North Korea's Challenge

North Korea's missile and nuclear capabilities and its proliferation activities threaten not just Asia, but the entire world. Moreover, North Korea's flagrant violations of international treaties, as well as agreements with the United States and South Korea, threaten global efforts to curb the spread of WMD.4

North Korea's increased criminal behavior also poses a serious security challenge to Asian and U.S. interests. Without a viable and functioning economy, Kim Jong-Il has chosen to dedicate its international trade to dangerous and illegal activities, such as arms sales, currency counterfeiting, drug smuggling, and human trafficking.

North Korea's gross national product fell from $22.3 billion in 1995 to $15.7 billion in 2001, mainly because of economic mismanagement, floods, and severe drought. In 2001, exports from legitimate businesses totaled just $650 million, while income from illegal drugs ran between $500 million and $1 billion.5 In addition, Pyongyang earned more than $560 million from missile sales and circulated more than $100 million in counterfeit U.S. currency in the global economy. According to a February 1999 Congressional Research Service report, "conservative estimates" indicate that North Korea's criminal activity "generated about $86 million in 1997--$71 million from drugs and $15 million from counterfeiting."6

The North Korean people have suffered one of the worst humanitarian disasters in recent history. For more than a decade, North Korea has been experiencing an ongoing food crisis that has resulted in the starvation deaths of as many as two million people. China faces a humanitarian emergency with an estimated 100,000 to 200,000 North Korean refugees already in the border area. Decades of economic mismanagement and the lack of any promising reforms ensure that the humanitarian crisis will only become more desperate.

Given the authoritarian controls in place throughout North Korea, illegal activities are not conducted by a rogue organization operating independently of the government: They are sanctioned and run by the regime itself. Since 1977, more than 20 North Korean diplomats, agents, and trade officials have been implicated, detained, or arrested in drug-smuggling operations in more than a dozen countries, including Egypt, Venezuela, India, Germany, Nepal, Sweden, Zambia, Ethiopia, and Laos.7 According to William Bach, a director in the Bureau for International Narcotics and Law Enforcement Affairs at the U.S. Department of State:

[F]or some 30 years, officials of the DPRK have been apprehended for trafficking in narcotics and other criminal activity, including passing counterfeit U.S. notes. Since 1976, there have been at least 50 arrests or drug seizures involving North Koreans in more than 20 countries around the world.8

Evidence that the North Korean regime is responsible for directing and engaging in these activities can be found in Division 39 of the Korean Worker's Party. This infamous institution, headquartered in Pyongyang, was established in the mid-1970s by the regime to fund Kim Jong-Il's political career. It is now an extensive organization that operates many illegal activities under the auspices of the Daesong Group, the Daesong Bank,9 and the Vienna-based Golden Star Bank.10 Some reports indicate that it has generated cash assets as large as $5 billion, secreted in banks in Macao and Switzerland. Since Division 39 produces a steady flow of hard currency for Kim Jong-Il and his regime, interdicting its illegal activities would have a significant impact on cutting off funds.

Drug Production and Trafficking
The North Korean regime has been involved in illegal drug production and trafficking since the 1970s, but these efforts increased in the 1990s as the country's economic situation worsened. Drugs cost little to produce and reap the largest profits.

According to estimates, North Korea has anywhere from 4,200 to 7,000 hectares under poppy cultivation. An anonymous North Korean defector testified in May before the U.S. Senate Committee on Governmental Affairs that in 1997, Kim Jong-Il ordered each collective farm in North Korea to grow 25 acres of poppies, the basis for heroin production.11 In April 1999, South Korea's National Intelligence Service charged that North Korea had refined 50 tons of opium the previous year, along with five tons of morphine and heroin, for sale abroad. This was a significant increase from the production of three tons of opium in 1992.12

In the late 1990s, heroin production was supplemented by methamphetamine production, partly to compensate for a drought-induced slump in opium production, but also to satisfy a growing demand in Japan. Methamphetamine is simpler to produce than heroin, but its production depends on the importation of expensive raw materials such as ephedrine, a common ingredient in allergy medication. In 1998, Thai police stopped an Indian shipment of 2.5 tons of ephedrine bound for Pyongyang.13 In 1999, substantial amounts of North Korean methamphetamine were seized in Japan, South Korea, and Taiwan.

Japan, as one of the world's largest methamphetamine markets, with an estimated 600,000 addicts consuming more than $15 billion annually, is an attractive target for North Korea. The Japanese government reports that North Korea is the largest exporter of illegal drugs to Japan, accounting for an estimated 43 percent of all imports14 and providing a possible $7 billion cash profit for the North Korean regime, according to the U.S. Department of State.15 The latest Japanese customs figures report that 2,473 pounds of methamphetamines from North Korea were seized during the three-year period ending in 2001.16 This is second only to China, which seized 3,916 pounds during the same period.17

Australia has also been a target of North Korean drug trafficking. On April 20, 2003, Australian authorities charged the captain and crew of a North Korean cargo ship with smuggling $48 million worth of heroin, which was brought ashore to Melbourne.18

In addition, there is evidence that North Korean opium trafficking has changed the face of the Russian drug trade. In the mid-1990s, Russia's Interior Ministry reported that North Korea had displaced Central Asia as the major source of opium entering Russia.19

Counterfeiting
In recent years, a surge of counterfeit U.S. dollars has been flooding the Asian and European markets. Many of these counterfeit bills can be traced to North Korea's state mint, the Pyongyang Trademark Printing House, or the No. 62 Factory. A North Korean defector reports that all the mint's senior officials have been dispatched directly from the Ministry of Public Security, which constructed the mint in 1981. The Public Security Ministry fully controls management and operations of the mint.20

The counterfeit greenbacks, or "supernotes," printed at the mint are of high quality because the regime purchased a $10 million Intaglio printing press of the same type used by the U.S. Bureau of Engraving and Printing.21 These fake bills both profit the regime and destabilize the U.S. economy by undermining the stability of the U.S. dollar.22 In 1999, the U.S. Congressional Research Service estimated that Pyongyang was printing at least $15 million a year in counterfeit U.S. bills.23

Weapons and Arms Sales
Although not illegal under international law, North Korea's weapons and missile sales are of grave concern to the international community. As the world witnessed in December 2002, when the Spanish Navy intercepted a North Korean ship carrying parts for a dozen Scud missiles to Yemen, current international law permits the sale and transfer of missiles. Compliance with the multilateral Missile Technology Control Regime (MCTR) is voluntary.

According to U.S. government analysts, North Korea raised $560 million from missile sales in 2001 alone.24 Secretary of Defense Donald Rumsfeld has described North Korea as the world's "single biggest proliferator of ballistic missiles."25 North Korea has exported significant equipment, parts, materials, and technical expertise related to ballistic missiles to South America, the Middle East, South Asia, and North Africa.26

In 1993, Iran sought to acquire 150 Nodong-1 missiles and paid North Korea $500 million for further missile development as well as technology for nuclear weapons.27 Zaire also concluded a $100 million deal for North Korean missiles in 1994.28 More recently, Pyongyang and Tehran are reportedly in talks to export North Korean Taepodong-2 long-range ballistic missiles to Iran and jointly develop nuclear warheads.29

Even U.S. allies are culpable in contributing to North Korea's missile and arms programs. In testimony before a U.S. congressional committee in May 2003, for example, a North Korean defector claimed that 90 percent of parts and material used in manufacturing Scud, Nodong, and Taepodong missiles in North Korea originated in Japan.30

The positive news is that the Japanese government has taken steps to curb these exports by tightening trade rules. On May 8, 2003, the government raided Meishin, a Tokyo trading company owned by a North Korean. The company tried to illegally export three specialized power-supply devices, costing approximately $6,000 each, that could have aided North Korea's nuclear program or been used in missile-launch devices. Officials said the components, destined for a Thai company serving as a conduit to North Korea, were seized on a ship in Hong Kong.31

North Korea's ability to exploit porous borders and the open international trading system presents a serious challenge to prohibiting its illegal and dangerous proliferation activities. This is why the implementation of a strategy such as the PSI, which is designed to implement existing laws and regulations, will be an effective start in pressuring the North Korean regime beyond existing sanctions. As a U.S. Department of Defense official has stated:

[The Pentagon] is able to provide support to our partner nations in the form of training for law enforcement and military personnel, intelligence initiatives that include collection, processing, and analysis, infrastructure to support counter-drug efforts, and command and control systems that ensure our allies can communicate and coordinate operations among their own agencies and with U.S. law enforcement and the military. The Department of Defense and its agency counterparts are fully capable and ready to support regional partners with the training, facilities, intelligence means, and organization experience to counter the threat of illicit trafficking from North Korea.32

The cooperative efforts of the PSI stop short of a full-scale quarantine or sanctions against North Korea. Such provocative actions would be tantamount to an act of war and need at least the support and consent of Japan and South Korea, since these two American allies would be most immediately threatened by a North Korean response. Moreover, no quarantine would be effective without the full cooperation of China and Russia. It is unlikely at this time that either of these countries would support full-scale U.S. quarantine efforts.

A multilateral effort to curb illegal activities will, however, effectively cut off critical sources of funds to the North Korean regime. This will have the important effect of not only limiting Pyongyang's ability to invest in nuclear weapons programs and its military, but--more significant--sending the strong message that the international community will no longer tolerate threatening and destabilizing activities. As the United States prepares for the six-party talks (with North Korea, China, Japan, South Korea, and Russia) to discuss an end to Pyongyang's nuclear program, such a united stance is critical to achieving success.

Halting North Korean trafficking in drugs and counterfeit money will not prevent the threat posed by that regime's acquisition of a nuclear weapons arsenal, but it will send the unequivocal message to Pyongyang that continuing such activities imperils the survival of the regime.

Stepping Up the Pressure on North Korea

The United States should urge its allies in Asia and Europe, including Asian countries not currently members of the PSI, to adopt immediate measures to curtail North Korea's proliferation of WMD, missiles, arms, drugs, and counterfeiting in the region.

China's role will be especially critical but remains questionable. Although China has officially declared that it is "fully opposed to proliferation" and will not allow its border with North Korea be used as a "back door" to evade international sanctions designed to prevent North Korea from exporting WMD, China has also expressed strong disapproval of the PSI.33 In the past, China has been North Korea's partner in the proliferation of missiles and nuclear programs technology to Pakistan and Iran and continues to turn a blind eye to North Korea's illegal activities. Thus, China's official statements notwithstanding, the PSI should scrutinize Chinese actions and insist on Chinese enforcement of multilateral interdiction. It is likely that any naval and air interdictions of North Korean shipments will be largely ineffective without China's cooperation in halting land transports out of North Korea across the Chinese border.

Interdicting North Korea's illicit economic activities not only serves the national security interests of the countries in the region, but also promotes stability in Asia. Interested countries can diminish North Korea's ability to profit from these harmful activities by:

• Sharing intelligence and data on North Korean shipments and transfers of goods through cooperation with the intelligence, customs, and law enforcement agencies, and with the militaries, of the relevant countries to coordinate interdiction of illicit goods.
• Cracking down on North Korean "front companies" and diplomatic missions that are used as conduits for illegal activities. This may include urging countries that have diplomatic relations with Pyongyang to suspend those relations unless illegal activities cease.
• Working with financial institutions in relevant countries to limit transactions that support illegal North Korean activities.
• Convincing North Korea to abandon illegal exports and pursue legal trade. Japan and South Korea currently have small but significant legal trade with North Korea. North Korea's legal trade with Japan is approximately $240 million annually, and its legal trade with South Korea is approximately $640 million annually. Legal trade should be the only way that North Korea earns money, but if Pyongyang persists in illegal activities and its threatening behavior in the region, Tokyo and Seoul should be persuaded to cut off legal trade.
• Encouraging South Korea to join the PSI. South Korea's reluctance to join the PSI stems from its fear of unnecessarily pressuring North Korea at a sensitive time. But South Korea would benefit more from its early involvement in this multilateral effort where it could contribute to developing the initiative's parameters. Moreover, South Korea's involvement would send a strong unequivocal message to North Korea that its proliferation activities will not be tolerated by anyone in the region.

Conclusion

The PSI will significantly enhance the ability of the U.S. and its allies to combat dangerous and destabilizing activities conducted by countries such as North Korea. As the United States enters into critical talks with North Korea to end its development of nuclear programs, it must do so from a position of strength.

Pyongyang will be persuaded to change its behavior not by the mere eloquence of American and allied arguments, but by the resolve of their actions. Peaceful efforts will not succeed without muscular diplomacy to support the unconditional and multilateral position that a nuclear North Korea will not be tolerated.

Balbina Y. Hwang is Policy Analyst for Northeast Asia in the Asian Studies Center at The Heritage Foundation.

Incidents of North Korean Drug Trafficking