No Balance, No Net: Anything Could Happen During the Roh-Bush Meeting

If you have any questions about the state of U.S.-South Korean relations today, you need only read this.

Seoul and Washington have decided not to adopt a joint statement or declaration at the Roh-Bush summit.

Contrast that to the scripted appearances and affirmations of unity we saw last time. No longer. This visit was hurriedly scheduled after North Korea’s missile launches, which showed everyone just how little security seven billion dollars could purchase, and after which the United States broke sharply with the South Korean approach to the North. Reports now suggest that an announcement of U.S. sanctions is imminent, following a concerted Treasury Department effort to cut the financial lifelines to North Korea’s regime-sustaining economy. As a result, one of the most-watched meetings will be between Roh and Treasury Secretary Henry Paulson. John Bolton’s surprising victory on U.N. Security Council Resolution 1695 seems set to play a significant role in the U.S. effort.

The other object of speculation: rumors that the American government will rapidly downgrade its military contribution to the protection of a South Korean government that has, in effect, declared itself a neutral power, failed to protect U.S. personnel (including its ambassador) and installations from violent anti-American leftists, made common cause with those extremists’ basest hatreds, publicly insulted the American President and his policies, and consistently frustrated U.S. foreign policy objectives. The Pentagon’s plans have shattered the illusion, once widely held among Koreans, that South Korea was indispensable to U.S. foreign policy in the region.

For members of the twin Korean and American establishments that have grown up around the U.S.-Korean alliance, the absence of public appearances, statements, and news reports must be ominous (one wonders what counsel they offered Roh as he brought us to this point). In ordinary circumstances, especially in the presence of this kind of speculation, such statements would form a reassuring safety net below which relations between the two nations could not fall. Having proven the ineptness of his balancing act, Roh now works without a net.

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Kim Jong Il Unplugged, Part 9

The Treasury Department is not through with Kim Jong Il. Undersecretary Stuart Levey has set his sights on two of North Korea’s last two lifelines, South Korea and now, Russia:

The United States is not yet satisfied with the results of sanctions aimed at changing North Korea despite the impact the sanctions have had, a senior Treasury official said Friday. The U.S. will watch how the situation develops with Russia, which reportedly has become one of the very few havens for North Korea to hide illicit funds, Undersecretary Stuart Levey said.

The U.S. sanctions on Pyongyang have been “more powerful than many thought possible,” he said. “I think our sanctions have had real impact, but the real goal, I think, is to see a real change in North Korea,” he said at the American Enterprise Institute.

Why, what a fascinating — and encouraging — choice of words at that forum.

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The Seven Billion Dollar Man

[Update: The actual figure turns out to be over $7 billion, if you include all aid since 1995 and add in Kim Dae Jung’s $500M bribes. It still excludes money from South Korean corporations, and of course, aid from the U.N. or other countries. South Korea now provides 46% of North Korea’s support. h/t The Nomad.]

Let’s briefly review where we’ve been with North Korea over the last year — missile tests, nuclear scares, crude insults, food aid stolen from hungry people, and the burgeoning flight of refugees. In light of all this, I would really like to hear South Korea’s explanation of just what its $3.13 billion (with a “b”) contribution to Kim Jong Il’s Hennessey fund has bought for the cause of peace. That’s just since 2003, mind you. Unacceptable answers include submarines, artillery, MiG-29’s, and missiles, but we’ll give partial credit for “cirrhosis.”

I presume that figure excludes indirect aid, such as the money-losing Kumgang project that the South Korean government has coerced Hyundai Asan into maintaining. Yes, we know where that money is going, too. Can you see the collision course between that aid and the U.S. Treasury Department? How about now?

U.S. Treasury Secretary Henry Paulson reportedly asked his South Korean counterpart on Thursday to help block illicit financial transactions conducted by North Korea.

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Kim Jong Il Unplugged, Part 8

Nigel Cowie, North Korea’s most “legitimate” banker, is selling out, and this time, that’s not just a moral judgment. Richardson links this piece, written by none other than Bradley K. Martin, indicating that he’s selling his Daedong Credit Bank to the British-based Koryo Group, but will stay on to help manage the bank. As for the issue of Daedong’s much-proclaimed legitimacy, Martin adds what strikes me as a highly salient fact:

The minority owner of Daedong Credit is Korea Daesong Bank, a unit of North Korea’s Daesong Group. A 1995 U.S. government study cited close ties between Daesong and Room 39, an office of the ruling North Korean Workers’ Party said to handle foreign exchange-gathering projects for the country’s leader.

Now, there’s the kind of jaw-dropping understatement you don’t read every day. Bureau 39’s function is “foreign exchange-gathering” in the same sense that Heidi Fleiss was a physical therapist and Gotti’s bag was alternative dispute resolution. That’s a disappointment from Martin, a first-rate journalist who wrote a must-read book, well worth its high price for its defector interviews alone (and mainly for them). By more-or-less universal acclaimation, Bureau 39 is suspected of being North Korea’s primary dealer in counterfeit currency, missiles and WMD components, and dope (more). And what of its “close ties” to Korea Daesong Bank? According to a report from the Far Eastern Economic Review, this close:

Kim Dok Hong, a top North Korean official who fled to South Korea in 1997, says that both banks [wholly-owned KDB subsidiary Golden Star Bank being the other] come under the jurisdiction of Bureau 39.

Another interesting fact reported in this article:

The Congressional Research Service–which provides United States congressmen with background briefings–reported on March 5 last year that “the U.S. military command and the Central Intelligence Agency reportedly believe that North Korea is using for military purposes the large cash payments, over $400 million since 1998, that the Hyundai Corporation has to pay for the right to operate [the] tourist project.”

I did not find the Treasury report referenced in Martin’s article, but I did find a U.S. Embassy document that relays a South Korean government conclusion that Bureau 39 controls Korea Daesong Bank. If those reports are accurate, Mr. Cowie’s bank, Daedong Credit Bank, is a direct business partner of Korea Daesung Bank. This, in turn, arguably makes Mr. Cowie an indirect business partner of the men at Bureau 39 who are printing supernotes and dealing in dope, and of the man in direct control of Bureau 39 — Kim Jong Il himself. That would make this spirited protestation of Daedong Credit Bank’s independence from the regime misleading in the extreme. As for the financial prognosis of that regime, it’s a bleak day when a bitter-end promoter like Cowie decides selling his interest in the bank, especially now. With most of its assets still frozen in Banco Delta Asia and unlikely to be unfrozen soon, you have to believe that he’s getting a less-than-optimal price.

In the end, however, Stuart Levey may just be hastening what what Kim Jong Il has been doing all along — breaking its agreements and scaring away investors.

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Kim Jong Il Unplugged, Part 7 (Updated)

[Update: My closing comment below about an expansion of our goals was an understatement:

The U.S. Treasury Department, in a shift in its policy toward North Korea, has decided to treat all transactions involving the nation as suspect and subject to sanctions while dictator Kim Jong Il develops nuclear weapons.

“Given the regime’s counterfeiting of U.S. currency, narcotics trafficking and use of accounts worldwide to conduct proliferation-related transactions, the line between illicit and licit North Korean money is nearly invisible,” said Stuart Levey, Treasury’s undersecretary for terrorism and financial intelligence.

Levey’s statement to Bloomberg News departs from Treasury’s earlier position that it was targeting only overtly illegal activities by North Korean companies. The policy change, which may impinge on foreign banks, coincides with an effort by President George W. Bush to pressure North Korea to return to talks aimed at scrapping its nuclear-weapon and ballistic- missile programs.

It looks like my calls in this post are holding up pretty well. This is essentially a PATRIOT 311 approach without the formal designation. I can’t say whether it’s the opaque dullness of international finance or the fact that George W. Bush finally has an effective North Korea policy, but almost no one seems to have taken note of the most important U.S. policy initiative toward North Korea in decades. H/t NKZone.]

Now, it’s Russia:

Fresh U.S. and Japanese economic sanctions against North Korea are becoming more likely with signs that the reclusive country may be preparing for a nuclear test. A government official in Seoul said Friday the U.S. regards Pyongyang’s outrage at earlier financial sanctions as feigned, implying that the freezing of the North’s accounts in a Macau-based bank last September may have just been the first step.

Peter Beck, a North Korea expert at the International Crisis Group in Seoul, says the next target of U.S. investigations will be North Korea’s accounts in Russia. He added the Bush administration was very pleased with the results of the investigation in Asia. Beck said the U.S. chased accounts and financial transactions in Asia, then in Europe, and now for the final stage will be moving on to Russia.

After having its accounts in Macau frozen, North Korea attempted to open accounts in Vietnam, Mongolia and Hong Kong but was turned down everywhere. Increasingly desperate, the Stalinist state turned to Luxemburg and Germany but was rebuffed there too. “The U.S. has the ability to put all kinds of pressure on European banks,” a government official here said.

This sort of pressure makes the re-imposition of trade sanctions we lifted in 1999 seem meaningless. What we’re doing now is cutting off everyone’s trade with Kim Jong Il, not just ours. Eventually, this will result in a direct confrontation between the United States and South Korea over trade with the North.

To further show just how dramatically the U.S. has moved toward squeezing the North Korean regime, the State Department’s chief negotiator is getting behind the effort:

The top U.S. point man with North Korea will urge Asian powers to end arms-related trade with Pyongyang as ordered by the U.N. on a tour of the region next week, U.S. officials say.

Assistant Secretary of State Christopher Hill, who departs on Sunday for Japan, China and South Korea, will assure them that despite the U.N. order increasing pressure on the North, the United States still backs six party talks to persuade it to abandon its nuclear activities, one official said.

The United Nations order to choke off weapons-related trade with North Korea passed after Pyongyang launched multiple missile tests on July 5.

The U.N. vote did not signal a new U.S. attitude to the six-party talks. “Our problem is that we don’t have a negotiating partner” in Pyongyang, said the official, who spoke on condition of anonymity because of diplomatic sensitivities.

That sounds about right to me. I also sense an expansion of the goal here, from choking off the missile trade to the arms trade as a whole. I’m certainly not going to criticize that.

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Kim Jong Il Unplugged, Part 6

From the AP:

The financial noose is tightening around North Korea as international banks sever ties with the nation – a move championed by the United States, a top Treasury Department official says.


“There is sort of a voluntary coalition of financial institutions saying that they don’t want to handle this business anymore and that is causing financial isolation for the government of North Korea,” Stuart Levey, the Treasury Department’s undersecretary for terrorism and financial intelligence, said in an interview Monday with The Associated Press.

“They don’t want to be the banker for someone who’s engaged in crime, as the North Korean government is,” he said.

Banks in Singapore, Vietnam, China, Hong Kong and Mongolia are opting not to do business with North Korea, Levey said.

“Is there a complete cutoff, so that they can’t get banking anywhere? No, that’s not the case, but they’re having a very difficult time finding banking services,” he said. “You’re seeing a near complete isolation.”

Remember — the feds brought Al Capone down with a tax evasion charge.

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Witness: Counterfeit Bills Came from N. Korea

If you don’t know the background, start here. One of the Chinese gangsters is apparently cooperating, and went to court yesterday:

A Californian man indicted on charges of smuggling counterfeit dollars into the U.S. testified at his trial that the high-quality counterfeit US$100 bills or “supernotes” were manufactured in North Korea, the National Intelligence Service said Monday. The NIS reported to the National Assembly’s Intelligence Committee that the man admitted conspiracy to smuggle the supernotes and admitted where the phony bills were made.

eh … eh … eh … RICO! Excuse me.

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Kim Jong Il Unplugged, Part 5

Stuart Levey’s visit to Asia last month is paying off. Yet another nation is cutting off Kim Jong Il’s finances.

Vietnamese banks have already closed down North Korean accounts over the past few weeks, most likely forcing Pyongyang to move its money to its last remaining haven, Russia, said Peter Beck, head of the International Crisis Group’s Seoul office, on Tuesday.

Beck said Nigel Cowie, general manager of North Korea’s Daedong Credit Bank in Pyongyang, e-mailed him last week and said Vietnamese banks have shut down Daedong’s and other North Korea-held accounts.


“The only financial window they (North Koreans) have left now is Russia, I am told,” Beck said at a roundtable on North Korea hosted by the Mansfield Foundation.

Somewhere, the world’s smallest violin is playing an adagio for Nigel Cowie, although I still count Switzerland and Luxemburg as two countries that may yet harbor North Korean accounts. I also recommend Andy Jackson’s post here, which discusses North Korea’s most “legitimate” banker. Cowie and his constituency of defenders in the comments probably set a record for most uses of the word “legitimate” per column inch, which I suppose depends on how you define the term. Whether Cowie is laundering money, wittingly or otherwise, is a matter I’ll leave to the Treasury Department, since there’s really little point in speculating in a factual vacuum about an investigation I can only assume to be ongoing, based on the media reports. You may also choose to accept Cowie’s explanation of why his bank’s “legitimate” transactions are conducted with large bundles of cash.

Third, there are good reasons why much of the international trade of the DPRK for these sorts of goods is cash-based. This relates mainly to the fact that the local currency is not convertible (and indeed we do not handle local currency), so imported goods are bought and sold for hard currency. The absence of the normal system of reciprocal correspondent bank accounts that exists in other countries which enables transactions to be settled by electronic book entry; the shortage of liquidity in the local market, which means that people are reluctant to deposit money in banks because they don’t know when they’ll be able to get the money out, so they would rather carry cash – and so on. This is quite a big subject in itself, and I have done a separate paper on this issue, but the bottom line is that people do tend to transact largely in cash, which in itself is not illegal – in this market, it is in fact often the only way.

Most of this could just as well apply to the Taliban in 2000. What all those conditions have in common is that they’re self-inflicted by the North Korean regime itself, out of a combination of economic dysfunction, repressive statism, recalcitrant lawlessness, and no small measure of concealment. But let’s make Nigel Cowie the only man in North Korea entitled to a presumption of innocence and assume that his bank’s transactions are all lawful. He has chosen to set up shop among stacks of dope money, suspicious dual-use imports, and counterfeit Benjamins. Then, Cowie complains when he winds up in Treasury’s impact zone as a result. In a regime as intentionally opaque as North Korea’s, some “collateral damage” to a relative sliver (veneer? perish the very thought!) of “legitimate” activities is inevitable. Things seems particularly murky in the wake of U.N. Security Council Resolution 1695, which demands that North Korea’s financiers exercise “vigilance” in assuring that their funds don’t go to the missile fund.

What we do know about Mr. Cowie’s business is that he aspires to profit by financing this regime, and that he knows damned well how Kim Jong Il will spend those finances. And won’t. If this is legitimate, then the world owes Walther Funk a historical absolution. Or, as Stuart Levey puts it:

“You don’t want to be the one ten years from now who’s got (Korean leader) Kim Jong Il’s money,” Treasury Undersecretary for Terrorism and Financial Intelligence Stuart Levey said in an interview with Reuters.

“(It’s) just like we saw during the (former U.S. President Bill) Clinton administration when they exposed the Nazi banks,” Levey said. Swiss banks were embarrassed in 1997 by revelations that the German government had passed funds through the Swiss National Bank and other Swiss banks during World War II to finance the Nazi war effort.

“You don’t want to be on the wrong side of that. I think banks understand that. I just don’t know whether they are taking all the steps that they can and we would encourage them to do it,” he said.

There’s no laundering the culpability that goes with enabling some things.

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Kim Jong Il Unplugged, Part 4: Smoke ‘em While You’ve Got ‘em.

Several months ago, some misguided BBC staffer asked me to fight above my weight and debate former Ambassador Donald Gregg about the allegation that British American Tobacco was secretly making cigarettes in North Korea. (The debate was for a pilot program and never aired.) At the time, I argued that the decision to grow or import tobacco should also be viewed as a decision not to grow or import food. Amb. Gregg, now president of the Korea Society, is a strong proponent of “engaging” North Korea. His argument was that smoking is bad. I saw that argument as having marginal moral relevance, a dodge of the question of whether this kind of engagement was really good for North Korea or the world. Amb. Gregg also touted his Society’s exchange programs with North Korea. On further investigating their Web site, I learned that the Korea Society’s contribution to North Korea opening itself to legitimate commerce consisted, in part, of teaching the North Koreans digital watermarking (useful for counterfeiting intellectual property) and secure fax technology. I’d love to show you, but that page later disappeared from the Korea Society site.

[Update: Here is a link to the paper, entitled “Bilateral Research Collaboration Between Kim Chaek University of Technology (DPRK) and Syracuse University (US) in the Area of Integrated Information Technology.” Among the signatories on the front cover are “Donald P. Gregg and Frederick F. Carriere, The Korea Society, Han Song Ryol and An Song Nam, Permanent Mission of the Democratic People’s Republic of Korea.” Ah, Han Song Ryol. Remember him? Here is the relevant passage, which appears on Page 3:

At the invitation of KUT, SU sent a delegation to Pyongyang in mid-June 2002. During this time, SU researchers met again with their KUT counterparts and were given tours of research labs and facilities and provided an overview of KUT research priorities in information technology. Areas of particular interest included a secure fax program (this is now being marketed through a Japanese company), machine translation programs, digital copyright and watermarking programs, and graphics communication via personal digital assistants.

I don’t claim to know what technology was actually transferred, nor do I claim to be an expert on digital copyright or watermarking programs, beyond having found that it’s designed to protect intellectual property. If you can fill us all in on the legitimate and other uses of this technology, please drop us a comment. Thanks much to The Oriental Redneck and his wayback machine.]

One of the reasons BAT kept that business relationship secret was the effect it had on one of BAT’s executives, who was running for the leadership of Britain’s Conservative Party. Another was the likely fear of litigation by BAT’s competitors, who might want to know where the North Koreans acquired the specialized knowledge to make so much money by counterfeiting their top-selling brands:

North Korea is believed to earn between US$500 million and $700 million a year by making and selling fake U.S. and Japanese cigarettes, a U.S. radio station reported Wednesday, quoting a former U.S. official.

“Counterfeit tobaccos are one of the largest, probably the largest single source of income for the North Korean regime,” David Asher said in an interview with the Washington-based Radio Free Asia.

Asher, who until July 2005 had served under former Assistant Secretary of State for East Asia and Pacific Affairs James Kelly, said the North’s communist regime operates as many as 10 plants to make fake U.S. and Japanese cigarettes.

Those plants are scattered throughout North Korea, including its capital, Pyongyang, and its eastern industrial zone, Rajin, he said.

The counterfeit cigarettes, Asher said, are usually packed and sent in containers to China and then to other Asian countries for sale.

The largest source of income? Staggering.

It would be interesting to see which tobacco companies would try to sue the North Koreans for counterfeiting their brands. Since the Foreign Sovereign Immunities Act wouldn’t seem to offer much protection for their commercial activities, the next question is whether they’d even make an appearance to contest the suit. My bet is that they wouldn’t, meaning that we’re looking at a potential default judgment and the attachment of their assets, wherever they can be found. This presumes, of course, that the tobacco companies can get the evidence to meet the “preponderance” standard, and that the North Korean pocket is in fact deep enough to justify litigation. The frozen North Korean assets identified by the U.S. Treasury Department should be sufficient to pay the lawyers. And although I’d prefer to see that money go for North Korea’s reconstruction, a new RJR Headquarters is probably still a better use than propagating Kim Jong Il’s racketeering tyranny.

This revelation also fuels my suggestion that we lower the PATRIOT 311 boom on them, in addition to whatever other sanctions Rep. Dana Rohrabacher thinks we’re about to impose.

“We are going to discuss with the regional leaders here and determine what is appropriate (as a sanction) but we’ll make sure that North Korea realizes that if they do launch missiles (again) they will be shot down by the U.S.,” Rep. Dana Rohrabacher told Yonhap News Agency in an interview.

The Republican from California declined to disclose the nature of the new sanctions being considered by the U.S. government but said there will be in addition to financial sanctions clamped down on the communist country last year.

With so much of the wrong kind of attention focused on North Korea’s cigarette counterfeiting, don’t expect it to go on long. After all, the Japanese are reporting that they’ve shut down most of North Korea’s ampetamine racket there.

(Kyodo) _ The amount of illegal amphetamines seized by Japanese police in the first half of this year marked an 85.6-percent year-on-year decrease to a record-low 13.1 kilograms as the police have targeted key trafficking routes from North Korea, the National Police Agency said Thursday.

In particular, a crackdown on sea routes contributed to the decrease, with NPA officials saying the amount of amphetamines seized during the period was the smallest since 1991, when they began keeping half-year tallies.

The police plan to use sting operations to stop drug couriers flying to Japan with amphetamines hidden in their luggage, the officials said.

According to the NPA’s survey, 6,319 people were arrested or sent papers during the period on suspicion of being involved in stimulant drug cases, down 1.6 percent from a year earlier. Of the total, 54 percent, or 3,413, up 3.1 percent, were gangsters or those close to crime syndicates in Japan, it indicated.

The survey also showed fewer people in their 20s or younger were involved in illegal drug cases in the January-June period, but the number involving people of all other ages increased.

Due to the supply shortage, the black-market price of amphetamines has risen to about 60,000-65,000 yen per gram, the officials said.

How serious is the United States about stopping North Korean counterfeiting? This serious:

The White House accused North Korea on Thursday of counterfeiting dollars to support terrorism and said the United States would continue to try to stem such illicit activity as well as Pyongyang’s nuclear ambitions.

Well, it would be nice if Mr. Snow would give us some details of his allegation, and if Reuters would report them. Surely this can’t be it:

“The North Koreans have walked away because they are doing money laundering to finance global terror. We don’t want them to have money to finance global terror, sorry, period,” Snow said.

“We don’t think it’s in our interest to allow them to be selling weapons that could be used to destroy innocent human lives,” he said.

That’s it? Well, I don’t think it’s accurate to say “finance global terror” is the same thing as “support terrorism” without more details that this report doesn’t contain. Conventional weapons like the Taepodong II, after all, can create a state of “global terror,” particularly given who North Korea’s customers are. The North Korean connection to the Hezbollah and the Bekaa Valley goes way, way back, of course. I’d like more details. And of course, Snow was talking about dollars, not Marlboros, but if the issue is what North Korea buys with its ill-gotten gains, it’s really a distinction without a difference.

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Kim Jong Il Unplugged, Part 2

During Treasury Undersecretary Stuart Levy’s recent visit to a series of Asian nations, I wondered just how Treasury’s green eyeshades had landed on a particular series of bank accounts that attracted his attention. Via a U.S. Treasury official who spoke with the Donga Ilbo, we now know that the answer is linked to the first two questions I asked after the mass arrests that came of Operation Smoking Dragon last August:

1. Were any North Korean nationals caught or implicated?
2. Were other branches of the same organization operating in third countries? What countries?

Now we learn:

“It is true that some North Korean were among the arrested 87. However, they will not be punished because they cooperated with the investigation.

That’s fairly earth-shaking, and it would suggest that the North Koreans are under the protection of the U.S. government, since they must have known when they talked that they wouldn’t have much of a chance back in North Korea.

One of the stops on Undersecretary Levy’s itinerary was Singapore, where government officials then held some curious meetings with North Korean Foreign Minister Baek Nam Soon:

At the time, the South Korean government explained, “Minister Baek stopped by Singapore for kidney dialysis. It wasn’t for any particular reason. Nevertheless, on his journey back home, Minister Back spent three days, from August 1 to 3, in Singapore, meeting with Singapore government officials.

When asked by Dong-A Ilbo if Minister Baek’s stay in Singapore was related to O Bank, the U.S. government official answered, “Don’t you think that it would be logical to think so?”

From this, I infer that while in Singapore, Levy fired a shot over the bow of one bank that appears not to have responded constructively to polite requests:

Recently, a source in Washington D.C. said, “With the American administration raising its pressure on North Korea’s funds in Macao, North Korea attempted to change its bank to Singapore, and the new haven is known as a small bank referred to as O Bank.

On August 3, a U.S. government official also said in an interview with Dong-A Ilbo, “O Bank is a problem bank. This bank is on the list of banks related to North Korea, which the U.S. government keeps a close eye on. With the U.S. tracing its funds, North Korea tried to disperse them, and by the official’s statement it was officially confirmed that Singapore, an international finance city, has become one of the safe havens.

Given the effect that this kind of attention had on Banco Delta Asia last year, I would expect that O Bank would rapidly issue a denial, along with promises of cooperation. I’d also expect it to show up in Singaporean newspapers for having attracted the wrong kind of attention from its depositors. Neither event has occurred so far, and it’s interesting that O Bank doesn’t even have a Web site. Stay tuned.

Postscript: Even in South Korea, home of Kim Jong Il’s last unrepentant financial backers, the mood is souring. The number of South Korean tourists who visited the Kumgang Resort in North Korea last month fell by 43%. That can’t be helpful to a project that’s consistently struggled to show a profit.

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Kim Jong Il, Unplugged

“You can get a lot farther with a kind word and a gun than a kind word alone.”
Al Capone

Raphael Perl of the Congressional Research ServiceIn an interview with Radio Free Asia (Korean only), Raphael Perl of the Congressional Research Service suggests exactly what I suspected about polite requests from U.S. Treasury Undersecretary Stuart Levey to crack down on North Korean money laundering — the polite requests are backed by some powerful veiled threats:

One option available to the US government, although this is quite an extreme option, would be in effect to kick banks that facilitate N. Korean criminal activity out of the international banking system.

That sounds a lot like other things Perl, an expert on North Korea’s illegal revenue, has said before, and suggests that the U.S. might use PATRIOT 311 against other banks, as it did with Banco Delta Asia, and with devastating effect on both BDA, Kim Jong Il, and his business associates. In fact, you have to suspect that those comments were aimed at someone whose cooperation the U.S. government isn’t getting, and leave it up to you to guess who.

North Korea is pretending not to care:

Stuart Levey

Earlier Friday, North Korea said it does not care about the United States’ move to impose additional sanctions against Pyongyang.

Undersecretary of the Treasury Stuart Levey said in a telephone interview with Yonhap News Agency on Thursday that the U.N. member states should freeze the assets of 11 North Korean entities that Washington designated last year as proliferators of missiles and weapons of mass destruction, as the first step in implementing the recent U.N. resolution against Pyongyang for its missile tests.

“It shows Washington’s intention of putting more pressure on us. We do not care about it,” Jung Sung-il, spokesman of the North Korean delegation, said.

That statement came in the context of six five ten-party talks in Malaysia, now comprising just about every nation in Taepodong range.

After Sergeant Kim's check bounced, the gun store demanded that he henceforth pay cash for his ammo.After years of preparing its people to fight uniformed Yankee hordes, the regime’s undoing could be a few unassuming men in pinstripes. One can hope that North Korea’s privileged classes would not be willing to share the misery and deprivation that those in the countryside and decayed industrial towns have felt for decades.

Follow the money.

Postscript: Is this, or is this not, the coolest news grapic ever?

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Let Them Make Won!

Update: Gee, how curious.

Police recovered a briefcase containing a hoard of probably forged United States Treasury bonds worth $500 million during the investigation of a local theft, Seoul’s Gwanak Police Station announced. Police said they are looking into the possible involvement of international crime networks.

With Seoul questioning why the United States is making such a big deal out of North Korea’s counterfeiting of its currency and saying it “will take no further steps” against it, the Chosun Ilbo asks the right question:

But what if the shoe was on the other foot? If a country hostile to South Korea forged a huge number of our banknotes and circulated them around the world, what should our government do? And if an ostensible ally of ours defended that counterfeiting country, what would we think of that ally?

As if on cue…

The Bank of Korea said yesterday the number of counterfeit bills is rising at an explosive pace, especially around the backstreet gambling districts.

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Now What? Part 3: Dave, What Are You Doing?

Update: The BOC account played a role in the 2000 summit scandal, according to the Chosun Ilbo.

What skill it must take to step in it this hard:

SEOUL, July 24 (Yonhap) — North Korea is suspected of having printed fake Chinese currency, which prompted the Bank of China (BOC) to freeze all of its North Korean accounts in an apparent retaliation, a South Korean legislator asserted on Monday.

Quoting a number of unidentified U.S. officials, Rep. Park Jin of the main opposition Grand National Party (GNP) said the freezing of North Korean accounts at the BOC is tantamount to virtual imposition of sanctions by Beijing on the North.

“I understand the North is even more frustrated because this means China is in fact imposing sanctions on North Korea,” the opposition lawmaker told Yonhap News Agency in a telephone interview.

No wonder Kim Jong Il wants to talk. Incidentally, I don’t believe Kim Jong Il really did this. Not even he is that brazen, nor is the yuan worth counterfeiting. I suspect this is China’s way of saving face after some pointed threats from the U.S. Treasury Department. Just my own theory, unsupported by any hard facts, but read this before you dismiss it.

Next, watch for more news on the Austrian and Swiss accounts. I’m reminded of the scene in “2001: A Space Odyssey,” where “Dave” disconnects Hal’s circuits, one at a time. My guess is that the North Koreans are coming back to the talks to ask, “Dave, what are you doing?”

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MUST READ: NYT on NK Counterfeiting

The New York Times has a very extensive article on North Korea’s counterfeiting operations:

By 1984, as North Korea’s planned economy began to fall apart, Kim Jong Il, who by that time was effectively running much of the government, issued another directive, according to the North Korean specialist, who told me he has obtained a copy of the document. It explained that “producing and using counterfeit U.S. dollars” was a means, in part, for “overcoming economic crisis. The economic crisis was twofold: not only the worsening conditions among the general population but also a growing financial discontent among the regime’s elite, who had come to expect certain perquisites of power. Counterfeiting offered the promise of raising hard currency to buy the elite the luxury items that they had come to expect: foreign-made cars, trips for their children, fine wine and cognac.

Yet Kim Jong Il, defying all expectations, managed to cling to power.

“How this was happening was perplexing, given the huge trade gap, even with adjustments for aid flowing into the country,” [David] Asher [former head of the North Korea Advisory Group] recalled. “Something just didn’t add up. It didn’t account for why Kim was driving around in brand new Mercedes-Benzes or handing out Rolexes at parties and purchasing truly large quantities of cognac.

That’s what I’m talking about — attacking the “palace economy” so that the elite suddenly finds that its basic needs are going unmet. My hope is that a sudden shock would force the regime to triage large enough numbers of people out of the circle of privilege that they’d rebel and destabilize the regime. If in fact we’ve already cut off 40% of the regime’s foreign exchange, it would seem we have reasonable prospects for success (on top of everything else, we’re about to change the printing plates again).

We also seem to know a lot about how the notes are printed:

Today, on Changgwang Street in Pyongyang, the capital of North Korea, there is a barricaded compound of government buildings. Judging from satellite photos, these are unremarkable, rectangular structures that suggest no special purpose. Yet according to a North Korean specialist based in Seoul whom I spoke with recently, and who has interviewed many high-ranking North Korean defectors, including Hwang Jang Yop and Kim Duk Hong, these buildings are the home of Office 39, a government bureau devoted to raising hard currency for Kim Jong Il. (The specialist was granted anonymity because of the sensitivity of relations between North and South Korea.)

[T]he regime obtained Swiss-made intaglio printing presses and installed them in a building called Printing House 62, part of the national-mint complex in Pyongsong, a city outside Pyongyang, where a separate team of workers manufactures the supernotes.

We have indicted — even jailed — the leaders of other nations for racketeering before. We’ve also indicted other people for counterfeiting and conspiracy for dealing in North Korean supernotes. Foreign sovereign immunity doesn’t look especially good as a defense for a few reasons: first, the exception for states listed as sponsors of terrorism; second, the holding that such acts as drug trafficking are not immunized “official acts;” and third, the fact that Kim Jong Il, like Noriega before him, is the commander of the armed forces, but not officially the leader of his country (his dad’s corpse is). Nor is Kim Jong Il recognized as North Korea’s leader by the United States, which is a discretionary act on our part.

Hey, I’m just saying….

ht to the Nomad.

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Now What? Part 2

Right after North Korea launched its round of missiles, I outlined a series of options, mostly financial, that the U.S. and other countries could take in response. Two weeks later, several aspects of that forecast are holding up well. What looked at first like another U.N. farce, then a modestly successful sanctions effort (by U.N. standards, anyway), now looks to be an important and hard-won component of a coordinated effort to tighten the squeeze on the regime-sustaining half of North Korea’s dual economy. No wonder the early signs are looking so good for a John Bolton confirmation.

Snipping the Lifelines

The most interesting story of the week attracted little media coverage — Treasury official Stuart Levy’s visit to a series of nations with which the North Korean regime has financial dealings. In each location, he has the rapt attention of senior officials keen to avoid the fate suffered by Banco Delta Asia. One expert believes that the Banco Delta crackdown has cost North Korea a devastating 40% of its foreign exchange.

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At the U.N., Life Imitates ‘Team America’

Kim Jong Il Team America

Kim Jong Il: Hans Brix? Oh no! Oh, herro. Great to see you again, Hans!

Hans Blix: Mr. Il, I was supposed to be allowed to inspect your palace today, but your guards won’t let me enter certain areas.

Kim Jong Il: Hans, Hans, Hans! We’ve been frew this a dozen times. I don’t have any weapons of mass destwuction, OK Hans?

Hans Blix: Then let me look around, so I can ease the UN’s collective mind. I’m sorry, but the UN must be firm with you. Let me in, or else.

Kim Jong Il: Or else what?

Hans Blix: Or else we will be very angry with you”¦ and we will write you a letter, telling you how angry we are.

Hans BrixOn balance, reality may be more farcical than parody. The real Kim Jong Il doesn’t deny having WMD’s. He demonstrates them (if ineptly). But his mockery of the U.N. lacks no trappings of contempt but a trap door … over a shark tank. The following quote is not from “Team America:”

“Our military will continue with missile launch drills in the future as part of efforts to strengthen self-defense deterrent,” said the statement, carried in state-run media.

“If anyone intends to dispute or add pressure about this, we will have to take stronger physical actions in other forms.”

Ready for the firm and unified response of which we were assured? Well, it depends on who you believe. John Bolton claims that Japan’s proposed resolution, which would deny North Korea the materials and funds to make more missiles, has “broad and deep support.” Yet that seems less than clear:

Russia’s deputy U.N. ambassador told The Associated Press that Moscow would not back sanctions, as the resolution calls for. Instead, Russia wants the council to pass a nonbinding presidential statement with the goal of getting North Korea back into six-party talks on its nuclear program.

“No, we don’t think that sanctions is the instrument, the leverage which is to be employed right now and right here,” Konstantin Dolgov told the AP.

A non-freaking-binding presidential statement? Has this guy acquired a crack habit? This may be the Abyssinia moment when sober historians will eventually agree that the United Nations became, irredeemably, what the League of Nations became before it: a kabuki theatre for tyrants to play out their cynical and pecuniary machinations. We may as well recognize the institution’s name for the oxymoron it has become. The nations are not united. We have national interests. And for all our imperfections and disagreements, we still share a consistent set of values with many other individual democracies. We must protect those interests, multilaterally or otherwise.

Russia wouldn’t be saying that if China weren’t taking a similar position, which, as James pointed out already, it is. China actually has the cojones to say it’s not their problem that their client threatens our national security. I read that as license to pursue our interests without regard to the amount of Chinese assets we collaterally freeze, or whether it ultimately brings down the Bank of China. While that’s not the best outcome for anyone, it’s probably cheaper than replacing a city, and it certainly doesn’t rule out more incremental pressure on China’s exports or currency.

I’ve already pointed out that we have a wide range of realistic ways to put a firm grip between Kim Jong Il’s collarbone and his chins, up to and including robust enforcement of the Proliferation Security Initiative that would constitute a de facto blockade.

Or, we could simply extend this Great American puss-out until North Korea has the quantities, warheads, and silos to pose a genuine and fully transferrable threat. There is an even greater danger in this, however: North Korea will have demonstrated that no one will stand in its way, no matter how flagrant its behavior. That vastly increases the danger of some horrible malice or miscalculation becoming a causus belli.

Just to help me underscore the point, the North Koreans show every sign of preparing more tests, possibly to include another Taepodong II. It would be a lovely “coincidence” if this one also fails during its first stage. That seems more likely than effective action by the United Nations.

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Now What?

North Korea’s missile test opens up new options for the United States. Here is a list of them.

[Scroll down for updates.] It too easy to say, as many will in the coming days, that there is little that the United States and other nations can do to North Korea diplomatically or economically now that it has done the unthinkably stupid and launched its (taepo)dong and (count ’em!) five smaller missiles [Update: make that six]. Let me express my respectful disagreement with some of the analysts cited by my colleague Richardson below, and let me follow that with a list of specifics.

True, the United States doesn’t have ambassadors in Pyongyang to recall, and there are no direct flights to suspend. Not that either measure is more than cosmetic in any event. There is much, much more that the United States and other nations could do in response to North Korea’s missile test, both unilaterally and multilaterally. That may explain what Stephen Hadley is up to:

The administration quickly launched a diplomatic counter offensive to the missile shots — including one missile capable of reaching the Unites States, but made clear the response will be diplomatic and not military.

“You are going to see a lot of diplomatic activity here in the next 24-48 hours,” said … Hadley.

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The End of the Rainbow

Really, this piece by Michael O’Hanlon and Mike Mochizuki is well reasoned and said. Even if I disagree with much of it, I think they have a good grasp of which threats we ought to be worrying about. The debate about whether regime change would work is competely speculative until we actually try it in earnest, of course. At this point, they had me:

[T]he administration should build its North Korea policy around the notion that we need to present Pyongyang with a choice — improve its behavior, reform its country, and engage with the world, or retreat further into isolation and lose many of the benefits it enjoys now (especially from South Korea and China, to the tune of more than $2 billion a year in aid and trade). We should focus on substance, not process; on core values, not tactical judgments.

But then, we have this:

To make this policy workable, we need to make it appealing in Beijing and Seoul. That means offering enough positive inducements, should North Korea be willing to try the path of reform that Vietnam and China itself have taken in the last 30 years, to show that we are willing to work with the regime under the right circumstances. Only if a sincere effort at engagement fails will China and South Korea consider the sorts of economic coercion needed to make Kim Jong Il and his cronies in Pyongyang feel real pain from their actions.

(emphasis mine)

“A sincere effort at engagement?” If all of the things we have done or offered to do over the last decade-plus still don’t amount to a sufficiently “sincere effort at engagement” for Chinese and South Korean sensibilities, then this is an eternally vanishing goal. After all of South Korea’s “sincere efforts at engagement,” it still can’t reunite one of its kidnapped citizens with his octagenarian mother for more than a few hours of being watched like the Unabomber’s mom on her annual visit to Supermax. Here, if I’ve ever seen one, is a prerequisite that swallows what seems, at first, to be a very sensible policy.

At least my kids will have something to blog about.

No question, putting severe pressure on North Korea would be much easier with the help of Seoul and Beijing, but you have to play the cards you’re dealt, and in China’s case, there’s really only so much we can expect. We can hope that Seoul will move closer to the U.S. position after its general elections in 2007, and we still have plenty of influence in South Korea if we’re willing to use it. Beijing will continue to make as much mischief as its interests allow, but there are ways to raise the strategic and financial costs of supporting North Korea for China, too.

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