Kim Jong Un has a problem. Put aside the obvious issues like his weight or the bad haircut. He rules an isolated and impoverished nation, surrounded by his dad’s old advisors and generals, who know he is unqualified and that they could do a better job. So what is a young despot supposed to do to keep the champagne flowing and not lose his head in a coup? Fire up dad’s old money-making slush fund, Office 39 to pay everyone off and then maybe kill his uncle just to set an example.
Calling North Korea a depressing place is an understatement. The country is a Stalinist police state with a non-existent economy and massive poverty. Despite the bleak existence of ordinary citizens, Kim Jong Un and elite live the like kings. His wealth sits at $5 billion, and experts claim that in one year he spent $645 million on luxury goods. Kim Jong Un’s expensive tastes are well-known. He likes French cognac and Russian caviar and wears Patek Philippe watches, loves Air Jordan shoes and owns a jet and a fleet of armored Mercedes Benz limousines. To top it off, he has a private theme park and ski resort. Despite the goods and the parties with Dennis Rodman, life is not all joy for the young leader.
Dynastic regimes whether they are criminal or governmental all at one time face a big problem. After a few generations, the family devolves from hardened authoritarians to pampered playboys. For proof of this theory, Google the grandkids of mob boss John Gotti. This dilution applies to the Kim family. Kim Il Sung, the eternal father of the revolution, was an anti-Japanese Guerilla commander and held the country during the Korean War. His father, Kim Jong Il spent years building up an image as the only person who could succeed his father.
Kim Jung Un spent his youth in an elite Swiss boarding school and did not begin to step into the spotlight until Kim Jon Il was near death. To bolster his reputation his father appointed him to be a four-star general, without ever serving a day in uniform. This lack of revolutionary credentials did little to impress the generals and bureaucrats he would need to stay in power, so Kim Jung Un by all accounts bribed the leadership using money from a secret slush fund.
Office 39 sits within a web of the complex bureaucracy of the Korean Peoples Worker’s Party. Exact dates cannot be determined, but experts believe that Kim Jon Il founded the organization in the early 1990’s after the collapse of the Soviet Union and essential foreign aid dried up. Facing economic destruction and possible overthrow from a coup, he tasked the office with bringing hard currency and luxury goods into the country through illegal means. The system that developed created a second and more lucrative financial system called the “Royal court economy.”
To draw in funds, Office 39 oversees a vast network of criminal enterprises. In 2003, experts estimated that North Korea made $1 billion a year through the production and distribution of methamphetamines. In Africa nations like Angola and Namibia, North Korean diplomats have smuggled ivory, rhino horns, and gold, dating back to 1986.
North Korea also produces counterfeit U.S $100 bills, dubbed “Superdollars” by Secret Service the U.S. Secret Service because they are nearly identical to the real currency. To this date, banks and regulators identified over $250million circulating through the global market. One North Korean operative was a Taiwanese man living in a Los Angeles suburb. In court, he admitted to laundering approximately $2million at casinos in Las Vegas. He conducted a common layering scheme, where he cashed the counterfeit bills for chips or made a deposit for a line of credit. At the end of his trip, he would cash in the chips and receive legitimate cash in return.
According to defectors from Office 39, one of the most significant cash draws for Kim Jon Un is insurance fraud. The state-run Korean National Insurance Company (KNIC) pays substantial premiums for a plan and then files a false claim. Reinsurers will then pay out the settlement for the damages, and back to North Korea through the banking system.
The second role of Office 39 is to acquire the luxury goods and items required by Kim Jong Un. Using diplomatic cover, agents with shopping lists roam the streets of Zurich, Vienna and Prague receive shopping lists with items such as silk rugs, food, perfume, appliances, and cars. The agents also procured items with security uses, like monitors used to detect heartbeats when searching for criminals in buildings.
The money and the luxury items travel back to North Korea through a variety of means. Some items return in diplomatic pouches. Others are smuggled back to the country via airfreight or container ship, taking advantage of lax customs regulations. The majority of the money travels back through the banking system. Office 39 provides bank accounts to agents throughout the world. They, in turn, transfer the money through a network called correspondent banking, where banks honor cash transfers through related banks. Office 39 hides the ownership of these accounts through shell companies that exist only on paper. Much of the direct banking goes through China or Chinese Special Economic zones like Macau.
Once the money and goods are back in North Korea, Kim Jong Un distributes the wealth as he sees fit. Regular soldiers may get a chrome AK-47. Mid-level, government officials have received apartments or appliances. However, the elites benefit the greatest, receiving Patek Philippe watches, cars and villas.
Despite the sharing of the wealth, there is a dark side to the process. Agents stationed in Switzerland and Singapore live luxuriously compared to their fellow citizens back home, but the pressure to bring home more money and better items is great. Many defectors spoke of fearing for their lives, hoping that their work would be enough to keep the Kim family happy. The production of methamphetamine also created the side effect of large-scale drug addiction affecting approximately 40% of the population.
The royal court economy also negatively affects the real North Korean economy. According to experts, the illegal activities are 200 times more profitable than the conventional industries. Moreover, there is evidence the Kim Jon Un wants to keep it that way. Jang Song-Thaek was Kim Jong Un’s uncle, who served as his economic advisor and previously his father. He helped establish many modernizing programs, like special economic zones to draw in Russian and Chinese business. In 2013, Kim Jong Un arrested his uncle and summarily executed him for gross crimes against the state. While no one is certain what the crimes were, there is a theory that Jang Song-Thaek’s economic policies were drawing money away from the royal court system and his execution was a direct result.
Kim Jong Un may be working to update his image in the world by sending his cheerleaders to the Olympics and taking part in international talks. However, looking at how he gains his wealth and keeps his power. One might wonder if this is just another cash grab. Is he working to end the Korean war, or like many of the Columbian narco cartels putting on a legitimate face to ease sanctions?
Featured Image Courtesy of Vietnam Mobiography, via Flickr