern from accessing financial and commercial markets that could aid the regime’s efforts to develop nuclear weapons and the missiles capable of delivering them.

McClatchy has more here.

Islamic Republic News Agency
8/7/2007

Iran-North Korea economic relations will enter a new era once a bilateral cooperation document is signed by commerce ministers of the two country.

According to public department of Iran’s Ministry of Commerce, in the document which is to be inked on Wednesday, the two sides will announce their agreement to expand economic cooperation and boost mutual relations.

Mutual economic cooperation in such fields as construction and technology has been envisaged in the document.

KCNA
4/14/2007

Esmaeil Babaei Ragheb, Iranian charge d’affaires ad interim here, arranged a reception on April 13 on the occasions of the Day of the Sun and the 14th anniversary of Kim Jong Il’s election as chairman of the DPRK National Defence Commission.

Present on invitation were Yang Hyong Sop, vice-president of the Presidium of the Supreme People’s Assembly, Rim Kyong Man, minister of Foreign Trade, Jong Yong Su, minister of Labour, and officials concerned.

Staff members of the Iranian embassy here were on hand.

The Iranian charge d’affaires said in his speech that President Kim Il Sung who liberated the Korean people from the foreign domination made an immortal contribution to strengthening and developing the non-aligned movement.

He noted that the election of Kim Jong Il as chairman of the DPRK National Defence Commission provided a sure guarantee for the accomplishment of the revolutionary cause of Juche pioneered by Kim Il Sung.

The Iranian government and people extend full support and solidarity to the Korean people in their struggle against imperialism and for achieving the country’s reunification, he stressed.

Yang Hyong Sop in his speech noted that the revolutionary cause of Juche pioneered by Kim Il Sung has been successfully carried forward by Kim Jong Il, adding that the Korean people would wage a dynamic struggle under the Songun revolutionary leadership of Kim Jong Il.

He said that the friendly and cooperative relations between the DPRK and Iran provided by Kim Il Sung together with the top leaders of Iran have grown stronger under the deep care of the leaders of the two countries.

He noted that the Korean people would as ever boost the friendly and cooperative relations with the Iranian people in their efforts to reinforce the national defence power to cope with the U.S. high-handed and arbitrary practices and develop the national economy.

Yonhap
11/16/2006

N. Korea’s assembly chairman holds talks with Iranian FM

Choe Tae-bok, chairman of North Korea’s Supreme People’s Assembly, held a meeting with Iranian Foreign Minister Manucherhr Motaki in Teheran on Wednesday and discussed ways of promoting bilateral cooperation, Iran’s state-controlled media said Thursday.

Choe visited Teheran to attend the 7th general assembly of the Asian Parliaments for Peace.

From the Korea Herald:
9/10/2006

The United States has had some success in limiting North Korea’s export of missiles by persuading other countries not to buy them, a senior administration official says.

Washington has long sought to stop such sales and stepped up its initiative after Pyongyang tested a string of missiles in July, including a long-range missile.

“As a direct result of our policies, we have cut off North Korea from several of its customers for ballistic missiles,” Robert Joseph, the Bush administration’s top nonproliferation official, told Reuters.

“We have made it more difficult for the North to ship missiles and have made it more likely that these shipments will be exposed. The risk of exposure further turns off customers,” he said in a recent interview.

He said Yemen committed not to buy more North Korean missiles after taking delivery of a shipment of 15 Scuds in 2002 and Libya promised to forgo North Korean missiles as part of a 2003 agreement in which it abandoned its weapons of mass destruction and missile programs.

Some U.S. officials say Pakistan and Egypt also are no longer buying from Pyongyang, leaving Iran and Syria as the major missile customers.

Some other U.S. officials and experts are skeptical of the effectiveness of the Bush administration policy.

Jonathan Pollack, chair of the Asia-Pacific Studies Group at the U.S. Naval War College in Rhode Island, welcomed the close scrutiny the U.S.-led program had brought on North Korea’s activities but said the results were difficult to measure and it was probably too soon to draw firm conclusions.

The U.S. strategy includes a crackdown on banks that aid the North’s illicit activities and the “proliferation security initiative” in which some 88 member nations share intelligence and practice interdicting weapons shipments.

In addition, potential buyer nations now may find their U.S. aid curtailed if they buy weapons from North Korea. Pakistan, Iraq and Egypt are major recipients of U.S. assistance.

After Pyongyang tested seven missiles in July, the United Nations called on countries to avoid supporting the missile program. Missile sales earn the impoverished state hundreds of millions of dollars in hard currency.

One long-range missile crashed soon after launch during the July tests, but the other medium range missiles hit their target areas, U.S. officials and experts said.

U.S. Defense Secretary Donald Rumsfeld has said North Korea - which claims itself to be a nuclear weapons power - is more dangerous as a proliferator than as a military threat to neighbor South Korea.

Pyongyang has been working on missile production for three decades and is the leading supplier of ballistic missiles to the developing world, experts say.

The chief exports are variations of Soviet-origin Scud missiles, regarded as fairly reliable and accurate but based on technology advanced military powers would consider obsolete.

North Korea’s oldest and most loyal customer has been Iran, which helped finance Scud development, according to various U.S. studies. The connection dates to the Iran-Iraq war of the 1980s when Pyongyang tested and shipped missiles to Tehran.

North Korea, as well as China, provided ballistic missiles, cruise missiles and their production facilities to Iran, Iraq, Syria and Egypt, U.S. government reports say. Libya and Pakistan have also been missile customers.

Arms connections between North Korea and Iran are very strong, with the former regime being the main supplier of ballistic missile technologies to Tehran, a senior U.S. nonproliferation official said Wednesday.

Undersecretary of State Robert Joseph, in charge of arms control and international security, was cautious about going into intelligence.

“But I can say that the connections between North Korea and Iran are very strong,” he said at a news conference with the foreign press.

“And North Korea has been, I think, the principal supplier to Iran of ballistic missile technologies,” he said.

Suspicions about exchanges of personnel, technology and equipment between Pyongyang and Tehran on missile development date back decades. Joseph noted that a number of revelations about such ties have already been made public.