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Can I bum a smoke?

Thursday, March 2nd, 2006

I have visited the DPRK twice, and in that time, I purchased every different brand of cigarette I saw. So I have 9 different brands (not including menthols). So it came a a shock to me when I read in the Daly NK about another brand I had never heard of…and it was the most popular!?!?

“Craven A” Cigarettes! (a.k.a. cat cigarettes)

They cost a pretty steep 1,500W ($.5). Considering that the monthly salary of a North Korean worker is b/n 2000~10,000W ($0.6-3.3) and the price of 1kg of rice is 800~900W($0.27-0.3), CRAVEN’s are very costly.
Caven A is a product of British American Tobacco (BAT), and is widely consumed in the Middle East and Africa. In October 2004, the Guardian, British daily newspaper, had reported that BAT has been secretly operating a cigarette factory in North Korea. BAT announced that they had established “Daesung-BAT” with the Korean “Chosun Suhkyung Trading Company” in September 2001, and have been producing Craven A and Viceroy (?).
Teresa La Thangue, a spokesman from BAT said, “Approximately 200 workers are present in the factory in North Korea, producing maximum of 2,000 million cigarettes every year, and all the products are consumed strictly in North Korea.” When asked the reason for not revealing the existence of the factory in North Korea earlier, Thangue replied, “Compared to the scale of BAT, which produces 90 billion cigarettes every year, the factory in North Korea only takes up a very small portion of the output.” Assuming there are 20 million North Korens, and if half of them are men (smokers), then that means BAT produces 200 cigarettes per North Korean per year. What is the official ration? (NKEW)
North Koreans can tell the difference between DPRK and Chinese “Craven A”s. They prefer the Chinese. They also prefer American Marlboro Reds as well. (NKEW)
Defectors allege that the factory used to make counterfit cigarettes. Whether it does still or not, who knows?
Since their invention, cigarettes have served a number of functions (besides smoking). The same is probably true in the DPRK.

Posted in China, Counterfeiting, International trade, Tobacco | Comments Closed

Macau bank drops N Korean clients

Thursday, February 16th, 2006

According to the BBC:

A Macau bank accused by the US of laundering money for North Korea has agreed to dissolve all links with the communist state.

The US Treasury said Banco Delta Asia had acted as a “willing pawn” for North Korea to channel money through Macau.

Macau’s authorities took control of the bank last year after the fraud claims led to a run on its deposits. Customers withdrew 10% of total deposits after the allegations surfaced.

Officials said the bank would end ties with North Korean clients and tighten its anti-money laundering procedures.

Posted in Banking, China, Illicit activities, International trade, USA | Comments Closed

Smoke signals from BAT’s North Korea venture

Wednesday, February 8th, 2006

Asia Times
Lora Saalman
2/8/2006

On January 10, North Korean leader Kim Jong-il traveled in a luxury train to China’s Guangdong province to sample socialist-flavored capitalism. Just a few months earlier, the North Korean Workers Party introduced reform measures granting foreign investors tax cuts and allowing them to sell goods produced in North Korea without tariffs.

For an economy that ostensibly issued halting economic reforms in 1984, these new measures constitute a revolution, albeit one with Chinese characteristics. In accordance with its giant neighbor’s model, North Korean economic reform is predicated as an alternative to the instability of political liberalization. Unforeseen social and political shifts are to be cushioned by financial solvency to keep the regime intact. With China’s assistance and unofficial aid, sustainable growth may one day be achieved in North Korea. Yet a darker side to North Korea’s economic awakening remains.

Kim Jong-il’s visit comes on the heels of accounts of North Korean money-laundering in Macau and the US decision last June and again in October to freeze the assets of various North Korean companies and financial institutions. While many of these firms are beyond the reach of US sanctions, implied misconduct has already led to runs on the North Korean-affiliated financial institution Banco Delta Asia in Macau.

As allegations swirl of money-laundering through counterfeit cigarettes and currency, a less-known story has emerged on British American Tobacco’s previously undisclosed four-year-old joint venture in North Korea. It presents the dilemma of doing business in a country in desperate need of revenue but with a poor track record of allocating resources to its people. This cautionary tale begs the question as to where exactly Pyongyang’s joint-venture profits are going.

For North Korea, which lacks many of the basic laws for financial transparency and good governance, capital investments are more than economically precarious. Shared contact information and dubious management practices among North Korean companies are ubiquitous.

Daesong-BAT is one of a handful of Western joint ventures in North Korea. The far-reaching tentacles of its North Korean partner illustrate the complexity of verifying the background and connections of any North Korean entity. Like many of its compatriots, North Korea’s Sogyong General Trading Corp (Sogyong) boasts circuitous and often indirect ties to entities engaged in proliferation, international trade, shipping, and money-laundering. These indicators point to larger concerns as to whether joint ventures, particularly Western ones, can be manipulated by North Korea for illicit financing of the regime or even to sustain its alleged WMD (weapons of mass destruction) programs.

Joint ventures and front companies
In establishing Daesong-BAT, British American Tobacco teamed up with Sogyong General Trading Corp, a Pyongyang-based state trader best known for its carpet exports. Sogyong, however, also exports such products as handicrafts, furniture and agricultural produce, while importing machinery, electronics, fishing tackle, chemicals and fertilizer. It is not uncommon for North Korean state-run enterprises to deal in everything from machinery to fishing tackle. Yet eclectic product lists make trade in illicit drugs and weapons all the more difficult to track. Cigarettes are just one more product in the Sogyong export-import pantheon.

North Korean company product lists also rarely convey their full range of trade. Seemingly innocuous industries are often manipulated as front companies. Last year, for example, Japan’s Ministry of Economy, Trade and Industry (METI) listed what appeared to be an innocuous North Korean food manufacturer, Sosong Food Factory, for its participation in nuclear, missile, chemical and biological-weapons proliferation. Cigarettes, like food, have been used at times to mask the real objects being transferred. In one case, Japan in 2002 seized a Chinese vessel and found that the declared store of cigarettes on board actually contained drugs thought to have come from North Korea.

While not as licentious as drug or human trafficking, even the black-market trade of cigarettes could have a tangible impact on North Korea’s financing, as seen in Eastern European illegal cigarette rings. These factors highlight the danger of taking a North Korean food or even carpet manufacturer at face value.

North Korea’s network
Among the elements of obfuscation, the company name Daesong-BAT merits attention. Rather than combining or modifying the titles of the two partner companies to form Sogyong-BAT, Daesong-BAT combines British American Tobacco’s acronym with a name that could either point to North Korea’s Daesong district or Daesong General Trading Corp (Daesong). If it turns out to be the latter, Japan and other governments have prominently featured Daesong for its ties to missile and nuclear proliferation.

Incidentally, Daesong maintains one of the most extensive and convoluted North Korean networks, with more than 10 subsidiaries. It also is suspected of falling under Bureau 39, which earns foreign currency for North Korea. A direct connection between Daesong-BAT and the sinewy Daesong franchise has yet to be established but, as illustrated below, nothing is clear cut in North Korean business relations.

Because of the lack of transparency and convoluted nature of North Korean companies, contact information often serves as the first stencil for tracing overlap between industries. In the case of Daesong, the US Central Intelligence Agency’s Open Source Center follows the use of the same fax number to establish potential business and branch linkages. If the same logic is applied to Sogyong, another pattern emerges. Sogyong shares common fax numbers with at least two companies, Korea Foodstuffs Trading Corp (Foodstuffs) and Korea Kwail Trading Corp (Kwail). These companies in turn share fax numbers with nearly 100 companies in North Korea.

Among North Korean firms sharing contact information with Sogyong-linked entities, Japan’s METI and official European export monitors have listed at least six as end-users associated with North Korean WMD programs. In October, the US government targeted one in particular, Korea Ryonha Machinery Joint Venture Corp (Ryonha), freezing its assets under US jurisdiction and placing it on the US Specially Designated Nationals and Blocked Persons list. Ryonha is a prime example of the complex web of North Korean subsidiaries. Last June, the US Treasury Department also targeted the assets of its parent company Korea Ryonbong General Corp, formerly known as Lyongaksan, which heads five other US-designated entities.

Ryonha is not an aberration among companies converging with Sogyong. Among other Foodstuffs and Kwail-connected entities, Korean company databases list Korea Pyongyang Trading Corp as a distributor of methane gas derived from animal excrement. Apparently, effluent is not its only fetid source of income. The Japanese government has listed the very same company, along with subsidiaries of two other firms tracing back to Sogyong, namely Korea Ryonhap Trading Corp and Korea Jangsu Trading Corp, for nuclear, missile, chemical and biological weapons proliferation.

Proliferation networks may not be the only mechanisms at Sogyong’s fingertips. Contact information also links the two Sogyong-connected associates with at least four North Korean financial institutions. Among these, Koryo Bank and Korea Joint Bank have alleged ties to the now-infamous Banco Delta Asia in Macau. Banco Delta Asia’s own purported involvement in counterfeit-currency distribution and counterfeit-cigarette smuggling does not bode well for Daesong-BAT, no matter how convoluted their connections. Banco Delta Asia may have three degrees of separation between it and Sogyong, but in North Korea’s fishbowl of finance this does not preclude cooperation.

Banco Delta Asia is also reported to maintain a close business relationship with Macau-based Zokwang Trading, which its own vice general managing director claims is a part of North Korea’s Daesong General Trading Corp. Daesong, as mentioned earlier, has a pervasive proliferation record. It also has reported links to Changgwang Sinyong Corp (Changgwang), which has been repeatedly sanctioned by the United States for its missile-proliferation activities and sales to Iran and Pakistan. Zokwang in turn deals in missiles and nuclear-power-plant components, all the while maintaining a partnership with the notorious Changgwang. Combined with Sogyong’s branch in the joint \-venture hub Shenyang, China, even indirect ties to Macau suggest that Sogyong has the ability to tap into proliferation, industrial and financial networks in China and beyond.

Proliferation, industry and finance mean little without the means to transport goods and technology. Sogyong-associated entities Foodstuffs and Kwail share fax numbers with North Korea’s national airline Air Koryo, which has also been cited by official European monitors for proliferation. A 2003 Far Eastern Economic Review article even named Air Koryo as the transportation mechanism for Daesong’s suspected military assistance to Myanmar. Sogyong’s own shipping vessels Sogyong 1 and 2, which were detained in Japan on safety violations in December 2004 and January 2005, complete the final leg of the contact-linked proliferation, financing and shipment triangle. This network belies a much more intricate set of alliances than the domestic-consumption-based joint venture touted by British American Tobacco and Sogyong General Trading Corp.

Standards of business conduct
British American Tobacco’s website advocates transparency in international business and laudably eschews bribery, corruption, illicit trade, and money-laundering. In October, BAT executives further contended in The Guardian that the company’s North Korean cigarette joint venture fuels only domestic consumption, not exports to China or elsewhere. In spite of these reassurances, BAT is no stranger to the dangers of black-market cigarette production and transshipment. A February 2000 article in The Guardian even accuses BAT of complicity, by knowingly allowing illicit smuggling of its cigarettes to occur.

In the case of Daesong-BAT, British American Tobacco officials have admitted to knowing little of the company’s North Korean joint-venture operations. Ominously, BAT has stated that an unnamed Singapore division controls its North Korean joint venture. Lack of oversight combined with a dubious North Korean offshore mechanism for managing an ostensibly domestic industry raises significant warning signs. The incestuous relationship between state-run North Korean entities that share fax numbers of companies and banks listed for WMD procurement and money-laundering through counterfeit tobacco should also elicit concern. These are not simply dilemmas for British American Tobacco, but pose challenges to any companies forming joint ventures in North Korea.

Economic integration, as in China’s case, may bring North Korea more into step with international norms and standards. Ironically, engagement that is likely to lead to greater future transparency may also be manipulated for North Korea’s short-term illicit gains.

In 2003, the British government pressured BAT to close down its cigarette factory operations in the military dictatorship of Myanmar because of concerns over that country’s lack of human rights. Given the legion of obstacles impeding transparency in North Korea, BAT and other Western firms could be contributing to the worsening of more than human rights. They could be aiding and abetting illicit North Korean financing that is alleged to fuel Kim Jong-il’s slush fund and WMD programs.

Posted in Arms shipment, Banking, British American Tobacco (BAT), Bureau 39, Counterfeiting, Daesong-BAT JV Company, Drug smuggling, Finance, Fiscal & monetary policy, Foreign direct investment, Illicit activities, Ryonha Machine Tool Factory (JV Company), Sogyong General Trading Corp | Comments Closed

DPRK conterfitting cigarettes?

Monday, February 6th, 2006

According to Time Magazine:

A confidential report compiled by investigators working for a coalition of major U.S., European and Japanese tobacco companies indicates that North Korea has developed a highly lucrative source of hard currency: counterfeit cigarettes. The report dated June 29, 2005, offers a unique glimpse of the scale and sophistication of North Korea’s illicit-cigarette industry, which has allegedly counterfeited a vast array of brands—from Marlboro to Davidoff. The report estimates that production from 10 to 12 North Korean factories in the counterfeiting business may total 41 billion cigarettes a year, generating annual revenues of $520 million to $720 million. It’s not clear how much of this money flows to the regime of dictator Kim Jong Il, whether in duties or payments “for protection,” but the report speculates that its share of the profits may amount to $80 million to $160 million a year. That would be quite a windfall at a time when the North’s economy is reeling and the U.S. is trying to pressure Kim to abandon his nuclear-weapons program by cracking down on his regime’s income from business exploits as diverse as trafficking drugs and counterfeiting $100 bills.

Pyongyang has consistently dismissed U.S. allegations that it’s engaged in such illegal activities. But according to the report, some of these cigarette factories are directly owned by North Korea’s military and the internal-security service, giving the state “total control” over these operations. In other cases, says the report, the North’s contribution is primarily to provide a “safe haven” to factories run by overseas counterfeiting syndicates. Three of the factories that are said to be located in the Rajin area on the northeast coast of North Korea are allegedly run or financed by crime syndicates from Taiwan. One of these factories, equipped with second-hand equipment from China, has allegedly counterfeited such brands as Mild Seven, Dunhill and Benson & Hedges. According to the report, another factory in Rajin employed 120 people and was run by Chinese supervisors and technicians; North Korean officials were allegedly paid a “tax” on the factory’s cigarettes, which were then exported in fishing vessels owned by a Taiwan crime syndicate. Indeed, the report claims that a chief attraction of running such a business in North Korea is that the “regime’s willingness to allow dedicated, deep-sea smuggling vessels to use its ports provides the gangs with a secure delivery channel.”

Posted in Counterfeiting, Illicit activities, International trade, Rason Economic and Trade Zone (Rajin-Sonbong), Tobacco | Comments Closed

DPRK denies counterfiting operations

Thursday, February 2nd, 2006

Acording to the BBC:

North Korea is no longer forging US dollars, contrary to US claims, South Korea’s intelligence agency has said.

The agency had no evidence Pyongyang has made forged, so-called “supernotes” since 1998, a lawmaker briefed by the National Intelligence Service said.

US sanctions imposed in connection with the alleged forgery have stalled talks on the North’s nuclear ambitions.

Posted in Counterfeiting, Fiscal & monetary policy, USA | Comments Closed

US accuses DPRK of more illicit activities

Friday, January 20th, 2006

According to Yonhap:

“An investigation by the Bush administration has found that North Korea’s government officially sanctions criminal products such as counterfeit American currency, narcotics and counterfeit cigarette brands,” the report said.

“The administration is divided over how to use this information, whether to pressure North Korean leaders to give up nuclear weapons, or give up power,” it said.

Years of U.S. investigations, involving 14 federal agencies, have found that the illicit activities are now generating more than half a billion U.S. dollars for Pyongyang, according to NPR.

North Korea is counterfeiting not only the greenback but also the Japanese yen, and well as producing heroin, methamphetamines, fake pharmaceuticals such as Viagra and Marlboro and other cigarettes brands, the report said.

The regime was even counterfeiting tax stamps attached to American cigarette packs.

“You name it, they are pretty much in it,” David Asher, former State Department official who was deeply involved in the North Korean investigations, told NPR.

Mitchell Reiss, who led the probe during his two years at the State Department policy planning office under the first Bush administration, said the scale and scope of North Korea’s illicit activities “surprised” him.

Posted in China, Illicit activities, Japan, USA | Comments Closed

DPRK “Soprano” State accusation

Wednesday, January 18th, 2006

North Korea, the ‘Sopranos’ state
Asia Times
By Todd Crowell

When US Ambassador to South Korea Alexander Vershbow recently called North Korea a “criminal regime”, he was not speaking metaphorically. He was not talking about the North’s abysmal human-rights record, illegal missile sales or efforts to acquire nuclear weapons.

No, he was talking about crime – as in counterfeiting US banknotes and cigarette packages, money-laundering and drug-trafficking. These issues have suddenly risen to the forefront of Washington’s agenda and become a major stumbling block in the renewal of the six-party nuclear-disarmament talks.

In September, Washington named Macau’s second-largest bank, Banco Delta Asia, as being “a willing pawn for the North Korean government to engage in corrupt financial activities through Macau”. It said senior bank officials were working with Pyongyang “to accept large deposits of cash, including counterfeit US currency, and agreeing to place that currency into circulation”.

In mid-December, the US Treasury Department issued a formal advisory concerning North Korea’s illegal activities and cautioned US financial institutions to take “reasonable steps to guard against the abuses of their financial services by North Korea, which may be seeking to establish new or to exploit existing account relationships”.

It was reported this month that a delegation of agents from the US Secret Service, which is responsible for counter-counterfeiting as well as protecting the life of the president, will travel to Seoul to meet with South Korean authorities over counterfeiting. Visits of this nature are not usually broadcast in such a public fashion.

Meanwhile, Pyongyang says it won’t return to the six-party talks unless the US lifts restrictions against its financial institutions, including those directed at eight state-owned trading companies that Washington cited in October as being involved in weapons trafficking, especially banned missile technology.

Rumors of North Korean counterfeiting and drug-trafficking have been circulating in Asia for years. Anyone who lived in Hong Kong for many years has heard them from time to time. North Korean companies have a long history of operating in the former Portuguese enclave of Macau, which for decades served the regime as a key window to the outside world.

The Zokwang Trading Co was considered Pyongyang’s de facto consulate in Macau, and the relationship between Zokwang and Banco Delta Asia is no secret. As far back as 1994 the bank found thousands of bogus US$100 bills allegedly deposited by a North Korean employee. The director of the Zokwang Trading Co was held and questioned, but no charges were pressed.

There have been several more recent instances of alleged North Korean counterfeiting.

Last April, the Japanese media reported that a hundred or so fake $100 bills were found among a stack of used currency aboard a North Korean freighter that called at a Japanese port in Tottori prefecture. The captain was reported telling police, “We were asked to bring the money to Japan so that the money could be paid for cars and other items.”

Also in April, a large stash of bogus notes was uncovered in South Korea. The Chosun Ilbo, which reported the story, did not say where or under what circumstances the money was found, though it went into great detail over the quality of the notes and quoted experts as saying it was “highly likely” they came from North Korea.

In August, the Federal Bureau of Investigation reported two “sting” operations in the US, colorfully described as Operation Royal Charm and Operation Smoking Dragon. The US government indicted 59 people on charges related to smuggling counterfeit US currency, drugs and cigarettes into the country. The announcement did not specify their origin, but other accounts have speculated that they came from North Korea.

David Asher, head of the US administration’s North Korea Working Group, published a lengthy essay in mid-November in which he described what he called “an extensive criminal network involving North Korean diplomats and officials, Chinese gangsters and other organized crime syndicates, prominent Asian banks, Irish guerrillas and a KGB agent”.

“North Korea is the only government in the world today that can be identified as being actively involved in directing crime as a central part of its national economic strategy and foreign policy … in essence North Korea has become the Sopranos state – a government guided by [Korean] Workers Party leaders, whose actions attitudes and affiliations increasingly resemble those of an organized-crime family more than a normal nation.” The Sopranos is a popular US television series about an organized-crime family.

But why is Washington suddenly pushing decades-old suspicions at this particular time? In September, Christopher Hill, the senior US negotiator at the six-party talks, announced a breakthrough in the negotiations. North Korea had agreed in principle to disarm in exchange for recognition and aid. That same month the Treasury Department issued a warning against dealings with the Macau bank.

In October came the sanctions against the eight North Korean trading companies. Also in October, Vershbow arrived in South Korea, and the new US ambassador quickly developed a reputation for making provocative statements. In November, the six-party talks quickly foundered on Pyongyang’s demands to lift sanctions.

No doubt American officials would solemnly swear they are motivated by a desire to protect the integrity of the US currency and nothing else. But even if the allegations are substantially true, which probably is the case, isn’t this really penny-ante stuff set against the much larger issue of North Korea’s nuclear-weapons program?

None of the other participants in the six-party talks has expressed any public concern about Pyongyang’s crimes. That includes Japan, which not only is supposedly the target of counterfeit money but also is on the receiving end of drugs manufactured in North Korea. (Japanese estimate that nearly half of the country’s illegal drug imports originate from there.) Yet it has said nothing.

Last week, the Chinese Foreign Ministry was forced to deny a report printed in the South Korean media that its government had found evidence of North Korean money-laundering in Macau. “China has never indicated that the government had confirmed North Koreans using Macau for money-laundering,” the ministry statement said.

Vershbow has likened North Korea to Nazi Germany as being only the second state-sponsored counterfeiter. He was referring to an operation whereby concentration-camp inmates forged millions of US dollars and British pounds to disperse in England in an effort to ignite inflation there and harm their enemies’ economies.

Yet the highest figure I have seen for the North Korean counterfeiting is the $45 million (over a decade) reported in the Washington Times, which is nothing set against the vast sums of dollars sloshing around Asia. Indeed, I’ve never heard even a whisper that North Korean counterfeits were affecting world currency markets or the value of the dollar in the slightest way.

It’s hard not to believe that the US administration is again listening to more hardline elements after a brief ascendancy of the “realists” in the State Department. Their purpose is to neutralize the talks (how does a nation negotiate with a criminal gang, after all?) and shift the issue away from nuclear disarmament back to the nature of the regime – with the ultimate objective of toppling that regime.

Todd Crowell comments on Asian affairs.

Posted in Banking, China, Counterfeiting, USA, Zokwang Trading Company | Comments Closed

The DailyNK Exclusive Verification of the North Korean “Super Note”

Tuesday, January 10th, 2006

Daily NK
Shin Ju Hyun
1/10/2006

Korea Exchange Bank double Assurance

For the verification of the North Korean-made counterfeit dollars, the so-called “Super Note,” The DailyNK bought these counterfeit dollars and requested examination of them at the Korea Exchange Bank (KEB).

The above photos are of the “Super Note,” which the The DailyNK bought in Dandong, China. They were taken to the KEB on January 5th at 3 pm for examination and identified it as a “Super Note made in 2003.”

The following is the process of how The DailyNK obtained the counterfeit bills made in North Korea and requested examination of it at the KEB.

The DailyNK correspondent in Dandong, China, on January 2nd, was introduced to a businessman who does trade business between North Korea and China through an acquaintance. The DailyNK asked the businessman, Mr. Lee, working for K Trade Company to buy him some counterfeit dollar bills recently made in North Korea.

Mr. Lee smiled and said, “That is not a problem.” He said half a day would be enough for him to buy some counterfeit bills. The correspondent set an appointment with Mr. Lee for the next day.

The next day, the DailyNk was able to obtain the “goods.” From a wad of bills, he pulled out a $100 bill. It cost him $80. He said, “If you buy directly from a North Korean tradesman, it first costs $80 then drops down to $70 on the second call.”

“This is a dollar bill I got directly from a North Korean tradesman, and it is in good condition,” said Mr. Lee. “I was asked to do a favor to sell the dollar bills at $70 each.” According to Mr. Lee, if you meet the same North Korean tradesmen more than twice, they all ask you to do them the favor of selling counterfeit dollars.

Mr. Lee said in the areas where North Korean trade companies are located, such as Dandong, Changbai, and Tumen, daily counterfeit dollar exchanges are made. In Dandong, there is the Sinheung Trade Company run by North Korea’s National Security Agency and the ‘** base of 3000 Bureau (General Federation of Rear Services) run by the Ministry of the People’s Armed Forces.

Mr. Shim, who accompanied the meeting added, “Besides counterfeit dollar exchanges, it is a well known fact that fake (Chinese) Yuan bills are circulated as well.”

North Korean Tradesmen, First Deals for Counterfeit Dollars, Second for Drugs

“The Chinese government seems to know about this. If the counterfeit money becomes a problem between North Korea and the US, then China will also decide to take a hard-line policy against the North Korean counterfeit Yuan,” said Shim. “After deals for the counterfeit money are made, then comes deals for drugs. Drug deals are made much more carefully.”

The correspondent mailed the “Super Note” to The DailyNK headquarters in Seoul on January 4th. The DailyNK reporters in Seoul visited Korea Exchange Bank on January 5th for examination.

On the afternoon of January 5th, Suh Taek Seok at the financial office sales department at the KEB headquarters said, “It is certain that the bill is a sophisticated Super Note.”

“Some Super Notes made in 2001 are often circulated, but 2003 bills are very rarely found in South Korea,” he added.

After the close examination, “Although at the basic level, the quality of paper and print technique is very complicated, this Super Note bill could be considered one of the most sophisticated ones to be found,” explained Suh.

“The Super Note made in 2003 were circulated only from October 2005, thus some of the banks out there with detection machines still could fail to verify them.”

“Counterfeit Money from the Early 80s”

Suh said, “Without knowing where the Super Note bills came from, it is difficult to predict in which country the bills were produced. However, if it is true that if the bills were produced in North Korea, the problem could become quite a sensitive matter.”

“Apart from the quality of the paper, for the $100 bill, where it says ‘UNITED STATES’ on the left side of the Franklin portrait, there are white lines on the letter “N” and the picture of the grapes under the eagles is not so clearly printed. There are many more differences between real and fake bills.”

It seems the way the counterfeit bills are circulated also varies. Kim Chan Goo, researcher at the Institute for Far Eastern Studies of Kyungnam University who was devoted to relations with North Korea for a decade since 1989 testified, “Eleven years ago when I visited Pyongyang, the guide asked me if I would like to $100 bill for 30 dollars. I bought it as a souvenir, and asked for examination at the KEB when I came back to South Korea. It was verified that it was a counterfeit.”

Kim still kept the bill as a souvenir. “There were many cases of South Korean trade/businessmen who were asked to buy and sell as a broker between the consumers and the North Korean tradesmen in Dandung. Looking back, it can be deduced that North Korea started counterfeiting dollars in the early 80s.”

Posted in Banking, Counterfeiting, Drug smuggling, Finance, Fiscal & monetary policy, Illicit activities, Sinheung Trade Company | Comments Closed

North Korea’s Kim Allows Tentative Stirrings of Profit Motive

Wednesday, December 28th, 2005

Bloomberg
Bradley K. Martin
12/28/2005

A sign of North Korea’s fledgling moves toward a market economy can be found at the Pyongyang monument commemorating the 1945 founding of the Workers’ Party. Beneath a 50-meter-tall rendition of the party’s logo — a hammer, sickle and writing brush — sits a street photographer.

A handmade sign displays her price list and sample photos, mostly of groups of North Korean visitors, with the monument as background.

The photographer is one of countless sidewalk entrepreneurs – – most of them selling food and drink — who have set up shop in North Korea since 2002. Before that, they would have been hauled off to re-education camps for profiteering. In the late 1990s, North Korea’s Civil Law Dictionary described merchants as a class to be eradicated because they “buy goods from producers at a low price and sell them to consumers at a high price by way of fraud, deceit and spoils.”

Since then, the party newspaper, Rodong Shinmun, has quoted Kim Jong Il, who’s held supreme power since the 1994 death of his father, Kim Il Sung, as favoring profits under socialist economic management.

North Korea, one of the world’s last Stalinist regimes, has gradually begun permitting commerce. On a four-day visit to Pyongyang, the capital, in October — arranged and scripted by the government — a group of 17 Western journalists got a glimpse of the changes. Clean, new restaurants were packed with paying customers while the streets — almost empty in 1979 and only lightly traveled in ’89 and ’92 — bustled with bicycles, motorbikes and Japanese sedans.

Casino Pyongyang

In the state-owned Yanggakdo Hotel on an island in the Taedong River, a mostly Chinese clientele played slot machines, cards or roulette at the Casino Pyongyang. Since 1998, Macau billionaire Stanley Ho, through his Sociedade de Turismo e Diversoes de Macau SARL, has invested $30 million in the casino, whose staff is also Chinese.

Now some investors from farther afield are joining pioneering Chinese and South Koreans in plunging into a country once so isolated it was known as the Hermit Kingdom. In September, Anglo- Sino Capital Partners, a London-based fund manager, said it had formed the Chosun Development & Investment Fund, which plans to raise $50 million for investments in North Korea.

“It’s the last virgin economy,” says Colin McAskill, 65, a director of Anglo-Sino and chairman of Koryo Asia Ltd., which is investment adviser to the new fund.

Natural Resources

Besides recent changes in the economic system, a 99 percent literacy rate and a minimum wage for workers in foreign-invested ventures of only $35 a month, McAskill says, he was drawn by North Korea’s rich natural resources — including iron ore, copper, lead, zinc, molybdenum, gold, nickel, manganese, tungsten, anthracite and lignite.

The fund will concentrate on North Korean companies that have been active internationally in the past, with track records as foreign currency earners, says McAskill.

He negotiated on behalf of North Korea with foreign bank creditors in 1987, when the country was unable to repay some $900 million in balance-of-payment loans that had enabled the regime in the 1970s to purchase Western industrial technology — Swiss watch-making machinery, for example — as well as such non-capital goods as 1,000 Volvo sedans from Sweden.

Oil Potential

The country’s petroleum potential lured Dublin-based Aminex Plc and its Korea-focused subsidiary, Korex Ltd., which in August announced the signing of a nine-year production-sharing agreement to explore and develop 66,000 square kilometers (25,000 square miles) of North Korean territory. The agreement covers areas in the Yellow Sea’s West Korea Bay and in the Sea of Japan as well as onshore.

While North Korea lacks proven petroleum reserves, according to the U.S. Energy Information Agency, the West Korea Bay in particular may contain hydrocarbon reserves, as it’s considered to be a geological extension of China’s oil-rich Bohai Bay.

More foreign investment may come, says Tony Michell, a Seoul- based consultant on North Korea. Michell, a 58-year-old Briton, says he has recently shepherded 20 senior managers of international companies, representing seven nationalities, to Pyongyang.

“They’re big players,” says Michell, declining to identify his clients by name or company. “They’re looking at everything, from services to manufacturing. They want to get the measure of the North Koreans and be ready if the six-party talks succeed.”

Six-Party Talks

The so-called six-party talks — between North Korea and China, Japan, Russia, South Korea and the U.S. — are aimed at ending the country’s pursuit of nuclear weapons. In September, the six countries agreed on a statement of principles to govern further talks. It called for a nuclear-free Korean peninsula, a peace treaty and economic cooperation in energy, trade and investment.

Seoul-based Hyundai Research Institute, an affiliate of the Hyundai Group, projected in September that a successful outcome to the talks would be worth as much as $55 billion to the economy in the North — and more than twice that in the South.

Optimism about the economy has boosted the prices of defaulted North Korean debt originally owed to hundreds of creditors, mostly European banks, which in the 1970s began meeting as a London-based ad hoc group to discuss restructuring options. In the 1990s, that so-called London Club turned a portion of the debt into Euroclearable certificates, securities that were denominated in Swiss francs and German marks.

The certificates are trading at about 20-21 percent of face value, up from 12 percent in 2003, according to London-based Exotix Ltd., a unit of Icap Plc, one of a few financial firms that make an over-the-counter market in them.

Excessive Optimism

The debt’s price has risen in the past on excessive optimism about the country’s future. In early 1998, the debt was trading at nearly 60 percent of face value amid rumors that North Korea would collapse imminently and be absorbed by wealthy South Korea, which would then make good on the entire outstanding debt.

That had not happened by the time of the crash later that year in global emerging-market securities, when the North Korean debt price sank to about 25 percent of face value.

Exotix estimates that North Korea owes the equivalent of some $1.6 billion in principal and interest to banks out of a total $14 billion in principal and interest owed globally to mainly communist and formerly communist countries.

Although a cease-fire was declared in 1953 in the war between North Korea and China on one side and the United Nations — under whose flag the Americans, South Koreans and others had fought — on the other side, no peace treaty has ever been signed.

The U.S. maintains sanctions under the Trading with the Enemy Act that restrict trade and financial transactions with North Korea — and apply to Americans and permanent residents of the U.S. and to branches, subsidiaries and controlled affiliates of U.S. organizations throughout the world.

China, Russia

North Korea’s flirtations with capitalism are belated compared with those of China and the former Soviet Union, which began opening their economies in the 1970s.

North Korea did pass a law legalizing foreign investment in 1984. The law, which permitted equity joint ventures between state enterprises and foreigners, attracted only $150 million in investment during the following decade, largely because investors were put off by the country’s poor roads, railroads, power systems and phone networks and by official interference in joint ventures’ recruitment, dismissal and compensation of workers, according to a 2000 thesis by Pilho Park, a postgraduate student at the University of Wisconsin Law School in Madison.

Vietnam Example

In contrast, Vietnam lured $7.5 billion in investment in the first five years after it opened its economy to foreign capital in 1988, Park wrote.

Following the collapse of European communism in the early 1990s, North Korea opened the Rajin-Sonbong Free Economic and Trade Zone on the northeastern border with China and Russia. A brief flurry of investor interest ensued and then fizzled out when a crisis over the country’s nuclear weapons program took North Korea to the brink of war with the U.S. and South Korea in 1994.

In the mid ’90s, catastrophic floods, combined with the collapse of the global communist system of aid and preferential trade, caused a severe energy shortage that crippled the economy. As much as 70 percent of manufacturing capacity went idle, according to the South Korean central bank.

Also in the mid ’90s, famine killed as many as 2.5 million North Koreans, by the estimate of the U.S. Agency for International Development.

Food Insecurity

Since then, food aid from abroad, an absence of large-scale natural catastrophes and a 2005 harvest that was the biggest in 10 years have kept North Korea from the massive starvation that’s taken place elsewhere, including Niger, says Richard Ragan, North Korea director for the United Nations World Food Program.

Still, “the country faces chronic food insecurity,” Ragan says. “One of the things that happened with the food shortages is that marginal lands became less controlled. You see people trying to farm on some of the most inhospitable plots of land you could imagine.”

In October, steep, unterraced hillsides were plowed outside Pyongyang. The crops can then wash down, rocks and all, during rainstorms, harming water supplies and damaging farmland – fertility.

A second nuclear weapons crisis boiled up in 2002 when the U.S. accused the North of conducting a secret uranium enrichment program — to replace a plutonium program that it had frozen as part of a settlement of the earlier crisis.

Economic Rules

That same year, the regime proceeded with what then Prime Minister Hong Song Nam described as dramatic new economic measures, which helped bring arbitrarily set prices and foreign exchange rates closer to those prevailing on the black market.

The North Korean won consequently dropped to 150 won to the dollar in December 2002 from 2.15 to the dollar a year earlier. The official rate is currently about 170 won, while on the black market, one dollar can bring about 2,000 won.

The government also introduced pay incentives aimed at boosting worker productivity. The system is in operation at enterprises such as the Pyongyang Embroidery Institute, where some 400 women stitch elaborate pictures for framing and sale.

Employees who don’t perform up to expectations aren’t fired; they’re denied raises, says spokeswoman Woo Kum Suk. Unable to live on their minuscule basic salary, equivalent at black market rates to something over a dollar a month, non-performers eventually quit and go elsewhere, Woo says. Good workers can see their salaries raised as much as fivefold.

Consumers

“In my opinion, it’s good to have this system,” she says. “Although the government supplies things to us, sometimes there’s something more we want to buy.”

North Korea has some way to go before many investors rush in. According to a UN report, net investment inflow for 2003 — the most recent year for which statistics are available — was a negative figure: minus $5 million.

Currently the country is constructing a new special economic zone at Kaesong, just north of the South Korean border, where several small companies from the South already employ North Koreans to make clothing, footwear and household goods. Authorities declined to let Western reporters visit it, permitting only a glimpse from a highway bridge a mile away.

Those who are investing are taking a long-term view. Singaporean entrepreneur Richard Savage was looking at least five years into the future in 2001, when he formed a joint venture tree plantation with the Ministry of Foreign Trade. The company, Evergreen Kormax Paulownia Ltd., is 30 percent-owned by the government, which has assigned Savage 20,000 hectares (49,000 acres) on a 50-year lease with an option to extend for 20 more.

Timber Business

Savage, 58, says he, family members, friends and a few other investors have put $3 million into the project so far. Savage says he hopes that by the time the paulownia trees mature — they grow as fast as 7 centimeters (2.85 inches) a day on his farm, and some may be ready for harvesting five years after planting — he’ll be able to sell the wood in a unified Korean market.

When the Northern economy takes off, the first beneficiary will be the building industry, he says. “That’s why I’m in timber,” he says, adding that his fallback plan is to sell the wood to China, Japan and South Korea.

It’s not the first venture in North Korea for Savage, who wears a cowboy hat and whose e-mail moniker is WildRichSavage. In 1994, he introduced North Korean officials to Loxley Pcl, a Thai telecommunications company. In 1995, an affiliate formed for the purpose, Loxley Pacific Co., signed a joint venture agreement with North Korea’s post and telecommunications ministry to create modern telecommunications in the Rajin-Sonbong special economic zone. The venture earns about $1 million a year, Loxley Pacific Chief Financial Officer C.C. Kuei, 56, says.

Mining for Gold

North Korea’s 1992 Foreign Investment Law guaranteed that foreign investors’ shares of profits could be repatriated, a promise that’s now being tested by Kumsan Joint Venture Co., a gold mining concern that’s half owned by a Singapore-led group of Asian investors and half owned by Hungsong Economic Group, a large trading, mining and manufacturing group in Pyongyang that’s controlled by North Korea’s military.

Roger Barrett, a Beijing-based British consultant, has helped arrange financing and technology for Kumsan. Barrett, 50, introduced Kumsan to the foreign investors, whom he declined to identify.

The company used its investment to buy secondhand mining equipment from Australia in 2004 for the venture’s mine 2,000 meters (6,562 feet) above sea level near the city of Hamhung. In the first year the new equipment was used, Barrett says, the mine produced about 100 kilograms (220 pounds) of gold, half of which the foreign investors took out of the country. He says doing business with North Koreans has proved to be absolutely normal. “It’s working very well,” he says.

Foreign-Run Bank

The business environment in North Korea is surprisingly welcoming, says Nigel Cowie, 43, a former HSBC Holdings Plc banker who was hired a decade ago by Peregrine Investment Holdings Ltd. to start North Korea’s only foreign-run bank.

When Peregrine collapsed in 1998, Cowie and the North Korean joint venture partner kept the local unit operating. He and three other investors bought Peregrine’s 70 percent stake in it from the firm’s liquidators in 2000. Cowie, who’s general manager of what’s now called Daedong Credit Bank, says the bank has about $10 million in assets and has only foreigners as customers, mostly Chinese, Japanese and Western individuals and institutions. Only North Korean-owned banks can do business with state enterprises and North Korean individuals.

Better Living Conditions

Living conditions for expatriates have improved significantly in the past three or four years, Cowie says over a meal of Korean barbecue in the capital’s Koryo Hotel. “For me, personally, it’s things like creature comforts, more shops, Internet, e-mail,” he says. While the Internet is available to foreigners, it is forbidden to most North Koreans.

Cowie says his biggest challenge at the bank comes from outside North Korea. In September, the U.S. Treasury Department barred U.S. financial institutions from dealing with a Macau bank, Banco Delta Asia, that it said had been “a willing pawn” in corrupt North Korean activities and represented a risk for money laundering and other financial crimes.

The bank and North Korea both denied the charges, but the Macau government took over the bank and announced it would provide no services to North Korea in the future. Cowie says the action tied up a big chunk of Daedong Credit Bank’s customers’ assets because Banco Delta Asia had been a main correspondent bank for North Korean banks.

The Treasury Department in October broadened its dragnet by ordering a freeze of the assets, wherever in the world the U.S. could assert its jurisdiction, of eight North Korean companies it suspected of involvement in proliferating weapons of mass destruction.

`WMD Trafficking’

The department explained its action in an Oct. 21 statement on its Web site: “The designations announced today are part of the ongoing interagency effort by the United States Government to combat WMD trafficking by blocking the property of entities and individuals that engage in proliferation activities and their support networks.”

North Korea sought to connect the Treasury actions to Washington’s position in the six-party talks. The country’s Korean Central News Agency, using the acronym for the Democratic People’s Republic of Korea, said on Dec. 2 that “lifting the financial sanctions against the DPRK is essential for creating an atmosphere for implementing the joint statement and a prerequisite to the progress of the six-party talks.”

Assistant Secretary of State Christopher Hill, the chief U.S. envoy to the talks, had said in a Nov. 11 press conference that the asset freeze wasn’t directly related to the talks.

Money Laundering Banned

Cowie says he doubts the U.S. action was intended to harm Daedong, which had already issued a manual prohibiting money laundering. He says he fears such U.S. actions could damp investor enthusiasm for North Korea. “It can cause the people doing legitimate business to just give up,” he says.

Cowie isn’t packing up to leave, though. Neither is Felix Abt, a Swiss native who heads a new European Business Association in Pyongyang. “I am very busy with visiting foreign business delegations,” Abt, 50, says. “Take it as a sign that the economy is developing and that more foreign business activities are under way.”

Outsiders’ investment on capitalism’s farthest frontier is gradually bringing benefits to North Koreans, too, says Savage, the tree farmer. “I can’t convert the whole country, but for the people who work for me, I’m giving them a better standard of living,” he says. “Slowly, people will prefer not to work for the government.”

If Savage and his fellow pioneers have their way, it’s only a matter of time before capitalism takes root in North Korea.

Posted in 1990s Famine, 2002 Economic reforms, Agriculture, Aminex, Arduous March, Arms shipment, Automobiles, Banking, Bicycles, Civil society, Communications, Counterfeiting, Daedong Credit Bank, Economic reform, Email, Energy, Euro-Asian Business Consultancy, Finance, Foreign direct investment, Forestry, Gambling, Gold, Hungsong Economic Group, Illicit activities, International trade, Internet, Kaesong Industrial Complex (KIC), Koryo Asia Ltd., Labor conditions/wages, Light Industry, Manufacturing, Mining/Minerals, Ministry of Foreign Trade, Ministry of Post and Telecommunications, Oil, Pyongyang Embroidery Institute, Rason Economic and Trade Zone (Rajin-Sonbong), Special Economic Zones (Established before 2013), Trade Statistics, Transportation | Comments Closed

Pay Special Attention to North Korean Diplomats’ Passports

Thursday, December 22nd, 2005

Daily NK
Kwak Dae Jung
12/22/2005

On March 31st, 1970, Yodo of JAL (Japan Airlines) was hijacked on the way from Tokyo to Fukuoka. The hijackers were Japanese youngsters aged from the teens to twenties who dreamed of a simultaneous revolution of the world. They called themselves the Japanese Red Army (JRA).

They headed for North Korea. In fact, their planned destination had been Cuba, but North Korea suddenly came to their mind as the nearest Communist country they could reach with the hijacked domestic airplane. North Korea has protected these terrorists as political refugees since then.

News about the 9 hijackers of Yodo has not been reported except that they lived in the lodgings that North Korea provided near Pyongyang. In 1998, one of the hijackers was arrested in Japan. It was disclosed that he had smuggled himself into Japan three years ago.

In 1996, another hijacker was arrested. His name was Tanaka Yosimi. He was 21 years old when he took part in the hijacking. At the time of arrest, he was 47 years old. He was arrested not in Japan, nor in North Korea, but near the border between Cambodia and Vietnam. He carried a North Korean diplomat’s passport whose holder was named Kim Il Soo. In his suitcase were Super Notes the face value of which amounted to tens of thousands of dollars.

The former hijacker was arrested for passing forgeries after 25 years of hiding. The so-called Super Note is also referred to as Super K because its serial number starts with K. Super Notes are still found all around the world 10 years after his arrest. He had been closely followed by the U.S. Treasury’s Secret Service (SS), a special bureau to investigate forgery, since his several year operations in Southeast Asia had been sensed.

Tanaka Yosimi was judged not guilty regarding the counterfeit bills after a three year trial in Thailand. His consistent denial of possessing the forgeries seemed to work for him. However, he was sentenced to 12 years of imprisonment regarding his participation in the hijacking after he was taken to Japan in 2000.

Many forgeries were found in 1996

One reason to suspect North Korea counterfeiting dollars is that many people with a North Korean diplomat’s passport like Tanaka Yosimi were caught and arrested for having bundles of counterfeit U.S. dollar bills.

1996 saw many cases of arrests for passing North Korean forgeries. In March, while Tanaka Yosimi was arrested in Thailand, a North Korean official resident in Moscow, Russia was expelled because he was caught changing 800 thousand counterfeit U.S. dollars. An officer in the North Korean embassy in Hanoi was also caught carrying 3 million counterfeit U.S. dollars, and all his forgeries were confiscated by the Vietnamese authorities. Later the Vietnamese government returned the forgeries to North Korea because the North consistently claimed that the counterfeit bills were its property.

In December, a third-grade officer in the North Korean consulate in Ulan-Bator, Mongolia, was exiled because he was captured changing 100 thousand counterfeit U.S. dollars. 75 thousand counterfeit dollars were withdrawn, but the rest could not. Also in December, a North Korean trade counselor in Rumania was exiled because he was caught changing 50 thousand counterfeit dollars.

The following are the reasons why many forgery cases were disclosed in 1996: ▲ The method of how Super Notes can be identified has been found and widely known since they were first discovered in 1994. ▲ The U.S. information agency consistently chased them in cooperation with international societies. ▲ North Korea was pressed to pass them quickly because the U.S. changed its 100 dollar bill after 68 years of use.

In April, 1998, Gil Jae Kyung, who was the accountant in charge of Kim Jong Il’s slush fund, and who had died in 2000, was caught changing 30 thousand counterfeit dollars in Vladivostok, Russia. At the moment, he was carrying a passport on which the name of Lee Moon Moo was printed as its holder’s name. He insisted that he was Lee Moon Moo, a trade counselor in the North Korean embassy in Moscow. When his identity as Kim Jong Il’s private accountant was disclosed, it made sensational news.

American and Russian forgery inspectors had sensed Gil Jae Kyung’s passing forgeries several times and followed him for some months. On the other hand, in 1976 Gil Jae Kyung was expelled from Sweden because he was captured bootlegging narcotics. At the time, he was the North Korean ambassador to Sweden.

As seen from above, most North Korean forgery holders have been camouflaged as diplomats. If it had been a country other than North Korea, considerable diplomatic friction could have occurred, but North Korea was so notorious for international crimes that those countries concerned did not raise much complaint.

In August, 1995, a Japanese businessman was paid 10 thousand dollars with counterfeit bills for his trade with North Korea. The North Korean trade company said they had not known that, which seems to have been a mere excuse. It is resonable to assume that the North Korean trade company was connected with the North Korean forgery ring because it would be impossible to be able to hold a bundle of 100 counterfeit hundred dollar bills without any connection.

Posted in Counterfeiting, Illicit activities, Japan | Comments Closed

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