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Party conference pushing up food prices

Tuesday, September 14th, 2010

According ot the Daily NK:

Since the North Korean security forces have been on special alert for the last two weeks in advance of the Delegates’ Conference, there has been a contraction in market activity, and this is forcing up rice prices.

In September, when farmers normally start harvesting, rice prices tend to drop, but because regular citizens do not know when the Delegates’ Conference is going to start, things are not easy this year.

A source from North Hamkyung Province told The Daily NK yesterday, “In Hoiryeong Market, rice was 1,000 won per kilo in late August, but today it is 1,300 won. The reason is that the special alert has been in force for around two weeks in the run up to the Delegates’ Conference, so there is less food trading going on.”

During any “special alert,” which the authorities impose in preparation for important political events, controls over migration and so-called “anti-socialist” activities are reinforced on pretexts of national security and rooting out espionage agents. The selling of rice is one thing which is subject to control.

Meanwhile, the most desirable corn is currently worth 750 won per kilo, according to source. This is corn produced last year; newly harvested corn costs 500 won. People tend to prefer old corn to this year’s corn because when they put it in water to cook, its volume increases more.

The source also explained that the people know exactly who to blame, saying, “People are complaining that last spring the authorities irritated them in order to wage war against South Chosun, and now they are being bothered with the Delegates’ Conference, which is still on hold.”

“Due to a crackdown on ‘grasshopper traders’ around markets, only traders who can afford a stall within the market can do business,” he went on. “It is natural for rice prices to rise because there are fewer rice sellers.”

Grasshopper trader means one who does business in alley markets, moving location in order to avoid the authorities.

The source noted, “In late October or early November, food prices may stabilize, but I am not sure because flood damage was so serious this year.”

With rising rice prices, exchange rates also rose; in Hoiryeong, one Yuan is now worth 235 won, which is 10% more than in late August.

See Andrei Lankov’s comments on the delay in the party conference here.

Read the full story here:
Conference Security Hitting Cost of Rice
Daily NK
Yoo Gwan Hee
9/14/2010

Posted in Black markets, Food, General markets (FMR: Farmers Market), Price liberalization, Worker's Party | Comments Closed

Lankov on the delay in the Worker’s Party conference

Monday, September 13th, 2010

Andrei Lankov has written some interesting thoughts on the delay in the much anticipated Worker’s Party conference. According to Lankov:

By its nature, the media is supposed to report events, especially those events which are seen as important or unusual. When elections are held, terrorists bomb an airliner or an UFO is spotted over New York, this is news. The media outlets usually remain silent when an airliner safely arrives and no Martians are seen walking in the Central Park.

This is understandable, but sometimes it is very important when some event does not happen – especially when the reason for the breach of pattern is not clear. But, understandably enough, such non-events attract much less media attention.

It seems that last week we all were witnesses to such a non event. The international media eagerly awaited news from Pyongyang where a conference of the ruling Korean Workers Party (KWP) was scheduled to take place. Indeed, in July the North Korean media officially informed the world that the KWP would soon have a party conference – the first party conference in 44 years and a first formal gathering of the KWP representatives in 30 years.

This was a rare event, so it attracted much attention. It was almost universally expected that at the conference Kim Jong Il will make public the name of his successor, and few people doubted that it is his youngest son, Kim Jong Eun who will become the next ‘Sun of Korea’.

The official media was quite specific about the conference dates. It was said that the conference would be held in the first ten days of September. The North Korean documents contained a term which unequivocally refers to a period from the 1st to the 10th day of month.

Taking into consideration that authorities are clearly in control of the timing of such an event, the international media was on alert since the first days of September. Some sources leaked the supposed exact starting date for the coming conference, but people in the know remained skeptical: they are well aware how unreliable are the political rumors which merge from North Korea. Nonetheless, journalists, diplomats and spies expected that the conference would happen last week, as officially proclaimed.

It did not. Now, it is September 13 already, so the official deadline has quietly passed, but nothing has been heard about the conference. For a while there were speculations that the conference met clandestinely. However on Friday, the 10th of September, Nodong sinmun, the mouthpiece of the North Korean government, published an editorial where it mentioned the conference as one of many glorious events which will happen in North Korea in near future. This editorial attracted much attention since it made clear that, first, the conference has not taken place and, second, that it was not cancelled, but postponed.

Predictably, the non-event did not become a major news. Only few specialized publications noticed it. Nonetheless, the decision to postpone the conference is unusual and might be politically significant.

Had not Pyongyang authorities made a clear and unequivocal statement about the conference schedule, this would not attract much attention. But the government is in control. Last but not least, the delay is sending the wrong signal to the people who might start wondering why a much publicized event did not take place on time. The government’s obvious inability to keep its promises on such trivial matters will damage its standing in the eyes of the public, and will make them wonder whether everything is normal at the top.

Indeed, this is something to wonder about. It is difficult to believe that the conference was postponed due to, say, some logistical problems: it is not too difficult to house a couple of thousand representatives, and moving them around town for few days would hardly constitute a major challenge even for such a poor nation. So, there are good reasons to suspect that something in Pyongyang went wrong again, and the longer the delay is, the greater the scale of these unknown problems is likely to be. However, even if the conference will open amongst the usual pomp later this week, the inability or unwillingness to convene it as initially scheduled still should not be ignored.

So, what might have gone wrong? Since we are dealing with North Korea, which is frequently described as the “world’s most secretive society”, nothing is known for sure, and one has to remain skeptical even in regard to the rumors which are likely to start emanating from North Korean in near future. Nonetheless, some possibilities should be considered.

First, it is possible that the North Korean elite is far less united than it is usually assumed, so some factions are seriously unhappy about the likely choice of successor and/or expected composition of the new leadership (a formal appointment of new top officials is an important part of the conference ritual). They might have managed somehow to block the conference, while Kim Jong Il is unable or unwilling to restore the order. This fighting might unroll among the top functionaries of the regime, but it might as well be an internal feud within the ruling family among whose members, one must suspect, not everybody is happy about the recent choice of successor.

Second, the delay might reflect something more sinister – the growing inability of Kim Jong Il to pass reasonable judgments and make rational decisions, his tendency to follow impulses and emotions. Indeed, in the last two years of strange and seemingly irrational things began to happen in North Korea with alarming and growing frequency, with its policy becoming more erratic. Among examples of such actions, one can mention the gross diplomatic mistakes of 2008-09, a badly planned (and unsuccessful) currency reform, and the recent sinking of the South Korean warship in disputed waters. The list can be easily continued. Many long-time Pyongyang watchers have recently developed the impression that the North Korean top leadership is doing strange things, things which do not make much sense, and it is not coincidental that the first signs of such erratic behavior appeared in early 2009, shortly after Kim Jong Il suffered a serious illness, presumably a stroke.

If this is the case, it is not impossible that Kim Jong Il just decided to have a conference when he felt like it, but then cancelled or postponed it, without thinking twice about the political impact of such decision. Such sudden changes of mind are not unexpected when we deal with a stroke patient, but this particular patient seemingly has a complete control over the nuclear-powered nation of 24 million.

Last but not least, it is also possible that Kim Jong Il is now too sick to make an expected public appearance at the conference (this view seems to be widespread in South Korean ruling circles). Yes, as recently as September 11 the North Korean media reported his trip to a mine in a distant northern part of the country, but no date of the trip was disclosed (and such reports can easily be fakes).

Many other plausible explanations can be – and, at all probability will be – suggested, too, but one thing seems to be fairly certain: something unusual is happening in Pyongyang these days. If the conference will not meet in the next couple of weeks we can be sure that the situation is very unusual indeed.

The mine Lankov mentions above is the “March 5th Youth Mine.” The DPRK released some photos of Kim Jong-il visiting this mine. You can see them here, here, and here. Here is the story in KCNA. The March 5 Youth Mine is located in Junggang County (중강군) at 41°42’46.97″N, 126°48’45.64″E. Can anyone match up the satellite imagery with the photos of Kim Jong-il? I think the satellite imagery may be too old. Kim Jong-il also reportedly visited the mine on January 29, 2008.

UPDATE: This artilce was later published as an op-ed in the Wall Street Journal. You can read it here.

Posted in Political economy, Worker's Party | 4 Comments »

Lankov on the DPRK party conference

Monday, September 6th, 2010

Andrei Lankov writes in the Asia Times:

In the next few days, a large gathering of North Korean officials is expected to open in Pyongyang. This is an unusual event, to be sure, so it attracts much attention in the world media.

However, even a cursory glance at different publications demonstrates that many journalists and commentators who write on the issue do not quite realize what type of political gathering to expect. The function is variously described as a “meeting”, “convention”, or even as a “party congress”. The last description is wrong (the coming event is explicitly not a party congress) while the two others are far too nebulous. After all, the final match of the football World Cup could be described as a “meeting of 24 well-trained individuals for the purposes of physical exercise”. Factually true, but it does not tell us much about the nature of the event.

The misunderstanding can be easily explained by the changing spirit of the times. In the late 1940s, North Korea borrowed from the Soviet Union the basic structure of a communist state, and has kept it ever since.

Such states were once common, and in the 1970s the Western media would not be so clueless about the nature of such an event. However, nowadays, a Leninist state is a seriously endangered, almost extinct, species, so the younger generation of journalists is clearly at loss (nowadays, they probably are better informed about the specifics of various Muslim sects). Therefore, some background information is needed – if you like, a short memo on how North Korean state operates.

So, what is going to happen in Pyongyang soon? In the Korean Workers’ Party (KWP) statute the scheduled event is defined clearly: this is a “party conference”, a gathering of the (supposedly) elected representatives of KWP members where specific issues of current policy are discussed.

The KWP, like all Leninist parties, is a rigidly centralized structure, somewhat akin to a military organization. However, for some reason those parties kept a number of institutions that were designed to appear democratic. Those were largely vestiges of a long-gone era, a reminder of times when in the early 1900s communist parties – or rather their predecessors – indeed had a vibrant internal democracy. Since then, the ostensibly democratic features have been kept partially out of respect for established tradition, but largely for propaganda-cum-decorative purposes.

One of those pseudo-democratic fictions is the system of party elections. The party-state is run by a hierarchy of committees, with the central committee and its powerful bureaucracy being the pinnacle of the entire structure, a central government in everything but name.

The party committees at all levels are essentially self-appointed. Communist functionaries become members of the central committee pretty much in the same way as the Catholic clergy become cardinals – they are appointed by the current leaders, but not without consulting and lobbying at the lower levels. At any rate, no elections are involved. Lower-level committees are manned in a similar manner.

However, on paper the committees – including the central committee – are elected. In the Cold War era most communist parties once every few years staged a large and pompous convention that was known as a “party congress”. This was where the new central committee was “elected”.

Actually, the elections were a fiction, pure and simple. The congress obediently voted for a candidates’ list that had been drafted weeks or months beforehand by the central committee bureaucracy and approved by the leadership. The tradition required that support for the list during a public voting ritual should be unanimous, and this indeed was the case.

The party representatives who attended the congress – and they could number in thousands – were themselves selected through a similar procedure: appointed by the local party apparatchiks, they were then formally “elected” by the relevant party groups.

Some of the representatives were prominent bureaucrats and officials, but a majority came from the party rank-and-file. Exemplary milkmaids and steel workers were dispatched to the congress to demonstrate the broad support communist rule allegedly enjoyed among the ”masses”. Nobody expected from them any meaningful discussion of political issues, and in most cases any attempt at such discussion would be promptly suppressed.

A party congress had other important functions. It was the place where the party supreme leader, usually known as its “general secretary”, delivered a speech in which he described the achievements of the party as well as the universal love and admiration it enjoyed among the people.

He also used the opportunity to criticize scheming enemies and remind about the need to remain vigilant. These speeches could be very lengthy. For example, in 1956, Kim Il-sung, the founder of the North Korean state and father of present dictator Kim Jong-il, spent six hours reading a voluminous text of such speech, and during party congresses in the Soviet Union in the 1970s, Leonid Brezhnev, the top Soviet leader, usually spent three of four hours reading similar texts in his less then audible voice. Kremlinologists, however, unlike the unlucky audience, had a field day with these speeches since among the boring nonsense there were some important hints that could indicate the direction a particular state was going to take.

Indeed, the party congresses (and conferences, of which more later) were largely convened to convey important messages about policies while also staging an only too transparent show of ”party democracy”. It is important to remember that no discussion took place at a congress of a ruling Leninist party.

The decisions were drafted well before a conference/congress began, were always voted through unanimously and without addition or amendment. The speeches of the participants were also usually checked and censored beforehand, and in the entire history of the communist bloc there were very few cases when a representative making critical comments about the system or leaders. Usually, the representatives extolled party wisdom, the greatness of its leaders and struggled to describe how great and selfless their own love of the system was.

The party statute stipulated that a congress should be convened at regular intervals, usually once every five years. After the 1950s, most communist countries complied with this demand.

Party statutes also stipulated that a minor version of a congress could be convened if the party leadership considered it fit. The minor version was known as a party conference (and this is what is going to meet in Pyongyang). Officially, a party conference met to discuss peculiar questions of current policy, but in real life it was, essentially, a minor version of the party congress. Generally speaking, the conferences were much less common then congresses.

In the Kim Il-sung era, North Korea, however, was remarkable in its relative disregard for legal niceties. The KWP’s statute has all the necessary articles, copy-pasted from Soviet regulations, but these have been ignored.

Throughout its 65 years history, the KWP has had six congresses, but none of them ever met within the officially prescribed interval. The last KWP congress took place in 1980, and was the venue at which Kim Jong-il was officially and publicly proclaimed the successor to his father. The next congress was supposed to meet five years later. It has never met (and the coming convention will be not be a congress, but a humbler conference).

The KWP’s party conferences took place twice, in 1958 and 1966. Both times they were convened to formalize the results of severe purges in the top leadership and ”elect” new leaders, free from “unmasked anti-party enemies”. After a 30-year hiatus, most observers came to the conclusion that North Korean leaders had decided to get rid off the pseudo-democratic institution altogether.

The “military-first” policy and the obvious attempts to play down the KWP’s role also strengthened such understanding. It was known that even central committee meetings were discontinued, so after his father’s death in 1994, Kim Jong-il has run the country with a remarkable disregard to institutional formalities.

However, in recent few years it seems the trend has been reversed: the KWP or, rather, its bureaucracy or people who have made a career within the party, are beginning to reassert themselves, slightly pushing the military aside. Decisions to convene a conference – ostensibly to publicly anoint the next hereditary dictator – seem to be another sign of these quiet changes.

But why did the North Korean leaders choose to convene a conference that is clearly a lower-level, less formal and less prestigious gathering, and not a full-scale party congress? The reasons might be economic. In North Korea it has become an established tradition that a party congress should be accompanied by lavish celebrations and expensive gifts to both the elite and the general public.

In 1980, when the KWP congress was last convened, humble housewives were given fresh fruit, mid-level officials were handed wristwatches while their superiors could even get a Japanese-made refrigerator. This tradition was burdensome, and in the mid-1980s Kim Il-sung complained to Soviet diplomats that he would like to have another congress but could not afford it due to the poor economic conditions of the country. The conference, on the other hand, is not expected to be celebrated on such a lavish scale.

These economic considerations seem to be the reason why in Pyongyang we are going to see the third KWP conference, not the seventh KWP congress. Nonetheless, in practical terms, the difference between those two events are negligible.

Whatever the name, what should we expect? No policy debate will take place, for sure. The participants, overwhelmingly, but not exclusively, will be men in their 40s, 50s and 60s, clad in badly tailored suits, who will unanimously vote for all resolutions, showing outbursts of enthusiasm when instructed to do so. There will be some important statements, most likely related to the succession – otherwise, it would not make sense to convene the conference. Those statements will move the representatives to tears – if earlier North Korean propaganda is a clue, we are likely to see an entire hall of weeping functionaries.

A lengthy speech about the current situation will be delivered. In all probability it will not be done by Kim Jong-il, who seldom speaks in public, but by some other dignitary (the name might be important, since the person is likely to play a major role in the years ahead). The speech will be worth careful reading since it will have some important hints on the country’s course. Equally important for political analysts will be the lengthy lists of newly appointed officials.

At any rate, it will be a bit of a show. The world has not seen anything like this for years – China and Vietnam still hold similar gatherings, but their functions have lost much of their earlier flavor. So, the conference itself is a slightly bizarre reminder of a bygone era, and it is not impossible that it will become one of the last gatherings of this type to take place in front of an international audience.

Read the full story here:
North Korea blows off the cobwebs
Asia Times
Andrei Lankov
9/8/2010

Posted in Central Committee, Political economy, Worker's Party | 1 Comment »

US freezes assets in DPRK proliferation case

Monday, August 30th, 2010

UPDATE 4: The following statement appeared on the Treasury Department web page:

In joint actions, the U.S. Departments of Treasury and State today announced the designations of five North Korean entities and three individuals under Executive Order (E.O.) 13382 for supporting North Korea’s Weapons of Mass Destruction (WMD) program. Executive Order 13382 is an authority aimed at freezing the assets of WMD proliferators and their supporters thereby isolating them from the U.S. financial and commercial systems.

Also today, President Obama signed an Executive Order that directs the Secretary of the Treasury, in consultation with the Secretary of State, to target for sanctions individuals and entities facilitating North Korean trafficking in arms and related materiel; procurement of luxury goods; and engagement in illicit activities, including money laundering, the counterfeiting of goods and currency, bulk cash smuggling and narcotics trafficking. The new Executive Order supplements E.O 13382, under which North Korean entities have been designated to date, and is consistent with measures required in UNSCRs 1718 and 1874.

The following individuals have been added to OFAC’s SDN list:

KIM, Yong Chol (a.k.a. KIM, Yong-Chol; a.k.a. KIM, Young-Cheol; a.k.a. KIM, Young-Chol; a.k.a. KIM, Young-Chul); DOB circa 1947; alt. DOB circa 1946; POB Pyongan-Pukto, North Korea (individual) [DPRK]

RI, Hong-Sop, c/o General Bureau of Atomic Energy , Haeudong, Pyongchen District, Pyongyang, Korea, North; DOB 1940; nationality Korea, North (individual) [NPWMD]

RI, Je-Son (a.k.a. RI, Che-Son), c/o General Bureau of Atomic Energy, Haeudong, Pyongchen District, Pyongyang, Korea, North; DOB 1938; nationality Korea, North (individual) [NPWMD]

YUN, Ho-Jin (a.k.a. YUN, Ho-Chin), c/o Namchongang Trading Corporation, Pyongyang, Korea, North; DOB 13 Oct 1944; nationality Korea, North (individual) [NPWMD]

The following entities have been added to OFAC’s SDN list:

GREEN PINE ASSOCIATED CORPORATION (a.k.a. CHONGSONG YONHAP; a.k.a. CH’O’NGSONG YO’NHAP), Nungrado, Pyongyang, Korea, North; c/o Reconnaissance General Bureau Headquarters, Hyongjesan-Guyok, Pyongyang, Korea, North [DPRK]

KOREA HEUNGJIN TRADING COMPANY (a.k.a. HUNJIN TRADING CO.), Pyongyang, Korea, North [NPWMD]

KOREA TAESONG TRADING COMPANY, Pyongyang, Korea, North [NPWMD]

MUNITIONS INDUSTRY DEPARTMENT (a.k.a. MILITARY SUPPLIES INDUSTRY DEPARTMENT), Pyongyang, Korea,
North [NPWMD]

OFFICE 39 (a.k.a. BUREAU 39; a.k.a. CENTRAL COMMITTEE BUREAU 39; a.k.a. DIVISION 39; a.k.a. OFFICE #39; a.k.a. OFFICE NO. 39; a.k.a. THIRD FLOOR), Second KWP Government Building (Korean – Ch’o’ngsa), Chungso’ng, Urban Town (Korean – Dong), Chung Ward, Pyongyang, Korea, North; Chung-Guyok (Central District), Sosong Street, Kyongrim-Dong, Pyongyang, Korea, North; Changgwang Street, Pyongyang, Korea, North [DPRK]

RECONNAISSANCE GENERAL BUREAU (a.k.a. CHONGCH’AL CH’ONGGUK; a.k.a. KPA UNIT 586; a.k.a. “RGB”), Hyongjesan-Guyok, Pyongyang, Korea, North; Nungrado, Pyongyang, Korea, North [DPRK]

SECOND ACADEMY OF NATURAL SCIENCES (a.k.a. 2ND ACADEMY OF NATURAL SCIENCES; a.k.a. ACADEMY OF NATURAL SCIENCES; a.k.a. CHAYON KWAHAK-WON; a.k.a. CHE 2 CHAYON KWAHAK-WON; a.k.a. KUKPANG KWAHAK-WON; a.k.a. NATIONAL DEFENSE ACADEMY; a.k.a. SANSRI; a.k.a. SECOND ACADEMY OF NATURAL SCIENCES RESEARCH INSTITUTE), Pyongyang, Korea, North [NPWMD]

SECOND ECONOMIC COMMITTEE, Kangdong, Korea, North [NPWMD]

UPDATE 3: According to the Wall Street Journal:

The Obama administration outlined new financial sanctions on North Korea aimed at further choking off Pyongyang’s arms trade and the illicit businesses funding dictator Kim Jong Il’s government.

The U.S. specifically targeted a secretive unit of Pyongyang’s ruling Korean Workers’ Party, known as Office 39, which American officials believe serves as a private slush fund for Mr. Kim.

Washington also blacklisted nearly a dozen North Korean individuals and entities alleged to be overseeing Pyongyang’s development of conventional arms and weapons of mass destruction, as well as their sales to third countries.

Among those designated are the Second Economic Committee of the Workers’ Party and Yun Ho-jin, Pyongyang’s onetime ambassador to the United Nations’ nuclear watchdog, the International Atomic Energy Agency. The U.S. also named to its sanctions list two top officials from Pyongyang’s General Bureau of Atomic Energy, Ri Je-son and Ri Hong-sop.

“When it comes to focusing on illicit activity, we have seen that the world reacts to this kind of thing very, very positively,” said Stuart Levey, the Treasury Department’s undersecretary for terrorism and financial intelligence. “We believe that this sort of program can have a very powerful impact.”

The new U.S. measures freeze any assets of the designated persons or entities inside the U.S. and bars American companies from conducting business with the listed North Koreans. Mr. Levey also said that any foreign entities conducting business with the sanctioned North Koreans could also face U.S. penalties.

Secretary of State Hillary Clinton announced in June that the U.S. would enact new financial penalties on Pyongyang, in part, in response to the North’s alleged torpedoing of a South Korean naval vessel. The March sinking of the Cheonan killed 46 South Korean servicemen and has led to heightened tensions on the Korean peninsula.

U.S. officials fear the attack could be linked to a political succession process inside Pyongyang and could presage other provocative acts by the North. U.S. and Asian officials believe Kim Jong Il is seeking to pass power to his third son, Kim Jong Eun.

…U.S. officials said the targeting of Office 39 is among the most direct assaults on Kim Jong Il’s finances to date and illustrates Washington’s support for the North Korean people. Office 39 has been directly involved in procuring luxury goods for Mr. Kim and Pyongyang’s political elite, even as many North Koreans face starvation.

Office 39 was blacklisted under a new executive order signed by President Barack Obama on Monday that specifically seeks to end North Korea’s ability to raise hard currency through illicit activities like drug smuggling and counterfeit $100 bills. The Treasury said Office 39 was directly involved in a 2009 scheme to illegally export into North Korea two luxury yachts valued at $15 million for Kim Jong Il.

UPDATE 2: According to the Wall Street Journal:

A North Korean arms chief and Pyongyang’s former ambassador to the United Nation’s nuclear agency have emerged as key figures in an intensifying international effort to curb North Korea’s weapons-trading activities.

The global dealings of the two men, Chun Byung-ho and Yun Ho-jin, whom North Korea analysts believe to be related through marriage, date back to the 1980s. They have played leading roles in North Korea’s development and testing of atomic weapons, according to current and former U.S. officials, Asian intelligence analysts and U.N. nonproliferation staffers.

More troubling to officials, Messrs. Chun and Yun also oversee Pyongyang’s vast arms-trading network, which appears to be spreading. They have shipped components for long-range missiles, nuclear reactors and conventional arms to countries including Iran, Syria and Myanmar.

On Monday, the Obama administration announced economic sanctions against various individuals and entities involved in Pyongyang’s nuclear work and in alleged illicit trading activities. The Treasury Department named Mr. Yun and the North Korean body headed by Mr. Chun—the Second Economic Committee of Pyongyang’s ruling Korean Workers’ Party. The sanctions freeze any U.S. assets of those named and bar Americans from conducting business with them. Treasury also warned that foreign firms doing business with them risked sanctions.

The Second Economic Committee oversees a little-known foreign trade office with the Orwellian name of Office 99. The proceeds from the Office’s arms sales go directly to North Korean dictator Kim Jong Il and Pyongyang’s senior leadership, according to these officials and recent North Korean defectors.

“It is broadly believed that the Second Economic Committee…plays the largest and most prominent role in nuclear, other WMD and missile-related development programs, as well as arranging and conducting arms-related exports” for North Korea, says a report issued in May by the U.N. committee tasked with enforcing international sanctions on Pyongyang.

The U.S. and U.N. recently have intensified efforts to combat the Second Economic Committee and Office 99, alarmed by Pyongyang’s two nuclear-weapons tests and its alleged role in sinking a South Korean naval vessel in March. Last year, the U.N. formally sanctioned Mr. Yun and his arms company, Namchongang Trading Co.

North Korean arms shipments moving through Thailand, the United Arab Emirates, South Africa and the South China Sea have been seized or turned back by the U.S. and its allies over the past few years. A Japanese court convicted a Tokyo-based trading company in November of procuring military technologies for Pyongyang with the intent of shipping them to Myanmar.

Still, Messrs. Chun and Yun’s decades of experience in the weapons trade pose a challenge to an international community keen to disrupt Pyongyang’s proliferation activities, say U.S. and Asian officials. “There is no reason to assume that Chun and Yun won’t sell nuclear weapons,” says David Asher, a former Bush administration official who has tracked Pyongyang’s arms trade for a decade. “There needs to be an active effort to disrupt their WMD networks and drive them out of business now, before it’s too late.”

The two men have established a network of front companies in Asia, Europe and the Middle East and have partnered with Southeast Asian, Japanese and Taiwanese criminal syndicates to move cash and contraband, say U.S. officials. And Mr. Yun has used the political cover provided by Pyongyang’s closest ally, China, to openly conduct business in cities such as Beijing and Shenyang, drawing official rebukes from Washington.

North Korean diplomats at Pyongyang’s U.N. mission in New York did not respond to requests for comment. Messrs. Chun and Yun couldn’t be reached.

Current and former U.S. officials say North Korea’s operations resemble in both scale and tactics those of Pakistan’s Abdul Qadeer Khan—one of the most notorious arms dealers in recent years. U.S. officials fear that isolated North Korea, desperate for hard currency, could accelerate its arms exports in a bid to prop up Kim Jong Il’s finances.

Mr. Chun, now 84 years old, and his Second Economic Committee emerged as major global arms exporters in the 1980s, as North Korea shipped as much as $3 billion worth of rockets, pistols and submarines to Tehran during the eight-year Iran-Iraq war, say recent defectors and North Korea analysts.

Pyongyang assisted some communist and socialist countries militarily during the 1960s and 1970s, and provided fighter pilots to aid Egypt and Syria in their wars against Israel. But North Korea found a largely captive market in Iran, which faced a U.S.-led weapons embargo as the West threw its support behind Iraqi strongman Saddam Hussein.

One senior North Korean defector who worked in Pyongyang’s munitions industries says he was dispatched to Iran by the Second Economic Committee in 1987 with the task of constructing missile batteries on the Iranian island of Kish to help Tehran better control the movement of ships through the Straits of Hormuz.

His main interlocutor was Iran’s elite military unit, the Islamic Revolutionary Guard Corps. The former hydro-mechanic says camaraderie developed between his 100-man team and the Guard, despite their different backgrounds.

Mr. Chun’s control over the Second Economic Committee was tied to his close relationship with Pyongyang’s ruling Kim family, say defectors and North Korea experts. The Russian-trained bureaucrat served as a member of North Korean founder Kim Il Sung’s bodyguard unit. He rose up the ranks of the Korean Workers’ Party with the political support of Kim Jong Il, eventually securing a position on Pyongyang’s most powerful political body, the National Defense Commission.

North Korea’s high-level defector, Hwang Jang-yop, has identified Mr. Chun as the broker of a key barter trade in the 1990s with Pakistan that significantly advanced Pyongyang’s nuclear infrastructure. The agreement resulted in North Korea shipping parts for long-range missiles to Islamabad in exchange for A.Q. Khan sending centrifuge equipment used in producing nuclear fuel.

As Mr. Chun pushed forward North Korea’s nuclear program from Pyongyang, Mr. Yun, believed to be the husband of Mr. Chun’s second daughter, emerged as a key player in procuring technologies for the Second Economic Committee from Europe, according to U.S., U.N. and European officials.

Mr. Yun, 66, arrived in Vienna in 1985 as Pyongyang’s ambassador to the International Atomic Energy Agency. The English and German speaker led negotiations with the U.N. agency aimed at forging a nuclear-inspection agreement with North Korea, and he helped oversee a 1992 tour of his nation’s Yongbyon nuclear facility for Hans Blix, the IAEA’s then-managing director.

“Yun was dedicated to turning things around. I truly believe that,” says Willi Theis, who worked closely with Mr. Yun as the head of the IAEA’s safeguards unit overseeing North Korea. Mr. Theis is now retired.

Still, concerns grew inside the IAEA about Mr. Yun’s activities, as relations between Pyongyang and the international community deteriorated, according to IAEA officials.

In 1993, North Korea broke off talks with the IAEA over the agency’s demands for an inspection of the country’s nuclear operations, and the U.S. charged Pyongyang with secretly stockpiling plutonium for atomic weapons. The next year, the Clinton administration threatened to bomb the Yongbyon facility if North Korea didn’t explain where the plutonium had gone. Mr. Yun grew embittered with the diplomatic process and mistrustful of the U.S. and its allies, according to IAEA staff and journalists who met with him.

Mr. Theis says he spent hours discussing the process with Mr. Yun and pressed the Agency to remain engaged with Pyongyang. The West German-born nuclear inspector says he grew suspicious of Mr. Yun’s many trips to other European cities and his contacts with local companies. Mr. Yun even hinted to Mr. Theis that he might have no choice but to directly support North Korea’s nuclear-weapons programs if relations with the IAEA collapsed.

“He came to the conclusion that dealing with the international community was totally disappointing,” said Mr. Theis in a phone interview from Austria. “Mr. Yun had definitely learned how to establish contacts with all types of people [while in Vienna]—not just from the IAEA, but managers of companies.”

Mr. Theis’s concerns about Mr. Yun would be borne out in 2003, when a German businessman, Hans Werner Truppel, was arrested and eventually convicted by a Stuttgart court of selling 22 metric tons of aluminum tubes to Mr. Yun.

The North Korean and his company, Namchongang Trading, used offices in Beijing and Shenyang, China, to place orders for the equipment, which is critical to building centrifuges needed to enrich uranium, according to a German Customs Bureau report. U.S. officials briefed on the case were alarmed that Mr. Yun conducted some of his business through the offices of Shenyang Aircraft Industry Co., a Chinese state-owned firm.

In the ensuing months, the State Department aired its concerns about Mr. Yun’s activities to China’s government, according to former U.S. officials. But Beijing took no action.

China’s ministries of foreign affairs and commerce didn’t respond to requests for comment. Shenyang Aircraft says it had no recollection of any dealings with Mr. Yun.

Messrs. Chun and Yun have sought to accelerate North Korea’s weapons sales and procurement in recent years and allegedly have played important roles in strengthening Pyongyang’s military ties to countries such as Syria and Myanmar, say current and former U.S. officials.

North Korea analysts believe most of these transactions have been conducted through Office 99, which they describe as an international sales office and slush fund for Kim Jong Il.

“Anything that has to do with the imports and exports of weapons flows through Office 99,” says Oh Kongdan, a North Korea expert at Virginia’s Institute of Defense Analyses, a Pentagon-funded think tank. “It’s a royal patronage system.”

U.S. officials say that since the late 1990s they detected through intelligence channels intensifying military cooperation between North Korea and Syria, focused on everything from the development of chemical weapons to missiles.

In September 2007, Israeli jets bombed a facility in eastern Syria that U.S. officials say was a nearly operational replica of North Korea’s Yongbyon nuclear reactor. As many as 10 North Koreans died in the Israeli attack, according to U.S. officials. Mr. Yun and Namchongang Trading are believed to have played a central role in brokering development of the facility.

“That particular company was all over the nuclear trade. There’s no question about it,” says John Bolton, who served as the Bush administration’s top non-proliferation official. Both Syria and North Korea have denied cooperating on developing nuclear technologies.

Over the past two years, U.S. and U.N. officials have also voiced concerns about North Korea’s deepening military ties with Myanmar, the Southeast Asian country formerly known as Burma.

North Korea engineers have helped Myanmar build a maze of fortified bunkers to house senior government officials and military installations, according to Burmese defectors and commercial satellite photos. Current and former U.S. officials say Washington has intervened to block the transfer of Scud missiles to Myanmar from Pyongyang.

In June, Japan’s Ministry of Economy and Trade banned Tokyo-based Toko Boeki Trading Co. and device maker Riken Denshi from conducting international trade after three of their affiliated executives, one of them an ethnic Korean, were arrested trying to send machine tools on an export-control list to Myanmar using a dummy company in Malaysia. The equipment could be used to develop either ballistic missiles or centrifuges for a uranium-enrichment program, according to weapons experts. And the U.N. in its May report said it was examining “suspicious” ties between Mr. Yun’s Namchongang Trading and Myanmar, possibly linked to these activities in Japan.

The Obama administration, in response, has announced a stepped-up campaign to block North Korea’s ability to raise funds through the arms trade. In addition to the new sanctions, the Pentagon has said it will intensify the interdiction of ships and planes believed to be carrying North Korean arms.

Still, Mr. Theis and other North Korea experts believe that it is only through dialogue that the West will be able to curb the North’s proliferation threat. Mr. Theis says he is recently lobbied the IAEA to allow him to return to Pyongyang to hold meetings with Mr. Yun. So far, he says, the IAEA hasn’t agreed.

UPDATE 1: According to Reuters:

President Barack Obama on Monday broadened U.S. financial sanctions on North Korea, freezing the U.S. assets of eight North Korean companies or agencies and four individual citizens.

The U.S. Treasury released a fact sheet detailing U.S. allegations against the North Korean entities and individuals targeted under the new U.S. executive order and a previous one. The following is a summary:

Companies and Agencies

The Reconnainance General Bureau
The Reconnaissance General Bureau (RGB) is North Korea’s premiere intelligence organization, created in early 2009 by the merger of existing intelligence agencies. The RGB trades in conventional arms and controls the North Korean conventional arms firm Green Pine Associated Corporation, which was also identified for sanctions under Obama’s order for exporting arms or related materiel from North Korea, the Treasury said.

Green Pine Associated Corp.
Green Pine was brought under the control of the RGB in 2009. The Treasury said it specializes in the production of maritime military craft and armaments, such as submarines, military boats and missiles systems, and has exported torpedoes and technical assistance to Iranian defense-related firms.

Green Pine is responsible for approximately half of the arms and related materiel exported by North Korea and has taken over many of the activities of the Korea Mining Development Trading Corporation, according to the Treasury.

Office 39
Office 39 of the Korean Workers’ Party engages in illicit economic activity to support the North Korean government, the U.S. Treasury fact sheet said. Office 39 has branches throughout the nation that raise and manage funds and is responsible for earning foreign currency for senior party leaders through illicit activities such as narcotics trafficking.

Office 39 controls a number of entities inside North Korea and abroad through which the Treasury said it is involved in the production, smuggling, and distribution of narcotics, and it has also been involved in the attempted procurement and transfer to North Korea of luxury goods.

Office 39 produced methamphetamine and was also involved in its supply to small-scale North Korean smugglers for distribution through China and South Korea. It also operates poppy farms and produces opium and heroin, the Treasury said.

In 2009, Office 39 was involved in the failed attempt to purchase and export to North Korea — through China — two Italian-made luxury yachts worth more than $15 million and destined for North Korean leader Kim Jong-il, the Treasury said.

Korea Mining Development Trading Corp. (KOMID)
KOMID is Pyongyang’s main arms dealer and main exporter of goods and equipment related to ballistic missiles and conventional weapons, with offices located in multiple countries around the world with the primary goal of facilitating weapons sales and seeking new customers for its weapons, according to the Treasury.

KOMID uses Korea Taesong Trading Company and Korea Heungjin Trading Company for trading purposes. Korea Taesong has acted on behalf of KOMID in dealings with Syria, and Korea Heungjin acts as the procurement arm of KOMID, the Treasury fact sheet said. Korea Heungjin is also suspected to have been involved in supplying missile-related goods to Iran’s Shahid Hemmat Industrial Group, it said.

Korea Taesong was previously sanctioned by the U.S. Department of State in 2008 under the Iran, North Korea, and Syria Nonproliferation Act.

Munitions Industry Department
The Treasury said the Munitions Industry Department is responsible for overseeing the development of North Korea’s ballistic missiles, including the Taepodong-2 which was first test-launched in 2006 and has a possible range of 4,100 miles.

The Second Economic Committee
The Second Economic Committee is responsible for overseeing production of North Korea’s ballistic missiles. It also directs the activities of KOMID, according to the U.S. Treasury.

The Second Academy of Natural Sciences
The Second Academy of Natural Sciences is a national-level organization responsible for research and development of North Korea’s advanced weapons systems, including missiles and probably nuclear weapons. It uses a number of subordinate organizations, including Tangun Trading Corporation, to obtain technology, equipment, and information from overseas for use in North Korea’s missile and probably nuclear weapons programs, the U.S. Treasury said.

Individuals

Kim Yong-chol
General Kim Yong-chol commands the Reconnaissance General Bureau.

Ri Je-son and Ri Hong-sap
The U.S. Treasury fact sheet said Ri Je-son and Ri Hong-sop act for or on behalf of the General Bureau of Atomic Energy (GBAE), which is responsible for North Korea’s nuclear program and manages operations at the Yongbyon Nuclear Research Center. GBAE was designated by the United Nations in July 2009 for its involvement in North Korea’s nuclear program and subsequently sanctioned by the State Department.

Ri Je-son is the director of GBAE and is responsible for facilitating several nuclear endeavors including GBAE’s management of Yongbyon Nuclear Research Center and Namchongang Trading Corporation, according to the Treasury.

Ri Hong-sop is a councilor for GBAE. He is also the former Director of Yongbyon Nuclear Research Center. In that capacity he oversaw the three core facilities that North Korea used to produce weapons-grade plutonium, the Treasury said.

Both Ri Je-son and Ri Hong-sop are also subject to the asset freeze and travel ban provisions under an earlier United Nations Security Council resolution.

Yun Ho-jin
Yun Ho-jin acts for or on behalf of Namchongang Trading Corporation (NCG), a North Korean trading company subordinate to GBAE. NCG has been involved in the procurement of Japanese- origin vacuum pumps that were identified at a North Korean nuclear facility, as well as nuclear-related procurement associated with a German individual.

Yun Ho-jin has acted on behalf of NCG in various capacities since the 1980s. As a senior official at NCG, he oversaw the import of items needed for North Korea’s uranium enrichment program.

Through an NCG office in China, Yun Ho-jin was also involved in purchases of sensitive material linked to the construction of a nuclear reactor in Syria, the Treasury fact sheet said.

He is also under U.N. Security Council asset freeze and travel ban sanctions.

ORIGINAL POST: Here is the full statement by the US Treasury Department:

August 30, 2010
TG-840

United States Designates North Korean Entities and Individuals for Activities Related to North Korea’s Weapons of Mass Destruction Program

WASHINGTON – In joint actions, the U.S. Departments of Treasury and State today announced the designations of five North Korean entities and three individuals under Executive Order (E.O.) 13382 for supporting North Korea’s Weapons of Mass Destruction (WMD) program. Executive Order 13382 is an authority aimed at freezing the assets of WMD proliferators and their supporters thereby isolating them from the U.S. financial and commercial systems.

Also today, President Obama signed an Executive Order that directs the Secretary of the Treasury, in consultation with the Secretary of State, to target for sanctions individuals and entities facilitating North Korean trafficking in arms and related materiel; procurement of luxury goods; and engagement in illicit activities, including money laundering, the counterfeiting of goods and currency, bulk cash smuggling and narcotics trafficking. The new Executive Order supplements E.O 13382, under which North Korean entities have been designated to date, and is consistent with measures required in UNSCRs 1718 and 1874.

Korea Taesong Trading Company and Korea Heungjin Trading Company
Pyongyang-based entities the Korea Taesong Trading Company and Korea Heungjin Trading Company, are used by the Korea Mining Development Trading Corporation (KOMID) for trading purposes. Korea Taesong Trading Company has acted on behalf of KOMID in dealings with Syria, and Korea Heungjin Trading Company acts as the procurement arm of KOMID. Korea Heungjin Trading Company is also suspected to have been involved in supplying missile-related goods to Iran’s Shahid Hemmat Industrial Group.

KOMID is Pyongyang’s premier arms dealer and main exporter of goods and equipment related to ballistic missiles and conventional weapons, with offices located in multiple countries around the world with the primary goal of facilitating weapons sales and seeking new customers for its weapons. It was listed in the Annex to E.O. 13382 of June 2005 and has been sanctioned by the United States repeatedly over the last 10 years for trading in missile technology. KOMID was also designated by the UNSCR 1718 Committee to be subject to the asset freeze provisions of UNSCR 1718.

Korea Taesong Trading Company was previously sanctioned by the U.S. Department of State in 2008 under the Iran, North Korea, and Syria Nonproliferation Act (INKSNA). INKSNA provides for the imposition of measures on entities or individuals for the transfer to or acquisition from Iran, Syria, or North Korea of equipment or technology controlled under multilateral export control lists or otherwise having the potential to make a material contribution to the proliferation of WMD or cruise or ballistic missile systems.

Second Economic Committee, Munitions Industry Department and Second Academy of Natural Sciences
The Munitions Industry Department and Second Economic Committee are involved in key aspects of North Korea’s missile program. The Munitions Industry Department is responsible for overseeing the development of North Korea’s ballistic missiles, including the Taepo Dong-2.

The Second Economic Committee is responsible for overseeing the production of North Korea’s ballistic missiles. The Second Economic Committee also directs the activities of KOMID.

The Second Academy of Natural Sciences is a national-level organization responsible for research and development of North Korea’s advanced weapons systems, including missiles and probably nuclear weapons. The Second Academy of Natural Sciences uses a number of subordinate organizations to obtain technology, equipment, and information from overseas, including Tangun Trading Corporation, for use in North Korea’s missile and probably nuclear weapons programs.

Tangun Trading Corporation is subordinate to the Second Academy of Natural Sciences and is primarily responsible for the procurement of commodities and technologies to support North Korea’s defense research and development programs and procurement, including materials that are controlled under the Missile Technology Control Regime (MTCR) or the Australia Group. Tangun Trading Corporation was designated by the Department of State pursuant to E.O. 13382 in September 2009. Tangun Trading Corporation was also designated by the UNSCR 1718 Committee to be subject to the asset freeze provisions of UNSCR 1718.

Ri Je-son and Ri Hong-sop
Ri Je-son and Ri Hong-sop act for or on behalf of the General Bureau of Atomic Energy (GBAE), which is responsible for North Korea’s nuclear program and manages operations at the Yongbyon Nuclear Research Center. GBAE was designated by the United Nations in July 2009 for its involvement in North Korea’s nuclear program and subsequently sanctioned by the Department of State under E.O. 13382 in September 2009.

Ri Je-son is the Director of GBAE and is responsible for facilitating several nuclear endeavors including GBAE’s management of Yongbyon Nuclear Research Center and Namchongang Trading Corporation.

Ri Hong-sop is a councilor for GBAE. He is also the former Director of Yongbyon Nuclear Research Center. In that capacity he oversaw the three core facilities that the DPRK used to produce of weapons-grade plutonium: the Fuel Fabrication Facility, the 5MWe Experimental Reactor, and the Radiological Laboratory (Reprocessing Plant).

Ri Je-son and Ri Hong-sop were also designated by the UNSCR 1718 Committee to be subject to the asset freeze and travel ban provisions of UNSCR 1718.

Yun Ho-lin
Yun Ho-jin acts for or on behalf of Namchongang Trading Corporation (NCG), a North Korean trading company subordinate to GBAE. NCG has been involved in the procurement of Japanese- origin vacuum pumps that were identified at a North Korean nuclear facility, as well as nuclear-related procurement associated with a German individual. NCG was designated by the State Department pursuant to E.O. 13382 in June 2009.

Yun Ho-jin has acted on behalf of NCG in various capacities since the 1980s. As a senior official at NCG, he oversaw the import of items needed for North Korea’s uranium enrichment program.

Through an NCG office in China, Yun Ho-jin was also involved in purchases of sensitive material linked to the construction of a nuclear reactor in Syria.

Yun Ho-jin was also designated by the UNSCR 1718 Committee to be subject to the asset freeze and travel ban provisions of UNSCR 1718.

Identifying Information:
Entity: Korea Taesong Trading Company
Location: Pyongyang, North Korea

Entity: Korea Heungjin Trading Company
AKA: Hunjin Trading Co.
Location: Pyongyang, North Korea

Entity: Second Economic Committee
Location: Kangdong, North Korea

Entity: Munitions Industry Department
AKA: Military Supplies Industry Department
Location: Pyongyang, North Korea

Entity: Second Academy of Natural Sciences
AKA: 2nd Academy of Natural Sciences
AKA: Che 2 Chayon Kwahak-Won
AKA: Academy of Natural Sciences
AKA: Chayon Kwahak-Won
AKA: National Defense Academy
AKA: Kukpang Kwahak-Won
AKA: Second Academy of Natural Sciences Research Institute SANSRI
Location: Pyongyang, North Korea

Individual: Ri Je-Son
AKA: Ri Che-Son
DOB: 1938

Individual: Ri Hong-Sop
DOB: 1940

Individual: Yun Ho-jin
AKA: Yun Ho-chin

Posted in Arms shipment, Bureau 39, Daesong-BAT JV Company, Daesung Trading Company, General Bureau of Atomic Energy, Heungjin Trading Co., Illicit activities, Korea Mining Development Trading Corporation (aka Kapmun Tosong, KOMID), Korean Tangun Trading Corp (aka Chasongdang Trading Co.), Machine Industry Department, Manufacturing, Military, Namchongang Trading Corporation, Office 99, Second Academy of Natural Sciences, Second Economic Committee, USA | Comments Closed

Daily NK on Office 39

Monday, August 30th, 2010

Pictured above is the location of the First Caribbean International Bank

According to the Daily NK:

The existence of a secret bank account operated by the No.39 Department of the Chosun Workers’ Party has been publicly confirmed for the first time, bringing yet more attention to bear on the activities of banks in one of the western world’s renowned tax havens.

The No.39 Department, which is responsible for the management of Kim Jong Il’s private funds, holds the bank account with the British Virgin Islands branch of First Caribbean International Bank (FCIB), a prominent bank in the Caribbean region.

According to an expert source familiar with China and North Korea, the No. 39 Department’s secret overseas account exists under the name “Hana Holdings”. It is apparently held with the Road Town branch of the bank, which is based in Barbados and has branches in 17 countries.

Explaining the importance to North Korea of the No.39 Department account, the source told Daily NK, “Due to recent UN Security Council sanctions, the No. 39 Department is experiencing considerable difficulties with its overseas financial trade. Currently, excluding Chinese banks, their only active overseas account is that held with FirstCaribbean International Bank.”

Also, he added, “The only bank through which the No. 39 Department can make overseas transfers is FirstCaribbean International Bank in the British Virgin Islands, since their other secret bank accounts are all blocked.”

He said, “In cases of normal trade relationships with other companies, it used to be possible to transfer the money overseas from China. However, those routes are blocked as well. Since United Nation’s financial sanctions against North Korea make it difficult for North Korea to transfer money to accounts in third countries from Chinese banks, all foreign currency earning units including the No. 39 Department are experiencing the same difficulties.”

Generally, the No. 39 Department works by transferring money from secret overseas bank accounts to accounts with Chinese banks for money laundering.

The source explained, “No. 39 Department moves the management funds from third countries to FirstCaribbean International Bank, then sends the money to the Bank of China until it can be transferred to a North Korean bank or withdrawn.”

According to the source, the person in charge of transfers between FirstCaribbean International Bank and Bank of China is dispatched by the No. 39 Department under a false name. Also, the official allegedly travels to China frequently to deal with problems involving trade with the Chinese bank.

News of the FCIB account will not be too surprising to North Korea economy watchers. Entities in the British Virgin Islands were already suspected of doing business with the North Korean regime before this latest revelation because of the islands’ connection to the activities of Taepung International Investment Group.

The annual returns of the Taepung Group, as it is more commonly known, show that it was originally set up in September, 2006. However, it became better known early in 2010 when it was placed at the center of efforts to revive the North Korean economy through the creation of a state development bank.

Registered in Hong Kong, its only shareholder as of its 2010 Annual Return was Taepung International Investment Holdings Ltd, whose registered address is in Road Town, British Virgin Islands.

According to the same return, obtained by a keen observer of North Korea’s illegal activities, Ken Kato, the Taepung Group’s corporate secretary is Sai Ying Company Ltd, whose only shareholder, and corporate director, is JYBD Holdings Ltd. JYBD Holdings Ltd’s registered address is the same one in Road Town, British Virgin Islands.

This is not the first time that FirstCaribbean International Bank has run into trouble, either. In 2008, it was indicted on 113 charges of “failure to report suspicious transactions” between 2001 and 2005 by the Belize Financial Intelligence Unit (FIU).

However, the charges were dropped because, according to a Belize newspaper, they were threatening to destabilize the country’s financial sector. Instead, First International was ordered to pay for both an electronic reporting system for the country and the refurbishment of two parks.

There are known to be a substantial number of other North Korean accounts held in countries around the world. At the time of the report completed by the 1718 Committee (North Korea sanctions committee) under the UN Security Council last July, North Korean banks were said to hold a total of 39 accounts with 18 banks located in 14 countries. Allegedly, these accounts include a considerable number managed by the No. 39 Department.

17 of the 39 accounts were located with big Chinese banks like Bank of China, China Construction Bank and HSBC, according to the report. Bank of China in Macao had the largest number of North Korean accounts, while some other accounts were held with Beijing and Dandong branches.

In addition, at the time, North Korea had 18 accounts with 11 banks in 8 countries in Europe; Russia, Switzerland, Denmark, Hungary, Poland, Italy, Germany, and Belarus; also, it had one account each in Malaysia and Kazakhstan.

As the 1718 Committee report explained, “The DPRK… employs a broad range of techniques to mask its financial transactions, including the use of overseas entities, shell companies, informal transfer mechanisms, cash couriers and barter arrangements. However, it must still, in most cases, rely on access to the international financial system to complete its financial operations. In structuring these transactions, attempts are made to mix illicit transactions with otherwise legitimate business activities in such a way as to hide the illicit activity.”

And also according to the Daily NK:

The newly revealed secret overseas bank account held by the No. 39 Department is just one of several accounts set up in various locations around the world to manage Kim Jong Il’s funds.

However, due to the financial sanctions brought about by two nuclear tests and multiple missile launches, the No. 39 Department’s secret overseas accounts are continuously shrinking. As one North Korean source in China put it, “Due to United Nation’s financial sanction against North Korea, the No. 39 Department’s management of its overseas secret accounts has become difficult.”

Now, due to the Cheonan incident, the U.S. is planning to put in place “customized” financial sanctions which incorporate existing UN Security Council and EU financial sanctions, so the No. 39 Department’s overseas accounts will only get more difficult to manage in the future.

The No. 39 Department’s overseas accounts, which allegedly contribute much to Kim Jong Il’s governing funds, are prime targets for financial sanction since they are key to transferring those funds generated by illegal activity.

According to intelligence authorities, the No.39 Department has a bank account with Daesung Bank in Pyongyang, and manages capital in some of the world’s most influential banks in Macao, Hong Kong, Germany, Japan, and England through a subsidiary of Daesung Bank, Gold Star Bank (Geumbyeol Bank) in Vienna, Austria.

The $25 million which was frozen in Banco Delta Asia in 2005 was allegedly known to be some of Kim Jong Il’s governing funds managed by the No. 39 Department.

Radio Free Asia reports that even the Luxembourg government seems likely to implement any new sanctions, quoting them as saying, “We are keeping a close eye on the illegal activities which can take place through North Korea’s overseas accounts.”

The No. 39 Department has 17 overseas branches, 100 trading companies and banks under its auspices. They generate foreign currency through loyalty funds collected from each agency and management of hotels and foreign currency stores. Also, they trade the country’s natural resources including pine mushrooms, gold and silver.

The department is also in charge of the production of “supernotes,” high quality counterfeit $100 bills, and has a role in weapons and the illegal drugs trade.

The funds are mostly spent on the living costs of the Kim family and the patronage network required to maintain his coterie of high officials. In 2008, the sum of luxury goods purchased by North Korea was estimated to be more than $100 million. For example, immediately prior to the anniversary of Kim Il Sung’s birth on April 15th, North Korea imported approximately 200 high grade vehicles from China.

Since foreign currency generation started to become difficult due to the sanctions, Kim Jong Il has allegedly revived the No. 38 Department, which used to be in charge of overseas currency earning and was only merged with the No. 39 Department in September of 2009, and replaced the head of No. 39 Department with Jeon Il Choon, an old high school friend.

As Kim Kwang Jin, a North Korean defector who worked for the Northeast Asia Bank of North Korea, pointed out in a recent press interview, “The UN Security’s North Korea sanctions and the United States’ Banco Delta Asia sanctions must have caused the shrinking of North Korea’s overseas accounts. It is possible that North Korea could try to open accounts under phantom company names to continue with its financial trades.”

Posted in Banking, Bureau 38, Bureau 39, Counterfeiting, Finance, Fiscal & monetary policy, Google Earth, Illicit activities, Korea Taepung International Investment Group (Daepung Investment Group) | Comments Closed

Party conference preparations underway

Friday, August 27th, 2010

According to the Daily NK:

In preparation for the Chosun Workers’ Party Delegates’ Conference in early September, local delegates’ conferences for the election of delegates from each district, city and county have been held.

Chosun Central Broadcast (the state radio station) reported on Thursday, “District, city, and county delegates’ conferences have been held.”

Chosun Central News Agency (KCNA) also reported the same story, saying, “Through local delegates’ conferences, model workers and party members have been elected delegates for dispatch to provincial delegates’ conferences. They have set an example to others in terms of faithfully taking on the Military-first leadership of the Great General (Kim Jong Il) and carrying out the line and policies of the Party with their indomitable spirit to escort the leader with their lives.”

The KCNA added, “In these local delegate conferences, they agreed unanimously that the Chosun Workers’ Party Delegates’ Conference, to be held in the year of the 65th anniversary of the founding of our honorable Party, will be an epochal turning point in the reinforcement and development of our Party and a great happy event with the remarkable importance of opening an uplifting period in the revolution and construction of Military-first politics.”

These first delegates’ conferences in cities and counties represent the start of the march to Pyongyang and the main Delegates’ Conference. Locally elected delegates will now attend provincial conferences, wherein provincial delegates, who will be dispatched to the Delegates’ Conference, are set to be elected.

However, the whole process will only confirm the appointment of pre-approve candidates. A total of between 1,000 and 1,500 delegates from each province will be recommended and elected as delegates to the main Delegates’ Conference.

Meanwhile, the Delegates’ Conference itself is rumored to be scheduled for between the 6th and 8th of September.

Since the day of the founding of the Republic (North Korea) is September 9th and the North’s authorities have reported that the Conference will be held in “early” September, the rumors seem convincing.

Read the full story here:
North Korea Starts March to Pyongyang
Daily NK
Kim So Yeol
8/27/2010

Posted in Worker's Party | Comments Closed

Wednesday, August 25th, 2010

According to the Daily NK:

Kim Young Nam, North Korea’s Supreme People’s Committee Permanent Chairperson, nominally the head of state, has stated that the Workers’ Party is being returned to the forefront of state affairs, offering a further clue to the intention behind September’s Workers’ Party Delegates’ Conference.

Speaking at the “Commemorative Convention for the 50th Anniversary of the Leadership of the Military-first Revolution”, Kim told assembled officials in Pyongyang Indoor Stadium on Tuesday, “Upon the opportunity of the historical Delegates’ Conference of the Chosun Workers’ Party, we will reinforce the function of our Party, which is the headquarters of the Military-first revolution, organizer and fugleman of the victory of our people,” according to Chosun Central News Agency.

A number of experts have predicted that North Korea plans to reinforce the function and authority of the Workers’ Party through the delegates’ conference. However, this is the first time that a high North Korean official has spoken publicly on the matter.

Kim additionally emphasized, “All Party projects should be carried out in accordance with the ideology and intention of the Party, based on the line and policies of the Party and by reinforcing the leadership role of the Party in revolutionary construction.”

However, Kim was keen to stress the logical correctness of Kim Jong Il’s Military-first line. “Comrade Kim Jong Il, who has opened the prosperous era of the Workers’ Party by wisely leading military construction and revolutionary projects based on Military-first politics, by viewing military business and Party business together as the keys, has achieved great historical innovations in the construction of the strong and prosperous fatherland by advancing the Military-first achievements of the Juche idea,” he explained.

On August 25, 1960, while Kim Jong Il was studying at Kim Il Sung University, he joined his father for an on-site inspection of Ryu Kyung Su No. 105 Tank Unit. In 2005, the North Korean authorities declared that day the first day of the Military-first leadership and have organized commemorative events annually ever since.

Read the full story here:
North Korea Speaks Out on Workers’ Party Role
Daily NK
Kim Yong Hun
8/25/2010

Posted in Political economy, Worker's Party | Comments Closed

Pak Pong-ju rehabilitated

Saturday, August 21st, 2010

According to Yonhap:

North Korea’s former Premier Pak Pong-ju appears to have returned to power with the Workers’ Party, more than three years after he was ousted due to his economic reform drive, according to a Pyongyang broadcast report on Saturday.

The North’s Korean Central Broadcasting Station introduced Pak as the “first deputy director of the Central Committee of the Workers’ Party of Korea,” reporting on the 50th foundation ceremony of Pyongyang’s flagship Okryu Restaurant held Friday with a number of senior officials and workers.

There is no other known figure with the same name among the North Korean power-holding elite.

Pak, a long-time industry technocrat and pragmatist, was named premier of the North’s Cabinet in September 2003. He spearheaded the North’s so-called July 1st Economic Measure reform drive toward market economy, which aimed to give more autonomy to state firms and gradually reduce state rationing of food and daily necessities.

But his strong initiative triggered a backlash from the party and the military that resulted in his dismissal. Pak was suspended from duty in June 2006 on charges of fund apprehension and was fired in April the following year. Kim Yong-il, then land and marine transport minister, replaced him.

Pak is believed to have been demoted to a managerial post at a clothing factory outside Pyongyang.

Cho Myung-chul, a senior researcher at the Korea Institute for International Economic Policy who has defected from North Korea, viewed Pak’s reinstatement as a signal of a shifting North Korean economic policy toward pragmatism, following its failed currency reform last year.

“Pak is an emblematic figure of the July 1st Economic Measure that promoted pragmatism. His reinstatement could be connected with an economic policy shift back to pragmatism after the anti-market currency reform failed.”

In a bid to curb the burgeoning merchant class and strengthen its socialist system, North Korea implemented a surprise currency reform in November, knocking two zeros off its denominations. But the move backfired, worsening food shortages and triggering social unrest.

Apparently taking responsibility for the botched reform, Premier Kim Yong-il was replaced by Choe Yong-rim in June.

The broadcast report on Saturday did not specify which department of the Workers’ Party Pak joined, but it is likely that he was posted to the light industry department, considering the ceremony involving a restaurant and the fact that he was the department’s first deputy director in 1993.

Pak is believed to be a close confidante to Jang Song-thaek, vice chairman of the National Defense Commission and brother-in-law of North Korean leader Kim Jong-il. Jang is seen as the central figure in grooming Kim’s third and youngest son, Jong-un, as the next leader.

Japan’s Mainichi Shimbun reported on Aug. 15, quoting multiple sources, that Pak and about 20 other figures close to Jang had been reinstated within the past two years. The report also said Pak has risen to the second highest spot in the party’s light industry department, which is headed by Kim Kyong-hui, Kim Jong-il’s sister and Jang’s wife.

According to the New York Times:

He is the latest among senior North Korean officials whose sudden banishment and equally unexpected reinstatement have sparked outside speculation about Mr. Kim’s intentions. Mr. Pak appeared to have fallen from Mr. Kim’s favor when he was fired from the premiership in 2007 and sent to work as a factory manager in a provincial town.

“His reinstatement could signal the return of pragmatists and reformists,” said Cheong Seong-chang, a North Korea analyst in the Sejong Institute south of Seoul. “We may be able to see him push the economic reform and openness he had once championed.”

Analysts in Seoul say that few North Korean officials wield much individual influence in Mr. Kim’s government. But they say that they can infer Mr. Kim’s plans from the way he punishes and rewards officials identified with various policy approaches.

“Pak’s reinstatement indicates that North Korea is shifting back to market reforms, even if grudgingly, after its botched attempt to re-enforce state control on the economy,” said Baek Seung-joo, the head of North Korea research at the government-financed Korea Institute for Defense Analyses in Seoul.

Mr. Pak, a lifetime technocrat, was best known as the architect of “Measures to Improve Economic Management Order.” Issued on July 1, 2002, they indirectly acknowledged the failure of the North’s ration system by instructing factories, collective farms and other economic units to provide their own daily necessities and give incentives for workers.

In September 2003 Mr. Pak was made prime minister, a post in charge of carrying out economic policies.

His reforms were necessitated by the collapse of the centrally planned economy after a famine in the mid-1990s. But they also coincided with — and fueled — the spread of private markets, which quickly emerged as a key source of food and other necessities for North Koreans.

But Mr. Pak’s reform programs irked the government’s old guard, especially in the hard-line military, which had grabbed the lion’s share in trade under the old system. The markets facilitated the influx of DVDs and other smuggled goods the government considered a capitalist threat.

Around 2005, North Korea began controlling markets. Its attempt to reinforce state control on the economy peaked late last year when it replaced its banknotes with a new currency, shut down markets and ordered people to buy goods only from state-run stores. The currency reform was aimed at stifling the markets by drastically reducing traders’ personal wealth in the old currency.

The moves quickly backfired. Inflation surged as traders hoarded their goods and government stores failed to meet demand. Sporadic protests were reported. Earlier this year, Pak Nam-gi, head of finance and planning who led the failed currency reform, was executed, according to South Korean news reports. North Korean markets began coming back to life, according to recent defectors.

Pak Pong-ju, the former prime minister, returns as North Korea prepares for a party caucus early next month. Officials and analysts in Seoul say they will monitor the meeting for changes in the cabinet and party leadership that might provide clues to Mr. Kim’s plans to hand over power to his third son, Kim Jong-un, who is in his late 20s.

Mr. Pak’s reinstatement adds to the growing influence of Jang Song-taek, Mr. Kim’s brother-in-law, said Mr. Baek, the researcher.

In June, Mr. Kim presided over a session of the rubber-stamp Supreme People’s Assembly where Mr. Jang, a potential caretaker for his son, was elevated to the No. 2 post in the ruling hierarchy. In the same meeting, Mr. Pak’s successor as prime minister, Kim Yong-il, who reportedly made a rare apology in February for the botched currency reform, was fired.

Mr. Pak, as first deputy director, is believed to report directly to Kim Kyong-hee, Mr. Kim’s younger sister and Mr. Jang’s wife, who works as party director in charge of the North’s light industries, Mr. Cheong said.

Read the full stories here:
N. Korean ex-PM Pak Pong-ju appears to be back in power
Yonhap
8/21/2010

North Korea Reinstates Market-Oriented Official
New York Times
Choe Sang-hun
8/23/2010

Posted in 2002 Economic reforms, Cabinet, Central Committee, Economic reform, Light Industry Department, Worker's Party | Comments Closed

Daily NK on the life of a pilot

Friday, August 20th, 2010

Story 2: The Inauspicious Life of Pilots
Daily NK
Yoo Gwan Hee
8/20/2010

…In North Korea, pilots receive top class treatment alongside submariners and the missile corps. They live above the law in many ways. For instance, if a pilot murders someone in society and then returns to their unit, M.P.s cannot arrest them.

While the top choice of middle school graduates is to work in the No.5 Department of the Central Committee of the Party, that which oversees every aspect of Kim Jong Il’s life, pilot is a popular second choice. The primary condition for selection is family background.

Until the 1980s, offspring of normal workers could be selected if they had a good academic record and enough physical strength. However, any person whose family had committed a political crime was excluded. Also, if a family member had sided with South Korea or went missing during the Korean War, they would be excluded, too.

Until this period, the occupation of pilot was deemed to be a dangerous job and children of the elite did not consider it as a career. However, as the economic crisis began in the 1990s, this view changed. Many of the children of elite officials now choose to become pilots.

Currently, pilots still receive ‘special treatment’ in North Korea; however, it is not particularly special any more. Compared to Party officials, who make money in business, the feeling of deprivation which pilots feel has increased a lot.

Pilots are still bound to the state for their living, while the elite increase their wealth and authority through foreign currency earning and market business.

Until the early 1990s, “No. 4 supplies,” which are given to pilots, were free and extras were sold to their families if necessary. Also, since North Korea was worried about the pilots’ mental states, they took care of family issues and distributed supplies to their families once a month.

Even during “The March of Tribulation” in the mid-1990s, normal food distribution was given to families of pilots. However, as the atmosphere in society changed, their stress is increasing. Children of pilots are becoming a target in schools; teachers demand much of pilots’ children first.

Air Force Units receive a relatively good coal supply, however, since the absolute quantity is still lacking, they need to prepare firewood on their own, too. Until the early 1990s, if one or two packs of cigarette, soybean oil, and beer were given to workers on a farm in the surrounding area or a forest ranger, firewood might come in return. However, the times have changed.

Wives of pilots also have to enter the battle. Wives sell distributed supplies to wholesalers or sell them directly in farming villages in the surrounding area.

However, even in the situation where a lot of workers receive not even a single grain of rice from the nation, the supply for pilots is still special. However, since pilots do not have the authority to use it for business and bribery like other officials; their practical standard of living is not very different from a person who sells home appliances in the market.

The biggest stress which North Korean pilots feel is their concern for their old age. Currently in North Korean society, the treatment you receive in active duty and that of the retired are very different.

Until the 1990s, North Korea praised pilots as a “treasure of the nation” and promised them lifelong care. But after 2000, the retired were completely abandoned. The national pension is worth less than a price of one kilogram of corn.

Usually in other countries, the rising generation has more discontent toward the government compared to the mature group, but in North Korea it is the opposite and this is the reason for the phenomenon. When retired, they need to farm or do business in the market, but retirees are short of market experience and strength. Current pilots, observing the lives of their former comrades, cannot feel comfortable about it.

Now we are in an era where even a pilot receiving “top” level treatment from North Korea attempts an escape, and this is not surprising anymore.

Story 1: Pilot Privileges Fade into History
Daily NK
Yoo Gwan Hee
8/11/2009

…[S]pecial employees, such as air force pilots or submarine captains, belong to a class which is treated as the most exceptional in North Korea (notwithstanding officials or members of elite organizations). Before the start of the 21st century, pilots enjoyed considerable privileges. The North Korean state paid special attention to cultivating pilots, showering them with preferential treatment. Goods provided to pilots and their family members were entirely free and a separate compensation-based ration system applied to the whole group.

So, in the North, the closest thing to a “summer vacation” as enjoyed by the people of the free world would inevitably be the “recreation” of pilots. In North Korea, pilots and their family members were permitted vacation once a year and once every two years, respectively. Submarine captains were entitled to similar terms.

Some of the recreation centers used by pilots and their families include the “Galma Recreation Center” in Wonsan, the “Sokhu Recreation Center” in South Hamkyung Province, and the “Jooeul Recreation Center,” among others. All are located near the ocean, and are unparalleled in terms of scenery. In the case of the Galma Recreation Center, there are two buildings housing bedrooms for the visitors standing side-by-side in a shady area, while a separate dining hall and indoor gymnasium can also be found.

Usually, three to four singles and four to five married households from one unit (regiment level) could use the recreation center at any one time.

Single and family rooms are separate. In the former, there are four single beds and in the latter, two double beds. According to regulations, only two children per family are permitted; those who need to bring three or four children have to work out an arrangement with the management office.

In the centers, there is no designated work, but meals and sleeping times must be strictly kept. Breakfast begins at 7:30 A.M., lunch at 12:30 P.M. and dinner at 6 P.M.; naps can only be taken between 2 and 4 P.M. Bedtime is fixed at 10 P.M. Guests have to strictly adhere to these times.

Besides these restrictions, the visitors have the freedom to spend time as they want. Some people play Chinese chess (janggi) and others cards while the rest may choose to head for the beach.

The menus for the week are displayed next to the windows from which the food is served. Soup and bowls of rice are distributed per person and up to four side dishes are distributed to each table (a table consists of two groups).

Until the early 1990s, the most popular food among those served at the recreation centers was bread made in the former Soviet Union. Every morning, a Russian bread called “Khleb,” on which butter or powdered sugar could be put, was provided. The fruit which was given to each person at lunchtime was also popular with the visitors.

The period of recreation enjoyed by pilots was usually 20 days. However, some families, rather than using up all of their days, left the recreation centers in a hurry to visit parents or relatives in their hometowns. Usually, an additional 15 days of vacation was added unto the 20 recreation days, during which many people take trips to their hometowns.

Some diligent wives would continue to work even while in the centers. Surrounding the Galma Recreation Center, located on the shore of the East Sea, or the Sokhu Recreation Center are heaps of seaweed which are washed ashore with the tides. The wives, after washing the seaweed in the ocean water, dried it on the seashore.

Two or three 50-kg bags are barely sufficient for that much dried seaweed. Wives sent these to their in-laws or families with satisfaction.

However, such extravagant levels of recreation for pilots began to disappear in the mid-1990s with the March of Tribulation. Now, even when the state issues recreation permits, people tend to take off for hometowns, not to recreation centers.

Further, with the decline in the national esteem of pilots in recent years and due to the fact that the items which are provided as rations tend to be sold in the markets for additional income, the luxurious lives of the special class are becoming less impressive all the time. Recently, some pilots have even been selling their cigarette rations (one month’s worth) in the jangmadang.

Corruption also afflicts pilots to no small extent. Schools request additional money and products from the children of pilots, due to the popular image of affluence they command.

The sense of deprivation among pilots and family members, who are supposedly among the most revered people in North Korea, has been growing. Their status has indeed decreased over the years; one cannot ignore the fact that the standard of living of private merchants or foreign currency earners has now outpaced that of pilots, who are dangerously dependent on rations for their survival.

Posted in Central Committee, Department No. 5, Labor conditions/wages, Military | Comments Closed

Daily NK proposes “pet sanctions”

Thursday, August 12th, 2010

According to the Daily NK:

It has been suggested that pets should added to the list of “luxury goods” sanctioned and supposedly out of reach of the Kim Jong Il regime.

While “thoroughbred horses” are already a luxury good on the EU’s list of banned products published in the final version of the “Report to the Security Council from the Panel of Experts Established Pursuant to Resolution 1874”, there is nothing about pets.

However, according to one anonymous source well-versed in North Korea matters, Kim Jong Il has been known to spend hundreds of thousands of dollars on pets from France and Switzerland.

The money for his purchases apparently comes from the No. 39 Department of the Central Committee of the Party, according to a Daily NK source, and since the funds generated by the No. 39 Department come from illicit activities such as selling weapons, drugs, counterfeit cigarettes and super notes, he believes this pet-related trading must also be put on the list of sanctioned “luxury goods.”

Among dogs, for example, Kim apparently has a preference for the Shitzu and has spent many thousands of dollars purchasing and raising them. Kim Chun Hyung, a Seoul-based veterinarian, confirmed the price of such fine breeds, saying, “The price of pets is very diverse, but when you import a purebred you may need to pay tens of thousands of dollars.”

Jang Jin Sung, a poet who was said to be Kim Jong Il’s favorite poet in North Korea until he defected in 2004, described how much Kim Jong Il loves his pet dogs in an interview on Wednesday, explaining, “I was invited to a no.1 event, in which Kim Jong Il is set to appear, at Kim’s Kalmacheon Villa in Wonsan, Kangwon Province. Security was so fussy that they forced us to disinfect our hands, and then I waited for him nervously.”

“All of sudden a small white puppy appeared, which made me wonder, but then Kim Jong Il entered the hall behind it,” Jang said. “While Kim was having dinner, the puppy walked around without restriction. When it approached Kim, he petted it many times.”

The anonymous source said that Kim is always accompanied by dogs to his onsite inspections, adding that their food and shampoo is all imported, from France in the case of shampoo.

When the animals fall sick, top quality vets from foreign countries are invited to Pyongyang or the animals are taken overseas for treatment, the source said, adding, “The reason why they go by plane is for ease of customs clearance.”

The responsibility for importing pets is the job of overseas-based officials, but due to Kim Jong Il’s picky taste, especially in cats, they find it hard to match the color of fur or eyes that Kim likes, according to the source.

Read the full story here:
Pets Are Luxury Goods, Too
Daily NK
Shin Joo Hyun
8/12/2010

Posted in Bureau 39, Civil society, International trade | Comments Closed

North Korean Economy Watch

Archive for the ‘Worker’s Party’ Category

Party conference pushing up food prices

Lankov on the delay in the Worker’s Party conference

Lankov on the DPRK party conference

US freezes assets in DPRK proliferation case

Daily NK on Office 39

Party conference preparations underway

Pak Pong-ju rehabilitated

Daily NK on the life of a pilot

Daily NK proposes “pet sanctions”

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