How Kim Jong-un Gets His Hands On Western Luxury Goods
Embargo? Ha! The North Korean leader relies on an entire black-market system dedicated to getting around UN sanctions so he can enjoy the best the West has to sell.
PYONGYANG — On a visit to a factory last month, North Korean leader Kim Jong-un flaunted another victory over the United Nations embargo when he posed next to a machine from a German manufacturer. The company in question did not respond to Die Welt's query about how the machine arrived in North Korea.
In September 2013, Kim caused a stir on a visit to another factory, when pictures showed him standing next to rotating cylinders, a piece of technology used in the manufacture of car rims, but also necessary for making missiles.That technology most likely came from China, as the pieces shown in the photograph look similar to a Chinese model.
UN inspectors going through rubble from the Unha-3 long-distance missile found 14 components including high-pressure pumps, computer chips and ball bearings from China, Britain, Switzerland, Russia and the United States. They established that a firm in Taiwan had sourced the pumps, but efforts to trace the other components are ongoing.
But it's not only potentially dangerous technology that finds its way through the trade embargo into North Korea. Kim's means of transport to these factory visits was a new Mercedes-Benz S-Class, a luxury car that is included on the UN's list of banned goods. Despite this, in April 2012 two generals opened a military parade in brand new Mercedes-Benz 600 Landaulets with elongated wheelbases and convertible roofs.
The cars did not come from the Stuttgart-based manufacturer — Daimler cut all trade relations with Pyongyang 15 years ago. A company spokesperson said in a statement: "In compliance with the UN's request last year, we renewed our efforts to discover how the cars with the Mercedes-Benz logo came to be in North Korea. Despite our concerted efforts, we were unable to find any concrete results, particularly because we have no chassis numbers for the cars in question."
Pyongyang's streets are full of Audis, BMWs and Hummers. The gym at the new luxury development on the Taedong river boasts exercise machines made by an American company. Kim Jong-un's wife Ri Sol-ju wears Western designer clothing, while the North Korean leader uses the webcam on his Apple computer to liaise with his military commanders.
How do all these goods get past the trade embargo? The same way as the 8-axle transporters used for the KN-08 intercontinental missile: through false documents and underhanded deals. The transporters in question originally came from a Chinese company and bear some similarities to a Russian model. They were labelled as wood transporters for difficult terrain and upgraded with an American engine and a German gearbox.
North Korea's Forest Ministry promptly ordered eight transporters. The vehicles were delivered on a ship chartered by a Chinese firm. It stopped in Osaka, where Japan checked the cargo and let it continue, as wood transporters are not on the embargo list. It was only discovered later, once Pyongyang had revealed the true purpose of the vehicles, that the charter company had the same name as a North Korean military company.
One problem is that the list of banned goods varies from country to country, especially when it comes to luxury items. Australia rules out everything that comes under clothing, leather and furs, while the European Union bans high-quality scarves, accessories, shoes (no matter what the material), high-quality leather, riding gear, handbags and the like. Canada does not allow companies to trade designer clothes and furs with North Korea, while Russia exports everything apart from furs worth more than 250,000 rubles ($7,000). Even for a high-ranking North Korean official, that's serious money.
When it comes to consumer electronic appliances, Australia and Canada keep everything on the blacklist, while the EU only outlaws trading high-value items to be used in the home and high-value audiovisual recording devices. Singaporean companies are banned from exporting plasma TVs and portable music players to North Korea, but Russia and China place no restrictions on this type of trade.
In 2012, inspectors discovered twelve breaches of the embargo in Japan, including a delivery of 698 used Notebook laptops, 22 used keyboards and 673 cosmetics. All of these goods went from Japan via South Korea and China to North Korea. A footnote from the inspectors explains that most of these items are not considered luxury goods in China.
If there's a will
If the West really wanted to enforce the embargo on luxury goods, it would have to check each and every delivery of cameras or scarves, as it does for nuclear technology. There is simply not enough money, resources or political will to do so.
Inspectors say there are fewer cases recently where they can prove that exporters are deliberately breaching the embargo. In 2008, an Austrian sold eight Mercedes-Benz S-Class to Pyongyang and a small Italian firm delivered two high-end loudspeakers for cinemas directly to North Korea.
But most exports to North Korea are not so blatant. UN inspectors write sarcastically that North Korea's foreign trade is long past the stage when it was two colleagues with a fax machine.
In southwest Pyongyang, the regime trains students in the intricacies of the global market. Enforcing the embargo has turned into a worldwide game of cat-and-mouse. Despite the variations, trade deals always follow the same basic pattern. Inconspicuous buyers order goods for inconspicuous customers, who are naturally not based in North Korea but work as middlemen for further middlemen. The firms continually change their names and often use different spellings of their Korean and Chinese names, or adopt a name that is phonetically similar to that of a large, well-known company.
The deals are either paid for in cash or through multiple small payments to banks that are set up for the sole purpose of processing such transactions. The UN inspectors also suspect that Pyongyang uses legal trades to test out new ways of getting illicit goods into the country. North Korea paid for legal Russian passenger jets via 11 different channels in Hong Kong, presumably testing the water for illegal imports.
Aside from the military, almost nothing in North Korea is as shrouded in secrecy as the exact structure of the country's banking industry. There are countless specialized firms working for companies that have links to the military or the party. As soon as they come to the UN inspectors' attention, they disappear and a new company appears under a different name. The UN then has to prove that these new banks have carried out illegal trades. But, as they wrote in their 2012 report, North Korea can create new cover names more quickly than the sanctions committee can identify them.
Via Japan and China
It is no coincidence that most embargo breaches take place in Japan and China. Hundreds of thousands of Koreans emigrated or were taken to Japan during the Japanese occupation and many supported the North after the civil war. Those Koreans loyal to Kim have created Chongryon, an organization that has been supplying North Korea's top dogs with goods since Japan became a major player in the international consumer electronics industry.
In China, there is an established tradition of trading through middlemen, dating back to the imperial age. Cities like Guangzhou and the former Portuguese colony of Macau owe their success to this kind of trade, and used it to circumvent the embargo placed on China after Mao seized power.
Now Kim is emulating China, helping its traders by any means necessary. This became clear in March when U.S. commandos boarded a ship sailing under North Korea's flag. The Morning Glory had taken on cargo illegally at an oil port occupied by Libyan rebels. The ship had been registered in North Korea for six months and during this time it had been assigned to a new operating company in Egypt. After the U.S. marines' operation, a company from Sharjah in the UAE came forward and claimed that the ship belonged to them. North Korea denied all knowledge and retracted the registration.
This story is all too familiar for UN inspectors, who have seen North Korean ships sailing under many different flags. However, these may soon be irrelevant, as Pyongyang has discovered the real hole in the UN fence: the land routes through China and Russia.
In their 2012 report, the UN inspectors wrote that there has not been a single case where the sanctions committee was able to inspect goods crossing these borders. It seems that Kim Jong-un has found the safest way to get his luxury cars and designer clothes — not to mention the military technology the world fears he may acquire.