It’s been accused of many things: international drug dealing, insurance fraud, counterfeiting U.S. dollars. The list of alleged international illicit activity by North Korea’s Office 39 is long and complex.
But one thing is for sure: It is involved in the acquisition of hard currency for Kim Jong Un and the DPRK’s ruling elite, and has employed a variety of schemes to raise these funds.
Office 39’s purpose, at least in principle, is the funding of North Korea’s “royal economy”: the money funding the luxurious lifestyles of Kim Jong Un and his inner circle. Or, as one source put it: “buying the Danish hams and the French cognac.”
Getting concrete information on Office 39’s activity is extremely difficult if not involved in national intelligence sources, Martin Uden, former coordinator of the Panel of Experts at the United Nations on North Korea sanctions, told NK News.
The UN Panel looked into the activities of Office 39, he said, but added that “the panel is not fed by any member state a stream of intelligence”.
“All the member states do is tell us when they have seen a violation,” he said. “Member states don’t share things that they regard as their own secrets”.
In the days of Kim Il Sung, the North Korean economy was run much like any other planned socialist economy, with an income and sales tax on various items usually pegged at three percent for funding state projects and the often lavish lifestyles of Kim Il Sung and the elites.
But it was in 1974 that Kim Jong Il – then a rising star eager to build his own power source and patronage system – set up Office 39, Ken Gause explains, a senior analyst who specializes on the North Korean leadership at CNA Corporation’s Strategic Studies (CSS) department.
“It was a way of ordering, bringing in money to support his element of the regime,” he said, “and a lot of this was done through illicit financing deals, you know, counterfeiting, reinsurance scams, a variety of things, some more nefarious than others.”
To raise the additional revenue for ensuring the heir apparent’s smooth consolidation of power, they “basically created another center of power,” he said.
“…there was a lot of work to be done, a lot of people to be bought off, a lot of palms to be greased”
Kim Jong Il did not have broad support throughout the regime, so Gause said, “there was a lot of work to be done, a lot of people to be bought off, a lot of palms to be greased.”
Through the growth of Office 39 North Korea went from a communist state like any other to one with a special slush fund for its elites. Then, with the collapse of the North Korean economy in the 1990s and the ongoing effects of international sanctions, North Korea’s elites came to increasingly rely on the “royal economy”.
“The Kim family has been having trouble getting the money out of the banks it had stored abroad so that is putting significant pressure on the regime to have to resort to the Office 39 funds,” explained Gause.
Now, he estimates these endeavors earn the Bureau “probably several hundred million” a year, and said that North Korea’s “royal” economy controls roughly $6 billion. If true, this could mean that North Korea’s political elite controls a pot of money worth half the country’s GDP.
“(Kim Jong Un) is not just sitting on(those funds),” said one Office 39 financial expert, who wished to remain anonymous for professional reasons. “This money is used to prop up the elite pillar of his support”.
LIKE NO OTHER OFFICE
In theory Office 39 is just another office of the Korean Workers Party, subordinate to the Central Party Secretariat.
But in practice, Office 39 is under the direct control of the Kim family, with its directorship reserved for Kim family members or those who have proven unwavering loyalty to the Kim dynasty. It is independent from the government, acting purely as source of cash for the Kims and their affiliated elites.
“One can hardly say that they are actually an ‘arm of the party’ since their directors answered directly to Kim Jong Il and now Kim Jong Un,” Steve Sin, a former counter-intelligence officer specializing in the Asia-Pacific region, told NK News.
Office 39 remains the Kim family business, with rumors that Kim Yo Chung, Kim Jong Un’s sister, being mentored by Kim Sol Song, Kim Jong Un’s half-sister, in managing the family slush fund, an anonymous source with extensive experience investigating the activities of the bureau said.
In charge of directing the Bureau’s activities is Jon Il Chun, who also serves as director of the Daesong group. In his long career Jon has served in various roles in the State External Economic Affairs Commission and the Korean Workers Party Finance and Accounting Department, as well as a five-year stint as vice chairman of the North Korea-Rwanda Friendship Association, an analysis of his profile on the NK Leadership Tracker shows.
Jon succeeded Kim Tong Il, who was director until 2010 and a true Kim Jong Il loyalist — even serving on the late Dear Leader’s funeral committee. Much of Kim Tong Il’s job involved the sale of precious metals, said Michael Madden of the NK Leadership Watch blog.
“In 2009 he was subjected to a travel ban in the EU, which made doing his job somewhat difficult,” Madden said, which could explain his demotion. Kim Tong Il remains at Office 39 in a management capacity.
Jon may not be in his current position for too long, Gause told NK News, as the ruling family seems keen to cement its control over the bureau.
“At some point, it’s expected that somebody will be brought in who’s fairly close to Kim Jong Un,” he said, “maybe Kim Jong Chul, who will take over the apparatus since he seems to be relying heavily on the Kim family directly, compared to cohorts who have been close to the Kim family”.
Office 39 sits at the top of a complex pyramid of international trading conglomerates, which serve a crucial role in organizing and legitimizing Office 39’s international activity, whose ambiguous titles often mean the foreigners they do business with have no idea they are working with the DPRK government.
The bureau places significant pressure on international diplomats to raise the appropriate “loyalty funds” each year, which are transferred back to Pyongyang, particularly around the time of Kim Jong Un’s birthday.
The most prominent and largest of these conglomerates, appearing on almost every Office 39 apparatchik’s CV, is the Daesong Economic Group, which Madden estimates has “thousands of employees and at least 18 branch offices located in foreign countries”.
While Daesong does not have any official link to the North Korean diplomatic service, he said, there have been “many instances during the last 25 years where Daesong staff met with or worked with DPRK diplomats,” Madden says, “with Bureau 39 sometimes “(compelling) diplomats to use their credentials to smuggle goods”.
Many noted the incongruity in July when North Korea, a serial money launderer, was granted observer status on the Asia/Pacific Group on Money Laundering (APG), part of the Organization for Economic Cooperation and Development (OECD). However, their participation follows a trend noted by experts, in which Office 39 appears to have winded down – or at least toned down – its arms dealing and drug smuggling and focused more on legitimate business.
Much of the Office’s recent activities in the previous decade almost certainly did involve counterfeiting goods, particularly “superdollars”, as revealed by a 2009 investigation carried out by Vanity Fair magazine. Considered one of the most accurate forms of counterfeit dollars to ever circulate, the superdollar was a key source of funds for Office 39 for much of the 2000s, until the United States and international pressure forced them to tone down their activities.
A particularly notorious incident involved Office 39’s bureau in Europe, which operated through a Daesong-controlled bank known as Gold Star Bank, based out of Vienna. Austria’s Federal Ministry of the Interior grew increasingly concerned about the presence of a North Korean-controlled bank operating there, with a report released in 2003 warning of “detectable efforts by the North Korean secret service to place its agents in diplomatic and non-diplomatic positions in Austria”.
“The camouflage for these activities is Europe’s only established branch of the North Korean state bank, which is located in Vienna,” it said, arguing that it was involved in “money-laundering, the distribution of forged currency and illegal trade with radioactive substances”.
The bank was closed in 2004, and the Austrian government served Kwon Yong Rok, Office 39’s man in Vienna, with an arrest warrant, charging him with “luxury goods violations”.
Kwon fled the country before he could be formally charged, and recently served, according to the source with knowledge of Office 39, as head of “the reception committee that met the Russians when they were (in North Korea) in February”.
But it seems Office 39 was determined to maintain a foothold in Europe. A Wikileaks document, dated from 2007, reveals that the U.S. State Department warned the Swiss government of “possible North Korean financial activities in your country”.
“The United States has information that North Korea may be seeking to establish a new bank in Switzerland that would be similar to Golden (sic) Star Bank,” it read.
Office 39 was also notorious for its role in the international drug trade, with widespread rumors that it was involved in the alleged drug trafficking by North Korean embassy officials, pressuring its diplomats to raise “loyalty funds” through drug dealing in foreign countries.
NK News‘s expert on Office 39 who wished to remain anonymous confirmed this, telling NK News that North Korea “was known for producing pharmaceutical grade amphetamine,” and that the bureau had begun selling crystal meth “to replace some of the funds” lost when the economy collapsed during the famine.
Japan proved a lucrative market, the source said, with North Korea turning to “the meth trade to replace some of those funds because the Japanese appetite for meth was just insatiable.
“So in the very late ’90s and early 2000s North Korea (was) sending meth to Japan by the shipload”.
But as with the counterfeit currency, international pressure and law enforcement caught up with the North Koreans, as it did in 2003, when the Australian military intercepted the North Korea Pong Su freighter, found in possession of 150 kilograms of heroin.
“Ever since those years they’ve been a little more circumspect in dealing in narcotics,” the source said.
“The Japanese blacklisting on North Korean goods and the closing of the ports except for vessels in distress,” he said made “everything so much more roundabout…I think that really caused them to start looking for a different model”.
But experts agree that, in recent years, Office 39 may have been moving away from the illicit drug trade and counterfeiting, increasingly focusing on bootleg cigarettes and pharmaceuticals, while facilitating business deals with foreign companies.
“They’re making less than they used to, because they’ve had to distance themselves from the retail end of it,” the Office 39 expert told NK News, saying this could be due to its domestic production and use getting out of control.
“A lot of the manufacturing and trafficking of methamphetamine, for example, has been taken over by other DPRK entities that have no ties to Office 39,” said NK Leadership Watch’s Michael Madden. “Office 39 these days receives a lot of its income from its own logistical, accounting and administrative networks.”
Office 39 could also be playing a key role, too, in North Korea’s burgeoning natural resources industry, of which it exported $2.88 billion in 2012, said Steve Sin, the former East-Asia counter-intelligence officer.
“While not all of this amount would be controlled by Office 39,” he said, “certainly some of the minerals were exported through the holding companies operated by the Office” he explained.
The bureau could also be involved in running North Korea’s international restaurant chain “Pyongyang” which has branches across China, as well as in Jakarta, Phnom Penh, Saigon and others, according to investigative journalist Bertil Lintner. Kim Myung Ho, a defector who ran a Pyongyang branch in China, said employees are expected to send up $30,000 a year back to Pyongyang.
Experts believe that Office 39’s activities are actually becoming more decentralized.
“There are more people vying to earn – and a lot of the businesses have been carved up between different senior cadres along institutional (party and security organizations) and geographic lines,” said Madden.
After years of raising funds to furnish the lavish lifestyle of the ruling family, it now seems a growing number of those working for North Korea’s government realize the potential to get rich both inside and outside the country, and Office’s 39’s monopoly on the acquisition of hard currency may be slipping.
Additional reporting: Leo Byrne
Main picture: E. Lafforgue