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Counterfeiting Cases Point to North Korea

Monday, December 12th, 2005

Los Angeles times
Josh Meyer and Barbara Demick
12/12/2005

Pyongyang is accused of being behind a growing effort to print and move rafts of U.S. $100 bills.

The counterfeiting operation began a quarter of a century ago, he recalled, at a government mint built into a mountain in the North Korean capital.

Using equipment from Japan, paper from Hong Kong and ink from France, a team of experts was ordered to make fake U.S. $100 bills, said a former North Korean chemist who said his job was to draw the design.

“The main motive was to make money, but the secondary motive was inspired by anti- Americanism,” said the chemist, now 56 and living in South Korea.

Before long, sheets with 30 bills each were rolling off the printing presses. By 1989, millions of dollars’ worth of high-quality fakes were showing up around the world. U.S. investigators dubbed them “supernotes” because they were virtually indistinguishable from American currency. The flow of forged bills has continued ever since, U.S. officials say, despite a redesign intended to make the cash harder to replicate.

For 15 years, U.S. officials suspected that the North Korean leadership was behind the counterfeiting, but they revealed almost nothing about their investigations into the bogus bills or their efforts to stop them. Now, however, federal authorities are pursuing at least four criminal cases and one civil enforcement action involving supernotes.

U.S. authorities have unsealed hundreds of pages of documents in support of the cases in recent months, including an indictment that directly accuses North Korea of making the counterfeit bills, the first time the U.S. has made such an allegation in a criminal case.

The documents paint a portrait of an extensive criminal network involving North Korean diplomats and officials, Chinese gangsters and other organized crime syndicates, prominent Asian banks, Irish guerrillas and an alleged ex-KGB agent.

The criminal cases and U.S. Treasury enforcement action are part of a concerted campaign to deprive North Korea of as much as $500 million a year from counterfeiting currency and other criminal activities, senior U.S. law enforcement and intelligence officials say.

The officials say criminal syndicates in South America, Eastern Europe and elsewhere have also churned out large sums of fake U.S. cash. But North Korea’s is the only government believed to do so, despite international pressure and laws that characterize such activity as an economic casus belli, or act of war, they say.

“It is simply unacceptable for a member of the international community to engage in this type of irresponsible conduct as a matter of state policy, and [North Korea] needs to cease its criminal financial activities,” Daniel Glaser, deputy assistant Treasury secretary for terrorist financing and financial crimes, said in an interview. “Until then, the United States will take the necessary actions to protect the U.S. and international financial systems from this type of misconduct.”

In the fall, the U.S. unsealed an indictment against the head of an Irish Republican Army splinter group alleging that “quantities of the supernote were manufactured in, and under auspices of the government of, the Democratic People’s Republic of Korea,” as North Korea is formally known. North Korea’s government in Pyongyang strenuously denied wrongdoing.

A report by North Korea’s official news service called the charges “a clumsy and base political farce” by a Bush administration intent on toppling the communist government.

David L. Asher, an administration point man on North Korean issues until this summer, said there was overwhelming evidence that Pyongyang had become a brazen “criminal state” reliant on illicit activity, in part to finance its nuclear weapons program.

“This is state-sponsored counterfeiting. I don’t know of any other case like this except the Nazis, and they were doing it in a state of war,” said Asher, who headed the administration’s North Korea Working Group and was the State Department’s senior advisor for East Asian and Pacific affairs.

The administration, he said, has made a strategic decision to press the issue, even if doing so affects delicate six-nation talks aimed at getting North Korea to give up its nuclear arms.

“The administration made a determination early on that irrespective of what happened in diplomacy, this should not be tolerated,” Asher said.

U.S. authorities say the increasingly high-profile campaign against the counterfeiting is proceeding amid information that North Korea is minting more American currency than ever before and smuggling it and other contraband, such as weapons and knockoff pharmaceuticals, directly into the United States. A number of U.S. officials who are knowledgeable about the campaign spoke on condition of anonymity because of the issue’s political sensitivity.

U.S. authorities fear that the communist state has been able to step up its illicit activities by forging more alliances with transnational organized crime syndicates.

Those alliances have made Pyongyang’s suspected nuclear arsenal and other weapons more vulnerable to theft by rogue elements of the North Korean government and sale to nuclear traffickers or terrorists, the U.S. officials said. They worry that the same pipelines used to smuggle fake currency into the United States could be used to traffic in weapons of mass destruction.

An unclassified version of a March report to U.S. lawmakers by the independent research arm of Congress warned that North Korea’s increasing reliance on criminal networks meant it may not be able to curtail its illegal activities even if it wanted to.

“Korean crime-for-profit activity,” analyst Raphael Pen of the Congressional Research Service wrote, “may become a ‘runaway train,’ gaining momentum, but out of control.”

Extending the Network

One of the first places authorities picked up the supernotes’ frail was Ireland, more than 5,000 miles away from North Korea. By the early 1990s, so many supemotes were circulating there that Irish banks stopped exchanging American $100 bills.

The Secret Service soon homed in on Sean Garland, whose exploits with the Irish Republican Army years earlier had made him a local hero.

Garland was chief of staff of the Official Irish Republican Army, or Old IRA, after it split with other IRA factions in 1969 and became the most left-leaning. He also heads its political wing, the Irish Workers’ Party, in Northern Ireland. In that capacity, Garland traveled extensively to see Socialist and Communist party leaders in the Soviet bloc and, authorities contend, North Korea.

According to Garland’s indictment in federal court in Washington this year, which was unsealed this fall, his discussions with North Korean operatives eventually turned from a shared rejection of capitalism to a scheme for him to buy bogus $100 bills, perhaps to destabilize the U.S. dollar by flooding the market with fakes.

The former North Korean chemist, who spoke anonymously for fear of reprisal, said that over the years, people from China, Hong Kong, Japan and other countries helped distribute the bills. “There was a lot of cooperation with Ireland,” he said.

In the indictment and in interviews, U.S. authorities said Garland ultimately teamed up with Old IRA members, street crooks and an alleged former member of the KGB, the Soviet intelligence service. They said the men traveled widely to circulate the bills and sell them to customers who would buy suitcases full at wholesale prices.

The indictment accuses Garland and six other men of buying, selling and circulating fake U.S. $100 bills during the l990s. Authorities say they passed up to $28 million worth of bogus currency.

From 1997 to 2000, the group bought, sold and circulated the counterfeit notes in Russia, Belarus, Poland, Denmark, the Czech Republic and Germany, the indictment says. It alleges, in detail, that couriers made frequent ferry trips to Ireland loaded down with real cash to pay Garland for the counterfeits.

Authorities said Garland did much of his business with North Korean suppliers at Pyongyang’s embassies in Moscow and, later, Minsk, Belarus, using his status as a Workers’ Party official as cover.

Things began to unravel in 1999, when Garland’s group allegedly went ahead with a deal to sell $1 million in supernotes to a pair of undercover agents posing as wholesalers.

Authorities in Britain described the counterfeit ring as the largest of its kind in their country’s history. But Garland wasn’t arrested or charged until British authorities, acting on a U.S. warrant, took the 71-year-old into custody Oct. 7 in a hotel in Belfast, Northern Ireland.

U.S. Takes Action

The U.S. quickly moved to extradite Garland. But when he was released for medical treatment, he fled to Ireland, which has no extradition treaty with the U.S.

In a recent statement, Garland insisted that the U.S. charges were baseless and politically motivated. He vowed in an Internet posting to surrender for trial if it were by a jury in Ireland.

No North Korean citizens or front organizations are charged or even identified in the Garland indictment. U.S. authorities would not say whether any of the 10 unnamed and unindicted coconspirators listed in the document were from North Korea.

Charming Phillips, a spokesman for the U.S. attorney’s office in Washington, would not comment on why authorities waited until this year to obtain a grand jury indictment, which alleges criminal acts only through mid-2000. He also would not say whether other suspects from North Korea or elsewhere had been identified or charged under seal.

“I can only say that the case is continuing,” Phillips said.

The chemist, though, said the counterfeit bills were routinely used by North Korean officials.

“Any North Korean official who goes abroad has to change a big note and bring back small, real currency,” he said. “If you come back with real money, you get medals.”

When he decided to flee North Korea in 2000, he crossed into China with thousands of dollars in counterfeit notes, he said. When Chinese police caught him without official papers, they kept $4,000 of the fake cash and let him go.

“Thanks to that money,” he said, “my translator and I were released.”

Besides the Garland case, U.S. officials say three criminal cases the Justice Department is pursuing offer evidence that North Korea is intensiing its efforts to chum out fake U.S. money and conspire with organized crime to smuggle the bills and counterfeit drugs and other products into the United States.

None of those cases explicitly mentions North Korea, but they refer to a foreign country that several U.S. sources say is North Korea.

One case involves supernotes, drug trafficking and three suspected members of a Chinese crime syndicate who were arrested in the Mariana Islands last year.

According to federal court documents and interviews, the Justice Department’s central money- laundering section continues to present evidence in the case to a federal grand jury.

In the two other cases, dubbed Operation Smoking Dragon and Operation Royal Charm, at least 87 people have been arrested or indicted in New Jersey and California on charges of smuggling or conspiring to smuggle at least $6 million in counterfeit cash, knockoff viagra, brand-name cigarettes and weapons into the United States from “Country A” and “Country B.”

Several U.S. officials said those countries were North Korea and China and that the money was printed by the North Korean government.

One of the alleged ringleaders, Co Khanh Tang, told undercover agents in April that he was expecting an especially lucrative product from suppliers in China: “new and better samples” of counterfeit U.S. currency, the indictment against him says.

Stuart Levey, a top Treasury Department official, said North Korea recently began churning out improved copies of U.S. bills.

In October, Levey headed a Treasury delegation to Beijing, Macao and Hong Kong, where he pressed government officials and banking executives for more help in cracking down on North Korean counterfeiters and banks that helped them.

Just before the trip, the Treasury Department designated an Asian financial institution, Macaobased Banco Delta Asia SARL, as a “primary money-laundering concein” under the Patriot Act.

U.S. authorities allege that the bank was a longtime pawn of North Korean front companies, which used it to conduct ‘illegal activities, including distributing counterfeit currency and smuggling counterfeit tobacco products” and aid North Korean drug-trafficking efforts.

The bank denied any intentional wrongdoing and later cut off several dozen clients — including 40

North Korean people and businesses — replaced several managers and allowed a panel named by

Macao’s government to administer its operations.

The U.S. sanctions on the bank, as well as those against several North Korean companies accused

of helping proliferate weapons of mass destruction, have inthriated North Korea. The nation is threatening to boycott disarmament talks unless the United States reverses course. The Smoking Dragon case has raised concerns beyond counterfeiting.

In court documents, prosecutors allege that Tang and another suspect offered undercover FBI agents a catalog of weapons available for purchase from the arsenals of at least two foreign countries, believed to be North Korea and China.

The agents ordered dozens of AK-47 assault rifles and in July 2004 began negotiating a deal for surface-to-air missiles “manufactured by communist countries,” an indictment said.

The indictment added that the agents were told the weapons’ high prices were “necessitated by the need to bribe officials” of at least one of the foreign governments.

Asher, the former State Department official, asserted in a November speech at the Woodrow Wilson Center in Washington that absent a worldwide crackdown on North Korean counterfeiting and the government’s other illicit activities, the country would continue to rely on criminal profits to maintain its political isolation and its nuclear program and to withstand pressure to reform.

“Given that periodic exposure of illegal dealings by North Korean officials overseas in the past has not resulted in serious or lasting consequences,” Asher said, “Pyongyang may believe that an open door for global criminality exists.”

Posted in Counterfeiting, Illicit activities, Pharmaceuticals, Tobacco | Comments Closed

The North Korean Criminal State, its Ties to Organized Crime, and the Possibility of WMD Proliferation

Tuesday, November 15th, 2005

Nautilus Institute
David L. Asher
11/15/2005

I am very pleased to be invited back to the Wilson Center to speak today. I enjoyed my time here this summer and want to thank my colleagues for the chance to be affiliated with the Center, which I consider the finest organization of its kind in Washington. I also wish to thank my former boss, Assistant Secretary Jim Kelly and the many members of our inter-agency team for kindly attending today. In particular, I want you to know of the extraordinary work that our friends and colleagues here from the United States Secret Service have done recently to safeguard our nation and our currency from a determined adversary.

I left the State Department in July and I want to be very clear that my remarks today are personal in nature. They in no way should be interpreted as representing the view of the US government, the Department of State or the Department of Defense. They also are drawn strictly from unclassified sources (the vast amount of information now in the public domain is indicative of the scale of the problem of DPRK criminality).

Let me make clear, I am a believer in the Six Party Talks. I applaud the efforts of my former colleagues, Chris Hill, Joe Detrani, and Jim Foster to effect positive diplomatic movement via direct dialog and clearly demonstrate to all the parties seated at the big table within the Diaoyutai State Guesthouse that the US is sincerely willing to join the international community in engaging North Korea to facilitate its denuclearization, its economic development, and its opening to the outside world. At the same time, given this objective, there should be no further room for tolerating the unacceptable and in many ways outrageous criminal and proliferation activities that the North Koreans continue to engage in.

Allow me to begin my remarks by laying out the major aspects of North Korean trans-national criminal activity. I will then look at the specific question of how the DPRK’s growing ties to Organized Crime groups and illicit shipping networks could be used to facilitate WMD shipments. I’ll propose a possible way to reduce this risk. I will conclude by frankly commenting on the nature of state directed criminality in the DPRK and its implications for international law and the DPRK’s status in the international community and the United Nations.

My research topic this summer at the Wilson Center was on the rise and fall of “criminal states” – government’s whose leaders had become intimately involved with trans-national criminal activity. I compared North Korea under Kim Jong Il with Serbia under Milosevic, Romania under Ceausescu, and Panama under Noriega. I won’t get into the details of this comparative research now but, suffice to say, the scale and scope of the other cases pale in comparison with present-day North Korea.

The rise of the criminal state in North Korea is no secret. It has occurred in full view of foreign governments and with increasing visibility to the world media. Over the last three decades agents, officers, and business affiliates of the DPRK have been implicated in hundreds of public incidents of crime around the globe. Incidences of illicit activity have occurred in every continent and almost every DPRK Embassy in the world has been involved at one time or another. This should be no surprise. North Korea is perhaps the only country in the world whose embassies and overseas personnel are expected to contribute income to the “Party Center,” not rely on central government funds for their operations. Such repeated illicit actions from diplomatic premises amount to a serial violation of both articles 31 and 41 of the Vienna conventions on Diplomatic Relations, which respectively convey that A. commercial, and most certainly, criminal activities for profit shall not be conducted by accredited diplomats or via accredited facilities and B. mandate that officials posted abroad must obey the laws of the nation to which they are posted. The DPRK routinely pays no attention to either critical provision of the Vienna conventions.

I am frequently asked “how much is this stuff going on?” Although it is hard to pin down the exact scale of the illicit activity we can make a rough guess. In 2003 the DPRK ran a trade deficit of at least $835 million and that if more broadly measured to exclude concessionary trade with the ROK was more like $1.2 billion. Even making a very bold estimate for informal remittances and under the table payments for that year, the DPRK probably ran a current account deficit of at least $500 million. Moreover, North Korea’s accumulated trade deficit with the ROK and China alone since 1990 is over $10 billion. North Korea has not been able to borrow on international markets since the late 1970s and has at least $12 billion in unrepaid debt principal outstanding. Yet, until recently – at least – it has managed to avoid self-induced hyper-inflation (which should have occurred given the need to reconcile internal and external monetary accounts, even in a communist country). Instead, the street stalls in Pyongyang and other North Korean cities seem to be awash in foreign made cloths, food, and TVs and the quality of life of the elite seems to have improved. What’s apparently filling the gap and accounting for the apparent improvements to the standard of living for the elite? The short answer as I see it: Crime. And if I am right, then the criminal sector may account for as much as 35-40% of DPRK exports and a much larger percentage of its total cash earnings (conventional trade profit margins are low but the margin on illegal businesses is extremely high, frequently over 500%).

Whatever the precise size of the criminal surplus, all analysts and law enforcement authorities agree that overseas illicit and weapons trading activities have become increasingly important sources of foreign exchange for the DPRK. These earnings have provided support to North Korea’s “military-first” economy and contributed to Pyongyang’s ability to resist demands from the international community for an end to its nuclear weapons program. They also apparently have persuaded the Kim Jong II regime it can affordably maintain its political isolation and resist the imperative for sweeping economic and social reforms that all other communist states have had to engage in. Given that periodic exposure of illegal dealings by North Korean officials overseas in the past has not resulted in serious or lasting consequences, Pyongyang may believe that an open door for global criminality exists.

Let’s review the scale and scope of the North Korean “soprano state.” As is well known the North Korean government is involved in a wide range of illicit businesses in partnership with organized crime groups or unilaterally. These include:

1. Production and overseas distribution of narcotics, in particular heroin and methamphetamines:

DPRK Narco trafficking continues as a major income generator, although less prominently perhaps than before. China continues to be the major market for North Korean drugs and the situation became so bad that in March of last year the Vice Minister of the MPS called a highly unusual “press conference” to announce his determination to cut into DPRK drug rings in Jilin province, on the border with North Korea (which some Chinese law enforcement officials have stated is “out of control”). Japan probably still comes in second. From 1998-2002 Japanese police interdicted nearly 1500 kg of meth that in six separate prosecuted cases was shown to have originated in the DPRK. This amounts to thirty-five percent of all methamphetamine seizures in Japan in that period and had a wholesale value of over $75 million and a street value of as much as $300 million. Given the chemical profile for DPRK produced meth (essentially of extremely high purity) several Japanese authorities I spoke with the week before last believe that a fairly large percentage of the meth coming in from Northern China today is consistent with DPRK origin. As elsewhere, in Japan to mask their fingerprints the North Koreans are going through triads, snakeheads, and other indirect channels. This has been less true with Heroin where North Koreans continue to be observed selling the drugs. The Australian seizure of 125 kg of Heroin worth $150 million off the Pong Su – a Worker’s Party linked vessel and with a KWP secretary on board – in my mind was hardly a random or isolated incident (it is not surprising given that the North Koreans had established an Embassy in Canberra the year before that one would assume needed to produce income for the center – it was Pyongyang’s way of saying “thanks very much”).

2. Production and international distribution of counterfeit currency, in particular the US dollar, as well as counterfeiting or illegally reproducing and selling numerous other items, in particular counterfeit cigarettes and pharmaceuticals.

Under International Law, counterfeiting another nation’s currency is an act of causus belli, an act of economic war. No other government has engaged in this act against another government since the Nazis under Hitler. North Korea has been counterfeiting the dollar and other currencies of importance the entire time it has been on the international engagement bandwagon. What does this say about the regime’s intentions?

As the recent DOJ indictment of Sean Garland and other members of the Official IRA for their partnership in the criminal distribution of counterfeit US currency reads: “Beginning in or about 1989, and continuing throughout the period of this Indictment, a type of high-quality counterfeit $100 FRNs began to be detected in circulation around the world. Their high quality made it particularly difficult for them to be detected as counterfeit by untrained persons. The United States Secret Service initially designated these counterfeit notes as “C-14342” and they came to be known as “Supernote” or “Superdollar.” Quantities of the Supernote were manufactured in, and under auspices of the government of, the Democratic People’s Republic of Korea (“North Korea”). Individuals, including North Korean nationals acting as ostensible government officials, engaged in the worldwide transportation, delivery, and sale of quantities of Supernotes.”

The Royal Charm and Smoking Dragon investigations that were concluded this summer revealed a willingness to sell millions of dollars in DPRK supernotes into the US by Asian OCs linked to the North Korea government. Whether this was a deliberate act of policy decided in Pyongyang or just business among crooks is hard to tell but it seems unusual that according to the public indictment the cost of the notes was less than 40 cents per dollar, far below the market value associated previously with the counterfeit supernotes, given their ability to be circulated without ready detection by the naked eye. One wonders how such a price could be obtained unless the notes were coming from a very high source inside the country in question.

The relatively sophisticated shipping methods for transporting supernotes uncovered in the FBI-USSS Royal Charm/Smoking Dragon investigations also needs to be given scrutiny, especially given our topic today. The following slides, reproduced from a Taiwanese newspaper article gives you a sense of how they move the notes around, falsely manifesting the cargo as a non-dutiable item (in this case as “toys”), falsifying port of origin information (to indicate a port in Northern China instead of in the DPRK), and cleverly concealing the contraband.

The production of counterfeit cigarettes also appears to be a very large and profitable business for North Korea and one with global reach. Indeed, Counterfeit cigarettes may well be North Korea’s largest containerized export sector with cargoes frequently coming from the ports of Najin and Nampo for shipment via major ports in China and the ROK throughout the world. Phillip Morris International, Lorillard, Japan Tobacco and others have identified numerous factories producing counterfeit cigarettes in North Korea. Affected industry participants have worked assiduously with relevant government authorities around the world to stop this trade. The numbers explain why. A forty foot container of counterfeit cigarettes might cost as little as $70,000 to produce and have a street value of 3-4 million dollars, so it’s not surprising that the North has focused on this business line-with its profits increased if tax stamps are forged (something that has been observed repeatedly of late, costing affected states such as California tens of millions in stamp revenue per year). A 1995 Associated Press article reported the seizure by Taiwan authorities of 20 shipping containers of counterfeit cigarette wrappers destined for North Korea. According to officials of the cigarette company whose label and trademark were being violated, the seized materials may have been used to package cigarettes with a retail value of $1 billion. Increasingly DPRK counterfeit cigarettes, counterfeit pharmaceuticals (especially counterfeit Viagra), and counterfeit currency are being moved in parallel. Royal Charm revealed that weapons, too, potentially even manpads might be run through the same channels. What could be next?

3. Smuggling sanctioned items, including conflict diamonds, rhino horn and ivory, and endangered species, utilizing official diplomatic means

I find this to be one of the most outrageous and unacceptable of the DPRK’s criminal acts, absolutely contravening international law, including the Convention on International Trade in Endangered Species of Wild Fauna and Flora. There are numerous notorious examples to cite. In the early 1980’s, five North Korean diplomats were forced to leave Africa for their attempts to smuggle rhino horns. The horns were transported from Luzaka to Addis Ababa to South Yemen. From there, they traveled to the consulate in Guangzhou, which ran operations in Macau, Zhuhai, and Hong Kong. This kind of activity has apparently not changed. As Stanford researcher, Sheena Chestnut, noted in a recent thesis, in the years since 1996, “at least six North Korean diplomats have been forced to leave Africa after attempts to smuggle elephant tusks and rhinoceros horns.” Ivory seizures directly linked to North Korean officials amounted to 689 kg in Kenya in 1999; 537 kg in Moscow in 1999; and 576 kg in France in 1998. I don’t have more recent data I can share publicly but I don’t think they have given up on the illicit ivory trade.

4. Money laundering for its own account and in partnership with recognized organized crime groups abroad:

The extent to which the DPRK uses banking partners around the world to launder funds has recently gotten a lot of attention in the wake of the Macau based Banco Delta Asia designation under Section 311 of the USA Patriot Act. The Treasury Department’s website paints a pretty clear picture: “One well-known North Korean front company that has been a client of BDA for over a decade has conducted numerous illegal activities, including distributing counterfeit currency and smuggling counterfeit tobacco products. In addition, the front company has also long been suspected of being involved in international drug trafficking. Moreover, Banco Delta Asia facilitated several multi-million dollar wire transfers connected with alleged criminal activity on behalf of another North Korean front company.”

5. Weapons smuggling and trading in WMD

Even while its customer base diminishes, North Korea defiantly remains in the business of selling MTCR class missiles and base technologies. It also continues to field more advanced systems domestically that could be exported. Logically speaking, as its stockpile of WMD grows so could its willingness to export technologies, systems, and even materials. Business and ideology conveniently mix in the minds of North Koreans, it seems, as they calculate where, when, and how to sell weapons and weapons systems.

Moreover, in the face of increased surveillance of DPRK flagged vessels, the threat of using conventional shipping means to move cargoes increases as does the incentive to use organized crime channels.

There are several thousand containers each year coming out of North Korea from its two main container cargo ports: Najin on the east coast and Nampo on the west coast. To get into the international maritime transport system, they have to go through friendly ports, typically in China, the ROK, and Japan. Virtually none of these containers in China is subject to inspection and few in the ROK. Japanese customs has made a bigger effort but it remains insufficient in regard to cargoes destined for non Japanese ports.

As we learned from the investigations concluded this summer, containers of counterfeit cigarettes, counterfeit currency, weapons, and other illicit items apparently produced in the DPRK or linked to a distribution chain it has ready access to have managed to make their way into the US. So could North Korean WMD if we don’t create a system to better scrutinize cargoes and enhance Maritime Domain Awareness to protect our SLOCs.

Unfortunately, neither the PSI no the CSI are attuned to addressing these threats. The Container Security Initiative is a worthy effort to move US customs outward, inspecting select cargoes destined for US waters overseas before they embark in our direction. I am impressed by the work being done by US Customs and ICE officers overseas to look into suspect cargoes and the dedication of personnel at the National Tracking center to identify ships and cargoes that may have not been covered by the CSI or fallen through the loop. Nonetheless, the CSI has no application to containers destined for non-US ports and, moreover, it is only operating in a small number of foreign venues. What happens to the majority of containers coming here or going elsewhere? Nothing.

Moreover, the hallowed Proliferation Security Initiative unfortunately remains much more talk that action. I support the initiative but it is not sufficient and does not substitute for a dedicated DPRK counter-proliferation policy. It is nice to see countries getting together to agree to intercept shipments but it is another to engage in such interdictions. There has not been one single PSI interdiction of a DPRK flagged vessel that I am aware of. Does this mean they have stopped sailing? A quick look at the “Lloyd’s List” database reveals this to not be true with many notorious North Korean vessels like the Sosang, which was interdicted shipping missiles to Yemen in December 2002 (before the PSI existed), still plying the high seas. What are these ships carrying? Moreover, I find the implicit premise that interdiction alone is adequate for stopping proliferation unsettling. Stopping a weapons shipment on the high seas is like stopping a drug shipment under dark of night-easier said than done. The odds are not good, especially when you face an adversary with access to near state of the art communications, excellent denial and deception, diplomatic immunities, and friendly criminal partners to facilitate its activities.

More decisive action is required, well beyond the PSI’s current scope. The AQ Khan network was brought down by a network disruption strategy that utilized all aspects of national power. Such a strategy may need to be mounted soon to stop a determined North Korea engaged in the weapons trading business.

Fortunately, there are some things in the area of peaceful international cooperation we can do to minimize the chance North Korean contraband, missiles, or WMD will get into the international distribution system. I propose that a special Container Security Initiative be created and applied to the DPRK, beginning in China and the ROK. Specifically, all containerized cargo out of North Korea should be mandated for inspection at the first international port of conveyance. Legitimate trade would be allowed to pass but illicit cargoes would be stopped. The US could not accept containers from ports that do not wish to join this special inspection regime. Such a regime would dramatically reduce the risk of weapons proliferation and cut into crime. Were all ships coming from the DPRK, whether bearing containers or not, subject to first order inspection the system would be even more effective. Given that DPRK trade represents a drop in the bucket for even major Chinese and Koreans ports, instituting such a regime should not be particularly onerous.

Down the road a more elegant solution is possible, whereby only smart containers can gain access to the international shipping system. The President recently announced a new policy on Maritime Domain Awareness (MDA). As Vice Admiral John Morgan has recently written, “MDA is the collection, fusion and dissemination of enormous quantities of data – intelligence and information to form a common operating picture (COP) – a web of integrated information which will be fully distributed among users with access to data that is appropriately classified.” Through the COP, specialists should eventually be able to monitor vessels, people, cargo and designated missions, areas of interest within the global maritime environment, access all relevant databases, and collect, analyze and disseminate relevant information.

This goal of Maritime Domain Awareness may sound overambitious, if not down right impossible. However, within the next five years, we likely will see the global deployment of such “smart-containers.” These sophisticated containers will be equipped with RFID tags that can not only broadcast the precise geo-location of the container but also be linked to relational databases that reveal detailed information on the container’s cargo: where it was loaded and by whom, when and where it was produced, and a host of other important information. IBM and Maersk have in fact just announced a pilot project to validate this smart container concept and allow the data to be trackable via an open information architecture.

In effect, driven by industry requirements even more than government regulations, by the end of the decade we can look forward to the development of a “world wide web of things” – the physical data tracking equivalent of the internet. Such a web promises to dramatically enhance supply chain management for multinationals, expedite and safeguard trade, and reduce counterfeiting. This is not science fiction: companies like Walmart have already demanded that their suppliers insert RFID tags into products with the goal of eventually being able to track in near real-time the status of virtually every asset in the company’s supply chain domestically and – relatively soon – globally.

Countries, ports, or companies not subscribing to smart container standards would be subject to automatic inspection or simply not be allowed to engage in international trade with countries participating in the initiative.

Conclusions:

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. As a result, Pyongyang is radically – and perhaps even hopelessly – out of synch with international law and international norms. In essence, North Korea has become a “soprano state” – a government guided by a Worker’s Party leadership whose actions, attitudes, and affiliations increasingly resemble those of an organized crime family more than a normal nation.

North Korea’s serial violation of international laws and agreements begs the question whether it should be allowed normal protections granted to states under the United Nations treaties.

Its reliance on illicit activity for maintaining what my former colleague Bill Newcomb has termed the “palace economy of Kim Jong Il” perhaps makes it very hard for North Korea to abandon such activities and also provides Pyongyang a means to avoid serious engagement with the outside world. Thus, unless and until the North finds itself censured for its involvement in such activities and its illicit finances come under great pressure it may have few incentives to be cooperative and come clean and act normal.

The North must cease its dealings with trans-national organized criminals, its illicit export of weapons, its nuclear reprocessing, its threats to engage in nuclear proliferation, etc. Instead it should accept the extremely reasonable terms the US, with the others parties in the talks, have offered for promoting a positive and peaceful transformation of relations in the context of full denuclearization. If it does then next month’s talks should represent a turning point in the history of our relations with the DPRK. If it does not, as I have shown the evidentiary ground exists for the DPRK’s comprehensive diplomatic isolation and a systematic denial in diplomatic privilege, if not as a pariah state with nuclear weapons but as a criminal state engaged in causus belli acts against the United Nations, its laws, and its principles. I hope Mr. Kim Jong Il makes the right decision.

Posted in Arms shipment, Black markets, British American Tobacco (BAT), Counterfeiting, Drug smuggling, Economic reform, Fiscal & monetary policy, Illicit activities, International trade, Songun, Tobacco, Trade Statistics | Comments Closed

IRA ballad hero accused by US of superdollar plot

Monday, October 10th, 2005

London Times
David Sharrock
10/10/2005

Sean Garland, president of the Workers’ Party and alleged leader of the Official IRA, was arrested on Friday evening as he was preparing to deliver the keynote speech at his party’s annual conference in Belfast. The US Government is seeking his extradition, arguing that he and others have “engaged in buying, transporting and either passing as genuine or reselling large quantities of high-quality counterfeit $100 notes”.

It further alleges that Mr Garland “arranged with North Korean agencies for the purchase of quantities of notes and enlisted other people to disseminate” the money in the UK.

The 71-year-old IRA veteran was arrested by Police Service of Northern Ireland officers and appeared in Belfast Magistrate’s Court the next morning.

The so-called “superdollars” have been tracked for decades by FBI officers. Defectors from North Korea involved in their production have revealed that the secretive communist state intended to flood the world with the near-perfect notes in an attempt to destroy the US economy, a project which shared equal importance with the nuclear missiles programme.

Mr Garland, who lives in Navan, Co Meath, in the Irish Republic, was the subject of a briefing to the US’s top intelligence chiefs in the late 1990s, according to a BBC Panorama documentary of last year.

One US investigator conservatively estimates the number of “superdollars in circulation in the US alone at $30 million”.

Mr Garland was released on bail of three sureties of £10,000 each and on condition that he remained at an address in Co Down, Northern Ireland.

A solicitor for Garland told Judge Tom Burgess that his client “strenuously protests his innocence”, but the Crown lawyer argued that if released there was a “substantial risk” that Garland would not come back to face his extradition.

He told the court: “We say in simple terms that the defendant would have a strong incentive to flee back to the Republic of Ireland.”

The warrant for his arrest was issued on May 19, posing questions as to why the US authorities did not simply seek him through the Republic’s courts. It is estimated that around 20 extradition warrants for Irish citizens have been turned down by Irish courts in the past five years.

The US authorities now have more than 60 days in which to seek his extradition.

Mr Garland has previously described the accusations as “gross slanders and lies”, but the allegations first surfaced in a book by Bill Gertz, national security correspondent for the the Washington Times.

In 2002 a former KGB agent and two British criminals were jailed by a Birmingham court for their part in distributing the superdollars. Mr Garland was described in court as “the top jolly” of the Official IRA, the group from which the Provisional IRA split in 1969, and accused of acting as the middleman for the notes.

Mr Garland is a major IRA figure of the past century. He joined the British Army in the 1950s in order to steal weapons and later took part on a botched attack on Brookeborough barracks in Co Fermanagh, in which Sean South and Fergal O’Hanlon were shot dead.

Under fire Mr Garland carried the dying South on his shoulder back across the border, earning a place in a famous Republican ballad commemorating the deed.

Posted in Counterfeiting, Illicit activities, Ireland | Comments Closed

N Korea envoys ‘smuggled drugs’

Thursday, December 9th, 2004

BBC
12/9/2004

Turkey has deported two North Korean diplomats accused of smuggling drugs, Turkish officials say.

They said the two men – named as Ryang Thae Won and Kim Son Jin – were caught in a police raid in Istanbul on Sunday.

They are alleged to have been in possession of large quantities of Captagon – a synthetic amphetamine-type stimulant.

The diplomats – who have immunity – were taken by car to Bulgaria, where they are based, on Tuesday.

“They were declared persona non grata in line with related international agreements,” a Turkish diplomat told AFP news agency.

Turkish officials say the diplomats brought the pills from Bulgaria and delivered them to two Turks, who were arrested in the Istanbul raid.

The government in Ankara recognises North Korea but Pyongyang does not have its embassy in Turkey.

The embassy in Bulgaria usually deals with North Korean affairs in Turkey.

North Korean officials have not commented on the incident.

Posted in Drug smuggling, Illicit activities | Comments Closed

Foreign investors brave North Korea

Tuesday, April 13th, 2004

BBC
Lucy Jones
4/13/2004

“Got any nuclear weapons for sale?” is the response Briton Roger Barrett usually gets when he tells people at Beijing cocktail parties that he invests in North Korea.
The country’s admission to a nuclear weapons programme and its listing on George W Bush’s “axis of evil” means most people are staying well away.

But Mr Barrett, 49, a former troop commander in the British army who has 10 years experience of doing business in North Korea, recently opened a branch of his consultancy firm, Korea Business Consultants, in Pyongyang.

A self-confessed “business adventurer”, he says there is growing interest in the country after Chairman Kim Jong-il introduced economic reforms in 2002.

It’s like China in the eighties… The market reforms are very evident. It’s an exciting time to join the market.

Robert Barrett, Korea Business Consultants
He is also the enthusiastic publisher of what must be North Korea’s only business publication – the DPRK Business News Bulletin – which features some of the 250 companies he advises.

“It’s like China in the eighties… The market reforms are very evident. It’s an exciting time to join the market,” he says.

Mr Barrett is not alone.

Even in the middle of a nuclear crisis there are foreign investors in the country, and their numbers are increasing.

They say North Korea is a mineral rich country that needs everything and insist they have to get there first.

They also believe the 2002 economic reform is for real and that the country is gradually moving towards becoming a market economy.

Poverty

The little data there is on the country’s economy is hardly encouraging, though.

There has been a devastating famine and the UN says malnutrition is still widespread.

There are chronic heating and water shortages, and most North Koreans are paid less than £5 a month.

The country also has an appalling human rights record.

A BBC documentary on the country’s gulags this year contained allegations that chemical experiments are being carried out on political prisoners.

Meanwhile, the US says it is “highly likely” that North Korea is involved in state-sponsored trafficking of heroin.

In the political arena, the second round of six-nation talks aimed at resolving the nuclear crisis ended in Beijing in February without agreement, which means US and Japanese sanctions will remain in place.
‘Communism’ tourism

But the foreign entrepreneurs in North Korea are not put off.

Some are helped by UN employees who have worked in Pyongyang (among the few people to have had contact with the regime there) and many have a track record in China.

Pack a torch, conduct business meetings on the street to avoid big brother listening in and have plenty of “Asian patience” for the endless red-tape, they advise.

An Austrian company is reportedly buying pianos from the North Koreans, a French television station uses North Korean artists to produce cartoons, while a Singapore-based firm is developing forestry and tourism.

The Singaporeans intend to offer “adventure” stays on their North Korean forestry plantations.

Meanwhile, Western tourist agencies are gearing up to offer the last chance to see communism in action, and Fila and Heineken have reportedly entered into sponsorship deals with the North Korean regime.

North Korean labour

A German, Jan Holtermann owner of the computer firm KCC Europe, is putting North Korea online.

He hopes that by being there first he will be able to eventually tap into North Korean computer talent.

The country’s small number of internet users currently dial-up to Chinese providers, a costly process at about £1 a minute.

Mr Holtermann’s customers, who he hopes will number 2,000 by the end of the year, will have unlimited access for £400 a month.

As only a few North Koreans are permitted to have telephones, and as the internet service is costly, Mr Holtermann expects his customers to be government ministries, news agencies and aid organisations.

He has invested £530,000 in the venture, intending to get first pick when North Korean software programmers come onto the market.

“They are very talented,” he says.

“It’s this capacity we want to sell in Europe.”

The parcel delivery company DHL has operated in Pyongyang since 1997, when it was invited there by the government, and now has North Korean light manufacturing, textile and beverage companies on its books.

It sees itself as contributing to the country’s “slow but increasingly visible” economic reform programme.

British consultants

Former bank employee Mr Barrett is convinced North Korea is opening up much quicker than people think.

There are opportunities in banking, minerals, agriculture and telecommunications, he insists.

“There is the odd story of something going wrong,” he says.

“But when you walk around you notice construction going on.

“The people are feeling a change.”

High level contacts

But how to do business with one of the most isolationist regimes on earth?

Contacts are essential, say businessmen.

Though even knowing a North Korean minister is not enough, says Gerald Khor of Singapore-based forestry company Maxgro Holdings.

“You have to go above the ministers to the cabinet. You don’t have to know a member but you need to know people who can influence them,” he says.

“It is very important to get the favour of the dear leader (Kim Jong-il). Because when he says something, it gets done.”

Through a former UN employee, Maxgro got Kim Jong-il’s attention and has invested $2m in forestry, agreeing the state gets 30% of the profits.

“Kim Jong-il is an environmentalist,” Mr Khor says.

“We are confident we’ll get a return.

“We have dwindling supplies and this is high quality wood.”

To locate the forests elsewhere would cost much more, he adds.

Forced to change

Economic reforms introduced by the government in 2002 are seen as the first move away from central planning since the country adopted communism in 1945.

The government has been forced to change in order to survive, especially now it can no longer barter with Eastern Europe and the former Soviet Union, experts say.

“There is no real option not to carry out these reforms,” says UK-based Keith Bennett, who has taken trade missions to Pyongyang.

“But people don’t know where they will lead.

Chinese leaders have impressed on Kim Jong-il that there can be economic reform without fundamental political change.”

Way up on North Korea’s border with Russia and China is the Tumen economic zone, which was established in 1991 with UN help to lure investors.

The project has only had limited success and may indicate the type of problems those investing elsewhere in North Korea may face.

The North Korean section of the zone, Rajin-Songbong, hosts foreign-run hotels, telecommunications and restaurants, but that is about all.

“The North Koreans have sometimes been very co-operative and sometimes not, maybe because of policy change,” says Tsogtsaikhan Gombo, from the UN’s development agency.

“They were also disappointed when they didn’t see the investment.”

Vibrant Chinese economic zones nearby have put up fierce competition.

But even opening the door just slightly to let in capitalism has greatly improved the lives of the 150,000 people living in the zone, says Mr Gombo.

And many foreigners insist that small investments elsewhere in the country may have similar results.

Posted in 1990s Famine, 2002 Economic reforms, Agriculture, Animation, Arduous March, Banking, Cell phones, Communications, Drug smuggling, Energy, Finance, Foreign direct investment, Forestry, Illicit activities, Internet, Korea Business Consultants, Korea Computer Center (KCC), Labor conditions/wages, Light Industry, Manufacturing, Mining/Minerals, Telephones, Tourism | Comments Closed

Bush warns N Korea on drugs

Tuesday, September 16th, 2003

BBC
9/16/2003

The United States is increasingly convinced that North Korea has a direct role in global drugs production and trafficking, US President George W Bush has said.

In his annual report to US Congress on drug-producing nations, Mr Bush identified 23 countries which the US considers to be major drug-trafficking or major drug-producing centres, including Afghanistan, Pakistan and China.

North Korea was not on the list but the US president said there was evidence that “state agents and enterprises” were involved in the narcotics trade.

The US, which has been pressuring North Korea over its nuclear ambitions, also warned that a proposed food donation to the North could be at risk because of fears it would be diverted to the military.

Mr Bush said in the report that the US would step up efforts to work with the affected countries in the region in order to prevent such trade.

Haiti and Burma ‘failing’

“Although there is no evidence that narcotics originating in or transiting [through] North Korea reach the United States, the US is intensifying its efforts to stop North Korean involvement in illicit narcotics production and trafficking,” Mr Bush said in his report.

“We are deeply concerned about heroin and methamphetamine linked to North Korea being trafficked to East Asian countries,” he added.

The assessment also warned that Haiti and Burma had “failed demonstrably” to meet international obligations to fight drugs trafficking or production.

Mr Bush’s comments come at a time of continued tension between the US and North Korea over the reclusive state’s nuclear programme.

Aid accusations

The US has repeatedly accused North Korea of illegal drugs and arms smuggling, charges North Korea has denied.

Mr Bush cited in his report the seizure of $50m worth of heroin smuggled from a North Korean state-owned ship off the coast of Australia in April as evidence of a link between the country and drugs trafficking.

On Monday the US also accused the North Korean Government of preventing international food aid reaching those for whom it was intended.

North Korea had alleged that the US and Japan had put pressure on United Nations aid agencies to stop or delay food shipments to North Korea.

However US State Department spokesman Adam Ereli said the US was concerned that international food aid intended for desperately needy civilians was being diverted to the North Korean military.

The US has said it will continue to fund a separate programme to build low-risk nuclear reactors for North Korea.

The programme is managed by the New York-based Korean Peninsula Energy Development Organization, or KEDO.

The US said its $3.72m of funds would only be used for administrative expenses, since construction of the reactors has been suspended since the row broke out a year ago over North Korea’s nuclear plans.

Posted in Drug smuggling, Illicit activities | Comments Closed

N Korea ‘spy ship’ a hit with tourists

Monday, June 2nd, 2003

BBC
6/2/2003

Video of the ship’s sinking on Youtube: 1, 2

Tourists in Tokyo are flocking to visit the salvaged remains of a suspected North Korean spy ship, sunk after a gun battle with the Japanese coast guard in December 2001.

The unusual tourist attraction in the fashionable O-Daiba area attracted more than 20,000 people in its first weekend on display to the public.

Exhibits included an underwater scooter and a portable missile launcher, as well as the bullet-scarred hull.

The spy ship was put on display by the coastguard in order to raise awareness of the threat from North Korea, whose alleged nuclear programme has severely strained its foreign relations with Japan in recent months.

Some visitors said that the exhibit confirmed their view that Tokyo was too soft on Pyongyang.

“Japan is just too wimpy,” 60-year-old Goro Masuda told Reuters news agency. “We must take a stronger line.”

But others thought that the Japanese coastguard was trying to manipulate the public.

“I think the coast guard had its own reasons for wanting to show us this,” said Akihiko Nishimura.

The ship was disguised as a Chinese fishing boat when it was intercepted by the Japanese coastguard.

It was sank after a six-hour chase and fire fight with Japanese patrol ships.

The vessel, which was said to have failed to heed Japanese warning shots and an order to stop, fled in the direction of China before it sank.

After salvaging the wreckage, coastguards found a small button labelled “self-destruct” on board, which they believed was used by the crew to scupper the boat rather than be captured.

Ten bodies were recovered from the ship, although officials said that the array of equipment on the ship meant that there were probably several more North Koreans on board.

Posted in Illicit activities, Japan, Sea shipping | Comments Closed

N Korea ship ‘heroin haul found’

Tuesday, May 27th, 2003

From the BBC:

Australian police say they have found another 75 kilograms of heroin that were smuggled into the country by a North Korean ship seized in a raid last month.

Australian special forces boarded the freighter, the Pong Su, after 50 kg of heroin were found in a vehicle in April, sparking a diplomatic row between the two countries.

A police spokesman says the 75 kg of heroin were found buried in bushes on the south-east coast of Australia.

It is the same area in which 50 kg of heroin were seized from a vehicle in April.

Diplomatic row

The spokesman says this latest batch appears to be identical in form and packaging.

Together the drugs haul is one of the biggest ever recorded in Australian history.

Police believe the drugs came from the Pong Su, which was raided by Australian special forces after the first batch of heroin was discovered.

About 30 crew members were arrested and charged with drug smuggling.

They included an official from North Korea’s ruling Workers’ Party, which led to a diplomatic row after the Australian Government issued a protest to North Korea.

Australia is one of the few Western countries to maintain formal contacts with Pyongyang, but this incident has tested that relationship.

It has also been cited by officials in the United States, who say it is evidence the North Korean Government is involved in illegal activities, including drug smuggling.

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

North Korea is said to export drugs to get foreign currency

Wednesday, May 21st, 2003

New York Times
May 21, 2003
James Dao

Here are the excerpts:

North Korean government has been overseeing the production of heroinand methamphetamine to bolster its foreign currency reserves, according to defector who testified in the US senate.

In 1997 all collective farms were ordered to dedicate 25 acres to poppy cultivation. They also hired experts from Thailand to supervise the refining of the poppies.

The testimony cannot be independently verified, but south Korean intelligence verified the defector’s identity.

Posted in Drug smuggling, International trade | Comments Closed

Heroin trail leads to North Korea

Monday, May 12th, 2003

From the Washington Post:

For nearly a month, agents of the Australian police had been shadowing three men, expecting them to receive a shipment of drugs — from somewhere. This seemed the night: Detectives had followed the three to a desolate, windswept beach on Australia’s southern coast.

As the suspects waited there in the midst of a storm, the worst in years, the agents peered through sheets of rain and saw an extraordinary sight: a North Korean freighter, maneuvering dangerously close to rocks and coral reefs.

Soon a dinghy was fighting its way toward shore carrying 110 pounds of almost pure heroin, stamped with the best brand from Southeast Asia’s clandestine drug labs, police say. Proceeds from the drugs would go to prop up the impoverished North Korean government, they believe.

This was followed by a dramatic, four-day chase of the freighter through angry seas. By the time it ended on April 20 with Australian special forces soldiers sliding down ropes from a helicopter onto the ship’s rolling deck, the vessel had become the centerpiece of a major diplomatic uproar and another obstacle to solving the tense standoff between North Korea and the United States over North Korea’s nuclear program.

U.S. officials say the capture is proof of their long-standing charge that the North Korean government has for years operated as a crime syndicate, smuggling drugs and counterfeit money around the world to generate income to keep itself alive.

Secretary of State Colin L. Powell recently told a Senate committee the seizure shows that North Korea “thrives on criminality.” Any conciliation with the communist state, he told reporters last week, must include an end to its nuclear program and “criminal activities.”

That was a tough, new condition, applied as the world grapples with the communist government’s claim that it already possesses nuclear weapons. And the saga of the freighter Pong Su illustrates that finding and stopping North Korean drug trafficking can be immensely difficult.

North Korean officials called Powell’s charge “slanderous” and denied any knowledge of drug smuggling. But North Korean diplomats have regularly been caught since the 1970s smuggling drugs in diplomatic packages through China, Russia, Laos, Egypt and elsewhere. Defectors from North Korea have described government efforts to grow opium for heroin production in the country’s rugged mountains. The most recent U.S. Narcotics Control Strategy report, however, cautions that those reports “refer to events that are now more than 10 years old, and remain unconfirmed.”

Australian authorities say the Pong Su picked up the heroin elsewhere in Asia, and that the ship’s circuitous route to Australia may indicate North Korea is expanding its role as a middleman, willing to ply faraway waters for desperately needed income.

There are no reliable estimates of how much money North Korea may derive from the illicit trade. But the figure will be of crucial concern if the United States tries to organize economic sanctions against North Korea to force it out of the nuclear weapons business.

Japan and Taiwan have long alleged that North Korean ships smuggle amphetamines to their citizens, and Western intelligence analysts have long believed that the country cultivates opium. But the capture of the freighter and 30 crew members offers the most dramatic, public link to the drug trade to date.

Australia’s foreign minister, Alexander Downer, brusquely dismissed North Korea’s denials that any smuggling was officially sanctioned. “It’s a totalitarian state, so [the ship] is government-owned,” he said. Australia, he told the grim-faced North Korean ambassador who was summoned to his office, is “outraged” at the prospect that it is the target of North Korean drug trafficking.

The vessel’s captain and 29 crewmen are being held in Australia without bail on drug charges. At an initial court appearance April 24 in Melbourne, Legal Aid lawyer Maria Stylianou said prosecutors have not presented evidence that the crewmen knew about the heroin and called them “people who arguably would have had no knowledge at all.”

Legal analysts predict that when prosecutors present detailed charges within a month, they will use the agents’ testimony and the ship’s lack of legitimate business in a region thousands of miles from its home port to argue that the vessel and its crew had only one purpose in coming to Australian waters: to traffic in drugs.

North Korea has few sources of income for its stricken economy. Many factories are idled for lack of parts, electricity is scarce, farming is primitive, and millions of people depend on international charity for food. Its main sources of foreign exchange, helping it maintain a million-member armed forces, analysts contend, are missile sales and dealings in drugs and counterfeit currency.

Australian officials who examined the Pong Su at a naval base where it was taken say it had been specially equipped with extra fuel tanks, enabling it to roam long distances. On its stern they found two unusually large antennas, enabling communications from afar. When it was seized, it had no freight aboard and had no port calls scheduled in Australia.

“It was fitted to smuggle contraband,” said Graham Ashton, southern operations manager for the Australian Federal Police.

And it was a busy ship, tramping around Asian ports, stopping at more than 20 ports in the last year, according to one report here.

The Pong Su is also on a U.S. list of 30 suspected drug merchant vessels worldwide, one source said. But when it showed up on April 16 off the southern coast of Australia near Lorne, a seaside vacation village southwest of Melbourne, it was a surprise to the Australian Federal Police agents trailing the trio of suspected dealers.

The three, identified as Kiam Fah Teng, 45, and Yau Kim Lam, 44, from Malaysia, and Qwang Lee, 34, of Singapore, had entered Australia on tourist visas. But police believed they came to make the connection between a large shipment of drugs and a nationwide network of dealers. So authorities quietly began watching their moves and listening through eavesdropping equipment, according to federal agent Ian McCartney, coordinator of what became known as Operation Sorbet.

Authorities had no reason to suspect the shipment would come on a North Korean ship, never before implicated as a drug source in Australia. But on that stormy Wednesday night, police say, the agents watched as the Pong Su maneuvered to within about 250 yards of shore at a rugged and isolated spot called Boggally Creek.

Police allege that despite the high seas, two crewmen clambered into a rubber dinghy and headed toward a meeting place on shore. It was a fatal miscalculation.

The waves tossed the dinghy like a toy. As it neared shore, it flipped over. One crewman struggled to dry land. The other drowned. His body washed up on shore, along with two tightly wrapped blue plastic bundles, containing 144 blocks of high-purity heroin.

Agents watched coolly as Teng and Lee scooped up the bags, threw them into a van, and drove to a local motel. The police waited until the next morning to arrest them, moving in as the suspects started to drive away.

In the back of the van were the neat blocks of heroin, each pressed and stamped with a distinctive red seal featuring two lions and the words Double UOGlobe Brand. It is a brand of distinction in the heroin world, identifying top-quality drugs from the Golden Triangle region of Burma, Laos and Cambodia. Police said the street value of the haul would be nearly $50 million.

The third man, Lam, was nabbed at a nearby motel. The surviving crewman who came ashore was found during a police search, shivering and hiding in brushes near the beach. “He was cold, a long way from home, and in a lot of trouble,” said McCartney. All four were later charged with drug offenses.

A police launch put to sea to hail the Pong Su, demanding that it head into harbor. Instead, the ship began steaming away up the eastern coast. For the police, it was the equivalent of a crook in a getaway car, a “hot pursuit.”

The rules that would allow Australia to seize the Pong Su required that the ship be kept in constant surveillance from the scene of the heroin drop. But given the storm, even keeping sight of the freighter was difficult for police.

A police launch from Tasmania took the first shift. The Pong Su, riding high in the water with no freight, rolled and pitched in the seas. But for the comparatively tiny police launch, the punishment was brutal. The men aboard it were soon sick and exhausted. “They got hammered pretty bad,” said New South Wales Police Sgt. Joe McNulty.

Another police launch, the Fearless, took over the next night. The waves were so tall, “you get over one wave and you’re in a free fall. You land and the next one hits,” said Sgt. James Hinkley, who skippered the boat. At one point, he found the Fearless surfing down a wave on its side, the keel horizontal.

But the police launch, with siren wailing and flashing lights, darted around the Pong Su. The officers radioed repeated demands to head into harbor. The ship’s radio operator acknowledged the messages, but said it would not comply. Eventually the vessel stopped replying.

The 72-foot patrol boat Alert, the largest vessel of the New South Wales Police, then headed south under McNulty’s command to pick up the surveillance in the still-punishing seas.

The police pursuit was tenacious, “like a bunch of terriers,” said one maritime official, but a bigger dog was needed. A call went out to the navy.

In Sydney, Cmdr. David Greaves of the Royal Australian Navy was preparing to let the crew of his frigate HMAS Stuart go home for an Easter holiday. The 387-foot vessel was in dock, undergoing maintenance. But on Friday, April 18, Greaves was ordered to sea to intercept the Pong Su.

Teams of army special operations soldiers were flying in from Perth, 2,400 miles away, to take part in an assault from the Stuart. After six hours of hasty preparations, it launched, with Greaves offering up as a cover story to his crew a vague explanation about a search and rescue operation.

The next day, the Stuart positioned itself over the horizon from the Pong Su and ran through a practice drill, 90 miles from shore. The seas and wind were slowly subsiding, and Greaves decided to launch the assault at daybreak.

Australia’s maritime commander, Rear Adm. Raydon Gates, who was monitoring from the Navy’s Operations Center in Sydney, provided this account: The Stuart “came over the horizon at 27 knots, full speed, spray all over, with a five-inch gun on the bow, helicopter in the air adding to the noise, and suddenly ropes drop and men are dropping down even before the ropes hit.”

Sliding untethered 90 feet down with only gloves, the special forces soldiers hit the deck and stormed the bridge as other soldiers in two rubber boats moved in from the Stuart, threw grappling hooks and ladders onto the ship, and scrambled aboard.

Within minutes, the crew was under guard in the mess hall, and the soldiers were searching the ship. None of the detainees put up a fight. If there was any incriminating evidence, it had all been thrown overboard or burned.

For Australian authorities, who lauded the cooperation among military, state and local police and other agencies, the seizure in such menacing weather has been a source of great pride, with Gates calling it a “tremendous feat of seamanship.” For McNulty, who struggled to steer the police patrol boat Alert as it was tossed like a can by the seas, the motivation was the kind of personal affront felt by a cop to a crime on his beat.

“You owe it to yourself, the police, and to the kids on the street who would have gotten that heroin,” he said. “You don’t want some ship from North Korea coming to your doorstep and dropping off drugs.”