Paul Rexton Kan is professor of National Security Studies and former Henry L. Stimson Chair of Military Studies at the U.S. Army War College. His most recent book is “Drug Trafficking and International Security” (Rowman and Littlefield, 2016). In February 2011, he served as the Senior Visiting Counternarcotics Adviser at NATO Headquarters in Kabul, Afghanistan. He can be found on Twitter at @DPRKan. Divergent Options’ content does not contain information of an official nature nor does the content represent the official position of any government, any organization, or any group.
Title: Assessment of North Korea’s Illicit Trafficking Activities
Date Originally Written: October 12, 2017.
Date Originally Published: October 30, 2017.
Summary: As the United Nations and member states have increased the number and variety of sanctions on North Korea for its missile launches and nuclear tests, the regime of Kim Jong Un will likely increase its reliance on illicit international activities to earn hard currency. The international community must be prepared to respond in kind.
Text: In an effort to pressure the regime of Kim Jong Un to end its ballistic and nuclear programs, the international community is pursuing a wide-range of sanctions against North Korea. The newest round of United Nations (UN) sanctions contained in Security Council Resolutions 2371 and 2375 passed in August and September of this year are aimed at the heart of North Korea’s ability to trade with the larger world and earn hard currency for its economy. In keeping with the UN sanctions, the People’s Republic of China (PRC) has reduced its oil trade with North Korea and has ordered all North Korean businesses operating in the PRC to close by the spring of 2018. Meanwhile, in addition to the UN sanctions, U.S. President Donald Trump signed an executive order in September that allows the U.S. Department of Treasury to sanction specific individuals and entities that engage in assisting North Korean textiles, fishing, information technology and manufacturing industries.
All of the recent sanctions seek to inflict sufficient economic pain on the Kim regime so that it will relent in its pursuit of improved missile and nuclear capabilities. However, past economic sanctions have proven to be largely ineffective in changing North Korean behavior due to the regime’s ability to rely on illicit trade to finance itself.
The Kim dynasty has a long-running history of undertaking illicit trafficking activities to earn hard currency for the regime. In fact, the nation’s founder, Kim Il Sung, created an entire government bureaucracy dedicated to pursuing criminal schemes for illicit profit. Central Committee Bureau 39 of the Korean Workers’ Party was established in 1974 to reduce the country’s dependence on massive Soviet subsidies [1]. Also known as Office #39, this shadowy bureaucracy has proven essential for the North Korean government’s ability to weather economic hardships. Office #39 has allowed North Korea to survive exceptionally perilous moments of potential state instability such as the collapse of its Soviet benefactor in 1991, the famines in the early 2000s and the dozens of international sanctions programs all the while giving the regime enough economic vitality to pursue nuclear weapons and ballistic programs.
The activities of Office #39 include narcotics manufacturing and distribution, currency and cigarette counterfeiting, arms trafficking, automobile smuggling and money laundering. These illicit activities have earned billions of dollars for the Kim regime [2]. North Korean government personnel from the military and diplomatic corps carry out these criminal schemes abroad while using dummy companies to deposit launder proceeds through banks in China, Italy, Russia, and Africa[3]. Demonstrating the wide-ranging criminal network of Office #39, they have reportedly made arrangements with the Russian mafia to help the Kim regime launder its funds through the Russian embassy in Pyongyang [4]
Office #39 is also referred to as “Kim’s Cashbox”[5] and has been used to pay for the inducements that keep the North Korean elites mollified with the hereditary communist regime. Consistent with any totalitarian dictatorship is the ability to control the economy, especially for national leaders who rule by force. Central to the Kim dynasty’s ability to control its totalitarian regime is a “court economy,” akin to that practiced by an absolute monarch. To prevent coups over the three generations of Kims, Office #39 has provided the funds to reward the regime’s military, government and party elites; as well as the regime’s security agents. Such a court economy, resting on the illegal operations of Office #39, thereby promotes internal regime stability.
In addition to undergirding internal regime stability, Office #39 acts to promote North Korea’s external security by financing the weapons’ programs of the regime. This nexus between illicit finances and sophisticated weapons programs appears to have become tighter under the leadership of Kim Jong Un. In September 2016, the North Korean military’s organization for owning and running overseas companies, Office #38, was merged with Office #39, now operating only as Office Number 39 [6]. An expert on North Korea believes this merger indicates a growing desire to create a more efficient illicit funding stream to achieve two goals: 1) accelerate the regime’s ballistic missile and nuclear considerable advances; 2) feed even more money into Kim’s court economy as a way to strengthen his possible shaky grasp on leadership [7].
If the United States along with other members of the international community seek to bring maximum economic pressure against North Korea, it will also have to tackle the illicit overseas activities of Office #39. The U.S. and others have previously coordinated their responses to North Korea’s criminal operations with some success [8]. The Proliferation Security Initiative initiated by the George W. Bush Administration demonstrated that regional cooperation can work to put pressure on Pyongyang’s arms trafficking. Better coordination of these pressuring activities, through the use of fusion centers and ensuring the inclusion of law enforcement organizations, could enhance their impact.
The time appears right to tackle North Korea’s illicit activities. North Korea’s recent provocative actions have increased the level of alarm among key regional players, providing a greater impetus for cooperation. In addition, several North Korean officials posted overseas and who colluded with Office #39 have defected in recent months, taking with them not only vast sums of money, but information about the regime’s illicit financial activities [9] that regional players could use to stymie the regime. North Korea is not a nation-state that is simply misbehaving. North Korea engages in criminality not as a matter of choice, but of necessity. Finding new ways combat its illicit international activities will be challenging, but policy-makers must adapt their approaches to bring maximum pressure upon an increasingly bellicose regime.
Endnotes:
[1] Eberstadt, N. (2004). The persistence of North Korea. Policy Review, Retrieved October 13, 2017, from https://www.hoover.org/research/persistence-north-korea
[2] Kan, P. R., Bechtol, B. E., Jr., & Collins, R. M. (2010). Criminal Sovereignty: Understanding North Korea’s Illicit International Activities. Carlisle Barracks, PA: US Army War College.
[3] A. G. (2013, September 16). Q&A: High Level Defector on North Korean Trade. Wall Street Journal. Retrieved October 6, 2017, from http://blogs.wsj.com/korearealtime/2014/09/16/qa-high-level-defector-on-north-korean-trade/
[4] Kim Jong Un’s Secret Billions. (2013, March 12). Chosun Ilbo. Retrieved October 12, 2017, from http://english.chosun.com/site/data/html_dir/2013/03/12/2013031201144.html
[5] Kim, K. (2007). The Dollarization of the North Korean Economcy. Tongit Yongu (Unification Research), 11(9), 11-34. (In Korean)
[6] N. Korea Combines 2 Units Managing Leader’s Coffers in One: Seoul. (2016, September 29). Yonhap . Retrieved October 3, 2017, from http://www.koreatimes.co.kr/www/news/nation/2016/09/485_215017.html
[7] Author interview with Bruce E. Bechtol, Jr. on 4 October 2017.
[8] Asher, D. L. (2011). Pressuring Kim Jong-Il: The North Korean Illicit Activities Initiative, 2001-2006 (pp. 25-52, Publication). Washington, DC: Center for New American Security.
[9] Yi, W. (2016, August 21). N. Korea’s Leader Secret Funds Coming to Light. Korea Times. Retrieved October 2, 2017, from http://www.koreatimes.co.kr/www/news/nation/2016/08/485_212381.html