North Korea’s overseas restaurants are not a significant percentage of its GNP,* but they are an important source of hard currency for Kim Jong-un. As early as 2008, one writer estimated that each restaurant remitted between $100,000 and $300,000 to Pyongyang each year. As of February of this year, there were 130 of them earning $100 million annually. Since then, the South Korean government has told its citizens to stop patronizing the restaurants, and business has fallen dramatically:
On some other night, when the house is packed and the soju flowing, this might set off a drunken singalong, with tables of South Korean tourists clapping wholesomely in the front and smoky huddles of their expat businessmen compatriots leering not-so-wholesomely from the back.
But not tonight.
In the northeast corner of Beijing, the Okryugwan restaurant is feeling the far-flung effects of the latest standoff on the Korean Peninsula. Since the North conducted a nuclear test in January and went ahead with a rocket launch earlier this month, Seoul has instructed its citizens to not patronize the government-affiliated North Korean restaurants that usually pull in a steady stream of curious South Korean travelers, and their precious foreign currency.
“We usually have many tables of South Korean tourists, but business is not good,” North Korean waitress Han Ahn Min said as she poured tea at one of just a handful of occupied tables in a high-ceilinged dining hall capable of welcoming visitors by the busload. [AP]
The Daily NK has reported that the regime had stopped paying the waitresses their salaries.
On the 22, a source close to the issue in China informed Daily NK that female employees at North Korean restaurants were regularly receiving their pay until February (handed out by North Korean managers overseeing each establishment), even if the amounts were meager. However, in February these paychecks failed to materialize, and the outlook for March is also grim.
An additional North Korean source currently residing in China corroborated this news.
“For these female workers from Pyongyang, who scrape by and carefully save every penny, not receiving a month’s pay is a serious and heart-wrenching affair. Unable to voice their complaints over this injustice, these women can only comfort each other during the dark nights before they sleep at night far from home, with tears in their eyes as they think of their parents,” she explained. [Daily NK]
But the greater significance of the restaurants is almost certainly their use for laundering money. The restaurants are a stream of “clean” cash for commingling with the illicit funds North Korea’s diplomats and laborers earn abroad. Commingling, the mixing of legally and illegally derived funds, is the essence of what the Men in Blue call “money laundering.” The restaurants’ inflated prices are one indication of this function. Another is the fact they are controlled by Bureau 39, North Korea’s overseas money laundering agency, which is designated and blocked by both the U.S. Treasury Department* and the U.N. Security Council.
So the news that North Korea’s restaurants in China are closing down is more important and better news than Kim Jong-un’s take from selling naengmyeon or soju. Adam Cathcart even posts this picture of a closed-down restaurant on his Twitter feed.
— Adam Cathcart (@adamcathcart) March 28, 2016
The closure of the restaurants will likely complicate North Korea’s movement of cash from its illegal enterprises to the Chinese banks that still take its deposits.
One question still gnaws at me: if North Korean restaurants abroad are likely fronts for money laundering, handle revenue from other enterprises, and have a utility beyond their own profitability, a simple drop-off in business wouldn’t be enough to shut them down. I wonder if there’s another reason why the restaurants suddenly became unviable. I wonder if it might have something to do with their bank accounts being frozen. Given the restaurants’ reported control by Bureau 39, banks would be taking a very high legal risk by continuing to service those accounts. Indeed, the Daily NK reports that the regime has blamed sanctions for the closure of the restaurants. It will be worth watching whether banks in Europe, Southeast Asia, and other places follow this trend.
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* Previously said “GDP,” since corrected, because Curtis.
* Previously said “United Nations,” since corrected.