North Korean Crime-for-Profit Activities

Publication Date: August 2008

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Justice

Type:

Coverage: Korea (North)

Abstract:

Strong indications exist that the North Korean (Democratic People's Republic of Korea or DPRK) regime is involved in illicit drug production and trafficking, as well as production and trafficking in counterfeit currency, cigarettes, and pharmaceuticals, with drug trafficking likely decreasing and counterfeiting of cigarettes expanding. Overall, the reported scale of this activity is significant and arguably provides important foreign currency resources to the military-oriented North Korean state. Media reports also indicate that North Korea may engage in insurance fraud as a matter of state policy. DPRK crime-for-profit activities are reportedly orchestrated by a special office charged with bringing in foreign currency under the direction of the ruling Korean Worker's Party.

With the caveat that dollar value estimates of clandestine activities are highly speculative, conservative/mainstream estimates suggest North Korean criminal activity generates as much as $500 million in profit per year, with some estimates reaching the $1 billion level. A core issue is whether the income from the DPRK's reportedly widespread criminal activity is used to finance the acquisition of weapons of mass destruction, thereby strengthening the DPRK's ability to maintain what many view as its -- to date -- truculent, no-compromise position on curbing its aggregate level of criminal activity. Moreover, the DPRK has on numerous occasions linked its ongoing participation in the Six-Party Talks to the lifting of U.S. restrictive measures against Banco Delta Asia which are designed to sanction the Macau-based bank for its reported longstanding role in facilitating the money laundering of proceeds linked to DPRK criminal activity.

Policy analysts in the past have suggested that North Korean crime-for-profit activity has been carefully controlled and limited to fill specific foreign exchange shortfalls. However, increasing concern exists that North Korean crime-for-profit activity is becoming a "runaway train," gaining momentum, and possibly out of control. As the DPRK's crime-for- profit activity becomes increasingly entrenched, and arguably in some cases decentralized, analysts question whether the Pyongyang regime (or any subsequent government) would have the ability to effectively restrain such activity, should it so desire. Moreover, some suggest that simply replacing DPRK crime-related income with legitimate-source income would ignore the need of the current regime to divert funding to slush funds designed to sustain the loyalty of a core of party elite numbering in the tens of thousands and to underwrite weapons development programs. They argue, therefore, that prospects for a decrease in crimefor-profit activity do not bode well for the current regime as it appears to be neither willing nor able to change its dependence on income that is unaccountable.

A challenge facing policymakers is how to balance pursuing anti-drug, counterfeiting, and crime policies vis-a-vis North Korea against effectively pursuing other high priority U.S. foreign policy objectives including (1) limiting possession and production of weapons of mass destruction; (2) limiting ballistic missile production and export; (3) curbing terrorism, and (4) addressing humanitarian needs. This report may be periodically updated.