WaPo on North Korea’s Global Insurance Scam

For Kim Jong Il’s birthday, North Korean insurance managers prepared a special gift.

In Singapore, they stuffed $20 million in cash into two heavy-duty bags and sent them, via Beijing, to their leader in Pyongyang, said Kim Kwang Jin, who worked as a manager for Korea National Insurance Corp., a state-owned monopoly.

Kim said he helped arrange the shipment and watched in February 2003 as the cash was packed. After the money arrived, Kim Jong Il sent a letter of thanks to the managers and arranged for some of them to receive gifts that included oranges, apples, DVD players and blankets, Kim said.

“It was a great celebration,” he said. [Blaine Harden, WaPo]

It’s not exactly news that North Korea has been scamming reinsurance companies; somewhere in my archives is a post I wrote about this topic years ago, and I recently posted about how Lloyd’s of London settled one particularly suspicious claim.  Still, Harden has a meticulously sourced story adding much more insider detail to the scam than we’d known before (what a refreshing change he is from the thoroughly awful Glenn Kessler).

The scam worked like this — a North Korean state insurance company would purchase reinsurance from international insurers like Lloyds to protect things like supply houses and ferries.  Then, there would be a disaster, and the North Koreans would present meticulous documentation of the accident but prohibit the reinsurance companies from visiting the sites or doing their own investigations:

According to Kim, KNIC would target a different potential disaster and a different reinsurance company each year. “We pass it around,” he said. “One year, it might be Lloyd’s; the next year, it might be Swiss Re; and the next, Munich Re.”

That’s high-level defector Kim Kwang Jin.  I’ve met Kim myself, and while I’m in no better position to authenticate what he says than anyone else, he does seem credible when you talk to him, and his English is excellent.

The scam was quite profitable:

When he worked at KNIC, Kim said, annual revenue from North Korea’s reinsurance claims was about $50 million to $60 million. Most of that money, he said, was used to scout out potential disasters inside North Korea, to buy more reinsurance on the global market and to pay premiums.

“The remaining hard currency should have been used to help people recover from disasters and accidents, but it was not used that way,” Kim said. “It is just going into the pocket of Kim Jong Il.”

He said cash shipments of $20 million arrived yearly in Pyongyang, usually in the week before Feb. 16, which is Kim Jong Il’s birthday and a national holiday. In his six years at KNIC, Kim said, bags of cash arrived in Pyongyang from Singapore, Switzerland, France and Austria.

All of the proceeds went straight to Bureau 39.  So, what have we learned from all of this?

“All these companies learned a lesson,” said an expert on the British insurance industry who is familiar with the helicopter case. “Never agree to have disputes decided in a North Korea court and never reinsure KNIC.”

I wonder what lawyer reviewed and approved that contract.  No matter how often I see the naivete of Earthlings who deal with North Korea, I never lose my capacity to be astounded.  But at least the reinsurance companies have learned their lesson.  Even the North Koreans’ British solicitor admits that his clients have been harmed by the publicity surrounding the scam allegations and are having trouble finding willing reinsurers today.  I wish I could say that our State Department had learned anything from North Korea’s last two nuclear disarmament scams.