How North Korea Makes Money and Evades Sanctions

(dramatic music) - [Newcomb] What's going on with North Korea today mostly centers around development of weapons of mass destruction and ballistic missiles to deliver them. - [Kim] We don't even see North Korea as a country. It's basically like a mafia state. (dramatic music) - [Bechtol] The rhetoric that all of the Kim family regime has exhibited, it's very obvious that they are causing security issues through their proliferation in the Middle East and parts of Africa. - [Kim] As the Kim regime becomes more sophisticated with weapons, with cyber, with human rights violations, the problem is only going to get bigger. - [Takeuchi] Any country should carefully monitor the activity of the North Koreans overseas.

- [Gatebe] WMDs from rogue countries, such as DPRK, that is North Korea, you'll find that they'll end up in relatively stable countries. - [Mallory] Most people don't realize that military training and assistance is not permitted under UN sanctions, nor is the refurbishment or maintenance of military equipment. These are both activities that North Korea makes a lot of money off of, which are actually illegal. (dramatic music) - [Kim] Countries like Iran, Syria, countries in Africa, they're actually becoming more and more networked into North Korea's chain of operations. (dramatic music) - We have not a smoking gun but a smoking howitzer that North Korea has proliferated nuclear weapons.

(dramatic music) - The Korean War was started because the North Koreans invaded South Korea. Surprise attack. They thought that by doing so, they'd be able to reunify the two Koreas under the banner of communism.

Since the Korean War ended in a stalemate, they're still technically at war. (soft ominous music) - North Korea is considered aggressive and reckless because they never really accepted the outcome of the Korean War. They launched a ground assault on the South Korean presidential residence, the Blue House. They tried to bomb and kill South Korean ministers.

They made 15 different attempts to infiltrate South Korea across the demilitarized zone separating the two countries. And they were responsible for 50 other violent cross border incidents. And then, to top it all off, they acquired nuclear weapons. They conducted six nuclear tests and started threatening South Korea, Australia, and the United States that they would use those nuclear weapons against them.

- The acquisition of nuclear weapons originally was the brainchild of Kim Il-sung. in the late 1970s. It became obvious that the Soviet Union was having political troubles and may collapse from within.

By the 1990s, he had really put a focus on the nuclear weaponization program, because by then it became obvious that North Korea was essentially going to be on its own for its national defense and for its place in Asia and the world. The North Korean Constitution actually has nuclear weapons written into it. - I think it's a response to the devastating airstrikes that reduced almost everything in North Korea to rubble.

- They believe that this is the way to be the equal footing partner for the negotiations with other countries. And also for the survival of the regime. (cheerful band music) (speaking in foreign language) But North Korean proliferation activity is also a serious concern.

(cheerful band music) - North Korea engages in WMD proliferation of both nuclear weapons and chemical weapons, but that also includes ballistic missiles. And North Korea has sold ballistic missiles all over the Middle East and to Libya and Egypt as well. So that's one. Two is conventional weapons sales. And they've engaged in conventional weapons sales to at least a dozen countries in Africa in the past five years. - In Kenya, one of the key issues that we have put as a preamble, preventing proliferation of biological and chemical WMDs, and to be able to know what comes in, what goes out and who is doing what.

(inspirational music in foreign language) - The only way for Kim Jong-un to maintain his relevance and to have control over his regime and to make himself up to par on the same level with his competitors is to hold onto his weapons program. And he needs the money. - This just came out: a combined gold and silver laundering operation was run out of the UAE by the North Koreans and the Iranians together. This is the kind of thing that the North Koreans have to do. - Doing illicit activities, doing transit, transshipment, what you generate is the money. Finance the activities.

- [Kim] We're talking about making statues. We're talking about North Korean weapons of mass destruction, North Korean narcotics, North Korean personnel that are being traded or used by the North Korean government to generate revenue. - They also use that money to help support the elite and keep Kim Jong-un in power. It's being used to support a rogue state that is a real threat to the stability of Africa, the Middle East, and even Northeast Asia.

- The fact that the North Koreans are evading laws and regulations, I don't think that's a reason for us to give up. I think that's a reason for us to be even more disciplined. - The objective is so worthwhile that I think you have to pull out all the stops to try to get them to the negotiating table, to try to get them to realize that their future is much better without the WMD and the ballistic missile program. (clapping) - We have plenty of past precedents to show us, North Korea is very likely to want to engage in talks so that they can get released from a lot of sanctions that they're under. So it's important to them that they address nuclear weapons, but traditionally talks have always ended when it came to verification. - [Mallory] It is unrealistic to expect North Korea to denuclearize. The best that we can hope for

is that North Korea agree to limits in exchange for some relief from sanctions. But two previous rounds of negotiations failed. So we should be clear-eyed. The main purpose of sanctions is to restart talks. And one of the first things we hope to achieve is to put a stop to these proliferation activities.

There are two types of mechanisms essentially. There are multilateral export control regimes, and there are sanctions. The export control regimes are things like the Nuclear Suppliers Group, which tries to restrict the supply of critical nuclear technology, the Zangger Committee, which tries to enforce the nuclear Non-Proliferation Treaty, the Australia Group, which tries to limit the proliferation of chemical and biological weapons, the Missile Technology Control Regime, which is a group of nations that try to prevent the proliferation of ballistic missiles, there's the Wassenaar Agreement that tries to limit the proliferation of conventional weapons, and then there's the Financial Action Task Force that tries to prevent abuse of the international financial system, and there's the World Customs Organization that helps countries improve their customs services. - The Nuclear Supplier group, the Zangger group, the Australian group, they help to prevent, or to be able to come up with the legislations. Or even when we are setting up such systems, they can come in and give support to the member states. - [Mallory] And then there are sanctions.

- Sanctions are intended to bring countries, entities, businesses, individuals, example, North Korea, into compliance with international norms. - You go after what matters to the decisionmakers or the activities themselves that are most threatening. - The authority under which the UN imposes sanctions is the fact that all 193 member states have signed up to observe the charter of the United Nations, which has the force of international law. - So the resolution is done under Chapter VII, Article 41. Anything that states can imagine, they can do. So political, economic, diplomatic, transport, finance.

- It is also part of our obligations for the United Nations Security Council Resolution 1540, which basically requires all member states to develop regulations or laws and anchor them, enforce them, in terms of controlling some of these materials. - And then there are other sanctions such as a ban on the sale of luxury goods to North Korea, a ban on international travel by North Korean officials. And they have issued 21 resolutions since 1948 relating to North Korea.

- But 2006, we saw a two kiloton explosion. (rumbling) And when we saw the last nuclear explosion, it was over 250 kilotons. We saw a whole bunch of short range ballistic missiles over the past three years that were brand new, and we have seen them continue to refurbish, replace and resupply their conventional forces.

So they've grown it gradually over the years, and you can only do that by pumping money into the research into dual-use technology, into testing, et cetera. - To address North Korea's WMD activities, the United Nations imposed their sanctions in 2006. And since then, nine consecutive resolution were adopted.

The sanctions are raising the cost of development of nuclear and ballistic missiles. - In terms of finance, North Korea has been shut out and the sanctions themselves now include export revenue generators and raw materials and fuels and imports of machinery and equipment. They cover, again, all the military, transport, and imports of fuel oil, exports of coal, iron ore, zinc, graphite, lithium, things of that sort. - [Mallory] North Korea has both multilateral sanctions imposed by the UN and the European Union, but also it has unilateral sanctions imposed on it by countries like Australia, China, Japan, the Republic of Korea - South Korea, Russia, the United Kingdom and the United States.

So, more countries than most people realize. Secondary sanctions are a type of sanctions imposed, I think almost uniquely by the United States, where the United States seeks to constrain the activities of third country nationals and entities with the U.S. Department of the Treasury, where you have the Office of Foreign Asset Control, OFAC, and you have the Financial Crimes Enforcement Network, FINCEN, but also the Department of Commerce and the U.S. Department of State. - [Newcomb] Sanctions are actually a peacekeeping measure. The international community's most powerful non-kinetic response to threats to international peace and security. - Let's just take Africa as an example.

This is one case where it's very clear to see how North Korean proliferation activities really have an impact and why it matters. (people chatting) - When Kenya implements the sanctions, they might not be 100% because we share common borders. So you find it's a bit difficult. - For Africa, what we can see is potential opportunities for instability in the region.

Chances of potentially an arms race. - Our neighbors, our partners, our African countries, when it comes to implementing the sanctions, porous borders, like ports, are potential areas where materials can pass through. Proliferation can take place. - You don't want North Korea to be arming your internal or external opponents.

- And this is why the sanctions are so important and why it's so important for nations to comply with the sanctions. - Another thing you want to avoid is capital flight. Countries that have done business with North Korea have ended up being defrauded.

- Any country could be used by North Korea as either a source of income or the route for the proliferation activities. - They can threaten areas of the globe that they couldn't years ago, because the range has lengthened. - Nobody will be happy if the missiles flew over your land. - There's an advantage to countries that have good export control. They're more attractive to exporters.

There's more security in the trade front. They become, they move up the ladder for the more sophisticated industries. - We're all making the effort for that better environment, safer world. And what North Korea is doing is opposite.

- North Korea is constantly changing its tactics, techniques, and procedures. A state that is one of the most heavily sanctioned countries on Earth. - There are three or four different types of entities and individuals who are involved in North Korean sanctions evasion.

Accredited diplomats of North Korea who perform a multitude of roles. Then there are people who don't have the benefit of diplomatic immunity. Who are there under non-official cover. Then there are trusted third country nationals, sort of like a criminal syndicate, whom North Korea recruits to help them engage in this activity, and by having a third country national, it's not associated with North Korea. A front company is a company that actually has legitimate business activity that is used to mask something illicit.

A shell company is a company that exists on paper only. It has no employees or anything, but it's registered, it's on the books, and it can be used for processing transactions. - [Bechtol] North Korean diplomats are some of their major operators. - [Takeuchi] North Korea's diplomats are sometimes involved in commercial activities. - Pyongyang told all of its embassies worldwide that they had to be self-sufficient.

Now, think about what that means. The embassies have to maintain themselves unlike any other country I know in the world. - In the case of Austria, they ran a bank called Golden Star Bank. - I believe it was in Spain.

The North Korean Embassy was engaging in an Uber type service to be self-sufficient. - That's not compatible with the international conventions. - [Mallory] This is a visualization of the North Korean sanctions evasion network. Each of the nodes is an entity and each of the lines is a relationship. The size of the nodes indicates the relative importance of their position within the overall network.

The color of the nodes measures the connectedness of that entity's neighbors. Green nodes are very well-connected. Red nodes are poorly connected. Thicker lines denote more important relationships between nodes, and their color indicates the type of activity involved. Red lines are dual-use or restricted technology procurement. Green indicates hard currency generating activities.

Blue depicts smuggling, money laundering, and hierarchy. If we want to get North Korea to return to talks, then we have to focus on interdicting these entities by enforcing sanctions. - [Takeuchi] Malaysia-Korea Partners is one of the examples of the involvement of the North Korean diplomats in Uganda. They have several companies in Uganda, including security, mining and construction. - Malaysia-Korea Partners is an umbrella company of a lot of other different initiatives, many of which target Sub-Saharan African countries, some of which involve fraud. It's not the most reliable partner.

(dramatic music) - [Mallory] To monitor compliance with North Korean sanctions, the United Nations Security Council appointed a Panel of Experts, which produces reports like this one on MKP. - When they go into an African country, they seek out people of positions of influence. Somebody that's high in government or was high in government or married to somebody high in government or the child of somebody high in government. - Uganda is a very big business partner of North Korea's to build housing. It does so by employing overseas Korean workers whom it pays a pittance.

- [Takeuchi] North Korean workers have to donate some money to the embassies. - North Korea engages in the manufacture of illegal narcotics, illicit fishing, the selling of illicit rhino horns. - [Mallory] And the bulk of the money goes back to North Korea, where it is used to fund proliferation. - The way the North Koreans would often get the money out of Africa would be through the use of hundreds of intermediaries who, for example, would take money orders or cashier's checks for $9,999 so they didn't get flagged.

- They also carry bullion, gold bars, and jewelry. - If you are doing trading in gold which is smuggled, it means you are not doing legitimate business. You are liable for sanctions. - And these hundreds of guys would end up back in Malaysia, where they would get paid off by members of Office Number 39. Which answers directly to the Korea Workers' Party, which answers directly to Kim Jong-un. - Office 39 is the unit that was set up to support the top leadership.

What I call the palace economy. - Another thing that MKP did is they bought a stake in a Zambian bank. North Korean diplomats opened multiple bank accounts for MKP in Zambia. That's placement. So, these are three classic techniques of money laundering. Placement is how you introduce funds covertly into the financial system.

- In the host country, North Korea actually puts monies under North Korean names, but they're assumed names and they're called Koreans, not North Koreans, in the banks in that host country. - Most financial institutions have to produce a suspicious activity report if you move more than $10,000. So what people will do is make multiple deposits of a sum of money just below the threshold that has to be reported by banks. Layering is moving money around to obscure its origin. So once you've got it into the bank, you move it through four or five or six different locations so that it becomes almost untraceable. - The money typically goes through three or four layers before it gets back to its resting place, which is typically not North Korea.

Bank accounts in places like Singapore, Malaysia, Vietnam, China, Russia. - [Mallory] And then integration is when you actually want to use the money to buy something. - To deal with the diplomatic missions' illicit activities, also United Nations Resolution has two big clauses. One is to limit or reduce the number of the staff working for the diplomatic missions of North Korea.

And another obligation is the member states have to limit the bank accounts of the North Korean diplomats. One per person and one per mission. - The second thing is from my good friend, Kim Kwang-jin, who defected from North Korea while he was in Singapore. He and his wife and his son. He was at the embassy.

He had nothing to do with the embassy. He worked for Office Number 39. And most of the embassy, according to him, was not either.

They were there to conduct clandestine activities. - [Mallory] A North Korean working for MKP was called Pak In Su. He also used the alias Daniel Pak, and he was selling coal, which is sanctioned, North Korean coal, while being embedded in this company. - People that get sent overseas do take on multiple identities, and typically they carry several different passports and they have several different aliases so that it's much harder to track them down.

And this has proven to be actually a very good methodology. It is hard to track these guys down. One guy, for example, in Africa may end up in one country there when he's found out to be engaged in illicit activity or caught by the UN or by the host country or by the U.S., he just moves on to another country, picks up a different alias, starts using a different passport.

MKP is the iconic example of a country that has very, very strict counter-proliferation laws, that is to say, Malaysia, but has totally, totally been infiltrated by Office Number 39 for the Korea Workers' Party in North Korea. - The head of the MKP, Mr. Han, is also working for the Reconnaissance General Bureau.

That's a North Korean intelligence agency. - When a company is being run by the Reconnaissance General Bureau, military folks, not in uniform, that doesn't mean that they're somehow an independent entity. In fact, where the RGB goes, so goes the MSC, Military Security Command, which is the equivalent of the Gestapo in North Korea.

(soft ominous music) - It's not always straightforward doing business with North Korea. Uganda is a very big business partner, yet they ended up losing $5 million, which MKP just simply decided to keep for itself but was supposed to be used to build housing. Another thing that MKP did is it provided a South African business partner, who was trying to do business with Rwanda, with counterfeit financial statements and a counterfeit bank guarantee.

So, you have to be very careful when doing business with North Korea, because there's a good chance you might end up getting defrauded. And this is by no means the only example. - They have front companies in Malaysia. Some of them just come up for one transaction and then disappear forever. - New World Trading. It was a man and a woman posing as husband and wife.

It was just two people and a fax machine doing business, brokering stuff to missile projects in Egypt. So that's all it really takes. - MKP obviously was not that type of company.

- MKP is actually a front company for a North Korean government entity called the Korea General Corporation for External Construction. When the United Nations looked deeper into MKP, they found a conglomerate of companies that had been hiding in plain sight for 14 years, claiming to be active in 18 countries in Africa. It's been detected in the United Arab Emirates and also in Russia. They employ somewhere in the region of 300 overseas Korean workers in Russia to generate hard currency for North Korea.

- The money generated by MKP is eventually used for their government for the activities prohibited by the United Nations. (guns blasting) - A lot of the African countries still use the old Soviet-era infrastructure for their national security uses. So countries such as Ethiopia, Eritrea, Angola, Tanzania, Mozambique, even Uganda.

So the North Koreans do a lot of refurbishment. - North Korea still have the skills to fix old weapons, and that's one source of income. And that's why it was prohibited by the Security Council Resolutions. (dramatic music) The tactics used in the Chong Chon Gang case is particularly significant.

- It started off when some Panamanian officials stopped a North Korean flagged vessel passing through the Panama Canal on its way back to North Korea from Cuba. The declared cargo was sugar. And there were, in fact, 20,000 bags of sugar in the vessel.

But underneath those 20,000 bags of sugar, which it took them some time to unload, they found 25 containers with weapons in them. A real arsenal. (soft ominous music) There were six surface to air missile systems in there, there were military radar systems in there, there was ammunition, and there was equipment to manufacture ammunition. There were two MiG aircraft that had been partially disassembled.

There were 15 MiG engines intended to help them refurbish aircraft in Africa and elsewhere. And what's interesting about this case is just the variety of different tactics they used to try and obscure the shipment. When they arrived in Cuba, diplomats from the North Korean embassy paid for the crew's salary. So again, we're seeing North Korean diplomats engaged in activities incompatible with their diplomatic status under the Vienna Convention. You have to file a stowage plan when you're entering or leaving port. There was no indication that there was any kind of military cargo there when they filed that stowage plan.

The military aircraft that they eventually dug out had had their markings removed. This is another common tactic. When they sell ammunition, they'll scratch off the North Korean markings so you can't tell it comes from North Korea. - The concealment of cargo is the technique that North Korea is using, but also the physical disguise of the ship's identity, so that other countries monitoring North Korea's transfer cannot immediately identify the ship as a North Korean ship. - Every ship above a certain tonnage has to have a transponder on board called an Automatic Identification System or AIS.

They switched off their transponders so they couldn't be tracked. And North Korea does this a lot. Not only did they turn off the AIS system, but when it was on, they transmitted a false IMO number, a number identifying the vessel, and that is a tactic known as spoofing.

- [Takeuchi] Chong Chon Gong is a North Korean vessel owned by OMM. - The Ocean Maritime Management case or OMM, the Panamanian officials were quite surprised. When having removed 10,000 tons of sugar, they found all this equipment. They looked into it and they discovered that a company called OMM Brazil had paid for the fee of this tanker to cross the canal. And when they inspected the vessel, they found coded communications with this entity called OMM Vladivostok. So they started asking themselves, who's this OMM? It turns out that OMM is a front company for the North Korean Ministry of Marine and Land Transport created by a North Korean intelligence operative working for the Reconnaissance General Bureau.

And it had 34 different entities in 11 different countries, and had been operating for 14 years. The ships that they were servicing, one service would come from a front company in one country, and another service would come from another front company, a completely different country, making it more difficult to trace. The logistics were handled by one set of companies and the financing was handled by another set of companies. And in another typical tactic, when wire transfers were made to fund the activities of these ships, the names of the ships were stripped out of the wires so that you couldn't make a link between the two. This network visualization shows how the vigilance of a small group of customs officers in Panama led to the disruption of a significant part of the North Korean sanctions evasion network by exposing OMM.

- This is the kind of stuff North Korea does. Now, every once in a while, we get lucky because the North Koreans use a North Korean registered ship like they did taking that stuff from Cuba through the Panama Canal. But most of the time, that's not how it works.

They've flown under flags of Mongolia, Kiribati, Tuvalu, Niue, Sierra Leone, Tanzania, Cambodia, Comoros, et cetera, et cetera. And the other interesting thing about where the Panamanians actually caught them was that it was under bales of sugar. So when they actually went down and actually were going to start taking this stuff out, they couldn't because there was so much sugar on the ship, it attracted bees. And the bees just stayed for a couple of weeks. So it took them a while to get to the weapons.

On a side note, the ship that was stopped carrying Scud-C's into Yemen, the declared cargo on that ship was cement. And you just lift the cement up and there's the Scud-C's. There was about a dozen of them. (birds squawking) One procedure that a defector actually told us in the past, and that's transporting a container across the border into China filled one-third with weapons or other military related gear. It then goes to another place where they put normal legal cargo on top of it. It then goes to another place where they put it on a ship that may not be related to North Korea or China.

So it's actually very easy because so few containers get inspected. Containers that go through the Indian Ocean, which is where you have to transit obviously to get to the Middle East or Africa or the Pacific Ocean. The number of containers that actually get inspected is less than 2%.

- One of the targets of sanctions has been North Korea's exports. When North Korea went through the famine of the '90s, it suffered an industrial collapse. A lot of those industries have not come back. And so instead of exporting steel, North Korea started exporting iron ore.

Instead of exporting washed enriched coal, it'd be exporting raw coal. Zinc, graphite, lithium. And the sanctions were now targeting these traditional sources of export earnings. - There's several new tactics used by North Korea to address the tightened control imposed by the UN North Korean sanctions regime. For example, the UN limits the import of fuel to North Korea. And to deal with that, North Korea is using the technique called ship to ship transfer.

They transfer prohibited items. Mainly it was used for illicit import of fuel, but also illicit export of coal. - It uses North Korean flagged ships, but it also uses foreign ships under foreign flags captained by North Koreans with North Korean crews to try and evade sanctions enforcement.

- The flagged and reflagged vessels, some of which are North Korean, some of which are leased ships, it may be flying under the flag of Tuvalu or Tanzania or Mongolia. Why would that be a red flag to somebody to inspect that ship? Because we know that the North Korean transshipping, their merchant ships are under a microscope. Well, when you reflag, you take a lot of that away. - They use forged documents to disguise the origin of the coal. They use the technique to just put the coal first North Korea to Russian port, and from Russian port, they just put it back disguising as if these are Russian origin coal.

(upbeat band music) - What that really means is these rust bucket ships, these old merchant ships and old tankers are now going all over the Pacific, but specifically to "black market" ports in China to Taiwan, the Philippines, Africa, and selling their coal there, or buying oil at obviously raised prices because they are under sanctions. - Because of that, every port authority has to carefully monitor North Korean related activities. - This has been a very cleverly run operation by the North Koreans, but it also shows that sanctions work. Because if you look at the figures of the UN Panel of Experts, it shows that coal exports went down 67%. - North Korea utilizes its embassies again.

They'll provide so-called "diplomats" with shopping lists acquiring restricted technologies, seeking out companies that are on hard times that would serve as intermediaries, or individuals that might be susceptible to being bribed. (dramatic music) - [Takeuchi] Glocom is a front company in acquiring parts. - The Glocom or Pan Systems Pyongyang case is an example of the tactics that North Korea uses to covertly acquire restricted use, dual-use technology. - They have to do it because North Korea doesn't have the manufacturing capability to supply a lot of these specialized but low level, low tech products. - So it turns out that Pan Systems Pyongyang or Glocom had a Beijing representative and his name was Pyon Won-gun.

And he administered a network of 20 companies in mainland China and Hong Kong, whose occupation was acquiring components for the manufacture of military electronics. - Military grade or paramilitary use materiel, especially radio communication devices. - He controlled bank accounts, including one at a bank called Daedong Credit Bank, which was a joint venture between North Korea and China. So another illicit entry point into the international financial system, where North Korea's role is obscured because it's a minority shareholder. Pan Systems Pyongyang or Glocom also had an activity in Singapore that was started in 1998 by Ryang Su-nyo, another intelligence operative, and they used the office in Singapore to source electronic components internationally for manufacture in North Korea. They also had front companies or front men in Japan, in Taiwan, and Myanmar.

An aircraft on its way from North Korea to Eritrea was searched while refueling and found to contain 45 crates with military radio equipment and this label Glocom. And when they looked at the rucksacks the radios were packed in, there was cigarette carton used as reinforcement. And when they looked at the cigarette carton, it had a North Korean brand name on it. So they started looking into Glocom and found that it had a website advertising a whole range of military electronics products, claiming to be based in Malaysia.

But when they checked, the website was actually not in Malaysia. It was hosted by a North Korean restaurant in Vietnam. And when they checked for the address it gave in Malaysia, there was no physical office there. And when they checked for Glocom in the Malaysian Companies Register, there was no entry for Glocom. So Glocom turned out to be a complete fake.

This is typical, by the way. - Pan Systems Pyongyang operates a couple of factories where they manufacture battlefield radio and other tech equipment for maintaining command and control. And then they market that particularly in the Middle East and Africa, but any other place, they can find some willing candidates. - The poor Eritreans appear to have been ripped off. The military radios that were being shipped to them in that aircraft were sold to them for $8,000 a pop. But the components that they were built from, we have documentation showing that it cost Pan Systems Pyongyang $15 to acquire those components.

So that's a 5,000% markup, which is probably why they're being transported by air because North Korea has a very limited fleet of aircraft and only uses them when it's impossible to hide the military origin of the cargo being transported or a very high value transaction is involved. - The concern of the Glocom and Pan Systems activity is that they can send the items, not only to countries, but also any non-state actors who could be a terrorist, who could be an insurgent against a country. (people chatting) - You don't expect these non-state actors to get weapons or to get those materials, the dual-use goods or strategic goods from member states which follow law and order. But the kind of materials these guys use is the improvised materials, fertilizers for example. You look at the military items, the equipment, technologies. You look at hardwares.

Those are strategic goods which, apart from being used for their lawful purpose, they can also be turned into WMDs. That is weapons of mass destruction. When they do that, they are able to bring a lot of havoc to us.

Non-state actors, especially the terror groups. Our experience as a country has been a roller coaster in terms of dealing with these terror groups, and more so Al-Qaeda and Al-Shabaab. - In East Africa this morning, it has been a scene of chaos and terror and carnage as two large bombs were exploded almost simultaneously outside the U.S. embassies in the Kenyan capital of Nairobi and the Tanzanian capital of Dar Es Salaam. A number of people have been killed.

- [Gatebe] Going back to 1998 now, remember Kenya experienced one of the horrific terror attacks. They bombed the U.S. Embassy here in Nairobi, as well as of course, in Dar Es Salaam. The casualties were over 200. - [Mallory] It's worth remembering that it is North Korea or the DPRK that supplies these groups with the weapons that provide the security with which to plan and carry out such attacks. - And after that, we had had so many of those terror attacks.

The kind of weapons I understand they use is mostly those that are proliferated from countries such as the DPRK. So they are proliferated from such regimes. As much as Kenya does so well, as much as Kenya puts a lot of effort, we have experienced terror issues more so because we border unstable Somalia. Remember Somalia has been unstable since 1991, the year the central government fell. Uganda, we share one of the largest borders.

Why I look at it from that angle is that when you see your neighbor's house on fire, it is time to think of taking an insurance cover because you need that to help you come up. So in the case of ourselves, when you see us doing so much on sanctions regimes is because we have been hurt. Our house has been on fire through these terror activities.

Whatever has been happening in Nairobi or in Kenya can actually go to our neighbors. So if there is something they need to do, it's the high time they start taking that insurance cover, coming up with the enforcement. We have to have laws that control the movement. The Strategic Trade Control has been brought about by these aspects of dual-use goods. - With dual-use or restricted technology, a couple of key tactics were used. Filing or causing to be filed false export declarations, or alternatively, signing an end-user agreement that limits the use of the product being bought while never intending to observe those conditions.

A classic example is North Korea bought multi axle trucks from a Chinese company, and it signed an end-user agreement saying it was going to use them to transport trees in the lumber industry in North Korea. Well, when our credulous friends the Chinese next saw these trucks, it was in a parade in Pyongyang where they were transporting missiles. So there's an example of violating an end-user agreement. (cheerful band music) Front companies, such as MKP, Glocom and OMM, support North Korea's production of weapon systems, many of which are sold illicitly overseas. But parts for them have to be acquired abroad secretly, and that's where money laundering comes back in. (cheerful band music) Remember that integration is the process by which clean funds which have been laundered into various different accounts are put back together in order to buy goods or services.

And it can be complex. Sometimes financial partners like Daedong Credit Bank are involved. - North's Korea financial sanctions evasion tactics have several typical techniques, but especially, I want to mention use of a local collaborator and also North Korean banking representatives overseas. - Daedong Credit Bank is an example of the techniques that North Korea uses to evade financial sanctions. It is a joint venture between a North Korean bank that has been designated for sanctions, a sanctioned entity and a Chinese entity. By creating the joint venture, the sanctioned entity can obscure its involvement.

It's essentially used for two purposes. One purpose is to move money around, so to accept money and then move it into all those accounts in Russia and China that are used for layering of North Korean money. - So, Daedong Credit Bank is also, not only supporting designated entities, but they're also supporting their actions by establishing several cover companies in China, that these companies can be used for either transfer of money and also procurement of items they need. - And the second purpose it's used for is to run a ledger system. A ledger system is when, let's say North Korea wants to acquire something overseas. An operative will go to a bank in Pyongyang and make a deposit in dollars.

And that will create a credit entry on the ledger. And then another operative in Beijing, in this case, the representative of North Korea at Daedong Credit Bank, will check the ledger and see, aha, we've just had cash paid into the system. So he knows he's got credit to pay with.

He will then cause one of the front companies he controls in Hong Kong, for instance, to make a payment in that amount to a foreign company from which they're acquiring the technology. - At the same time, they're kicking money up into the leadership so there's a sharing going on. (soft ominous music) Leadership is assigning priorities to different projects. And so money moves in that way. - Why engage in such circuitous behavior? Because from the point of view of the foreign company selling the dual-use or restricted technology, all they see is a single payment coming from a company in Hong Kong. But in fact, it's originated in Pyongyang.

And the same thing goes the other way around. If a foreign company wants to pay North Korea for something that they've done, they can make a payment to a front company, the front company makes a credit entry into the ledger of North Korea, and a totally different front company in a different country can then spend against that credit entry. It allows them to maintain a much lower profile because they only need to send money between each other when they're trying to settle up.

North Korea conducted a test of a multi-stage rocket at one point, and it was an Unha-3. And the first stage of the rocket fell into the Sea of Japan and was recovered by the authorities. - We recovered a lot of debris from the Unha breakup.

It was swept up and then examined. And then those products that had serial numbers or other identifying characteristics were traced back to suppliers. A lot of it came out of the United States. Some came out of the UK, others from Europe, some from Japan.

They don't seem to possess any buyer's preference. It's just wherever they can get it, they'll get it. - Some of the components were pretty benign, but they had to be acquired overseas because of the primitive state of the North Korean economy. We're talking resistors, ball-bearings, memory chips. But it's not always so benign.

Japanese authorities prevented an inverter from being exported to North Korea. Inverters are used to manufacture nuclear weapons. The same authorities in Japan prevented the export of cylindrical grinding machines, which are used to produce gyroscopes for missiles.

And the German authorities prevented the export to North Korea of a multi-gas monitor, which is used in the manufacture of chemical weapons. And as we know, chemical weapons provided by North Korea have been used to deadly effect in the Middle East. - Syria acquired mortars, multiple rocket launchers, other artillery equipment, and small arms from the North Koreans. It went into Syria, but it was paid for by the Iranians. The money went from an Iranian bank to a Korean front company in Malaysia, which then invested the money in two casinos in Macau. So again, very difficult to chase this kind of thing down.

This money is being used to support a rogue state and proliferate to other rogue states. We have evidence that North Korea has proliferated nuclear weapons. There's evidence for two specific countries, both in the Middle East, the first being Syria, and that came from a plutonium facility that the North Koreans were building for the Syrians that the Israeli Air Force took out in 2007. - They built five chemical weapons plants in Syria, they provided Syria with the precursor chemicals to manufacture chemical weapons, and they provided Syria with help in actually filling chemical munitions.

In the Iranian case, they've provided the computer software that's needed to model a nuclear explosion. They've provided hardened bunkers. And they have actually lent the Iranians experts in nuclear warhead design.

And then of course, half of Iran's missile inventory are simply North Korean rockets with a different name. North Korea ships the parts to Iran where they're assembled in factories. - [Bechtol] The North Koreans sells so much to Iran. Anywhere between $1 to $3 billion worth of sales a year. - In addition to these two principal countries, Egypt, Libya, Yemen, and Pakistan have received missiles from North Korea. This proliferation is destabilizing the Middle East.

A region which has seen 72 conflicts in 66 years. It has led to the death of least 1,200 Syrians in somewhere between 50 to 200 chemical attacks, depending upon how you count. Just under one third of the victims were women and one fifth were children. So innocent civilians. The conventional weapons North Korea has sold into the region, they've gone to the Liberation Tigers in Sri Lanka, to Hezbollah, to the Houthi rebels, to Hamas, and they've also gone to the Democratic Republic of Congo, right next door to Uganda. Uganda is a big client of North Korea, and most Ugandans are probably unaware of the fact that it's North Korean weapons that are actually destabilizing the situation on their border.

13 African countries are being destabilized as a result of North Korean weapons supplies. Somalia, Kenya, as we know, the Shabaab coming into Kenya, but also the Islamic State uses the same weapons, inBurkina Faso, Cameroon, Chad, the Democratic Republic of Congo, Ivory Coast, Libya, Mali, Mauritania, Mozambique, Niger and Nigeria. North Korea engages in proliferation of weapons of mass destruction activities in a further 13 African countries. And it generates hard currency in one way or another in another 25.

So when all is said and done, most African countries are affected by North Korean proliferation activities. (dramatic music) - [Takeuchi] If the international society allows North Korea to become another nuclear state in East Asia, that will open the door of the instability of the region and also of the international environment. - North Korea continues to advance these WMD programs, advance its ballistic missile programs, to include even submarine launched missiles now.

- North Korea's ballistic missile test itself is a threat because they are taking advantage of the situation and try to threaten neighboring countries and other regional countries. - [Newcomb] North Korea getting away with developing nuclear weapons sends a very bad message to other potential breakout states. - Do you actually want to be associated with a country like North Korea, where you will also be reducing your credibility and your stature internationally? - [Bechtol] If you're doing that, you're helping a rogue state that has bad intentions towards other peaceful states within the international system. - The world is a global village For a country to do better in any of these issues, they have to come together. We are looking forward to making it better. - [Mallory] Enforcing sanctions is how we prevent the proliferation of weapons of mass destruction.

Innocent people are being killed in droves as a result of such proliferation. - It's a very critical and effective tool as part of a longer term strategic approach. - [Takeuchi] Try to get rid of the foundation that would allow North Korea to take advantage of countries. - The United Nations Security Council has always been there to help states.

They're there right now. We need to continue to strongly enforce because it works and it puts real pressure on the North Koreans where it hurts, in the pocketbook. - You're not trying to threaten them. You're just trying to get them to see the realities and the longer-term implications of their decisions.

- If you don't enforce sanctions strictly, people are less willing to entrust your country with strategic technology. If you enforce them strictly, you can get access to that technology. That technology allows your industry to move up the international value chain, generating more revenue for your country and improving the standard of living of your citizens.

It's very clear to see how North Korean proliferation activities really have an impact and why it matters. (dramatic music) www.rand.org/topics/north-korea.html

2022-08-20 06:04

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