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).