That North Korea has black markets, which sprang up during famine of the 1990s and which continue to help supply the needs of the populace, is well-known.

Less-known, perhaps, is how this informal economy now extends to illicit activities the Pyongyang regime once monopolized, such as drug trafficking. A recently released report, published by the U.S. Committee for Human Rights in North Korea, highlights this development.

The author of “Illicit: North Korea’s Evolving Operations to Earn Hard Currency” is Sheena Chestnut Greitens, a Non-Resident Senior Fellow at the Center for East Asia Policy Studies at the Brookings Institution and an Academy Scholar at Harvard University’s Academy for International and Area Studies. Greitens has been researching illicit activities in North Korean since 2004, last publishing a comprehensive report on the subject in 2007 in the academic journal International Security.

“I thought it was time to do a systematic update to find out how the issue had developed,” she told NK News.

Her report draws upon on two major sources of information: an original dataset of seizure data tracking incidents from the 1970s through 2012, and more than a hundred interviews conducted over the past decade with policymakers, analysts, law enforcement officials and North Korean defectors in the U.S., Europe and Asia.

After introducing the topics to be covered in chapter one and detailing the regime’s history in these activities in chapter two, chapter three explains how they have evolved since 2005.

DRUG CO-DEPENDENCE

‘This changing state-society relationship is, I think, one of the report’s most important findings’

In recent years, the report states, an increased amount of drug trafficking has been happening within the country, which in turn is prompting increased crackdowns by the regime. Also, while overseas drug smuggling has taken place – particularly in China and South Korea, but also in a handful of other Asia-Pacific countries – the offenders are no longer diplomats or trade officials, but “ordinary North Koreans” cooperating on smuggling operations with Japanese nationals, South Koreans, ethnic Chinese or Chinese-Koreans.

“The ‘Illicit’ report emphasizes that private or quasi-private involvement in the drug trade has grown, but that it now seems to exist in symbiosis with political power inside the DPRK,” Greitens told NK News. “In both licit and illicit economic activity, we’re seeing a co-dependence between regime-run enterprises and private or quasi-private economic activity, with political connections and protection required for businesses to flourish and actors within the regime benefitting from the activities of business through a system of loyalty offerings and informal extraction/taxation.

“This changing state-society relationship is, I think, one of the report’s most important findings,” she said.

The problem of increased drug trafficking and the attendant rise of drug addiction within the country, she writes in the report, has been exacerbated by the poor quality of health care within the country; a finding that should be of considerable import for NGOs and foreign governments seeking to help North Koreans.

“I thought it was important to highlight the public health costs of a domestic drug trade as an emerging issue, for two reasons: first, so that people and organizations operating inside the DPRK could be aware of it as they do their work, and second, so that we could begin to gather more information on the issue to figure out what the policy options are,” she said.

EVOLVING INCOME SOURCES

In chapter 2, she notes North Korea’s unusually sophisticated operation in counterfeiting U.S. currency. It appears that the regime has used high-quality presses and materials to make intricate, hard-to-detect “Supernotes” (as they are informally referred to). While approximately $50 million in these supernotes has been detected and removed from the market, Greitens notes that this probably does not accurately reflect the profits the regime has gleaned from the operation.

“First, the total amount seized is not the amount that North Korea makes from producing the counterfeit,” she writes in “Illicit.” “North Korea’s profit is some unknown percentage lower, depending on how many times the bills have been resold and the markup each time. Second, seizure data reflect an unknown percentage of the Supernotes that have been printed and distributed. The true amount is some unknown percentage higher …”

The U.S. government has taken a number of measures to curtail the production of Supernotes, including updating their currency, Greitens said. Her report notes that the number of Supernote seizures has decreased in recent years and that there are three interpretations: “that the activity has either become less frequent, less visible to law enforcement, or less publicly visible to researchers. In my opinion, there is not enough information available to make a judgment as to which of these is most likely.”

‘Policy options toward (North Korea’s overseas workers) will depend both on the legality of the activity internationally and in the various worker-receiving countries, and on the overall strategy that the U.S. or international community chooses to adopt toward North Korea’

There are eight major sources of hard currency earnings, her report notes: the Kaesong Industrial Complex, trade with other nations (particularly China), tourism, the export of labor, remittances – formerly mostly from ethnic Koreans in Japan, but now mostly from defectors in South Korea – cellphones, arms sales and illicit activities.

The income source that has grown the most since 2005 is the export of labor: reports suggest that at least 60,000 workers are employed in as many as 40 countries. The regime claims anywhere from 50 to 90 percent of their earnings, for expenses or “loyalty offerings.” She cites a statistics from the North Korea Strategy Center and International Network for the Human Rights of North Korean Overseas Labor, estimating that the regime earns $150 million-$230 million per year this way, but points out that this number may be gross revenue rather than net income.

“The report emphasizes that there’s a difference between sources of hard currency income that go straight to the regime, and sources of hard currency that flow first into North Korean society, which the regime has then had to figure out how to try to extract; overseas workers are a source of hard currency that is a mix of these two types,” she said.

“Policy options toward this activity will depend both on the legality of the activity internationally and in the various worker-receiving countries, and on the overall strategy that the U.S. or international community chooses to adopt toward North Korea,” she said.

‘The North Korean regime has predicated its existence on being able to impose isolation and economic failure on its citizens while insulating itself from the costs of that decision’

SHIFTING THE BURDEN

In chapter four of her report, she discusses the significance of these developments and their implications for policy.

At the end, she references American diplomat and scholar George F. Kennan, whose ideas inspired the U.S. policy of containment toward the Soviet Union. This policy, she writes, imposed the pressure of the USSR’s own internal contradictions on Moscow.

North Korea, she writes, has some of the same contradictions as the USSR and her report ends with the question of whether the international community can shift these burdens onto the regime.

“The North Korean regime has predicated its existence on being able to impose isolation and economic failure on its citizens while insulating itself from the costs of that decision,” she said. “The potential emerging contradiction that I was referring to here is that system attempting to co-exist with the regime’s apparent increasing dependence on revenues extracted from the economic activities of its own citizens.

“The similarity with Kennan’s point about the USSR is simply that internal contradictions have the greatest potential of any factor to put pressure on a system that has these contradictions, and long term, to effect a transformation of that system.”

Picture of methamphetamine: Sally Crossthwaite, Flickr Creative Commons

That North Korea has black markets, which sprang up during famine of the 1990s and which continue to help supply the needs of the populace, is well-known. Less-known, perhaps, is how this informal economy now extends to illicit activities the Pyongyang regime once monopolized, such as drug trafficking. A recently released report, published by the