Category Archives: Money Laundering

Breaking news! FINCEN rehashes same old North Korea advisory.

To hear Yonhap tell it, the Treasury Department’s Financial Crimes Enforcement Network just stuffed Kim Jong Un into a size XXXXL iron maiden, financially speaking:

The United States has issued another advisory on financial transactions with North Korea, designating the communist country as a jurisdiction with high money laundering and terrorist financing risks, a U.S. report said Wednesday.

The guidance to U.S. financial institutions, issued Monday by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), is based on the international money laundering watchdog Financial Action Task Force’s updated list of countries with anti-money laundering and counter-terrorist financing deficiencies, according to the Radio Free Asia (RFA) report. [Yonhap]

The truth is much less dramatic. In reality, FINCEN didn’t “designate” North Korea as anything. It’s just echoing the latest iteration of the same call for “countermeasures” against North Korean money laundering that the Financial Action Task Force (FATF) has been issuing since 2011. If you actually read FINCEN’s advisory, there’s a section called “Summary of Changes to this List,” which shows that the advisory language applicable to North Korea didn’t change at all.

Jurisdictions in this section (Iran and DPRK) are subject to the FATF’s call on its members and other countries to apply countermeasures to protect the international financial system from AML/CFT risks.

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Why legal investments in North Korea are a money laundering risk

You’ve often seen me write about the importance of “financial transparency” in transactions with North Korea. For a decade, economic engagement has mostly been done by one of two models: (1) controlled interactions with members of the elite, the actual effects of which are negligible at best; and (2) barbed-wire capitalism, where a few North Korean officials relay orders from foreign managers to hand-picked workers, and where the regime seals the whole enterprise off to prevent it from influencing the local community.

The former are, for the most part, of little financial significance. The latter may represent a significant source of income for illegitimate uses, and may also help the regime hide its flows of dirty money.

It wasn’t supposed to be this way by now. The idea behind economic engagement was to gradually draw North Korea into compliance with the rules that the civilized world lives by. Yet ten years later, the South Korean Unification Ministry can’t tell us how much (if anything) Kaesong’s workers receive after the regime takes its cut from their wages, and the Undersecretary of the Treasury recently expressed his concern about just how North Korea is spending that money.

The U.N. Panel of Experts now expresses a related worry — that North Korea could be using its ostensibly legal businesses to conceal and launder the proceeds of illicit activity:Screen Shot 2015-03-03 at 7.32.53 AMScreen Shot 2015-03-03 at 7.33.11 AMA few days ago, we saw that North Korean diplomats have been smuggling gold to earn hard currency for Pyongyang.

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Yes, North Korea is still using the dollar system to launder its money.

The Financial Action Task Force has re-issued its call for “countermeasures” against the risks of money laundering and terrorist financing emanating from North Korea. The FATF’s call is not significantly different from advisories the FATF has issued since 2011, but it is significant in one way.

More sensible Korea-watchers are accustomed to the pavlovian response of the South Korean press, and of certain American academics, whenever North Korea hints at being willing to talk. We saw this again after Kim Jong Un’s New Year speech, which was (as is traditional) so selectively overanalyzed that Kim Jong Un’s intent could not be identified from dental records. We saw it when the editors of The New York Times seized on a risible North Korean offer and called on President Obama to “test North Korea’s intentions” — it would be equally enlightening to test Dennis Rodman’s urine — as if the last 20 years have tested nothing. By my count, North Korea has conducted three underground tests of its intentions. But I digress.

We saw the same Pavlovian response in some reporters after North Korea agreed to hold talks with the FATF, and after its Central Bank issued a statement committing “to implementing the action plan of ‘international standard’ for anti-money laundering and combating the financing of terrorism.” (As if.) Yonhap even took it seriously when Pyongyang announced that it had established its own anti-money laundering body.

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NHK Documentary: Money & Power in North Korea

I haven’t watched it all — was busy finishing another project — but it looks to be an interesting examination of the subject that interests me most about North Korea: its money. It talks about the regime’s “gift politics,” luxury goods trade, the “royal court economy,” money laundering, and hunger.

Although the documentary itself is new, some of the info seems a bit dated. There were other things I didn’t know. For example, it claims that in Pyongyang, there’s a massive vault filled with yen, dollars, and euros, in cash. It also claims that North Korea continues to operate out of Macau, selling gold (among other things). It also discusses North Korea’s statue-building business in Africa, and its slave-labor exports.

The documentary also claims that Jang Song-Thaek was purged because of a shortage of funding and because his control of wealth was seen as a threat. That makes sense to me, but I would still treat any “insider” accounts with great suspicion.

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Update: OK, I finished watching it. It’s well worth seeing, although based on other information I’ve seen, I don’t agree that Kim Jong Un’s hard currency streams are dwindling. Just look at this chart.

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FATF and FINCEN again call for “countermeasures” against N. Korean money laundering

If you will permit me to extend a metaphor for North Korea’s stature in the world of global finance, Pyongyang may have been invited to one Boy Scout jamboree, but it’s still on the sex offender registry. If anything, it has reached a co-equal status with Iran:

Since June 2014, the DPRK has further engaged directly with the FATF and APG to discuss its AML/CFT deficiencies. The FATF urges the DPRK to continue its cooperation with the FATF and to provide a high-level political commitment to the action plan developed with the FATF.

The FATF remains concerned by the DPRK’s failure to address the significant deficiencies in its anti-money laundering and combating the financing of terrorism (AML/CFT) regime and the serious threat this poses to the integrity of the international financial system. The FATF urges the DPRK to immediately and meaningfully address its AML/CFT deficiencies.

The FATF reaffirms its 25 February 2011 call on its members and urges all jurisdictions to advise their financial institutions to give special attention to business relationships and transactions with the DPRK, including DPRK companies and financial institutions. In addition to enhanced scrutiny, the FATF further calls on its members and urges all jurisdictions to apply effective counter-measures to protect their financial sectors from money laundering and financing of terrorism (ML/FT) risks emanating from the DPRK.

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Another North Korean money man vanishes

The head of a foreign currency-earning enterprise, which is said to be involved in managing Kim Jong Eun’s slush fund, has disappeared, raising questions as to why. The company, which is based in Yangkang Province, operates under the No.121 Department, a bureau that specializes in timber supplies. [Daily NK]

Based on my reading of the reports, it doesn’t sound like the same person as that guy who was reported in August to have defected in Russia, but I’m not 100% certain.

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H.R. 1771: A response to Stephan Haggard

Stephan Haggard has published the second of two comments on H.R. 1771, the North Korea Sanctions Enforcement Act, at KEIA’s blog, following Bruce Klingner’s first post on the subject. Haggard and I have a history of genial disagreement about North Korea policy, but I find much more in this thoughtful and well-considered post to expand on than to argue with. Haggard has obviously read and understood the legislation before opining about it. (Marcus Noland, Haggard’s co-author at Witness to Transformation, has also commented on the legislation, at about 37 minutes into this audio.)

Among our perhaps narrowing differences, Haggard clearly has more reservations than I do about the impact of sanctions on nominally “legitimate” North Korean commerce:

One concern, however, is whether the legislation has intentionally or unintentionally blurred the line between WMD-related and commercial trade. The justification for doing so is arguably legitimate. In such a highly centralized regime, it is difficult if not impossible to draw the line between illicit and commercial activities. Nonetheless, to date the international community has sought to draw such a line, and for several reasons. [KEIA Blog]

What follows will merely expand on what Haggard acknowledges — that Pyongyang itself has blurred that distinction.

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North Korean Gulag survivors call on Switzerland to freeze Kim Jong Un’s slush funds (Alternate title: Cursed are the Cheesemakers).

Switzerland has always been there for North Korea. When North Koreans were starving to death in heaps, Switzerland was there to receive Kim Jong Il’s personal shopper and sell him millions of dollars’ worth of its finest timepieces. When North Korea needed creative new ways to make money — literally! — Switzerland sold it the very same intaglio presses and optically variable ink our Bureau of Engraving and Printing uses to make money. When Kim Jong Un needed a place to spend his formative rumspringa torturing small animals, masturbating to bondage porn, flunking his classes, and developing the personality profile of a school shooter — a school shooter with nuclear weapons — his daddy picked Switzerland. Thanks to Switzerland’s narrow interpretation of U.N. sanctions on “luxury goods,” His Porcine Majesty is now eating himself into a mobility scooter on Emmental cheese.* And when the Treasury Department sanctioned North Korea’s Foreign Trade Bank for its involvement in WMD proliferation, it was the Swiss who yodeled that Uncle Sam was starving North Korean babies.

Above all else, when Kim Jong Il needed a place to stash somewhere between $1 billion and $4 billion in personal slush funds, Switzerland and its bankers received his money launderers with open arms.

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MUST READ: WSJ on Bureau 39 and North Korean money laundering, post-BDA

The Obama Administration has never talked much, or done much, about North Korean money laundering. There is a tendency to assume that a problem that isn’t discussed isn’t a problem at all, but The Wall Street Journal‘s Alastair Gale has just interviewed some senior defectors with inside knowledge of North Korea’s money laundering, and the product of those interviews was some outstanding reporting. Gale’s interviews confirm the continued importance of Bureau 39 to North Korea’s regime, and that it continues to engage in and profit from illicit activity:

High-level defectors, security officials and analysts say the fund still enables current ruler Kim Jong Un to underwrite comfortable lifestyles for the upper tier of North Korean society to ensure their support. His father, who died in December 2011, was known for throwing lavish parties for officials and importing luxury items such as cognac for himself and the elite.

Analysts and security officials say the execution of Kim Jong Un’s uncle, Jang Song Thaek, late last year may have been because Mr. Jang had interrupted the flow of funds to Office 39. [Alastair Gale, Wall Street Journal]

Admittedly, this much won’t be terribly surprising to many readers, but what I’ve long wondered was how North Korea has hardened its finances to avoid a recurrence of the Banco Delta Asia fiasco, in which a single bank became a point of vulnerability that, when closed off, nearly suffocated the regime itself.

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N. Koreans are bootlegging liquor in Muslim countries

Last week, NK News published a detailed report on a black market in alcohol run by North Korean diplomats in Pakistan. Almost simultaneously, The Daily NK also reported that two North Korean “chauffeurs,” dispatched by the regime to Qatar, and nominally working for private companies there, had been arrested for bootlegging.

Two North Korean men are being detained in Qatar under suspicions of the distribution of illegal liquor; Voice of America [VOA] reported on September 4th, citing the Gulf Times, Qatar’s English language newspaper.

The men were alleged to have been selling the liquor to North Korean laborers there, as well as to citizens in surrounding nations, and if found guilty of the crime, will be deported back to North Korea. The Gulf Times was unable to confirm when or where the men were first arrested. [Daily NK]

Selling moonshine to thirsty construction workers is a novel, and typically exploitative, way to supplement those “loyalty” taxes expatriate workers must pay to the regime.

The report also references previous North Korean bootlegging arrests in Qatar, and arrests or investigations in India, Bangladesh, and Kuwait. According to a separate Gulf Times report from July of this year, another North Korean, who was working as an interpreter and has access to a car, was also arrested by Qatari police for selling alcohol and illegal drugs.

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Top N. Korean money man defects to “third country”

A senior North Korean banking official who managed money for leader Kim Jong Un has defected in Russia and was seeking asylum in a third country, a South Korean newspaper reported on Friday, citing an unidentified source.

Yun Tae Hyong, a senior representative of North Korea’s Korea Daesong Bank, disappeared last week in Nakhodka, in the Russian Far East, with $5 million, the JoongAng Ilbo newspaper reported. [Reuters, Ju-Min Park and James Pearson]

Daesong Bank is sanctioned by both the U.S. Treasury Department and the European Union, and is closely linked to the infamous Bureau 39. This guy could know where a lot of bodies are buried, metaphorically speaking. Also, literally.

The Joongang Ilbo, which broke the story, says that Yun “officially worked as president of the bank” and “was in charge of raising and managing slush funds for Kim in Northeast Russia.” Apparently, Yun made a withdrawal of about $5 million from that slush fund before his defection, and North Korea has a substantial penalty for early withdrawal.

North Korea’s activities in the region include its infamous logging camps and the recently-sanctioned, Vladivostok-based Ocean Maritime Management, the agent for the Chong Chong Gangthe Mu Du Dong, and other sanctioned vessels.

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APG needs N. Korea like the Vienna Boys’ Choir needs Jerry Sandusky

The Asia/Pacific Group on Money Laundering describes itself as “an autonomous and collaborative international organisation … consisting of 41 members and a number of international and regional observers [who] are committed to the effective implementation and enforcement of internationally accepted standards against money laundering and the financing of terrorism, in particular the Forty Recommendations of the Financial Action Task Force on Money Laundering (FATF).”

APG has an Associate Membership in FATF, the world’s primary international organization dedicated to fighting money laundering and terrorist financing, and one of the few international organizations in this world that actually works. Although membership in APG does not confer membership in FATF, it does allow the member (or observer) a degree of secondary influence over FATF’s decision-making. And since 2010, FATF has issued statement after statement cautioning banks and finance ministries about North Korea’s “failure to address the significant deficiencies in its anti-money laundering and combating the financing of terrorism (AML/CFT) regime and the serious threat this poses to the integrity of the international financial system.”

No doubt, Kim Jong Un’s financiers in Pyongyang understand the potential consequence of being severed from the global financial system, which is why, since February, Pyongyang has “engaged” with FATF to “discuss” its deficiencies.

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FBME Bank denies money laundering allegations

FBME Bank, whose correspondent accounts were ordered closed by a Treasury Department action under Section 311 of the USA PATRIOT Act last week, has responded to Treasury’s allegations of money laundering:

FBME said it was “shocked” by the content of the US Department of the Treasury notice “that sets out unexplained allegations of weak AML controls,” which, the bank said, it had not been given any opportunity to comment on or refute.

The bank denied the allegations, saying it had commissioned the German division of an international accountancy firm to carry out a detailed assessment into its operations and practices over the past two years.

FBME, it said, was found in compliance with applicable rules on AML regulations of both Cyprus and the European Union.

“FBME Bank welcomes the involvement of its regulator, is cooperating fully with it and reiterates its absolute continued commitment to full compliance with applicable laws and regulations,” the bank said in an announcement posted on its website. [Cyprus Mail]

That welcome may be a bit superfluous, because according to the Cyprus Mail and the Lebanese news site Ya Libnan, the Central Bank of Cyprus has taken over FBME’s operations for “as long as the central bank deems it necessary.” The move is similar to the Macanese government’s takeover of Banco Delta Asia in 2005, after Treasury published a similar set of notices against it for laundering money for North Korea.

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Treasury nukes bank with possible North Korea links (updated)

The Treasury Department has gone full Banco Delta on Cyprus-based, Tanzanian-chartered FBME Bank for money laundering, terrorist financing, and possibly even Syrian WMD proliferation — proliferation that is closely linked to North Korea.

According to Treasury’s press release, FBME promoted itself as a provider of no-questions-asked banking services with loose anti-money laundering controls, although I saw no evidence of this at FBME’s Web site. But according to Treasury’s more detailed Notice of Finding, FBME was laundering money for Hezbollah, illegal online gamblers, phishing hucksters, drug lords, African kleptocrats, and various swindlers who ripped off victims in California, Ohio, and Michigan.

Treasury invoked Section 311 of the USA PATRIOT Act against FBME, applying the dreaded Fifth Special Measure, which closes the target’s correspondent accounts and effectively cuts it off from the global financial system. You can read Treasury’s Notice of Proposed Rule-Making here. Or, for those of you who aren’t banking lawyers, I’ll simplify:

Well, almost. A bank can survive that sort of thing and continue to do business, but only on a small, local scale. Banco Delta Asia itself continues to do business for a local customers in Chinese Yuan and Macanese Petacas. In the case of FBME, however, its business model depends on international transactions.

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The U.N. Panel of Experts is starting to follow Kim Jong Un’s money.

The main headlines that will come of the U.N. Panel of Experts’ new report on the enforcement of North Korea sanctions will mostly cover the Chong Chon Gang incident — the large amount of weapons seized, the brazenness of its deception, and the complexity of its corporate and financial links to entities operating from Russia, Singapore, and China. There has been relatively little attention paid to the newly revealed evidence that North Korea has helped Syria and Iran arm terrorists. In this post, I’ll discuss some other important conclusions we can draw about the enforcement of UNSCR 2094 a year after its adoption.

1. North Korea is still making a lot of money selling weapons.

In case you doubted it, the latest POE report finds that North Korea “remains … actively engaged in trade in arms and related materiel in violation of” U.N. Security Council resolutions, and concludes, “[T]here is no question that it is one of the country’s most profitable revenue sources.” How profitable? The POE doesn’t pretend to know and “doubts that all existing illicit cooperation has been identified,” but something is paying for all that rice and baby formula ski lift equipment. There has been a construction boom in Pyongyang recently, and those who know how Kim Jong Un is paying for it aren’t saying.

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Is the next Banco Delta Asia in Malaysia?

Over the weekend, a lot people were giggling at the decision by Paul Chan, President of HELP University, to award an honorary degree in economics of Kim Jong Un. Foreign Policy’s Isaac Stone Fish, who first revealed the story, obligingly prints Chan’s manifesto, which reads like the work of a true belieber — a man who writes as if he has spent an inordinate amount of time watching High School Musical over and over again. I have fond memories of my friendships with Malaysian students during law school, so it saddens me to say that this can’t be unrelated to the weirdness of Malaysia’s political culture. At the end of the day, however, the main consequence of this will be to make HELP University look ridiculous, and to highlight how little Kim Jong Un really knows about economics.

What concerns me more is how the weirdness of Malaysia’s political culture may play a role in North Korea’s illicit arms deals and the evasion of U.N. Security Council sanctions. The Korea Herald has called Malaysia “a cornerstone for North Korea’s diplomacy in Southeast Asia.” Malaysian banks are suspected of hosting offshore bank accounts for North Korea, and of serving as financial intermediaries for North Korea’s arms deals with Burma, long after those transactions were banned by U.N.

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Review: Treasury’s War, by Juan Zarate

Let me begin with an apology for the lack of posting lately. While tossing a football around with some friends, I took a direct head-on hit to that finger you need for typing words that contain the letters “l” or an “o,” which turn out to be less dispensable than you might think. The time I didn’t spend typing, I spent reading instead:

Treasury's War cover

[clicking the image takes you to Amazon]

If you want to understand why the Banco Delta Asia action worked so well, how financial sanctions bankrupted al Qaeda, and how they’re bankrupting Iran today, you have to read this book. If you’re reading this site, however, the odds are you’re interested in what Zarate has to say in chapters 9 and 10, where he writes about North Korea, Banco Delta Asia, and Chris Hill.

Zarate, who is usually effusive in his praise for the people he worked with in government, clearly has no use for Hill. Hill comes off looking like a boorish, incompetent asshole who, despite repeated explanations of how Section 311 worked, either didn’t grasp the concept or didn’t care. According to Zarate, Hill’s minions reduced Daniel Glaser to tears by bullying him into simply switching off the section 311 action–and its downstream effects–almost instantly, which is a lot like asking Treasury to instantly give North Korea a new reputation for honest financial dealings with a banking “ecosystem” that’s extremely concerned about reputations and access to correspondent accounts in U.S.

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