Archive for the ‘Bureau 38’ Category

Office 38 reportedly back in business–and other changes

Sunday, February 20th, 2011

UPDATE 4 (2/20/2011): Kim Tong-un (김동은) named Kim Jong-il’s fund manager.  According to Yonhap:

A senior official of North Korea’s ruling party has been named to lead a special party bureau, code-named Office 38, that oversees coffers and raises slush funds for its leader Kim Jong-il and the ruling elites, a source on North Korea said Sunday.

Kim Tong-un, formerly head of Office 39 in the Workers’ Party of Korea, assumed the post in May last year, when North Korea revived Office 38, which was merged with Office 39 in 2009, the source said on condition of anonymity. Office 39 is believed to be another organ that governs a wide network of business operations both legal and illegal.

Both Offices 38 and 39 belong to the Secretariat of the Workers’ Party, which Kim Jong-il chairs, according to a diagram of the North’s power structure released by the Unification Ministry, which handles inter-Korean affairs. Last year, the ministry had only included Office 39 in a similar diagram.

In a meeting with reporters last week, a ministry official said Office 38 has been spun off from Office 39 and is now running on its own again. The official, who would speak only on the condition of anonymity citing the sensitive nature of his comments, described “a stream of information” that has come through since mid-2010.

Office 38 mainly oversees transactions involving foreign currency, hotels and trade, the official said, while Office 39, headed by Jon Il-chun, drives revenue by dealing in narcotics, arms, natural resources and others.

The North’s revival of Office 38 is interpreted as an effort to cover the increasing cost of leader Kim Jong-il’s ceding of power to his youngest son, Jong-un.

The story was also reported in Yonhap.

UPDATE 3: Here are links to the Ministry of Unification‘s English language organization charts of the North Korean leadership in which some of the changes mentioned below are listed (though not all): Workers’ Party, State Organs, Parties and Organizations

UPDATE (2/15/2011): According to the Daily NK:

The number of Special Departments under the Secretariat of the Chosun Workers’ Party has been increased from 18 to 20, a move that includes the revival of the No. 38 Department, which previously served as Kim Jong Il’s private bank vault, and the foundation of a film department.

The Ministry of Unification revealed the news yesterday in its 2011 North Korean Power Structure and Index of Figures, Agencies and Organizations. It incorporates North Korean changes from December, 2009 up to the present day, completed after consultation with relevant agencies and experts.

The revival of the No. 38 Department and founding of a film department

The report states, “The No. 38 Department, which was merged with the No. 39 Department in 2009, was spun off again last year. Kang Neung Su, who was appointed Deputy Prime Minister in June of 2010, was introduced as head of the film department at the same time. The exact foundation date of the film department is unknown; however, it appears to be newly established.”

No. 38 and No. 39 Departments are directly controlled by Kim Jong Il and serve as a private vault for his ruling funds. The No. 38 Department manages hotels, foreign currency stores and restaurants etc, while illegal weapons trading through foreign trade companies, the smuggling of gold, illegal trade in drugs and the distribution of counterfeit dollars, so-called supernotes, are handled by the No. 39 Department.

“They combined two offices which had different functions, and it appears that this did not result in the intended efficiency,” a knowledgeable source commented.

Meanwhile, on the establishment of a film department, the source added, “North Korea’s cultural art is a political means by which to carry out Party policy and a policy tool to implant policy in the North Korean citizens.”

Among the reshuffled special departments, the existing ‘Munitions Industry Department’ has been renamed the ‘Machine Industry Department’, and the ‘Administration and Capital Construction Department’ has been scaled back to simply ‘Administration Department’.

Elsewhere, the existing National Resources Development and Guidance Department under the Ministry of Extractive Industries has been promoted to National Resources Development Council and, as reported, the Joint Investment Guidance Department rose to become the Joint Investment Committee, while the National Price Establishment Department became the National Price Establishment Committee. Again, as reported, the ‘People’s Safety Agency’ under the Cabinet became the People’s Safety Ministry under the National Defense Commission, while the Capital Construction Department was downsized to become the General Bureau of Capital Construction.

The Central Court and Central Prosecutors Office were also renamed the Supreme Court and Supreme Prosecutors Office respectively.

The Ministry of Unification report also notes that North Korea added Nampo City to its list of eleven cities and provinces, increasing the total number to twelve.

The newly designated Nampo City includes five former parts of South Pyongan Province; Gangseo, Daean, Oncheon, Yonggang, and Chollima districts. Previously, Nampo was under the direct control of the central government as part of South Pyongan Province proper.

At the same time, North Korea also transferred the existing Kangnam-gun, Joonghwa-gun, Sangwon-gun, and Seungho-district, all formerly southern sections of Pyongyang City, to North Hwanghae Province.

Military Commission placed under the Central Committee of the Party

The relationship of the Central Committee and Central Military Commission, which was formerly said to be in parallel, has been changed, reflecting the idea that the Military Commission is now under the Central Committee of the Party.

The Ministry of Unification commented, “By revising the Party regulations, the Central Military Commission and Central Committee were marked as parallel in 2009 and 2010. However, after confirming the revised Party regulations at the Chosun Workers’ Party Delegates’ Conference on September 28th last year, this relationship was adjusted, and an election is now held for the Central Military Commission via a plenary session of the Central Committee.”

Also, the ‘Bureau of General Staff’ under the National Defense Commission was judged to be below the Ministry of the People’s Armed Forces, but is now shown to be in a parallel relationship with the Ministry of the People’s Armed Force and ‘General Political Department’.

ORIGINAL POST (2/14/2011): According to Yonhap:

North Korea has revived a special party bureau, codenamed Office 38, that oversees coffers and raises slush funds for its leader Kim Jong-il and the ruling elites, South Korea said Monday in its annual assessment of the power structure in the communist country.

In 2009, the bureau had been merged with Office 39, another organ that governs a wide network of business operations both legal and illegal, according to the Unification Ministry in Seoul.

In a meeting with reporters, however, a ministry official said Office 38 has been spun off from Office 39 and is now running on its own again. The official, who would speak only on the condition of anonymity citing the intelligence nature of his comments, cited “a stream of information” that has come through since mid-2010.

The official would not elaborate on how the information has been obtained, only saying the ministry works closely with “related government bodies” to outline the North’s power structure.

Office 38, whose chief remains unknown, mainly oversees transactions involving foreign currency, hotels and trade, the official said, while Office 39, headed by Jon Il-chun, drives revenue by dealing in narcotics, arms, natural resources and others.

A source privy to North Korea matters said the spin-off suggests that North Korea has been experiencing difficulties in earning foreign currency since merging the two offices.

“Efficiency was probably compromised after the two, which have different functions, were combined,” the source said, declining to be identified citing the speculative nature of the topic. “More importantly, it seems related to the current state of foreign currency stocks. The North is apparently trying to address those difficulties.”

In August last year, the United States blacklisted Office 39 as one of several North Korean entities to newly come under sanctions for involvement in illegal deeds such as currency counterfeiting.

North Korea is also believed to have been hit hard financially after South Korea imposed a series of economic penalties last year on Pyongyang when the sinking of a warship was blamed on it.

Both Offices 38 and 39 belong to the Secretariat of the Workers’ Party, which Kim Jong-il chairs, according to a diagram of the North’s power structure released by the Unification Ministry. Last year, the ministry had only included Office 39 in a similar diagram.

Both offices have often been referred to as Kim Jong-il’s “personal safes” for their role in raising and managing secret funds and procuring luxury goods for the aging leader.

Read the full story here:
North Korea Splits No. 38 and 39 Departments Up Again
Daily NK
Kim So Yeol
2/15/2011

N. Korea revives ‘Office 38′ managing Kim Jong-il’s funds: ministry
Yonhap
Sam Kim
2/14/2011

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Daily NK on Office 39

Monday, August 30th, 2010

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.”

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Room (Bureau) 38 allegedly restored

Wednesday, June 23rd, 2010

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

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