North Korea's Internal Strife Could Be All About Foreign Currency

North Korea Statue

Photo: AP

While North Korea’s young leader Kim Jong-un may have cleared the hurdles to establish himself as the true leader of the country, it wasn’t without some difficulty.The biggest problem appears to have been the case of North Korea’s Army chief Ri Yong-ho, who was reportedly ousted earlier this month. Ri apparently made some sort of of military move against Kim (intentional or not), which prompted his ousting, and, by some reports, a gun battle.

One key aspect of the latest news about Ri may not be the the troops or a gun battle however. South Korean media reports that hundreds of thousands of US dollars were discovered during a raid on Ri’s home — suggesting North Korea’s illicit foreign currency trade may be in flux.

The exact nature of North Korea’s foreign currency businesses is murky and, by most accounts, illegal. It is, however, vital for a sanctions-stifled state that stopped paying its debts 20 years ago, and has a worthless local currency (the won).

The most well-known of the state enterprises is Room 39 and Room 38, secretive organisations believed to be in charge of controlling North Korean executives’ foreign currency funds. One 2007 report estimated that the these funds netted North Korea $500 million to $1 billion a year, with a variety of methods, including widespread counterfeiting of US dollars (at least $45 million according to a 2006 US congress report), foreign hotels and restaurants, and even reports of gold smuggling and drug trafficking. A 2009 Washington Post story talks about an enormous international insurance scam being conducted by the group.

The late Kim Jong-il reportedly used the departments as his “private bank vault”, enabling him to keep his lavish lifestyle and fund military ventures. While there was some doubt that the younger Kim would be able to take over the funds, it appears he was able to gain traction — one of the last photos of Kim Jong-il shows his son standing behind him with the manager of Room 39, Jon Il-chun.

Under the younger Kim, things seem to be changing. Reports suggest that in the past around 70 per cent of foreign currency business in North Korea had been conducted by the military elite. Kim Jong-un is now said to be personally taking over these companies.

While, as always with North Korea, its impossible to say why this is happening. Reform is one possibility, but there are others: one tantalising story in the Atlantic points towards the closure of Chongryon, North Korea’s unofficial yet lucrative business empire in Japan, earlier this year.

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