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China unfreezes some DPRK bank accounts

Monday, November 20th, 2006

Yonhap
11/20/2006

China has lifted its freeze on some North Korean accounts in a Macau bank which have allegedly been involved in money laundering and other financial irregularities for Pyongyang, a diplomatic source said Monday.

China ordered its banks to stop engaging in financial dealings with Banco Delta Asia (BDA) in the Chinese territory of Macau, after the U.S. gave its financial institutions similar instructions in September 2005. The sanctions led to the freeze of about US$24 million of the North’s holdings.

Yonhap
11/20/2006
U.S. does not confirm report of unfrozen N.K. account, reaffirms talks within 6-party context

U.S. officials deferred to Chinese authorities on Monday to confirm whether Beijing has released some of the North Korean accounts frozen for alleged illicit financial activities.

At the same time, they reaffirmed that the U.S. is ready to address the issue at the six-nation nuclear talks when they resume.

Posted in Banking, Finance, International trade | Comments Closed

China says oil still goes to the North

Friday, November 17th, 2006

Joong Ang Daily
11/17/2006

China has not cut off oil supplies to North Korea, nor will it stop oil and food assistance to its ally as a means of exerting political pressure, Chinese officials were quoted as telling a group of U.S. scholars.

The Americans in the group also said Wednesday that Chinese officials seemed to have a different understanding from the North Koreans about how U.S. financial sanctions would be dealt with at the next round of six-nation talks.

The Chinese reportedly said they were “surprised” that Pyongyang had told the group it expected those sanctions to be lifted.

Siegfried Hecker, a visiting professor at Stanford University, said he asked Chinese foreign ministry officials if Beijing had cut off heavy fuel oil to North Korea as reported.

“The answer was that China did not cut off heavy fuel oil to North Korea. That’s the direct answer that we received,” he said at a news conference.

Mr. Hecker was part of a four-member delegation that was in Pyongyang Oct. 31-Nov. 4. He is a former director of the Los Alamos National Laboratory, a U.S. nuclear weapons center, and has visited North Korea three times.

The other members of the team were Jack Pritchard, former U.S. point man on North Korea policy and now head of the Korea Economic Institute in Washington, D.C.; Robert Carlin, a former North Korea analyst now at the Korean Peninsula Energy Development Organization; and John Lewis, a Stanford University professor.

There was speculation that Beijing had ended the fuel aid to the North in September, when Pyongyang showed signs of preparing for its first nuclear test. The aid suspension was believed to be China’s way of pressing its ally to forgo the test.

Mr. Hecker said Chinese officials were clear that Beijing did not and would not stop fuel and food donations, arguing that North Korea would only “grow stronger” if pressured.

The team arrived in North Korea on the day the communist regime, after a year’s boycott, agreed to return to the six-nation nuclear talks that also involve South Korea, the United States, China, Russia and Japan.

Pyongyang left the table to protest punitive measures taken by the U.S. Treasury against Macao’s Banco Delta Asia for allegedly laundering money for the North.

North Korean officials told the American visitors that they expected discussions and a conclusion of the sanctions issue at the next six-party talks, according to Mr. Pritchard.

But Chinese officials, when told of Pyongyang’s position, “expressed some surprise,” Mr. Hecker said.

“They indicated, obviously, differences of opinion as to what was agreed on,” he said.

Posted in Banking, China, International Aid, Oil | Comments Closed

Ministry: Workers’ wages at Kaesong go to supplies

Wednesday, November 8th, 2006

Joong Ang Daily
11/8/2006

Amid continued concern that money spent on the Kaesong inter-Korean industrial complex fuels Pyongyang’s military, the Unification Ministry said yesterday that most of the wages paid by South Korean companies buy daily supplies and food for North Korean workers.

Song Yong-deung, 66, a Korean-Australian who operates a Kaesong-based food and supply company jointly owned by North Korea, told the ministry that his company regularly provides goods to North Korean workers, according to a press release from Goh Gyeong-bin, an official in charge of the complex. Song’s company gets money from North Korean authorities, who in turn accept the wage payments from the South Korean companies operating the complex. The North Korean workers do not directly receive their salaries.

According to data provided by Mr. Song and the ministry, South Korean firms pay an average of $600,000 per month in wages, of which about 45 percent is deducted for fees such as insurance and taxes. In March, after the deductions, a total of $295,000 was paid to the North, of which $219,000 went to Mr. Song’s company to purchase goods, such as rice, for the workers.

Unification Ministry officials said yesterday the bulk of the information provided by Mr. Song matched Seoul’s own assessment on how the money sent to the North is being used. Asked why the ministry has not tried in the past two years since the complex opened to verify how the money sent for wages was being used, Yang Chang-seok, a ministry spokesman, said Seoul has repeatedly asked the North to provide a detailed account of the cash flow, but other than stating the workers bought supplies, little information has been provided.

“Given the nature of the North’s closed society, confirmation itself is problematic,” the spokesman said.

The efforts by Seoul to cast a light on the flow of the money being paid to the North comes at a time when Washington is pushing Seoul to curb inter-Korean projects, citing transparency issues over money sent to the North. Over the weekend, President Roh Moo-hyun vowed to continue with inter-Korean projects in a policy speech addressed to the National Assembly. Currently, there are 15 companies operating at the complex employing 9,632 North Koreans.

The announcement came as U.S. delegation visited Seoul this week to discuss how to implement the United Nations sanctions resolution against the North.

Posted in Banking, Finance, Insurance, Kaesong Industrial Complex (KIC) | Comments Closed

North Korea’s Profession: Entrepreneur

Sunday, November 5th, 2006

From Businessweek:
Joe McDonald
11/5/2006

In the midst of tensions over North Korea’s nuclear program, a Western company is there searching for oil. Another just bought a bank.

“North Korea is hungry for business,” said Roger Barrett, the British founder of Beijing-based Korea Business Consultants, who recently took 11 Asian and European clients to Pyongyang to play golf and make contacts.

A small group of Westerners are taking on the challenge of doing business in the isolated North, hoping to get in on the ground floor as its communist rulers experiment with economic reform.

The obstacles are daunting. A Stalinist dictatorship, bureaucracy and language barriers. Foreign sanctions that block most financial transfers, making it hard to get paid and to get supplies. And now worries that United Nations sanctions imposed after North Korea’s Oct. 9 nuclear test could be expanded to a general clampdown on trade.

But the Westerners talk positively about the North as a business environment, with skilled workers and leaders who they say welcome foreign investment.

“They are very skillful and hardworking,” said Felix Abt, a Swiss businessman who oversees two ventures in Pyongyang, one that makes business and game software for sale in Europe and another that makes antibiotics and painkillers for the domestic market. “It’s sometimes faster to get licenses and necessary approvals here than it is in China or Vietnam.”

Barrett said that even as the U.N. Security Council debated the latest sanctions on the North, he got inquiries from investors interested in its rich mineral resources and low-cost manufacturing work force.

“Investors are rushing into China, but labor costs there are escalating, and companies are looking for an alternative,” Barrett said. North Korea “has absolutely the capabilities to take off like South Korea.”

So far the largest foreign business community in North Korea is from China, its main source of trade and aid.

South Korea accounts for most of the North’s foreign investment, with stakes totaling $620 million in an export-manufacturing zone and a resort for foreigners. China’s investments total just $31 million, according to the Chinese Commerce Ministry.

U.S. regulations allow American companies to trade with North Korea under limited conditions, though tensions between the governments and lack of diplomatic relations raises the risk of doing business. Britain, Germany, Sweden and other Western governments, meanwhile, have official relations with Pyongyang.

North Korea’s foreign trade has risen sharply, though the total was less than $4 billion last year, according to South Korean and Chinese government figures. Trade with the South soared by more than 50 percent in 2005 to just over $1 billion.

Most trade is carried out by North Korean state companies, not private entrepreneurs. And some partners are shying away. Trade with Japan, once the North’s No. 1 trading partner, tumbled from $1.3 billion in 2001 to just $200 million last year amid tensions with Tokyo over North Korea’s abduction of Japanese nationals in the 1970s and ’80s.

The Europeans’ chamber of commerce in Pyongyang had 12 members when it was launched last year. They include delivery company DHL Express, an Italian law firm and a German venture founded in 2003 to provide Internet access to foreign businesses in Pyongyang.

This tentative foothold follows the slow pace of economic reform in North Korea. Only in 2002 did North Korean leader Kim Jong Il allow limited free enterprise to revive a decrepit economy, which teetered in the 1990s following the loss of Soviet aid and then collapsed amid widespread food shortages. Still, foreign observers say officials are reluctant to give up control, despite prodding from Beijing, which wants faster reforms to reduce its ally’s dependence on aid.

Abt, the Swiss businessman, moved to Pyongyang in 2002 after seven years working in Vietnam, another Asian communist economy in the throes of reform.

“I heard that some economic reforms were in the pipeline, and I was quite thrilled to experience the beginning,” said Abt.

Now his Vietnamese wife takes their 14-month-old daughter to play at an international school. After work, he goes out to sing karaoke with North Korean co-workers.

But Abt has felt the bite of efforts to pressure the North.

Foreign banks have been leery since Washington last year sanctioned Macau’s Banco Delta Asia, which the U.S. said helped the North launder money. China told its banks this month to curtail financial transfers to or from the North.

“It’s getting difficult to make bank transfers to suppliers or to get money from customers,” Abt said.

He worries that the factory might have to shut down if U.N. sanctions block imports of required chemicals on the grounds that they also could have military uses.

Barrett said his clients have lost access to $11 million in Banco Delta Asia accounts that were frozen by the U.S. sanctions.

Colin McAskill, a British businessman who has done business with the North since the 1970s, is lobbying Washington to fine-tune its sanctions so the bank’s customers can withdraw money that was made legally.

McAskill is chairman of Hong Kong-based Koryo Asia Ltd., which said in September it was buying a 70 percent controlling stake in Daedong Credit Bank, North Korea’s first foreign-owned financial institution. The bank, which is 30 percent owned by a North Korean bank, serves foreign companies and has accounts at Banco Delta Asia.

North Korea also has turned to Western investors in hopes of developing oil resources and reducing its near-total reliance on China for fuel. It awarded a 20-year exploration concession last year to Aminex plc, a London firm.

Aminex is helping the North Korean government deal with other foreign companies, and in exchange gets to pick where it will drill for oil, its chief executive, Brian Hall, said by phone from London.

Aminex hasn’t felt any effects from the nuclear tumult, Hall said.

“We have good relations and no problems with the agreements but are closely watching the political situation,” he said.

Posted in Aminex, Banking, Daedong Credit Bank, Economic reform, European Business Association, Finance, Foreign direct investment, Korea Business Consultants, Koryo Asia Ltd., Oil, Trade Statistics, USA | Comments Closed

Chinese Banks Restricting Cash Flow to DPRK

Tuesday, October 17th, 2006

From the Choson Ilbo:
Chinese Banks Restricting Cash Flow to N.Korea
10/17/2006

Major Chinese banks are currently stopping or restricting remittances or payments to North Korea after the North’s announcement of what it claims was a nuclear test, it emerged Monday. Chinese banks in Dandong, where cross-border trade is concentrated, recently started restricting banking transactions with North Korea, an official with the South Korean Embassy in China said. The restrictions, in fact, started in March this year, when the U.S. imposed financial sanctions on Macau’s Banco Delta Asia after designating it Pyongyang’s “primary money laundering concern.”

But not all Chinese banks are doing so, each bank and branch having its own policy. Sources say it does not look as if the Chinese government is ordering them to do so; rather banks have started doing so on their own. Rumor is spreading among traders doing business with North Korea in China that all financial accounts with North Korea including those by North Korean traders in China could be frozen.

North Korean workers in China are leaving the country in droves after North’s claimed nuclear test. A businessman operating a sewing factory in Shenyang, China, said, “Some 100 North Korean workers in my factory returned home three days ago because the Chinese authorities didn’t renew their work permit.” Banks in Dandong and Shenyang, where many businesses trading with North Korea have accounts, are seeing an increasing number of them not receive payments for exports to the North. “Since the U.S. froze North Korea’s accounts in the Macau bank, it takes three or four times longer for us to get paid for imports to the North, and this is hurting us badly,” a businessman trading with the North said. “We can’t do business with the North any longer.”

As official trade between the North and China shrinks, smuggling between the two countries is thriving, local people say. An ethnic Korean in Dandong said if a North Korean vessel ships 1,000 tons of iron ore to a port here, it officially reports only 100 ton of them and smuggles the rest. Smuggling covers almost everything from iron ore to bronze, TVs, computers, petrochemical products, antiques and maritime products. That is why many feel how determined the Chinese authorities are in cracking down on smuggling will determine the success of sanctions against the North. Locals say they have not heard of any Chinese crackdown on smuggling to and from the North, nor do they expect one.

China clearly stated its opposition against military action in the UN resolution against the North over its claimed nuclear test, calling for “an appropriate level” of sanctions. Beijing says the ultimate goal should be getting the North to return to the six-party talks on its nuclear program, not forcing regime collapse. Some expect China to reduce, rather than stop, its supply of oil to the North.

Meanwhile, China is preparing for an emergency in North Korea. It is setting up barbed-wire fences along the border near the Yalu and Tumen rivers where the military units of the provinces there took charge of guarding the area three years ago. The barbed-wire fences are being extended near Changbai County and the Tumen River. A Chinese official said the fences “were put up after consultations with the North because we needed to draw up a clear border between us and North Korea because of the narrowness of the river or newly built roads.” But some say the main goal is to prevent a mass exodus of North Koreans when the regime falls apart. Experts say another reason China is building up its military strength and carrying out more military exercises near the border with the North is to prepare for regime collapse in the north. The new 60-km long road along the Yalu River is also said to serve strategic military purposes.

Posted in Banking, China, Finance, Fiscal & monetary policy, Foreign direct investment, Iron Ore | Comments Closed

Biref history of US sanctions on DPRK

Monday, October 9th, 2006

From AFP:
10/9/2006

The US already has broad sanctions in place against North Korea, giving it little additional economic and trade leverage to bring to bear following Pyongyang’s defiant nuclear test explosion.

Washington imposed a near total economic embargo on North Korea at the start of the Korean War in June 1950, only beginning to ease the sanctions slightly from 1989 amid efforts to draw the reclusive Stalinist regime into the international community.

A series of measures aimed at encouraging North Korea to not develop nuclear arms culminated in a June 2000 Executive Order legalizing most transactions between US and North Korean nationals.

The order allowed many products to be sold to North Korea, though sanctions affecting trade in military, so-called dual-use and missile-related items remained in place.

But imports from the country remain under tight restrictions, managed by the Treasury Department’s Office of Foreign Assets Control, and North Korean assets frozen since 1950 remained frozen.

While restrictions on US investments in North Korea and on the travel of US citizens to North Korea were also eased under the 2000 measure, the two countries have no formal diplomatic relations and have never officially ended the Korean War.

Most forms of US economic assistance, other than purely humanitarian aid, remain prohibited and North Korea does not enjoy “Normal Trade Relations” with the United States, so allowable exports are hit by high tariffs.

The State Department acknowledges that “US economic interaction with North Korea remains minimal” and that Washington’s leverage over the reclusive regime is limited.

“There’s not a lot to grab hold of,” commented a senior State Department official about the hunt for ways to impact the North Korean economy bilaterally.

North Korea receives the bulk of its imports over the Chinese and Russian borders and relies on hefty aid from South Korea, giving those three governments far greater potential leverage in economic sanctions.

Washington did find one powerful pressure point last year when the Treasury Department slapped sanctions against a Macau-based bank, Banco Delta Asia, which US officials charged was the main conduit for bringing North Korean counterfeit dollar bills into the international system.

Washington and its allies have long contended North Korea uses counterfeiting, drug trafficking and sales of weapons to prop up its ailing economy.

The US decision to designate the Banco Delta Asia a “primary money-laundering concern” left the bank teetering and could foreshadow similar action targetting other financial transactions by the North.

Many analysts pointed to the banking sanction as possibly the main reason North Korea went ahead with its nuclear test shock at this time.

The North Koreans were “feeling under a great pressure from the United States and the sanctions that were being imposed, particularly the financial sanctions,” said David Albright, a former UN nuclear weapons inspector.

“I think this test is coming from that sense of being backed into a corner,” he said.

Posted in Banking, Fiscal & monetary policy, Illicit activities, USA | Comments Closed

Dollarization of NK Economy

Monday, September 25th, 2006

Korea Times:
Andrei Lankov
9/25/2006

For a Stalinist country, North Korea was unique in its permissive approach to hard currency transactions. Most Communist states followed the Soviet example and strictly forbade all private trading in currency. There were foreign currency shops in the Soviet Union, but only the lucky holders of foreign passports could go there.

Until the late 1980s, all Soviet citizens returning from overseas were required to submit their currency to the state-run banks within 72 hours of crossing the border. In exchange, they were given special coupons that could be used as money in special shops stuffed with quality goods. They couldn’t be used in “real” currency shops, which targeted foreigners and where the merchandise was even better. By keeping more than just a few one-dollar bills at home, a Soviet citizen committed a crime.

Professional foreign currency speculators existed, but their business was extremely risky.

According to Soviet law, they could face the death penalty for their activities, and some of them were actually shot in otherwise liberal 1960s. Thus, everybody who wanted to buy or sell currency had to be very careful.

But this was not the case in North Korea. From the late 1970s currency shops operated freely in Pyongyang and other major cities, open to any North Korean who had dollars or yen.

No questions were asked by the guards. Unlike their Soviet counterparts, the shops sold not only durables, but also daily necessities and food stuffs. Currency exchange outside the banks was illegal, but it was considered a relatively minor crime.

This approach, unusually permissive for a very repressive and restrictive regime, reflected one North Korean peculiarity.

The presence of some 95,000 ethnic Koreans who were lured into moving to the North from Japan during the 1990s. The government discovered that these people could attract remittances from Japan, so a network of the state-run currency shops emerged to suck the yen into the state’s coffers.

Prices in the shops were roughly twice the international average, with the difference going to the state.

But in the early 1990s another type of dollar-based economy emerged. From 1990 the value of the North Korean won was in steady decline. The public distribution system was falling apart, and many people turned to foreign currency as the major means of protecting their savings from both inflation and the ever present danger of a confiscatory money reform. Thus, in the early 1990s a dollar-based economy emerged.

The exchange rate began to climb. The official rate was 2.2 won per dollar. Like most other Communist states, North Korea grossly overvalued its currency to squeeze more money from foreign visitors. But nobody was trading the won at such grotesquely high rate. By the time the great famine struck the country in the late 1990s, the actual exchange rate was approximately 220 won, a hundred times the official average.

Market traders and emerging entrepreneurs of all kinds ceased to use the North Korean won for any large-scale transactions.

The dollar also became the major medium of saving. Due to the lack of data and peculiarities of the Communist economy, it is difficult to give precise figures, but the annual inflation rate over the last few years has exceeded 100 percent.

The major turning point was reached in 2002, when the government introduced economic reforms. Actually, they were formally known as “special measures.”

The word “reform” had to be avoided in the official parlance since it hinted that something in the North Korean perfect society needed adjustment, and that could not possibly be true.

The new official rate of exchange was 165 won per dollar.

This was already well below the true market rate but still constituted an overnight 7,500 percent depreciation of the national currency. This is probably not a world record, but it’s still an impressive figure.

Simultaneously, the government raised prices in state shops and won-denominated salaries. This was done in an uneven fashion. Some groups gained far more than others, with the military security personnel and academic staff being the most prominent winners.

This meant the release of huge amount of cash, which flooded the economy and sped up inflation. In 2005 the exchange rate soon approached the level of 2200 won to 2300 won per dollar.

It has been discussed whether such hyper-inflation was provoked deliberately, as a result of some calculations, or came about through planners’ mistakes. I am inclined to believe the second option.

North Korean officials are exceptionally naive when it comes to the basics of the market economy. I would not be surprised if we eventually learn that in 2002 they hoped that the prices would stand still once they had been increased to market levels.

All this is often described as the dollarization of North Korean economy. However, in late 2002 the North Koreans declared that they would switch to euros as the major currency unit in their dealings with the outside world. Since then, all North Korean shops exhibit prices in euros, not dollars.

However, this act did not change actual habits much. Transactions are still usually based on the good old greenback.

Those groups who had access to the currency tended to fare much better than others. Some of those groups were once underprivileged, and the great nationwide disaster of the 1990s actually improved their social standing.

Posted in 2002 Economic reforms, Banking, Black markets, Civil society, Economic reform, Finance, Fiscal & monetary policy, Price liberalization | Comments Closed

Kaesong branch bank cash transfers explained

Friday, September 22nd, 2006

From the Joong Ang Daily:
Bankbooks at Kaesong: Furor starts to subside
9/22/2006

The “scandal” over Woori Bank accounts given to a North Korean entity seemed to lose considerable steam late Wednesday night and yesterday, when government documents and explanations by officials clarified, at least partly, the ownership of the accounts and their purpose.

In its late city edition yesterday morning, the JoongAng Ilbo reported that a letter in March from the Unification Ministry to Woori Bank, which allowed a North Korean agency to open an account at Woori’s Kaesong branch, was less incriminating than it appeared. The document was in response to a letter from the bank asking if Woori was within the law by having opened two bank accounts for the agency in late 2004.

The owner of the accounts was the Kaesong Industrial District Management Committee; it is headed by a South Korean and has members from both countries. Two additional accounts were opened last year.

Oh Seung-wuk, Woori’s public relations manager, told the JoongAng Daily yesterday that the accounts were controlled by the South Korean members of the committee and were used to channel South Korean workers’ salaries and wages payable to North Korean workers at the industrial complex into their paychecks. He said that only South Korean committee members had access to the accounts.

He also said the bank had sought the ministry’s advice before authorizing the first two accounts, and sought a written confirmation last March. The ministry’s reply to that written request was the document produced by a Grand National Party lawmaker, Kwon Young-se, Wednesday.

But the ministry apparently did try to use its influence in a related but separate matter; other documents provided by Representative Kwon showed that it pressed the bank to allow the North Korean General Bureau of Special Zone Development, which oversees Pyongyang’s capitalist experiments in operating special economic zones, to open other accounts. Woori Bank, supported by the finance and foreign ministries and the National Intelligence Service, objected strongly and prevailed at a meeting in Seoul on March 7.

The issue of “unauthorized transfers” to North Korea flared up partly because of new sensitivity to bank accounts opened by the communist country in the wake of U.S. attempts to limit its ability to finance its weapons and illicit product trade. Earlier accusations said Woori Bank had been involved in $2.37 million in “unauthorized” transfers to Kaesong.

Technically at least, the Woori transfers were indeed “unauthorized” at the time; the Bank of Korea had not been informed of them. In July, the administration agreed to waive the reporting requirement for South Korean investors in the Kaesong project.

The Finance Ministry said the waiver was justified because the purpose of the transactions was clearly documented elsewhere and the transactions themselves were transparent.

A Unification Ministry official also defended the transfers yesterday, saying they were within the bounds of an approved inter-Korean cooperation project, the industrial complex operations.

As the controversy flared yesterday, the unification minister, Lee Jong-seok, said his office had acted properly. “The Kaesong Industrial District Development Committee is a North Korean entity by legal definition, but South Koreans manage it,” he told reporters. “It was formed for the convenience of our companies, so the government allowed the opening of bank accounts.”

He also said international sanctions on North Korea did not exist when the accounts were opened, adding, “It is inappropriate to raise issues against a matter of the past with the view of the present.”

He apologized, however, for the fact that transfers had been made for over a year in violation of the foreign remittance laws.

From Yonhap:
9/21/2006

No S. Korean bank accounts for N. Korea: Unification Minister

No South Korean bank has opened accounts for exclusive use by North Korea or its officials, South Korea’s point man on North Korean affairs said Thursday.

Unification Minister Lee Jong-seok said the claim was untrue.

The remarks came in reaction to a report by local daily JoongAng Ilbo that the government may have influenced the country’s Woori Bank to open up four accounts for a North Korean organization overseeing an inter-Korean project to build a joint industrial complex in the North’s border town of Kaesong.

The organization, the Kaesong Industrial District Management Committee, is a North Korean entity by legal definition, according to the minister. But, he said, it is a South Korean body, established and managed “by our people and for our convenience.”
“Naturally, (the bank) opened accounts for the management committee, headed by (South Korean) Chairman Kim Dong-keun,” Lee said in a regular press briefing.

“It is a very fanciful story to say (the bank) opened the accounts for North Korea and that this may be linked to North Korea’s efforts to evade U.S. financial sanctions, but one that helps no one,” the minister said.

Washington imposed financial sanctions on North Korea late last year, accusing it of counterfeiting U.S. dollars and engaging in various other illegal activities, such as drug trafficking, money laundering and illegal weapons sales.

An group of 34 South Korean officials are working with five North Korean officials at the joint management committee, according to Goh Gyeong-bin, head of the Unification Ministry’s office for the Kaesong project.

But the organization is considered North Korean in a strict sense because it was established under a North Korean law governing the complex, although the law itself is a product of an agreement between the divided Koreas.

“All South Korean companies (operating at the Kaesong complex) are North Korean entities in that sense and pay taxes to the North, but we cannot prohibit (South Korean banks) from opening bank accounts for the South Korean companies there,” the unification minister said.

“That is the unique characteristic that a special economic zone (with the North) carries,” he added.

Thirteen South Korean companies were employing about 8,300 North Koreans at the industrial park as of the end of August, while 24 other businesses from here have begun building factories in the joint complex, or are soon expected to do so, according to Goh.

The government had earlier planned to allow an additional 250 South Korean businesses to move into the joint industrial complex this year, but the planned expansion is at a standstill following the North’s launching of seven ballistic missiles in early July.

“I do not think it would take too long (before the government executes the planned expansion), but it would not be appropriate for now to say when the right time would come,” Lee said.

A key symbol of reconciliation between the Koreas, the joint development project is one of the prominent results of the historic Pyongyang meeting between then South Korean President Kim Dae-jung and North Korean leader Kim Jong-il in 2000.

Seoul hopes to have as many as 2,000 South Korean companies move into Kaesong before the end of 2012, when the joint industrial complex is expected to be in full swing, employing nearly half a million North Koreans.

The Koreas have been divided along a heavily fortified border since the end of Korean War more than five decades ago.

from the Donga:
North’s Account Requests Kept Quiet

It was revealed that North Korea had been insisting on opening an account at the Gaesong Industrial Complex branch of Woori Bank for six months since the first request it made to the South Korean administration committee of the Gaesong Industrial Complex through the General Bureau for the Guidance on the Development in the Central Special Zone (GB hereafter) which administers and oversees the Gaesong Complex on September 14 last year.

But the government did not disclose this fact for a year thinking that such a request by North Korea can be interpreted as an attempt to avoid the financial sanctions by the U.S. and can give bad influence on the South-North relationship.

Stubborn North Korea-

The first request by the North Korean GB to open an account was verbal, but the request was made again on paper in December last year.

While Woori Bank kept from giving a firm answer, North Korea asked the bank persistently to explain why the account installation was being delayed, and hearing the bank answer that opening an account would be difficult, even threatened the South Korean administration committee that it would close down the Gaesong branch of the bank. North Korea backed up a step when it saw the signs of this sensation spreading, saying, “We didn’t mean it (when we mentioned the close down).”

The government held several meetings until March this year attended by officials of the Ministry of Finance and Economy, the Ministry of Foreign Affairs and Trade and the National Intelligence Service regarding such request by the North. An official in the Ministry of Unification said, “We had discussions on the backgrounds of the request by the North to open a bank account and the influences it could give to the South-North relations.”

Silent Government-

“Woori Bank refused the account installation based on its policy that the banks only deals with the enterprises within the Gaesong complex and the South Korean resident workers, and this issue came to a pause when the North said in March it would not raise any more complaints,” the government explained on September 19.

The behind the curtain story of why the government kept quiet about the request by the North to open an account is another controversy.

Only two days after September 14 last year when the North made its first request, the U.S. took measures to freeze the North Korean account of the Banco Delta Asia Bank in Macao. This fact gives us a hint on what North Korea was after when it attempted to make a financial account in Gaesong Complex.

Some people point out that the government could have been taking into consideration the fact that North Korea could be the target of another series of criticisms in case the request by the North is revealed to the world.

Posted in Banking, Bureau of Special Zone Development, Kaesong Industrial Complex (KIC), Kaesong Industrial District Development Committee | Comments Closed

Australia, Japan roll out curbs on Pyongyang

Tuesday, September 19th, 2006

Joong Ang Daily
Ser Myo-ja, Lee Sang-il
9/20/2006

Japan and Australia yesterday announced new sanctions against North Korea in another sign of increased financial pressure on the communist state, which has declared it possesses nuclear arms.

The announced purpose of the sanctions was to push Pyongyang back to six-party talks in Beijing to disarm the country in return for diplomatic recognition and financial aid.

In Washington, U.S. officials also signaled that additional sanctions against the North may be in store.

In Tokyo, the cabinet approved a partial freeze on North Korean assets in Japan, imposing restrictions on 15 North Korean agencies or companies and one individual.

“This shows the resolve of the international community and Japan,” said Shinzo Abe, the chief cabinet secretary and heir-apparent to Prime Minister Junichiro Koizumi.

The restrictions on financial transactions were directed, Tokyo said, at figures related to North Korea’s missile and nuclear programs.

After North Korea test-launched a barrage of missiles in early July, Tokyo barred the entry of a North Korean ship to its ports for six months and forbade the entry of North Korean government officials into Japan.

Australia, one of the few Western countries that had diplomatic relations with North Korea, acted the same day, imposing similar bans on financial transactions by people and companies it said were involved in North Korean arms programs.

Foreign Minister Alexander Downer told the press, “This supports and complements similar action taken by Japan today and previous actions taken by the United States, and sends a strong message to North Korea.”

In Washington, a State Department official told Korean journalists in a background briefing that the United States might reimpose sanctions lifted after an accord in 1994, which temporarily reduced tensions over the North’s nuclear programs. He said a proposal to restore the sanctions existing before 1994 was being studied. The relaxation was modest; U.S. companies were allowed to offer telephone service to North Korea and import some raw materials.

In Seoul, Song Min-soon, the Blue House senior security advisor, reacted cautiously to the announcements, saying it would be “inappropriate” to comment on sanctions imposed by other governments. He said the matter was one for capitals to decide, based on a United Nations Security Council resolution critical of North Korea’s missile and nuclear programs and those nations’ own laws.

Separately, Beijing rebuffed a U.S. invitation to a meeting Thursday of financial ministers in New York to discuss North Korea.

From the BBC:
New sanctions target North Korea

Japan and Australia have announced new financial sanctions against North Korea, stepping up pressure on the secretive state over missile tests.

The sanctions will freeze the transfer of money to North Korea by groups suspected of having links to its nuclear or missile programmes.

The move, which follows similar action by the US, comes after Pyongyang launched several missiles in July.

South Korea has urged other countries not to push the North into a corner.

The South is worried that the North may retaliate by carrying out a nuclear test, which would destroy any remaining hope of a diplomatic solution to the stand-off.

Japanese government spokesman Shinzo Abe said the new sanctions were in line with a United Nations resolution which denounced the missile tests.

The Japanese measures affect 15 groups and one individual, and will come into effect later on Tuesday, according to Japanese media.

The Australian measures applied to 12 companies and one person, according to Foreign Minister Alexander Downer, who said the sanctions were “consistent with our strong international stand against the proliferation of weapons of mass destruction.”

Media reports said the two lists were almost identical.

Tough stance

North Korea’s decision to test-fire seven missiles in July – including a long-range Taepodong-2 which is believed to be capable of reaching Alaska – angered the international community.

A UN resolution demanded that North Korea suspend its ballistic missile programme, and barred all UN member states from supplying North Korea with material related to missiles or weapons of mass destruction.

In the immediate aftermath, Japan imposed limited sanctions, including a decision to ban a North Korean trade ferry from Japanese ports and a moratorium on charter flights from Pyongyang.

The new measures also called for closer scrutiny of those wanting to send money or transfer financial assets to North Korea.

“By taking these measures, we have demonstrated the resolve of the international community and Japan,” said Chief Cabinet Secretary Shinzo Abe.

“I do not know how North Korea will respond, but I hope North Korea will accept the UN Security Council resolution in a sincere manner.”

The BBC correspondent in Tokyo, Chris Hogg, says there is still some doubt about how effective these sanctions will be.

Although Japan looks to be clamping down on North Korea, other countries that exert a strong influence on the country – notably China and South Korea – are reluctant to impose similar measures.

Following the Japanese announcement, China restated its opposition to sanctions and called for further dialogue.

Nuclear fears

In addition to fears over North Korea’s missile programmes, the international community is also worried about its nuclear intentions.

The United States, China, Japan, Russia and South Korea have repeatedly tried to persuade the North to abandon its nuclear programme.

But the so-called six-party talks have been on hold since November 2005, because North Korea refuses to attend until Washington lifted economic restrictions against it.

Exactly a year ago, North Korea agreed in principle to give up its nuclear weapons programme in return for economic help and security guarantees.

The move was greeted by surprise and relief, but a joint statement issued at the time failed to bridge the wide gulf between North Korea and the US. One year on, the North remains as isolated as ever.

The region remains on alert in case Pyongyang decides to follow up on the July ballistic missile tests with a nuclear test.

Analysts say the North has enough plutonium for several bombs, but has yet to prove it can build a reliable weapon.

Posted in Australia, Banking, Chongryun, Fiscal & monetary policy, USA | Comments Closed

DPRK government denied banking services in Kaesong (Updated)

Tuesday, September 19th, 2006

From the Joong Ang Daily:
9/21/2006
Lee Young-jong

Contrary to its statement on Tuesday, the Unification Ministry pressured Woori Bank to consider allowing North Korea to open a bank account, government documents obtained by a Grand National Party lawmaker showed yesterday.

A Unification Ministry official who asked not to be named said it was just a discussion and not formal pressure against the bank. He said the bank made its own decision, without being pressured by the ministry.

Representative Kwon Young-se obtained a copy of correspondence that the Unification Ministry sent to Woori Bank on March 28, and provided it to the JoongAng Ilbo.

According to the letter, the ministry tried to stretch the laws governing inter-Korean projects to grant the North’s wish. The North, in September of last year, asked the bank, which operates a branch in Kaesong Industrial Complex, to open an account under the name of the Kaesong Industrial District Management Committee, headed by a South Korean official. The bank informed the Unification Ministry and consulted with it.

“The committee is composed of South Korean members, thus opening the account under its name is within the scope of approved inter-Korean cooperation projects,” the ministry told the bank in the letter.

The committee, however, is a North Korean corporation established under North Korean laws. Contrary to the ministry’s claim, North Korean officials are also working there.

Minutes of a meeting on March 7, where government officials discussed the issue, were also provided to the JoongAng Ilbo, showing the Unification Ministry apparently pressured the bank despite objections from other ministries. “We urge the bank to make a wise decision,” the ministry said, according to the minutes.

The bank, however, was opposed to opening an account for North Korea, citing South Korea’s financial laws and the U.S. Treasury Department’s anti-terror law. The bank also cited expected opposition from the Financial Action Task Force on Money Laundering in turning down the North’s request, the minutes said.

From Yonhap:
N. Korean request to open account with S. Korean bank in Kaesong rejected
Byun Duk-kun
9/19/2006

North Korea sought to open an account with a South Korean bank at an inter-Korean industrial complex in its border town of Kaesong last year, but the South Korean bank rejected the request, officials at the Unification Ministry said Tuesday.

The report comes amid U.S. financial sanctions against the communist state for its alleged involvement in illegal activities, including counterfeiting, laundering and the proliferation of weapons of mass destruction.

Ministry officials, however, dismissed suspicions that North Korea may have tried to use the South Korean bank to evade, or find a safehouse from, the U.S. financial sanctions.

“North Korea first filed its request to open an account with the Woori Bank on Sept. 14, 2005, one day before” Washington imposed sanctions on a Macau bank suspected of aiding the North launder counterfeit U.S. dollars, ministry spokesman Yang Chang-seok told reporters.

A spokesman for the South Korean bank said the bank first heard of the North’s request in December, but did not rule out the possibility that North Korea may have filed its initial request with the South Korean government as early as September.

Goh Gyeong-bin, the ministry official in charge of the inter-Korean project to develop an industrial complex in Kaesong, said an account with the South Korean bank, if one was opened, would not have provided a safe haven for the communist state.

“The North said it wished to open an account at the Woori Bank branch in Kaesong and collect the wages of its workers at the industrial complex through the account,” Goh said.

He said the South Korean bank remained reluctant to comply with the North’s request since the beginning and notified the North Korean side in March that it decided not to approve the request. Woori Bank officials confirmed Goh’s statement.

“The North said it understood the bank’s position and that’s when the situation was concluded,” Goh said.

Nearly 8,300 North Korean laborers are currently working for 13 South Korean firms operating in the joint industrial complex, producing some US$5 million worth of goods a month, according to Goh.

A number of U.S. officials, including Jay Lefkowitz, a special envoy for North Korean human rights, have expressed concerns over possible violations of the North Korean workers’ human rights there and the diversion of their wages to help the North’s weapons program.

Seoul dismisses the concerns, saying the amount of money paid in wages is insignificant even for the impoverished North.

About $600,000, in U.S. dollars, are paid each month to North Korean workers there, whose minimum monthly wage is set at $57, according to Goh.

The joint industrial complex is expected to house some 2,000 South Korean firms, employing as many as half a million North Koreans, when it is in full swing in 2012, according to the Unification Ministry.

From the Korea Herald
9/20/2006

A bank spokesman said Woori serves South Korean companies and their employees from the South producing goods there.

“We rejected the request because we are not regulated to handle transactions with North Korea,” said Cho Seong-kwon.

The request was made last December, Cho said. It came after the U.S. strengthened its crackdown on firms it suspected of aiding Pyongyang in illicit activities such as counterfeiting.

Washington imposed sanctions on a Macau bank in September, accusing it of helping North Korea launder counterfeit U.S. dollars.

A month later, the United States also froze U.S.-based assets of eight North Korean firms on suspicions of illegal activities, including counterfeiting, laundering and proliferation of weapons of mass destruction.

The Unification Ministry, however, said the North’s request had nothing to do with the U.S. sanctions, saying an account with Woori Bank, if one were opened, would not have been used for such illegal financial activities.

“The North said it wished to open an account at the Woori Bank branch in Gaeseong and collect the wages of its workers at the industrial complex through the account,” Goh Gyeong-bin, ministry official in charge of the joint industrial complex project, said.

Goh said the South Korean bank was reluctant to comply with the North’s request since the beginning and notified the North Korean side in March that it decided not to approve the request.

The complex is run by an affiliate of the South’s Hyundai Group. The South sees the park as a model of economic integration that can serve as an example of the path for future unification of the peninsula.

From the Joong Ang Daily:
Ministry says North sought bank account with Woori
Ser Myo-ja, Shin Eun-jin
9/20/2006

North Korea attempted last year to open an account with a South Korean commercial bank at the Kaesong Industrial Complex, but the request was rejected, the Ministry of Unification said yesterday.

In response to a report by the Dong-A Ilbo newspaper, the ministry said a North Korean agency made a verbal inquiry to the Kaesong Industrial District Management Committee on Sept. 14, 2005 about opening an account with Woori Bank. In December, the agency submitted a written request.

Seoul held about four meetings to talk about the issue, the ministry said, but the matter was basically up to Woori Bank.

The North Koreans were quoted by the ministry as saying they wanted to collect income taxes from South Korean workers at the inter-Korean industrial complex.

The North also said it wanted the convenience of collecting salary payments for North Korean workers from their South Korean employers.

North Korean officials must visit the office of each South Korean factory in Kaesong every month for all financial transactions.

Woori Bank has continued to reject the North’s requests. Under Korean law, the bank said, the scope of its operations was limited to South Korean companies that operate factories in Kaesong and their South Korean employees.

The bank has not sought permission from the South Korean government to extend operations to North Koreans in order to meet Pyongyang’s request, the Unification Ministry said.

North Korea threatened Woori Bank that it would shut down the branch, but gave up in March, the ministry said.

Posted in Banking, Kaesong Industrial Complex (KIC), South Korea, USA | Comments Closed

North Korean Economy Watch