Drugs, counterfeiting: How North Korea survives on proceeds of crime

When North Korea tested what it claimed was a new intercontinental ballistic missile last week, the regime certainly wanted to flex its military might for the world, and in particular the United States.

But it may have had another purpose in mind — it may have been looking to make a sale.

"This is not just a threat. This is to make money," said Bruce Bechtol, professor of political science at Angelo State University in Texas.

And one way the regime makes money is through proliferation — the proliferation of weapons, as well as technical assistance and military training for its clients in the Middle East and Africa.

"You can assume with high probability that that [type of] missile is going to Iran for a very high price," said Bechtol, who served as a senior Northeast Asia analyst in the Pentagon.

Proliferation is just part of the regime's vast criminal enterprises — illicit activities that experts say account for a significant portion of the North Korean economy.

"Their money is typically generated through a myriad of illegal activities that the embassies around the world are sanctioned to engage in," said David Asher, former special co-ordinator of the U.S. State Department's North Korea working group. 

Those activities include illegal drug manufacturing and trafficking of cocaine, heroin and high-grade methamphetamine. He said the regime is also heavily involved in the production of counterfeit pharmaceuticals and synthetic narcotics, including fentanyl, which can be found on the streets in the U.S. and Canada.

"They produce a huge amount of counterfeit Viagra, which is a big problem for Pfizer," Asher said.

The government also reaps funds from currency and cigarette counterfeiting, he said, and trading in banned products like rhino horns and illicit minerals such as conflict diamonds.

'Nationalized crime'

This isn't a case where the government has turned a blind eye to criminal activities or taking kickbacks from criminals. Experts say the regime itself sanctions and is involved in the criminal enterprises.

"The best way to think about it is kind of like a Sopranos state, like a Mafia state or Mafia country," said Paul Rexton Kan, an associate professor of national security studies at the U.S. Army War College in Carlisle, Pa.

"They sort of nationalized crime and they've industrialized it, and now they sort of weaponized it as well," he said. "It is sort of one whole state that is dedicated to organized criminal activities as a way to fund the regime, fund their programs."

This government bureaucracy focused on pursuing illegal activities for profit began under Kim Il-sung, the nation's founder, Kan said. Much of the information about these schemes comes from former government officials who have defected.

Many of the schemes are run out of "Central Committee Bureau 39" of the Korean Workers Party, he said, which enlists military officials, bureaucrats and members of the diplomatic corps to organize and participate in the manufacture and distribution of criminal goods. 

The North Korean military, for example, will work with criminal organizations like the Japanese Yakuza or Malaysian organized crime to distribute drugs internationally, Kan said.

The government will also use its diplomatic corps to collect proceeds from these activities and deposit them in various banks where they're posted, he said. Many diplomats, in fact, are sent overseas for that specific reason — to launder money and send proceeds from their criminal enterprises back to the regime, he said.

"It's criminal entrepreneurship at its best."

So does this make Kim Jong-un a pseudo Mafia don? 

"Oh, he's the don, but he's the all-powerful don," said Balbina Hwang, former U.S. State Department adviser and member of the National Committee on North Korea, a non-governmental organization of experts. "And should anybody attempt to cross him, just as ruthless if not more than any of these Mafia or drug cartel dons."

While other governments around the world are certainly corrupt, North Korea is unique in that many schemes are completely directed, channelled and controlled by the state, said Hwang.

How much North Korea profits from such activities is difficult to determine because it's such a closed society. Kan estimates the government has raked in billions.

No 'imminent signs of collapse'

Whatever the figure, illegal revenue is certainly the reason the regime has managed to survive economically despite a series of international economic sanctions, analysts say.

"And I do not believe there are any imminent signs of collapse," Hwang said.

"North Korea does know how to efficiently earn money. It's very unfortunate that the most efficient way that it knows how to do that is illegally."

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In the early 2000s, for example, the U.S. government dubbed North Korea's counterfeit U.S. $100 bills "supernotes," and the U.S. Treasury was forced to change its currency and come up with specialized paper and holographic images. 

Hwang said the Trump administration's recent announcement that it will put North Korea back on the list of countries that are state sponsors of terrorism gives the U.S. greater licence to target the regime's illegal cash flow.

"That designation then allows the U.S. government and all its various agencies to start to go after specific North Korean activities ... that it would otherwise not have been able to do."