North Korean Economy Watch

Pictured above is the location of the First Caribbean International Bank

According to the Daily NK:

The existence of a secret bank account operated by the No.39 Department of the Chosun Workers’ Party has been publicly confirmed for the first time, bringing yet more attention to bear on the activities of banks in one of the western world’s renowned tax havens.

The No.39 Department, which is responsible for the management of Kim Jong Il’s private funds, holds the bank account with the British Virgin Islands branch of First Caribbean International Bank (FCIB), a prominent bank in the Caribbean region.

According to an expert source familiar with China and North Korea, the No. 39 Department’s secret overseas account exists under the name “Hana Holdings”. It is apparently held with the Road Town branch of the bank, which is based in Barbados and has branches in 17 countries.

Explaining the importance to North Korea of the No.39 Department account, the source told Daily NK, “Due to recent UN Security Council sanctions, the No. 39 Department is experiencing considerable difficulties with its overseas financial trade. Currently, excluding Chinese banks, their only active overseas account is that held with FirstCaribbean International Bank.”

Also, he added, “The only bank through which the No. 39 Department can make overseas transfers is FirstCaribbean International Bank in the British Virgin Islands, since their other secret bank accounts are all blocked.”

He said, “In cases of normal trade relationships with other companies, it used to be possible to transfer the money overseas from China. However, those routes are blocked as well. Since United Nation’s financial sanctions against North Korea make it difficult for North Korea to transfer money to accounts in third countries from Chinese banks, all foreign currency earning units including the No. 39 Department are experiencing the same difficulties.”

Generally, the No. 39 Department works by transferring money from secret overseas bank accounts to accounts with Chinese banks for money laundering.

The source explained, “No. 39 Department moves the management funds from third countries to FirstCaribbean International Bank, then sends the money to the Bank of China until it can be transferred to a North Korean bank or withdrawn.”

According to the source, the person in charge of transfers between FirstCaribbean International Bank and Bank of China is dispatched by the No. 39 Department under a false name. Also, the official allegedly travels to China frequently to deal with problems involving trade with the Chinese bank.

News of the FCIB account will not be too surprising to North Korea economy watchers. Entities in the British Virgin Islands were already suspected of doing business with the North Korean regime before this latest revelation because of the islands’ connection to the activities of Taepung International Investment Group.

The annual returns of the Taepung Group, as it is more commonly known, show that it was originally set up in September, 2006. However, it became better known early in 2010 when it was placed at the center of efforts to revive the North Korean economy through the creation of a state development bank.

Registered in Hong Kong, its only shareholder as of its 2010 Annual Return was Taepung International Investment Holdings Ltd, whose registered address is in Road Town, British Virgin Islands.

According to the same return, obtained by a keen observer of North Korea’s illegal activities, Ken Kato, the Taepung Group’s corporate secretary is Sai Ying Company Ltd, whose only shareholder, and corporate director, is JYBD Holdings Ltd. JYBD Holdings Ltd’s registered address is the same one in Road Town, British Virgin Islands.

This is not the first time that FirstCaribbean International Bank has run into trouble, either. In 2008, it was indicted on 113 charges of “failure to report suspicious transactions” between 2001 and 2005 by the Belize Financial Intelligence Unit (FIU).

However, the charges were dropped because, according to a Belize newspaper, they were threatening to destabilize the country’s financial sector. Instead, First International was ordered to pay for both an electronic reporting system for the country and the refurbishment of two parks.

There are known to be a substantial number of other North Korean accounts held in countries around the world. At the time of the report completed by the 1718 Committee (North Korea sanctions committee) under the UN Security Council last July, North Korean banks were said to hold a total of 39 accounts with 18 banks located in 14 countries. Allegedly, these accounts include a considerable number managed by the No. 39 Department.

17 of the 39 accounts were located with big Chinese banks like Bank of China, China Construction Bank and HSBC, according to the report. Bank of China in Macao had the largest number of North Korean accounts, while some other accounts were held with Beijing and Dandong branches.

In addition, at the time, North Korea had 18 accounts with 11 banks in 8 countries in Europe; Russia, Switzerland, Denmark, Hungary, Poland, Italy, Germany, and Belarus; also, it had one account each in Malaysia and Kazakhstan.

As the 1718 Committee report explained, “The DPRK… 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. However, it must still, in most cases, rely on access to the international financial system to complete its financial operations. In structuring these transactions, attempts are made to mix illicit transactions with otherwise legitimate business activities in such a way as to hide the illicit activity.”

And also according to the Daily NK:

The newly revealed secret overseas bank account held by the No. 39 Department is just one of several accounts set up in various locations around the world to manage Kim Jong Il’s funds.

However, due to the financial sanctions brought about by two nuclear tests and multiple missile launches, the No. 39 Department’s secret overseas accounts are continuously shrinking. As one North Korean source in China put it, “Due to United Nation’s financial sanction against North Korea, the No. 39 Department’s management of its overseas secret accounts has become difficult.”

Now, due to the Cheonan incident, the U.S. is planning to put in place “customized” financial sanctions which incorporate existing UN Security Council and EU financial sanctions, so the No. 39 Department’s overseas accounts will only get more difficult to manage in the future.

The No. 39 Department’s overseas accounts, which allegedly contribute much to Kim Jong Il’s governing funds, are prime targets for financial sanction since they are key to transferring those funds generated by illegal activity.

According to intelligence authorities, the No.39 Department has a bank account with Daesung Bank in Pyongyang, and manages capital in some of the world’s most influential banks in Macao, Hong Kong, Germany, Japan, and England through a subsidiary of Daesung Bank, Gold Star Bank (Geumbyeol Bank) in Vienna, Austria.

The $25 million which was frozen in Banco Delta Asia in 2005 was allegedly known to be some of Kim Jong Il’s governing funds managed by the No. 39 Department.

Radio Free Asia reports that even the Luxembourg government seems likely to implement any new sanctions, quoting them as saying, “We are keeping a close eye on the illegal activities which can take place through North Korea’s overseas accounts.”

The No. 39 Department has 17 overseas branches, 100 trading companies and banks under its auspices. They generate foreign currency through loyalty funds collected from each agency and management of hotels and foreign currency stores. Also, they trade the country’s natural resources including pine mushrooms, gold and silver.

The department is also in charge of the production of “supernotes,” high quality counterfeit $100 bills, and has a role in weapons and the illegal drugs trade.

The funds are mostly spent on the living costs of the Kim family and the patronage network required to maintain his coterie of high officials. In 2008, the sum of luxury goods purchased by North Korea was estimated to be more than $100 million. For example, immediately prior to the anniversary of Kim Il Sung’s birth on April 15th, North Korea imported approximately 200 high grade vehicles from China.

Since foreign currency generation started to become difficult due to the sanctions, Kim Jong Il has allegedly revived the No. 38 Department, which used to be in charge of overseas currency earning and was only merged with the No. 39 Department in September of 2009, and replaced the head of No. 39 Department with Jeon Il Choon, an old high school friend.

As Kim Kwang Jin, a North Korean defector who worked for the Northeast Asia Bank of North Korea, pointed out in a recent press interview, “The UN Security’s North Korea sanctions and the United States’ Banco Delta Asia sanctions must have caused the shrinking of North Korea’s overseas accounts. It is possible that North Korea could try to open accounts under phantom company names to continue with its financial trades.”

According to Yonhap:

North Korea’s former Premier Pak Pong-ju appears to have returned to power with the Workers’ Party, more than three years after he was ousted due to his economic reform drive, according to a Pyongyang broadcast report on Saturday.

The North’s Korean Central Broadcasting Station introduced Pak as the “first deputy director of the Central Committee of the Workers’ Party of Korea,” reporting on the 50th foundation ceremony of Pyongyang’s flagship Okryu Restaurant held Friday with a number of senior officials and workers.

There is no other known figure with the same name among the North Korean power-holding elite.

Pak, a long-time industry technocrat and pragmatist, was named premier of the North’s Cabinet in September 2003. He spearheaded the North’s so-called July 1st Economic Measure reform drive toward market economy, which aimed to give more autonomy to state firms and gradually reduce state rationing of food and daily necessities.

But his strong initiative triggered a backlash from the party and the military that resulted in his dismissal. Pak was suspended from duty in June 2006 on charges of fund apprehension and was fired in April the following year. Kim Yong-il, then land and marine transport minister, replaced him.

Pak is believed to have been demoted to a managerial post at a clothing factory outside Pyongyang.

Cho Myung-chul, a senior researcher at the Korea Institute for International Economic Policy who has defected from North Korea, viewed Pak’s reinstatement as a signal of a shifting North Korean economic policy toward pragmatism, following its failed currency reform last year.

“Pak is an emblematic figure of the July 1st Economic Measure that promoted pragmatism. His reinstatement could be connected with an economic policy shift back to pragmatism after the anti-market currency reform failed.”

In a bid to curb the burgeoning merchant class and strengthen its socialist system, North Korea implemented a surprise currency reform in November, knocking two zeros off its denominations. But the move backfired, worsening food shortages and triggering social unrest.

Apparently taking responsibility for the botched reform, Premier Kim Yong-il was replaced by Choe Yong-rim in June.

The broadcast report on Saturday did not specify which department of the Workers’ Party Pak joined, but it is likely that he was posted to the light industry department, considering the ceremony involving a restaurant and the fact that he was the department’s first deputy director in 1993.

Pak is believed to be a close confidante to Jang Song-thaek, vice chairman of the National Defense Commission and brother-in-law of North Korean leader Kim Jong-il. Jang is seen as the central figure in grooming Kim’s third and youngest son, Jong-un, as the next leader.

Japan’s Mainichi Shimbun reported on Aug. 15, quoting multiple sources, that Pak and about 20 other figures close to Jang had been reinstated within the past two years. The report also said Pak has risen to the second highest spot in the party’s light industry department, which is headed by Kim Kyong-hui, Kim Jong-il’s sister and Jang’s wife.

According to the New York Times:

He is the latest among senior North Korean officials whose sudden banishment and equally unexpected reinstatement have sparked outside speculation about Mr. Kim’s intentions. Mr. Pak appeared to have fallen from Mr. Kim’s favor when he was fired from the premiership in 2007 and sent to work as a factory manager in a provincial town.

“His reinstatement could signal the return of pragmatists and reformists,” said Cheong Seong-chang, a North Korea analyst in the Sejong Institute south of Seoul. “We may be able to see him push the economic reform and openness he had once championed.”

Analysts in Seoul say that few North Korean officials wield much individual influence in Mr. Kim’s government. But they say that they can infer Mr. Kim’s plans from the way he punishes and rewards officials identified with various policy approaches.

“Pak’s reinstatement indicates that North Korea is shifting back to market reforms, even if grudgingly, after its botched attempt to re-enforce state control on the economy,” said Baek Seung-joo, the head of North Korea research at the government-financed Korea Institute for Defense Analyses in Seoul.

Mr. Pak, a lifetime technocrat, was best known as the architect of “Measures to Improve Economic Management Order.” Issued on July 1, 2002, they indirectly acknowledged the failure of the North’s ration system by instructing factories, collective farms and other economic units to provide their own daily necessities and give incentives for workers.

In September 2003 Mr. Pak was made prime minister, a post in charge of carrying out economic policies.

His reforms were necessitated by the collapse of the centrally planned economy after a famine in the mid-1990s. But they also coincided with — and fueled — the spread of private markets, which quickly emerged as a key source of food and other necessities for North Koreans.

But Mr. Pak’s reform programs irked the government’s old guard, especially in the hard-line military, which had grabbed the lion’s share in trade under the old system. The markets facilitated the influx of DVDs and other smuggled goods the government considered a capitalist threat.

Around 2005, North Korea began controlling markets. Its attempt to reinforce state control on the economy peaked late last year when it replaced its banknotes with a new currency, shut down markets and ordered people to buy goods only from state-run stores. The currency reform was aimed at stifling the markets by drastically reducing traders’ personal wealth in the old currency.

The moves quickly backfired. Inflation surged as traders hoarded their goods and government stores failed to meet demand. Sporadic protests were reported. Earlier this year, Pak Nam-gi, head of finance and planning who led the failed currency reform, was executed, according to South Korean news reports. North Korean markets began coming back to life, according to recent defectors.

Pak Pong-ju, the former prime minister, returns as North Korea prepares for a party caucus early next month. Officials and analysts in Seoul say they will monitor the meeting for changes in the cabinet and party leadership that might provide clues to Mr. Kim’s plans to hand over power to his third son, Kim Jong-un, who is in his late 20s.

Mr. Pak’s reinstatement adds to the growing influence of Jang Song-taek, Mr. Kim’s brother-in-law, said Mr. Baek, the researcher.

In June, Mr. Kim presided over a session of the rubber-stamp Supreme People’s Assembly where Mr. Jang, a potential caretaker for his son, was elevated to the No. 2 post in the ruling hierarchy. In the same meeting, Mr. Pak’s successor as prime minister, Kim Yong-il, who reportedly made a rare apology in February for the botched currency reform, was fired.

Mr. Pak, as first deputy director, is believed to report directly to Kim Kyong-hee, Mr. Kim’s younger sister and Mr. Jang’s wife, who works as party director in charge of the North’s light industries, Mr. Cheong said.

Read the full stories here:
N. Korean ex-PM Pak Pong-ju appears to be back in power
Yonhap
8/21/2010

North Korea Reinstates Market-Oriented Official
New York Times
Choe Sang-hun
8/23/2010

Story 2: The Inauspicious Life of Pilots
Daily NK
Yoo Gwan Hee
8/20/2010

…In North Korea, pilots receive top class treatment alongside submariners and the missile corps. They live above the law in many ways. For instance, if a pilot murders someone in society and then returns to their unit, M.P.s cannot arrest them.

While the top choice of middle school graduates is to work in the No.5 Department of the Central Committee of the Party, that which oversees every aspect of Kim Jong Il’s life, pilot is a popular second choice. The primary condition for selection is family background.

Until the 1980s, offspring of normal workers could be selected if they had a good academic record and enough physical strength. However, any person whose family had committed a political crime was excluded. Also, if a family member had sided with South Korea or went missing during the Korean War, they would be excluded, too.

Until this period, the occupation of pilot was deemed to be a dangerous job and children of the elite did not consider it as a career. However, as the economic crisis began in the 1990s, this view changed. Many of the children of elite officials now choose to become pilots.

Currently, pilots still receive ‘special treatment’ in North Korea; however, it is not particularly special any more. Compared to Party officials, who make money in business, the feeling of deprivation which pilots feel has increased a lot.

Pilots are still bound to the state for their living, while the elite increase their wealth and authority through foreign currency earning and market business.

Until the early 1990s, “No. 4 supplies,” which are given to pilots, were free and extras were sold to their families if necessary. Also, since North Korea was worried about the pilots’ mental states, they took care of family issues and distributed supplies to their families once a month.

Even during “The March of Tribulation” in the mid-1990s, normal food distribution was given to families of pilots. However, as the atmosphere in society changed, their stress is increasing. Children of pilots are becoming a target in schools; teachers demand much of pilots’ children first.

Air Force Units receive a relatively good coal supply, however, since the absolute quantity is still lacking, they need to prepare firewood on their own, too. Until the early 1990s, if one or two packs of cigarette, soybean oil, and beer were given to workers on a farm in the surrounding area or a forest ranger, firewood might come in return. However, the times have changed.

Wives of pilots also have to enter the battle. Wives sell distributed supplies to wholesalers or sell them directly in farming villages in the surrounding area.

However, even in the situation where a lot of workers receive not even a single grain of rice from the nation, the supply for pilots is still special. However, since pilots do not have the authority to use it for business and bribery like other officials; their practical standard of living is not very different from a person who sells home appliances in the market.

The biggest stress which North Korean pilots feel is their concern for their old age. Currently in North Korean society, the treatment you receive in active duty and that of the retired are very different.

Until the 1990s, North Korea praised pilots as a “treasure of the nation” and promised them lifelong care. But after 2000, the retired were completely abandoned. The national pension is worth less than a price of one kilogram of corn.

Usually in other countries, the rising generation has more discontent toward the government compared to the mature group, but in North Korea it is the opposite and this is the reason for the phenomenon. When retired, they need to farm or do business in the market, but retirees are short of market experience and strength. Current pilots, observing the lives of their former comrades, cannot feel comfortable about it.

Now we are in an era where even a pilot receiving “top” level treatment from North Korea attempts an escape, and this is not surprising anymore.

Story 1: Pilot Privileges Fade into History
Daily NK
Yoo Gwan Hee
8/11/2009

…[S]pecial employees, such as air force pilots or submarine captains, belong to a class which is treated as the most exceptional in North Korea (notwithstanding officials or members of elite organizations). Before the start of the 21st century, pilots enjoyed considerable privileges. The North Korean state paid special attention to cultivating pilots, showering them with preferential treatment. Goods provided to pilots and their family members were entirely free and a separate compensation-based ration system applied to the whole group.

So, in the North, the closest thing to a “summer vacation” as enjoyed by the people of the free world would inevitably be the “recreation” of pilots. In North Korea, pilots and their family members were permitted vacation once a year and once every two years, respectively. Submarine captains were entitled to similar terms.

Some of the recreation centers used by pilots and their families include the “Galma Recreation Center” in Wonsan, the “Sokhu Recreation Center” in South Hamkyung Province, and the “Jooeul Recreation Center,” among others. All are located near the ocean, and are unparalleled in terms of scenery. In the case of the Galma Recreation Center, there are two buildings housing bedrooms for the visitors standing side-by-side in a shady area, while a separate dining hall and indoor gymnasium can also be found.

Usually, three to four singles and four to five married households from one unit (regiment level) could use the recreation center at any one time.

Single and family rooms are separate. In the former, there are four single beds and in the latter, two double beds. According to regulations, only two children per family are permitted; those who need to bring three or four children have to work out an arrangement with the management office.

In the centers, there is no designated work, but meals and sleeping times must be strictly kept. Breakfast begins at 7:30 A.M., lunch at 12:30 P.M. and dinner at 6 P.M.; naps can only be taken between 2 and 4 P.M. Bedtime is fixed at 10 P.M. Guests have to strictly adhere to these times.

Besides these restrictions, the visitors have the freedom to spend time as they want. Some people play Chinese chess (janggi) and others cards while the rest may choose to head for the beach.

The menus for the week are displayed next to the windows from which the food is served. Soup and bowls of rice are distributed per person and up to four side dishes are distributed to each table (a table consists of two groups).

Until the early 1990s, the most popular food among those served at the recreation centers was bread made in the former Soviet Union. Every morning, a Russian bread called “Khleb,” on which butter or powdered sugar could be put, was provided. The fruit which was given to each person at lunchtime was also popular with the visitors.

The period of recreation enjoyed by pilots was usually 20 days. However, some families, rather than using up all of their days, left the recreation centers in a hurry to visit parents or relatives in their hometowns. Usually, an additional 15 days of vacation was added unto the 20 recreation days, during which many people take trips to their hometowns.

Some diligent wives would continue to work even while in the centers. Surrounding the Galma Recreation Center, located on the shore of the East Sea, or the Sokhu Recreation Center are heaps of seaweed which are washed ashore with the tides. The wives, after washing the seaweed in the ocean water, dried it on the seashore.

Two or three 50-kg bags are barely sufficient for that much dried seaweed. Wives sent these to their in-laws or families with satisfaction.

However, such extravagant levels of recreation for pilots began to disappear in the mid-1990s with the March of Tribulation. Now, even when the state issues recreation permits, people tend to take off for hometowns, not to recreation centers.

Further, with the decline in the national esteem of pilots in recent years and due to the fact that the items which are provided as rations tend to be sold in the markets for additional income, the luxurious lives of the special class are becoming less impressive all the time. Recently, some pilots have even been selling their cigarette rations (one month’s worth) in the jangmadang.

Corruption also afflicts pilots to no small extent. Schools request additional money and products from the children of pilots, due to the popular image of affluence they command.

The sense of deprivation among pilots and family members, who are supposedly among the most revered people in North Korea, has been growing. Their status has indeed decreased over the years; one cannot ignore the fact that the standard of living of private merchants or foreign currency earners has now outpaced that of pilots, who are dangerously dependent on rations for their survival.

According to the Daily NK:

It has been suggested that pets should added to the list of “luxury goods” sanctioned and supposedly out of reach of the Kim Jong Il regime.

While “thoroughbred horses” are already a luxury good on the EU’s list of banned products published in the final version of the “Report to the Security Council from the Panel of Experts Established Pursuant to Resolution 1874”, there is nothing about pets.

However, according to one anonymous source well-versed in North Korea matters, Kim Jong Il has been known to spend hundreds of thousands of dollars on pets from France and Switzerland.

The money for his purchases apparently comes from the No. 39 Department of the Central Committee of the Party, according to a Daily NK source, and since the funds generated by the No. 39 Department come from illicit activities such as selling weapons, drugs, counterfeit cigarettes and super notes, he believes this pet-related trading must also be put on the list of sanctioned “luxury goods.”

Among dogs, for example, Kim apparently has a preference for the Shitzu and has spent many thousands of dollars purchasing and raising them. Kim Chun Hyung, a Seoul-based veterinarian, confirmed the price of such fine breeds, saying, “The price of pets is very diverse, but when you import a purebred you may need to pay tens of thousands of dollars.”

Jang Jin Sung, a poet who was said to be Kim Jong Il’s favorite poet in North Korea until he defected in 2004, described how much Kim Jong Il loves his pet dogs in an interview on Wednesday, explaining, “I was invited to a no.1 event, in which Kim Jong Il is set to appear, at Kim’s Kalmacheon Villa in Wonsan, Kangwon Province. Security was so fussy that they forced us to disinfect our hands, and then I waited for him nervously.”

“All of sudden a small white puppy appeared, which made me wonder, but then Kim Jong Il entered the hall behind it,” Jang said. “While Kim was having dinner, the puppy walked around without restriction. When it approached Kim, he petted it many times.”

The anonymous source said that Kim is always accompanied by dogs to his onsite inspections, adding that their food and shampoo is all imported, from France in the case of shampoo.

When the animals fall sick, top quality vets from foreign countries are invited to Pyongyang or the animals are taken overseas for treatment, the source said, adding, “The reason why they go by plane is for ease of customs clearance.”

The responsibility for importing pets is the job of overseas-based officials, but due to Kim Jong Il’s picky taste, especially in cats, they find it hard to match the color of fur or eyes that Kim likes, according to the source. 

Read the full story here:
Pets Are Luxury Goods, Too
Daily NK
Shin Joo Hyun
8/12/2010

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
8/6/2010

In the East Asia Forum:

June 2010 saw two major anniversaries on the Korean peninsula. On June 25 sixty years ago the Korean People’s Army (KPA) invaded the South launching a bitter three-year war. North Korea still denies culpability, claiming it was repelling a Southern invasion; despite overwhelming evidence, now backed by Soviet archives, that it was the aggressor. No less mendaciously Pyongyang nonetheless celebrates the July 27, 1953 Armistice which ended open hostilities as a ‘brilliant victory in the Fatherland Liberation War’ — even though this left the North bombed and napalmed to ruination.

China still formally backs the North’s version, but this year some brave soul decided to take seriously the late Deng Xiaoping’s instruction to ‘Seek truth from facts.’ The International Herald Leader, an affiliate of Xinhua news agency let the cat out of the bag. It featured interviews with Chinese historians telling the true story, and a timeline stating that ‘The North Korean military crossed the parallel on June 25 1950 and Seoul was taken in four days.’ Naturally, the article rapidly vanished from the web. But many Chinese now are openly critical of the DPRK, and embarrassed that Beijing continues to toe Pyongyang’s line.

North Korea itself sticks to the old tunes. On June 22 the Korean Central News Agency (KCNA) reported what it headlined as ‘Revenge-vowing Meetings.’

Youth and students and agricultural workers gathered in Susan-ri… and in Sinchon … Tuesday to vow to take revenge upon the U.S. imperialists on the occasion of the ‘June 25, the day of the struggle against the U.S. imperialists’.

The reporters and speakers at the meetings recalled that the U.S. imperialists brutally destroyed cities, villages, factories and farms and killed innocent civilians…denouncing the Yankees as a herd of wolves in human skin and the Koreans’ sworn-enemy with whom they cannot live under the same sky…

They bitterly condemned the U.S. imperialists and the Lee group of traitors for totally negating the historic June 15 North-South Joint….

If the U.S. imperialists intrude into the DPRK even an inch, all the servicepersons and people will mercilessly wipe out the aggressors.

Rhetoric like the above is clearly intended to fan the flames of hatred.

A further KCNA item on June 24 purported to list the ‘Tremendous Damage Done to DPRK by US.’ The KCNA, with unusual precision, computed a total of nearly 65 trillion dollars for human and material losses inflicted from 1945 up to the present. Considering the state of US public finances, Kim Jong-il should not expect a cheque any time soon. There is also a degree of inflation; last time KCNA published such an exercise, in November 2003, the bill was a mere US$ 43 trillion. One can only wonder what is the point of such grandstanding.

So savage a mood has torpedoed a second anniversary; one which should have been happier. On June 13 2000 South Korea’s then president, the veteran democrat Kim Dae-jung flew to Pyongyang for the first ever inter-Korean summit with the North’s leader, Kim Jong-il. On June 15 they signed a North-South Joint Declaration; Kim Dae-jung was awarded that year’s Nobel Peace Prize. Thus began a decade of unprecedented North-South cooperation, albeit patchy and one-sided. This ‘sunshine’ policy was ended by South Korea’s current president, Lee Myung-bak, who insists that the North must give up its nuclear weapons first if it wants better ties with the South. That sounds fine in theory, but few expect it will ever happen.

North Korea made much of the June 15 anniversary, even while excoriating the ‘traitor’ Lee Myung-bak for trampling on it. Pyongyang warmly welcomed a South Korean radical priest, Han Song-ryeol, who made the trip illegally to mark the occasion.

South Korea by contrast played up the war anniversary more than the inter-Korean one. Lee Myung-bak used this occasion to once again call on the North to admit that it sank the ROK corvette Cheonan on March 26, and to apologise.

Will the Cheonan go unpunished?
Nevertheless, it looks increasingly like Pyongyang has got away with it. June brought Lee Myung-bak little joy on the issue, at home or abroad. Local elections in South Korea on June 2 saw his ruling Grand National Party (GNP) rebuffed. Many voters saw Lee’s tough first reactions, which roiled global markets, as adding to rather than reducing risk.

Abroad too Lee has met obstacles. Assured of firm US and other Western support he is struggling to convince Russia and China. That was predictable: for Beijing and Moscow, unwillingness to paint Pyongyang into a corner was always going to trump the facts. A Russian naval team visited Seoul to inspect the Cheonan wreckage, including DPRK torpedo parts, but is not expected to report until July. In this light the ROK government will be relieved that the G-8 summit in Canada on June 25 issued a strong statement on the Cheonan – after energetic lobbying by Japan’s new prime minister Naoto Kan, which will get his relations with Lee Myung-bak off to a good start. Connoisseurs of diplomatic wordplay noted that while the G-8 condemned the attack, noted that an international team had blamed it on Pyongyang, and called on the DPRK to avoid any attacks against the ROK, it did not quite join up all those dots; doubtless at Moscow’s behest. Lee may lobby similarly when he arrives for the ensuing G-20 summit; although since South Korea chairs the group and will host its next jamboree in Seoul in November, it may look bad if he were perceived as acting in too particularist a way.

Earlier, on June 4 South Korea formally referred the Cheonan incident to the UN Security Council (UNSC). On June 14 both Korean states briefed the UNSC, with the North as ever denying all responsibility and urging the Council not to consider the matter. No official response is expected until July. With Russia and China likely to abstain at best, whatever the Security Council eventually comes up with looks set to be a damp squib. South Korea has already said it will not seek further sanctions, on top of those already in force under earlier UNSC resolutions from 2006 and 2009 after the North’s two nuclear tests. But it would like a clear, resounding condemnation, preferably in the form of a resolution.

Looking ahead, it is not too soon to wonder how the two Koreas will get past Cheonan. Record numbers of DPRK workers at the Kaesong Industrial Zone (KIZ) – 44,000 as of June, according to the ROK unification ministry (MOU) – are seen in Seoul as a sign that at some level Pyongyang remains committed to this joint venture at least.

A big event in September
Meanwhile North Korea looks more preoccupied with the succession issue than in reaching out to South Korea.

On June 26 KCNA reported that ‘the Political Bureau of the WPK [Workers’ Party of Korea] Central Committee decides to convene early in September … a conference of the WPK for electing its highest leading body reflecting the new requirements of the WPK.’

Though nominally it is North Korea’s ruling communist party, and still an important tool of control at lower echelons, the WPK has seen its topmost organs atrophy under Kim Jong-il. Neither the rarely mentioned Politburo nor the Central Committee (CC) is known to have met at all in the 16 years since Kim Il-sung died. Kim Jong-il has favoured the army, ruling through the NDC and informally via a kitchen cabinet of trusted cronies. The dear leader is also of course secretary-general of the WPK, but he acquired that post irregularly: by acclamation at a series of local Party meetings, rather than being duly elected by the CC.

Hence while the precise nature of September’s meeting remains vague, like its exact date, it looks like a long overdue effort to restore a measure of due process to the Party. If this is in fact a full formal WPK congress, it would be the first since the Sixth Congress thirty years ago in October 1980. It was then that Kim Jong-il, hitherto veiled behind coded references to a mysterious ‘Party Centre’, was finally revealed in the flesh. The speculation is that this new meeting similarly will finally give the world a glimpse of the enigmatic Kim Jong-eun.

While all rumours emanating from Seoul should be treated carefully it’s hard not to link this news with reports that Kim Jong-il’s health is worsening. There are claims that on some aides including his son are duping him with Potemkin factories to hide from him how dire the economy really is. An already tardy succession can clearly brook no further delay, or else regime stability and continuity may be gravely imperilled.

The economy shrank again last year
If Kim Jong-il wants to know how his economy is really doing, he could look at the latest estimates from the enemy.

The (southern) Bank of Korea (BOK) published its latest estimates, covering 2009, on June 24, just in time for Seoul to crow about them as it marked the Korean War anniversary. By this reckoning North Korea’s real annual gross domestic product (GDP) shrank by 0.9 per cent last year. Unlike most other countries this had little to do with the global financial crisis. Rather it reflected local conditions, natural and man-made.

The gaps just get wider
The result is a huge and ever widening gap. North Korea’s gross national income (GNI) in 2009 was a mere 2.7 per cent of the South’s. BOK cites Northern GNI in 2009 was US$22.4 billion, compared to US$837 billion for the South. True, the South has over twice as many people. But the average North Korean per capita income too is a minute fraction of the South’s, with the ROK topping US$17,000 while the DPRK’s is a paltry US960. (Some experts, including a former unification minister, think even this is too high and posit a figure nearer US$300, putting North Korea among the poorest nations on earth.)

With trade figures the gap is even wider. This year inter-Korean trade will fall, since Seoul has banned most of it (except the Kaesong zone, which accounts for over half) as punishment for the Cheonan. Peanuts to the South, this has been crucial for the North: South Korea is its largest market, taking almost half of its meagre total exports. Last year inter-Korean trade like DPRK trade overall fell slightly, from US$1.82 to US$1.68 billion. Yet Northern exports crept up, from US$932 to 934 million.

In 2009 North Korea’s real trade totals were just under US$2 billion in exports and US$3.1 billion in imports. They are still dwarfed by South Korea’s respective figures of US$364 and US$324 billion – and this in a bad year for the South, due to the downturn.

Every year the gap widens further, yet still Kim Jong-il refuses economic reform. It is hard to fathom a mind-set which can inflict such disaster and tragedy on a once proud land and people – and whose idea of a way out of its self-dug hole is to fire a sneaky torpedo.

Good losers
It was left to North Korea’s footballers to remind the world that their country does not lack for talent and virtue. As one would expect, North Korea were a disciplined team. They kept to themselves and avoided the press – with one striking exception, Jong Tae-se. Born in Japan to a South Korean father and a pro-North Korean mother, and having attended schools run by Chongryun – the organisation of pro-North Koreans in Japan – he elected to play for the DPRK; although he still holds ROK nationality, lives in Japan and plays in the J-League for Kawasaki Frontale.

A young man whose talk is as uninhibited as his style of play, Jong cried when the DPRK anthem was played before the Brazil match. Yet his love for his adopted homeland is not uncritical. ‘Everybody thinks about our country as being closed and mysterious, so we have to change that,’ he told AFP. ‘We can change for the better if we are more open with the way we talk to people and it would make a better team.’

It would make a better country too. If North Korea’s fate must rest in the hands of an untried youth, better it were the warm-hearted and wised-up Jong Tae-se than Kim Jong-eun.

Read the full story here:
North Korea: Unhappy anniversaries
East Asia Forum
Aidan Foster-Carter
7/6/2010

According to the Daily NK:

North Korea has earned more than $160 million in the last ten years thanks to the construction of sculptures and other edifices in countries across Africa.

A Daily NK source in China revealed on the 18th, “Since 2000, North Korea has been earning colossal quantities of dollars through contracts for the Mansudae Overseas Project Group of Companies under the Mansudae Art Institute to construct sculptures.”

Mansudae Art Institute is an organization primarily dedicated to the idolization of Kim Il Sung and Kim Jong Il through public works, one whose construction of edifices such as the Juche Tower and Arch of Triumph in Pyongyang has added to the status of the country.

It has also been building revolutionary monuments in African countries such as Ethiopia since the 1970s in order to maintain cordial relations with socialist states, but in the early 2000s started doing work in African countries to earn foreign currency as well.

According to the source, North Korea has earned $66.03 million from Namibia alone thanks to the construction of the Presidential Palace ($49 million); the Cemetery of National Heroes ($5.23 million); a military museum ($1.8 million); and Independence Hall ($10 million).

It has also earned almost $55 million from Angola via the António Agostinho Neto culture center ($40 million); Cabinda Park ($13 million); and the Peace Monument ($1.5 million).

Additionally, the North has constructed a basketball stadium ($14.4 million) and an athlete academic center ($4.8 million) in the Congo, earning almost $20 million dollars in total.

Thanks to the Monument to the African Renaissance in Senegal, the North has made another $12 million dollars.

There are around 19.8㎢ set aside for a vacation spot for the president of Equatorial Guinea, which is supposed to earn Mansudae around $800,000, not to mention a government office building ($1.5 million), Luba Stadium ($6.74 million) and conference halls ($3.5 million).

The source also reported, “The money earned from these construction projects is managed by the No. 39 Department. Some of these dollars are used for domestic governance, while the rest go to secret accounts in Switzerland or Macau to become Kim Jong Il’s secret funds.”

Here are the images from the story including a table of financial data (which I would take with a grain of salt):

Additional Information:

1. I blogged here about the Derg Monument in Ethiopia.

2. I have located some of the Mansudae Overseas projects mentioned in this story (as well as numerous other places not menioned in this story: Egypt and Syria, Zimbabwe, DR Congo). However, here are GeoEye satellite images of some of the Namibia and Angola projects mentioned above courtesy of Google Earth:  

Namibia National Heroes Acre (22°39’46.02″S,  17° 4’41.06″E):

Namibia State House (22°35’28.83″S,  17° 6’2.76″E)

Cultural Center of António Agostinho Neto (Mausoleum) (8°49’24.73″S,  13°13’8.52″E)

According ot the Choson Ilbo:

North Korea in March restored a special department in the Workers Party codenamed Room 38 which manages leader Kim Jong-il’s coffers and personal slush funds, it emerged Monday. The North last fall merged Room 38 with Room 39, which manages party slush funds.

“Rooms 38 and 39 were merged to simplify Kim Jong-il’s slush funds,” said a North Korean source. “But when it became difficult to secure hard currency due to international sanctions, Room 38 seems to have been restored because there was a feeling that Room 39 alone can’t meet the need.”

Room 38 is reportedly led by Kim Tong-il, who heads three regional departments in charge of earning hard currency.

Room 39 tries to maximize earnings from gold and zinc mining and farming and fisheries. It also manages stores and hotels exclusively for foreigners in Pyongyang. Room 39 seems to have suffered badly due to the recent suspension of inter-Korean trade. “Taesong Bank and Zokwang Trading, which received remittances from Mt. Kumgang tourism, are both controlled by Room 39, and is also in charge of the exports of agricultural and fisheries products,” said a government source.

Kim Jong-il needs dollars to maintain the party elite’s loyalty to him and his heir presumptive. He is said to have told party bigwigs in February, “From now on I will judge your loyalty based on the amount you contribute to the fund.” His son Jong-un is also said to be amassing separate slush funds for his own use.

But international sanctions on exports of weapons, counterfeit dollars, fake cigarettes and drugs remain in place, and the United States is pushing ahead with additional financial sanctions over the North’s sinking of the South Korean Navy corvette Cheonan in March. Pyongyang was dealt a heavy blow in 2005 when the U.S. froze US$25 million in the Banco Delta Asia in Macao which was apparently for Kim’s personal use.

Kim earlier this year appointed his high school friend Jon Il-chun head of Room 39. Jon was also named chairman of the National Development Bank, established early this year with a view to conducting normal international financial transactions to induce foreign investment. “North Korea seems to be planning to divert part of foreign investment to Kim’s slush fund,” said a government official.

NK Leadership Watch has more. 

Read the full story here:
Kim Jong-il Restores Special Department to Swell Coffers
Choson Ilbo
6/24/2010

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-06-17-1
6/17/2010
 
As North Korea’s food shortages worsen and reports of starvation continue to grow, the Workers’ Party of Korea have acknowledged the failure of the central food ration program. Since the end of May, the Party has permitted the operation of 24-hour markets, and the regime has ordered the people of the North to provide for themselves.

The human rights organization Good Friends reported this move on June 14. According to Good Friends, the Workers’ Party organization and guidance bureau handed down an order on May 26 titled ‘Relating to Korea’s Current Food Situation’ that allowed markets to stay open and ordered North Koreans to purchase their own food. This order, recognizing that the food shortages in the North have continued to worsen over the last six months, since the failed attempts at currency reform, acknowledged the difficulty of providing government food rations. It calls on those who were receiving rations to now feed themselves, while also calling on the Party, Cabinet, security forces and other relevant government agencies to come up with necessary countermeasures. Now, authorities officially allow the 24-hour operation of markets, something that most had already tacitly permitted, and encourage individuals, even those not working in trading companies, to actively import goods from China.

It has been reported that government food rations to all regions and all classes of society, even to those in Pyongyang, were suspended in April. The last distribution of food was a 20-day supply provided to each North Korean on April 15, the anniversary of the birth of Kim Il Sung. Because of the difficulty of travelling to markets, the suspension of rations caused many in farming communities to starve to death. When Kim Jong Il’s recent visit to China failed to secure expected food aid, the Workers’ Party had no choice but to hand down the ‘May 26 Party Decree’. While the suspension of rations has considerably extended the economic independence of North Korean people, the regime has significantly stepped up other forms of control over society. Public security officers have begun confiscating knives, saws and other potential weapons over 9 centimeters long in an effort to stem murder and other violent crimes. Additionally, state security officials are cracking down on forcefully resettling some residents of the age most likely to defect, while sending to prison those thought to have contacted relatives in South Korea.

According to Daily NK, North Korean security officials are pushing trading companies to continue trading with China, while calling on Chinese businesses to provide food aid. It also appears that North Korean customs inspections along the Tumen River have been considerably eased, and there is no real attempt to identify the origin or intended use of food imported from China. Sinheung Trading Company has asked Chinese partners investing in the North to send flour, corn and other foodstuffs. The Sinheung Trading Company is operated by the Ministry of State Security, and is responsible for earning the ministry foreign capital. It appears that food acquisition is now a matter of national security, as North Korea is expecting South Korea and the rest of the international community to economically isolate the country.

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-06-14-2
6/14/2010

During the third session of the 12th Supreme People’s Assembly, convened on June 7, Kim Jong Il promoted his brother-in-law Jang Sung Thaek to vice-chairman of the National Defense Commission (NDC), named a new premier, and replaced several department heads and ministers. This appears to be an attempt to shore up the regime as it seeks to “open the door to a strong and prosperous nation” by 2012, the 100th anniversary of the birth of Kim Il Sung. Kim Jong Il made a personal appearance at this latest assembly meeting, unlike the SPA meeting held in April. The leader’s presence hints at the importance of the latest gathering.

This promotion of Jang Sung Thaek and shake up of Cabinet positions appears to be part of efforts to realize the quickly approaching goal of establishing a ‘strong and prosperous nation’ by 2012, assigning those most able to positions of responsibility, regardless of age or experience. Most notably, Jang, widely thought to be second-in-command in North Korea, was promoted to vice-chairman of the NDC. He was first appointed to the NDC at the first meeting of the 12th SPA in April 2009, making his climb to vice-chairman in a mere 14 months.

Before the latest promotion, Jang held the position of vice-director of the Workers’ Party of Korea, a newly created position that he was the first to hold. In this position, Jang oversaw national security offices, police, and the courts, putting him in a position of power difficult for anyone else to achieve. Having traveled to both South Korea and China, Jang Sung Thaek was likely promoted to present the image of a strong military and, at the same time, establish stable relations with the international community in order to ensure a smooth transition of power as well as to resurrect the economy by 2012. When Kim Jong Il led a delegation to China last May, the Chinese government treated Jang very well, ignoring standard protocol for someone in his position.

In addition, Choe Yong Rim was named the North’s new premier, and eight new vice-ministers were appointed. Regional Party secretaries were allowed to participate directly, allowing those who are most knowledgeable of local conditions to impact the decisions of the administration. Most of the new appointments were very experienced elites, including Choe Yong Rim (80) as premier, and Kang Neung Su (80), Kim Rak Hui (77), Ri Thae Nam (70), and Jun Ha Chul (82). The regime is promoting a number of veterans who are making their “last stand for the motherland” as part of the effort to ensure stable transformation of power after Kim Jong Il.

With Kim Rak Hui’s appointment as vice-premier and new appointments to the Ministry of Foodstuff and Daily Necessities Industry as well as the head of the Light Industry Ministry, North Korea seems to be pursuing the improvement of standards of living promised in the 2010 New Year’s joint editorial. Pyongyang Party officials appear to be attempting to reassert a centrally planned economy in the aftermath of botched currency reform efforts; however those witnessing regional economic conditions appear much more able to come up with appropriate economic policies. North Korea has been unable to make any significant progress in resolving its food shortages or its inability to provide daily necessities to the public, leading the regime to scapegoat some high-ranking officials. Now, many in and outside of North Korea are watching closely to see if the regime can launch economic efforts capable of successfully ‘opening the door to a Strong and Prosperous Nation’ in the next two years.