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Kim Jong-il’s Slush Fund Woes?

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Kim Jong-il’s Slush Fund Woes?

Bureau 39 has been dubbed Kim’s own slush fund. A chain of eateries offers a glimpse into how the North Korean body makes cash.

Bureau 39. It’s the shady, money-making arm of the North Korean government and is believed to engage in a range of illicit activities including the manufacturing and trafficking of heroin, peddling of fake US banknotes and arms sales.

Part of the North Korean Workers Party, Bureau 39 has been described as Kim Jong-il’s personal slush fund. But it’s about to feel the pinch from tougher US sanctions unveiled this month over the country’s nuclear programme. And these sanctions could also hit one of the more curious arms of this spidery operation—its popular chain of restaurants.

The Pyongyang group of eateries boasts known spots in Phnom Penh, Cambodia, Beijing, Kathmandu and Laos. There are said to be as many as 100 North Korea-themed restaurants across Asia, though how many are controlled by the government remains unclear. But for a country obsessed with self-reliance and secrecy, what little is known about this capitalist endeavour still offers a rare glimpse of what lays behind its tightly guarded borders.

Serving such delicacies as dog meat (dangogi), cold buckwheat noodle soup (naengmyeon) and the ubiquitous Korean favourite kimchi (pickled cabbage), the restaurants attract an eclectic clientele including South Korean tourists, Chinese businessmen and even some curious Westerners. Diners are served by pretty North Korean waitresses who can sing and dance, with some even speaking quite good English.

The Pyongyang eateries are known for being friendly but a little pricey and it’s unclear where exactly any profits go. Still, the ultimate destination of the cash spent in the restaurants hasn’t put customers off visiting.

‘I didn’t object to paying (what I did) for my meal, or feel that I was supporting a tyrant,’ says Don Douglas, an American NGO worker who recently ate at a branch in Kathmandu. Like many people who go there he says he wanted to try it once to satisfy his curiosity.

While the restaurants are usually set inside gated compounds—with staff barred from leaving the premises—Douglas says the waitresses were still engaging and curious about customers. ‘We just chatted about everyday matters as they were intrigued that we live in Seoul,’ he says. ‘But we didn’t cross over into political topics as that would have seemed to cross a line.’

Yet crossing the line is exactly what some staff members have been trying to do. The temporary shutdown of two restaurants was due to incidences of staff members fleeing, one defector identifying himself as a former manager of a Pyongyang branch told the Daily NK. According to another source, a branch in Cambodia was closed temporarily when a local diner attempted to coax a waitress off the premises.

But attempted ‘defections’ aren’t the only reason North Korea’s dalliance with culinary capitalism appears to be foundering. Ironically, the restaurants—once confined to the regions of China that hug the North Korean border—grew out of a cash crisis in the early 1990s, when communist allies Russia and China started to demand payment for goods in cash rather than through barter. As the regime grew more desperate for cash, the chain spread into Southeast Asia and other parts of the continent, the first opening in Siem Reap, Cambodia, in 2002.

The latest cash crisis, though, is now pulling the rug from under the operation. Late last year saw the country embark on a disastrous currency revaluation that wiped out savings and sparked rampant inflation. This crisis seems to be hitting the state hard, prompting a return to barter.

The downturn has already forced some branches to shut down, according to North Korea watcher Bertil Lintner, the Bangkok-based author of Great Leader, Dear Leader: Demystifying North Korea Under the Kim Clan. While some branches remain open, Lintner says: ‘generally speaking, it seems that North Korea’s idea of running restaurants in Southeast Asia and elsewhere is on the wane.’

Customers tightening their wallets isn’t the only threat the restaurants face. In early August, it emerged that a trio of key North Korean figures and other organisations connected to the North Korean leadership were set to be blacklisted as part of efforts to hold the country to account over the sinking of the South Korean warship the Cheonan and to coax it back to denuclearization talks.

As Washington tightens the screws, companies or individuals involved in illicit activity tied to North Korea face having their assets frozen, while third party countries are also set to be prohibited from dealing with them.

As news of the sanctions broke, South Korean newspaper the JoongAng Daily said speculation was intensifying among local analysts over whether the US sanctions would finally put the squeeze on Bureau 39 and Kim’s estimated $4 billion in overseas funds.

Though the restaurant chain has yet to be fingered specifically, the fact that it has been linked to alleged money laundering activities in the past could spell trouble for its future, and there have been persistent rumours that the chain has been used to ‘clean’ the regime’s ill-gotten gains.

‘Restaurants and other cash-intensive enterprises are commonly used as conduits for wads of bills, which banks otherwise would not accept as deposits,’ according to Lintner.

A report released in April by the US Army War College’s Strategic Studies Institute described how North Korea uses ‘criminal sovereignty’ to protect itself while ‘carrying out illicit international activities in defiance of international law and the domestic law of numerous other nations.’ It said the proceeds are usually funnelled to members of the country’s elite, used to support leader Kim’s lifestyle and invested in the military.

So is the threat of sanctions and the risk of a company’s reputation being sullied by working with a pariah regime having the hoped-for effect in deterring companies from working with it? Not as much as you might think. While North Korea is generally portrayed as a basket case in the Western media, with above board trade apparently minimal after years of tantrums and biting sanctions, a string of recent reports suggest the picture of a country on the edge of a meltdown is actually more complex than it first looks.

Despite the potential damage to their image from working with the ostracised country, foreign businesses continue to strike deals with the country in industries as a diverse as IT, tourism and outsourcing. In June, for example, PC World magazine reported on how North Korea was emerging as a popular destination for outsourcing companies, with the regime in Pyongyang regime claiming it had 1000 employees specialising in computer animation, data input and software design for mobile phones. The report cited the example of Nosotek, a European-invested software developer based in Pyongyang, which boasts on its website of being ‘the first western IT venture in the DPRK [North Korea].’

CIO magazine, a publication aimed at chief information officers, meanwhile, revealed that North Korea had taken tentative steps toward moving onto the internet by registering over 1000 IP addresses through Pyongyang-based Star Joint Venture, a company partly owned by the Thailand-based company Loxley Pacific.

Some critics have questioned the ethics of agreeing any kind of contract with the regime in Pyongyang and dismiss the argument trotted out by those doing business there that trade benefits could trickle down to North Koreans. One Seoul-based defector says the idea that striking business deals with Pyongyang in the hopes of helping everyday North Koreans is misguided. ‘The only ones who will receive anything are high ranking people,’ he says.

Tim Peters, an activist who operates Helping Hands Korea, agrees making sure assistance gets where it is meant to go is a challenge, noting the misuse of donated humanitarian goods during the North Korean famine in the late 1990s. ‘The problem with helping inside North Korea is it’s fraught with all kinds of challenges, frustrations and lack of “transparency,”’ he says.

But German firm Exozet Games, which distributes Nosotek-produced games, says there’s a difference between trading in North Korea and trading with the regime. ‘It’s not like we worked with the government,’ the company’s manager of digital distribution says. ‘We just worked with great people who have nothing to do with the dictatorship.’

And it’s not just companies that are eyeing closer ties. Brazil, for example, is reportedly keen to broaden relations—including business ties—with North Korea, arguing that sanctions could be counter-productive. In addition, South Korea stopped short of completely halting operations at a jointly-run manufacturing complex in the border town of Kaesong, despite an international report pointing the finger of blame squarely at North Korea over the sinking of the Cheonan. Analysts say such an approach, prompted largely by fears in Seoul over provoking a military backlash or flood of refugees, could undercut sanctions efforts.

So despite the best efforts of the US, it seems that it will be if not business as usual, then business nonetheless. And until a formula can be found that effectively puts the screws on the regime while benefiting average North Koreans, the Pyongyang chain of restaurants—if it can avoid the sanctions squeeze—is likely to have a regular stream of curious customers looking for a glimpse into the Hermit Kingdom.