Banking « North Korean Economy Watch

Archive for the ‘Banking’ Category

DPRK Money laundering in Guangdong

Wednesday, June 5th, 2013

According to to the Joongang Ilbo:

It was the end of March, about 20 days after the United Nations Security Council adopted resolution No. 2094 punishing North Korea for its third nuclear weapons test with new sanctions. At a newly built, modern-style train station in this southeastern Chinese city bordering Macau, three North Koreans in black suits with badges bearing the portrait of former leader Kim Jong-il appeared in the early evening. From the station they carried a large and obviously heavy gunny sack to a sedan parked about 30 meters (0.18 miles) away. They all got in and pulled away.

Two hours later, the sedan arrived at a high-rise building in Menggang district, Guangdong Province. Inside was an office of a private loan shark.

They entered the office on the seventh floor. One of the visitors, a middle-aged North Korean who spoke fluent Cantonese, greeted a Chinese man whom he called “Russelle.”

The North Korean dragged the sack to Russelle and opened it. Inside were bundles of U.S. banknotes. Russelle handed them to his underling and ordered him to count them with a banknote-counting machine.

After the total was confirmed, the North Korean withdrew a piece of paper with bank account numbers written on it. As in a thriller movie, Russelle began electronic banking transactions on a computer. He divvied up the total amount of cash among the accounts, sending set amounts to each. The total amount transferred: $2 million.

For helping in the money-laundering, Russelle was to receive 15 percent of the $2 million. In more urgent situations, his commission rises to 30 percent.

Several sources familiar with loan sharks in Guangzhou described these scenes to the JoongAng Sunday. The North Koreans were allegedly officials working for the Kwangson Banking Group, an affiliate of North Korea’s state-run Foreign Trade Bank, the country’s primary foreign exchange bank. The North Korean who led the shady business with Russelle was Kim Kwi-chol, head of the Kwangson branch in Zhuhai.

North Korea has, sources say, conducted illicit activities like money-laundering through Kwangson’s branches in Zhuhai and Dandong, and it is playing a role for Pyongyang similar to that of Macau’s Banco Delta Asia’s after 2005, when sanctions brought its business to a halt.

According to “Recent Financial Activities of North Korea,” a report by Kim Gwang-jin, a defector-turned-researcher at the Institute for National Security Strategy under the National Intelligence Service, Kwangson Bank is in charge of slush funds used by North Korean leader Kim Jong-un, money-laundering and remittances from banks sanctioned by the U.S. or UN Security Council.

The U.S. Treasury Department froze U.S. assets of the Kwangson Banking Corporation and prohibited U.S. citizens from doing business with the group in August 2009, accusing it of aiding the proliferation of weapons of mass destruction. Last March, it said the Foreign Trade Bank was covered by executive order No. 13382, freezing all of its U.S. assets and prohibiting U.S. financial institutions from doing business with it. In May, the Bank of China said it would stop all dealings with it.

But an expert in international finance told the JoongAng Sunday in April, “The sanctions taken by the U.S. Treasury Department against North Korea has no effect in regard to the Foreign Trade Bank.”

The head of the Zhuhai branch of Kwangson, Kim Kwi-chol, was allegedy born in Hoeyang, Kangwon Province in the North, on Nov. 19, 1955. In April 1984, he started work at the Foreign Trade Bank of North Korea and worked in a branch of the bank in China in the late 1990s, and in Libya during the mid-2000s. He moved to the branch in Zhuhai on April 13, 2003.

Sources said Kim is in charge of delivering slush funds to Kim Jong-un and other members of his elite inner circle. He’s also in charge of some large-scale money-laundering, taking advantage of Zhuhai bordering Macau. He is fluent in Cantonese and Mandarin with working experience in China for more than 10 years as a financial expert. He is allegedly living with his wife Pak Yong-hui, 57, in Zhuhai.

“He is a person who is always vigilant,” researcher Kim said.

An official investigating North Korea’s businesses in Zhuhai said, “We have recently confirmed that there are five workers and Kim Kwi-chol in the branch [in Zhuhai]. The amount of money the branch is dealing with is about $3 billion won a year, which is a bit less than that of the branch in Dandong in Liaoning Province.”

“Since Banco Delta Asia was frozen in 2005, North Korea’s funds are going through Guangzhou, Shenzhen and Zhuhai,” an official in Macau said on the condition of anonymity.

On April 30, a JoongAng Sunday reporter visited a residential complex in Zhuhai, where several sources alleged the Kwangson Banking Group’s Zhuhai branch was located. The complex was composed of three separate apartment buildings with a front gate that required a security code for entrance. The JoongAng Sunday reporter sneaked into the complex when some residents punched in their codes.

However, when the reporter reached the office of Kwangson, there was no sign on its door. Although the reporter pressed the doorbell, no one answered. A security guard at the building said: “I have not heard of Kwangson Banking Group.”

Sources said the office kept as low a profile as possible. A resident of the complex who has seen the office said, “It’s not that large with several workers at the desks looking at financial terminals. The atmosphere was bleak.”

“Recently, the Hong Kong financial authorities launched a probe into Kwangson bank’s branch in Zhuhai, on suspicion of starting a shell company in Hong Kong under a fake name and working on money-laundering,” an official at a corporate intelligence service in Hong Kong said.

The official said the company was registered to a woman who doesn’t live in Hong Kong but in mainland China. Starting several years ago, more than $100 billion has been remitted to her accounts, raising suspicions she could be connected to the Kwansgon branch in Zhuhai.

A similar front company, Leader (Hong Kong) International Trading Company, was sanctioned by the U.S. Treasury Department in January.

“Since the incident with Banco Delta Asia, most North Koreans staying in Macau left due to tightened supervision of money-laundering,” a source said. “However, they still had to keep in touch with their clients and partners in Macau, so they chose Zhuhai, bordering Macau, as an alternative.”

Currently, North Korea’s two major state-run banks are its Central Bank and the Foreign Trade Bank. The Foreign Trade Bank is in charge of foreign currency.

Although the Kwangson Banking Group officially belongs to the Foreign Trade Bank, in fact, it is a special organization that deals with foreign currency that is dubbed the “revolution fund.” The bank’s other name is Bureau 711.

“Kwangson Banking Group is a special financial organization in charge of slush funds of the Kim family under the direct control of Kim Kyung-hui, younger sister of the late leader Kim Jong-il,” Kim Gwang-jin said. “The group’s branch in Dandong was founded in September 2002 and another one in Macau was moved to Zhuhai after the problems with Banco Delta Asia starting in 2005.”

“After Banco Delta Asia, the foreign currency business of normal North Korean banks was paralyzed, but the Kwangson Banking Group has led the money-laundering business with the full support of the North Korean elite.”

Kim said there are three financial experts specializing in foreign currency in North Korea – Ri Tong-rim, president of the Kwangson Banking Group, Kim Kwi-chol, head of the Zhuhai branch and Ri Il-su, head of the Dandong branch.

Ri, the 57-year-old executive, was born in Songgan County, Chagang Province. He started as a manager at the Foreign Trade Bank in 1980 and became president of the 711 Bureau, the Kwangson bank, in 2004.

“When the Soviet Union collapsed, he collaborated with the Russian mafias and successfully withdrew $4.5 million from a bank in the USSR,” Kim said.

Ri Il-su, head of the bank’s Dandong branch, is assumed to be in his mid-50s. He was a vice president of the Foreign Trade Bank’s branch in Zhuhai and vice president of the 711 Bureau in the mid-1990s.

In June 2006, he signed an agreement with the China Construction Bank’s branch in Dandong over founding a joint bank in a border region between China and North Korea. The joint bank is in charge of foreign currency in three provinces in northeastern China.

“Under the agreement, if the Dandong branch remits money to a local bank in the three provinces first, then the Chinese bank resends the money to another bank in China or a third country for money-laundering,” Kim said. “Although the Bank of China or other major banks ban North Koreans opening accounts, other small-scale banks allow it.”

The Kwangson bank reportedly has a branch in Shenzhen, southern China, but its head is unknown.

“In the financial sector in Hong Kong, it’s said that Kwangson bank’s Zhuhai branch is earning big profits through gold investment, stock transactions and foreign exchange,” an official at a croporate intelligence service in Hong Kong, said. “A rumor says that when North Korea shelled the South Korean island of Yeonpyeong in November 2010, the branch bought a bunch of stocks of South Korean companies whose prices drastically dropped because of the shelling and made huge profits.”

“It is really urgent to stop the illicit activities of these North Koreans in China,” a South Korean government official said. “It is actually impossible to impose effective sanctions against North Korea without the full help of the Chinese government.”

Read the full story here:
North money laundering done in Guangdong
Joongang Ilbo
Ahn Sung-kyoo
2013-6-5

Posted in Banking, Finance, Fiscal & monetary policy, Foreign Trade Bank, Korea Kwangson Banking Corp., Korea Kwangsong Trading Corporation | Comments Closed

DPRK in default on ROK food loans

Friday, May 24th, 2013

UPDATE 2 (2013-5-24): South Korea has again requested that the DPRK repay past food loans. According to Yonhap:

South Korea again called on North Korea Friday to repay millions of dollars in loans provided in the form of food since 2000, the Unification Ministry said.

The impoverished North missed the June 7, 2012 deadline to repay South Korea US$5.83 million in the first installment of the $724 million food loan extended to the North in rice and corn. The latest call is the South’s fifth demand made on the North to repay its debt.

Seoul’s state-run Export-Import Bank (Eximbank) sent a message on Thursday to Pyongyang’s Foreign Trade Bank, calling for the repayment, Unification Ministry spokesman Kim Hyung-suk said in a briefing.

The South Korean bank also sent another message the same day, notifying the North of its forthcoming June 7th deadline to repay the second installment of $5.78 million, the spokesman said.

“North Korea should faithfully abide by what they previously agreed to with the South,” Kim said, calling for the repayment of food loans.

Amid a conciliatory mode under the liberal-minded late President Kim Dae-jung, Seoul started to provide food loans to the famine-ridden country, providing a total of 2.4 million tons of rice and 200,000 tons of corn from 2000-2007.

Under the deal, the North is required to pay back a total of $875.32 million by 2037.

Read the full story here:
S. Korea again asks North to repay food loans
Yonhap
2013-5-24

UPDATE 1 (2012-7-15): South Korea claims the DPRK missed a deadline for explaining how it intended to repay South Korean “loans”. According to Yonhap:

North Korea missed the deadline Sunday for notifying South Korea of how it will repay millions of dollars in loans provided in the form of food in 2000, resulting in Seoul having the right to declare Pyongyang has defaulted on its debt, an official said.

South Korea sent the North a message on June 15 that the communist nation was supposed to have paid back US$5.83 million in the first installment of a 2000 food loan worth $88.36 million by June 7. The North was required to respond to the message in 30 days.

That deadline passed on Sunday with the North remaining silent, giving South Korea the right to declare the North has defaulted on the debt, according to a government official in Seoul.

But South Korea is unlikely to go ahead with the declaration any time soon as it would have little effect on the North. The communist nation remains largely outside of the international financial system and the prospect of national default is unlikely to force it to repay its debt.

Officials said they are considering sending Pyongyang a message again calling for debt repayment.

Widespread views are that it won’t be easy for the North, which is still struggling with food shortages, to pay back its debt, but officials said the country could repay the debt in kind as it did before. In 2007 and 2008, the North repaid some debt with $2.4 million worth of zinc ores.

After the two Koreas held their first-ever summit in 2000, South Korea provided the North with a total of US$720 million in loans of rice and corn until 2007. Including interest accrued on the loans, the North is required to repay some US$875 million by 2037.

Such aid has been cut off after the South’s President Lee Myung-bak took office with a pledge to link any assistance to the North to progress in international efforts to end Pyongyang’s nuclear weapons programs.

The Daily NK also covered the story.

ORIGINAL POST (2012-6-8): According to Yonhap:

North Korea has not shown any signs of repaying the loans South Korea extended in food grains since 2000 although the initial day of the scheduled repayment passed as of Thursday. The South Korean government provided North Korea grain loans worth US$725 million for seven years until 2007, including 2.4 million tons of rice and 200,000 tons of corn. The total principal and interest North Korea should repay for the next 20 years is estimated at $875.32 million.

North Korea was scheduled to pay South Korea $5.83 million by Thursday for the loans extended to it in 2000. Korea Eximbank, which is in charge of trade finance with the North, notified its counterpart the Chosun Trade Bank of North Korea of the repayment obligation Monday but North Korea had not responded of Friday.

The former South Korean governments led by President Kim Dae-jung and Roh Moo-hyun provided an estimated 1 trillion won (US$850 million) to North Korea from 2000 to 2007 under the sunshine policy. South Korea provided an additional 1.37 trillion won to North Korea to finance the construction of a light water reactor in order to suspend North Korea’s nuclear development. All the loans to the North were taxpayer’s money.

…

North Korea should show sincerity in the repayment of these loans for the sake of its future. If it fails to do so, the North will encounter substantial difficulties in accessing further loans from the international community. North Korea also has failed to repay loans it borrowed from the old Soviet Union. Russia reportedly had to reduce 90 percent of the Norths loans, worth $11 billion.

If North Korea has difficulties repaying its debts to South Korea in cash, it should sincerely discuss alternative measures to repay the loans with the South Korean government.

The South Korean government should positively consider measures to get the money back in kind, such as in mineral resources. North Korea should understand that if it fails to show the minimum sincerity on the repayment of its debts, it will experience much more difficulty in attracting economic assistance from the outside world.

The Choson Ilbo reports this additional information:

In 2007 and 2008, South Korea also gave the North $80 million worth of raw materials to produce textiles, shoes and soap. At the time, North Korea repaid 3 percent of the loan with $2.4 million worth of zinc ingots. Repayments of the remaining $77.6 million become due after a five-year grace period, so North Korea must start repaying $8.6 million a year every year for 10 years starting in 2014.

Seoul also loaned Pyongyang W585.2 billion (US$1=W1,172) from the Inter-Korean Cooperation Fund so it could re-connect railways and roads with the South that were severed in the 1950-53 Korean War. And it provided W149.4 billion worth of equipment to the North. The North must repay that loan in 20 years with a 10-year grace period at an annual interest of 1 percent.

It also seems unlikely that South Korea will be able to recoup W1.37 trillion plus around W900 billion in interest it provided North Korea through an abortive project by the Korean Energy Development Organization to build a light-water reactor.

The loans amount to a total of around W3.5 trillion, which the South will probably have to write off.

The Daily NK also reported on this story.

Read the full story here:
North Korea should show sincerity in repaying South Korea loans
Yonhap
2012-6-8

N.Korea Misses 1st Loan Repayment Deadline
Choson Ilbo
2012-6-8

Posted in Banking, Debt, Finance, Food, Foreign aid statistics, Foreign direct investment, International trade, South Africa, Statistics | Comments Closed

Kim Jong-un’s directions on improving economic management

Monday, May 20th, 2013

Institute for Far Eastern Studies (IFES)
2013-5-20

High ranking North Korean officials have relayed that, since last year, North Korea’s Kim Jong Un has on several occasions provided direction on improvements for economic management methods and that some new measures are being implemented on an experimental basis.

In a May 10, 2013 interview with the Choson Sinbo, North Korean Cabinet secretariat Kim Ki Chol and National Planning Committee director Ri Yong Min relayed that “Kim Jung Un spoke on several occasions, both this year and last, about the time to fix economic management practices and delegated related responsibilities to students and laborers.” The officials added, “We are holding rounds of consultation and discussion together with research institutes and representatives of several economic sectors.”

The officials further stated that “Out of these consultations have emerged a number of promising economic proposals which we are putting into practice on an experimental basis. In the case that they show positive results, we plan to introduce them across the country. Most remain in the research stage.” These remarks indicate that North Korea is embarking on some kind of economic reform measures.

These statements seem to confirm that North Korea’s economic measures are being driven by the direct orders of Kim Jung Un, such as the ‘June 28 Measure’ (i.e., policy on agriculture). They also suggest that once measures clear the testing stage, they will be implemented on a national scale.

They also explained that while additional new economic control measures are being adopted, these measures at the same time deal with issues related to production planning, price adjustment, and currency circulation. They added that new laws would have to be created, and explained that measures were being expanded that allow for the expansion of authority in the interest of reinvigorating production at factories and industrial sites.

Mention of price adjustment and currency circulation suggests that North Korea’s new economic reforms may not be limited to farms, factories, and industrial sites; rather, it hints at the possibility that North Korea will embark on much larger scale reform extending to the financial sector.

They explained that some farms which carried out the national plan last year implemented land distribution, and contributed to the right of factories and industrial sites to sell and trade freely. They added that such steps reflected the demands of workers.

The officials were reserved in their comments in regard to the timing of any future announcements related to North Korean economic measures: “If successes are consistent we can advance the reforms on a wide scale; but, for now, we need to keep an eye on progress.”

The officials added that they were being retrained in management at the University of the People’s Economy and taking classes about farm management and management at Kim Bo Hyun College.

North Korea emphasized the construction of an economic powerhouse at the beginning of May, and it is currently heating up in the fields of industry and farming by encouraging an increase in production. In relation to this, the Korean Workers’ Party is mobilizing media sources including the Rodong Sinmun, the Korean Central News Agency, and Korean Central Broadcasting.

Particularly, these media sources are emphasizing that obtaining a nuclear deterrent is the greatest asset on the road to economic construction. They are also claiming that increase in production is one means for the achievement of the new economic line of pursuing simultaneously economic construction and building of a nuclear force.

Now that the annual US-ROK joint unit tactical military field training drills, i.e., ‘Foal Eagle’, have concluded (as of April 30) and tensions on the Korean peninsula have subsided somewhat, North Korea’s new economic line is being assessed as one which is aimed at enhancing the economic livelihoods of North Koreans.

Posted in 6.28 Policy on Agriculture (June 28), Banking, Economic reform, Finance, Fiscal & monetary policy, General markets (FMR: Farmers Market) | Comments Closed

Chinese Banks cut ties with DPRK Foreign Trade Bank

Tuesday, May 7th, 2013

UPDATE 3 (2013-5-23): More news coming out on aid agencies that are facing new challenges in making payment transfers. According to the Associated Press:

Gerhard Uhrmacher, program manager for German humanitarian aid organization Welthungerhilfe, said when recent bank transfers failed, he managed to keep projects running by routing 500,000 euros ($643,000) to Chinese or North Korean accounts in China to pay for building supplies and other goods.

He said Welthungerhilfe, which signed the communique and works on agriculture and rural development projects in North Korea, has some reserves in Pyongyang but must also resort to carrying cash into the country by hand.

“It doesn’t give a good impression. We’re trying to be transparent, to be open to all sides and now we’re more or less forced to do something that doesn’t really look very proper because people who carry a lot of cash are somehow suspect,” said Uhrmacher who is based in Germany and has worked in North Korea for the past 10 years.

“Whatever you’re doing, everybody looks at you very closely,” he said. “That’s why we don’t like it because bank accounts are proper. Everybody can have a look at it and everybody can control it. Now we are forced to do something else.”

Some analysts said aid groups were simply “collateral damage” and that they will find a way to work around the sanctions as they have been forced to do in other countries. Others said the poorest North Koreas would be hurt if some humanitarian groups have to pull out of the country. The aid groups work on a range of issues from food security to improving health and assisting with disabilities.

UPDATE 2 (2013-5-23): Many NGOs are now unable to transfer funds to the DPRK. According to Reuters:

Aid agencies helping millions of people in North Korea could be forced to pull out after a Chinese bank cut ties with main foreign exchange bank, a humanitarian group said on Wednesday.

…

Some aid workers are now resorting to bringing in cash in person, putting them at personal risk. It is thought some agencies have only enough reserves to last a couple of months.

“All agencies with offices in Pyongyang are affected and everyone is extremely concerned,” Mathias Mogge, director of programmes for German aid group Welthungerhilfe, told the Thomson Reuters Foundation.

“This could eventually reduce our ability to carry out projects or even force a complete close down. If all the agencies had to pull out, it would affect millions of people,” said Mogge, who has just returned from the secretive country.

See here also.

UPDATE 1 (2013-5-10): Additional Chinese banks are cutting ties with the DPRK. According to the Asahi Shimbun:

China’s four largest state-owned commercial banks have suspended money transfers to North Korea as part of sanctions against Pyongyang’s missile launch and nuclear test.

The action was based on a direct instruction from a government agency, sources close to the banks said.

The Bank of China, the Industrial and Commercial Bank of China, the China Construction Bank and the Agricultural Bank of China took the step following North Korea’s third nuclear test in February, the sources said.

“North Korea came under sanctions over issues including the launch of ballistic missiles,” said a senior official at a branch of the China Construction Bank.

A source close to the Bank of China, which trades heavily in foreign currency, said the bank received instructions from a government agency that manages foreign currency trade.

…

A Chinese trading company in Dandong, a city in Liaoning province bordering North Korea, has been unable to transfer money to North Korea, a source close to the company said.

North Korean workers in China are also believed to be having difficulties sending money home.

However, the effectiveness of these financial sanctions remains to be seen since the amount of money North Korea’s Foreign Trade Bank has handled is unknown.

Much of the trade between China and North Korea is settled in cash or barter, a diplomatic source in Beijing explained.

An official at a Chinese trading company also said money can be brought into North Korea by human couriers.

The Financial Times offers additional information:

Nevertheless, the blockade is far from watertight. A smaller bank based in northeastern China across the border from North Korea said it was still handling large-scale cross-border transfers, an indication that Beijing is not willing to entirely cut off North Korea.

Here is additional coverage in the Hankyoreh.

ORIGINAL POST (2013-5-7): According to the New York Times, the Bank of China has cut ties with the DPRK’s Foreign Trade Bank:

The state-controlled Bank of China said on Tuesday that it had ended all dealings with a key North Korean bank in what appeared to be the strongest public Chinese response yet to North Korea’s willingness to brush aside warnings from Beijing and push ahead with its nuclear and ballistic missile programs.

…

Ruan Zongze, a former Chinese diplomat in Washington who is now a vice president of the China Institute of International Studies in Beijing, said the Chinese government was responding to a recent United Nations resolution imposing further sanctions on North Korea after its nuclear and ballistic missile tests and was not responding to American pressure. He noted that the Chinese government had recently encouraged state-controlled enterprises to follow the resolution in their dealings with North Korea.

…

In a single-sentence statement on Tuesday afternoon, the Bank of China said it has “already issued a bank account closing notice to North Korea’s Foreign Trade Bank, and has ceased accepting funds transfer business related to this bank account.”

A spokeswoman for the bank declined to say whether money in the account would be frozen or returned to North Korea. The spokeswoman, who insisted that her name not be used in keeping with bank policy, said the account had been closed by the end of April.

The Bank of China was the overseas banking arm of China’s central bank until the 1980s and is still majority-owned by the Chinese government, playing an important role in diplomatic and financial policy.

…

Mr. Cai said that the move by the Bank of China appeared to be “predominantly symbolic,” but later added, “It could have practical consequences, because North Korea is already under such heavy international sanctions, and China is such an important economic channel for it.

“If China narrows the door to North Korea, then its economic operations or financial flows could be affected,” he said. “But primarily this appears to be a way of China showing its views about their behavior, so that North Korea is more likely to rethink its actions.”

Here is additional coverage in the Washington Post.

Here is additional coverage in the Los Angeles Times.

Here is additional coverage in the Wall Street Journal.

Here is additional coverage in the Hankyoreh.

Read the full stories here:
China Cuts Ties With Key North Korean Bank
New York Times
Keith Bradsher and Nick Cumming-Bruce
2013-5-7

4 major Chinese banks halt money transfers to North Korea
Asahi Shimbun
2013-5-10

Posted in Banking, Finance, Foreign Trade Bank, International trade | Comments Closed

North Korean markets heavily filled with Chinese products and currency

Thursday, April 25th, 2013

Institute for Far Eastern Studies (IFES)
2013-4-25

After North Korea’s currency revaluation in 2009, North Korean currency is still unstable and North Korean markets near the DPRK-China border are reportedly filled with Chinese merchandise, with transactions being conducted mainly in Chinese yuan.

An online newspaper, the Daily NK, reported that markets in the city of Hyesan (Ryanggang Province) and surrounding areas are using Chinese yuan as the primary currency for transactions rather than local North Korean won. Rice prices are standard indicators of inflation in North Korea and even rice was reported to be exchanged in yuan. As the monetary value of domestic currency continues to fall, North Korea is experiencing hyperinflation and North Koreans are showing a preference for the more stable Chinese yuan over won.

With an exception of rice, vegetables, and seafood, manufactured goods including confectioneries, the daily necessities for sale in these markets are mostly from China. As well, some South Korean items such as instant noodles, Choco Pies, and butane gas are sold openly in the markets.

Border areas have a higher rate of Chinese yuan usage than inland areas, as for years traders have been buying Chinese goods with Chinese yuan to sell in the domestic markets. However, with the unstable domestic currency, more and more North Koreans have been using Chinese yuan over the last three years. Some report goods bought with North Korean won must be converted to the CNY exchange rate.

As of mid-April, the exchange rate of 100 CNY to KPW was 130,000. However, Pyongsong and Pyongyang cities used mainly US dollars and local won in equal rates.

A video recording obtained by the Daily NK unveiled the landscape of the marketplace and nearby alley markets of Hyesan and surrounding areas. Items for sale include jackets, mufflers, gloves, coats and other winter clothing as well as cosmetics, perfumes, toothpaste, toothbrushes and other daily goods. Transactions were being made in Chinese yuan.

North Korean authorities are waging a crackdown against the use of the yuan in the markets but merchants continue to use yuan in secret.

The high number of Chinese goods in North Korean markets can be attributed to the failed production system of the people’s economy of North Korea, which began to tumble in the late 1990s. As the regime began to invest excessively in its military sector, production in the manufacturing sector declined.

Although North Korean products appear in the markets, most people prefer Chinese goods due to their better quality.

A recent article in the official state economics journal of North Korea, Kyongje Yongu (Journal of Economic Research), criticized the “trade companies for focusing on only one or two countries,” expressing concerns that, “the whole nation may experience political and economic pressure from trade companies that restrict foreign trade to only one country.”

Kim Jong Un has also expressed official disapproval against “import syndrome” of the people and regarded it as an obstacle hindering the development of North Korea’s light industry.

Although no specific country was named, it is believed that China makes up over 80 percent of North Korea’s total foreign trade. North Korea continues to show vigilance against its rising dependence on China.

Posted in Banking, China, Finance, Fiscal & monetary policy, General markets (FMR: Farmers Market), International trade, Price liberalization | Comments Closed

Civil Cooperative Bank deposit and saving information

Monday, August 6th, 2012

Previously, I posted information on the Jaeil Credit Bank in the DPRK. Today, with the help of a much-appreciated reader, I offer some hard-currency deposit and saving information from the Pyongyang Civil Cooperative Bank (민사협조은행). The interest rates and time-to-maturity intervals are identical to the Jaeil Credit Bank, however, the marketing material for the Civil Cooperative Bank does a better job of explaining the how interest payments are calculated.

Pictured above is a marketing flyer for the bank taken in Pyongyang. Below is a translation of the flyer:

외화저금안내
Currency savings guide

보통저금 [Usual saving] 1%
정기저금(6개월) [Regular Saving (6 month)] 2.5%
정기저금(1년) [Regular Saving (1 year)] 6%
정기저금(2년) [Regular Saving (2 year)] 7%
정기저금(3년) [Regular Saving (3 year)] 7.5%
정기저금(5년) [Regular Saving (5 year)] 8%
정기저금(10년) [Regular Saving (10 year)] 9%

Civil Cooperative bank provides to its customers the best credit and financial services. It is our general policy to treat your account information as confidential and it will not be shared with the third parties.

Now a regular savings saver can withdraw their interest prior to maturity and the entire principal amount can also be withdrawn before the due date (maturity).

How to Calculate Savings interest
1. Interest of usual savings and regular savings will be calculated until the day before and if withdraw prior to maturity regular savings will also be considered as usual savings.

2. One year is 360 days and one month is calculated as 30 days.

3. If the maturity date of the regular savings passes the entire amount including the interests will be extended under the same condition.

4. If the bank changes the interest rate, the original interest rate will be applied until the date of the change and the new rate will be applied for the principal and extended.

Interest calculation and payment (if withdraw prior to maturity)
1. In case of 6 months savings 0.5% , in case of 2 years savings; until 6 months 0.5%, after that 1%, in case of a 3 years savings; until 6 months 0.5%, till 2 years 1% and in case of 5 years savings; until 6 months 0.5%, till 2 years 1%, till 3 years 1.3% and the rest 1.5%, if 10 years savings; until 6 months 0.5%, till 2 years 1%, 3 years 1.3% , 5 years 1.7% and the rest 2% of interest will be calculated and paid.

2. If customers, who already have withdraw the interest prior to maturity from the regular savings, want to withdraw the entire principal of part of it, interest will be calculated as described above with out the withdrawn interest from the principal.

Business hours: Mon-Fri 9.30 am – 5 pm

Posted in Banking, Finance, Fiscal & monetary policy | Comments Closed

Remittances to the DPRK

Wednesday, July 11th, 2012

Reuters offers a tale of how remittances from defectors in the South are making life easier for their family members who remain in the DPRK (a topic discussed here before). According to Reuters:

Next morning, she wired 15,000 yuan ($2,400) to the broker’s account at a bank in China, near the border. His wife confirmed receipt of the funds, informed her husband, and the defector’s brother got money in North Korea, a state where the average income is estimated at just $1,200 a year.

Brokers typically charge up to 30 percent fees for such transactions, but by and large, they work well.

“I heard it only took 15 minutes for my brother to get the money (after funds were wired),” said the defector, who is officially listed as dead in North Korea. “Two days later, my brother called me back saying ‘Thank you. We will spend your money wisely’.”

…

Some 70 percent send money home to the country they fled, says the Organization for One Korea, a South Korean support and research institute on North Korean defectors. Annual flows are estimated at $10 million a year as defectors try to help out families in a country where many are malnourished and lack access to basic healthcare.

…

Incoming funds from South Korea have become so significant that they have been dubbed the “Mount Halla Stream”, named after the tallest mountain in South Korea, said Kang Cheol-hwan, the author of “The Aquariums of Pyongyang,” a survivor’s account of North Korean gulags.

This has helped offset a decline in funds from ethnic Koreans living in Japan that dominated in the mid-1980s and was known as the “Mount Fuji Stream”.

“In the past, pro-Pyongyang people in Japan and some Korean Americans sent money but they grew old and strong sanctions from Japan also took a toll. So the generation providing remittances has changed and it is now the defectors in South Korea who are doing it,” said Kang.

I have also interviewed a few former North Koreans about remittances. They all report it is common and brokers charge about 30%.

Read the full story here:
Insight: A secret plea for money from a mountain in North Korea
Reuters
2012-7-11

Posted in Banking, Finance, Fiscal & monetary policy | Comments Closed

ROK investigates firms doing business with DPRK

Thursday, June 7th, 2012

According to the Hankyoreh:

Prosecutors carried out a large-scale investigation of companies involved in inter-Korean trade over the past year. They were seeking evidence of violations of the Inter-Korean Exchange and Cooperation Act (IKEC Act) in their remittances to North Korea. Around 200 such companies were found to have been fined.

The fined companies argue that their penalties are attributable to differing interpretations and application of the law by the Lee Myung-bak administration. The same actions were not deemed problematic under the administrations of Kim Dae-jung and Roh Moo-hyun (1998-2008). Those governments took a softer line on North Korea; things changed significantly when the conservative Lee Myung-bak government took office in 2008.

The Inter-Korean Economic Cooperation Promotion Committee, under chairman Jeong Yang-geun, estimated that as many as 200 companies involved in inter-Korean trade had been fined as of late May. A biggest change was the Lee government’s May 24 measures, put in place after the March 2010 sinking of the Cheonan warship. The measures suspended almost all transactions with North Korea.

Companies that were already on the brink of bankruptcy were stuck with fines ranging from one million to eight million won. Companies with high transaction volumes were fined the legal limit of 10 million won (about US$8500).

They were accused of violating Article 13, Item 1 of the Exchange and Cooperation Act, citing Article 4 of a Jan. 2008 Unification Ministry notice stating that anyone sending a third-party remittance to North Korea through a Chinese bank account must receive separate permission from the Unification Minister.

The president of Company “H,” identified by the initial “K,” has been called and visited several times since late last year by police public security officers and detectives from in and around Seoul and elsewhere investigating items brought in from North Korea. In April, he was summoned to a police station in South Gyeongsang province.

K had been involved in transactions since before the Kim and Roh administrations. He said there were no problems because the items in question were subject to blanket approval by the Unification Minister and had already passed through normal procedures.

The president of Company T, identified as Lim, was investigated on the same charge between January and April of this year. He confessed being cowed by the demand to travel from Seoul to a police station in Incheon and report to the security division there. He said he wasted time and suffered hardship submitting three rounds of documentation at the police’s request. Five companies had already been investigated by that same police station, Lim said.

“The police asked for an authoritative interpretation, and the officials at the Unification Ministry couldn’t make a proper judgment about whether there had been a violation. It was as though they had no idea such a rule existed,” he added.

The president of Company C, who goes by the initial “G,” paid a visit to Korea Exchange Bank in late 2007 to send a remittance to pay for sand, and was told that a third-party remittance was not possible. G went to the Bank of Korea. There, he was told they wouldn’t be able to do a remittance either. So he put one of the employees there in touch with the Unification Ministry. After that, he was able to notify the Bank of Korea and send remittances within their limit without a problem.

Some time around March of 2011, police launched an investigation and began calling him in. He asked them just what kind of permission he was supposed to receive. There was no information in the Jan. 2008 ministry notice about the procedure or documents for remittances. He also asked what kind of law for exchange and cooperation the IKEC Act was. G was fined according to another law after lawfully sending the remittance according to the Foreign Exchange Transactions Act.

Experts and attorneys countered that the transactions in question were already approved according to Article 13, Item 4 of the IKEC Act, which empowers the Unification Minister to issue blanket approvals to “items involved in transactions with North Korea, forms of transactions, and methods of payment.” And since North Korea does not have an international financial system, nearly all the companies’ remittances took the form of third-party transactions through Chinese banks.

Experts and attorneys said the fines could only be interpreted as prosecutors taking issue with the very notion of money being sent to North Korea. The businesspeople in question had also agreed with the ministry to follow a normal procedure of reporting third-party remittances to the Bank of Korea in accordance with the Foreign Exchange Transactions Act, they said.

An attorney for Corporation “T” said, “Not only is there ample room for debate about judicial authorities punishing activities deemed lawful by Article 13, Item 4 of the IKEC Act on the basis of the Unification Minister’s notice, but it also shows a disregard for what the ministry has recognized over the past years.”

Indeed, a trade company sent a question to the ministry asking whether any of the 500 firms it knew to be involved in inter-Korean economic cooperation had requested approval from the minister for third-party remittances to North Korea. None, the ministry replied.

The ministry was also found not to have taken any follow-up measures on documentation or procedures in its presiding offices after specifying in its notice that the minister’s approval was required for third-party remittances.

University of North Korean Studies professor Yang Mu-jin, a onetime secretary to the Unification Minister, said, “After the May 24 measures, now they’re killing these businessmen twice.”

But a senior ministry official said there was no problem with application of the law in the prosecutors’ investigation, although it was done without prior discussion with the ministry.

Another senior official said the notice was issued “in the interest of ensuring transparency in remittances to North Korea.”

Those on the receiving end of the fines said the measures were tantamount to using the Exchange and Cooperation Act to kill off the companies involved in exchange and cooperation.

“They’re about to keel over anyway because of the state inter-Korean relations are in,” one said. “What good is the law once all the companies are gone?”

Unification Ministry figures show a steady increase in the amount of North Korean items brought in through inter-Korean trade (including consignment processing), rising from US$258 million win 2004 to a peak of US$645 million in 2007. The level stayed above US$600 million as recently as 2008, the first year of the Lee administration.

But as relations with North Korean headed downhill, the numbers plummeted below US$500 million starting in 2009, finally bottoming out at US$4 million in 2011 after relations were severed with the May 24 measures.

Read the full story here:
When it comes to trading with North Korea, it’s no longer business as usual
HK
Kang Tae-ho
2012-6-7

Posted in Banking, Finance, International trade, South Korea | Comments Closed

Jaeil Credit Bank deposit information

Monday, May 28th, 2012

Dr. Seliger has sent in some interesting information on financial products being advertised to North Koreans. I will post it over the next few days.

Today we will look at the marketing materials for the Jeil Credit Bank in Pyongyang:

Here is what the marketing poster says:

외화저금안내 Currency savings guide

저금종류 리자률 (년리)% Interest Rate
Types of savings (per annum)%

보통저금
Usual saving 1%

정기저금(6개월)
Regular Saving (6 month) 2.5%

정기저금(1년)
Regular Saving (1 year) 6%

정기저금(2년)
Regular Saving (2 year) 7%

정기저금(3년)
Regular Saving (3 year) 7.5%

정기저금(5년)
Regular Saving (5 year) 8%

정기저금(10년)
Regular Saving (10 year) 9%

제일신용은행은 자기의 이름 그대로 경영전략과 자금관리에서 신용을 제일 생명처럼 여기고 있으며 개인저금잔고를 절대로 남에게 보여주거나 알려주지 않습니다.
Jeil Credit Bank, as the name of itself, consider credit of management strategies and money management as our life and does not show or share ones account information to others.

제일신용은행의 저금자들은 저금하는 날 혹은 저금 만기 전 임의의 날에 리자를 먼저 찾아 쓸 수 있으며 저금만기날이 아니라도 언제든지 필요하면 저금한 돈을 전부 되찾을 수 있습니다.
Jeil credit bank customers can withdrawal the interest before maturity at any time and if needed, all of the money from the savings can be withdrawn before maturity.

제일신용은행은 싱가포르와 50년간 합영계약을 맺고 있는 은행입니다.
Jeil Credit Bank has a 50 years joint venture contract with Singapore.

영업시간 월요일부터 금요일까지 오전 10시~12시 20분, 오후 14시~16시 20분
Business hours: Mon-Fri 10 am – 12.20 pm, 2 pm – 4.20 pm

제일신용은행
Jeil Credit Bank

Posted in Banking, Economic reform, Finance, Fiscal & monetary policy, Jeil Credit bak, Joint Ventures, Singapore | 2 Comments »

North Korea modifies laws to attract foreign investments

Thursday, February 16th, 2012

Institute for Far Eastern Studies (IFES)
2012-2-16

The KCNA announced on February 9 that the “Foreign Investment Bank Law” was modified and supplemented. According to the report, the amended law included “those businesses in operation for over ten years are exempt from income tax on the profit collected in the first year and Bank of Chosun [Bank of North Korea] will be exempt from business taxes on the interest revenue collected from loans provided to companies on favorable terms.”

The previous law already had regulations about exemption of transaction taxes but nothing on business tax. The foreign investment company and foreigner tax law regulated that two to ten percent of profit to be paid by the foreign companies in service and construction sectors.

While the prior law stated, “tax exemption will be provided for the first year for income tax on those businesses over ten years old, and 50 percent exemption will be given in the next two years,” the “50 percent limit” was omitted in the amended legislation.

According to the KCNA, “The law has 5 chapters and 32 articles which included the contents of categorization and specification for areas to establish foreign investment banks, property rights, and autonomy on business management.”

On February 10, the KCNA announced that the Foreign Investment Company Registration Law, Foreign Investment Company and Foreigner Tax Law, and Foreign Investment Company Bankruptcy Law were amended.

In reference to the ordinance of the Supreme People’s Assembly Standing Committee signed on December 21, 2011, provided that this law consisted of 6 chapters and 34 articles with specifics on business establishment, address, tax, and tariff registrations. However, no other details were given.

On January 30, the KCNA also reported the “Labor Law of Foreign Investment Company” was amended and supplemented. This law consists of 8 chapters and 51 articles on hiring and labor contracts, rest, protection, social insurance, and security.

In addition, the “Financial Management Law of Foreign Investment Company” and “Fiscal Law of Foreign Investment Company,” was also modified. However, no other details were provided.

The KCNA has reported that North Korea modified foreign investment laws previously in 1992, 1999, and 2004. This year marks the fourth amendment.

The news elaborated, “The DPRK is encouraging foreign companies to investment in our country based on complete equality and reciprocity and will not nationalize or collect the invested asset,” reiterating the safety and security of foreign investment.

Some analyze the recent amendment as an effort to attract more foreign investment into the country. Similarly, North Korea has recently announced the Special Economic Zone Act for the development of Hwanggumpyong and Wiwha Islands. In addition, the state-run Academy of Social Sciences published a newsletter emphasizing the rational tax investigation for foreign companies.

The Daily NK also reported on this development:

On February 10th, Choson Central News Agency (KCNA) reported fresh amendments to North Korea’s laws governing foreign investment.

KCNA revealed, “Chosun’s law on the registration of foreign-funded enterprises has changed. 34 articles in 6 chapters of the law, which was made according to a December 21st, 2011 decision of the Standing Committee of the Supreme People’s Assembly to cover the founding, residence, taxation and customs of businesses, have been amended.”

As is ordinarily the case, specific amendments were not included in the report.

On February 9th, North Korea also announced revisions to its Foreign Investment Bank Law issuing exemptions from consumption tax. Last month also saw revisions to banking as well as labor and financial management laws.

The amendments appear aimed at assuaging the fears of Chinese enterprises over issues such as the threat of expropriation. Indeed, China is said to have last month rejected initial laws governing the management of special economic zones at Hwanggeumpyeong and Wihwa Island nr. Shinuiju for a variety of reasons.

Read the full story here:
NK Investment Laws Get Another Makeover
Daily NK
Kim Tae Hong
2012-2-13

Posted in Banking, Finance, Institute for Far Eastern Studies, Law on Foreign Investment, Law on Foreign-funded Banks, Supreme Peoples Assembly | Comments Closed

North Korean Economy Watch