The Magazine

Cash for Kim

From drugs to contraband to U.N. aid-the many rackets of North Korea.

Feb 19, 2007, Vol. 12, No. 22 • By CLAUDIA ROSETT
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While U.S. chief negotiator Christopher Hill has been struggling in Beijing to cut a diplomatic de-nuclearization deal with the regime of North Korean dictator Kim Jong Il, some of us here in the United States have been struggling to figure out just how much Kim's promises are worth. As ever, it's illuminating to follow the money.

So--as the U.S. government looks for ways to cajole North Korea's Dear Leader into promising to dismantle the same nuclear program that we previously rewarded him for promising not to pursue in the first place--I've been trying to put together an income statement for Kim, who lives a cosseted life of luxury as his people starve. The crib sheet for Kim's cash on the opposite page is drawn from congressional testimony, research reports, media accounts, and phone interviews. Don't bother auditing the figures. There is no way finally to reconcile all the varying estimates of North Korea's cash-generating activities. Unless someone, someday, retrieves Kim's private records from his palaces and bunkers in a future, liberated Pyongyang, we will never know the full story. But what we do know is suggestive of the depth, scope, and reach of the vast criminal enterprise that is doing business as the Democratic People's Republic of Korea.

North Korea itself provides no reliable information about its financial affairs, but extrapolations can be made from events such as drug busts, documented missile sales, and the like. Its basic practices are not in doubt. North Korea's regime has specialized for years in breaking every rule in the global book, and gaming every angle of the international system--an approach punctuated by missile tests and, last October, a nuclear test. But nuclear extortion is just one of Kim's many rackets.

For years, the North Korean state has been raking in money from the illicit, international sale of drugs, ranging from heroin, cocaine, and methamphetamines to fake Viagra. A North Korean defector testified to Congress in 2003 that the mass production and sale of narcotics was official state policy. In the tightly controlled North Korean state, factories turning out fake pharmaceuticals are part of Kim's plan. Some of these drugs have been peddled out of North Korean embassies by official staff. According to congressional research reports, this has resulted in more than 50 verifiable drug busts in more than 20 countries, most of them since Kim Jong Il took over from his late father in 1994.

North Korea's illicit activities also include gunrunning, illegal fishing, a dash of alleged insurance fraud, and the counterfeiting of cigarettes and U.S. currency. Lest that seem a remote problem, it's worth revisiting the April 25, 2006, congressional testimony of a former State Department official, David Asher, who worked on countering North Korea's illicit activities. To illustrate what he called "the rise of the North Korean criminal state," Asher described a North Korean and Chinese criminal network busted in a sting operation in the harbor of Atlantic City, New Jersey, in 2005. As Asher described it, the federal indictments showed that this network "was engaged in selling tens of millions of dollars per year of contraband--everything from counterfeit U.S. currency, counterfeit U.S. postage stamps, counterfeit U.S. branded cigarettes and state tax stamps, counterfeit Viagra, ecstasy, methamphetamines, heroin, AK-47s, and even attempting to sell shoulder fired missiles (manpads) and rocket propelled grenades (RPGs) into the U.S."

Estimates of Pyongyang's earnings from such enterprises vary widely. Analysts suggest that for North Korea, particular illicit enterprises go in and out of vogue. Kim's regime tends to focus on one area until it runs into too much heat or some other difficulty, and then the focus tilts to a different racket. For instance, heroin was big in the early 1990s. Then floods in 1995 and 1996 wrecked the poppy crops. The regime adapted by manufacturing and exporting more methamphetamines. (This was during the same period in which the regime's state rationing system left more than a million North Koreans to starve to death.) Poppies later made a comeback that lasted until 2003, when a North Korean ship, the Pong Su, carrying some 275 pounds of pure heroin, was seized off Australia.

The next North Korean racket to grab attention was the counterfeiting of U.S. currency. This finally brought crackdowns from the Treasury and the Feds resulting in such actions as the seizure of $2 million in North Korean-made counterfeit banknotes last year in the port of Los Angeles, and the freezing in 2005 of $24 million of North Korea's money in the Banco Delta Asia in Macau (where Kim's eldest son, Kim Jong Nam, likes to go for gambling and R&R).

In recent years, Kim's regime has been wallowing in profits on counterfeit cigarettes. A tobacco industry study in 2005 estimated the gross revenues from these sales to be $520 to $720 million per year. (Cigarette smuggling is highly profitable because a pack costs just pennies to produce; most of the retail price is excise taxes.) Though North Korean refugees find it almost impossible to reach the United States, North Korean contraband fares better. In testimony before a Senate panel last year, a State Department official dealing with drug enforcement, Peter Prahar, referred to federal indictments alleging that North Korea-sourced counterfeit cigarettes had been entering the United States at a rate of one 40-foot container per month

North Korea also sells missiles and missile technology, not always illicitly. Estimating the income from the traffic is, once again, extremely difficult. A number often cited is $560 million in sales for the year 2001 alone. A former Pentagon aide and author of a book on North Korea's negotiating strategy, Chuck Downs, explains that this was the amount North Korean officials presented to the Clinton administration around 2000 as the cost of giving up their missile traffic--so it is probably inflated. But in selling missiles and missile technology over the years to such places as Venezuela, Egypt, Libya, Pakistan, Syria, and Iran, North Korea has by some educated guesses earned $1 billion or more.

A number of seasoned observers of North Korea, including American Enterprise Institute scholar Nicholas Eberstadt, estimate that, in his commerce with the world, Kim faces a shortfall of about $1 billion per year, which he makes up with criminal activities of one kind or another. Over the past dozen years, China, South Korea, and even the United States have poured billions' worth of aid into North Korea. By many accounts, much of that has ended up supporting the government rather than feeding the hungry. And none of it has swayed the basic criminal bent of Kim's regime. Instead, we have the bizarre spectacle in which U.N. agencies purport to be dishing out food and instructing North Koreans in the rudiments of development, while down the road North Koreans as part of state policy are cranking out top-quality counterfeit U.S. banknotes and tooling missile and nuclear bomb components.

Clearly there is no dearth of entrepreneurial talent in North Korea. But under this regime, the name of the game is violence, fakery, and extortion. The fate of any promise offered by Kim Jong Il is perhaps best summed up by a look at his cash. The list above is necessarily approximate and incomplete, but the bottom line is clear.

Claudia Rosett is a journalist-in-residence with the Foundation for Defense of Democracies, and blogs at claudiarosett.pajamasmedia.com.