A confidential report compiled by investigators working for a coalition of major U.S., European and Japanese tobacco companies indicates that North Korea has developed a highly lucrative source of hard currency: counterfeit cigarettes. The report dated June 29, 2005, offers a unique glimpse of the scale and sophistication of North Korea’s illicit-cigarette industry, which has allegedly counterfeited a vast array of brands—from Marlboro to Davidoff. The report estimates that production from 10 to 12 North Korean factories in the counterfeiting business may total 41 billion cigarettes a year, generating annual revenues of $520 million to $720 million. It’s not clear how much of this money flows to the regime of dictator Kim Jong Il, whether in duties or payments “for protection,” but the report speculates that its share of the profits may amount to $80 million to $160 million a year. That would be quite a windfall at a time when the North’s economy is reeling and the U.S. is trying to pressure Kim to abandon his nuclear-weapons program by cracking down on his regime’s income from business exploits as diverse as trafficking drugs and counterfeiting $100 bills.
Pyongyang has consistently dismissed U.S. allegations that it’s engaged in such illegal activities. But according to the report, some of these cigarette factories are directly owned by North Korea’s military and the internal-security service, giving the state “total control” over these operations. In other cases, says the report, the North’s contribution is primarily to provide a “safe haven” to factories run by overseas counterfeiting syndicates. Three of the factories that are said to be located in the Rajin area on the northeast coast of North Korea are allegedly run or financed by crime syndicates from Taiwan. One of these factories, equipped with second-hand equipment from China, has allegedly counterfeited such brands as Mild Seven, Dunhill and Benson & Hedges. According to the report, another factory in Rajin employed 120 people and was run by Chinese supervisors and technicians; North Korean officials were allegedly paid a “tax” on the factory’s cigarettes, which were then exported in fishing vessels owned by a Taiwan crime syndicate. Indeed, the report claims that a chief attraction of running such a business in North Korea is that the “regime’s willingness to allow dedicated, deep-sea smuggling vessels to use its ports provides the gangs with a secure delivery channel.”
