04 March 2008

North Korea: Money For Nothing

North Korea is selling missiles, counterfeit cigarettes and possibly nuclear material to earn hard currency, according to different reports recently released.

The Office of the Director of National Intelligence released the text of the annual "Unclassified Report to Congress on the Acquisition of Technology Relating to Weapons of Mass Destruction and Advanced Conventional Munitions," which covers activities in 2006, and notes that North Korea is still trying to sell missiles, though having difficulties due to additional UN sanctions put in place after its 2006 missile and nuclear tests. The report also suggests, but doesn’t state outright, that North Korea may be interested in or actively selling nuclear or other WMD technology to Iran and/or Syria.

In the State Department's "International Narcotics Control Strategy Report," it is noted that North Korean state involvement in illegal narcotics trade appears sharply down if not extinguished since 2003, though there is a continued, if not increased, trafficking in counterfeit cigarettes coming out of North Korea.

North Korea has long been involved in various schemes to earn hard currency, from money laundering and illegal drug trade to semi-legal weapons and missile sales and potentially even the transfer of nuclear technology (the Israeli air strike on a Syrian facility last year has been linked to North Korean technology transfer, something Washington wants Pyongyang to admit as part of its disclosure of nuclear activities under the Six Party talks). However, Pyongyang is also very capable of shutting down illicit activities when confronted – the drug smuggling and the counterfeiting of U.S. $100 bills are cases in point.

As a source of hard currency, North Korea's missile and weapons programs are ideal. North Korea has spent decades working over Russian and Chinese designs, improving and simplifying the missile systems, and Pyongyang offers an inexpensive and experienced alternative for countries with no access to Western technologies and minimal interest in the political baggage of Chinese or Russian assistance. Pyongyang sells not only complete missile systems, components and launchers, but also rents out its own technicians, to allow the "indigenous" development of rocket and missile systems in other countries.

With the increased scrutiny on North Korean ballistic missile sales, however, and no one taking North Korea up on the offer to suspend missile development in return for hard currency, Pyongyang has shifted from the ballistic missile export market to shorter-range anti-ship and battlefield ballistic missile systems, which are easier to conceal and transport. While it is not a substitute for the more expensive medium and long-range ballistic missiles, it does represent a product that is more broadly marketable. After all, more countries are interested in anti-ship capabilities and short range systems than really need NoDongs or Taepodongs.

As for the cigarettes, there are two parallel systems underway in North Korea. There are state-run factories connected to the military and Workers Party producing knock-off cigarettes for sale in China and Japan, and there are foreign run factories, primarily Thai and Malaysian, that rent space in North Korea to manufacture and export counterfeit cigarettes. Marketing and distribution is done through Chinese and Taiwanese intermediaries, and the products travel both inside Asia and as far as the United States. Counterfeiting cigarettes is big money, particularly when resold in the United States, where the added tax on cigarettes gives the knock-offs a very high profit margin.

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