Archive for January, 2008

UNDP statement on Senate investigation into UNDP operations in DPRK

Friday, January 25th, 2008

The UNDP issued a response to the US Senate investigation into their operations in North Korea.  This is from their web site (January 23, 2008):

UNDP welcomed the recent investigation by the US Senate Permanent Subcommittee on Investigations (the “Subcommittee”) into its former operations in North Korea.  UNDP voluntarily cooperated with the inquiry, including by making its personnel and documents available for review by the investigators.  UNDP’s extensive cooperation is acknowledged in the report.

The Subcommittee initiated the inquiry in June 2007, in the wake of persistent allegations concerning UNDP’s operations in North Korea.  A 31 May External Audit had found that, because of constraints imposed by the North Korean authorities, UNDP and other UN agencies did not operate in North Korea according to the same standards and practices they used elsewhere worldwide.  The same audit found, however, contrary to allegations that UNDP spending totaled hundreds of millions of dollars, that UNDP ran a modest program of less than $3 million per year, and had in place a full range of monitoring mechanisms to verify its spending.  New allegations surfaced shortly afterward, including detailed charges that UNDP had underreported its funding levels, and engaged in illicit transactions with entities tied to the North Korean armaments program, and that a significant amount of UNDP funding had been diverted by the North Korean government.  The Subcommittee initiated its investigation shortly afterward.

Nearly seven month later, after extensive interviews with UNDP staff, as well as a Subcommittee field to visit UNDP headquarters to verify the financial control systems UNDP had in place in North Korea, UNDP emphasizes that the Subcommittee’s report contains nothing to substantiate persistent allegations that:

• UNDP transferred tens of millions of dollars to the North Korean government, as had been alleged;
• UNDP money was used to fund North Korean purchases of real estate, or were diverted to its nuclear or missile programs;
• UNDP dealt in significant amounts of cash, which could be diverted or embezzled in defiance of financial controls;
• UNDP ignored UN controls on prohibited vendors and dealt directly with entities barred by these processes.

The report does contain a series of findings and recommendations.  UNDP’s responses are outlined below.

On UNDP’s management and operational practices in North Korea:
Finding: UNDP operated in North Korea with inappropriate staffing, questionable use of foreign currency instead of local currency, and insufficient administrative and fiscal controls.  

UNDP Response:

– The report states that UNDP operations in North Korea are a case study of an international agency’s attempts to achieve development goals in a restrictive environment, and that By all accounts, operating development projects in North Korea presented management and administrative challenges of the most extreme nature.  By definition, UNDP operates in challenging environments, and has crafted, for the most part, sound rules and procedures to ensure that UNDP development funds benefit the people of a host nation.
– UNDP has said all along that North Korea was a difficult place in which to do business.  It operated there since 1981 at the explicit direction of its Executive Board, which includes the US, and which regularly approved its programs.  The Executive Board was aware of the operational constraints UNDP faced.  All foreign entities in North Korea – UN agencies, national diplomatic missions and international NGOs – face the same constraints. 
– UNDP is committed to addressing any and all management and operational deficiencies that have been identified in its former operations in North Korea, and to applying lessons learned to other countries in which it faces similarly challenging operational environments.

On access to internal audits

Finding: By preventing access to its audits … UNDP impeded reasonable oversight.
Recommendation: UNDP should provide UN member states with unfettered access to financial and management audit reports about UNDP activities, including providing timely copies of such reports and allowing UN member states to make audit information public.

UNDP Response:

– As noted by Senator Levin, a proposal that would grant routine access to UNDP Executive Board members to UNDP audit reports is currently before the UNDP Executive Board.

On deceptive financial transactions by the DPRK government:
Finding: In 2002, the DPRK government used its relationship with the United Nations to execute deceptive financial transactions by moving $2.72 million of its own funds from Pyongyang to DPRK diplomatic missions abroad through a bank account intended to be used solely for UNDP activities and by referencing UNDP in the wire transfer documents.

Recommendation: UNDP should take steps to ensure that its name and resources are not used as cover for non-UN activities.

UNDP Response:

– UNDP is not happy that its name may have been used inappropriately by the North Korean government in connection with deceptive financial transactions.  It has formally raised this matter with the North Korean government.
– UNDP is pleased to note, however, that there is no suggestion that UNDP either knew of or could have prevented the transactions.  The report states: The Subcommittee does not conclude that the deceptive financial transactions executed by the North Korean government would have been prevented had UNDP’s management been more vigilant.
– UNDP is also pleased to note that contrary to persistent allegations it has faced, the report finds that the $2.72 million in question was not UNDP’s money.
– UNDP records show that the total sum transferred from 2001 to 2005 to the North Korean entity that was misusing UNDP’s name was approximately $175,000.  This figure is far less than the $7 million UNDP was alleged to have transferred to the entity in during this period.

On UNDP payments to Zang Lok

Finding: UNDP transferred UN funds to a company that, according to a letter from the US State Department to UNDP, has ties to an entity involved in DPRK weapons activity.

Recommendation: Prior to making payments to a contractor, UNDP should take steps to ensure that the contractor is not associated with illicit activity.

UNDP Response:

– UNDP paid a Chinese company named Zang Lok $22,000 in 2002 on behalf of WIPO, and $30,000 in 2004, on behalf on UNESCO.  UNDP did so because although both of these UN agencies have run projects involving North Korea, neither of them has a presence in the country.  In both cases the goods in question (computer equipment) were paid for by WIPO and UNESCO and received in good order.
– The State Department first informed UNDP that Zang Lok had ties to a “designated entity” on 6 June 2007, and UNDP immediately agreed to cease doing business with Zang Lok.
– UNDP and other UN agencies routinely consult control lists maintained by the UN Security Council before making procurement decisions.  It is unclear whether Zang Lok, as a company with ties to a “designated” North Korean entity – but not itself a designated entity – was on any list that could have been consulted in 2002, 2004, or afterward.
– The report acknowledges that UNDP’s vetting procedures appear sound and that It does not appear that UNDP, or the UN agencies on whose behalf UNDP was acting, knew of – or had any way of knowing – whether Zang Lok was connected to an entity involved with DPRK weapons activity at the time the payments were made.
– UNDP agrees that it would benefit from increasing its information-sharing with the other UN agencies and is committed to doing so within the ongoing process of harmonizing the UN standards system-wide, in which it is a leading participant.

On alleged retaliation against a whistleblower:

Finding: By…not submitting to the jurisdiction of the UN Ethics Office … UNDP undermined its whistleblower protections. 

Recommendation: UNDP should ensure that whistleblowers do not face retaliation for reporting irregular or improper conduct.

UNDP Response:

– Contrary to criticism directed at UNDP over the past year, UNDP has had policies and procedures in place to protect employees from retaliation for some time.  Some of these predated the policies initiated by the Secretary-General in 2005.  Moreover, all personnel (staff and non staff), regardless of level or legal status, are encouraged to bring concerns and claims under these procedures, and all such claims are treated with appropriate seriousness. 
– More recently, and in accordance with the new policies issued by the Secretary General in late 2007, UNDP has appointed an Ethics Officer.  In addition to overseeing the key components of UNDP’s ethical standards and mechanisms, the Ethics Officer will work together with the Director of the Ethics Office of the Secretariat, the new UN Ethics Committee, and the Ethics Officers of other UN entities, to further harmonize the overall ethics regime of the wiser UN system. 
– From a staff perspective, there is now in place a “two step system”.  Staff from UNDP can now appeal to the Chair of the new UN Ethics Committee to have their individual case reviewed by the UN Ethics Office, if they believe that they have not been appropriately treated within UNDP.
– In the case referenced by the Subcommittee, there is no question that Mr. Artjon Shkurtaj raised operational concerns during his time at UNDP North Korea.  There is equally no question that it was his job to do so, that the concerns he raised were similar to those raised by his predecessors, and that UNDP managers responded as appropriate.
– A key point is fundamental to ethics regimes and whistleblower protection mechanisms almost everywhere, including at the UN and UNDP: the complainant must avail him or herself of the mechanisms and cooperate with any inquiry. Mr. Artjon Shkurtaj neither availed himself of existing UNDP mechanisms nor cooperated with a subsequent inquiry.
– Mr. Shkurtaj’s case has been taken up by the External Independent Investigative Review (EIIR), which is being led by former Hungarian Prime Minister Miklos Nemeth.  According to the terms of reference of the EIIR, if the UN Ethics Office is not fully satisfied on the issue of Mr. Shkurtaj, it will itself look into the matter.  UNDP will not offer further comment while the EIIR is ongoing.


US senate investigation of UNDP’s DPRK programs

Thursday, January 24th, 2008

The US Senate Permanent Subcommittee on Investigations of the Committee on Homeland Security and Governmental Affairs published a report detailing the failure of the United Nations Development Program (UNDP) to adequately monitor its projects in the DPRK. 

By way of background…In March 2007, the UNDP suspended its operations in North Korea because of the government’s refusal to agree to new measures designed to increase the transparency and accountability of the UNDP programs there. 

The subcommittee staff released the following findings:

1. UNDP operated in North Korea with inappropriate staffing, questionable use of foreign currency instead of local currency, and insufficient administrative and fiscal controls

  • UNDP’s DPRK office was staffed in large part with North Korean nationals who were selected by the DPRK, contrary to UNDP policy; 
  • UNDP paid the salaries of local staff directly to the North Korean government without any way of verifying that the salaries were properly disbursed and despite UNDP’s suspicion that the DPRK was, in the words of one UNDP official, “skimming” money from the payments; 
  • UNDP paid salaries and other expenses in convertible currencies, such as US Dollars or Euros, rather than in the local currency, contrary to UN best practices; 
  • UNDP was required to conduct its financial transactions using a DPRK state bank that accepted paperwork only from DPRK personnel, sometimes routed UNDP funds through an unrelated bank account, and, until recently, refused to provide UNDP with copies of cancelled checks;
  • UNDP was allowed to conduct on-site project visits only with prior notice and in the company of North Korean officials, contrary to UNDP best practices; and
  • The UNDP office in Pyongyang operated without secure communications, and the regime routinely monitored UN activity, going so far as to enter and search private residences of UN personnel.

2. By preventing access to its audits and not submitting to the jurisdiction of the UN Ethics Office, UNDP impeded reasonable oversight and undermined its whistleblower protections.

The UNDP commissioned four audits of its North Korean operations, in 1999, 2001, 2004, and 2007. Problems were identified in all four. The first three audits were nonpublic and, in accordance with UNDP policy, unavailable for review even by nations serving on the UNDP Executive Board. After repeated requests, UNDP made an exception to this policy and, in 2007, showed the audit reports to the US Mission to the United Nations, whose personnel were allowed to read but not copy them.

Beginning in 2005, Artjon Shkurtaj, then Operations Manager of the UNDP office in Pyongyang, raised concerns about management and operational deficiencies in UNDP operations. After raising these concerns, his employment contract was not renewed. He then filed a complaint with the UN Ethics Office claiming that UNDP had retaliated against him.  In August 2007, however, the Ethics Office determined that, although Mr. Shkurtaj had established “a prima facie case of retaliation,” it lacked jurisdiction to decide his claim and could protect only whistleblowers within the UN Secretariat.

3. In 2002, the DPRK government used its relationship with the United Nations to execute deceptive financial transactions by moving $2.72 million of its own funds from Pyongyang to DPRK diplomatic missions abroad through a bank account intended to be used solely for UNDP activities and by referencing UNDP in the wire transfer documents.

4. UNDP transferred UN funds to a company that, according to a letter from the US State Department to UNDP, has ties to an entity involved in DPRK weapons activity.

UNDP regularly made payments to contractors on behalf of other UN agencies operating in North Korea. During the course of its investigation, the Subcommittee learned that payments on behalf of other UN agencies – totaling approximately $50,000 – were made to an entity named Zang Lok Trading Co. in Macau. According to a letter dated June 7, 2007, to UNDP from the US Permanent Mission to the United Nations, Zang Lok “has ties to a North Korean entity that has been designated [by the US government] as the main North Korean financial agent for sales of conventional arms, ballistic missiles and goods related to the assembly and manufacture of such weapons.” UNDP maintains that it does not know, and has no way of knowing, whether Zang Lok is connected to North Korean weapons sales.

How much money are we talking about?
UNDP estimates that, from 1995 to 2005, it spent a total of about $33.5 million in North Korea. Of that figure, approximately $6 million was spent on UNDP office, staff, and operating expenses, including roughly $100,000 per year in payments to local staff and contractors, and $500,000 per year spent on rent, office supplies, transportation, employee compensation, and other expenses. An ongoing external audit is expected to refine these estimates. In addition, the UNDP office in North Korea made payments and provided administrative support on behalf of other UN Funds and Programs operating in North Korea including the United Nations Population Fund and United Nations Office for Project Services, among others. Total expenditures by all UN agencies in North Korea – excluding the World Food Program – during the same ten-year timeframe have been estimated at roughly $200 million.

Here is the full report: undpreport.pdf


Hoiryeong Trains for War

Tuesday, January 22nd, 2008

Daily NK
Lee Sung Jin

The citizens of Hoiryeong are worried about ongoing evacuation training they must undergo as part of a joint winter military drill with the army that began on January 17, said a source.

The winter military drill used to be held in December each year but this year it was delayed.

“People feel uneasy because of the sudden beginning of the drill and the strict regulations on the jangmadang in the cold winter,” one source reported on the 21st.

At 3 am on January 17th, in Hoiryeong, North Hamkyung Province, the North Korean army announced an emergency summons, modified the Worker and Peasant Red Guards, Local Reserve Forces and Youth Red Guard, declared a state of national preparation for war and started inspection of emergency supplies. The Local Reserve Forces rushed to occupy strategic positions and the Worker and Peasant Red Guard started a scouting drill.

During the winter military drill, ordinary citizens must leave their residential districts, taking one day’s worth of food with them, and live in an encampment for Local Reserve Forces around 8-12 km away from their homes.

The average temperature in Hoiryeong drops to around minus 10 degree Celsius in January. As defectors in Seoul testified, it is terribly hard to put up with the lack of heat at the encampments.

This drill is limited only to Hoiryeong. The source said: “It is actually a type of civil defense training. It was ordered by the People’s Safety Agency, but the army participated as well.”

This year’s drill was more intense than previous year’s. Vehicles without camouflage netting were prohibited from the streets and all citizens were forced to wear camouflage while outdoors.

The source said the drill was so similar to actual warfare that Local Reserve Forces and Worker and Peasant Red Guards wore their real rank badges.

When the drill started, factories and People’s Units in Hoiryeong began holding lectures entitled, “Let’s complete preparation for war against the American imperialists’ constant war maneuvers!”


Forced Construction of Kim Jong Il Road in Bitter Cold

Monday, January 21st, 2008

Daily NK
Moon Sung Hwee

Tens of thousands of a Shock Brigade (state construction workers) of North Korea are forced to build roads under minus 20 degree Celsius weather to prepare for Kim Jong Il’s unforeseen visit to the area, an inside source told the Daily NK.

The informer said, on the 3rd of January, “Since mid December, thirty thousands of Shock Brigade for the Propaganda of the Party Ideology (shortly June 18 Shock Brigade) had been poured into building road in Samsoo, Yangkang Province.”

He added that the Shock Brigade was connecting road between Wangduk Station in Hyesan (exclusively for Kim Jong Il) and Samsoo Power Plant. Kim Jong-Il was rumored for planning on surprise visit to the power plant. The road would be 22 km in length.

There was actually a road built in 2003 between Wangduk and Samsoo Power Plant. However, the road was ordered to be renovated due to Kim Jong Il’s dissatisfactory remark on it in his March 2006 visit to the area.

During the 2003 road construction, the Hyesan city government mobilized tens of thousands of residents plus June 18 Shock Brigade to finish it on time. Nevertheless, as Kim Jong Il showed discontent, Yangkang Provincial party officials and June 18 Shock Brigade officers were criticized harshly.

The problem was that the road was through downtown Hyesan, and a section of it was to meandering, thus dangerous to protect “the Comrade General.”

“After that, June 18 Shock Brigade, who just finished constructing Hyesan-Dancheon road, were reinforced and put to refurbish the Kim Jong Il’s private road,” the informant added.

The road currently under construction is to connect Wangduk and Samsoo Power Plant while circumventing populated area of Hyesan. And, of course, since the road is built as a “Number 1 Road,” it is solely for Kim Jong Il’s use, not even for party officials let alone ordinary people.

According to the informant, condition of road construction is harsh. Workers of the Shock Brigade are forced to work in bitter cold. When asked about disgruntlement of the workers, the informant replied, “This sort of hardship happens every time the General visits a certain area. Who can argue with the General’s order?”


(UPDATED) DPRK to receive tangerine shipment

Saturday, January 12th, 2008

(UPDATE) Well, It looks like Jeju will be sending a smaller shipment of tangerines to the DPRK without Seoul’s direct financial support:

The provincial government of Jeju Island will go ahead with its annual shipment of tangerines and carrots to North Korea this week despite the central government’s refusal to pay part of the cost, officials said Monday.

The semi-tropical island has sent more than 10,000 tons of tangerines and carrots to North Korea every winter since 1998, with the central government paying for about half the cost.

But the humanitarian project came to a halt this winter as Seoul’s Unification Ministry refused its customary funding of the shipments amid frozen inter-Korean relations.

The Jeju government decided to send a smaller shipment of aid this year — 300 tons of tangerines and 1,000 tons of carrots worth about 600 million won (US$441,176) — to North Korea starting on Friday, ministry spokesman Kim Ho-nyoun and Jeju officials said.

“The North said it will receive the shipment as part of non-governmental inter-Korean projects,” the spokesman said. “The ministry will also approve the shipment.” (Yonhap)

According to Yonhap:

South Korea’s tangerine shipment to North Korea will be suspended for the first time in 10 years this winter, as Seoul refused funding the shipment amid frozen inter-Korean relations, officials said Friday.

The provincial government of the semi-tropical island of Jeju has sent more than 10,000 tons of tangerines to North Korea every winter since 1998, with the central government paying for about half the cost.

But the Unification Ministry rejected this year’s motion for funding in the midst of growing tension across the border, officials from Jeju and the ministry said.

“We can’t carry out the project this year,” Yoon Chang-hwan, a Jeju official in charge of tangerine policy, said over the telephone. “It is not a situation in which we can collect money to send them on our own — the government did not allow them to be sent.”

Jeju Island had requested 2 billion won (US$1.55 million) from the Unification Ministry to ship 10,000 tons of tangerines, a local specialty that does not grow in North Korea’s cold weather, Yoon said.

Read the full articles here:
S. Korea suspends tangerine shipment to N. Korea for first time in decade

S. Korean island to send tangerines to N. Korea despite frozen ties
Kim Hyun


Expansion of Electrical Infrastructure in Samjiyeon for Mt. Baekdu Tours?

Friday, January 11th, 2008

Daily NK
Moon Sung Hwee

Rodong Sinmun, the official mouthpiece of the Chosun (North Korea) Workers Party, discussed the construction of new electrical infrastructure in Samjiyeon in a feature titled, “The New Legend from the Night-less City, Samjiyeon,” on December 26.

Rodong Sinmun praised Samjiyeon’s current condition, saying that “It is literally a night-less city where countless lights from houses and streetlights along the beltway shine like stars.”

The newspaper implied that providing electricity to hotels and other lodging for visitors was the reason for setting up the electrical infrastructure, noting that “Visitors who have completed long distance marches would want to take a rest, sing songs, and play accordions in the heated rooms of lodgings by the lake of Samjiyeon.”

The newspaper revealed, “The electricity produced by the Samsoo Power Plant, which was completed in May 2007, is now flowing to Samjiyeon.”

It added, “The June 18 Shock Brigade and workers form the Ministry of Electric Power pursued the lofty goals of the great General to expand the electrical infrastructure of the Mt. Baekdu region. They provided materials and equipment for the construction of power-transmission wires and towers and built them.”

To accomplish the goal of the North Korean authorities, in there words: “to improve the hometown of the General to meet global standards” – the Propaganda and Agitation Department organized the “Shock Brigade for the Propagation of the Party Ideology” (June 18 Shock Brigade) and made the brigade tear down houses and start reconstructing the city.

Although North Korean authorities said that they redeveloped the Samjiyeon district for the purpose of restoring Kim Jong Il’s hometown, a rumor is spreading among cadres that this reconstruction project was actually carried out in preparation for the commencement of Mt. Baekdu tours for South Koreans, according to inside sources.

In 1998, when the North and Hyundai Asan started Mt. Geumgang’s tour business, they agreed that Hyundai would offer 942 million dollars to the North in return for the right to use the tour site and to run the tour business for 30 years. Similar preparations to the ones being made in Samyijeon were completed prior to the opening of the Geumgang site.

It appears that North Korea has been carrying out construction work in Samjiyeon since 2001. Experts point out that reconstruction of the houses in the area was inevitable because these sites would soon be revealed to South Korean tourists.

North Korean authorities stressed that the newly-built houses are on par with international standards but residents complain of insufficient electrical supplies, according to the inside sources.

Sources said that the power situation was so dire that residents are forced to cook outdoors and bring heated stones in their houses for heating.


DPRK Regulations on Certification

Friday, January 11th, 2008

From Naenara:

The DPRK government adopted the “Regulations of the DPRK on Certification” on June 30, 2003 by Decision No. 37 of the Cabinet, and is enforcing them with an aim to establish the scientific quality management system in all organs and enterprises, and to upgrade the quality of products for improving the people’s livelihood and facilitating foreign trade.

The regulations consist of 37 articles in four chapters: Chapter 1. General provisions (Article 1–8), Chapter 2. Quality certification bodies (Article 9–18), Chapter 3. Assessment on quality certification (Article 19–31) and Chapter 4. Supervision and control (Article 32–37).

Chapter 1. General Provisions

The management and guidance in quality certification shall be undertaken in a unified way by the State Administration for Quality Management (hereinafter referred to as SAQM).

The SAQM shall publish the products that are subject to compulsory certification step by step in accordance with the urgent requirements. The compulsory certification products can be exported only under certification.

The compulsory certification products exported to and imported from foreign countries which concluded certification agreement with our country are not subject to quality inspection at trade ports, border railway stations, airports and frontier transit points.

The term of validity for certification shall be three years. The quality certification bodies and certified organizations shall fall under surveillance and reassessment within the period defined by the SAQM.

The SAQM shall promote exchange and cooperation with international organizations and foreign bodies in the field of quality certification.

Chapter 2. Quality Certification Bodies

The quality certification bodies shall take charge of the assessment of quality management system of the organizations applying for certification. The quality certification bodies shall be designated by the SAQM.

The quality certification bodies shall undertake product certification, assessment and registration of quality management system, personnel certification, certification testing and training of certification assessors.

Chapter 3. Assessment on Quality Certification

The organizations and individuals who will be certified shall submit the written applications confirmed by their upper body to the relevant central organ to which the quality certification bodies belong.

The applications for product certification and registration of quality management system include the description of quality management system of a product or its production process and the confirmation of the relevant quality supervision body. The application for personnel certification shall comprise the confirmation of the organization to which the applicant belongs.

Upon the receipt of application, the relevant central organ shall confirm whether the application is formulated or not as required by the regulations and send it to its affiliated certification body in time.

In regard to the product certification assessment, the quality certification body shall examine mainly samples and document as well as the quality management system of processes which may affect the quality of products.

The assessment of product certification shall be completed within 60 days.

The assessment of quality management system consists of the document review and on-site assessment.

The document review aims at identifying whether the documents related to quality management system are properly made or not. The on-site assessment aims at ensuring the conformity of quality management system with the contents of the documents and their effectiveness. The registration of quality management system shall be completed within 90 days from the notification of assessment to the applicant.

The quality supervision organs may commit the organizations to inspect the quality of their products which have been certified and registered.

The quality certification bodies and the certified organizations shall use the relevant marks.

Chapter 4. Supervision and Control

The supervision and control on quality certification shall be exercised by the SAQM and the relevant supervision and control organs.

In case of any incidents in sale and export of the certified products or products manufactured through the certified process, the SAQM shall investigate them and take the necessary measures.

In case of any errors in quality certification due to irresponsibility of the quality certification organ and its official, the SAQM shall take strict sanctions such as disqualification and deprivation of authority against them.

In case the relevant organization and personnel violate the regulations and the order concerning quality certification, the SAQM and quality certification bodies may deprive it/him of its/his certificates and marks already issued.

In case of encroachment on the interests of the State and people or damage to the dignity of the country, the person concerned shall suffer from administrative and judicial sanctions according to the degree of seriousness.


Customs Director of Hoiryeong Arrested for Assisting in Drug Trades

Thursday, January 10th, 2008

Daily NK
Yang Jung A

It was confirmed that the customs director of the city of Hoiryeong in North Hamkyung province was arrested last December for alleged corruption.

Multiple sources in Hoiryeong reported on the 8th that “The customs director of Hoiryeong was arrested at the end of last December on suspicion of assisting in the drug trade with China. It is known that a large sum of U.S. dollars was found in the customs director’s house.”

A source in North Korea reported through a phone call that, “The arrested customs director regulated small-scale merchants heavily and gave benefits to a couple of merchants who regularly gave bribes. Ultimately, the result was that access to commercial licenses in Hoiryeong was limited to the merchants who dominated the jangmadang.

Hoiryeong is one of the major crossing points along the North Korea-China border. Recently, cases of extortion in which the customs director demanded bribes in exchange for not confiscating goods were on the rise. Criticism had been rising.

The outcry from Korean-Chinese who regularly visit relatives in North Korea has been especially loud. Customs officers have required bribes from the Korean-Chinese who visit North Korea to deliver food, clothing, medicine, and daily necessities claiming them as customs fees. Such actions have become commonplace. (more…)


U.S. counterfeiting charges against N. Korea based on shaky evidence

Thursday, January 10th, 2008

McClatchy News
Kevin Hall

Two years ago, as he was ratcheting up a campaign to isolate and cripple North Korea’s dictatorship financially, President Bush accused the communist regime there of printing phony U.S. currency.

“When someone is counterfeiting our money, we want them to stop doing that. We are aggressively saying to the North Koreans just that — don’t counterfeit our money,” Bush said on Jan. 26, 2006.

However, a 10-month McClatchy investigation on three continents has found that the evidence to support Bush’s charges against North Korea is uncertain at best and that the claims of the North Korean defectors cited in news accounts are dubious and perhaps bogus. One key law enforcement agency, the Swiss federal criminal police, has publicly questioned whether North Korea is even capable of producing “supernotes,” counterfeit $100 bills that are nearly perfect except for some practically invisible additions.

Many of the administration’s public allegations about North Korean counterfeiting trace to North Korea “experts” in South Korea who arranged interviews with North Korean defectors for U.S. and foreign newspapers. The resulting news reports were quoted by members of Congress, researchers and Bush administration officials who were seeking to pressure North Korea.

The defectors’ accounts, for example, were cited prominently in a lengthy July 23, 2006, New York Times magazine story that charged North Korea with producing the sophisticated supernotes.

The McClatchy investigation, however, found reason to question those sources. One major source for several stories, a self-described chemist named Kim Dong-shik, has gone into hiding, and a former roommate, Moon Kook-han, said Kim is a liar out for cash who knew so little about American currency that he didn’t know whose image is printed on the $100 bill. (It’s Benjamin Franklin.)

The Secret Service, the Federal Reserve Board and the Treasury Department all declined repeated requests for interviews for this story.

The first international test of the U.S. charge occurred in July 2006, when at the request of the Bush administration, the international police agency Interpol assembled central bankers, police agencies and banknote industry officials to make the U.S. case against North Korea.

The conference in Lyon, France, followed Interpol’s issuance in March 2005 of an orange alert — at America’s request — calling on member nations to prohibit the sale of banknote equipment, paper or ink to North Korea.

But after calling together more than 60 experts, the Secret Service — the lead U.S. agency in combating counterfeiting — never provided any details of the evidence it said it had, instead citing “intelligence” and asking those assembled to accept the administration’s claims on faith alone.

“I can’t remember if I was laughing or asleep,” said one person who was in the room and discussed the meeting with McClatchy on the condition of anonymity because of active contact with the Secret Service.

Interpol’s secretary general is an American, Ronald K. Noble, a veteran of the Secret Service from 1993 to 1996. He declined to discuss the supernotes in detail because he’s sworn to secrecy about classified reports he received in his old job. Noble said the Secret Service made clear it was “not at liberty to share all of the information” to which it had access.

The most definitive reaction came in May 2007 from the Swiss Bundeskriminalpolizei, which is on the lookout for counterfeit currency and has worked closely with U.S. financial authorities in the past. Calling on Washington to present more evidence, the Swiss said they doubted that North Korea was behind the supernotes.

The Swiss police agency’s doubts are based in part on the small quantity of supernotes that have been seized since a sharp-eyed banker in the Philippines first discovered them in 1989 — about $50 million worth, less than it would cost to buy the machinery to make the unique paper and print the notes.

The Swiss agency also doubted that North Korea has the technical expertise to produce the notes.

“Using its printing presses dating back to the 1970s, North Korea is today printing its own currency in such poor quality that one automatically wonders whether this country would even be in a position to manufacture the high-quality ‘supernotes,’ ” the Swiss agency reported.

It also noted that whoever is printing the supernotes has produced at least 19 different versions, each corresponding to a tiny change in U.S. engraving plates.

“It’s by far the most sophisticated counterfeiting operation in the world,” said James Kolbe, a recently retired Republican congressman from Arizona who oversaw funding for the Secret Service. “We are not certain as to how this is being done or how it’s happening. We are not certain as to how (the North Koreans) could gain access to the sophisticated (technology) to do it. It is extremely sophisticated.”

The hardest evidence to surface so far is the 2004 indictment of Sean Garland, a leader of an Irish Republican Army splinter group, who in the late 1990s allegedly ferried more than $1 million in supernotes to Europe, mostly from the North Korean Embassy in Moscow. Garland is now in the Republic of Ireland, but the Irish Embassy said the U.S. hasn’t sought his extradition.

Former U.S. officials who helped promote the allegations about North Korea offered different views about how the administration reached its conclusions.

David Asher, who was the coordinator of a working group at the State Department that collected details on North Korean criminal activities, said his group turned up evidence of the counterfeiting and didn’t rely on “intelligence” to make its case.

Asher, now a researcher at the Heritage Foundation, a conservative Washington policy organization, declined to provide any details.

But Bush, asked for proof that North Korea was counterfeiting supernotes, told McClatchy on Aug. 8, “I’m not at liberty to speak about intelligence matters.”

John Bolton, the former Bush administration official most identified with a hard line on North Korea, told McClatchy that he never saw hard evidence that the North Korean government was making the supernotes. But he said the evidence that the North Koreans distributed them is sufficient proof of bad behavior.

One former top U.S. intelligence official said that he never saw enough information to reach a conclusion.

“I never really saw the intelligence myself to make an independent judgment,” said Carl Ford, who quit as head of the State Department’s intelligence bureau in 2003 because he challenged the administration’s phony claim, based largely on defectors, that Iraq had weapons of mass destruction. The administration’s reluctance to disclose details on North Korea “doesn’t pass the smell test,” he said.

Another key piece of evidence, the alleged role that a tiny bank in the Chinese enclave of Macau played in helping North Korea launder counterfeit notes, also appears dubious. The U.S. Treasury blacklisted the Banco Delta Asia and issued a ruling in March 2007 that effectively shut the bank down.

But an audit by the international accounting firm Ernst & Young on behalf of the Macanese government and obtained by McClatchy found only a single case of counterfeit notes found at Banco Delta Asia. It occurred in 1994, and the fakes didn’t originate in North Korea. The bank found these notes itself and alerted authorities.

Macau has lifted its sanctions against the bank, but the Treasury Department, citing “intelligence,” maintains its blacklisting, although it did allow the bank to transfer $25 million back to North Korea.

Although banks around the world are still seizing supernotes, the Bush administration is no longer publicly accusing North Korea of producing them and has dropped the subject from talks on halting North Korea’s nuclear weapons program, according to State Department officials.

The question that remains is whether the administration is again retreating from a charge it can’t support or whether it’s soft-pedaling hard evidence to avoid derailing the effort to halt North Korea’s nuclear weapons program.

The mystery of the true origin of the supernotes also remains. Industry experts such as the former director of the Bureau of Engraving and Printing, Thomas Ferguson, said the supernotes are so good that they appear to have been made by someone with access to some government’s printing equipment.

Some experts think that Iran probably made the notes, and others speak of criminal gangs in Russia or China.

Klaus Bender, the author of a book on the subject, “Moneymakers: The Secret World of Banknote Printing,” said that the phony $100 bill is “not a fake anymore. It’s an illegal parallel print of a genuine note.”

“It goes way beyond what normal counterfeiters are able to do,” said Bender, whose book first spotlighted the improbability of North Korean supernotes. “And it is so elaborate (and expensive) it doesn’t pay for the counterfeiting anymore.”

Bender claims that the supernotes are of such high quality and are updated so frequently that they could be produced only by a U.S. government agency such as the CIA.

As unsubstantiated as the allegation is, there is a precedent. In his new book on the history of the CIA, journalist Tim Weiner detailed how the agency tried to undermine the Soviet Union’s economy by counterfeiting its currency.

Making limited quantities of sophisticated counterfeit notes also could help intelligence and law enforcement agencies follow payments or illicit activities or track the movement of funds among unsavory regimes, terrorist groups and others.

“As a matter of course, we don’t comment on such claims, regardless of how ridiculous they might be,” said CIA spokesman Mark Mansfield.


More than you wanted to know about Nampo

Wednesday, January 9th, 2008


Judging by this presentation it seems that by 2004 western consultants had already made their way to Nampo:

Click on the image to see the powerpoint presentation.