North Korean Economy Watch

According to the Daily NK:

Since the redenomination on November 30 last year, the cost of crossing the Tumen River has risen as high as 10,000 Yuan on the back of tighter border regulations.

A source from North Hamkyung Province told the Daily NK on Thursday, “Since border security was strengthened in February, it has cost at least 10,000 Yuan to cross the border into China.” This is equal to around 400,000 North Korean won at the black market exchange rate, or $1400.

In 2006, the cost of crossing the Tumen River around Musan and Onsung in North Hamkyung Province was just 500 Yuan.

The reason is because now there is an alliance of brokers monopolizing the crossing business, and a number of regulations designed to both circumscribe the ability of citizens to cross and limit the relationship between guard companies and local citizens.

In the distant past, if people wanted to cross the river, they approached guards and haggled over the price directly. However, now people have to rely on professional brokers who put them in contact with guards and guides in China. One pays a price to the broker, who shares it with North Korean border guards and Chinese guides respectively at a ratio of 4:3:3.

The North Korean authorities designated the period from February 5th until Kim Jong Il’s birthday on the 16th as a period of “special vigilance,” handing down special instructions to strengthen the border guard and regulations covering migration in border cities.

According to a Daily NK source, this measure is primarily intended to limit the ability of those suffering since the redenomination to smuggle or cross the border to make money in China, as well as to regulate citizens in advance of Kim Jong Il’s birthday, which is customary.

The source emphasized, “Since December last year, the number of citizens using human networks in China to make money has been increasing. Therefore, agents of the National Security Agency and the People’s Safety Agency have been watching those people closely.”

The source further explained, “Now, the authorities are forcing border guards to observe each other in order to track down those doing business with brokers and border crossers. In January, in Yusun-dong, Hoiryeong, one company commander was dismissed after a platoon commander informed on him for assisting border crossers.”

In the mid-2000s, along the border near settlements such as Namyang, Sambong, and Jongsung in North Hamkyung Province, the authorities set up nail boards and extra barbed wire along the Tumen River in order to inhibit defection. However, as these physical measures were not as effective as hoped, in 2006 the authorities took to switching guard posts between different guard companies without notice and awarding a prize, membership of the Party, to guards who caught people crossing the border. These measures were designed to break down connections between individual guards and the local populace

Therefore, the source added, “These days, no border guards are helping people cross the river, and the cost is soaring.”

Read the full story here:
Tight Rules Make Border Costs Soar
Daily NK
Lee Sung Jin
2/19/2010

UPDATE:  It looks like case 4 was a shipment of contraband to central Africa.

ORIGINAL POST: Ertugrul Apakan, Chair of the 1718 Sanctions Committee, is reported to be investigating four cases of UNSC sanctions violations by the DPRK. I have listed 3 of the 4 cases below with links (as identified by Business Week):

Case 1: A North Korean shipment of chemical-safety suits that may have been destined for Syria’s military.

Case 2: Italy’s seizure of two luxury yachts allegedly bound for North Korea

Case 3: Thailand’s interdiction of North Korean arms aboard a plane allegedly bound for Iran

Case 4: ?

According to Business Week:

Apakan told a closed session yesterday that South Korea said the suits were from North Korea and that his committee had received an unsolicited letter from Syria denying any involvement, according to diplomats who attended the briefing. They asked not to be identified.

Bashar Ja’afari, Syria’s ambassador to the UN, said his government sent the letter because South Korea’s report of the incident stated that the suits were bound for his nation. He said Syria conducted a “deep inquiry” and concluded it had nothing to do with the case.

Syria and the DPRK were also allegely working on a nuclear reactor together and Syria’s Tishreen War Museum was built by the North Koreans.

Security Council Report, an independent not-for-profit organisation in affiliation with Columbia University’s Center on International Organization, published a February 2010 report on the DPRK which contains additional information.  See it here.

The Marmot’s Hole posted some great information on the DPRK-Malta relationship.  I encourage you to read his full post, but below I have posted information he provided from the Malta Independent:

With the Labour Party trying to project an image of a progressive and moderate all-inclusive party with new ideas, this newspaper asked Dr Sceberras Trigona, a former Foreign Minister in the Labour 1981-1987 government, for his views on the agreement he had signed with North Korea in July 1982.

At the time North Korea’s regime had, and still has, few ties with other countries due to its policy of self-reliance. However, Malta under Labour had close connections with the Asian country, with Kim Jong-Il, son of then dictator Kim Il-Sung, studying English at the University of Malta and reportedly visiting frequently with then Prime Minister Dom Mintoff.

Contact with Dr Sceberras Trigona was first made via telephone on Thursday, and he asked that the questions be sent by e-mail. The questions were as follows: 1) Given the political climate of the time, what led the Labour government to sign such an agreement with North Korea? 2) Why was a clause included in the agreement stipulating that the agreement should be kept a secret? 3) Would you sign such an agreement again if you were given the chance?

The answer to these questions received on Friday was two words: “Times change,” Dr Sceberras Trigona said tersely.

The signing of the agreement in 1982 had sparked off a political controversy after it was revealed by then Opposition Leader Eddie Fenech Adami during a Nationalist Party mass meeting in Floriana on 4 December 1983.

Newspaper reports later said that a high-level investigation had been started in the Foreign Affairs Ministry to find out who had leaked the information to Dr Fenech Adami.

In actual fact, two agreements had been signed for “a free offer of military assistance” with North Korea. The first agreement was signed in Valletta on 25 March 1982, three months after the perverse result of an election that returned the Labour Party to government in spite of obtaining fewer votes.

A second agreement, this time signed in Pyongyang in July of that same year, superseded the first, changing only the number of weapons and ammunitions that North Korea agreed to donate to Malta.

For Malta, the first agreement was signed by then Interior Minister Lorry Sant at the specific request of Dr Sceberras Trigona, who then signed the second agreement.

The agreement stipulated that North Korea “will, free of charge, provide (Malta) with weapons and ammunitions”.

The difference between the first and second agreement was in the number of weapons and amount of ammunition that North Korea agreed to give Malta – the number was increased in the second agreement.

Otherwise, the agreements were more or less the same. North Korea was responsible for the transportation of weapons and ammunition, and dispatched military instructors to train and teach local military personnel. Four instructors were sent for three months and were paid according to their military rank equivalent to those of Maltese officers.

The agreement stipulated that the Maltese government had to provide a one way ticket from Malta to Pyongyang to the instructors and “subsistence expenditure during the flight and expenses for lodging, meals, medical treatment, transport means (including the driver) and salaries during their stay in Malta, and training equipment needed in the education of the Maltese military personnel”.

The Maltese government had also agreed to “protect” the Korean instructors and “ensure their safety, and exempt them from Customs duties and taxes”.

Both sides also agreed to “observe strict secrecy in respect of all transaction made pursuant to this agreement and shall not disclose any matter hereof to any third country”.

Read the Marmot’s Hole post here.

Read the Malta Independent article here:
1982 Labour government “secret” agreement with North Korea
Malta Independent
Stephen Calleja
Date unknown

According to the Choson Ilbo:

Christian Dietrich, a member of the UN Security Council committee investigating Congo, told VOA that the North Korean ship Birobong arrived in the port of Boma, Congo on Jan. 21, where it unloaded some 3,400 tons of weapons, 100 times the amount seized in Thailand earlier this month.

Dietrich said the committee was told the weapons were “modern” but was unable to find out any details. Assuming all the weapons were AK rifles, the weight would be equivalent to about 800,000 of them, he added.

North Korea in May also sent military instructors to train Congolese government soldiers for about four weeks, around the time the North conducted its second nuclear test.

Dietrich said there are indications that North Korea was the source of state-of-the-art weapons carried by insurgents in eastern Congo. In some cases, Congolese government soldiers have sold their arms to neighboring countries such as Zimbabwe, he said.

Under UN Resolution 1807, adopted in 2008, the UN must be informed in advance of all arms transactions with and military training for Congo, but North Korea did not. The UNSC committee is a watchdog that oversees implementation of the UN resolution.

Additional information:

1. Here is a link to the story about the arms intercepted in Thailand (Including updates).

2. The DPRK has long been involved in African political, economic, military, and cultural affairs.  When I read this story I immediately thought of Zimbabwe’s 5 Brigade which was trained by the North Koreans.  Here are a few stories which are related to the DPRK and Zimbabwe.

3.  The North Koreans also constructed the statue of Laurent Kabila in Kinshasa. The statue is located here.

UPDATE:  According to the Boston Herald, the diplomats were sentenced to eight months in prison.

ORIGINAL POST: It is no secret that North Korean diplomats and embassies are self-financing.  In fact, they are profit earning and they must remit funds back to Pyongyang.  While this means that DPRK diplomatic relations are not a drain on the treasury, as is typically the case with other countries, it does mean that the DPRK’s official representatives are more likely to make headlines for their business dealings rather than political statements.

And so here is the latest installment in this saga from Reuters:

Swedish police have arrested two North Korean diplomats on suspicion of smuggling 230,000 cigarettes into the Nordic country, the Swedish Customs Office said Friday.

The pair, a man and a woman who have diplomatic status in Russia, were stopped by Swedish customs officers Wednesday morning as they drove off a ferry from Helsinki, the Finnish capital.

Customs officials discovered Russian cigarettes in the car driven by the couple, Swedish Customs spokeswoman Monica Magnusson told Reuters.

The two North Koreans claimed diplomatic immunity.

“They were accredited as diplomats in Russia, but had no accreditation in Sweden,” she said. “They were arrested on suspicion of smuggling.”

Magnusson added that the pair were still being held by Swedish police and that she was not aware of them having any contact with North Korean officials since their arrest.

Sweden’s Foreign Ministry said it had been informed of the arrests but would not comment directly on the matter, saying it was a criminal case and was being handled by the police.

Foreign Ministry spokeswoman Cecilia Julin said foreign diplomats are only immune from criminal prosecution in countries where they have been accredited with the authorities.

“If you come to Sweden and commit a crime, you’re just like any other foreign national,” she said.

Sweden is one of only seven countries to have an embassy in North Korea, treated by much of the world as a rogue state due to human rights abuses and its possession of nuclear weapons despite opposition by the international community.

The Foreign Ministry said the arrests were primarily a police matter, but that the North Korean embassy in Sweden was in contact with the ministry over the matter.

An official at the North Korean embassy in Stockholm said earlier he had no knowledge of the arrests.

North Korean diplomatic staff were expelled from Sweden and two other countries in 1976 after a “massive” smuggling scheme was uncovered.  According to Time Magazine (in 1976):

Not in years have so many diplomatic persona suddenly been declared non grata. In Oslo, members of North Korea’s diplomatic mission—three bureaucrats and a chauffeur—were given six days to pack up and get out. Foreign Ministry officials frostily informed North Korea’s Ambassador to Stockholm, Kil Jae Gyong, who is also accredited to Oslo, that he was no longer welcome in Norway. Similar scenes took place in Helsinki and Copenhagen, and as of last week, twelve North Korean embassy staffers had been unceremoniously ordered home to Pyongyang.

International politics had nothing to do with the abrupt action by the Scandinavian governments. What had happened was that North Koreans in all three countries* had been caught red-handed in a massive smuggling racket involving liquor, cigarettes and dope —apparently instigated by the financially hard-pressed government of President Kim II Sung. Officials in Norway estimated that their branch of the Kim gang had smuggled into the country at least 4,000 bottles of booze (mostly Polish vodka) and 140,000 cigarettes, which were then given surreptitiously to Norwegian wholesalers for distribution on the black market. In Denmark, the illegal goodies impounded so far included 400 bottles of liquor, 4.5 million cigarettes and 147 kilos of hashish, which police confiscated two weeks ago from two Danes who had just bought the drug from North Korean embassy staffers.

Personal Use. How long the North Koreans have been into smuggling as a sideline remains unclear, but Scandinavian officials have been closely watching their business dealings for about five months. In Norway, neighbors of the neat brick North Korean embassy in Oslo’s West End had long been puzzled by the constant movement of cars in and out of the compound and by the sight of mission staffers struggling in the backyard with huge mysterious boxes. In Denmark, customs officials got suspicious last month when the North Koreans imported 2.5 million duty-free cigarettes, allegedly for the “personal use” of one staffer.

The discovery of illegal activity by the North Koreans in Scandinavia may be only the iceberg’s tip. Five months ago in Cairo, Egyptian officials caught two North Korean diplomats with 400 kilos of hashish in their luggage. A North Korean official assigned to Malaysia has also been recalled after dealing in smuggled goods.

The North Koreans have protested their innocence, and mission staffers in Finland insisted that they would not leave the country. Nonetheless, Scandinavian officials have little doubt that the smuggling was ordered by Pyongyang as a desperate measure to help resolve the government’s horrendous financial crisis. Western experts estimate that North Korea, with a G.N.P. of only $4.5 billion, has a foreign debt of more than $2 billion, at least $500 million of which is owed to the capitalist world. North Korea not only maintains some 60 expensive missions abroad but also buys millions of dollars’ worth of advertising space in newspapers round the world every year to publicize the latest speeches of Kim II Sung. Faced with a severe shortage of hard Western currency, officials speculate, North Korean diplomats turned to smuggling to support their missions and pay for the ads, sending any excess profits home to Pyongyang.

The DPRK embassy has also been accused of smuggling in Pakistan.

Sometimes the DPRK embassy staff make “good” business decisions.

Good article here with further info (h/t OneFreeKorea).

2007 CRS report: Drug Trafficking and North Korea: Issues for U.S. Policy

You could probably write a series of books on the DPRK embassies in Russia and  China.

And just for the record: Sweden–the North Koreans are not the only ones doing this–everyone is.  When I lived in Europe over 15 years ago I talked with fellow teenagers about doing this!  If you want to increase people’s incomes, increase tax receipts, and lower the incomes of mobsters and bootleggers–lower your cigarette taxes!

Read the full stories here:
Diplomats arrested for cigarette smuggling
Reuters
Jens Hansegard
11/20/2009

SCANDINAVIA: Smuggling Diplomats
Time Magazine
11/1/1976

Institute for Far Eastern Studies (IFES)
NK Brief No.09-11-20-1
11/20/2009

The recent hike in narcotics prices in North Korea appears to be due to rising prices on homes and in markets.

According to Daily NK, “Recent narcotics prices have grown considerably,” and, “If narcotics prices rise, market prices rise across the board.”

As North Korean officials crack down on narcotics production and distribution, the availability of Philopon and other narcotics has been sharply reduced. This reduction in supply is driving up prices.

Drug prices in North Korea first jumped sharply in February of last year, as officials began cracking down on production centers in Hamheung and Pyeongseong.

These raids were said to sharply reduce narcotics production, and in the same month the price of one kilogram of “Ice” shot up to 1,000 won (approx. 2,700 USD), and then again to as much as 2,000 won in April. As soon as narcotics prices rose, housing prices also increased and the price of all factory-produced goods in markets went up. It is as if inside North Korea, the rise in narcotics prices causes the price of everything to increase.

As late as fall 2007, a kilogram of Philopon ran for 5 million won, and could be easily found by those who were looking. By 2008, however, as officials cracked down harder on Philopon producers and dealers, the price had risen exponentially.

Another factor impacting drug prices in North Korea is the sharply growing number of users in China. Despite the efforts of Chinese police, they have been unable to curb the growing flow of narcotics across the border and into the border regions.

In October 2009, one kilogram of Philopon ran from between 50-70 million won, depending on the quality. When smuggled into China, the drugs bring between 150-200 thousand yen (80-100 thousand DPRK won), which when exchanged for ROK currency equals between 30-40 thousand won.

In North Korea, drugs determine housing prices, with the most expensive house in an average city going for the price of one kilogram of Ice. Rising housing costs drive up prices in markets, so that now a kilogram of rice sells for 2200 won.

The price of rice generally falls after the harvest season, but this year remained relatively unchanged. In April of last year, food prices shot up from 2000 to 3000 won for a kilogram of rice, and while this was also related to food shortages, the rising cost of narcotics played a large role.

The reason narcotics prices have such an impact is due to the particular nature of drug sales in North Korea. Drug peddlers deal in cash with narcotics producers, but as cash can be hard to come by, these dealers put up houses as collateral before taking the drugs to China.

In addition, most Chinese renminbi and U.S. dollars circulating in North Korean markets are from the cross-border drug trade, and the fees charged by money-handlers in North Korean markets drive prices up considerably.

July 1, 2009
Download the full report here. Download other CRS reports here.

Summary: The United Nations Security Council unanimously passed Res. 1874 on June 12, 2009, in response to North Korea’s second nuclear test. The resolution puts in place a series of sanctionson North Korea’s arms sales, luxury goods, and financial transactions related to its weapons programs, and calls upon states to inspect North Korean vessels suspected of carrying such shipments. The resolution does allow for shipments of food and nonmilitary goods. As was the case with an earlier U.N. resolution, 1718, that was passed in October 2006 after North Korea’s first nuclear test, Res. 1874 seeks to curb financial benefits that go to North Korea’s regime and its weapons program. This report summarizes and analyzes Res. 1874.

On the surface, financial sanctions aimed solely at the Democratic People’s Republic of Korea (DPRK, the official name of North Korea) and its prohibited activities are not likely to have a large monetary effect. Governments will have to interpret the financial sanctions ban of the resolution liberally in order to apply sanctions to the bank accounts of North Korean trading corporations. A key to its success will be the extent to which China, North Korea’s most important economic partner, implements the resolution. In summary, the economic effect of Resolution 1874 is not likely to be great unless China cooperates extensively and goes beyond the requirements of the resolution and/or the specific financial sanctions cause a ripple effect that causes financial institutions to avoid being “tainted” by handling any DPRK transaction. A ban on luxury goods will only be effective if China begins to deny North Korea lucrative trade credits.

Provisions for inspection of banned cargo on aircraft and sea vessels rely on the acquiescence of the shipping state. In the case of North Korean vessels, it is highly unlikely that they would submit to searches. Resolution 1874 is vague about how its air cargo provisions are to be implemented, in contrast to the specific procedures set forth regarding inspecting sea-borne cargo. While procedures are specified for sea interdictions, the authority given is ambiguous and optional. Further, DPRK trade in small arms and ammunition is relatively insignificant, and therefore the ban on those exports is unlikely to have a great impact.

Vanity Fair has published a lengthy article about the DPRK’s mysterious Bureau 39 which is allegedly behind a number of illicit activities such as counterfeiting US currency and cigarettes, smuggling drugs and bilking western insurance companies with fraudulent claims. The full article is worth reading here.  (h/t DPRK Studies)

Of immediate interest, here is the supposed location of Bureau 39 just south of the Grand People’s Study House:

Hamer’s three-year investigation—code-named Operation Smoking Dragon—began not with supernotes but with counterfeit cigarettes, which were being shipped by freight container from China into California ports by the millions. These, too, says Asher, originated in North Korea, and were the subject of a report by the Coalition of Tobacco Companies, one of whose investigators made an undercover visit, posing as a buyer, to North Korean factories in Pyongyang and the northeastern city of Rajin. These turn out fake Western brands, such as Marlboros, in such quantities that they generate as much as $720 million in gross revenue each year. Hamer set up a number of front operations to get inside the cigarette-smuggling business, and soon had many contacts who dealt with him as if he were a smuggler, too. In the spring of 2004, Hamer and his colleagues were asked by F.B.I. headquarters to see if they could acquire North Korean supernotes. One of Hamer’s best customers, Chao Tung “John” Wu, who eventually pleaded guilty to smuggling counterfeit currency, cigarettes, and narcotics, as well as conspiring to broker a deal for Chinese-made, shoulder-fired missiles, but died before he was sentenced, promised he could supply them with the help of a man who was a frequent visitor to North Korea—Wilson Liu. The notes were so good, Wu said at a secretly recorded meeting, “you can even go to Las Vegas and slide them into the machines—they take them right away.”

The US Congressional Research Service has updated their report on the DPRK’s alleged counterfeiting operations. You may download the report here.

Here is the summary:

The United States has accused the Democratic People’s Republic of Korea (DPRK or North Korea) of counterfeiting U.S. $100 Federal Reserve notes (Supernotes) and passing them off in various countries, although there is some doubt by observers and other governments that the DPRK is capable of creating Supernotes of the quality found. What has been confirmed is that the DPRK has passed off such bills in various countries and that the counterfeit bills circulate both within North Korea and around its border with China. Defectors from North Korea also have provided information on Pyongyang’s counterfeiting operation, although those statements have not been corroborated. Whether the DPRK is responsible for the actual production or not, trafficking in counterfeit has been one of several illicit activities by North Korea apparently done to generate foreign exchange that is used to purchase imports or finance government activities abroad.

Although Pyongyang denies complicity in any counterfeiting operation, at least $45 million in such Supernotes thought to be of North Korean origin have been detected in circulation, and estimates are that the country has earned from $15 to $25 million per year over several years from counterfeiting. The illegal nature of any counterfeiting activity makes open-source information on the scope and scale of DPRK counterfeiting and distribution operations incomplete. South Korean intelligence has corroborated information on North Korean production of forged currency prior to 1998, and certain individuals have been indicted in U.S. courts for distributing such forged currency. Media reports in January 2006 state that Chinese investigators had independently confirmed allegations of DPRK counterfeiting. In June 2009, press reports claimed that the DPRK produced counterfeit U.S. bills even after 2007.

For the United States, the alleged North Korean counterfeiting represents a direct attack on a protected U.S. national asset and may provide a rationale to impose financial sanctions on the DPRK. The earnings from counterfeiting and related activities also could be important to Pyongyang’s finances. Profits from any counterfeiting also may be laundered through banks or other financial institutions.

U.S. policy toward the alleged counterfeiting is split between law enforcement efforts and political and diplomatic pressures. On the law enforcement side, individuals have been  indicted and the Banco Delta Asia (BDA) bank in Macao (a territory of China) was named as a primary money laundering concern under the Patriot Act. In June 2007, the BDA issue was resolved and the Six-Party Talks resumed. At the time, Pyongyang promised that it would punish the counterfeiters and destroy their equipment. The law enforcement effort has become entwined with diplomatic efforts and pressures to resolve the North Korean nuclear and missile issues. Following North Korea’s second nuclear test and several missile launches in May 2009, the United States reportedly has been considering further financial sanctions on the DPRK based partly on its alleged counterfeiting.

This report as well as many other CRS reports on the DPRK can be found here.

According to Aung Zaw in the Wall Street Journal Aisa:

A government report leaked by a Burmese official last month shed new light on these ties. It described a Memorandum of Understanding between Burma and North Korea signed during a secret visit by Burmese officials to Pyongyang in November 2008. The visit was the culmination of years of work. Diplomatic relations between the two countries were cut in 1983 following a failed assassination attempt by North Korean agents on the life of South Korean President Chun Doo Hwan while he was visiting Rangoon. The attack cost 17 Korean lives and Burma cut off ties.

One of the first signs of warming relations was a barter agreement between the two countries that lasted from 2000 to 2006 and saw Burma receive between 12 and 16 M-46 field guns and as many as 20 million rounds of 7.62 mm ammunition from North Korea, according to defense analyst Andrew Selth of Griffith University in Australia. In exchange, Burma bartered food and rice.

The two countries formally re-established diplomatic relations in April 2007. After that, the North Korean ship the Kang Nam — the same ship that recently turned away from Burma after being followed by the U.S. navy — made a trip to Burma’s Thilawa port. Western defense analysts concluded that the ship carried conventional weapons and missiles to Burma.

This laid the ground for the MoU signed in November, when Shwe Mann, the regime’s third-most powerful figure, made a secret visit to North Korea, according to the leaked report. Shwe Mann is the chief of staff of the army, navy and air force, and the coordinator of Special Operations. He spent seven days in Pyongyang, traveling via China. His 17-member delegation received a tour around Pyongyang and Myohyang, where secret tunnels have been built into mountains to shelter aircraft, missiles, tanks and nuclear and chemical weapons.

The MoU he signed formalizes the military cooperation between the two countries. According to the terms of the document, North Korea will build or supervise the construction of special Burmese military facilities, including tunnels and caves in which missiles, aircraft and even naval ships could be hidden. Burma will also receive expert training for its special forces, air defense training, plus a language training program between personnel in the two armed forces.

Shwe Mann’s delegation also visited a surface-to-surface missile factory, partially housed in tunnels, on the outskirts of Pyongyang to observe missile production. The Burmese were particularly interested in short-range 107 mm and 240 mm multirocket launchers — a multipurpose, defensive missile system used in case of a foreign invasion. Also of great interest was the latest in antitank, laser-guided missile technology.

Previous Myanmar – DPRK posts here.

Read the full story below:
Burma and North Korea, Brothers in Arms
Wall Street Journal Asia
Aung Zaw
7/10/2009