About the Author
Shea Cotton is a Research Associate at the Middlebury Institute at the James Martin Center for Nonproliferation Studies at the Monterey Institute of International Studies.
This article is the second of a series produced by the James Martin Center for Nonproliferation Studies (CNS) at the Middlebury Institute of International Studies exclusively for NK News. For this series, we’ve chosen to focus on the legal (mis)adventures of North Korean entities and individuals overseas. You can read part one here.
This entry in our series takes us to Uganda. Here, we look at a failed construction project from 2011, a few attempts at insurance fraud, and the four lawsuits (at least one of which is still unfolding) that resulted when everything went wrong.
Our key players in this story are Malaysia-Korea Partners (MKP) and the Ugandan National Housing and Construction Company (NHCC).
MKP is a construction company formed between the DPRK-controlled Mansudae Overseas Projects and a group of Malaysian businessmen. Construction projects across the developing world have served as a significant source of revenue for North Korea.
More recently, the UN sanctions regime has increasingly targeted this sector to cut into Pyongyang’s bottom line, and MKP’s subsequent violations have featured prominently in UN Panel reports.
The NHCC, in turn, was formed in 1964 as a creature of the Ugandan government with a mandate to finance and build housing within Uganda.
Events began on July 15, 2011, when the NHCC formally awarded a contract valued at $18,138,812 for the construction of 312 condo units in a suburb of Kampala to a company called NH-MKP Builders Ltd.
According to the UN Panel of Experts, NH-MKP is a joint venture whose ownership is split between the NHCC and MKP.
In an interesting move, court documents state that, after having received the condo construction contract, this joint venture proceeded to subcontract 100 percent of construction to MKP Builders SDN BHD Ltd for the price of $17,959,220; a difference of $179,592 is curiously unaccounted for.
According to court records, MKP was unwilling to begin work on the project without receiving some of the funds up front.
So, both parties negotiated an advanced payment of $3,627,762 (20 percent of the total contract value) from the NHCC. To ensure MKP did not take the money and run, it was agreed they would take out a few insurance policies to be paid to the Ugandan government if MKP failed to deliver. Court documents indicate there were at least three such insurance policies in place.
The first was an advanced payment guarantee with Leads Insurance Company established on July 22, 2011, valued at $3,627,762. The policy and payout were directly tied to the $3.6 million advanced payment.
Additionally, MKP also took out a policy valued at $1,813,881 with a separate insurance company called UAP Insurance Uganda Ltd, which the NHCC could call in at any time if it felt MKP had failed to fulfill its obligations.
Finally, a third policy appears to have been purchased through a North Korean bank called “HI Fund International Bank.” Neither its value nor the circumstances under which the policy would be paid out are clear from available court documents.
Despite the unclear circumstances surrounding it, it is worth mentioning because MKP has issued repeated (and unconvincing) denials about the existence of a relationship between it and the bank.
Yet MKP appears to have been on good enough terms with the bank that it enabled them to finance this construction project in 2011 through 2013.
There are a few elements of this that feel wrong. First, the nested structure in which the contract was awarded to MKP feels like it was designed to create ambiguities, obscure accountability, and appears to have resulted in at least $179,592 going missing.
In one of the lawsuits, UAP Insurance (unsuccessfully) argued this arrangement constituted fraud and was reason enough to void its policy with the Ugandan government.
Second, and more alarming, is the over–insurance of the first stage of the project. Though court documents indicate the Ugandan government paid out some $3.6 million to MKP, it had insurance companies on the hook for at least $5.4 million (not counting the HI Fund policy, the details of which remain unknown).
Things only got worse as events unfolded. Though the NHCC paid out the advanced payment to MKP, work at the job site appears to have been almost non-existent.
According to local news reports, after about 18 months of “work,” all MKP did was “level the ground and build a retaining wall.” Additionally, MKP appears to have run into a snag with its $3.6 million policy with Leads Insurance.
In late 2012, Leads Insurance imploded in an accounting scandal, and the Ugandan government moved to shutter the company in December 2012. For MKP and the NHCC, this was unacceptable. MKP acted quickly to secure a second advanced payment guarantee insurance policy with a new company named Lion Assurance Company Ltd for the same value of $3.6 million.
By February 2013, the NHCC declared it had lost faith in MKP to complete the construction project and called in its insurance policies. Both UAP Insurance and Lion Assurance refused to pay out. UAP argued the nested arrangement of the contract award was deceptive and fraudulent.
It also claimed that the NHCC (controlling over half of the joint venture which it awarded the initial contract to) purposely failed to carry out the construction project. In other words, UAP accused the NHCC of taking out a fire insurance policy on its house and then burning it down.
The judge disagreed, finding that the wording of the policy was sufficiently broad to allow the NHCC to call in the policy for whatever it pleased and ordered UAP to pay out the $1.8 million policy.
Ugandan authorities appear to have taken no steps to punish MKP
Lion Assurance had more luck in court. It argued the insurance policy it issued was an advance payment guarantee as opposed to an advanced payment guarantee. Essentially, Lion Assurance argued its policy could only cover payments the Ugandan government paid out to MKP after the policy was issued, not any prior payments.
Since its policy was only established in November of 2012, it could not be forced to cover payments issued in July 2011. Furthermore, they claimed the NHCC’s attempt to get them to pay out for the previous $3.6 million was straight up fraud.
A judge ultimately agreed with Lion Assurance, absolving them of their responsibility to pay out and castigating the NHCC and MKP for their attempted fraud.
So where does that leave this failed construction project? Given MKP’s complete lack of any meaningful work on the project, it does not appear the company ever intended to fulfill its end of the deal.
After local news exposed the failed project, Ugandan police investigated and ultimately concluded that the fault lay entirely with MKP, and that the NHCC was completely innocent.
Personally, this author finds the conclusion that the NHCC (and, in turn, the Ugandan government) was a blameless victim in this series of events to be dubious at best.
Ugandan authorities appear to have taken no steps to punish MKP, despite a police report finding them liable for failing to complete the project.
Uganda claims that its ongoing lawsuit prevents them from shuttering MKP’s local operations, as required by UN sanctions obligating Uganda to shutter all DPRK-connected operations within its territory.
On the contrary, a December 2018 Wall Street Journal investigation suggests the Ugandan government has instead increased its ties with the organization.
If this author were being cynical, I would suspect that, like a con from a Hollywood film, neither the NHCC nor MKP ever intended to complete the project: the plan from the start was to over-insure a project, rip off a few insurance companies, and walk away with a few million dollars.
Uganda claims that its ongoing lawsuit prevents them from shuttering MKP’s local operations
Were it not for Leads Insurance folding at the end of 2012, the NHCC would have been able to recoup the full $3.6 million payout and an additional $1.8 million, and MKP would probably have been able to keep the initial $3.6 million payment.
Instead, the NHCC is at least $1.8 million in the hole and appears to have turned on its former partner, MKP, to recoup its losses.
While court documents are publicly unavailable, the Panel of Experts’ March 2019 Report indicates that the Ugandan government has an ongoing lawsuit with MKP.
This story, though, may end less like Ocean’s 11—with the con artists each walking away with a few million dollars in easy money—and more akin to Reservoir Dogs, with everyone dead on the floor.
Edited by Oliver Hotham