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How Does North Korea Survive?
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How Does North Korea Survive?

 
 

The assassination of North Korean Supreme Leader Kim Jong-un’s half-brother Kim Jong-nam in Kuala Lumpur last month kicked over a hornet’s nest of diplomats, zipping everywhere with threats, recriminations, and denials. The fact that Pyongyang tested multiple ballistic missiles on March 6, which splashed down in Japan’s exclusive economic zone, did precious little to alleviate international concerns. Among the more significant reactions buzzing about is the United States’ review of North Korea’s rumored involvement in the assassination — and whether this act justifies placing the Hermit Kingdom back on the list of state sponsors of terrorism.

While finding itself on the list for the first time since 2008 would be painful, the sting would pale in comparison to the deep wound the People’s Republic of China has inflicted upon Pyongyang when it announced it will not be buying coal from the country for the remainder of the year. Pyongyang is overtly reliant on coal exports to fuel its economy and finance its $800 million negative trade balance, and China buys 90 percent of the North’s exports. Of course, China’s move wasn’t quite so straightforward: just before issuing the ban, Beijing openly breached UN caps on monthly coal imports and bought almost 2 million metric tons (worth $188 million), providing Supreme Leader Kim with a much-needed cash infusion. For the record, according to the latest round of sanctions, North Korea is allowed to export just $400 million worth of coal a year.

But for all the talk of sanctions and vital revenue streams evaporating, Pyongyang doesn’t seem to be taking much notice. This year alone, North Korea tested multiple ballistic missiles, threatened to break ties with Malaysia, engaged in foreign political assassinations, and continued working on its nuclear program. How is the blacklisted regime able to finance all this?

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A closer look reveals Pyongyang engaging in an old con game – the Kansas City Shuffle. Coined in the 2006 movie Lucky Number Slevin, it can be summed up as “when everybody looks right, you go left.” With China’s help, North Korea’s derivation of the Shuffle has been to keep the focus on coal sanctions, haranguing the Security Council to obtain export concessions on humanitarian reasons – the so-called “livelihood clause” – while actually reaping bigger rewards from other activities. Indeed, Beijing’s decade-long game of stalling and vetoing any meaningful sanctions at the UNSC has given Pyongyang the time needed to diversify its revenue streams away from conventional sources. Via the ultra-secretive Bureaus #39 and #121, party organizations specialized in illicit activities, North Korea has managed to drastically reduce its dependence on coal exports.

A New Breed of Bank Hacks

Easily the largest operation carried out by North Korea’s secret criminal agencies has been hacking SWIFT, the industry standard allowing banks to process trillions of dollars every day in international transfers. Several reports have identified North Korean hacking group Lazarus (affiliated with Bureau #121) as complicit in high-profile breaches of the worldwide financial network. North Korea’s estimated 6,800 hackers were already bringing in $860 million in dirty money each year via fraud, blackmail, and online gambling, but the SWIFT attacks are a novelty.

The biggest hit so far allowed Lazarus to funnel $81 million from the accounts of the Bangladesh central bank held with the U.S. Federal Reserve in New York. The attack could have netted as much as $1 billion, but for the hackers’ poor spelling. The group has also perpetrated electronic heists on banks in Ecuador, the Philippines, and Vietnam. Another binary break-in at an unidentified Ukrainian bank in December left it $10 million poorer, while Russia’s central bank saw $31 million nicked and Polish banks have been the target of an extensive malware campaign meant to secure access to their accounts.

With the prospect of selling significant amounts of coal to China vanishing for the rest of the year, there’s little reason to think these cyber attacks will slow down. It’s difficult to gauge just how successful North Korean hackers have been, since SWIFT goes out of its way to reveal as few details as possible. Another factor in North Korea’s favor is that the very nature of international banking makes it impossible to block the hacking spree with UN action. While SWIFT has been leaning on its member banks to implement security measures and share intelligence about their security situation, the standard used by SWIFT is simply too old to rescue.

New Tool, Old Kit

The SWIFT attacks are the newest wrench in the Hermit Kingdom’s toolkit, but old fallbacks still pad its bottom lines. North Korea continues to engage in trafficking illicit cigarettes, pharmaceuticals, and ivory. According to a 2014 report compiled by an American human rights organization, smuggling narcotics in diplomatic bags and printing high-quality counterfeit cash has been a mainstay of the country for 40 years.

Not to say the regime has shied away from getting creative. One of its schemes for filling the financial gap consists of selling North Korean citizens into slave labor: according to human rights groups, Pyongyang has a pipeline pumping slaves into several European countries, including Poland, Malta, Germany, Italy, Austria, and the Netherlands. Though North Korean officials vehemently deny it, laborers are reportedly worked six days a week for up to 12 hours each day in shipyards, construction sites, and farms. They are paid, but up to 90 percent of their wages are sent back to Pyongyang. Though numbers are hard to come by, the best estimates have over 50,000 North Koreans working around the world, generating between $1.2 billion and $2.3 billion each year.

Another illicit revenue stream comes from selling weapons on the black market. Despite a stack of UN sanctions condemning the practice, Pyongyang has been identified by human rights groups as selling small arms to buyers in Iran and Syria. Other major buyers include the Palestinian groups Hamas and the Popular Resistance Committee (PRC), to whom North Korea is accused of selling anti-tank missiles, shipping them through Sudan or Egypt. The Namibian government openly admitted last year that Pyongyang has built arms and ammunition factories within its borders and plans to build more military infrastructure.

If history is any indication, world leaders will respond to North Korea’s latest enterprise with more of the same high-minded yet ultimately toothless resolutions against Pyongyang and its coal exports. Judging from the mountain of evidence that points to North Korea engaging in highly lucrative criminal activities that pull in billions of dollars each year, Kim Jong-un and his cronies can rest easy on a bed of their ill-gotten gains.

Rob Edens is a London-based researcher.

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