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Drugs in Steam Baths, Even Prostitution Taking Place

Thursday, July 5th, 2007

Daily NK
Kim Min Se
7/5/2007

A counselor of Korean Association against Drug Abuse, Lee Mee Young said, “Drugs are a snare of destruction which give huge suffering to addicts themselves, families, relatives, and neighbors.”

Such drug addicts are rapidly increasing in North Korea. Misuse of drugs with the spread to average civilians as well as the newly rich upper class has become very serious.

Situation #1. Handle drugs due to stress.

Hong Mun Hwa (pseudonym), who became wealthy all of a sudden by acquiring a large sum of money from North and Chinese trade in Chongjin, was a man who was faithful to his family. Three years ago, Mr. Hong started backsliding when he put his hands on Philopon (called “ice” in North Korea).

Jung Myung Ki (pseudonym), brother-in-law of Mr. Hong, said, “Ever since he started touching drugs, his business also became ruined. Mr. Hong was not able to keep appointments and his eye for business became totally went downhill. He turned into a stupid person.”

The story Mr. Jung revealed was this.

“I realized that my brother-in-law was addicted to drugs when I rode together with him a year ago from Chongjin to Shinuiju. Of course, I knew that most people who have money do drugs, but I was frankly quite surprised that a good person such as my brother-in-law became addicted. He ultimately died from a heart attack due to drugs. I even hid the fact from his wife that he was addicted to drugs until after his death.”

However, Mr. Hong, who started drugs at his first try, was gradually dissatisfied with Philopon alone, so started trying “pills” (heroine). According to Mr. Jung, Mr. Hong, in the course of the trade car ride from Chongjin to Shinujui, took Philopon at 5~8 hour increments.

Mr. Hong died from heart attack at the beginning of June in Shinujui, saying, “I will try to make up for lost sleep” and took a large quantity of “pills.”

Situation #2: Taking drugs in private steam baths…even prostitution

The evil influence of drugs in Hamheung, relayed by North Korean civilian Kim Myung Gil (pseudonym), who came to China from Hamheung to visit relatives, is even more shocking. Hamheung is the mass production center of Philopon.

Mr. Kim said, “People who are selling Philopon by trade and are making a living is increasing in Hamheung. The mother of a middle school classmate sold Philopon and even though she initially earned money, the mother and my friend both became addicted later. Not only my peer, but there are many cases where families had to scatter and sell their houses due to drug addiction.”

According to Mr. Kim, the steam bath business is currently booming in Hamheung.

In the steam bath, electricity comes on for 24 hours. Electricity is transferred via a power cable which is connected by giving a bribe to the power distribution plant. Mostly, there are private baths or rooms in the steam baths, and inhalation and prostitution are supposed to take place here. If one gives money to the steam bath operators, then they provide Philopon and even bring a female prostitute.

He said, “One does not have to show his or her citizen card when entering the steam bath and do not need to leave their names, so it is an ideal place for delinquent men and women to do drugs.”

The inspection unit haphazardly handles situation while taking bribes…decrees repeat, “Absolutely Executions”

The current North Korean government has not come up with a way regarding the civilians’ drug sales and taking dosages. Occasionally, the Party issues the decree and inspection unit to prevent drug sales and usage, but they have not been able to exterminate drug deals.

Mr. Kim said, “The Party issued the order last year to capture drug offenders and carry into execution, but even they sweep matters under the table upon receiving bribes.”

He added, “If inspection occurs because drug smugglers earn such a significant amount of money, then the dealers give 3,000~5,000 dollars worth of money at one time. Even if inspection units have come down from the Party, people are easily won over if they receive such a large sum of money.”

Kim Jung Ae (pseudony), Korean-Chinese businesswoman who goes to Pyongyang and Shinuijui often said North Korea’s drug offense regulations cannot be known.”

Mr. Kim said, “In China, a rule exists which decrees drug sales or possessions over 20g to be punishable by death. However, North Korea does not seem to have a regulation about the exact number of grams of possessions or sales which are punishable.”

He explained, “In order to control drugs, punishment has to differ for one-time usage, two-time usage and above, and the amount of grams of possessions or sales. However, because North Korea repeats every time it announces a decree, “A person who makes or sells drugs is punishable by death,” “we cannot kill all drug takers and proper regulation cannot even be carried out.”

Mr. Kim lamented, “If detailed laws regarding the North Korean government’s strong will for regulation is not made, the evil influence of the citizens’ drug use cannot help but to increase at a fast speed.”

Posted in Black markets, Civil society, Drug smuggling, Economic reform, Illicit activities | Comments Closed

Swiss authorities question U.S. counterfeiting charges against North Korea

Tuesday, May 22nd, 2007

McClatchy Newspapers
Kevin Hall
5/22/2007

Swiss police who closely monitor the circulation of counterfeit currency have challenged the Bush administration’s assertions that North Korea is manufacturing fake American $100 bills.

President Bush has accused North Korea of making and circulating the false bills, so perfect they’re called supernotes, and in late 2005 the U.S. Treasury took measures to block that country’s access to international banking. North Korea subsequently halted negotiations over dismantling its nuclear weapons program, a process that remains in limbo because of the dispute.

The Swiss federal criminal police, in a report released Monday, expresses serious doubt that North Korea is capable of manufacturing the fake bills, which it said were superior to real ones.

The Swiss report includes color enlargements that show the differences between genuine bills and counterfeit supernotes. The supernotes are identical to U.S. banknotes except for added distinguishing marks, which can be detected only with a magnifying glass. In addition, under ultraviolet or infrared light, stripes appear or the serial numbers disappear on the supernotes.

The Bundeskriminalpolizei didn’t hazard a guess as to who’s been manufacturing the supernotes, but said experts agreed that the counterfeits weren’t the work of an individual but of a government or governmental organization.

The U.S. Secret Service, the lead federal agency in combating counterfeiters, declined to provide details or respond to the Swiss report. But spokesman Eric Zahren said the agency stood by its allegations against Pyongyang.

“Our investigation has identified definitive connections between these highly deceptive counterfeit notes and the North Koreans,” Zahren said. “Our investigation has revealed that the supernotes continue to be produced and distributed by sources operating out of North Korea.”

The Swiss report says the Secret Service has refused to provide any information about its investigations. It notes that if the United States produced concrete evidence to back up its allegations, “it would have a basis for going to war.” Under international law, counterfeiting another country’s currency is considered a cause for war.

But if the U.S. has a reason to go to war, against whom?

The Swiss police noted that before charging North Korea with counterfeiting, U.S. officials had mentioned Iran, Syria and East Germany as possible manufacturers. North Korea’s capacity for printing banknotes is extremely limited, because its banknote printing press dates from the 1970s. Its own currency is of “such poor quality that one automatically wonders whether this country would even be in a position to manufacture the high-quality `supernotes,’ ” the report says.

For years, analysts have wondered why the supernotes – which are detectable only with sophisticated, expensive technology – appear to have been produced in quantities less than it would cost to acquire the sophisticated machinery needed to make them. The paper and ink used to make U.S. currency are made through exclusive contract and aren’t available on the open marketplace. The machinery involved is highly regulated.

In theory, if North Korea were producing the notes, it could print $50 million worth of them within a few hours – as much as has been seized in nearly two decades, the report said.

“What defies logic is the limited, or even controlled, amount of `exclusive’ fakes that have appeared over the years. The organization could easily circulate tenfold that amount without raising suspicions,” says the Swiss police report, which also says Switzerland has seized 5 percent of all known supernotes.

Moreover, it noted that the manufacturer of the supernotes had issued 19 different versions, an “enormous effort” that only a criminal organization or state could undertake. The updates closely tracked the changes in U.S. currency issued by the Federal Reserve Bank.

The fact that the Swiss are questioning the veracity of the U.S. allegations against North Korea carries special weight in the insular world of banknote printing.

“The producers of the most sophisticated products used in banknote printing are Swiss or at least of Swiss origin. That goes for the (specialty) inks and that goes for the machines,” said Klaus Bender, a German foreign correspondent and the author of “Moneymakers: The Secret World of Banknote Printing.”

“Can the North Koreans do it, are they doing it? The answer is couched in diplomatic language, (but) the answer is clearly no,” Bender said.

—

EXCERPT FROM THE REPORT:

“According to the US Secret Service, $50 million worth of `super-fakes’ were confiscated worldwide over the past 16 years, only a small portion of them within the United States. Measured against the US annual counterfeit damage of $200 million, the damage from $50 million worth of `super-fakes’ is not that significant. The Federal Reserve Bank produces genuine $100 dollar bills mainly for the foreign market. On their return to the U.S., the issuing bank after examination can easily distinguish the `supernotes’ from originals using banknote testing equipment, due to altered infrared characteristics. For this reason, the United States over the years has hardly suffered economic damage due to the `super dollar.’

“A (banknote) printing press like the one in North Korea can produce $50 million worth of bills in a few hours. Using its printing presses dating back to the 1970’s, 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 enormous effort put into the making of the 19 different `super-fakes’ that we know of is unusual. Only a (criminal) governmental organization can afford such an effort. What defies logic is the limited or even controlled amount of `exclusive’ fakes that have appeared over the years. The organization could easily circulate tenfold that amount without raising suspicions.”

Posted in Banking, Counterfeiting, Finance, Fiscal & monetary policy, Illicit activities, Switzerland | Comments Closed

Due to China’s protest, North Korea’s drug production facility partly closed

Monday, May 21st, 2007

Daily NK
Han Young Jin
5/21/2007

Well-informed sources say Heungnam manufacturer’s production facility shuts down.

Several well-known sources relayed on the 20th that as North Korean drugs flow into China in large amounts, it strongly protested to North Korea and requested that the Heungnam Pharmaceutical Manufacturer in Hamheung be shut down.

Following suit, the North Korean government authorities was known to destroy the Heungnam Pharmaceutical Manufacturer used in producing bingdu (the alias for “ice” classified in the category of Philopon in North Korea).

The well-informed source said, “China’s judicial authorities are strongly coping with the situation by imposing three years of penal servitude to those who sell 10g of Bingdu (so called “Ice” in North Korea) or a penalty of 20,000 yuan. When North Korea demonstrated a lax response, China expressed strong discontent.”

In North Korea, the Nanam Pharmaceutical Manufacturer in Chungjin, North Hamkyung is famous as a representative drug manufacturing company. The source evaluated that Hamheung, which has recently risen as a drug production base, had weak means of living which produced the highest number of deaths during the 90s’ mass starvation and the stimulant “Ice” was misused due to the lack of medical products.

$3,000 per kilogram…dealt for $10,000 at the border

An internal source said, “During the March of Suffering, a part of citizens who even sold raw materials and factory equipment earned big money by selling drugs. Since then, everyone has followed the trend. The people in Hamheung started handling drugs with great ambition due to the fact that at the Heungnam Pharmaceutical Manufacturer, the prime cost for a kilogram is $3,000 dollars and the profit exceeds $5,000.”

The source said, “In the past, people touched drugs hoping to make a big fortune with a single swoop, but everyone is thinking about making money by selling drugs nowadays. Inevitably, the number of civilians who have become ‘ice’ addicts has significantly increased.”

Ice can be produced for $3,000 per kilogram and sold on site for $7-8,000 and at the border region where smuggling is possible, it can be sold for up to $10,000.

Another source said, “Civilians have fallen to the bedazzlement of making a jackpot with drugs, so they have gone to the border region carrying drugs and seeking dealers. However, fakes that have been manufactured ingeniously are also making a wave.”

In North Korea, as drug sales have been unyielding, it was known that teenagers who are touching “ice” are not only seriously in Hamheung but in all regions. They are not showing immediate signs of addiction, but they can be presumed as “high-risk” people for addiction.

North Korean businessman Mr. Kim, who is engaging is trade between North Korea and China, wore a sorry expression and said, “Nowadays, children who are not yet fully grown use ‘ice.’ Not too long ago, my friend’s 12-year old son was found while secretly using his father’s ‘ice.’ After severely beating him, the father asked, “Do you like ‘ice’ so much? The son responded, ‘it is a cure-all.’”

In the mid-1990s, due to deteriorated medical facilities and a shortage of medical goods, citizens started to depend on folk remedies. Civilians who started using ‘ice’ in lieu of cold medicines started using it as emergency medicine even for the flu and strokes.

Mr. Kim said, “Ice has a stimulant quality, so it is used to as a stimulant and a stress-releaser. Even children have come to regard it as a panacea and think that a little suck of ice will instantly get rid of pain and make one refreshed.”

Narcotic squads hardly have any strength

The North Korean authorities issued a narcotics degree in March of last year to prevent drug abuse. It has even issued the threat of putting to death related parties of drug deals. However, businesses that have earned money through drugs feed bribes to inspection organs, so sources said that these institutions cannot exert any strength.

One domestic source said, “Recently, a Central Party inspection group was organized in Shinuiju and came forward to regulate drugs, but authorities such as the National Security Agency, the National Security Office, and others have become implicated. However, exposing them in increasing measures makes punishment difficult, because complicit individuals can come forward in hordes.”

Drug sellers in the border region have divided left-over profits from handing over to China with participating National Security officers. The source said, “If a drug dealer is arrested, if back-money is given, even the ring-leader will be immediately released.”

The source also said that upper-class drug inspection groups can instantly become conspirators due to the high amount of money to be handed over to their superiors.

Posted in Black markets, China, Drug smuggling, Health care, Illicit activities, International trade, Pharmaceuticals | Comments Closed

Bank owner disputes money-laundering allegations

Wednesday, May 16th, 2007

McClatchy Newspapers
Kevin G. Hall
5/16/2007

The owner of a tiny bank in faraway Macau that the U.S. government blacklisted after accusing it of laundering the illicit gains of North Korea’s leaders has appealed to the U.S. Treasury to reverse its decision. He claims that the U.S. government itself had encouraged him to maintain North Korea’s accounts.

The May 2 statement by Stanley Au raises new questions about the Treasury’s decision March 19 as well as the Bush administration’s assertions that the North Korean regime has used the Banco Delta Asia to introduce counterfeit U.S. $100 bills into circulation.

In his declaration, Au said that some $160,000 in counterfeit American currency had turned up at his bank in 1994 but that he’d reported the incident to Macau’s police after he’d learned the money was fake. A short time later, U.S. government agents called on him, he said.

“I cordially answered the questions and asked if their preference was that we should desist from doing business with North Korean entities,” Au wrote. “They said they would like us to continue to deal with them, as it was better that we conducted this business rather than another financial entity that may not be so cooperative with the United States.”

Au made his statement as part of an appeal of the Treasury’s blacklisting of his bank for what it describes as insufficient controls against money laundering and passing fake U.S. currency into the global financial system. The family-owned bank in the Chinese-controlled enclave of Macau is now in government receivership.

Au said that because the meetings took place 13 years ago, he’d forgotten the agents’ names. The U.S. Secret Service, under Treasury control at the time, investigates the counterfeiting of American currency, but Au didn’t specify with what agency he met.

The Treasury declined to comment on Au’s statement or the appeal.

“In the next couple of years, the Bank was periodically contacted by other U.S. government agents and we cooperated in their inquiries,” Au said in a statement to the Treasury first published by China Matters, an Internet blog.

“Since those meetings, I believed that the U.S. government knew of my willingness to cooperate with regard to the Bank’s North Korean business and, indeed, to end that business if this would help prevent unlawful conduct.”

The statement to the Treasury also said that international accounting giant Price Waterhouse Coopers audited the bank’s finances annually and didn’t raise questions about its business or accounting practices.

Shortly after the Treasury’s initial September 2005 action sent the bank into receivership, Macau’s monetary authorities asked independent auditor Ernst & Young to audit the bank’s books. The audit, obtained and published by McClatchy Newspapers, found insufficient money-laundering controls but no evidence that North Korea used the bank to introduce fake $100 bills.

Au’s 10-page declaration also countered another allegation by the Treasury, that Banco Delta Asia maintains a relationship with one source of the bills in 1994.

Au said he’d closed two of the three accounts into which the counterfeit bills had been deposited, San Hap General Trading Co. and Kwok Tou, an individual. Both were known to have been doing business with North Korea, and neither challenged the closure. Au said he’d assumed that was an acknowledgement of guilt.

However, the third company, Zokwang Trading Co. Ltd. – which the Treasury alleges remains in an unsavory relationship with Banco Delta Asia – told authorities and bank officials that the counterfeit money deposited into its account had come from China and that it had no knowledge that it was fake.

Au said he’d warned Zokwang officials that the account would be closed if counterfeit money came through again. Shortly afterward, Banco Delta Asia began sending all large U.S.-dollar deposits to Hong Kong for screening at what today is banking behemoth HSBC.

“To the best of my knowledge, Zokwang has never since 1994 been found to be the source of counterfeit funds deposited with Banco Delta Asia,” Au said.

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

The North Korean Economy: Between Crisis and Catastrophe

Thursday, May 3rd, 2007

American Enterprise Institute Book forum
4/17/2007

A couple of weeks ago, I had the opportunity to attend a book forum at the American Enterprise Institute on Nicholas Eberstadt’s new book, The North Korean Economy: Between Crisis and Catastrophe. It was very informative to hear three different perspectives on the direction of North Korea’s economic reform.

Panelists included:

Nicholas Eberstadt, AEI
Andrei Lankov, Kookmin University
Deok-Ryong Yoon, Korea Institute for International Economic Policy

In summary, Mr. Eberstadt and Mr. Lankov are pessimistic about the North Korean leadership’s desire to enact reforms–knowing that information leakages will undermine their political authority. As Mr. Lankov pointed out, the North Korean nomenklatura are all children and grandchildren of the founders of the country who are highly vested in the current system. They have no way out politically, and as such, cannot reform.

They argue that the economic reforms enacted in 2002 were primarily efforts to reassert control over the de facto institutions that had emerged in the collapse of the state-run Public Distribition System, not primarily intended to revive the economy. Lankov does admit, however, that North Korea is more open and market-oriented than it has ever been, and Mr. Yoon was by far the most optomistic on the prospects of North Korean reform.

Personally, I think it makes sense to think about North Korean politics as one would in any other country–as composed of political factions that each seek their own goals. Although the range of policy options is limited by current political realities, there are North Koreans who are interested in reform and opening up–even if only to earn more money. In this light, even if the new market institutions recognized in the 2002 reforms were acknowledged only grudgingly, they were still acknowledged, and their legal-social-economic positions in society are now de jure, not just de facto. The North Korean leadership might be opposed to wholesale reform, but that is economically and strategically different than a controlled opening up on an ad hoc basis–which is what I believe we are currently seeing. Anyway, dont take my word for it, check out the full commentary posted below the fold:

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Posted in Arms shipment, Black markets, China, Counterfeiting, Drug smuggling, Economic reform, Energy, Fiscal & monetary policy, Foreign direct investment, General markets (FMR: Farmers Market), Illicit activities, International Aid, Kaesong Industrial Complex (KIC), Mt. Kumgang Tourist Special Zone, Price liberalization, Rason Economic and Trade Zone (Rajin-Sonbong), Sinuiju Special Administrative Region, South Korea, Special Economic Zones (Established before 2013), UN Security Council, USA | Comments Closed

Drugs Stashed Away at a Foreigners Casino in Yangkang Hotel

Tuesday, May 1st, 2007

Daily NK
Kwon Jeong Hyun
5/1/2007

Drug dealings have been occurring frequently amongst North Korea’s wealthy class which has led to an increase in people “taking medicine” an inside source recently informed.

Further, an underground casino for foreigners at Yangkag Hotel, Pyongyang, is known to have been openly circulating drugs. Yangkag Hotel is an elite hotel and was built in 1995 in co-partnership with France. Currently, the hotel operates a casino used by foreigners.

The source informed on the 30th, “Drug dealers directly approach the wealthy class who live around the borders of North Korea-China” and revealed, “People fall for the dealer’s trap and hence the number of addicted drug sellers and wealthy class is increasing.”

A few North Korean tradesmen even testified that a large number of the rich living in the border regions of North Korea, have in fact dealt with drugs in one form or another. Apparantly, about 3 out of 10 rich persons in North Korea have had some experiences with drugs and most of the long-distance drivers in North Korea take drugs.

One North Korean tradesman ‘H’ revealed, “Drug dealers con North Koreans with money by saying that the ‘medicine’ clears the head and acts as an aphrodisiac by giving you strength. Then they let the buyers taste-test the drug for free.” H said, “After a few times, the majority of these people become addicted and the dealer sets up a relationship to sell the drug for a long time.”

‘J’ who lives around the border regions expressed the seriousness of the drug issue by telling his own story. Through North Korea-China trade, J’s brother-in-law had accumulated a lot of wealth. One morning without any warning, he suddenly died in which J had thought was a hart attack. However, he later found out from his sister that drugs had been the cause.

For the past 2 years, J’s brother-in-law had been earning money and also spending it on drugs. He tried to quit on numerous occasions but was unable to escape from the persistent temptation by the drug dealer. As time passed, the symptoms of an addict surfaced which ultimately led to a drug overdose and death.

J said, “Never in my dreams could I have imagined that a good person like my brother-in-law would become a drug addict. Though authorities are enforcing regulations and punishment on the misuse of drugs, the problem is that there are no specific penalties or laws. If this keeps going, things could get worse.”

The source said, “North Korean authorities have made numerous decrees on various occasions stating that they will toughen punishment. But there are no specific rules or law and so there is no control over the offenders.” The source added, “The truth is, it will be difficult to penalize everyone according to the decrees set as many people throughout the regions of North Korea are now using drugs including the rich living in the cities.”

On the other hand, the district of Hamheung is receiving much focus as it is known to be the base for drug manufacture. Drugs sold on the black-market in Pyongyang, Chongjin and Shinuiju are considered of high quality and receive utmost trust if the drugs have been made in Hamheung.

Hamheung’s history dates back to when the chemical industry was first booming in North Korea. As a result, North Korea authorities began to produce medicinal drugs to attract more foreign currency. When the economic situation worsened, workers and the elite were known to have stashed drugs secretly in order to make money.

In addition to this, as lifestyles became more difficult, there were rumors suggesting that chemical analysts brought some raw materials of Philopon from China to secretly make drugs within the labs.

“It’s not only Hamheung. Drugs are easily available even in Pyongyang” the source said and, “Drugs are openly traded at the underground foreigners casino in Yangkag Hotel (for Hong Kong, Macau and Chinese tourists).”

The source continued, “The elite in Pyongyang often take drugs and this hotel is known for its stash of drugs” and added, “The Safety Agency and the Protection Agency must take action. Otherwise, the situation is only going to get worse.”

Posted in Black markets, Civil society, Drug smuggling, Gambling, Illicit activities, Tourism | 2 Comments »

32 Out of 52 BDA Account Holders Revealed

Friday, April 27th, 2007

Daily NK
Nangung Min
4/27/2007

While the transfer of BDA’s North Korea’s accounts continues to linger on, a defector once a high authority in North Korea, recently revealed the names of 32 account holders used in North Korea.

A list of 32 account holders (out of the 52 BDA North Korea accounts) were released on the internet site of “Chogaje.com” on the 26th, in which the defector claims to be well acquainted or have conducted direct transactions with while working in foreign trade in North Korea.

This list recorded financial ministries including the No. 39 Department for Kim Jong Il’s personal funds, the People’s Military Department, National Security Agency and Safety Agency.

If this list is proven to be true, at present the international trades of North Korea’s 4 key financial centers, the Party, the military, the administration and the security agency can be analyzed to be in a frozen state.

In addition to unveiling the list of account holders, the defector informed, “BDA is commonly known as ‘Delta Bank’ amongst the elites in North Korea” and certified, “The North Korean government used this bank to import luxury goods, gifts and undoubtedly nuclear armaments and weapons of mass destruction.”

Furthermore, the defector said that “22% of all North Korea’s transactions were conducted through BDA” and implicated that BDA played a vital role as Kim Jong Il’s personal funds.

The U.S. State Department recently accused BDA of engaging in counterfeit dollars and hence all U.S. transactions with BDA was terminated. Since, the U.S. suspended its transactions with BDA, any official bank has also been placed in a difficult position to transact with BDA.

For now, the Bank of China, Hong Kong’s HSBC and 27 other Macau banks are known to have suspended transacting funds with North Korea.

For the past 2 weeks, North Korea has refused money regarding the 52 accounts. Meanwhile, the U.S. and China are urging that either each of the 52 account holders send the money directly or a third party remits the whole amount and the frozen measures returns to normal. As a result, North Korea’s part in the preliminary implementations of the Feb 13 Agreement continues to be delayed also.

Posted in Banking, Counterfeiting, Finance | Comments Closed

Flags that hide the dirty truth

Friday, April 20th, 2007

Asia Times
Robert Neff
4/20/2007

Many small countries in the world have resorted to unorthodox methods of obtaining much-needed currency. Although these methods may be legal, they often assist unscrupulous individuals and governments in conducting illegal activities. One popular method of obtaining cash is through flags of convenience (FOC). Countries, even land-locked ones, register other nations’ ships under their flag for a price.

It is a profitable industry that has no shortage of customers. Shipowners choose to register their ships under a foreign flag for a number of reasons, including tax advantages, cheap non-union crews, the ships’ conditions fail to meet the standards of the owner’s country, political reasons, or to facilitate illegal activities.

Because many of these ships often exchange flags and even their names, it is difficult to trace them, thus providing the anonymity they need to conduct their illegal operations. According to a statement by David Cockroft, general secretary of the International Transport Workers’ Federation (ITF): “Arms smuggling, the ability to conceal large sums of money, trafficking in goods and people and other illegal activities can also thrive in the unregulated havens which the flag of convenience system provides.”

Flying the Cambodian flag
One of the most notorious FOC countries was Cambodia. In 1994, Cambodia established its own ship registry – Cambodian Shipping Corporation (CSC), based in Singapore – and began immediately flagging ships of other nations.

Although its beginnings were modest (only 16 foreign ships registered with Cambodia during the first year) the CSC rapidly expanded. According to CSC, prior to its closing in 2002, the number of ships registered with the company was between 400 and 600, but according to US investigators and Cambodian officials the number was probably twice that.

CSC offered basically what many other FOC countries offered: registry for any ship, no questions asked, under its (Cambodia’s) flag for a low price. But, unlike other FOC countries, it offered to do the entire process online and within 24 hours. Despite Cambodia’s relative lag in Internet technology, its operation in Singapore enabled CSC to pioneer online registration.

As more and more foreign ships registered with CSC, it soon became apparent that a large number of the ships were involved in illegal activities. Cigarette smuggling operations were discovered near Crete and Albania; during the oil embargo of Iraq, oil was smuggled out of that country; human trafficking and prostitution operations were discovered near Japan and Crete, and, of course, drug trafficking.

All of these activities were cause for concern and drew condemnation, but there was one more criminal activity that concerned many nations even more: allegations that many of the ships were running arms. “Cambodia is one of the highest-risk flags. It is particularly murky and has got to be one of the first choices if you are running arms,” a spokesman for ITF said.

When asked about CSC’s alleged illegal operations, Ahamd Yahya of the Cambodian Ministry of Public Works and Transport was reported to have told Fairplay: “We don’t know or care who owns the ships or whether they’re doing ‘white’ or ‘black’ business … it is not our concern.” (Fairplay, October 12, 2000.)

Unsafe ships
In addition to illicit activities, the condition of the ships themselves was a concern. According to an article in the Guardian of London, by 2002 the company had about 450 registered ships, and out of this number 25 had suffered shipwrecks/strandings, 41 collisions, nine fires and 45 arrests. Nine ś% ¬’n-registered ships were deemed severely hazardous and banned from entering European ports.

By the summer of 2002, many of the leading shipping organizations were calling for action to be taken against CSC. A spokesman for ITF condemned CSC and Lloyds shipping intelligence service wrote in an opinion piece: “The world should join us in demanding that Cambodia shut down this sleazy and pestilent offshore registration. How many more people have to die in incidents involving Cambodian-flagged vessels, or its ships detained for illegal activities, before something is actually done about it?”

The North Korean connection
American and South Korean interests in CSC were aroused when it was observed that a large number of North Korean ships, at least a dozen according to Michael Richardson, journalist and author of A Time Bomb for Global Trade, were registered with CSC and flying the Cambodian flag.

It is no secret that the Cambodian royal family had, and still maintains, a close relationship with the North Korean regime. King Norodom Sihamoni has often spoken of the Kim regime in a favorable manner. Kim Il-sung provided him with asylum during the turbulent years of Cambodia’s past and even built him an extensive 60-room palace outside Pyongyang. When the royal family returned to Cambodia it was accompanied by North Korean diplomats and bodyguards.

North Korea’s involvement in Cambodia’s flag of convenience operation was suspected after an investigation revealed that one of the primary partners in CSC was Lim In-yong, a senior North Korean diplomat who had served in Cambodia for many years. His role with CSC was described as being that of “a private citizen, [and] not as a representative of the North Korean government”. Whether his role was purely that of an individual or of a more sinister nature is unclear. But the United States and several other countries became increasingly suspicious of North Korea and the company’s motives.

Among several charges of illegal operations by North Korean ships, one was drug smuggling. When it was suggested in the media that Cambodian-registered North Korean ships may have been involved in drug smuggling, CSC denied any knowledge.

Incidents of drug smuggling involving ships from other nations flagged by the company were apparent. In 2002, the Greek-owned, but Cambodian-registered Winner was seized by French forces and discovered to be smuggling a large amount of cocaine. Interestingly enough, Hun Sen, the prime minister of Cambodia, gave his permission to the French government to board the ship – an indication that he did not support CSC. A short time later he revoked CSC’s authority to grant registry to foreign ships.

Perhaps the most infamous North Korean drug smuggling operation took place in 2003. The North Korean freighter Pong-su began its journey from North Korea under its own flag, but on arriving in Singapore changed its registration and reflagged under Tuvulu. It then proceeded to Australia where it was discovered trying to smuggle in a large amount of heroin, and was eventually seized after it tried to resist Australian authorities. Although this incident did not involve a Cambodian-flagged ship, it does give some credence to speculation that North Korea had smuggled drugs using CSC-flagged ships.

Weapons smuggling
While North Korea’s attempts to gain badly needed hard currency by smuggling drugs and tobacco were of some concern to the United States, more important were allegations that North Korea was smuggling and selling advanced weapons technology to other nations.

“Of most concern to the US and indeed to South Korea was the clear evidence that North Korean freighters flying the Cambodian flag or on the Cambodian register were moving ballistic missiles to clients in the Middle East and Africa,” noted journalist Richardson.

Perhaps the best-known of these Cambodian-registered North Korean ships was the Song Sang. In November 2002, a freighter believed to be carrying weapons departed a North Korean port and was tracked by American satellites and American naval ships. In December, as it made its way through the Indian Ocean, it was stopped by American and Spanish naval forces and inspected.

The United States justified its actions by claiming that it was flying no flag and thus was considered a pirate ship. According to Richard Boucher, the State Department’s spokesman, “At first we couldn’t verify the nationality of the ship because the ship’s name and the indications on the hull and the funnel were obscured. It was flying no flag.”

On investigation it was found that the ship was the So San, which claimed to have Cambodian registry. The So San’s manifest stated it was transporting cement to Yemen, but an examination revealed 15 Scud missiles with 15 conventional warheads, 23 tanks of nitric acid rocket propellant and 85 drums of unidentified chemicals all hidden beneath the bags of cement.

It is believed that the North Koreans tried to disguise the ship (Song Sang) by painting over the last two letters in the first name and the final letter in the second name (So San) to help prevent identification. The ship was eventually allowed to continue on its course after it was determined that it had broken no laws.

World criticism
Following the World Trade Center and other terrorist attacks, world opinion began to force the Cambodian government to reconsider its policy of allowing CSC to flag ships at will. The Cambodian government felt compelled to take action before one of the ships under its flag was found guilty of terrorist activity.

“We are victims because the company recklessly allows ships to use the Cambodian flag without proper inspection or control,” said Hor Namhong, the foreign minister, adding: “The company will be audited by the government.”

In July 2002, bowing to international criticism over concern for “Cambodia’s maritime safety record”, the Cambodian government revoked CSC’s authority to grant registrations, giving that authority to the Ministry of Public Works and Transportation. Ironically, it was this ministry that had just two years earlier declared disinterest into the alleged illegal activities of ships registered under its flag.

The Ministry of Public Works and Transportation was only in control of the registry for about six months before the Cambodian government granted the authority to register and flag ships to a new company, International Ship Registry of Cambodia, and its representatives in Busan, South Korea. According to e-mail correspondence from the company’s managing director, Charles Bach, to New York Times reporter Keith Bradsher, there are no longer any North Korean ships registered under the Cambodian flag.

But Marcus Hand, the Asian editor for Lloyd’s List, explained how difficult it is to know for certain who owns what ship because so many of them are owned by different companies registered throughout the world and only the North Koreans themselves know how many ships they own and what flag they fly.

Not only does North Korea purchase flags of convenience, it also sells them for nearly three times the normal asking price. According to ITF in 2006, out of 408 North Korean-flagged ships, only 187 of them were actually owned by North Korea; the rest were owned by other nations including Cambodia, Tonga, Comoros and Sao Tome and Principe – nations that are infamous for their own flags of convenience.

Prior to the United Nations Security Council’s resolution following North Korea’s nuclear test in October 2006, some of the ships registered to North Korea may have done so to avoid inspection while they carried out illegal activities.

There is some question as to the number of ships that were owned by United States-based companies and registered and flagged under North Korea. According to the American Central Intelligence Agency’s Fact Book, there were three, but Bill Gertz, in an article published with The Washington Times (June 8, 2006), listed nine ships owned by foreign companies, such as Egypt and Syria, based in Delaware, United States. One of these ships was discovered in March 2006 engaged in smuggling migrants off the coast of Europe. Under sanctions that went into effect in May 2006, the companies were required to cancel their registrations with North Korea and seek new registrations with other countries.

The new threat
With the CSC no longer able to grant registrations and Cambodia and South Korea’s progressively warmer relationship, North Korea has been forced to look elsewhere to register its ships. According to The Straits Times, at least 40 nations in the world engage in flags of convenience; many of them willing to flag North Korean ships for a price. North Korea does business with several of them, but a surprising replacement for Cambodia has apparently been found – Mongolia, a land-locked nation.

However, following North Korea’s nuclear test in October of last year, Mongolia’s Ship Registry has urged ships under its flag to abide by the United Nations resolution against North Korea. It is unclear what effect this has had on North Korean ships registered with Mongolia.

In addition to the North Korean threat of nuclear weapons, it has been speculated that North Korea may have the ability to launch modified missiles from its submarines and cargo ships. North Korean-flagged ships would be more susceptible to being stopped and searched by United Nations forces, but ships under FOC might pass unnoticed through surveillance and pose a significant threat to the enemies of the Pyongyang government and to the reputations of the governments which flagged them.

Posted in Arms shipment, Cambodia, Counterfeiting, Drug smuggling, Illicit activities, Sea shipping, Singapore, Transportation | Comments Closed

Ethiopia Denies Shipment From Korea Violated Ban

Sunday, April 15th, 2007

New York Times
Michael R. Gordon
4/15/2007

The Ethiopian government has denied that it violated United Nations sanctions by carrying out a secret purchase earlier this year of military equipment from North Korea.

The Central Intelligence Agency reported in late January that an Ethiopian-flagged ship had left a North Korean port and that its cargo probably included tank parts and other military cargo, according to American officials.

The purchase of tank parts would violate restrictions on dealings with North Korea imposed by the United Nations Security Council in a resolution adopted in October. The Security Council acted less than a week after North Korea tested a nuclear device.

The Bush administration decided not to press Ethiopia to reject the shipment, and the vessel was not inspected after it took its cargo to a port in Djibouti for overland transport to Ethiopia. Some American officials said the shipment was most likely a Security Council violation.

In a statement issued Friday, the Ethiopian Foreign Ministry acknowledged that it had received a cargo shipment from North Korea on Jan. 22, but asserted that it did not include prohibited items like tank parts.

“This shipment contained spare parts for machinery and engineering equipment and raw material for the making of assorted ammunition for small arms,” the Ethiopian statement read. “The United States Embassy in Addis Ababa might have been aware of Ethiopia’s importation of the said cargo from North Korea. “However, the fact is that Ethiopia did not purchase arms or any other item covered by Resolution 1718 under the contractual agreements,” the statement read, referring to the Security Council measure. Ethiopia said the shipment was carried out under the terms of several contracts that were signed with North Korea in June and was paid for in advance.

The State Department has declined to comment on the details of this episode.

Ethiopia purchased $20 million worth of arms from North Korea in 2001, according to American estimates, and American officials say this pattern has continued. Ethiopia has an arsenal of Soviet T-55 tanks and other Soviet-style equipment. The United States has sought to persuade Ethiopia to wean itself from its longstanding reliance on North Korea for inexpensive Soviet-era military equipment.

The United States has had close ties with Ethiopia. American officials say that Ethiopia was provided with American intelligence about the location of Islamist forces before its recent offensive in neighboring Somalia. On Jan. 7, American AC-130 gunships launched two strikes on terrorist targets from an airstrip inside Ethiopia, according to American officials. Ethiopia has said such reports are a fabrication.

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Posted in Arms shipment, Ethiopia, Illicit activities, International trade | Comments Closed

U.N. Officials Knew Earlier of N. Korea Fake Currency

Tuesday, April 3rd, 2007

New York Sun
Benny Avni
4/3/2007

As federal investigators examine how the leading U.N. agency in North Korea illegally kept 35 counterfeit American $100 bills in its possession for 12 years, documents indicate that more officials were aware of the existence of the fake currency — and earlier — than the agency has reported.

Spokesmen for the United Nations Development Program have said top officials at the agency’s New York headquarters learned in February that their safe in Pyongyang contained the counterfeit bills and immediately reported it to American authorities. But several documents shown recently to The New York Sun indicate that higher-ups knew much earlier that the safe held counterfeit money.

The documents are part of a worldwide reporting system that allows the agency to keep track of the contents of its office safes.