Illicit activities « North Korean Economy Watch

Archive for the ‘Illicit activities’ Category

North Korea Enacts Law Against Money Laundering

Tuesday, February 20th, 2007

Korea Times
Park Song-wu
2/20/2007

The National Intelligence Service (NIS) on Tuesday confirmed that North Korea recently enacted a law that prohibits money laundering.

The standing committee of the North’s Supreme People’s Assembly adopted the legislation last October to ban financial transactions involving illegal earnings, the agency said in a press release.

The enactment apparently aimed at settling the U.S. financial sanctions on a bank in Macau that was blacklisted by Washington in September 2005 for its suspicious role in helping the North conduct illicit financial activities, it said.

Under the latest six-party agreement, reached on Feb. 13, the United States is to resolve financial sanctions within 30 days on North Korean assets worth $24 million that have been frozen in the Macau bank.

The NIS also confirmed that the North has a highly enriched uranium (HEU) program.

NIS officials made the confirmation during a closed-door National Assembly session as the Beijing deal on initial actions to implement the denuclearization of North Korea came under criticism for not mentioning the HEU program.

After ending the session, a lawmaker said on condition of anonymity that the NIS officials confirmed the existence of the HEU program in the North.

When North Korea’s uranium enrichment program came to the fore in 2002, Washington and Pyongyang accused each other of violating the 1994 agreed framework that eventually collapsed.

Seoul and Washington are reportedly sharing the view that Pyongyang has an HEU program, for which the North began purchasing large quantities of centrifuge-related equipment in 2001.

But what is not yet clear is whether the North has begun to produce weapons-grade uranium.

In a separate Assembly session, Minister of Foreign Affairs and Trade Song Min-soon also faced the same question from lawmakers on why the Beijing agreement did not mention the HEU program.

He avoided speaking specifically on the sensitive issue that triggered the second nuclear crisis in October 2002. But he said it will be addressed as the latest agreement invoked section one of the joint statement adopted in September 2005.

“The Beijing deal is about initial steps, and it’s not a complete roadmap toward the denuclearization,” Song said. “But the recent agreement requires the North to declare all of its nuclear programs.”

In section one of the September statement, the North committed to abandoning “all nuclear weapons and existing nuclear programs” and returning at an early date to the treaty on the nonproliferation of nuclear weapons treaty (NPT) and to International Atomic Energy Agency (IAEA) safeguards.

The main opposition Grand National Party (GNP) also expressed doubts over Pyongyang’s willingness to abide by its pledges to implement initial measures for the denuclearization of North Korea.

Rep. Kim Yong-kap of the conservative party found problems with the deal reached in Beijing on Feb. 13 since key components of it, especially on the disablement of the North’s nuclear facilities, are overly “abstract.”

“Despite the North’s agreement to disable its 5 megawatt reactor in Yongbyon, it later changed the wording into a temporary stoppage of operations,” Kim said.

The North’s media promptly reported the result of latest six-party talks, but did not use the term “disablement.” Seoul officials interpreted it as an attempt to mislead North Koreans so they do not lose their pride.

“In addition, there is no deadline on the disablement. I am simply doubtful of the deal’s practicality,” he said.

According to a Chosun Ilbo-Gallup Korea poll, conducted on Feb. 19, 77.9 percent of respondents predicted that the North would not keep its pledges, while 15.8 percent of the 1,006 respondents trusted the North.

But Song said the Beijing deal was a good chance to reaffirm Pyongyang’s willingness for an early denuclearization.

He also dismissed the GNP’s claim that Seoul is determined to share the largest financial burden of aiding the North to achieve a second inter-Korean summit in the run-up to the December presidential election.

“We will not bear all the burden because all five parties have agreed to provide economic aid on the principle of equality and equity,” he said. “And the provision of assistance will be made in line with the principle of action for action.”

As a first step toward denuclearization, North Korea is to shut down its nuclear-related facilities at Yongbyon while allowing United Nations nuclear inspectors back to the nuclear complex to seal them off.

Seoul’s top nuclear negotiator, Chun Yung-woo, said in Beijing on Feb. 13 that the deal is working under an “incentive system.”

For shutting down the Yongbyon complex, the North would receive the equivalent of 50,000 tons of heavy fuel oil in emergency relief aid. An additional 950,000 tons of heavy oil or equivalent aid will be provided to the country upon its completion of disabling other nuclear-related facilities.

Posted in Banking, Black markets, Economic reform, Energy, Finance, Illicit activities, Nuclear, Supreme Peoples Assembly | Comments Closed

Kim Jong-il’s Son Sells Weapons Abroad: Report

Tuesday, February 13th, 2007

Korea Times
1/13/2007

Kim Jong-nam, believed to be the eldest son of North Korean leader Kim Jong-il, has taken charge of the overseas sales of North Korean military weapons.

The junior Kim, 35, went back to Pyongyang via a Koryo Air flight from Beijing on Tuesday after getting a lot of media attention during his three-day stay in the Chinese capital.

According to the Segye Times, a vernacular daily, Jong-nam has made profits for his country by selling military weapons such as Scud medium-range missiles and SA-16 surface-to-air missiles overseas.

He invested money in real estate and overseas banks offering high interest rates in several countries including Britain, Switzerland, Hong Kong, Macau and Singapore, said the report based on comments from an expert on North Korean affairs in Japan.

On Sunday Kim was spotted by Japanese television crews at Beijing International Airport. His appearance in Beijing sparked interest among North Korea watchers, as the six-party talks over the North’s nuclear weapons programs were being held there.

Reports said Kim was on a three-day layover on his way back home to attend his father’s 65th birthday party, which falls on Friday.

Wearing a Reebok baseball cap and blue jeans as well as a gold necklace, Kim showed off his foreign language skills in brief interviews with the news media including Japan’s Fuji television.

Asked whether he speaks Japanese, he answered in Japanese that he didn’t understand the language. He also said he speaks a little bit of English and French as he studied in Europe for several years.

Kim said he meets with his father “sometimes” but did not elaborate on their relationship.

According to reports Kim stayed at his favorite hotel, the Kempinski Hotel located adjacent to the South Korean embassy in Beijing during his short visit.

The Toronto Globe and Mail reported earlier this month that the North Korean leader’s son has been spending most of his time for the past three years at casinos, saunas and luxury hotels in Macau, the former Portuguese enclave near Hong Kong.

Kim was photographed in the city by a newspaper as he left his favorite hotel, the Mandarin Oriental.

According to the South China Morning Post, he has frequently visited Macau’s casinos and often goes out drinking late at night.

There have been rumors that fell out of favor with his father in 2001 when he embarrassed the regime in a bizarre incident in Japan.

Kim was briefly detained at Tokyo’s airport where he tried to enter Japan on a fake Dominican Republic passport. He was on his way to visit Tokyo Disneyland, reports said.

Posted in Arms shipment, Banking, Finance, Fiscal & monetary policy, Illicit activities, International trade, Political economy | Comments Closed

North Korea Reexports Drugs Through China to 3rd World Countries

Saturday, February 3rd, 2007

Daily NK
2/3/2007

Though the number of North Korean drug smuggling cases is on the decline, a U.S. report claims that the number of Chinese crime gangs reexporting North Korean drugs to 3rd world countries is on the rise.

Radio Free Asia (RFA) conducted an interview with Researcher Raphael Pearl of the U.S. Congressional Research Service (CRS) on the 30th regarding his claims in a report “Drug Trafficking and North Korea: Issues for U.S. Policy.

In the report Pearl spoke of an incident where Australian authorities captured a North Korean vessel “Pongsu” in April 2003 which was amidst transporting $160mn worth of heroin and said that this case had “enhanced international attention” on the issue of North Korean drug smuggling and since then the number of drug smuggling incidents had generally declined.

Since 1976, there have been a total of 50 cases where 20 different countries were caught in foreign relations with North Korea for drug trafficking. However, within the last 2 years, the majority of cases of drug smuggling were found in China’s Shenyang, Dalian and Dandong. Further, links to North Korean authorities have yet to be verified regarding these cases.

Pearl said that despite the fact North Korean drug trafficking has declined on the whole there have been cases where North Korean drugs were mistaken for drugs made in China. Also, he said that through the intervention of Chinese crime gangs, North Korean drugs were being reexported to 3rd world countries.

Some argue that the reason drug incidents have declined is due to the fact North Korean authorities have reduced their direct participation in the manufacture of goods. However, more and more Chinese crime gangs are intervening in the manufacture of North Korean drugs and smuggling, he said. In other words, there is a high possibility that North Korean drugs are being reexported through the intercession of China.

Pearl said that North Korean authorities are attempting to compensate the losses from a decline in drug smuggling with the manufacture and smuggling of fake cigarettes, medicines and small weapons. He also emphasized and confirmed the pivotal role of illegal acts such as exporting fake cigarettes and drugs in contributing to North Korea’s economy and income.

In the report, Pearl expressed his concerns on North Korea, giving the example that parts of farming areas had been used to cultivate drugs even amidst a poverty stricken country and indicated that the money from illegal acts such as drug smuggling and counterfeit currency could further add to the development of missiles and nuclear weapons.

He also expressed concern over the issue of segregating North Korean authorities especially with foreign groups being associated with North Korean drug smugglers.

Posted in China, Drug smuggling, Illicit activities, International trade | Comments Closed

Will Economic Sanctions Have Impact on N. Korea?

Tuesday, January 23rd, 2007

Korea Times
Chang Se-moon
1/23/2007

Obviously, it is important to know the correct answer to this question. Sanctions that have no impact on North Korea’s economy will not change the behavior of North Korean leaders. If sanctions do have a significant impact, the possibility that North Korean leaders may be tempted to resolve the pending security issues through negotiations exists.
In answering the question, however, we need to keep in mind what the British economist John Maynard Keynes (1883-1946) said: “The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking which helps its possessor draw correct conclusions.’’ In plain English, Keynes stressed an unbiased economic way of thinking that could help us draw correct conclusions. In other words, until we review all the facts with an open mind we should not make up our minds.

This is exactly what we will do by assessing the impacts of economic sanctions on North Korea.

The first question that comes to mind is which sanctions are we talking about. If we review U.S. sanctions on North Korea since the outbreak of the Korean War in 1950, there would be too many sanctions imposed on North Korea to be practical. There are three important sanctions that are still in effect, however. One is the U.S. denial of a Most Favored Nation (MFN) trade status on North Korea’s exports.

This sanction was imposed on North Korea’s exports to the United States on September 1, 1951, following the outbreak of the Korean War. MFN tariffs are the lowest tariffs that are levied on imports to the U.S. Over 99 percent of imports to the United States qualify for the MFN tariffs. Without MFN status, tariffs on North Korean exports to the United States are so high that North Korea simply cannot even imagine exporting anything to the United States.

The second of the three important sanctions stemmed from the bombing of Korean Air 858 by North Korean agents on November 29, 1987. The explosion killed 115 innocent passengers and crew members. On January 20, 1988, North Korea was placed on the list of countries that supported international terrorism according to the U.S. Export Administration Act of 1979.

The importance of this sanction is that placement on the list has made it impossible for North Korea to borrow money from international financial institutions including the World Bank and the International Monetary Fund. Like the denial of MFN status, the placement of North Korea on the list of countries supporting international terrorism continues to this date.

The third of these three key sanctions relates to tightening of North Korea’s illegal financial transactions, which culminated in Banco Delta Asia’s termination of business dealings with North Korea as of February 16, 2006. You may know that Banco Delta Asia had long been suspected of handling North Korea’s illicit activities overseas such as laundering of counterfeit U.S. dollars and sales of illegal drugs

Banco Delta Asia is located in Macao, which is a Special Administrative District of China. Tightening of North Korean financial transactions was extended to North Korean trade during 2006. This added pressure on North Korea originated from U.N. Resolution 1540 following North Korea’s test-launching of long-range missiles on July 5, 2006, as well as from U.N. Resolution 1718 which followed North Korea’s nuclear test on October 9, 2006.

Are these sanctions having an impact on North Korea’s economy? Perhaps, a more accurate question is whether these sanctions are placing enough pressure on North Korean leaders to reconsider the possibility of returning to the negotiation table?

One aspect is the status of North Korea’s trade deficit. As you probably know, North Korea buys from other countries much more than it sells to other countries. When the amount of imports exceeds the amount of exports it’s called a trade deficit. North Korea’s annual trade deficit averaged about $800 million from 2003 to 2005. This figure does not include North Korea’s trade deficit against South Korea, since South Korea appears to consider any financial support to the North as a long-term investment rather than a trade deficit.

How has North Korea been paying for the trade deficit? The ways have been unique. Almost the entire deficit appears to have been financed by weapons sales, illicit activities, and funds flowing from South Korea through joint projects.

In fact, a study by the Korean Institute for Defense Analysis indicates that full implementation of U.N. Resolution 1718 would cause North Korea to lose just about the same amount ($700 million to $1 billion) by stopping exports of weapons and illegal drugs and counterfeit money.

The Economist Intelligence Unit is quoted to have estimated in 2003 that “North Korea earned as much as $100 million a year from counterfeit money, while in 2005, a U.S. task force estimated that “$45 million to $60 million in Pyongyang’s counterfeit currency (primarily in U.S. $100 bills) is in circulation,’’ reportedly, including some in Seoul’s Namdaemun Market.

Assuming that recently added sanctions will cause North Korea to lose about $800 million that it has been earning overseas each year, the next interesting question is how North Korea will pay for the annual trade deficit of $800 million in the future? If North Korea does not pay for its imports, other countries will refuse to sell products to North Korea and the North Korean economy will suffer.

North Korea cannot borrow from world financial institutions because of the 1988 U.S. sanctions that branded North Korea as one of countries supporting international terrorism. They cannot use the money from foreign direct investment because China and Korea are the only two countries that have been willing to invest in North Korea, but the combined amount is not even close to paying for the annual trade deficit.

Think of it this way. If you borrow money every year, and lenders believe that your ability to pay off the debt is rapidly declining, will lenders continue to lend you money? Not likely. With sanctions adversely affecting North Korea’s ability to pay for imports, North Korea will find it increasingly difficult to buy what it needs. The breaking point may not be imminent, but the future is predictable.

This is what I think will happen. North Korea will ask China to increase its foreign direct investment in North Korea by giving China more incentives for such investment. These incentives may include low taxes and free land. North Korea will ask South Korea to send more money.

For instance, as of July 1, 2004, Hyundai Asan and North Korea set the entrance fee to Mt. Kumkang at $10 for a day trip, $25 for a two-day trip and $50 for a three-day trip. On May 1, 2005, these fees were raised to $15, $35, and $70. On July 1, 2006, these fees were raised again to $30, $48, and $80. This is just one way.

North Korea may also ask South Korea to lend it a large sum of money with an empty promise of paying it back. This explains in part why it is so important for North Korea to have leaders of the South Korean government who are friendly to North Korea.

These desperate acts are likely to be very short of paying for the majority of the annual trade deficit. If sanctions continue to be effective, the likelihood of North Korea returning to the negotiation table increases. Economics is rarely boring, especially when it deals with real problems.

Posted in Arms shipment, Banking, China, Counterfeiting, Drug smuggling, Economic reform, Finance, Fiscal & monetary policy, Foreign direct investment, Illicit activities, Insurance, International Aid, International Organizaitons, International trade, South Korea, USA | Comments Closed

Drug Smuggling Caught on Tape

Thursday, January 18th, 2007

Daily NK
Yang Jung A
1/18/2007

On the 9th, a Japanese broadcast “tv asahi” exposed footages of drug smuggling at a boarder station between North Korea and China.

The footage caught a North Korean dealer crossing the Tumen River via a tube. On meeting a female Chinese dealer, the North Korean dealer unraveled a pink package which contained an envelope written “Opium powder” in red.

The drug seems to have been manufactured at “Ranam pharmaceutical factory.” This factory is known for its manufacture of mediocre drugs. Although opium is normally supposed to be packaged as medication, it is common that the drug falls into the hands of smugglers.

The moment the Chinese dealer gets hold of the package, she confirms the quality of the drug and hands over Chinese currency. The North Korean dealer counts the money and scurries back over to North Korea. It was agreed that additional dealings would be made via the telephone.

The transaction that was made on this day was 8~9 bags, each containing 100g of opium.

As the international community continues to enforce its regulations against drugs and counterfeit dollars, drugs dealings have taken effect in North Korea with increasing illegal trades occurring between China and North Korea, the broadcast claimed. In addition, the number of drug addicts in North Korea is also on the rise.

The footage also captured the North Korean drug dealers sniffing the drugs as well as the dealers talking about the transaction. Of the dealers, one person was a worker managing the level of humidity at a manufacturing factory and seemingly the intermediary supplier who obtained the drugs.

It seems that the 3~4 people sitting in a circle are personally testing the quality of the drugs before purchase. Although the dealer’s child has entered the room, the buyers continue to inhale the drugs.

The woman who seems to be buying the drugs in this footage, scrupulously inhales the drug as if her body was very accustomed to it.

The woman showed signs of drug addiction murmuring “I’m so used to it (taking drugs). My hardest moment was when I was in custody. If I can’t sniff any drugs, my nose is runny and my head spins.”

Also, she suggested that drug addiction had spread throughout North Korea “It has spread from the top, right to the bottom.”

As the dealers need to give bribes to the border guards, a deposit is first received then the balance paid after the goods given.

Comments were also made on the distribution of the latest drugs. The latest drug, blue in color is made naturally and is much more effective than the original, so is very popular amongst the rich.

Of the people there, one man was acting as the link to the boarder patrol, whereas the remaining people examined the issue of reliable Chinese buyers.

The first footage exclusive of North Koreans communally taking drugs was exposed in Korea by the DailyNK in October 2005.

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

DPRK scores last place in economic freedom (again)

Tuesday, January 16th, 2007

Heritage 2007 Index of Economic Freedom

North Korea’s economy is 3% free, according to our 2007 assessment, which makes it the world’s least free economy, or 157th out of 157 countries. North Korea is ranked 30th out of 30 countries in the Asia–Pacific region, and its overall score is the lowest in the world.

North Korea does not score well in a single area of economic freedom, although it does score 10 percent in investment freedom and property rights. The opening of the Kaesong industrial venture in cooperation with South Korea has been a start in foreign investment.

Business freedom, investment freedom, trade freedom, financial freedom, freedom from corruption, and labor freedom are nonexistent. All aspects of business operations are totally controlled and dominated by the government. Normal foreign trade is almost zero. No courts are independent of political interference, and private property (particularly land) is strictly regulated by the state. Corruption is virtually immeasurable and, in the case of North Korea, hard to distinguish from necessity. Much of North Korea’s economy cannot be measured, and world bodies like the International Monetary Fund and World Bank are not permitted to gather information. Our policy is to give countries low marks for specific freedoms when it is country policy to restrict measurement of those freedoms.

Background:
The Democratic People’s Republic of Korea has maintained its Communist system since its founding in 1948. A serious economic decline began in the early 1990s with the end of economic support from the Soviet Union and other Communist-bloc countries, including China. Floods and droughts all but destroyed the agricultural infrastructure and led to severe famine and dislocation of the population during the 1990s. South Korean and Chinese investments in the economy have alleviated dire conditions. The government continues to rely on counterfeiting foreign currency and sales of missiles for money. That and the nuclear ambitions and isolationism of Kim Jong Il reinforce North Korea’s status as the hermit kingdom.

Business Freedom – 0.0%
The state regulates the economy heavily through central planning. The economic reforms implemented in 2002 allegedly brought some changes at the enterprise and industrial level, but government regulations make the creation of any entrepreneurial activities virtually impossible. The overall freedom to start, operate, and close a business is extremely restricted by the national regulatory environment.

Trade Freedom – 0.0%
The government controls all imports and exports, and formal trade is minimal. Data on North Korean trade are limited and compiled from trading partners’ statistics. Most North Korean trade is de facto aid, mainly from North Korea’s two main trading partners, China and South Korea. Non-tariff barriers are significant. Inter-Korean trade remains constrained in scope by North Korea’s difficulties with implementing needed reform. Given the lack of necessary tariff data, a score of zero is assigned.

Fiscal Freedom – 0.0%
No data on income or corporate tax rates are available. Given the absence of published official macroeconomic data, such figures as are available with respect to North Korea’s government expenditures are highly suspect and outdated.

Freedom from Government – 0.0%
The government owns all property and sets production levels for most products, and state-owned industries account for nearly all GDP. The state directs all significant economic activity. The government implemented limited economic reforms, such as changes in foreign investment codes and restructuring in industry and management, in 2002.

Monetary Freedom – 0.0%
In July 2002, North Korea introduced price and wage reforms that consisted of reducing government subsidies and telling producers to charge prices that more closely reflect costs. However, without matching supply-side measures to boost output, the result of these measures has been rampant inflation for many staple goods. With the ongoing crisis in agriculture, the government has banned sales of grain at markets and returned to a rationing system. Given the lack of necessary inflation data, a score of zero is assigned.

Investment Freedom – 10.0%
North Korea does not welcome foreign investment. One attempt to open the economy to foreigners was its first special economic zone, located at Rajin-Sonbong in the northeast. However, Rajin-Sonbong is remote and still lacks basic infrastructure. Wage rates in the special zone are unrealistically high, as the state controls the labor supply and insists on taking its share. More recent special zones at Mt. Kumgang and Kaesong are more enticing. Aside from these few economic zones where investment is approved on a case-by-case basis, foreign investment is prohibited.

Financial Freedom – 0.0%
North Korea is a Communist command economy and lacks a private financial sector. The central bank also serves as a commercial bank with a network of local branches. The government provides most funding for industries and takes a percentage from enterprises. There is an increasing preference for foreign currency. Foreign aid agencies have set up microcredit schemes to lend to farmers and small businesses. A rumored overhaul of the financial system to permit firms to borrow from banks has not materialized. Because of debts dating back to the 1970s, most foreign banks will not consider entering North Korea. A South Korean bank has opened a branch in the Kaesong zone. The state holds a monopoly on insurance, and there are no equity markets.

Property Rights – 10.0%
Property rights are not guaranteed in North Korea. Almost all property belongs to the state, and the judiciary is not independent.

Freedom from Corruption – 10.0%
North Korea’s informal market is immense, especially in agricultural goods, as a result of famines and oppressive government policies. There is also an active informal market in currency and in trade with China.

Labor Freedom – 0.0%
The government controls and determines all wages. Since the 2002 economic reforms, factory managers have had more autonomy to set wages and offer incentives, but the labor market still operates under highly restrictive employment regulations that seriously hinder employment and productivity growth.

Posted in 2002 Economic reforms, Agriculture, Arms shipment, Banking, Central Bank, Counterfeiting, Economic reform, Finance, Fiscal & monetary policy, Foreign direct investment, Illicit activities, Insurance, International trade, Kaesong Industrial Complex (KIC), Mt. Kumgang Tourist Special Zone, Price liberalization, Private property, Rason Economic and Trade Zone (Rajin-Sonbong) | Comments Closed

Singapore bans export of luxury goods to N. Korea

Wednesday, January 3rd, 2007

Kyodo News
1/3/2007

Singapore has banned the export of luxury items and military equipment to North Korea as of the beginning of this year in line with U.N. Security Council sanctions, Singapore Customs said Wednesday on its website.

In addition, it has also curbed the use of the city-state as a transhipment hub in Asia for such exports.

The notice said the government has banned the export of 14 luxury items to North Korea, including cigars, wines, luxury cars, perfume, plasma televisions, personal digital music players and musical instruments.

It said the export and transit of military equipment and goods and technology related to nuclear programs, ballistic missiles and other weapons of mass destruction have also been prohibited.

Traders here have been ordered to declare to the agency details of their exports to North Korea at least three working days before shipment.

The agency has warned that those who breach the rule could be slapped with hefty fines of up to S$100,000 (about $65,000) or three times the value of the goods, whichever is greater, or sent to jail for up to two years, or both.

Multiple offenders could be fined up to S$200,000 or four times the value of goods, whichever is greater, or jailed up to three years or both.

The U.N. Security Council in October imposed weapons and financial sanctions on North Korea under resolution 1718, which was adopted after the North’s claimed nuclear tests.

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

Frozen bank accounts hold $12 million from Hyundai

Thursday, December 21st, 2006

Joong Ang Daily
12/21/2006
Choi Hyung-kyu, Kwon Hyuk-joo

Half of the $24 million in North Korean assets held in the frozen Banco Delta Asia accounts came from the Hyundai Group of South Korea, sources here told the JoongAng Ilbo yesterday. Other sources said North Korea will be able to access some of the frozen holdings next week, because the money had been proven “legitimate.”

The Macao-based bank froze the North Korean holdings last year after the U.S. government accused Pyongyang of financial crimes, such as money laundering and counterfeiting U.S. dollars. Since then, the North has made the unfreezing of those assets a precondition for the nuclear disarmament negotiations.

A U.S. source who requested anonymity said yesterday the $12 million was a part of Hyundai Group’s payments to North Korea for inter-Korean businesses. The money was wired in several payments, the source said. The payments were initially sent to other bank accounts that deal with North Korea, the source said, and then forwarded to the Banco Delta Asia accounts from there.

To deposit a large sum, an account holder must inform the bank in Macao about the source of the money and its purpose. The source showed North Korean account holders’ statements which claimed the deposits came from Hyundai.

Another source well informed about Banco Delta Asia affairs also said the money came from Hyundai.

“It is not easy to distinguish how much of the North Korean assets was earned from legitimate economic activities,” a senior South Korean government official said. “To sort the matter out, the United States and North Korea should meet and discuss the issue.”

In Beijing, O Kwang-chol, the president of the Foreign Trade Bank of Korea, has been meeting with U.S. Deputy Assistant Treasury Secretary Daniel Glaser since Tuesday.

Signs also pointed to a thawing of the freeze on the accounts in the near future. Other sources said Pyongyang has dispatched officials to the city of Zhuhai in China with papers necessary to withdraw the $12 million from the bank in Macao. They said access will likely be granted Tuesday or Wednesday of next week.

Hyundai Asan, Hyundai Group’s North Korea business arm, said yesterday it has not sent any money to a Banco Delta Asia account. The Mount Kumgang tour program began in 1998.

The company said it has wired $1 million a month to an overseas bank account designated by North Korea.

A senior official with Hyundai Asan said North Korea frequently changed the account. “I don’t know if our payment was later wired to BDA accounts or not, but I think that could be possible,” he said.

Hyundai Group provided $500 million to North Korea on the eve of the 2000 inter-Korean summit by wiring the money to a North Korean account with a foreign bank, but the sum currently frozen at the Banco Delta Asia accounts is not connected to that, the sources said.

Posted in Banking, Counterfeiting, Finance, Fiscal & monetary policy, Illicit activities, International Aid, Kaesong Industrial Complex (KIC), Mt. Kumgang Tourist Special Zone | 1 Comment »

Banco Delta Asia Says It Bought `Large Share’ of N. Korea Gold

Monday, December 11th, 2006

Bloomberg (Hat Tip DPRK Studies)
12/11/2006
Stuart Biggs

Banco Delta Asia S.A.R.L., the Macau, China-based bank accused by the U.S. of money laundering for North Korea, said it bought gold from the communist state in a filing to the U.S. Treasury.

North Korea has made the unfreezing of about $24 million in assets held at Banco Delta Asia a pre-condition to returning to six-nation talks over its nuclear weapons program that broke off in September 2005. The U.S. alleged that the bank helped North Korean officials accept “surreptitious” multi-million dollar transactions, some linked to drug trafficking.

Banco Delta Asia, in an Oct. 18 letter to the U.S. Treasury Department by law firm Heller Ehrman LLP, said the bank “purchased a large share of the gold bullion produced by North Korea” prior to the allegations and no longer does so.

“Money could have been laundered, but there is no specific evidence that the bank was aware that it was being used for this purpose, nor that it facilitated any criminal activities,” the letter said. The bank “paid insufficient attention to maintaining its own books.”

Banco Delta Asia also said North Korea’s Tanchon Commercial Bank, described by the U.S. as the Pyongyang government’s main financial agent for sales of arms and ballistic missiles, remained a customer for three months after Tanchon was blacklisted by the U.S. in June 2005 “due to shortcomings in the information technology systems.”

The bank said it put in place new managers after the U.S. action and closed North Korean-related accounts, hired an outside firm to set up procedures against money laundering and asked the Treasury to reconsider its ruling.

“The Bank has not done any business with North Korean or North Korean-related entities for over a year and pledged not to do any in the future,” the letter said.

The six-party negotiations may resume on Dec. 18 or 19, Yonhap News Agency reported, citing unidentified South Korean government sources.

Posted in Counterfeiting, Drug smuggling, Gold, Illicit activities, Tanchon Commercial Bank | Comments Closed

ROK to join U.S.-led container security system

Wednesday, December 6th, 2006

Yonhap
12/6/2006

South Korea is set to announce its participation in a U.S.-led campaign to stop container-borne radioactive materials after refusing to help interdict North Korean ships suspected of carrying weapons of mass destruction.

A Foreign Ministry official confirmed Wednesday that Seoul decided to join the International Container Scanning Network, or ICSN.

“The government plans to formally announce the decision later this week,” the official said, asking not to be identified.

The ICSN calls for its members to install state-of-the-art radioactivity detectors at their major ports so customs officials can screen the contents of containers without opening them.

International efforts to curb the flow of nuclear materials have gained more urgency since North Korea conducted a nuclear test in October.

Seoul’s decision to join the ICSN was widely interpreted as designed to offset its limited participation in the Proliferation Security Initiative (PSI).

South Korea said last month that it would stay away from any PSI-related activity in the vicinity of the Korean Peninsula, citing its unique geopolitical situation. South Korea remains technically at war with the communist North and the two sides are vulnerable to military clashes especially in the poorly-demarcated West Sea.

South Korea described its position in the PSI as “special status,” as it kept the door open for PSI activities in remote areas.

Government officials, however, said the PSI was not considered when it made the decision to join the ICSN, a project still being tested.

Posted in Arms shipment, Illicit activities, International trade, Military, Nuclear, Sea shipping, South Korea | Comments Closed

North Korean Economy Watch