North Korean Economy Watch

From the New York Times (via NK Zone):

The counterfeits were nearly flawless. They featured the same high-tech color-shifting ink as genuine American bills and were printed on paper with the same precise composition of fibers. The engraved images were, if anything, finer than those produced by the United States Bureau of Engraving and Printing. Only when subjected to sophisticated forensic analysis could the bills be confirmed as imitations.

Counterfeits of this superior sort — known as supernotes — had been detected by law-enforcement officials before, elsewhere in the world, but the Newark shipment marked their first known appearance in the United States, at least in such large quantities. Federal agents soon seized more shipments. Three million dollars’ worth arrived on another ship in Newark two months later; and supernotes began showing up on the West Coast too, starting with a shipment of $700,000 that arrived by boat in Long Beach, Calif., in May 2005, sealed in plastic packages and wrapped mummy-style in bolts of cloth.

In the weeks and months that followed, federal investigators rounded up a handful of counterfeiting suspects in a series of operations code-named Royal Charm and Smoking Dragon. This past August, in the wake of the arrests, Justice Department officials unsealed indictments in New Jersey and California that revealed that the counterfeits were purchased and then seized as part of an operation that ensnared several individuals accused of being smugglers and arms traffickers, some of whom were suspected of having connections to international crime rings based in Southeast Asia.

The arrests also prompted a more momentous accusation. After the indictments were released, U.S. government and law-enforcement officials began to say in public something that they had long said in private: the counterfeits were being manufactured not by small-time crooks or even sophisticated criminal cartels but by the government of North Korea. “The North Koreans have denied that they are engaged in the distribution and manufacture of counterfeits, but the evidence is overwhelming that they are,” Daniel Glaser, deputy assistant secretary for terrorist financing and financial crimes in the Treasury Department, told me recently. “There’s no question of North Korea’s involvement.”

Last September, the Treasury Department took action to signal its displeasure. The department announced that it was designating Banco Delta Asia, a bank in Macao with close ties to North Korea, a “primary money-laundering concern,” a declaration that ultimately led to the shutting down of the bank and the freezing of several key overseas accounts belonging to members of North Korea’s ruling elite. In a public statement, Treasury officials accused Banco Delta Asia of facilitating North Korea’s illicit activities by, among other things, accepting “large deposits of cash” from North Korea, “including counterfeit U.S. currency, and agreeing to place that currency into circulation.”

The counterfeiting of American currency by North Korea might seem, to some, to be a minor provocation by that country’s standards. North Korea, after all, has exported missile technology in blatant disregard of international norms; engaged in a decades-long campaign of kidnapping citizens of other countries; abandoned pledges not to pursue nuclear weapons; and most recently, on July 4, launched ballistic missiles in defiance of warnings from several countries, including the United States.

But several current and former Bush administration officials whom I spoke with several months ago maintain that the counterfeiting is in important ways a comparable outrage. Michael Green, a former point man for Asia on the National Security Council, told me that in the past, counterfeiting has been seen as an “act of war.” A current senior administration official, who was granted anonymity because of the sensitivity of relations between the United States and North Korea, agreed that the counterfeiting could be construed by some as a hostile act against another nation under international law and added that the counterfeits, by creating mistrust in the American currency, posed a “threat to the American people.”

Whether counterfeiting constitutes an economic threat, the issue of North Korean counterfeiting is aggravating diplomatic relations between the two countries. According to some analysts, the freezing of North Korea’s bank accounts helps explain the regime’s decision to launch its missiles on July 4. Bill Richardson, the governor of New Mexico and a former U.S. ambassador to the United Nations, visited North Korea last fall, not long after the Treasury Department’s crackdown. When I spoke with him in mid-July, he said that the missile launch was in part a protest of the department’s actions. “When I was in Pyongyang in October,” he said, “my interlocutor raised the counterfeiting issue and the freezing of the assets as a major irritant for the government.” He continued, “The counterfeiting issue, and the crackdown on Banco Delta Asia, is a major factor which is contributing to Kim Jong Il’s posturing.”

How much of a concern should the counterfeiting be? Is it worth adding the issue to an already volatile diplomatic situation? The current South Korean government, which has made détente with North Korea a centerpiece of its foreign policy, has shied away from an open confrontation with the regime over the issue. Even many American law-enforcement officials who are upset that North Korea is counterfeiting nonetheless question the view that the counterfeiting poses an urgent threat. In Congressional testimony delivered in April, Michael Merritt, deputy assistant director of investigations for the Secret Service, which is responsible for protecting the nation’s currency from counterfeiters, said that the supernote was “unlikely to adversely impact the U.S. economy based on the comparatively low volume of notes passed.”

The Bush administration, though, is taking a hard line. In response to a question after a speech in Philadelphia in December, President Bush himself suggested that counterfeiting is among the regime’s gravest affronts. “North Korea’s a country that has declared boldly they’ve got nuclear weapons,” he said. “They counterfeit our money. And they’re starving their people to death.”

Funny Money

In December 1989, while counting a stack of $100 bills, an experienced money handler in the Central Bank of the Philippines became suspicious about one bill in particular. It passed the usual tests for authenticity but still felt a bit odd. The bill eventually found its way to the offices of the United States Secret Service. All counterfeits sent to the Secret Service headquarters, in Washington, are examined under a microscope, scrutinized in ultraviolet light and otherwise dissected to reveal their flaws and shortcomings, as well as the printing techniques used in their manufacture. This information is then cross-checked with a database of all known counterfeits.

As the mystery note underwent the usual scrutiny, it became apparent that this was no ordinary counterfeit. For starters, it was printed on paper made with the appropriate mix of three-quarters cotton and one-quarter linen of real U.S. currency. Making secure paper with this mix requires a special paper-making machine rarely seen outside the United States.

In addition, the note was manufactured using an intaglio press, the most advanced form of currency-printing technology available. These intaglio presses are far more expensive than ordinary offset, typographic or lithograhic presses, which yield inferior counterfeits. An intaglio press coats the printing plates with ink, and then wipes the surface clean, leaving behind ink in the recesses of the engraving. The press then brings paper and plate together under pressure, so that the ink is forced out of the recessed lines and deposited on the paper in relief. While counterfeits made using the intaglio process had been seen on rare occasions before, this note surpassed all of them in the quality of the engraving.

As with other new species of counterfeits arriving in the offices of the Secret Service, the bill was given its own flat-file drawer and christened with a sequential number: C-14342. In time, its remarkable quality earned it its more informal honorific: the supernote. But as soon became clear, the supernote was merely one member of a family of counterfeit notes. Technicians at the Secret Service soon linked it to another intaglio note detected around the same time, C-14403. This counterfeit had a few defects that the note from the Philippines did not, suggesting it was manufactured before C-14342. Nonetheless, C-14342 was soon known by the name Parent Note 14342, or PN-14342.

The Secret Service has drawn up what looks like a genealogical chart of these and related bills, which agents showed me during a visit to their Washington offices this spring. The chart displays the many members of the supernote clan: C-21555, for example, the first “big head” $100 (so-called because of the design of the most recent U.S. bills), which was initially identified in London; and C-22500, a more recent arrival that appeared in Macao. The family, which now has 19 members and remains unparalleled even in the world of high-quality counterfeits, also includes two $50 notes: C-20000, a small-head supernote that appeared in Athens, in June 1995; and C-22160, a big-head version, first sighted in Sofia, Bulgaria.

Thanks to sophisticated tools, including mass spectroscopy and near-infra-red analysis, along with old-fashioned visual inspection, the labs of the Secret Service have established genetic links between the family members. These links are not a matter of resemblance so much as they are an indication of a common ancestry: the notes in the PN-14342 family have been created by an individual or an organization using the same equipment and the same materials, and most likely operating from a single location.

As the number of supernotes multiplied, the question arose: who created them? In theory, only governments can buy intaglio printing presses used for making money, and only a handful of companies sell them. Those facts alone pointed toward government involvement, but for some time there was no consensus as to which nation was behind the counterfeiting. Many of the supernotes surfaced in the Middle East, notably in the Bekaa Valley of Lebanon and in Tehran. In 1992, Bill McCollum, a Florida congressman and chairman of the House Task Force on Terrorism and Unconventional Warfare, issued a report accusing Iran of printing the supernotes. The report estimated that the value of supernotes in circulation might eventually approach “billions.”

The Secret Service, however, distanced itself from this accusation. In a letter written in 1995 in response to a Government Accounting Office report on counterfeiting overseas, the Secret Service called the task force’s allegations “unsubstantiated” and characterized its conclusions as being based on “rumor and innuendo.” In reality, evidence was pointing elsewhere.

A Picture Emerges

With a country as closed and secretive as North Korea, information about government activities is hard to come by. But in the late 1990’s, a new source of information arrived in the form of defectors. Starvation, corruption and desperation had prompted thousands of North Koreans, many of them government officials, to flee the country. In 1997, two high-ranking bureaucrats — Hwang Jang Yop, a former secretary of the North Korean Workers’ Party, and Kim Duk Hong, head of a government trading company — sought political asylum at the South Korean Embassy in Beijing. They were the most prominent officials to defect, but they were hardly alone: thousands of North Koreans have fled to South Korea. Many thousands more have escaped to China.

In the international intelligence community, vetting accounts from defectors about activities in North Korea soon became a specialty — as well as a necessity, for the accounts were not always reliable. Raphael Perl, an analyst at the Congressional Research Service who has written extensively on North Korea’s counterfeiting operations, told me that “a lot of defectors or refugees give us information, but they tell us anything we want to know. You have to question the reliability of what they say.”

Nonetheless, the most trustworthy of these accounts, when combined with more traditional intelligence sources, permitted a best guess of what might be happening in North Korea. And as far as counterfeiting was concerned, the picture that emerged suggested that moneymaking had long been a passion for the country’s dictatorial ruler, Kim Jong Il, dating back to the 1970’s, years before he took over the reins of power from his father, the country’s founder and first president, Kim Il Sung.

Today, on Changgwang Street in Pyongyang, the capital of North Korea, there is a barricaded compound of government buildings. Judging from satellite photos, these are unremarkable, rectangular structures that suggest no special purpose. Yet according to a North Korean specialist based in Seoul whom I spoke with recently, and who has interviewed many high-ranking North Korean defectors, including Hwang Jang Yop and Kim Duk Hong, these buildings are the home of Office 39, a government bureau devoted to raising hard currency for Kim Jong Il. (The specialist was granted anonymity because of the sensitivity of relations between North and South Korea.)

While the operatives of Office 39 may well direct legitimate enterprises, including the export of exotic mushrooms, ginseng and seaweed, a substantial portion of the office’s revenue comes from its involvement in illicit activities: drug manufacturing and trafficking, sales of missile technology, counterfeit cigarettes and counterfeit $50 and $100 bills. According to Ken Gause, director of the Foreign Leadership Studies Program at the CNA Corporation, a policy group in Virginia that consults on national-security issues, the activities of Office 39 overlap with those of two other offices that occupy buildings in the same complex. The first, Office 38, manages the money acquired by Office 39, he said, while the second, Office 35, handles kidnappings, assassinations and other such activities.

All three divisions employ the same narrow coterie of elites, and all answer directly to Kim Jong Il, who lives in a villa less than a mile away. The history of the operations of Offices 39, 38 and 35, Gause told me, closely follows Kim Jong Il’s own rise to power through the party apparatus. In the early 70’s, after helping his father purge the ranks of the Korean Workers’ Party of competing factions, Kim Jong Il assumed control of North Korea’s covert operations, mostly involving South Korean targets.

In the mid-70’s, according to defector accounts related to me by the North Korean specialist, Kim Jong Il issued a directive to members of the Central Committee of the Korean Workers’ Party instructing that expenses for covert operations against South Korea be paid for by producing and using counterfeit dollars. Officials in charge of the operation supposedly brought back $1 bills from abroad, bleached the ink and then used the blank paper to print fairly sophisticated counterfeit $100 bills — though nothing close in quality to a supernote. Many of these notes were later used by North Korean agents implicated in attacks on South Korean targets, like the operatives arrested for the bombings of a South Korean government delegation in Rangoon in 1983 and a Korean Airlines jet in 1987.

According to the same defector accounts, Kim Jong Il endorsed counterfeiting not only as a way of paying for covert operations but also as a means of waging economic warfare against the United States, “a way to fight America, and screw up the American economic system,” as the North Korean specialist paraphrased it to me.

In a similar vein, according to Sheena Chestnut, a specialist on North Korea’s illicit activities who has also interviewed several key defectors, counterfeiting was seen as an expression of the guiding idea of the regime: the concept of juche. Often loosely translated as “self-reliance” or “sovereignty,” the idea of juche entails an aggressive repudiation of other nations’ sovereignty — a reaction to the many centuries in which Korea capitulated to its larger, more powerful neighbors. “It appears that counterfeiting actually contributed to the domestic legitimacy of the North Korean regime,” Chestnut told me. “It could be justified under the juche ideology and allowed the regime to advertise its anticapitalist, anti-American credentials.”

By 1984, as North Korea’s planned economy began to fall apart, Kim Jong Il, who by that time was effectively running much of the government, issued another directive, according to the North Korean specialist, who told me he has obtained a copy of the document. It explained that “producing and using counterfeit U.S. dollars” was a means, in part, for “overcoming economic crisis.” The economic crisis was twofold: not only the worsening conditions among the general population but also a growing financial discontent among the regime’s elite, who had come to expect certain perquisites of power. Counterfeiting offered the promise of raising hard currency to buy the elite the luxury items that they had come to expect: foreign-made cars, trips for their children, fine wine and cognac.

Laundering, Wholesaling and Redesigning

Earlier this year, I visited David Asher, a former senior adviser for East Asian and Pacific affairs in the State Department and an outspoken critic of the North Korean regime. In late 2001, he explained to me, Assistant Secretary of State James Kelly asked him to study why the North Korean regime had not collapsed, given that the country’s economy had declined even further over the previous decade, with industrial output alone falling by as much as three-quarters. Former Communist countries had ended their subsidies, Kim Il Sung had died, the country was stricken by floods and famine and the food-distribution system had collapsed. (Party slogans betrayed more than a hint of desperation: “Let’s Eat Two Meals a Day” was one of the era’s more uplifting exhortations.) Yet Kim Jong Il, defying all expectations, managed to cling to power.

“How this was happening was perplexing, given the huge trade gap, even with adjustments for aid flowing into the country,” Asher recalled. “Something just didn’t add up. It didn’t account for why Kim was driving around in brand new Mercedes-Benzes or handing out Rolexes at parties and purchasing truly large quantities of cognac.”

As Asher and his colleagues began amassing intelligence, evidence of an array of illicit activities began surfacing — everything from ivory smuggling to the production of high-grade methamphetamine. And counterfeiting was at the core. “The more we found out about this counterfeiting of dollars, the more we thought it was outrageous,” Asher told me. These activities provided what Asher calls “an alternative framework for existence” and “the palace economy of Kim Jong Il.”

In the spring of 2003, the State Department established the Illicit Activities Initiative, an interagency effort designed to investigate and counter North Korea’s criminal activities, and appointed Asher coordinator. The department began to systematically collect a variety of forensic and other evidence gathered by its own investigators, the Secret Service and elements of the intelligence community linking North Korea to the supernotes. (Asher declined to comment on the nature of the evidence, most of which remains classified.)

In addition, the department put together circumstantial evidence of North Korean counterfeiting that had been accumulating for more than a decade. In 1994, for example, authorities in Hong Kong and Macao apprehended five North Korean diplomats and trade-mission members carrying about $430,000 in bills that turned out to be counterfeits of the supernote variety. Additional North Korean diplomats, including an aide close to Kim Jong Il who was attached to Office 39, were caught trying to launder millions of dollars worth of supernotes over several years, prompting an increased scrutiny of North Korea’s diplomatic and trading missions.

Thwarted, the regime seems to have changed tactics, harnessing new distribution networks and wholesaling the counterfeits to third parties who would funnel them to criminal gangs. In the late 1990’s, for instance, British detectives began tracking Sean Garland, the leader of the Official Irish Republican Army, a Marxist splinter group of the I.R.A. According to an unsealed federal indictment in Washington, Garland began working with North Korean agents earlier in the decade, purchasing supernotes at wholesale prices before distributing them through an elaborate criminal network with outposts in Belarus and Russia, as well as Ireland. (Garland denies the charges and is currently fighting extradiction to the United States from Ireland.)

Details of the actual manufacture of counterfeit notes also began filtering into the State Department, much of the information derived from defector accounts. According to similar accounts compiled by Sheena Chestnut and the North Korean specialist in Seoul whom I spoke with, the regime obtained Swiss-made intaglio printing presses and installed them in a building called Printing House 62, part of the national-mint complex in Pyongsong, a city outside Pyongyang, where a separate team of workers manufactures the supernotes.

In 1996, frustrated by the high-quality imitations of its currency in worldwide circulation, the United States government redesigned the money for the first time since 1928. Out went the old-fashioned symmetrical designs, replaced by the big-head notes. Almost everything about the new design was aimed at frustrating potential counterfeiters, including a security thread embedded in the paper, a watermark featuring a shadow portrait of the figure on the bill and new “microprinting,” tiny lettering that is hard to imitate. The most significant addition was the use of optically variable ink, better known as O.V.I. Look at the bills in circulation today: all 10’s, 20’s, 50’s and 100’s now feature this counterfeiting deterrent in the denomination number on the lower-right-hand corner. Turn the bill one way, and it looks bronze-green; turn it the other way, and it looks black. O.V.I. is very expensive, costing many times more than conventional bank-note ink.

A Swiss company named SICPA is the major manufacturer of O.V.I., and the United States purchased the exclusive rights to green-to-black color-shifting ink in 1996. Other countries followed, purchasing color-shifting inks of different colors for their own currency. One of the first countries to do so, interestingly enough, was North Korea, whose currency, the won, counterfeiters ignore. North Korea purchased O.V.I. from SICPA that shifts from green to magenta. For the purposes of counterfeiting American currency, it would be a smart choice: magenta is the closest color on the spectrum to black. “The green-to-magenta ink can be manipulated to look very close to green-to-black ink,” Daniel Glaser of the Treasury Department told me. “They took this stuff the same year we went to O.V.I.” According to Glaser, the North Koreans managed to fiddle with the new ink, obtaining an approximation of the O.V.I. on the bills.

Though there is some dispute on the timing, the first counterfeit big-head supernotes might have arrived on the market as early as 1998. Like the earlier generation of supernotes, the big-head imitations show an ever-growing attention to detail. “They would certainly fool me,” said Glaser, who points out that the “defects” of the supernote are arguably improvements. He recalled looking at the back of a $100 supernote under a magnifying glass and noticing that the hands on the clock tower of Independence Hall were sharper on the counterfeit than on the genuine.

From all accounts, superb quality is a feature of much North Korean contraband: methamphetamine of extraordinarily high purity; counterfeit Viagra rumored to exceed the bona fide product in its potency; supernotes. It’s an impressive product line for a regime that can barely feed its people. When I discussed this with Asher, he let out a sigh. “I always say that if North Korea only produced conventional goods for export to the degree of quality and precision that they produce counterfeit United States currency, they would be a powerhouse like South Korea, not an industrial basket case.”

The Threat

How many supernotes are in circulation, and what sort of provocation do they represent?

Most government officials interviewed for this story declined to give an estimate, but several, including Michael Merritt of the Secret Service, noted that his agency has removed $50 million worth of supernotes from circulation. That is a far cry from the “billions” predicted by Representative Bill McCollum’s task force in the early 1990’s, and while it may still sound like a lot, it is insignificant relative to the $12 trillion dollar American G.D.P.

When supernotes are discovered in a smaller foreign economy that makes use of American currency, they can cause a local crisis of confidence in the dollar (this has happened in Taiwan and Ireland, for instance). But in the United States, the economic threat is minimal. For this reason, many analysts, particularly those outside the administration, like Raphael Perl of Congressional Research Service, express concern about making the issue into a diplomatic crisis. Perl, who agrees that the North Koreans are behind the counterfeiting, told me that because American government officials often view the violation of the currency as “a matter of national honor,” there is “an emotional factor that could get blown out of proportion.” In the process, he argued, counterfeiting can become conflated with other, more pressing problems posed by the North Korean regime, like its nuclear threat.

This conflation may also be deliberate. According to Kenneth Quinones, who was the North Korea country director in the State Department in the 1990’s, hawks in the current administration may be trying to use the counterfeiting issue to impede negotiations with the regime over its nuclear program. Critics of this approach note that the freezing of the North Korean bank accounts took place in the same month that participants in the six-party talks, the multination negotiations over North Korea’s nuclear program, hammered out an agreement that the regime would abandon its nuclear-weapons program. North Korea soon reneged on its promise to abandon its nuclear program and has since refused to rejoin the talks until the United States lifts the designation on Banco Delta Asia. The hawks, Quinones told me, “are attempting to use these sanctions” to help “bring down the regime.”

The senior administration official interviewed for this article dismissed that claim. “The notion that there was a grand conspiracy by hard-liners is just wrong,” he told me. “It’s not accurate. This was done as a law-enforcement action by appropriate U.S. government agencies based on the facts of the case.”

Even if the counterfeiting is not worthy of being a diplomatic issue unto itself, the fact that North Korea is counterfeiting may still serve as a grim reminder of the difficulty of good-faith negotiations with North Korea. Just consider that the supernotes that were seized by law-enforcement officials in New Jersey and California arrived in the United States while the six-party talks were going on. Asher, for one, was stunned by the audacity of the regime. “If they’re going to counterfeit our currency the entire time they’re engaged in diplomatic negotiations, what does that say about their sincerity?” he asked me. “How can they want normalization with a country whose currency they’re counterfeiting? How can they expect it?”

However the diplomatic standoff is resolved, Asher said that he believes North Korea won’t continue to counterfeit much longer. Next year, the Bureau of Engraving and Printing is issuing an updated version of the $100 bills. The notes will be expensive to manufacture, requiring the purchase of a new set of presses at a cost that Asher estimated in the “hundreds of millions” of dollars. The Treasury Department characterizes the next generation of notes as part of a routine redesign that it will undertake on a regular schedule every decade. But Asher has no illusions as to the timing. “It might be a routine update,” he said, “but it’s a routine update that’s being instigated by one country: North Korea.”

Stephen Mihm teaches history at the University of Georgia. He is at work on two books about the history of counterfeiting in the United States, one to be published by Harvard University Press and the other by HarperCollins.

From the Korea Herald:

Lee opposes additional sanctions on N. Korea

South Korean Unification Minister Lee Jong-seok has taken another shot at the United States, saying that additional sanctions against North Korea were undesirable.

“The solution to the missile problem is for South Korea and the United States to collaborate and for China, Russia and other countries to cooperate […] We must think about whether what the United States does immediately equals to what the international community wants to do.”

Lee’s comments are in line with the South Korean government’s policy to expand sanctions against the communist regime and avoid creating further tension on the peninsula, government officials later explained.

Lee underscored the “South Korean government, as a valid member of the international community must make our own voice known as well.”

The Seoul government has been visibly cautious against slapping sanctions on North Korea, which test-fired a barrage of ballistic missiles July 5 despite international warnings.

“There must not be any more comments or actions that will heighten military tension on the Korean Peninsula,” Lee said.

He urged that it was most important to bring North Korea back to the negotiating table and not give it more time to further develop any weapons.

But inter-Korean relations continue to take on a sour note. Upon North Korea’s demand to halt the ongoing construction of a family reunion center in Mount Geumgang, most of the 150 South Korean workers were set to return home yesterday afternoon.

The United States, in the meantime, reportedly refused a visa application for Ri Gun, North Korea’s director-general of the North American Division at the Foreign Ministry.

Ri was set to attend a seminar hosted by Massachusetts Institute of Technology and Stanford University later this month.

The United States is stepping up pressure on the North through investigating its alleged money counterfeiting and by highlighting its human rights abuses.

Japan has also made moves to fortify its defense lineup against the possible threat from North Korea.

“To solve this, any form of dialogue must be accomplished (with the North),” Lee said. Seoul officials said bilateral talks between the United States and North Korea should be considered as a possibility.

Here is what the US has been up to: 6/22/2006 From the Joong Ang Daily:

U.S. and Japan press on with plans for sanctions

The recent visit to Seoul by a U.S. Treasury Department official and his stops in other regional capitals is a sign that Washington intends to tighten the financial noose around Pyongyang. After telling Korean officials that Washington might reinstate trade sanctions on North Korea that were lifted during the Clinton administration, Stuart Levey, the under secretary for terrorism and financial intelligence, moved on to Vietnam, Singapore and Japan. Sources in Seoul said yesterday that the main purpose of his trip was to search for bank accounts linked to illicit activities in which North Korea is engaged.

On Tuesday, the under secretary reportedly met with Vietnamese government and financial officials. A diplomat in Seoul said, “A bank account that is used by Hyundai Asan and North Korea has been under investigation there.”

Last autumn, Washington warned Banco Delta Asia in Macao of financial sanctions if it did not tighten its controls against money laundering; about 40 North Korean accounts there have reportedly been frozen. Hyundai Asan once sent its payments to North Korea to that bank; Pyongyang has directed the payments to other bank accounts in Austria and Vietnam since then.

After arriving in Tokyo on Thursday Mr. Levey reportedly gave officials there a list of persons and companies suspected of being linked to North Korea’s missile programs. The U.S. official also discussed with his hosts possible measures to block the flow of cash from ethnic Koreans in Japan to their homeland, a move Tokyo has said publicly it was considering.

In Singapore, at least one bank account has been linked to money sent by the Hyundai Group to North Korea before the 2000 inter-Korean summit between Kim Dae-jung of South Korea and Kim Jong-il. Ironically, Don Kirk, a reporter for the International Herald Tribune in Seoul, mentioned that account in an article he wrote shortly after the summit; Seoul reacted with fury and the matter lay dormant for some time. Prosecutors eventually announced in 2003 that $450 million had been sent to North Korea to induce Kim Jong-il to host the summit meeting.

As other nations study ways to step up pressure on North Korea, the Roh administration remains defiant in pursuing reconciliation. But even more important to North Korea than the South is China. Efforts to coordinate sanctions have centered on the North’s major ally and provider of food and energy; Beijing is seen internationally as having enough leverage to bring Pyongyang back to the six-nation nuclear negotiations.

But a senior Chinese general said Thursday there was little his government could do. Guo Boxiong, the vice chairman of China’s Central Military Commission, flatly told an audience at the National Defense University in Washington, D.C., that “China cannot possibly force the DPRK to do anything or not to do anything.”

Separately in Washington, the Bush administration is planning to implement the recent United Nations Security Council resolution on North Korean missiles and nuclear programs by enacting new legislation. Senator Sam Brownback, a Kansas Republican, told a news conference that a bill called the “North Korea Nonproliferation Act” is in the works. It would bar companies or individuals involved in North Korea’s mass weapons programs from doing any business with U.S. companies. The act is similar to legislation already in force, aimed at Iran in 2000 and then expanded to include Syria.

Defenses against missiles are also being given more attention. Washington and Tokyo are expected to sign an agreement on the operation of missile defense systems that includes commitments to more sharing of intelligence on North Korea. The Mainichi Shimbun, a Tokyo daily, added in an article yesterday that the agreement will allow Japan to receive U.S. satellite photos and data more quickly.

by Lee Chul-hee, Brian Lee

From the Associated Press (Via Korea Liberator)

Japan Won’t Rush Sanctions on North Korea
7/19/2006
Hiroko Tabuchi

Prime Minister Junichiro Koizumi said Wednesday Japan will not rush to impose more sanctions on North Korea, amid reports Tokyo may call for five-party talks on the sidelines of a regional security forum on the North’s nuclear ambitions.

Japan, meanwhile, plans to launch two spy satellites to monitor North Korean activity by the end of the year, a news report said.

Koizumi told reporters Wednesday Japan will wait for a further response from North Korea to a U.N. Security Council resolution and a Group of Eight summit statement condemning its missile test-launches.

“North Korea should take the resolution and the (G-8) chairman’s statement seriously. I think it’s better for us to wait and see,” Koizumi said.

He also urged Pyongyang to return to six-nation talks on its nuclear weapons program, which have stalled over the North’s anger at U.S. sanctions for alleged counterfeiting and money laundering activities.

Koizumi’s remarks seemed at odds with recent hardline remarks by Japan’s top government spokesman, as well as a report carried earlier Wednesday by Japan’s largest daily newspaper, the Yomiuri Shimbun.

Chief Cabinet Secretary Shinzo Abe suggested Tuesday that Tokyo had begun preparations to impose further economic sanctions on North Korea.

The Yomiuri said Wednesday Japan was considering banning cash remittances and freezing North Korean assets in Japan early next month. The newspaper did not say where it got the information.

Tokyo has so far imposed only limited sanctions — such as barring a North Korean trade ferry from Japanese ports — against North Korea in response to its missile tests.

A separate news report said Wednesday Japan has called for five-party talks, excluding Pyongyang, on the sidelines of the ASEAN Regional Forum next week to explore ways to resume stalled multilateral negotiations on the North’s nuclear ambitions.

It remained unclear whether the talks — potentially involving Japan, South Korea, Russia, China and the United States — would materialize, because Beijing hasn’t said whether it is willing to participate, Kyodo News agency reported. Kyodo did not say where it obtained the information.

Chun Young Woo, South Korea’s deputy foreign minister and chief South Korean delegate to the six-party talks, was slated to visit Japan for talks Thursday with Japanese counterpart Kenichiro Sasae.

Also Wednesday, Japan’s space agency, JAXA, said it would launch two more spy satellites using H-2A rockets, according to Kyodo. JAXA launched two spy satellites in March 2003 to monitor North Korea. JAXA officials couldn’t be reached for comment late Wednesday.

North Korea drew international condemnation this month after test firing seven missiles, including a long-range Taepodong-2 believed capable of reaching parts of the U.S.

On Saturday, the U.N. Security Council passed a resolution criticizing the missile tests and banning all U.N. member states from trading with Pyongyang in missile-related technology. The North has since rejected the resolution, warning of further repercussions.

An American activist group on North Korean human rights plans to build a settlement facility for North Korean defectors to the United States, a revamped version of one in South Korea, a U.S. broadcaster reported Saturday.

“‘Hanawon’ is not exactly the best resettlement program out there. So…we’re going to set up a version of that here in the United States to help facilitate these North Koreans to resettle here in the U.S.,” Adrian Hong, head of LiNK (Liberty in North Korea), said in an interview with Washington-based Radio Free Asia.

Hanawon, a facility set up near Seoul by the South Korean government in 1995, accommodates up to 100 North Korean refugees and provides housing and three months of training to help defectors adjust to life in capitalist South Korea.

Hong also revealed his group’s plan to increase the number of underground shelters his organization is running for North Korean defectors in China, North Korea’s neighboring country.

“We have 30 shelters in China…for North Korean refugees,” he said. “(We) decided to increase the size of the network by 50 percent, which means we are going to go up a lot.”

LiNK has been supplying the shelters with clothes, food and medical aid since December 2004, according to its officials.

From the Joong Ang Daily:

Experts say money squeeze on North is working

For 10 months, Washington has enforced a systematic plan to clamp down on cash going into North Korea. The measures are working, experts say.

Nam Sung-wook, a North Korea expert at Korea University, estimated yesterday that the recent measures have led to a 40 percent decline in North Korean leader Kim Jong-il’s income.

Since the 1980s, Kim Jong-il has regularly collected money from four sources: forged bank notes, arms sales, drug trafficking and money coming from ethnic Koreans living in Japan who acquire money by operating legal gambling casinos there.

Mr. Kim used the money to cement his hold on the North Korean elite, such as the military. Those in the right position received from the “Dear Leader” gifts ranging from German luxury cars to Japanese electronics.

However, since 2002, when the Bush administration started to tackle the issue with its North Korea Working Group, the situation changed and has squeezed the North. The U.S. group is composed of 14 government organizations, including the U.S. treasury department. Washington’s efforts against counterfeit money have yielded results: At the end of last year Irish national Sean Garland and six others were indicted for distributing North Korean-manufactured “supernotes.”

The North is believed to have produced annually $15 million to $25 million of forged money.

As a result of international pressure, one government official said it would be harder for the North to print new forged bank notes and circulate them.

The arms trade is also an important money maker for the North. However, since it sold 15 Scud-type missiles in December 2002 to Yemen, Pyongyang has not inked another arms deal. Sources said yesterday Pyongyang tried last year to sell missiles to African nations, but in light of Washington’s international call to prevent the transfer and sales of weapons of mass destruction, cautious African nations have distanced themselves from Pyongyang.

In the international arms market, Chinese-manufactured AK-47 assault rifles and other cheaper alternatives are being preferred over North Korean-made ones. The North’s drug trafficking is reportedly giving Pyongyang an annual income of $100 million. From 1998 to 2002 Japanese authorities seized 1,500 kilograms (3,300 pounds) of North Korea-manufactured philpone, a methamphetamine.

Nevertheless, a continued crackdown has narrowed the avenues of sales to organized crime groups such as the Japanese yakuza.

Money sent from the North Korea- backed Chongryon, the General Association of Korean Residents in Japan, amounted to 2 billion yen ($1.7 million) to 3 billion yen annually until 2002 with the money being shipped by a North Korean ferry.

However, since 2003, Tokyo has imposed regulations on the ferry, dropping the money flow to 1 billion yen per year. With the recent missile launch, Tokyo is now considering cutting off the money flow even more by strengthening the monitoring of insured postal parcels above a certain amount.

From the Joong Ang Daily:

The United States is blocking all possible ways of transferring money to North Korea. Along with a United Nations resolution, Washington is putting pressure on companies and banks of all countries that have business transactions with North Korea to cut the relations. Japan has blocked money transfers to North Korea, banned a North Korean ferry from entering its ports, frozen North Korea’s assets and banned companies from having transactions with North Korea.

The hardest blow on North Korea was China’s approval of the UN resolution. As the only ally to North Korea, China has provided it with more than half the food and energy the North needs. It is North Korea itself that has made China change its stance.

North Korea-China relations these days are the worst since in June 1995. Back then, North Korea’s leader Kim Jong-il released a statement in the Rodong Sinmun, or Newspaper of the Workers that China had betrayed the spirit of socialist revolution by introducing a market economy. Although the head of North Korea depends heavily on China for the survival of his country, he recently told an American delegate that China was unreliable.

From the Korea Times:

US Ties Macau Bank to Kim Jong-il

WASHINGTON (Yonhap) _ The U.S. government has figured out most of North Korea’s transactions in a Macau bank and believes they were mostly personal dealings involving Pyongyang’s leadership, a diplomatic source said Wednesday.

Washington has studied North Korea’s transaction records with the Banco Delta Asia, where about $24 million in cash was deposited by North Korea, but frozen by U.S. sanctions.

The bank in the Chinese territory froze about 40 North Korean accounts last year after it came to the brink of bankruptcy as U.S. banks stopped their transactions with it in response to Washington’s claim that Pyongyang was laundering its illicitly earned money there.

The U.S. found that the bank has produced handwritten transaction data regarding North Korea in addition to official computer records, the source said on condition of anonymity. The bank seemed to have used written records of the North Korean transactions as a way to hide them from official view, the source said.

Assuming the US does not impose tourist restrictions!

In August-October 2005, the DPRK permitted American tourists to enter the country to see the spectacular Arirang performance.  I saw this performance, and Kim Jong Il, and it is not to be missed.  From the DPRK perspective, the experiment must have been a success so it is being repeated again this summer.  If you are interested in going, and I recomend you do, there are several operators that can take you:

Koryo Tours has been running tours for a long time.  Based out of Beijing, but run by two great English chaps, Simon and Nick, Koryo has great access to the country.  I have personally seen them in action and marveled at how efficiently they handled the multiple requests of their customers.  Nick and Simon have worked on two documentaries in the DPRK, the Game of Their Lives and A State of Mind.  They are currently finishing up their third, Crossing the Line.

Today I got an email from Walter L. Keats at Asia Pacific Travel.  He tells me, “We are the only U.S. company to be directly authorized by the Korea International Travel Company (KITC) to bring American and other tourists to the DPRK during the Arirang period. You can see a copy of our letter of authorization on our website as well as a background sheet on our involvement with North Korea since 1995.”  (I am really surprised an American company could pull this off).

I have visited the DPRK twice with the Korean Friendship Association.  KFA trips are something else altogether.  The KFA is sponsored by a different DPRK ministry than the other tour companies and the agenda, aside from not being released until you are in Pyongyang, contains come political-ish activities that might make all but the hardiest of travellers blush.  And don’t expect to run for Congress when you get back home.  Still I had a great time and learned a lot.  The price is generally much cheaper, but more often than not, you will be staying in the isolated Sosan hotel.

If you visit the DPRK with any of these groups this summer, please let me know how it went and what you learned.  Don’t forget to tell them I sent you!

Joong Ang Daily
7/19/2007

The Bush administration is weighing the reinstatement of trade sanctions on North Korea that were lifted during the Clinton administration. A visiting U.S. Treasury Department official, Stuart Levey, described Washington’s policy direction to Korean government policymakers during a visit here from Sunday through Tuesday. Yesterday, a government official described those discussions to journalists, and the Treasury posted a cautious statement by Mr. Levey on its Web site.

The Treasury’s undersecretary for terrorism and financial intelligence had planned his visit before the July 5 North Korean missile tests, but the incident added urgency to the consultations. Giving no details of the content of the discussions, Mr. Levey said in his statement he and Korean officials had discussed issues including “the new United Nations Security Council resolution that requires all member states to prevent the transfer of any financial resources in relation to DPRK’s missile or WMD programs.”

Mr. Levey is also stopping in Tokyo, Hanoi and Singapore on his swing through Asia. Seoul was his first stop. The trip came at a time when Japan is planning its own sanctions, perhaps including a ban on cash remittances to the North.

A government official said yesterday that the undersecretary met with Vice Foreign Minister Yu Myung- hwan and officials from the Ministry of Finance and the Blue House. The official stressed that the meeting was not a consultation on policy toward the North. He said the topics included many international financial issues, but did not touch in any detail on Seoul’s participation in the Kaesong Industrial Complex and tourist trips to Mount Kumgang, both of which are revenue sources for North Korea.

Another official said Mr. Levey responded only with a nod to explanations of the purposes and justifications for those inter-Korean projects.

The Korean officials said the U.S. sanctions Mr. Levey mentioned had been lifted in 1999 by President Bill Clinton as U.S.-North Korea tensions eased. They included trade restrictions and licensing requirements and strict limits on the amount of money U.S. travelers to North Korea could spend there.

Update: from the Daily Comet (Its in Louisiana)

An Orange County pastor who wrote the best-selling book “The Purpose Driven Life” has delayed a planned visit to North Korea amid heightened tension with the U.S. over the country’s recent missile launches.

Rick Warren, pastor of Saddleback Valley Community Church, had planned to meet with North Korean officials Monday to arrange a future preaching trip, Warren’s spokesman A. Larry Ross said.

The trip has now been delayed, but may be rescheduled within the week, a statement from the church said.

The statement did not say whether the delay was due to the increased tensions between the U.S. and North Korea, which have flared since North Korea test fired seven missiles on July 4.

Warren was in Seoul, South Korea Sunday for meetings with church and government leaders and U.S. troops.

The proposed March 2007 preaching trip to North Korea would be to commemorate the 100th anniversary of a Christian revival in Pyongyang, now the country’s capital, and was to include a rally at a 15,000-seat stadium.

A 2002 U.S. State Department report estimated the country of 23 million has some 10,000 Protestants and 4,000 Catholics.

The U.S. does not maintain diplomatic relations with North Korea, though it has participated in negotiations over ending the country’s nuclear program.

Original Post: 7/8/2006

This is too bizarre to be fiction.  From World Net Daily (Which I do not read, BTW):

‘Purpose-Driven’ pastor to preach in N. Korea
Warren planning 1st evangelical stadium crusade in 60 years inside communist

Rick Warren may be put to a tough test next year when the Southern California preacher holds the first evangelical stadium crusade in 60 years in North Korea.

Warren, who is on a 40-day, 13-nation tour, will visit Kaesong on July 17 to plan for the March 2007 crusade after being invited by a group of North Korean businessmen who visited him at his Saddleback Church’s Lake Forest office last month.

“I will be the first preacher in 60 years to speak publicly in North Korea,” Warren told the Orange County Register. “I’m honored.”

He said the North Korean government would allow him to preach in a stadium seating 15,000 but a larger venue would be provided if he could fill the seats.

Because there are no diplomatic relations between the two countries, the businessmen, who say they met with Warren and extended the invitation to preach with approval of the North Korean government, are facilitating his visit next week.

“We are ready to go on our end. We’re just waiting for information back on approval and access,” Anne Krumm, a spokeswoman for the church, said.

North Korea’s missile tests have cast uncertainty on whether Warren, who is presently in Indonesia, can enter North Korea as planned.

“They’re trying to figure out how they can get in and how to do that,” she said.

Warren compares his opportunity to preach in the communist state to Rev. Billy Graham’s visit to the then-Soviet Union, saying he hopes to be able to promote religious freedom where it has been severely restricted since 1945.

“When you go in they have to loosen up on religious freedoms,” Warren said. “They have to just by your presence. It’s like Mandela going into a country. Automatically people start loosening up.”

Suzanne Scholte, chairman of the North Korea Freedom Coalition isn’t so sure.

“To go in there and believe that you could actually preach freely is an illusion. It won’t do anything to help the church. It will only put the true church at risk, and it will be used as a propaganda piece by the Kim Jong Il regime.”

Warren said he is aware that some might misinterpret his visit as an endorsement of the North Korean regime.

“When Billy Graham went to the Soviet Union, there was a lot of criticism of: ‘Well, they’re using you.’ And he said: ‘Well, yeah, they’re using me, but I’m using them too.’,” Warren said.

Graham was criticized following his 1982 visit to Moscow for letting himself be used by the communists when he said he had seen no evidence of religious persecution by the Soviet government and observed that religious freedom was somewhat greater among the people than he had anticipated.

When preaching at the Yelohovski Russian Orthodox Cathedral, Graham exhorted his audience to be better members of the communist state: “God can make you love people you normally would not love. He gives you the power to be a better worker, a more loyal citizen because in Romans 13 we are told to obey the authorities.”

Since 2001, North Korea has been designated a “country of particular concern” for violations of religious freedom. Its citizens may not belong to unauthorized religious groups, and believers who proselytize or have ties to evangelical groups in China are arrested, tortured or executed, a 2005 State Department report said.

Given North Korea’s history of persecution, Scholte’s fear is that the government will use the crusade to identify Christian believers who will be “rounded up and sent to a political prison camp” once Warren leaves the country.

Addendum from the Korea Times:

According to Warren’s own account posted on his Web site, a delegation of South Korean businessmen visited him at Saddleback Church in late June and invited him to speak at the public outdoor Christian service to be held in the North Korean capital in March next year marking the 100th anniversary of the Pyongyang Revival in 1907. The South Koreans had obtained permission for the service, which will be the first of its kind in 60 years as the dictatorial North Korean regime virtually bans any religious activities in public.

“My hope is that these visits will promote religious freedom in a country where the practice of individual faith has been tightly controlled and virtually prohibited since 1945,” he wrote.

The 2005 winners of the Nobel Prize in Economics were selected for “having enhanced our understanding of conflict and cooperation through game-theory analysis”.  I would check out thier work in order to make sense of the current DPRK/ROK diplomatic posturing.

From the Washington Post:

South Korea on Thursday suspended humanitarian aid to North Korea until it agrees to return to international nuclear disarmament talks.

The action infuriated visiting North Korean officials, who immediately cut off high-level talks in South Korea and stormed back home.

The decision to postpone consideration of a North Korean request for 500,000 tons of rice marked the South’s first punitive action against its impoverished communist neighbor since it defied the international community and test fired seven missiles, including a long-range Taepodong-2, on July 4.

The move came as the administration of South Korean President Roh Moo Hyun has come under sharp public criticism at home for what many there viewed as a weak response by Seoul to the North’s missile tests.

South Korea on Thursday reiterated its deep opposition to a push by Japan and the United States to impose broader sanctions on North Korea through a draft resolution at the United Nation’s Security Council. Seoul has also vowed to maintain its “sunshine policy” of engagement, which has fostered the warmest ties between the Stalinist North and capitalist South since the Korean War divided them in two more than half a century ago.

But the decision to follow through with a previous threat to suspend food aid if North Korea tested missiles — a threat many experts doubted the South Koreans would stick to — displayed a new willingness by the South to use its significant economic clout to apply pressure on the North.

The North Koreans — for whom economic assistance by South Korea is topped only by China — appeared jolted by the decision. At talks being held in the South Korean city of Pusan that were originally scheduled to end Friday, Pyongyang’s delegation abruptly departed Thursday afternoon.

South Korea’s Yonhap news service reported that the North Korean officials left after circulating a statement calling the rupture the result of “reckless” attempts by South Korea to raise “irrelevant issues.” Those issues, South Korean officials said, were the recent missile tests and the North’s refusal to return to six-party talks on its nuclear programs.

The North bitterly condemned Seoul’s decision to suspend food aid, saying “the South side will pay a price before the nation for causing the collapse of the ministerial talks and bringing a collapse of North-South relations.”

South Korean officials, who in recent years have rolled out the red carpet for their visiting North Korean kin, this time offered them a simple meal and welcome bereft of customary sightseeing excursions and photo opportunities. When the North’s representatives understood they would not be returning with promises for more food aid, they simply left.

“The North Korean side expressed their position that additional negotiations would be unnecessary under the circumstance that additional humanitarian aid they need would be impossible,” Lee Kwan Se, a South Korean Unification Ministry official, told reporters.

For the United States and Japan, both pushing for a strong draft resolution at the United Nations that would ban international trade of North Korean missile and other military technology, the South Korean action was a rare diplomatic bright spot.

Christopher Hill, Washington’s top envoy on North Korea, left Beijing for Washington on Thursday after it became clear that Chinese efforts to persuade the Pyongyang government to come back to the six-party talks had apparently failed.

Before leaving, Hill said there was no indication that the North Koreans had changed their position to boycott the talks, which have been stalled since last November.

Japan, which has been deeply rattled by the North’s missile tests, vowed to continue pushing for a tough resolution that would impose sanctions on the North Koreas. But China and Russia back their alterative U.N. resolution unveiled on Wednesday. That draft would censure North Korea for its missile tests, but would endorse only voluntary measures aimed at restraining Pyongyang’s ballistic missile and nuclear weapons programs.

“The Chinese are as baffled as we are,” Hill told reporters in Beijing before departing. “China has done so much for that country and that country seems intent on taking all of China’s generosity and then giving nothing back.”

By Anthony Faiola
Washington Post Foreign Service