Archive for the ‘Foreign Trade Bank’ Category

Orascom (OTMT) loses control of KoryoLink

Friday, November 20th, 2015

UPDATE 2 (2016-1-1): According to the Wall Street Journal:

Egyptian tycoon Naguib Sawiris made billions of dollars from a global telecommunications empire that operated in authoritarian states from Zimbabwe to Pakistan. Now he is being dealt a potentially painful setback by one of the global economy’s biggest pariahs: North Korea.

Mr. Sawiris’s Orascom Telecom Media and Technology Holding SAE built a highly profitable mobile phone business with around 3 million customers in the isolated nation, as cellphones became popular with wealthier North Koreans and the state eased restrictions on communications. The business earned around $270 million before taxes and depreciation on $344 million in revenue in 2014.

But in the last few years, a state-run competitor emerged in North Korea, and Cairo-based Orascom hit problems trying to repatriate profits. Orascom said in a November filing in Egypt it had lost control of its 75%-owned North Korean venture, Koryolink, and struck the venture from its balance sheet, removing hundreds of millions of dollars in assets.

Mr. Sawiris, chief executive officer of both Orascom and the North Korean venture, is now trying to negotiate a solution. “We are still hopeful that we will be able to resolve all pending issues to continue this successful journey,” he said in a statement accompanying the filing.

Orascom’s auditor, however, cited the “futility of negotiation” with North Korea over Koryolink’s assets, which the company said were worth $832 million at the end of June, including cash in North Korean won worth $653 million at the official exchange rate. Koryolink, which now accounts for 85% of Orascom’s revenue and profit, says it hasn’t been able to send any funds out of North Korea in 2015 due to local currency controls and international sanctions targeting Pyongyang’s nuclear weapons program.

Mr. Sawiris didn’t respond to requests for comment and Orascom declined to make him available for interview. A spokesman for Orascom reiterated the company’s public statements and didn’t respond to further questions. North Korea hasn’t referred to the dispute in its state media and relevant officials couldn’t be reached for comment.

How North Korea resolves the dispute could bear on its plans to cultivate foreign investment to develop the moribund economy. In recent years, Pyongyang has created more than 20 special economic zones for investors and announced local regulations intended to reassure foreigners.

In November, North Korea state media said foreign firms would be able to repatriate profits from one zone in the far northeast of the country “without restriction.”

The setback for Mr. Sawiris, 61 years old, underscores the risk of doing business in North Korea, where foreign firms have complained that property and profits have been appropriated by the government. In 2012, a Chinese mining company said North Korea arbitrarily took over its metal-processing facility in the country. Pyongyang in turn publicly accused the firm of failing to meet investment commitments.

Orascom says talks with the North Korean government to resolve its difficulties have included a possible merger with the rival carrier, Byol. However, North Korea has indicated it wouldn’t give Orascom management control of the combined entity and those talks have stalled, the Egyptian company said in November board minutes, reviewed by The Wall Street Journal. As a result, “control over Koryolink’s activities was lost” according to accounting rules, the company said in its latest earnings report.

Few companies venture into North Korea. But for the outspoken Mr. Sawiris—who describes himself as a “freedom fighter” on his verified Twitter profile, and who has experience operating in difficult environments—a bet on the hermit kingdom made sense.

Since 1997, Orascom has built and run mobile networks in more than 20 countries across Africa, the Middle East and the Indian subcontinent. Its strategy: Load up on debt to build networks quickly in risky markets with little or no infrastructure, betting on rapid growth and strong returns, then sell when the market matures and more players materialize.

Orascom operated in many politically unstable nations such as Yemen and Bangladesh. In most cases, the gamble paid off. In 2003, Orascom paid $5 million for one of Iraq’s first mobile network licenses. Its local partner faced kidnappings of staff and attacks on property from insurgents, but in 2007 Orascom sold its Iraq operations for $1.2 billion to a Kuwaiti company.

There have been some setbacks. Orascom’s joint venture in Syria with a company run by a cousin of President Bashar al-Assad fell apart in 2002 when a Syrian court handed the Egyptian company’s share of the venture to the local partner.

In 2011, Mr. Sawiris sold most of his telecommunications assets to Russian mobile operator VimpelCom Ltd. in a deal worth $6 billion. Koryolink was one of the few assets he kept.

Orascom’s operations in North Korea began when the country awarded Koryolink the rights to operate its only mobile network from late 2008 through the end of 2012. North Korea had scrapped an earlier project in the country with a Thai firm in 2004, because of fears the network was vulnerable to spies.

Koryolink started with around 18 foreign staff based at a hotel in the capital city, according to Madani Hozaien, Koryolink’s chief financial officer from late 2008 to mid-2009. North Korea’s tight restrictions on travel made it difficult to manage network facilities and deals with local counterparts were hard to put together, he said.

“Once we had an agreement with one group, another team would appear and we’d have to start again,” he said.

Ihab Shafik, a human resources and administration manager for Koryolink from 2009 to 2012, said the company’s North Korean staff sometimes operated independently. “They built GSM [Global System for Mobile communications] towers without informing us and we discovered them later,” he said.

North Korean authorities gradually from 2008 allowed most members of the public to sign up for mobile service, although they can only make domestic calls and don’t have Internet access.

While mobile phones remain very expensive for most North Koreans, visitors to Pyongyang report that they’re a common sight. Defectors from the country say they have become increasingly important information tools for traders as North Korea’s unofficial market economy has grown in recent years. North Korea state media has even touted the country’s own smartphone, although it is generally considered a rebranded Chinese model.

Orascom’s problems in North Korea appear to have built during the final year of its exclusivity clause in 2012. Koryolink’s annual report for the year noted “restrictions on cash transfers from local currency” in explaining a $272 million cash balance held inside the country, that more than doubled to June 30.

The company’s board meeting to ratify first quarter results in 2015 was postponed by over a month “due to the delay of the negotiations with the North Korean side to solve the problems arising out of the transfer of dividends, the currency exchange rates and the operational problems that has recently emerged,” minutes from the meeting reviewed by the Journal said.

Orascom’s share price fell sharply on the Egyptian stock exchange after the company announced it was removing the North Korean operations from its consolidated earnings. The price has risen recently after Orascom announced plans to buy two financial companies, part of Mr. Sawiris’ effort to move away from telecommunications.

Experts on the North Korean economy say Orascom’s difficulty in repatriating funds is largely due to North Korea’s inability or reluctance to convert Koryolink’s cash to foreign currency from North Korean won at the official exchange rate. North Korea suffers constant shortages of foreign exchange and its own currency is worthless outside its borders.

In 2013, Orascom also was caught up in U.S. sanctions on North Korea, when a bank it had set up with a North Korean partner, which Koryolink uses for financial transactions, was barred from accessing the U.S. financial system.

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.



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


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


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

4 major Chinese banks halt money transfers to North Korea
Asahi Shimbun


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

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

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.


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.


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!


DPRK trade bank sued for failure to settle debt

Monday, August 9th, 2010

UPDATE 8/9/2010: According to Yonhap:

A state-run North Korean bank has lost a lawsuit for not paying back a loan it borrowed from a Taiwanese bank nine years ago, the New York district court said Friday.

The District Court of New York confirmed it ordered the Foreign Trade Bank of Korea to pay compensations of just under US$6.77 million to the Mega International Commercial Bank (MICB) in a ruling made earlier in the week.

And as Josh notes: “By which they really mean the U.S. District Court for the Southern District of New York.”

Some additional case information may be found here.

As an aside, North Korea also recently lost another court case in the US.  Read more here.

ORIGINAL POST (5/6/2010): According to KBS:

The Taiwanese bank filed its lawsuit to claim some five million dollars in interest and principal on August 25th, 2001.

It is unclear whether the North Korean bank will repay the Taiwanese plaintiff, but North Korea experts say this will at least add to the crunch on North Korean finances.

Some reference information can be found here.

According to the Korea Times:

A state-run North Korean bank is facing trial in the United States for failing to pay a $5 million loan that it borrowed from a Taiwanese bank in 2001, according to sources Wednesday.

The District Court for the Southern District of New York ordered the Foreign Trade Bank (FTB) of North Korea to make a court appearance on May 17 and submit a proposed case management plan and scheduling order.

The FTB reportedly borrowed $5 million from the Mega International Commercial Bank (MICB) in Taiwan on Aug. 25, 2001 on the promise to amortize the principal and interest in three installments by Sept. 15, 2004.

No repayment was made until December 2008, when the FTB paid the MICB $100,000 to cover some of the interest. The North Korean bank has thus far paid off a total of $462,000 to the MICB, still owing $1.78 million in interest and $4.7 million in principal.

“It has been almost unprecedented for North Korea to be sued in a commercial dispute, though there were occasions that the North was asked to stand in U.S. courts for terrorist activities,” an official of the South Korean Consulate General in New York told Yonhap News.

The official said the litigation will hamper Pyongyang’s recent move to aggressively attract foreign investment in an effort to revive its flagging economy, given that obviously doubt will arise over its debt repayment capacity.

Despite a recent currency reform, the North’s economy remains in a parlous state as the U.N. sanctions have cut off virtually all sources of foreign currency.

Seoul has also suspended tours to the North’s popular tourist destination of Mt. Geumgang, following the shooting death of a South Korean tourist in the mountain resort in July 2008. The tours were a cash cow for the North, generating more than $500 million between 1998 and 2008.

On May 1, the FTB’s official exchange rate was 96.9 won per dollar, but it was traded at 180 won in Pyongyang and higher in other areas, demonstrating the instability of the North’s economy, according to the sources.

Since established in 1959, the bank has served as the reclusive regime’s main foreign exchange bank, they said. It has branch offices in France, Australia, Kuwait, Hong Kong and Beijing.

Read the full story here:
NK trade bank sued for failure to settle debt
Korea Times


UN report explains sanctions decisions

Friday, August 6th, 2010

According to the Daily NK:

The 1718 Committee of the UN Security Council has published the final version of its “Report to the Security Council from the Panel of Experts established Pursuant to Resolution 1874,”

In the report, of which the Daily NK has obtained a copy, the 1718 Committee revealed North Korean overseas accounts which had likely been used for North Korea’s illicit activities such as conventional weapons transactions and luxury goods, and the names of entities and individuals involved in those activities. The lists were submitted by UN member states.

The report singles out 17 North Korean officials thought likely to violate UN Resolutions 1718 and 1874, and outlines the reasons why they were designated by the UN member states.

They are Jang Sung Taek, Vice-chairman of the National Defense Commission and the closest associate of Kim Jong Il, Vice-chairman of the National Defense Commission Oh Keuk Ryul, Kim Young Chun, the Minister for the People’s Armed Forces, Director of No. 39 Department Kim Dong Woon, Military Supplies Secretary in the Central Committee of the Party Jeon Byung Ho, former Yongbyon technical director Jeon Chi Bu, First Vice-director of the Ministry of the Munitions Industry Chu Kyu Chang, Standing Vice-director of the People’s Army’s General Political Department Hyun Cheul Hae, President of the Tanchon Commercial Bank Kim Dong Myung, Member of the National Defence Commission Baek Se Bong, Deputy Director of the General Political Department of the People’s Armed Forces Park Jae Kyung, President of the Academy of Science Byeon Youong Rip, Director of the General Bureau of Atomic Energy Ryeom Young, Head of the Department of Nuclear Physics of Kim Il Sung University Seo Sang Il, President of Kohas AG Jacop Steiger and Alex H.T. Tsai, who is known to have provided financial, technological and other support for KOMID, and his wife, Su Lu-chi.

It also released a list of autonomous designations provided by member states, covering 19 North Korean entities. That list was made based on information collected as of April 30th this year.

They are Amroggang Development Banking Corporation, Global Interface Company Inc., Hesong Trading Corporation, Korea Complex Equipment Import Corporation, Kohas AG, Korea International Chemical Joint Venture Company, Korea Kwangson Banking Corp, Korea Kwangsong Trading Corporation, Korea Pugang Trading Corporation, Korea Pugang Mining and Machinery Corporation ltd., Korea Ryongwang Trading Corporation, Korea Ryonha Machinery Joint Venture Corporation, Korea Tonghae Shipping Company, Ponghwa Hospital, Pyongyang Informatics Centre, Sobaeku United Corp., Tosong Technology Trading Corporation, Trans Merits Co. Ltd., and Yongbyon Nuclear Research Centre.

13 out of the 19 have direct or indirect links to Tanchon Commercial Bank and Korea Mining Development Trading Corporation (KOMID).

Amroggang Development Banking Corporation is the financial arm of KOMID and related to Tanchon Commercial Bank, which has also been designated by the 1718 Committee. Additionally, Global Interface Company Inc. is owned by Alex Tsai, who is thought to have provided, or attempted to provide, support to KOMID.

Sobaeku United Corp. is involved in activities related to natural graphite, producing graphite blocks that can be used in missiles.

The report points out, “North Korea has established a highly sophisticated international network for the acquisition, marketing and sale of arms and military equipment, and arms exports have become one of the country’s principal sources for obtaining foreign exchange,” and goes on to say, “Agencies under the National Defense Commission (NDC), the Workers’ Party of Korea (WPK) and the Korean People’s Army (KPA) are most active in this regard.”

The report explains, “The Second Economic Committee of the National Defense Commission plays the largest and most prominent role in nuclear, other WMD and missile-related development programs as well as in arranging and conducting arms-related exports.”

It adds, “The General Bureau of Surveillance of the Korean People’s Army is involved in the production and sale of conventional armaments.”

The report points out that North Korea has opened 39 accounts with 18 overseas banks in 14 countries. 17 of which are held with Chinese banks.

Besides China, 11 banks in eight European and former Soviet countries (Russia, Switzerland, Denmark, Hungary, Poland, Italy, German, Belarus and Kazakhstan) hold 18 North Korean accounts. There is one account in Malaysia.

“The DPRK also employs a broad range of techniques to mask its financial transactions, including the use of overseas entities, shell companies, informal transfer mechanisms, cash couriers and barter arrangements,” the report notes.

According to experts on North Korea, since North Korean overseas illegal activities are all led by the loyal group surrounding Kim Jong Il, U.S. financial sanctions in accordance with UN Security Council resolutions 1817 and 1874 and also U.S. Executive Order (E.O.) 13382 have the potential to be a great pressure on the Kim Jong Il regime.

The Panel of Experts, which was appointed by the UN Secretary-General on 12 August 2009 to author the report, are David J. Birch (United Kingdom of Great Britain and Northern Ireland, coordinator), Masahiko Asada (Japan), Victor D. Comras (United States of America), Erik Marzolf (France), Young Wan Song (Republic of Korea), Alexander Vilnin (Russian Federation), and Xiaodong Xue (People’s Republic of China).

Read the full story here:
Report Explains Sanctions Decisions
Daily NK
Kim Yong Hun


More on upcoming US sanctions

Wednesday, August 4th, 2010

According to the AFP:

The United States is expected to blacklist three key North Korean figures suspected of handling secret funds for leader Kim Jong-Il as part of its new sanctions, a report said Wednesday.

Washington is devising the measures to punish the North for an alleged deadly March attack on a South Korean warship and to push it to abandon its nuclear weapons ambitions.

Yonhap news agency, quoting an unidentified South Korean government source, said one of the three officials is Kim Tong-Myong, head of the North’s Tanchon Commercial Bank.

“The US is paying special attention to three people, including Kim Tong-Myong, who operate North Korea’s secret funds abroad,” the source was quoted as saying.

“If they are included in the new sanctions, it could deal a blow to North Korea’s leadership.”

The foreign ministry had no comment on the report.

Washington also has evidence that nine North Korean financial institutions operating overseas and at least two trading firms have been used for illicit activities such as trading in conventional arms, luxury goods and counterfeit money, the source was quoted as saying.

Overall, the US is expected to add 10-20 North Korean entities and individuals to its blacklist, the report said.

Robert Einhorn, US State Department special adviser for non-proliferation and arms control, said Monday during a visit to Seoul the new measures would designate companies or individuals involved in the North’s illicit activities.

Any property or assets they possessed which were under US control could be blocked.

“By publicly naming these entities, these measures can have the broader effect of isolating them from the international financial and commercial system,” Einhorn said.

He named Tanchon Bank as one of several North Korean companies active overseas. The bank has already been designated by the US and the UN Security Council for suspected illicit activities.

South Korean Foreign Minister Yu Myung-Hwan said details of the new US sanctions will emerge soon.

“We’re expecting concrete measures within the next two weeks that will freeze assets of related North Korean individuals or companies and will prohibit third countries from dealing with such individuals or companies,” Yu told a local radio station.

South Korea, the United States and other countries, citing a multinational investigation, accuse the North of torpedoing a South Korean warship in March with the loss of 46 lives — a charge it denies.

Read the full story here:
US to target secret funds of N.Korea’s Kim