Is North Korea The Sopranos State?

When U.S. Ambassador to South Korea Alexander Vershbow called North Korea a “criminal regime,” as he did recently, he was not speaking metaphorically. He was not talking about the North’s abysmal human rights record, illegal missile sales or efforts to acquire nuclear weapons.

No, he was talking about crime – as in counterfeiting U.S. banknotes and cigarette packages, money laundering, and drug trafficking. These issues have suddenly risen to the forefront of Washington’s agenda and become a major stumbling block in the renewal of the Six-Party disarmament talks.

In September Washington named Macau’s second-largest largest bank, Banco Delta Asia, as being “a willing pawn for the North Korean government to engage in corrupt financial activities through Macau.” It said that senior bank officials were working with Pyongyang “to accept large deposits of cash, including counterfeit U.S. currency, and agreeing to place that currency into circulation.”

In mid-December, the U.S. Treasury Department issued a formal advisory concerning the North’s illegal activities and cautioned U.S. financial institutions to take “reasonable steps to guard against the abuses of their financial services by North Korea, which may be seeking to establish new or to exploit existing account relationships.”

This month it was reported that a delegation of agents from the U.S. Secret Service, which has counter-counterfeiting responsibilities as well has protecting the life of the president, will come to Seoul to meet with South Korean authorities over counterfeiting. Visits of this nature are not usually broadcast in such a public fashion.

Meanwhile, Pyongyang says it won’t return to the Six-Party disarmament talks unless the U.S. lifts restrictions against its financial institutions, including those directed at eight state-owned trading companies that Washington cited in October as being involved in weapons trafficking, especially banned missile technology.

Rumors of North Korean counterfeiting and drug trafficking have been circulating in Asia for years. Anyone who lived, as I did, in Hong Kong for many years has heard them from time to time. North Korean companies have a long history of operating in the former Portuguese enclave, which for decades served the regime as a key window to the outside world.

The Zokwang Trading Company was considered Pyongyang’s de facto consulate in Macau, and the relationship between Zokwang and Banco Delta Asia is no secret. As far back as 1994 the bank found thousands of bogus $100 bills allegedly deposited by a North Korean employee. The director of the Zokwang Trading company was held and questioned, but no charges were pressed.

More recent instances of alleged North Korean counterfeiting include:

In April, 2005, the Japanese press reported that a hundred or so fake $100 bills were found among a stack of used currency aboard a North Korean freighter that called at a Japanese port in Tottori prefecture. The captain was reported telling police: “We were asked to bring the money to Japan so that the money could be paid for cars and other items.”

Also in April a large stash of bogus notes was uncovered in South Korea. The Chosun Ilbo, which reported the story, did not say where or under what circumstances the money was found, though it went into great detail over the quality of the notes and quoted experts as saying it was “highly likely” that they came from North Korea.

In August the U.S. Federal Bureau of Investigation reported two “sting” operations in the U.S. colorfully described as Operation Royal Charm and Operation Smoking Dragon. The government indicted 59 people on charges related to smuggling counterfeit US currency, drugs and cigarettes into the U.S. The announcement did not specify their origin, but other accounts have speculated that they came from North Korea.

David L. Asher, head of the Bush Administration’s North Korea Working Group, published a lengthy essay in mid-November in which he described what he called, “an extensive criminal network involving North Korean diplomats and officials, Chinese gangsters and other organized crime syndicates, prominent Asian banks, Irish guerillas and a KGB agent,”

“North Korea is the only government in the world today that can be identified as being actively involved in directing crime as a central part of its national economic strategy and foreign policy . . . in essence North Korea has become The Sporanos State – a government guided by Workers Party leaders, whose actions attitudes and affiliations increasingly resemble those of an organized crime family more than a normal nation.”

But why is Washington suddenly pushing decades-old suspicions at this particular time? In September Christopher Hill, the senior American negotiator at the Six-Party talks, announced a breakthrough in the negotiations. North Korea had agreed in principle to disarm in exchange for recognition and aid. That same month the Treasury Department issued a warning against dealings with the Macau bank.

In October came the sanctions against the eight North Korean trading companies. Also in October a new U.S. Ambassador arrived in South Korea. Alexander Vershbow has quickly developed a reputation for making provocative statements. In November the Six-Party talks quickly foundered on Pyongyang’s demands to lift sanctions.

No doubt American officials would solemnly swear they are motivated by a desire to protect the integrity of the U.S. currency and nothing else. But even if the allegations are substantially true, which probably is the case, isn’t this really penny-ante stuff set against the much larger issue of North Korea’s nuclear weapons program?

None of the other parties to the Six-Party talks has expressed any public concern about Pyongyang’s crimes. That includes Japan, which not only is supposedly the target of counterfeit money but also on the receiving end of drugs manufactured in North Korea. (Japanese estimate that nearly half of the country’s illegal drug imports originate from there.) Yet it has said nothing.

Last week the Chinese Foreign Ministry was forced to official deny a report printed in the South Korean media that its government had found evidence of North Korean money laundering in Macau. “China has never indicated that the government had confirmed North Koreans using Macau for money laundering,” the ministry statement said.

Ambassador Vershbow has likened North Korea to Nazi Germany as being only the second state-sponsored counterfeiter. He was referring to an operation whereby concentration camp inmates forged millions of American dollars and British pounds to disperse in England in a effort to ignite inflation there and harm their enemy’s economies.

Yet the highest figure I’ve seen for the North Korean counterfeiting is the $45 million (over a decade) reported in the Washington Times, which is nothing set against the vast sums of dollars sloshing around Asia. Indeed, I’ve never heard even a whisper that North Korean counterfeits were affecting world currency markets or the value of the dollar in the slightest way.

It’s hard not to believe that the Bush administration is again listening to more hard line elements after a brief ascendancy of the “realists” in the State Department. Their purpose is to neutralize the talks (how does a nation negotiate with a criminal gang, after all?) and shift the issue away from nuclear disarmament back to the nature of the regime with the ultimate objective of toppling the regime.