North Korea: The World's Only Mafia Crime State
How North Korea Funds their Army, Nuclear Weapons Programme. and Small Group of Elite Cadre in Control
(Excerpts from an unpublished study of the criminal syndicates run by Kim Jong Il as central State policy)
(Copyright Nate Thayer (No republication in full or in part without express written permission of the author)
By Nate Thayer
North Korea is the only nation where it is central government policy to operate as a systematic criminal syndicate through a myriad of state controlled illicit activities. According to evidence compiled over a recent six month investigation, the North Korean government has, since at least 1974, run a worldwide network of diplomats, intelligence operatives, military, and other government officials, as well as state controlled front companies that use the rights and powers of a sovereign state to manage illegal operations worldwide.
North Korean government operatives have intentionally violated laws in at least 106 countries in over 500 incidents as it has repeatedly evaded and ignored a series of multi lateral agreements and increasingly stricter sanctions imposed by the United Nations, as well as the laws of sovereign nations around the world.
Together these criminal activities, strictly controlled and coordinated by the ruling Korean Workers Party of the Democratic Peoples Republic of Korea (DPRK), have used thousands of North Koreans from school children to some of an estimated 200,000 political prisoners as forced labor in the opium poppy fields, to workers in the manufacturing plants processing heroin, methamphetamine, fake pharmaceuticals, counterfeit US currency, counterfeit foreign cigarettes, as well as a sophisticated secret weapons systems and nuclear weapons development program. To oversee the production, manufacture, transport, and export of these products, they have employed the full apparatus of state institutions. These have included the use of military vessels, intelligence officials, diplomats, their foreign embassies, and a complex web of more than a hundred state controlled front companies with networks around the world,
Increasingly, after years of international scrutiny of North Korean officials abroad and hundreds of seizures in dozens of countries, they are partnering with established international criminal syndicates in China, other Asian countries, Russia, the Middle East, Europe, and the United States to distribute these illicit commodities around the globe. Since at least 1976, dozens of government operatives on official missions out of North Korea, many travelling on formal diplomatic status, have been apprehended for possession and smuggling of counterfeit cigarettes, counterfeit pharmaceuticals, counterfeit U.S. dollars, narcotics including heroin, hashish, opium, methamphetamine, and cocaine, and large quantities of controlled pharmaceuticals. In addition North Korean diplomats have been arrested, detained, or expelled from numerous countries for other lucrative crimes such as smuggling of endangered species parts, African ivory, counterfeit CD’s, and large amounts of untaxed alcohol and cigarettes hidden in diplomatic pouches, among other illicit goods. The products and their proceeds from these global operations have often moved around the world using officials travelling with diplomatic passports, who, under the Geneva accords of 1961, enjoy immunity from search, arrest, or prosecution.
As well, North Korean officials, and government controlled front corporations who operate internationally, and international crime syndicates working with the DPRK government, have been implicated in many countries as they distribute the goods and try to launder the proceeds from their illicit syndicates through international banking systems. Dozens of diplomats have been detained and expelled, some quietly, from countries in Africa, Asia, Russia, China, Europe, and South America. The activities of these state sponsored criminal enterprises have been identified in at least 106 countries on all continents except Antarctica, from 1976 through 2011, according to data compiled.
Revenue from this network in turn funds the elite of the Korean Workers Party, a repressive regime at home that defies U.S. and UN sanctions as it pursues a hostile foreign policy producing and exporting nuclear and sophisticated military technology that destabilizes countries and regions worldwide.
North Korea has been formally rebuked repeatedly by unanimous votes of the United Nations Security Council, the United States, and other affected countries for covertly evading a number of international prohibitions imposed on the isolated and secretive nation for developing and exporting sophisticated ballistic missile systems and nuclear technology. Some of the recipient nations, which are also banned from receiving such military technology, include Burma, Libya, Iran, and Syria. As well, North Korea has been exposed for violating repeated U.N sanctions prohibiting them from importing products for use in their programs of developing long range ballistic missiles, and weapons of mass destruction including the purchase of components for building chemical, biological and nuclear weapons systems.
It is believed that a substantial amount of the proceeds from their state sponsored criminal syndicates, which are under the direct control of the ruling Korean Workers Party and do not get distributed through the formal government budget, are used to covertly fund their nuclear and military programs . Since the late 1980's, they denied pursueing or possessing such technology, but more recently flaunt these capabilities, threatening to use them against declared enemies such as South Korea and the United States.
The proceeds from these illicit activities are estimated to equal 35-40% of the total revenue earned by the DPRK. Some estimate the illicit revenue to exceed 1 billion dollars a year. A significant portion of the revenue is suspected to fund the regimes banned nuclear weapons production and a sophisticated ballistic weapons systems. It is suspected that the proceeds, which by now may exceed $5 billion in reserves, have been variously shifted between banks in China, Singapore, Macau, Switzerland, Luxembourg, and Austria, among other international accounts.
The criminal enterprises and the North Korean government agencies and officials who carry them out are coordinated by a highly secret unit, Bureau 39, (sometimes translated as ‘Office’ or ‘Room’ 39) under the authority of the ruling Korean Workers Party that reports directly to Kim Jung Il. The Bureau was created in 1974 specifically to raise hard currency to fund covert activities and as a source to reward elite party loyalists for continuing allegiance. It has offices throughout North Korea and more than 120 international front companies. It has 17 offices outside the DPRK, including China, Moscow, Macau, and Hong Kong. It’s primary purpose is to coordinate production and distribution of a worldwide network of illegal products and collect the revenue for Kim Jung Il.
In recent years international organizations and sovereign states, particularly the United Nations and the U.S., have passed resolutions, laws, and executive orders to try to undermine the ability of North Korea to operate its global criminal enterprise, but to little avail.
It has been argued that aggressively confronting North Korea for it’s criminal conduct as a mafia-like state, while trying to balance the pursuit of the higher international priorities of eliminating their capabilities to become a nuclear weapons power and supplier of nuclear technology, as well as exporter of sophisticated long range missile systems to dubious regimes around the globe, has created a conundrum for international negotiators, who fear that focusing on North Korean criminal enterprises will undermine the greater priority of securing military stability in one of the worlds most volatile and certainly most isolated and impenetrable nations.
For nearly two decades a series of established negotiating bodies served as a diplomatic forum engaging North Korea with other affected and concerned nations to provide a diplomatic solution to the threat of nuclear and sophisticated weapons development and proliferation. Although they were repeatedly met with broken promises and slow progress over a myriad of contentious issues, they maintained a dialogue and resulted in channels of verification that many analysts saw as essential in thwarting North Korea’s desires for a nuclear weaponized military capability.
Those diplomatic efforts came to an abrupt halt in 2001, as the Bush adminstration chose a new course in confronting and pressuring the North Korean government.
In April 2005, North Korean Vice Minister Kim Kye-gwan warned, “[The United States] should consider the danger that we could transfer nuclear weapons to terrorists, that we have the ability to do so.” Formal diplomatic talks deteriorated since 2001, coming to a complete halt in 2009. Diplomatic negotiations have been dormant since, the parties engaged in increasingly hostile and aggressive actions towards each other.
By 2011, international law enforcement in scores of nations, key affected countries such as the United States, Japan and South Korea, and International bodies such as the United Nations have repeatedly imposed sanctions, held diplomatic negotiations, and passed laws and mandated resolutions attempting to halt North Korea’s role as a destabilizing force in the region and the world. The DPRK reaction has been to continue its illicit covert schemes and ratchet up an aggressive military posture. But the threat of a rogue state, now possessing nuclear weapons capability as well as an aggressive manufacturer and exporter of sophisticated ballistic missile technology, funded by a vast network of covert production and export of illegal goods, has only expanded.
Overview of Illegal Activities
Among the oldest, key criminal activities controlled by Bureau 39 is the production distribution and laundering of the world’s highest quality counterfeit United States currency. In addition the bureau has managed the production and distribution of opium, heroin, and methamphetamine, billions of counterfeit brand name cigarettes, counterfeit pharmaceuticals, long range ballistic missiles, and the transfer of nuclear technology and expertise to other regimes, and building a nuclear weapons arsenal. Other illicit activities include state sponsored insurance fraud, money laundering, gold smuggling, taxable items smuggled through diplomatic officials, and the trade in protected species such as elephant ivory and Rhinoceros tusks.
On more than 100 occasions, all of these materials have been seized in the possession of North Korean diplomats or shown to have occurred. They are facilitated by government officials, government controlled ships, planes, and international trading companies that are front organizations controlled by North Korean government clandestine offices. They have resulted in the seizure, detention, expulsion, or arrest of North Korean government officials, or their associates, often using diplomatic passports, or these activities have been verified as occurring in at least 106 countries from 1976 through 2011.
Revenues from illicit state sponsored organized crime are, by their very nature, speculative at best. Annual revenues from counterfeit US currency are estimated at between 15 and 100 million US dollars, illegal drug manufacture and sale of heroin, opium, and methamphetamine have carried estimates as high as between 100 million to one billion dollars, counterfeit cigarette manufacture and sale at between 560 and 720 million dollars, and weapons, military components, nuclear technology, and missile sales at as much as 560 million dollars.
In 1976, two years after the creation of Bureau 39, North Korean officials began being apprehended around the world for engaging in criminal activity. Sweden, Norway, and Denmark expelled 17 North Korean diplomats, including the entire Norwegian diplomatic staff and two ambassadors, for the sale of drugs, untaxed alcohol and cigarettes.
In North Korea, where virtually all economic activity is controlled by the state, Bureau 39 handles all hard currency transactions, including some legal projects such as export of mushrooms, ginseng and proceeds from the handful of hotels where foreign visitors must stay in Pyongyang.
Travelling mainly under diplomatic passports, their illicit cargo has been seized in dozens of countries at an escalating rate that peaked in the late 1990’s. Scores of North Korean government officials have been arrested, detained and expelled, illicit goods seized
in hundreds of incidents, occurring on every continent except Antartica for the last 35 years. Such criminal activity directly linked to the North Korean government has been documented in at least 57 countries since 1976.
Reports from numerous cases of North Korean state sponsored involvement in production, manufacture and distribution of illicit products began in the mid 1970’s and gained momentum into an overwhelming pattern of a DPRK controlled government criminal conspiracy by the late 1990’s. Arguably the most isolated, secretive, and impenetrable nation in the world, firm evidence has proven difficult to gather and more difficult to prove.
Operating outside the formal government structure, Bureau 39 is an office technically under the structure of the ruling Korean Workers Party Secretariat, which reports to the Central Committee of the Party. Its establishment to operate illicit activities included the purpose of funding the cash starved nation’s military and nuclear development programs.
“ North Korea’s Central Committee Bureau 39 is an active participant in the criminal economy of the region with tentacles extending well beyond Asia,” according to a study published in March 2010 by the Strategic Studies Institute of the U.S. Army War College. The PDRK operates what “is essentially criminal sovereignty whereby it organizes its illegitimate activities behind the shield of non-intervention while using the tools of the state to perpetrate these schemes abroad."
While outside the government structure Bureau 39 fully uses the state apparatus including the diplomatic services, intelligence agencies, military, shipping vessels and aircraft, and an estimated 120 foreign front companies, which themselves are constantly renamed or dissolved and their function replaced by another shell company. These companies are used to covertly launder the proceeds from illicit transactions through foreign bank accounts variously reported to be located in China, Macau, Switzerland, Austria, Luxembourg, and Singapore, according to several studies, including Congressional testimony in March 2011.
Its most powerful entity is the Deasung General Bureau, which controls scores of foreign trading front companies and banks, and reports to the ruling KWP Organization and Guidance Department. They, in turn, report to Bureau 39.
In November 2010 the US Treasury Department imposed sanctions on Deasung General Bureau stating it “was owned or controlled by Office 39 of the Korean Workers Party. Office 39 is a secretive Branch of the government of the Democratic People’s Republic of Korea that provides critical support to North Korean leadership through engaging in illicit economic activities and managing slush funds and generating revenue for the leadership.”
The U.S. Department of Treasury Department determined that the Korean Daesong General Trading Corporation was “ facilitating North Korean trafficking in arms and related materiel; procurement of luxury goods; and engagement in certain illicit economic activities, such as money laundering, the counterfeiting of goods and currency, bulk cash smuggling and narcotics trafficking."
A confidential November 2010 UN Security Council Panel of Experts report, ordered to study North Korean compliance with UN Security Council resolutions responding to North Korean long range ballistic missile and nuclear bomb testing, had banned, among other things, North Korea from the export or import of nuclear technology and any weapons systems. The secret report was leaked in December 2010.
The 47 page document said “The Democratic People’s Republic of Korea maintains a wide network of trade offices that work in close conjunction with its diplomatic missions overseas. These offices are charged with both procurement and developing select trade opportunities of interest to the Democratic People’s Republic of Korea’s leadership, including arranging and handling its illicit trade and covert acquisitions,” said the UN confidential report dated 10 November 2010. It continued: “While much of the country’s illicit or covert acquisition activities are handled by these offices, the Democratic People’s Republic of Korea has also established links with overseas criminal networks to carry out these activities, including the transportation and distribution of illicit and smuggled cargoes. This may also include weapons of mass destruction, sensitive goods and arms and related materiel smuggling.”
All figures and statistics on the DPRK are highly speculative and are often derived from teams of international and US law enforcement and intelligence analysts and technology. Some information comes from North Korean defectors. Other data has been compiled through the seizure of illicit goods in dozens of countries around the world. And still more evidence is provided by anecdotal press reports from various incidents involving law enforcement in nations spanning the globe. The United States and South Korea have taken the most active role in deciphering what transpires in what is arguably the most isolated, secretive, and impenetrable nation in the world. It is reported to use proceeds of the state sponsored criminal syndicate in its nuclear development program.
The North Korean government, through Bureau 39, are increasingly assisted and coordinate with established organized crime syndicates from China, Japan, and Russia, elsewhere in Asia, the United States, and Europe. They have cooperated with non-state terrorist organizations including the IRA, Hezbollah, and insurgencies in Sri Lanka and Nepal. And they have laundered proceeds from illicit activities through banking systems worldwide, including Macau, China, Switzerland, Austria, Hong Kong, Luxembourg and Singapore, according to US government, United Nations, other governments, and press reports.
In 2011, North Korea again faces severe food shortages. An estimated more than one million people died from famine in the 1990’s. United Nations humanitarian agencies report that millions are suffering from malnutrition in 2011. The government provides minimal services to the population, controls all sectors of the economy and is ranked 179th in the world—dead last—in the Index of Economic Freedom, and regularly ranked as having one of the world’s most egregious human rights records. It has refused to meet long standing international debt obligations, and together with sanctions imposed by the United Nations, finds it difficult to meet minimal standards to trade through normal international financial structures. While publicly appealing for international funds to stem another famine, with a population of only 23.9 million people, North Korea finances and maintains the 4th largest standing army in the world, with more than one million active duty soldiers and 4.6 million in reserve.
Throughout the 1990’s until the US began imposing increasingly harsh sanctions in 2005, Macau served as a hub of laundering criminal proceeds through a series of North Korean front companies and cooperative banks and lax financial security in the gambling Mecca.
Counterfeit U.S. Money
In 1994, officials from a North Korean front company, Zokwang trading company, a direct subsidiary of Bureau 39, travelling on diplomatic passports, attempted to deposit 250,000 dollars in fake US dollars in a Macau bank and were arrested and expelled. It was one of many incidents that led to a September 2005 US Treasury Department action naming and freezing the assets of North Korean front companies, Macau banks, and North Korean officials.
Kim Jung Il, in his capacity as head of Bureau 39, first ordered counterfeit 100 dollar bills be produced in the 1970’s through bleaching U.S. one dollar bills. The first counterfeit notes paid for covert terror campaigns against South Korea, such as the bomb explosion on a South Korean commercial plane killing all 155 civilian passengers in 1987 and the bombing of senior officials of South Korea, including President Chun Doo-Hwan in Burma in 1983 that killed four cabinet members and 13 other South Koreans .
The first detection of the North Korean “super note” was by a suspicious bank teller in the Philippines in 1989.
Since then hundreds of millions of dollars of the bills have appeared in dozens of countries around the world. Many North Korean officials have been seized in possession of the bills.
In South Korea counterfeit bills have increased there since North Korean fake U.S. dollars appeared in Hong Kong in early 2006. Days later China ordered banks to “increase vigilance” for fake U.S. bills.
By the late 1980’s, as the economic crisis in the communist states imploded with the collapse of the Soviet Union, North Korea increased the production and sophistication of its counterfeit dollars.
Since the first counterfeit bills were manufactured, US government officials have documented 19 versions of the “super note”, all they allege are improvements that are produced in the PDRK. It was in the late 1970’s that North Korea purchased its intaglio printing presses from a Swiss company that sells strictly to governments.
They also bought special ink from the same Swiss company used by the U.S. Bureau of Engraving and Printing nearly exactly the same color used by the US . As well, paper with a nearly identical percentage of cotton fiber as that used on U.S. notes is used in North Korean supernotes.
In 2004, a North Korean defector, interviewed by the BBC in South Korea, said. “We bought the best of everything - the best equipment and the best ink. But we also had the very best people, people who had real expertise and knowledge in the field. ….When government officials or diplomats travelled to south-east Asia they distributed the counterfeit notes mixed in with the real one’s, at a ratio of about 50-50.”
In October that year the FBI seizure of 300,000 dollars in super notes hidden among cargo on a ship originating in China arrived at the Newark, New Jersey port, marked the first evidence of US fake dollars from North Korea smuggled into the United States.
In 2005, the US launched a series of countermeasures against North Korea targeting the counterfeit program, money laundering related to drug trafficking and other illicit activities, including criminal indictments in the U.S. and sanctions against North Korean front companies and foreign banks operating in other countries.
It signified a change in US policy to avoid public condemnation of North Korea’s government operated criminal syndicates for fear it would thwart the larger national interests of negotiating with the DPRK to halt it’s production, distribution, and export of nuclear technology and sophisticated weaponry that was the ongoing focus priority of US foreign policy for more than a decade.
In September of 2005, the US imposed sanctions against North Korean front companies, individuals, and a bank in Macau for laundering counterfeit dollars and other proceeds from North Korean criminal enterprises.
A March 2006 study by the independent Congressional Research Service made a connection between revenues from counterfeit money and other illicit proceeds and the fueling of nuclear proliferation. “The earnings from counterfeiting also could be significant to Pyongyang, and may be used to purchase weapons technology….or even underwrite the DPRK’s nuclear program.”
The next month, April 2006, the U.S State Department made public accusations against the DPRK regime that their illicit trade was operating increasingly with networks of international organized crime. North Korean’s “have been apprehended trafficking in narcotics and engaged in other forms of criminal behavior,” concluded the International Narcotics Control Strategy Report released in March 2006, “including passing counterfeit U.S. currency.”
That same month a Congressional Research Services report on North Korean Counterfeiting stated: ”These have been carried out in league with criminal organizations around the world."
It added that revenue from criminal syndicates were essential to keeping the regime in power.
The United Nations and both the Bush and Obama administrations have shifted to a more confrontational policy regarding the PDRK, from negotiations on stopping the North Korean program for nuclear and missile development programs, to increased confrontation over their state sponsored criminal activity and financial sanctions directed to punish the North Koreans for weapons development .
Since President Clinton left office in January 2001 until the present, there has been a marked escalation of hostility between the two sides that has reached a complete breakdown in diplomatic negotiations over the development of the PDRK nuclear and other military program. The U.S. and the United Nations have since created laws, resolutions, and Presidential Executive Orders to mitigate the effectiveness of some of the North Korean international criminal network and its military programs of acquiring nuclear weapons and exporting sophisticated weapons......TO BE CONTINUED