Of Missiles and Money: The North Korean Quagmire

Michael Richardson | 28 Jun 2020

The United States has been applying an unprecedented financial squeeze on North Korea to disrupt what the Bush administration says is an array of illicit manufacturing and trading activity that helps to pay for Pyongyang's weapons of mass destruction and the ballistic missiles to carry them.

The success of this crackdown is one of the reasons why North Korea has recently threatened to launch a long-range missile over Japan into the Pacific Ocean in the direction of the US mainland. Pyongyang is desperate to get the financial sanctions lifted because they have sharply curtailed its ability to do any business, legal or illegal, with the outside world.

It has called for direct talks with the US. Washington has refused, saying any negotiations must involve other concerned countries including China, Japan, Russia and South Korea. Along with the US and North Korea, they are the participants in the six-party talks hosted by Beijing and designed to persuade the North to abandon its nuclear program.

Pyongyang has been saying since January that it will not return to these talks, which adjourned inconclusively in November, unless the US lifts its financial sanctions. North Korea has denied US charges that it is involved in large-scale counterfeiting and distribution of US currency. Washington maintains that it is enforcing the law and that this issue has nothing to do with the six-party talks. US officials have alleged that North Korea earns at least $US500 million a year in profits from forging US currency and other criminal activities, including trafficking in heroin and other drugs, and manufacturing and distributing fake cigarettes and medicines.

The Bush administration has been ratcheting up the pressure on Pyongyang by cracking down on companies in Asia that it suspects of helping North Korea counterfeit and launder US dollars.

Banco Delta Asia, a bank in the Chinese territory of Macao near Hong Kong, said in February that it had cut all ties with Pyongyang. It also said that it was putting in place improved procedures to prevent money laundering and would not any more business with the North.

The moves by Banco Delta Asia are its latest attempt to recover its reputation and revive its business since the US Treasury Department put it on a blacklist last September as a prelude to cutting off the bank's access to the US financial system. Other overseas banks in Asia, Europe and elsewhere also closed the accounts of their North Korean customers, after receiving warnings from the US Treasury. These banks feared they would be prevented from doing further business in the US, a key hub for international financial transactions.

A report in March by the US Congressional Research Service said that North Korea was estimated to earn from $US15 to $US25 million annually from counterfeiting US currency. The Treasury accused Banco Delta Asia of being a front for North Korean criminal activity for over 20 years. The following month, it blacklisted eight state-owned North Korean firms for alleged involvement in spreading WMD and their delivery systems and froze their US assets.

Foreign residents in Pyongyang say that Washington's action has virtually paralysed North Korea's ability to trade. Because the North Korean currency is not convertible, companies or individuals in North Korea must pay for imported goods in cash, mainly US dollars.

Nigel Cowie, general manager of Daedong Credit Bank, the only foreign-run bank in North Korea, told a meeting of the European Business Association in Pyongyang last month that US financial sanctions unfairly hit banks like his that were conducting legitimate business and had strict procedures for detecting fake US currency. He warned that the end result would be that legitimate businesses in North Korea "either give up, or end up appearing suspicious by being forced to use clandestine methods."

The US Treasury said in September that it was difficult to determine the extent to which Banco Delta Asia was used for legitimate purposes, adding that although the bank was likely to have engaged in some normal activity, this was "significantly outweighed by its use to promote or facilitate money laundering and other financial crimes."

About $US24 million in North Korean assets have been frozen at Banco Delta Asia while investigations into the bank's activities and its accounts by the Monetary Authority of Macau are completed. This suggests that both the Macau administration and the Chinese government are treating the US allegations seriously.

China has not commented publicly on the issue. The US decision to hit North Korea with financial sanctions came at a particularly sensitive time and prompted speculation that some hardliners in the Bush administration want to scuttle the six-party talks and instead try to undermine the North Korean government by imposing a blockade and starving it of funds.

However, Washington has said that it is ready to resume the six-party negotiations at any time, provided there are no preconditions such as lifting financial sanctions. If Pyongyang agrees, it will be a measure of Chinese influence. For the counterfeiting charges brought against North Korea by the US are a frontal assault on Kim Jong-Il's government.

US officials have suspected for years that North Korea's political leadership was behind the circulation of phony $US100 bills, known as 'supernotes' because they are sophisticated forgeries. But they say it was only by the autumn of last year that they were able to gather sufficient evidence to press charges. In four criminal cases and one civil enforcement action, US federal authorities have made public hundreds of pages of supporting documents. They depict a criminal network involving North Korean officials, Chinese gangsters and other organized crime syndicates, Asian banks, Irish guerillas and an ex-Soviet KGB agent.

In one of the cases, the US Justice Department indicted a leading member of an Irish Republican Army splinter group on charges of conspiring with Pyongyang to put millions of dollars of counterfeit US currency into circulation in Asia and Europe. The arrest of Sean Garland and six alleged accomplices marked the first time the US has formally cited the North Korean government in a US court on counterfeiting charges.

US authorities are concerned that North Korea has become increasingly enmeshed in its illicit operations with international criminal gangs. They say that these alliances for distributing counterfeit US currency as well as drugs and cigarettes are also potential future pipelines for sale to nuclear traffickers or terrorists of material that could be used to make weapons of mass destruction.


Michael Richardson, former Asia editor of the International Herald Tribune, is Visiting Senior Research Fellow at the Institute of Southeast Asian Studies.

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