Archive for the ‘Central Bank’ Category

Orascom (OTMT) loses control of KoryoLink

Friday, November 20th, 2015

UPDATE 1 (2015-12-11): Orascom CEO claims to still control KoryoLink, but cannot obtain hard currency or get it out of the country.

ORIGINAL POST (2015-11-20): Martyn Williams broke the story here.

The first problem is that Orascom could not repatriate its profits:

Orascom’s efforts to get its profits out of North Korea have been unsuccessful, partially because of international sanctions imposed on the country but mainly by the government’s refusal to let the money go.

To transfer money out of North Korea, Orascom needs permission from the government and it hasn’t been granted, despite it being a partner in the joint venture.

The government hasn’t acted because it can’t afford to.

The profits are held in North Korean won, but the currency isn’t traded internationally and the government’s official rate is set artificially high, at 100 won to the U.S. dollar. At that rate, Orascon’s holding at the end of last year was worth $585 million.

But at the black market exchange rate, which is effectively the real value of the currency in North Korea, the cash is worth only $7.2 million. And therein lies the problem. The government can’t afford to pay the money at the official rate, and it can’t be seen to officially recognize the black market rate. So the two sides have spent months locked in talks about what to do.

Secondly, the DPRK government launched a second cell phone network to compete with KoryoLink, and efforts to merge the companies have been successful:

The issue came to light in an auditor’s report in June, and a month later Orascom dropped a bombshell: It said the North Korean government — supposedly its close partner — had set up a second carrier to compete with Koryolink.

With its options limited, Orascom entered merger talks to combine Koryolink with the new carrier. The North Korean government has agreed to the move in principle, but so far nothing has happened.

What’s more, the North Korean government has apparently proposed that it be the majority partner in any new venture that’s formed.

That led to a dramatic statement from Orascom when it reported its financial results Monday — “in the group management’s view, control over Koryolink’s activities was lost.”

Sawiris appears to hold out hope, but he might be out of moves.

“We are very proud of the success of our operation ‘Koryolink’,” he said in a statement. “We have around 3 million people today carrying our phones in the DPRK. We are still hopeful that we will be able to resolve all pending issues to continue this successful journey.”

Anna Fifield also followed up in the Washington Post and reported on the name of the new KoryoLink competitor:

This comes after Orascom discovered that North Korea was starting a competitor to Koryolink called Byol, and then began discussions about merging it with Koryolink, thus presumably extracting even more money from Orascom.

Byol (별) translates to English as “Star”.

Here is the OTMT financial report which explains the company’s position (PDF).

Here are screen shots of the relevant sections in the report:





A small correction needs to be added to the OTMT report, the Central Bank does not set the official exchange rate. That is set by the Foreign Trade Bank.

As Marcus Noland and I have pointed out, North Korea needs a big FDI win to inspire more large-scale foreign investment and modernize its investment regulatory framework, but debacles like this, Xiyang, and the KIC (referring here to the fact that it was too entangled in political risk to be a reliable investment without official subsidies and guarantees) reinforce the view that the DPRK is still too risky to become an attractive investment hub–and this excludes additional problems owing to the country’s weapons programs and human rights abuses.



Sangyon e-commerce system introduced (and Jonsong Card)

Tuesday, September 8th, 2015

KCNA issued a story today that raised some eyebrows:

Electronic Commerce System ‘Sangyon’ Introduced in DPRK

Pyongyang, September 8 (KCNA) — The Institute of the Commercial Science in the DPRK developed “Sangyon”, an electronic commerce system.

The system makes it possible to ensure business through local network with credit card issued by the Central Bank.

This 24-hour service system has already been introduced to the West Pyongyang Department Store and many other commercial units, winning popularity among its users.

The reason this story raised eyebrows was the mention of a “credit card”. I had to go to the original Korean article to see if the word “credit card” was ever used.  Here is the original Korean:

(평양 9월 8일발 조선중앙통신)

조선에서 전자상업체계 《상연》이 개발되여 봉사활동에 도입되고있다.

상업과학연구소에서 내놓은 이 체계는 국가콤퓨터망을 통하여 상품소개 및 판매,상업정보소개를 진행하는 전자결제방식의 상업봉사체계이다.

이 체계는 중앙은행에서 발행하는 《전성》카드를 리용하여 손님들이 상점에 가지 않고도 필요한 상품에 대한 검색과

주문,카드를 리용한 전자결제와 송달을 받을수 있게 한다.

손님들의 상품수요를 실시간적으로 장악하여 생산단위들에 맞물려준다.

전국적범위에서 상업발전추세에 맞게 무현금류통을 늘이고 상품구입의 편리성을 도모해주는 전자상업체계는 24시간 봉사하고있다.

서평양백화점을 비롯한 많은 단위에 도입되여 사용자들로부터 호평을 받고있는 전자상업체계는 계속 확대도입되고있다.(끝)

The Korean report is quite different from the English version. It says that they have developed an e-commerce system called Sangyong 《상연》. On this system, available 24-hours a day no less, companies can list products, provide information, and consumers can actually make purchases for delivery. This system accepts the Jonsong card [《전성》카드] (a pre-pay card issued by the Central Bank in local currency) for payment.

UPDATE (2016-3-10): Simon Cockerell has posted a photo of a Jonsong Card to his Instagram Account:


The Institute for Far Eastern Studies (2015-8-28) had this to say about the Jonsong Card:

Use of electronic payment cards expands in North Korea

It appears that the use of electronic payment cards in North Korea is spreading as North Korea’s central bank releases a new payment card. Photos of the card (called ‘Jonsong’) have been uploaded to social networking sites like Instagram and Facebook by foreigners currently in North Korea. The card is issued by the Central Bank of the Democratic People’s Republic of Korea (hereafter ‘North Korea Central Bank’).

Until now, North Korean’s primary credit cards have been the ‘Narae’ card, issued by the North Korea Foreign Trade Bank in 2010, and the ‘Koryo’ card, issued by Koryo Bank in 2011. ‘Narae,’ a foreign currency debit card, can be used at locations like hotels or foreign currency shops after card-owners load it with foreign currency at a bank; the affiliate card ‘Koryo’ can be used when paying for services or products at shops that have a payment system and deal in foreign currency.

Recently, Yonhap News released a photo of the electronic payment card ‘Sonbong,’ reporting that the card is now in use. The card is issued by the Golden Triangle Bank and can be used in the Rason Special Economic Zone. Both the Sonbong and Narae cards feature a yellow electronic chip on the front of the card. In contrast, North Korea Central Bank’s recently confirmed Chonsong card does not display such a chip and contains a red and blue diamond-shaped design in the lower right-hand corner.

It has not yet been confirmed whether this is a general electronic payment card or if it is intended for specific purposes. In a February 2015 interview with the Japan-based Choson Sinbo, the president of North Korea Central Bank revealed, “North Korea Central Bank is focusing on satisfying the capital requirements that arise in a country’s economic construction by turning over domestic funds more smoothly […] As part of that effort, it is pushing forward the development of new financial products as well as the use of cards in people’s daily lives.”

It is estimated that approximately 4 billion dollars are circulated and held privately by North Korean citizens. As a step to legalize that currency, it is widely known that North Korea implemented the ‘cooperative currency system’ (effective March 1, 2013), inducing individuals and agencies to open and use foreign currency accounts and actively encouraging the use of cards.

These days, foreigners visiting North Korea pay for hotel rooms, taxi fares, and other products with the Narae card after charging it with foreign currency.


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

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


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


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.


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.



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

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.


DPRK central bank raises deposit rates and eases access to money

Sunday, March 6th, 2011

UPDATE: For the second time in as many weeks, the DPRK’s central bank makes the news.  According to KCNA:

A national meeting of commercial officials took place at the People’s Palace of Culture on Monday.

The meeting reviewed the gains and experience made in the past commercial service and discussed tasks and ways for improving this work.

Present there were Premier Choe Yong Rim, Minister of Light Industry An Jong Su, Minister of Foodstuff and Daily Necessities Industry Jo Yong Chol, Chairman of the State Price Commission Ryang Ui Gyong, President of the Central Bank Paek Ryong Chon and other officials.

According to Yonhap, Paek Ryong Chon is the third son of the late foreign minister Paek nam-sun.

ORIGINAL POST: A big hat tip to Chris Green who translated an interesting article on recent changes to DPRK banking regulations.  The original article in Korean is here.

According to Chris’ translation of the article:

The Chosun Central Bank is said to have raised interest rates by 1.8 times. Customers are also now able to get instant access to their money. As a result, the bank’s total deposits are also said to be growing.

These measures appear to be the bank coming forward to guarantee deposits given that people have been unwilling to put their money there since the 2009 currency redenomination.

North Korea watchers are observing the situation, saying that there is a chance that measures like these could be an indicator of financial sector reform.

Speaking on the 1st, one such source said, “I hear that the number of people putting their money in the bank is growing. The total reserves of the Chosun Central Bank are also growing. The causes of this are that access to withdrawals has recently been freed up and the interest rate has risen steeply.” According to the source, the interest rate offered by the bank was previously 3%, but has recently risen to 5.4%.

The Chosun Central Bank is a government entity under the Cabinet, doing the job of both a central and commercial bank at the same time. It offers savings, loans and insurance services.

North Korean people can deposit money there and earn interest on it; in this, it is much the same as the Post Office, which also takes deposits and gives interest.

In terms of allocation in North Korea, the state does it by force, and there are also cases of deposits being coerced. Indeed, until now it has been hard for North Korean people to recover capital deposited with the bank.

The source explained, “At times when the economic situation has been bad, it has not just been hard to get interest, it has even been common to illegally have to give 20% of the value of the capital to Central Bank management and then take the rest,” but added, “Recently, North Korean people have been able to get hold of their deposits surprisingly easily, and the rumor ‘We can get our money! And the interest has gone up!’ is going around.”

Cho Byung Hyun of the Industrial Bank of Korea’s research institute explained more, saying, “Following the failure of the 2009 currency redenomination, people disliked putting their money in the bank so, for the circulation of money, the bank instituted a policy of allowing instant access to deposits and raising interest rates.”

North Korea suffered serious fallout from the currency redenomination, including rapidly rising prices and the execution of its architect, former Workers’ Party financial planning head Pak Nam Gi.

However, it is also possible in part to interpret the failed redenomination as an opportunity to activate capitalist banking practices.

Cho went on, “We know North Korea has recently been preparing financial reforms. At the moment, banks under existing trade banks etc are controlled by the Central Bank, but this can be seen as propelling reform in the direction of giving independence to each bank.”

Meanwhile, Professor Lee Sang Min of Joongang University economics department pointed out, “This can be seen as helping with the introduction of a capitalist system in North Korea in the long term. It is an opportunity for the North Korean people to learn about a capitalist banking system.”

However, it is as yet too early to see this sort of phenomenon as meaning that the financial system of North Korea is settled. As one defector pointed out, “For this to develop into a system, the North Korean authorities shall have to spend a long time building trust.”

Another North Korea source added, “The dollar tended to be thought of by the North Korean people as the standard currency, but the Yuan is gradually moving to center stage.” This is analyzed by experts as being down to recent economic exchanges between the North and China and the rising value of the Yuan.

Fascinating stuff.  Thanks for posting, Chris.

I am actually looking for information on the DPRK’s monetary system, so if you have any good papers, please send them my way.


US sanctions two more DPRK organizations

Thursday, November 18th, 2010

UPDATE 2: Here is the actual Treasury Department Press Release (11/18/2010):

Treasury Designates Key Nodes of the Illicit Financing Network of North Korea’s Office 39

WASHINGTON – The U.S. Department of the Treasury today designated Korea Daesong Bank and Korea Daesong General Trading Corporation pursuant to Executive Order (E.O.) 13551 for being owned or controlled by Office 39 of the Korean Workers’ Party.  Office 39 is a secretive branch of the government of the Democratic People’s Republic of Korea (North Korea) that provides critical support to North Korean leadership in part through engaging in illicit economic activities and managing slush funds and generating revenues for the leadership. Office 39 was named in the Annex to E.O. 13551, issued by President Obama on August 30, 2010, in response to the U.S. government’s longstanding concerns regarding North Korea’s involvement in a range of illicit activities, many of which are conducted through government agencies and associated front companies. Korea Daesong Bank is involved in facilitating North Korea’s illicit financing projects, and Korea Daesong General Trading Corporation is used to facilitate foreign transactions on behalf of Office 39.

“Korea Daesong Bank and Korea Daesong General Trading Corporation are key components of Office 39’s financial network supporting North Korea’s illicit and dangerous activities,” said Under Secretary for Terrorism and Financial Intelligence Stuart Levey.  “Treasury will continue to use its authorities to target and disrupt the financial networks of entities involved in North Korean proliferation and other illicit activities.”

E.O. 13551 targets for sanctions individuals and entities facilitating North Korean trafficking in arms and related materiel; procurement of luxury goods; and engagement in certain illicit economic activities, such as money laundering, the counterfeiting of goods and currency, bulk cash smuggling and narcotics trafficking. As a result of today’s action, any assets of the designated entities that are within U.S. jurisdiction are frozen and U.S. persons are prohibited from conducting financial or commercial transactions with these entities.

UPDATE 1: Here is the US Treasury Department’s web page on North Korea.

ORIGINAL POST: According to Reuters:

The United States sanctioned on Thursday two North Korean companies linked to a group it accuses of drug smuggling and other “illicit” activities to support the nation’s secretive leadership.

U.S. sanctions against North Korea aim in part to persuade Pyongyang to abandon its nuclear programs, which the United States views as a threat to its allies South Korea and Japan. The North tested nuclear devices in 2006 and 2009.

The Treasury Department’s moves against Korea Daesong Bank and Korea Daesong General Trading Corporation will freeze any assets belonging to them that fall within U.S. jurisdiction as well as bar U.S. companies from dealing with them.

Their main aim is not to block North Korean assets in U.S. banks — analysts say there are unlikely to be any — but to discourage other banks from dealing with North Korea, thereby cutting off its access to foreign currency and luxury imports.

Perks and luxuries such as jewelry, fancy cars and yachts derived from North Korea’s shadowy network of overseas interests are believed to be one of the main tools Pyongyang uses to ensure loyalty among top military and party leaders to North Korean leader Kim Jong-il.

The Treasury described the two entities as “key nodes of the illicit financing network” of Office 39 of the Korean Workers’ Party, which it accuses of producing and smuggling narcotics to earn foreign exchange for the government.

“Korea Daesong Bank and Korea Daesong General Trading Corporation are key components of Office 39’s financial network supporting North Korea’s illicit and dangerous activities,” Treasury Under Secretary Stuart Levey said in a statement.

Heroin Production?
The Treasury designated the two under a recent executive order that targets entities that support North Korea’s arms trafficking, facilitate its luxury goods purchases and engage in illicit economic activities such as money laundering, drug and bulk cash smuggling and counterfeiting goods and currency.

President Barack Obama signed the executive order on August 30 allowing the Treasury to block the U.S. assets of North Korean entities that trade in arms or luxury goods, counterfeit currency or engage in money laundering, drug smuggling or other “illicit” activity to support the government or its leaders.

When that executive order was announced, the Treasury accused Office 39 of producing opium and heroin and of smuggling narcotics such as methamphetamine.

U.S.-North Korean relations have deteriorated since Obama took office, with his aides deeply unhappy about Pyongyang’s decision to conduct nuclear and missile tests last year as well as the March 26 sinking of the South Korean corvette Cheonan.

Forty-six South Korean sailors were killed in the incident, which the United States, South Korea and other nations blame squarely on North Korea. Pyongyang denies responsibility.

In the August 30 executive order, Obama cited the Cheonan’s sinking as well as 2009 nuclear and missile tests by North Korea as evidence it poses “an unusual and extraordinary threat” to U.S. national security, foreign policy and economy.

The Obama administration has been skeptical about returning to so-called six-party negotiations with the two Koreas, China, Japan and Russia under which Pyongyang committed in 2005 to abandon its nuclear programs.

U.S. officials say they do not want to talk for the sake of talking and North Korea must show some commitment to abandoning its nuclear programs.
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U.S. sanctions two North Korean entities
Arshad Mohammed


DPRK issues rule on bank deposits

Thursday, July 29th, 2010

According to the Daily NK:

North Korean authorities released a public announcement that they will exchange deposits, consigned to the Chosun (North Korea) Central Bank during the currency redenomination in November last year, into new bills at the rate of 100:1 within the limit of 500,000 won.

Last November the North’s authorities announced that they will exchange the existing denomination, to a limit of 150,000 won per household, to the newly issued bills at the rate of 100:1. They urged people to deposit their remaining cash into the bank.

However, many citizens have refused to follow the instructions after previous experiences with forfeited deposits during the country’s fourth redenomination in 1992.

This measure is designed to work towards curing the hardships of residents caused by the decline in value of individual property since the last redenomination. There are hopes that it will stimulate market activity by increasing the amount of money in circulation, particularly since a downturn in purchasing power amongst the people led to an economic depression.

However, even after the Central Bank’s announcement the people remain apathetic. A source said that, “Prices have risen to similar levels as before the redenomination. Rice now costs over 1,000 won per kilogram; when you get back your deposit of 5,000 won you can only buy five kilograms of rice. It’s meaningless.”

If the state-designated price of rice, around 24 won per kilogram in procurement stores, had been maintained then this measure would be significant. Now the prices have multiplied by 50 and the people say that the measure is nothing but a play on words.

In addition, February saw the authorities hand down a decree to raise all state-designated prices by 100 times to levels known before the redenomination. The decree was not applied to people’s deposits in the bank, a fact that has received criticism from the public. A source commented that, “The authorities actions are nonsense. They raised prices by 100 times but people’s deposits were the same value as last year. It is ridiculous.”

Read the full sotry here:
Bank Deposits Can Be Withdrawn at 100:1 Rate
Daily NK
Park In Ho