Archive for the ‘State Fiscal and Financial Committee’ Category

DPRK replaces 5,000 won note

Monday, August 18th, 2014

UPDATE 3 (2014-9-2): Simon Cockerell has posted a photo of the new note to his instagram account. You Can see it here.

UPDATE 2 (2014-8-18): According to the Daily NK:

Daily NK has learned that the recent 5000 KPW note exchange has prompted an overall apathetic response from residents in North Korea. As Daily NK first reported here on July 31st the North Korean authorities informed residents that the largest denomination monetary unit would be replaced with a new bill.

US Dollars and Chinese Yuan being the currencies of choice in the markets, the recent collection and exchange of the highest denomination bill “doesn’t really affect people’s lives.”

A source in the capital reported to Daily NK on August 14, “A new [5000 KPW] note has been issued, but the exchange of old to new notes hasn’t made much headway.” This is hardly a nuisance to most residents, who are used to adapting, she went on to explain. “People are fairly indifferent about the new 5000 bill, and anyone who expresses concern about it is considered to be a fool by others.”

Production of the new 5000 KPW notes began last year; at the end of July 2014, the Chosun Central Bank announced that residents would have until 2017 to exchange the old bills. “At first, residents didn’t know what the exchange rate would be when they converted to the new bills, so a bit of chaos ensued; once they found out it was a 1:1 exchange rate, things have been pretty quiet of late,” she explained. “The number of residents holding 5000 KPW notes is pretty low so there isn’t an atmosphere of concern surrounding the matter.” The source did add that it cannot be verified at this time if those in rural or farming areas are equally as impervious to the matter.

The source cited two chief factors underpinning this resident indifference: trust in the authorities continues to decline, as does the value of North Korean currency.

The 5000 KPW bill is the largest denomination of bill in North Korean currency, but when compared with foreign currencies like Chinese Yuan or US Dollars, its value is dismal, considered by most to be “wastepaper.” By current exchange rates, 1 USD is equal to 8000 KPW; in other words, the largest note in North Korea [5000 KPW] is less than 1 USD or equal to approximately 5 RMB.

Moreover, at current market prices, 5,000 KPW [6000 KPW per kilo] is insufficient for people to purchase a kilo of rice or a dozen eggs [5000 KPW yields six eggs at present]. “Even when people buy a block of tofu [700 KPW], they use dollars,” the source explained. “Because merchants only do business in US Dollars of Chinese Yuan, people save all their money in these currencies.”

Citing the 2009 currency reforms, she explained the shift in public sentiment on the KPW, “People won’t suffer any losses even if there are 10 more currency reforms. Even those in poorer, rural areas regard North Korean currency as something for ‘use by the state’ and keep their assets in rice and other goods. ”

This shift in attitude of North Korean currency as “means of exchange” to “means of savings” occurred during and after the Arduous March in the 1990s [the North Korean famine if 1994-1998]. After ceasing distribution of regular food rations, starvation quickly became rife. In order to minimize dependency on a broken state system, people sought to build assets by saving as much KPW as possible.

Tragically, those savings were reduced to worthless scraps of paper during the currency reforms in 2009.The goal of the currency redenomination of November 30, 2009 was officially to bring inflation under control and eliminate monetary overhang, but the result of the 100:1 redenomination was catastrophic. This led to a complete transformation in resident commercial activity. The North Korean residents lost complete faith in state-issued banknotes and adopted foreign currencies, namely Chinese Yuan and US Dollars, as the preferred legal tender for business transactions.

“Because KPW is ‘not even worth counting’, there are more and more people who don’t care about the new 5,000 won bill,” she went on. “Instead of curiosity or trepidation as to the motivations behind the exchange, people just feel reassured by holding onto foreign currency.”

Once the privilege of traders and Party officials working abroad, accessibility to these foreign currencies has trickled down to market vendors and young students. Daily NK has recently learned that markets in all major cities in the North even provide small change back to customers in US Dollars and Chinese Renminbi.

Read the full story here:
Residents Indifferent to 5000 KPW Swap
Daily NK
Seol Song Ah
2014-8-18

UPDATE 1 (2014-8-12): Chris Green has more at NK News here.

ORIGINAL POST (2014-8-11): According to the Choson Ilbo:

North Korea’s new 5,000 banknotes no longer feature a picture of nation founder and demigod Kim Il-sung. But the new note shows Kim’s childhood home in Mangyongdae.

The new bills feature the house prominently on the front and on the back a museum in Pyongyang that displays gifts Kim and his son Jong-il received from foreign leaders*.

During a botched currency reform in 2009, Kim Il-sung was also dropped from the 2,000 and 1,000 won bills.

The 5,000 won note is North Korea’s largest denomination and nominally worth around US$50, though its actual market value is nearer $1. Workers in the North Korean state economy are paid some W3,000 a month on average, making it vital for most to seek other forms of income.

A North Korean source said when the new notes were officially announced on July 25, they sparked fears of yet another misguided currency reform, triggering a certain amount of chaos as food prices surged temporarily and some people began stockpiling food.

* Presumably the Choson Ilbo is referring to the International Friendship Exhibition at Myohyangsan. This is not in Pyongyang (Though it used to be!).

Read the full story here:
N.Korea Drops Kim Il-sung from New Banknotes
Choson Ilbo
2014-8-11

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Babson on post-Jang economic management

Monday, February 24th, 2014

Writing in 38 North, Bradley Babson comments on the effect Jang Song-thaek purge will have on North Korea’s economic management moving forward:

With Jang’s demise there is now a potential opportunity to make fundamental changes in the North Korean economic management and financial systems. Removing his influence over major foreign exchange earning enterprises operating outside any institutionalized supervision means that some other mechanisms must be put in place to manage these important national resources. Whether this will lead to a more rational system of cabinet-managed financial institutions serving an economic development strategy endorsed by Kim Jong Un is a basic question. Early indications are that the cabinet will be empowered to exercise more centralized control over the economy,[2] but how far this will extend into the fragmented financial system remains to be seen.

One indicator of possible significant change is whether the KPA will regain its former economic independence or become more closely integrated with national economic and financial management. This is important for improving efficiency in allocation of resources for economic development and having more control in balancing security expenditures with investments in the general economy.

Another indicator will be whether the existing system that provides funds for sustaining luxury goods patronage for the Pyongyang elite and for showcase projects like equipping the new Masik Pass ski resort, will be handed over to new more loyal technocrats to manage. Or will the Cabinet be given more latitude to shape the future political economy and distribution of wealth, given the reality that access to market power is becoming more valuable for the Pyongyang elite than receiving patronage? This would be a major change that could lead to new incentives for more rational economic management. Acknowledgment that markets are here to stay would open the possibility of addressing the need to build new financial institutional capabilities required for mobilizing and regulating private savings and economic activity. This would also help focus attention on ways to improve macroeconomic management of the mixed state-directed and market economy system.

Read the full story here:
The Demise of Jang Song Thaek and the Future of North Korea’s Financial System
38 North
Bradley Babson
2014-2-24

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DPRK Money laundering in Guangdong

Wednesday, June 5th, 2013

According to to the Joongang Ilbo:

It was the end of March, about 20 days after the United Nations Security Council adopted resolution No. 2094 punishing North Korea for its third nuclear weapons test with new sanctions. At a newly built, modern-style train station in this southeastern Chinese city bordering Macau, three North Koreans in black suits with badges bearing the portrait of former leader Kim Jong-il appeared in the early evening. From the station they carried a large and obviously heavy gunny sack to a sedan parked about 30 meters (0.18 miles) away. They all got in and pulled away.

Two hours later, the sedan arrived at a high-rise building in Menggang district, Guangdong Province. Inside was an office of a private loan shark.

They entered the office on the seventh floor. One of the visitors, a middle-aged North Korean who spoke fluent Cantonese, greeted a Chinese man whom he called “Russelle.”

The North Korean dragged the sack to Russelle and opened it. Inside were bundles of U.S. banknotes. Russelle handed them to his underling and ordered him to count them with a banknote-counting machine.

After the total was confirmed, the North Korean withdrew a piece of paper with bank account numbers written on it. As in a thriller movie, Russelle began electronic banking transactions on a computer. He divvied up the total amount of cash among the accounts, sending set amounts to each. The total amount transferred: $2 million.

For helping in the money-laundering, Russelle was to receive 15 percent of the $2 million. In more urgent situations, his commission rises to 30 percent.

Several sources familiar with loan sharks in Guangzhou described these scenes to the JoongAng Sunday. The North Koreans were allegedly officials working for the Kwangson Banking Group, an affiliate of North Korea’s state-run Foreign Trade Bank, the country’s primary foreign exchange bank. The North Korean who led the shady business with Russelle was Kim Kwi-chol, head of the Kwangson branch in Zhuhai.

North Korea has, sources say, conducted illicit activities like money-laundering through Kwangson’s branches in Zhuhai and Dandong, and it is playing a role for Pyongyang similar to that of Macau’s Banco Delta Asia’s after 2005, when sanctions brought its business to a halt.

According to “Recent Financial Activities of North Korea,” a report by Kim Gwang-jin, a defector-turned-researcher at the Institute for National Security Strategy under the National Intelligence Service, Kwangson Bank is in charge of slush funds used by North Korean leader Kim Jong-un, money-laundering and remittances from banks sanctioned by the U.S. or UN Security Council.

The U.S. Treasury Department froze U.S. assets of the Kwangson Banking Corporation and prohibited U.S. citizens from doing business with the group in August 2009, accusing it of aiding the proliferation of weapons of mass destruction. Last March, it said the Foreign Trade Bank was covered by executive order No. 13382, freezing all of its U.S. assets and prohibiting U.S. financial institutions from doing business with it. In May, the Bank of China said it would stop all dealings with it.

But an expert in international finance told the JoongAng Sunday in April, “The sanctions taken by the U.S. Treasury Department against North Korea has no effect in regard to the Foreign Trade Bank.”

The head of the Zhuhai branch of Kwangson, Kim Kwi-chol, was allegedy born in Hoeyang, Kangwon Province in the North, on Nov. 19, 1955. In April 1984, he started work at the Foreign Trade Bank of North Korea and worked in a branch of the bank in China in the late 1990s, and in Libya during the mid-2000s. He moved to the branch in Zhuhai on April 13, 2003.

Sources said Kim is in charge of delivering slush funds to Kim Jong-un and other members of his elite inner circle. He’s also in charge of some large-scale money-laundering, taking advantage of Zhuhai bordering Macau. He is fluent in Cantonese and Mandarin with working experience in China for more than 10 years as a financial expert. He is allegedly living with his wife Pak Yong-hui, 57, in Zhuhai.

“He is a person who is always vigilant,” researcher Kim said.

An official investigating North Korea’s businesses in Zhuhai said, “We have recently confirmed that there are five workers and Kim Kwi-chol in the branch [in Zhuhai]. The amount of money the branch is dealing with is about $3 billion won a year, which is a bit less than that of the branch in Dandong in Liaoning Province.”

“Since Banco Delta Asia was frozen in 2005, North Korea’s funds are going through Guangzhou, Shenzhen and Zhuhai,” an official in Macau said on the condition of anonymity.

On April 30, a JoongAng Sunday reporter visited a residential complex in Zhuhai, where several sources alleged the Kwangson Banking Group’s Zhuhai branch was located. The complex was composed of three separate apartment buildings with a front gate that required a security code for entrance. The JoongAng Sunday reporter sneaked into the complex when some residents punched in their codes.

However, when the reporter reached the office of Kwangson, there was no sign on its door. Although the reporter pressed the doorbell, no one answered. A security guard at the building said: “I have not heard of Kwangson Banking Group.”

Sources said the office kept as low a profile as possible. A resident of the complex who has seen the office said, “It’s not that large with several workers at the desks looking at financial terminals. The atmosphere was bleak.”

“Recently, the Hong Kong financial authorities launched a probe into Kwangson bank’s branch in Zhuhai, on suspicion of starting a shell company in Hong Kong under a fake name and working on money-laundering,” an official at a corporate intelligence service in Hong Kong said.

The official said the company was registered to a woman who doesn’t live in Hong Kong but in mainland China. Starting several years ago, more than $100 billion has been remitted to her accounts, raising suspicions she could be connected to the Kwansgon branch in Zhuhai.

A similar front company, Leader (Hong Kong) International Trading Company, was sanctioned by the U.S. Treasury Department in January.

“Since the incident with Banco Delta Asia, most North Koreans staying in Macau left due to tightened supervision of money-laundering,” a source said. “However, they still had to keep in touch with their clients and partners in Macau, so they chose Zhuhai, bordering Macau, as an alternative.”

Currently, North Korea’s two major state-run banks are its Central Bank and the Foreign Trade Bank. The Foreign Trade Bank is in charge of foreign currency.

Although the Kwangson Banking Group officially belongs to the Foreign Trade Bank, in fact, it is a special organization that deals with foreign currency that is dubbed the “revolution fund.” The bank’s other name is Bureau 711.

“Kwangson Banking Group is a special financial organization in charge of slush funds of the Kim family under the direct control of Kim Kyung-hui, younger sister of the late leader Kim Jong-il,” Kim Gwang-jin said. “The group’s branch in Dandong was founded in September 2002 and another one in Macau was moved to Zhuhai after the problems with Banco Delta Asia starting in 2005.”

“After Banco Delta Asia, the foreign currency business of normal North Korean banks was paralyzed, but the Kwangson Banking Group has led the money-laundering business with the full support of the North Korean elite.”

Kim said there are three financial experts specializing in foreign currency in North Korea – Ri Tong-rim, president of the Kwangson Banking Group, Kim Kwi-chol, head of the Zhuhai branch and Ri Il-su, head of the Dandong branch.

Ri, the 57-year-old executive, was born in Songgan County, Chagang Province. He started as a manager at the Foreign Trade Bank in 1980 and became president of the 711 Bureau, the Kwangson bank, in 2004.

“When the Soviet Union collapsed, he collaborated with the Russian mafias and successfully withdrew $4.5 million from a bank in the USSR,” Kim said.

Ri Il-su, head of the bank’s Dandong branch, is assumed to be in his mid-50s. He was a vice president of the Foreign Trade Bank’s branch in Zhuhai and vice president of the 711 Bureau in the mid-1990s.

In June 2006, he signed an agreement with the China Construction Bank’s branch in Dandong over founding a joint bank in a border region between China and North Korea. The joint bank is in charge of foreign currency in three provinces in northeastern China.

“Under the agreement, if the Dandong branch remits money to a local bank in the three provinces first, then the Chinese bank resends the money to another bank in China or a third country for money-laundering,” Kim said. “Although the Bank of China or other major banks ban North Koreans opening accounts, other small-scale banks allow it.”

The Kwangson bank reportedly has a branch in Shenzhen, southern China, but its head is unknown.

“In the financial sector in Hong Kong, it’s said that Kwangson bank’s Zhuhai branch is earning big profits through gold investment, stock transactions and foreign exchange,” an official at a croporate intelligence service in Hong Kong, said. “A rumor says that when North Korea shelled the South Korean island of Yeonpyeong in November 2010, the branch bought a bunch of stocks of South Korean companies whose prices drastically dropped because of the shelling and made huge profits.”

“It is really urgent to stop the illicit activities of these North Koreans in China,” a South Korean government official said. “It is actually impossible to impose effective sanctions against North Korea without the full help of the Chinese government.”

Read the full story here:
North money laundering done in Guangdong
Joongang Ilbo
Ahn Sung-kyoo
2013-6-5

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Chinese Banks cut ties with DPRK Foreign Trade Bank

Tuesday, May 7th, 2013

UPDATE 3 (2013-5-23): More news coming out on aid agencies that are facing new challenges in making payment transfers. According to the Associated Press:

Gerhard Uhrmacher, program manager for German humanitarian aid organization Welthungerhilfe, said when recent bank transfers failed, he managed to keep projects running by routing 500,000 euros ($643,000) to Chinese or North Korean accounts in China to pay for building supplies and other goods.

He said Welthungerhilfe, which signed the communique and works on agriculture and rural development projects in North Korea, has some reserves in Pyongyang but must also resort to carrying cash into the country by hand.

“It doesn’t give a good impression. We’re trying to be transparent, to be open to all sides and now we’re more or less forced to do something that doesn’t really look very proper because people who carry a lot of cash are somehow suspect,” said Uhrmacher who is based in Germany and has worked in North Korea for the past 10 years.

“Whatever you’re doing, everybody looks at you very closely,” he said. “That’s why we don’t like it because bank accounts are proper. Everybody can have a look at it and everybody can control it. Now we are forced to do something else.”

Some analysts said aid groups were simply “collateral damage” and that they will find a way to work around the sanctions as they have been forced to do in other countries. Others said the poorest North Koreas would be hurt if some humanitarian groups have to pull out of the country. The aid groups work on a range of issues from food security to improving health and assisting with disabilities.

UPDATE 2 (2013-5-23): Many NGOs are now unable to transfer funds to the DPRK. According to Reuters:

Aid agencies helping millions of people in North Korea could be forced to pull out after a Chinese bank cut ties with main foreign exchange bank, a humanitarian group said on Wednesday.

Some aid workers are now resorting to bringing in cash in person, putting them at personal risk. It is thought some agencies have only enough reserves to last a couple of months.

“All agencies with offices in Pyongyang are affected and everyone is extremely concerned,” Mathias Mogge, director of programmes for German aid group Welthungerhilfe, told the Thomson Reuters Foundation.

“This could eventually reduce our ability to carry out projects or even force a complete close down. If all the agencies had to pull out, it would affect millions of people,” said Mogge, who has just returned from the secretive country.

See here also.

UPDATE 1 (2013-5-10): Additional Chinese banks are cutting ties with the DPRK. According to the Asahi Shimbun:

China’s four largest state-owned commercial banks have suspended money transfers to North Korea as part of sanctions against Pyongyang’s missile launch and nuclear test.

The action was based on a direct instruction from a government agency, sources close to the banks said.

The Bank of China, the Industrial and Commercial Bank of China, the China Construction Bank and the Agricultural Bank of China took the step following North Korea’s third nuclear test in February, the sources said.

“North Korea came under sanctions over issues including the launch of ballistic missiles,” said a senior official at a branch of the China Construction Bank.

A source close to the Bank of China, which trades heavily in foreign currency, said the bank received instructions from a government agency that manages foreign currency trade.

A Chinese trading company in Dandong, a city in Liaoning province bordering North Korea, has been unable to transfer money to North Korea, a source close to the company said.

North Korean workers in China are also believed to be having difficulties sending money home.

However, the effectiveness of these financial sanctions remains to be seen since the amount of money North Korea’s Foreign Trade Bank has handled is unknown.

Much of the trade between China and North Korea is settled in cash or barter, a diplomatic source in Beijing explained.

An official at a Chinese trading company also said money can be brought into North Korea by human couriers.

The Financial Times offers additional information:

Nevertheless, the blockade is far from watertight. A smaller bank based in northeastern China across the border from North Korea said it was still handling large-scale cross-border transfers, an indication that Beijing is not willing to entirely cut off North Korea.

Here is additional coverage in the Hankyoreh.

ORIGINAL POST (2013-5-7): According to the New York Times, the Bank of China has cut ties with the DPRK’s Foreign Trade Bank:

The state-controlled Bank of China said on Tuesday that it had ended all dealings with a key North Korean bank in what appeared to be the strongest public Chinese response yet to North Korea’s willingness to brush aside warnings from Beijing and push ahead with its nuclear and ballistic missile programs.

Ruan Zongze, a former Chinese diplomat in Washington who is now a vice president of the China Institute of International Studies in Beijing, said the Chinese government was responding to a recent United Nations resolution imposing further sanctions on North Korea after its nuclear and ballistic missile tests and was not responding to American pressure. He noted that the Chinese government had recently encouraged state-controlled enterprises to follow the resolution in their dealings with North Korea.

In a single-sentence statement on Tuesday afternoon, the Bank of China said it has “already issued a bank account closing notice to North Korea’s Foreign Trade Bank, and has ceased accepting funds transfer business related to this bank account.”

A spokeswoman for the bank declined to say whether money in the account would be frozen or returned to North Korea. The spokeswoman, who insisted that her name not be used in keeping with bank policy, said the account had been closed by the end of April.

The Bank of China was the overseas banking arm of China’s central bank until the 1980s and is still majority-owned by the Chinese government, playing an important role in diplomatic and financial policy.

Mr. Cai said that the move by the Bank of China appeared to be “predominantly symbolic,” but later added, “It could have practical consequences, because North Korea is already under such heavy international sanctions, and China is such an important economic channel for it.

“If China narrows the door to North Korea, then its economic operations or financial flows could be affected,” he said. “But primarily this appears to be a way of China showing its views about their behavior, so that North Korea is more likely to rethink its actions.”

Here is additional coverage in the Washington Post.

Here is additional coverage in the Los Angeles Times.

Here is additional coverage in the Wall Street Journal.

Here is additional coverage in the Hankyoreh.

Read the full stories here:
China Cuts Ties With Key North Korean Bank
New York Times
Keith Bradsher and Nick Cumming-Bruce
2013-5-7

4 major Chinese banks halt money transfers to North Korea
Asahi Shimbun
2013-5-10

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US imposes new sanctions on DPRK

Monday, March 11th, 2013

These new sanctions are in response to the DPRK’s third nuclear test. Here is a link to information on UNSC resolution 2094, which the UNSC passed in response to the same test.

Here is the full statement by the Treasury Department:

___________________

Treasury Sanctions Bank and Official Linked to North Korean Weapons of Mass Destruction Programs 3/11/2013

​WASHINGTON – To impede North Korea’s ballistic missile and weapons of mass destruction (WMD) programs, the U.S. Department of the Treasury today designated the Foreign Trade Bank (FTB), North Korea’s primary foreign exchange bank, pursuant to Executive Order (E.O.) 13382, which targets proliferators of weapons of mass destruction (WMD) and their supporters. Treasury is also designating Paek Se-Bong, the chairman of North Korea’s Second Economic Committee (SEC) under E.O. 13882.

North Korea’s nuclear and missile proliferation activities violate the UN Security Council regime, comprised of resolutions 1718 (2006), 1874 (2009), 2087 (2013), and 2094 (2013), destabilize the region, and undermine the global nonproliferation regime. The international community has condemned North Korea’s WMD proliferation activity, most recently in last week’s UN Security Council Resolution 2094. Today’s designations of FTB and a senior member of the North Korean government linked to the DPRK missile program, follow actions taken March 7, 2013 by the Treasury Department against China-based representatives of the Korea Mining Development Corporation (KOMID) and Tanchon Commercial Bank (TCB).

“North Korea uses FTB to facilitate transactions on behalf of actors linked to its proliferation network, which is under increasing pressure from recent international sanctions. The United States will take strong measures to protect its financial system from this type of illicit activity, and we urge financial institutions around the world to be particularly wary of the risks of doing business with FTB,” said Under Secretary for Terrorism and Financial Intelligence David S. Cohen.

The U.S. Department of State is today also designating Pak To-Chun, Chu Kyu-Chang, and O Kuk-Ryol. To view the release, click here.

By designating FTB, the Treasury Department is targeting a key financial node in North Korea’s WMD apparatus, and cutting it off from the U.S. financial system. FTB is a state-owned bank established in 1959. FTB acts as North Korea’s primary foreign exchange bank and has provided key financial support to the Korea Kwangson Banking Corporation (KKBC). KKBC was designated under E.O. 13382 in August 2009 for providing financial services in support of the previously designated entities TCB and the Korea Hyoksin Trading Corporation (Hyoksin). Hyoksin used its connections to KKBC to purchase dual-use equipment in 2008.

FTB has also facilitated millions of dollars in transactions that have benefited KOMID—North Korea’s premier arms dealer—and its financial arm, TCB. North Korea’s Second Economic Committee oversees the production of North Korea’s ballistic missiles and directs the activities of KOMID. TCB, KOMID and Hyoskin were designated by the UNSCR 1718 Committee in April 2009.

Paek Se-Bong is the chairman of the SEC. The SEC, which oversees the production of North Korea’s ballistic missiles and directs the activities of KOMID, was previously designated by the U.S. State Department in August 2010. Paek Se Bong is also an alternate member of the Central Committee of North Korea’s Workers Party and a member North Korea’s National Defense Commission.

This designation generally prohibits transactions between the designees and any U.S. person, and freezes any assets they may have under U.S. jurisdiction.

Identifying information:

Name: Foreign Trade Bank of the Democratic People’s Republic of Korea
AKA: North Korea’s Foreign Trade Bank
Location: FTB Building, Jungsong-dong, Central District, Pyongyang, North Korea
SWIFT/BIC: FTBD KP PY

Name: Paek Se-Bong
AKA: Paek Se Pong
DOB: 21 March 1938
Title: Chairman, Second Economic Committee

ADDITIONAL INFORMATION
1. Here is a summary in the Daily NK.

2. Here is the Treasury Departments DPRK Resource Center Page.

3. Here is the State Department press release which includes additional sanctioned individuals.

4. Here is coverage in the Hankyoreh.

5. Stephan Haggard on the sanctions.

6. The EU also imposed sanctions. The US wants them expanded to cover the DPRK’s Foreign Trade Bank.

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Insurance in the DPRK

Thursday, July 12th, 2012

Jakub Rehor and Geoffrey See of Choson Exchange post interesting information on insurance in the DPRK:

According to the Choson Exchange:

In the planned, state-controlled economy of North Korea, familiar concepts (including insurance) acquire a very different meaning. In a market economy, insurance coverage indemnifies individuals or corporations for losses suffered due to natural disasters, accidents, sickness, or death. In North Korea, what is called “insurance” functions as a fundraiser for certain entities in the government.

There are two kinds of insurance products in North Korea, individual and enterprise insurance. Both are compulsory and are administered by KNIC (Korea National Insurance Corporation). Compulsory individual insurance is deducted automatically from salaries, and is used to fund the state-run healthcare system. Individuals cannot file claims under this insurance; all payments go into the healthcare system to cover its costs and to other state-directed uses. This individual insurance program was originally administered by Korea Central Bank, but parts of it were moved to KNIC where it formed a new department.

Individuals do not have the option of buying property or life insurance in DPRK. Only state-owned enterprises can use property insurance. Compulsory enterprise insurance covers property losses from all major perils (there is exclusion for war). There are no separate policies or riders for windstorm, earthquake, flooding, etc. Instead, policies specify coverage by type of property (animal insurance, machinery insurance, etc.)

Pricing is set without regard to individual risks and loss history. Rather, insurance operates on a pooled basis, with the goal of roughly matching premiums with claims and administration costs. There are no reserves and the state absorbs any losses or profits. As a result, KNIC has no incentive to care about profitability or correct pricing (and, presumably, service) for local insurance operations priced in North Korean won.

There is no independent regulatory authority in DPRK overseeing KNIC’s activities. In theory, the Central Bank and Finance Ministry should be involved, but in reality they don’t have the expertise or political backing. The only oversight of KNIC comes from the party which provides mainly political supervision.

Given the pooled nature of the compulsory policies and lack of risk-based pricing, KNIC acts mainly as an administrator, collecting premiums and disbursing payments. In this position it functions as a revenue generator for the government via two channels:

1. It fails to pay market replacement value of losses. Claims are settled at official government prices which do not reflect market reality.

2. It has been alleged that KNIC has been involved in reinsurance fraud. Media reports claim that European reinsurers write policies for KNIC which then submits false claims, or retains a portion of the claim settlement payments rather than passing it on to the insured.

The existing insurance arrangements in DPRK are clearly inadequate for the needs of foreign joint ventures operating in the Special Economic Zones. If North Korea hopes to attract foreign investment, it needs to modernize its insurance system to bring it into line with expectations of outside investors.

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Koryo Bank unveils new debit card

Wednesday, October 12th, 2011

Dr. Bernhard Seliger of the Hanns Seidel Foundation writes in to notify us about the DPRK’s new Koryo Bank (고려은행) debit card.

Click image above to see the front and back of the card.

There is an information flyer available in the DPRK:

According to the translator this is what it says:

Electronic Paying Card (Debit Card)

1. Introduction
* Electronic Paying Card is a cash card with which cardholders can make a payment when buying a merchandise or receiving a service instead of money. We provide the very best customer service, convenience and security.
* Cardholders (including foreign cardholders) can freely make a payment in foreign currency at electronic paying card affiliates.

2. Instruction
*Issuing a card and making a deposit: Card is issued at Koryo card issuing branches. Foreign currency is converted into equivalent North Korean won at a current exchange rate (purchasing price) when cardholders or to-be make a deposit. Issuing a new card is free of charge. Issuing a card, cardholders should register a private password to prevent use of a third party. Using the card cardholders should remember the password to verify identity.

*Procedure of the payment: Card holders are allowed to purchase goods and services within the available balance of the account. Card payment machine verifies identity by crosschecking with the password you enter. If the information is confirmed to be correct upon identification, merchants or acquirers proceed to make the payment. After purchasing, the balance is diminished by the payment.

*Cash Withdrawal: Cardholders who want to withdraw a part or the entire of the remaining balance can be served at Koryo Bank Card issuing branches. The exchange rate is the current selling price.

3. Notice: Cardholders observe the followings as regards to using the card.
*Due to its delicate electronic procedure while the card is to be used, it is recommended not to damage the electronic part of the front.
*Remembering and entering the password correctly is important, since the payment procedure is suspended after 3 times of password errors.
*If the card is destroyed or lost, cardholders should go to the Koryo bank where the card is issued and report the loss and the damage.
*With verifying identity and the balance of the card, a new card is issued.
*Cardholders shall remain liable for the loss incurred by their negligence.

4. Questions and hot line
*When there is a question, a loss, duplication or a lost electronic paying card, Call 462-6315.

Koryo Bank

This is not the only debit card available to foreigners in the DPRK. Dr. Seliger also wrote in earlier this year to inform us of the DPRK’s Narae (나래) debit card.

Here are previous posts on Koryo Bank.

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Friday Fun: Fashion, Beer and Coca-Cola

Friday, September 30th, 2011

North Korean Fashion Archives

Choson Exchange posted the following on their web page:

During our last trip, we met with Korea Daesong Bank, which kindly provided a product catalog from the 80s/90s of their parent company – Korea Daesong Economic Group (KDEG). While fashion definitely has moved on in Pyongyang, we thought that it might be good to share some of the products they display in their catalog – for old times sake. In case you decide that the retro look is for you, do note that KDEG is currently under international sanctions.

Choson Exchange posted the pictures to their Facebook Page, but since there are many people who cannot (or do not) access Facebook, I thought I would post the pictures here:

American beer popular in the DPRK?

Pictured above (left) is a bottle of Budweiser served with dry fish aboard the recent Mangyongbong-92 “cruise” from Rason to Kumgangsan.  Learn more here. Pictured above (right) is a can of Pabst Blue Ribbon (PBR) which has been converted into a candle holder and placed next to a bottle of “domestic” Taedonggang Beer. Click image for source. Maybe the number of hipster visitors to the DPRK has increased?

Coca Cola
Forbes Magazine has a very interesting article on talks between the North Koreans and Coca-Cola! Read the full article here.  I thought this would be a good time to remind readers about the DPRK’s indigenous cola:

Image source here

The soda is “Crabonated” which is a pretty funny typo. Also worth noting are the lengths they have gone through to copy the Coca-Cola brand–as if they are trying to win back market-share from the firm. The colors, red, black, silver and white are the same. The familiar cursive English “C” at the beginning of the word is a close copy. They even tried to replicate the Coke “wave” by adding a literal wave in a similar curve along the bottom of the advert.

 

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US sanctions Syrian bank for DPRK connection

Sunday, August 14th, 2011

UPDATE 1 (2011-8-17): The recently sanctioned bank denies it has ties to Iran and the DPRK. According to Lebanon’s Daily Star:

The Lebanese subsidiary of a Syrian bank sanctioned by the United States denied on Wednesday “unfounded political allegations” that it dealt with North Korea and Iran.

“Since the establishment of our institution, we have never had any operation with either a North Korean or an Iranian entity even before the existing sanctions,” the Syrian Lebanese Commercial Bank said.

“As a result, we deny all accusation of being involved in any illegal activity with any suspected country,” a statement added.

The United States Treasury has charged that the state-owned Commercial Bank of Syria allegedly supported Syria and North Korea’s efforts to spread weapons of mass destruction.

Washington last week imposed sanctions on the bank, the Syrian Lebanese Commercial Bank and telecoms company Syriatel over President Bashar al-Assad’s increasingly brutal crackdown on pro-democracy protests.

The move freezes the US assets of the businesses targeted and prohibits US entities from engaging in any business dealings with the two banks.

ORIGINAL POST (2011-8-14): The US has sanctioned a Syrian Bank for its involvement in DPRK proliferation activities.  According to Yonhap:

The Treasury Department said the Commercial Bank of Syria has provided financial services to North Korea’s Tanchon Commercial Bank and Syria’s Scientific Studies and Research Center, both of which were blacklisted for the proliferation of weapons of mass destruction.

The Syrian bank’s Lebanon-based subsidiary, Syrian Lebanese Commercial Bank, and Syriatel, the largest mobile phone operator in Syria, were also sanctioned under Wednesday’s measure.

“By exposing Syria’s largest commercial bank as an agent for designated Syrian and North Korean proliferators, and by targeting Syria’s largest mobile phone operator for being controlled by one of the regime’s most corrupt insiders, we are taking aim at the financial infrastructure that is helping provide support to (President Bashar) Asad and his regime’s illicit activities,” Under Secretary for Terrorism and Financial Intelligence David S. Cohen said in a press release.

The Commercial Bank of Syria also holds an account for Tanchon Commercial Bank, the primary financial agent for the Korea Mining Development Corp., North Korea’s premier arms dealer and main exporter of goods and equipment related to ballistic missiles and conventional weapons, according to the department.

The U.S. is stepping up efforts to isolate the Assad regime amid its brutal crackdown on anti-government protesters.

NTI has additional information here.

Other DPRK-Syria stories below:
1. Syria and the DPRK collaborated on the construction of Syria’s nuclear facility which was destroyed in 2007 by an Israeli air strike.

2. According to Joshua Pollock, over the last decade the DPRK and Syria have cooperated on missile development.

3. The UNSC was investigating a shipment of North Korean chemical safety suits to Syria.

4. Syria’s Tishreen War Museum was designed and built by North Koreans!

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The heads of the Central Bank and State Price Commission appointed

Wednesday, March 16th, 2011

Institute for Far Eastern Studies (IFES)
NK Brief No. 11-03-15
3/15/2011

Recently, Paek Ryong Chon was appointed as the new President of the Central Bank of the DPRK. Paek is known as the third son of late Paek Nam Sun, the former Foreign Minister of the DPRK.

According to the DPRK’s official news agency KCNA, a national meeting of commercial officials was held at the People’s Palace of Culture in Pyongyang on March 7, 2011. The list of attendees at this event included Paek Ryong Chon as the President of the Central Bank.

The senior Paek served as the Foreign Minister of the DPRK from 1998 to 2007 before he passed away in January 2007. His third son, Paek Ryong Chon, 49, made his public political appearances at the North-South Premier Talks and the Joint Committee for Inter-Korean Economic Cooperation meetings in Seoul on December 2007 as a department director of the Secretariat of the Cabinet.

Previously, he visited South Korea as a part of the North Korean delegation in 2002 at the first working-level talks of inter-Korean economic cooperation and again in June 2006 for the Inter-Korean Joint Event held in Kwangju.

The Central Bank was established in 1946 and is responsible for issuing bank notes, currency control and regulating other banks. The Central Bank also operates as a savings and insurance institution that provides services for the general population of North Korea through regional branch offices.

Paek’s new appointment is believed to be largely in consideration for the late foreign minister, Paek Nam Sun.

Meanwhile, Ryang Ui Gyong was appointed as the Chairman of the State Price Commission, which was formerly known as the State Price Bureau.

The KCNA made a referral to Ryang Ui Gyong as the Chairman of the State Price Commission in a recent report on a national meeting of commercial officials.

Not much is known about Ryang. He is speculated to have built his career in the State Price Bureau as a technocrat.

The State Price Commission is responsible for the price control of agricultural and industrial prices and wage systems, calculating the living costs for the people. The recent upgrade from a bureau to a commission is analyzed by many experts as North Korea’s move toward stronger price control policy to stabilize prices.

The Commission is also in charge of regulating import and export prices twice a year. This is evaluated as an attempt to prevent imports from being imported at a higher price and exports from being exported at a lower price than the international market average.

In the past, the State Planning Commission and the State Science and Technology Commission were the two main commissions in North Korea. However, since June 2010, the number of commissions has risen to five, a result of the reorganization of the Ministry of Education to Education Commission, the Joint Venture and Investment Guidance Bureau to the Committee of Investment and Joint Ventures, and the State Price Bureau to the State Price Commission.

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