Drug Dealing, Counterfeiting, Smuggling: How North Korea Makes Money

Aug 11, 2011
Originally published on August 12, 2011 5:57 pm

North Korea used to be an industrial powerhouse. Not anymore. Today, the country can't feed its own people. Its cities go dark every night for lack of electricity.

Yet helplessness wasn't the original plan. The original plan for the country's economy had a name. It was called "juche," or self-reliance. The idea was that all North Korean problems should be solved by North Koreans.

Every North Korean knows the concept of juche inside and out. The country takes self-reliance very seriously. And if self-reliance requires drug-dealing and the smuggling of counterfeit goods, then so be it.

But before we get to that, there are a few other ways the North Korean government can make money.

It can sell what few assets it has to its neighbors. So China takes coal and magnesium out of North Korea's mountains and harvests fish from North Korean waters. Those sales put millions of dollars into Kim Jong-Il's hands.

In fact, North Korea doesn't just rent its land. It rents out its own people: the government sends its citizens to Russia to chop down trees and to special South Korean factories near the border that need cheap labor.

This works out great for Kim Jong-Il. Those Russian and South Korean companies pay North Korea in dollars and then the North Korean government pockets that money and gives near-worthless local currency to the workers.

And North Korea has one more legal export: monuments. It turns out that giant, ugly statues are one of the few exports of North Korea.

There's a whole division of the North Korean government that specializes in building those statues for dictators around the world, according to Curtis Melvin, an econ grad student who runs the blog North Korea Economy Watch.

"You can go as far back as the 1970s to find monuments the North Koreans have built in Africa and that's sort of continued to this day," he says.

All these legal exports added up to roughly $2 billion in 2009. In addition to that, North Korea brings in a lot of money through blatantly illegal activity.

To learn more about the country's illegal exports, we spoke with Ma Young Ae, a defector who used to work as a North Korean spy. Ma now lives in Virginia where she runs a North Korean restaurant. But back in Pyongyang she was one of the country's elites.

Ma worked for Kim Jong Il's internal police force. Her job was was to track down drug smugglers. That sounds like pretty normal law enforcement, except for one difference. She was supposed to stop small-time Korean drug dealers in order to protect the biggest drug dealer in the country: the North Korean government.

Ma told us the North Korean government produced opium on a large scale. But it hid its poppy fields from most of the population. Ma only saw the fields because she was an insider.

After harvesting the fields, the government would put its empty factories to use. The government would turn on its production lines at night and process opium, Ma says. Then they would pack the product in plastic cubes the size of dictionaries and smuggle it out of the country through China.

This was in the mid-eighties, when opium was the big drug. These days the drug of choice for export out of North Korea is ice, also know as methamphetamine.

Ma never smuggled the drugs herself. But she did smuggle something else. When she traveled in China, tracking down those non-government-approved drug dealers, the government didn't give Ma a corporate credit card.

Instead, she was given a wad of counterfeit dollars. This is another of North Korea's exports: Counterfeit $100 bills known as super-notes.

Nobody was going to just accept a brand-new $100 dollar bill from a North Korean. Instead, the Chinese would give the North Koreans sixty real U.S. dollars for every fake $100 bill.

It was during these trips that Ma noticed that the Chinese across the river had a much better standard of living than the North Koreans. So, when she had the chance, she defected.

Besides the illegal drugs and the counterfeit currency, North Korea is believed to deal in lots of weapons: rifles, missiles, perhaps even nuclear technology. Just a couple of weeks ago in Lybia, the rebels found a bunch of North Korean rocket launchers in a box labeled "bulldozer parts."

It's impossible to say how much money all this illegal activity brings in. Melvin says the government's primary goal is to maintain control of the country, not to maximize revenue.

What we do know is that Kim Jong-Il makes enough money to give the country's small elite a pretty good life. Despite international sanctions, he's always getting caught sneaking in iPods, Mercedes, Cognac and big screen TVs.

Meanwhile, the rest of North Korea gets barely enough to survive.

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MICHELE NORRIS, host: From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.

MELISSA BLOCK, host: And I'm Melissa Block. We're going to take a break now from talking about the troubled U.S. economy or the shaky European economy and turn to the pariah economy of North Korea. It is not in good shape. North Korea's people are starving. Its factories are rusting. And few countries in the world want to trade with it. And yet, leader Kim Jong-Il has come up with some sneaky ways to bring money into the country. NPR's Robert Smith and Zoe Chace of Planet Money have this story.

ROBERT SMITH: North Korea used to be an industrial powerhouse.

ZOE CHACE: But after years of repression and economic sanctions, North Korea has become more like the character Lloyd Dobler from the '80s movie "Say Anything."

(SOUNDBITE OF MOVIE, "SAY ANYTHING")

JOHN CUSACK: (as Lloyd Dobler) I don't want to sell anything, buy anything or process anything as a career. I don't want to sell anything bought or processed, or buy anything sold or processed, or process anything sold, bought or processed, or repair anything sold, bought or processed. You know, as a career, I don't want to do that.

SMITH: But this degree of helplessness wasn't the original plan. The original plan for the country's economy had a name. It was called juche.

CHACE: Juche means self-reliance. Any North Korean knows the concept of juche inside and out.

SMITH: When we sat down with a North Korean defector, Ma Young Ae, she explained it through a translator.

MA YOUNG AE: (Through Translator) It's independence, self-reliance. All North Korean problems will be solved by North Korean people.

SMITH: And if the concept of self-reliance requires drug dealing and smuggling of counterfeit goods, then so be it.

CHACE: We'll hear in just a minute all the illegal ways the defector helped to make money for the North Korean government, but first, we should say the country does have a few legal ways to make money.

SMITH: Yeah. It sells what few assets it has to its neighbors. So China takes coal and magnesium out of North Korea's mountains. It also harvests fish from North Korean waters. And that puts millions of dollars into the hands of Kim Jong-Il.

CHACE: Not only does North Korea rent out its land. It rents out its own people: The government sends its people to Russia to chop down trees and down to special South Korean factories near the border that need cheap labor.

SMITH: And it works out great for Kim Jong-Il. Those foreign companies pay North Korea in U.S. dollars, and then the North Korean government pockets that money and gives the near-worthless local currency to the workers. Oh, and North Korea does have one other legal expertise. There are monuments. If you've seen the pictures, you will recognize the 60-foot tall statues of the great leader. Curtis Melvin, who runs the blog North Korea Economy Watch, says there's a whole division of the North Korean government that will build those statues for dictators around the world.

CURTIS MELVIN: The North Koreans have a long history of doing this, and you can go as far back as the 1970s to find the monuments that the North Koreans have built in Africa, and that's sort of continued to this day.

CHACE: So all these legal exports added up to roughly $2 billion in 2009. Getting trade statistics on North Korea is more of an art than a science. The country doesn't publish them.

SMITH: That's because North Korea brings in a lot of money through blatantly illegal activity. To learn more about it, we're going to reintroduce you to our defector who used to work as a North Korean spy.

We visited Ma Young Ae at her apartment in Northern Virginia. She runs a North Korean restaurant. But back in Pyongyang, she was one of the country's elite, working as part of Kim Jong Il's police force.

CHACE: She had never heard of public radio, so our translator, Sung Hee Na(ph), tried to explain it to her.

SUNG HEE NA: (Foreign language spoken) Spring and fall fundraising. (Foreign language spoken). We need your support. (Foreign language spoken)

SMITH: Mrs. Ma's job back in North Korea was to track down drug smugglers, which is pretty normal job for a law enforcement officer, right? But here's the difference. She was supposed to stop small-time Korean drug dealers in order to protect the biggest drug dealer of all: the North Korean government.

AE: (Through Translator) The small individuals that we were trying to catch were doing this in a very small scale, but the government was doing it in large scale, in a very institutional level.

CHACE: It was opium. The North Koreans hid their poppy fields from most of the population. Mrs. Ma only saw them because she was an insider.

AE: (Through Translator) There was a huge area that used to be the potato fields were converted into the fields for growing opium plants. And I visited there in the springtime. They just looked beautiful.

SMITH: And this is where some of those empty factories actually became productive. At night, Mrs. Ma says the government would start up the production lines and process the opium. They would put the product in these plastic cubes about the size of a dictionary.

CHACE: Then the drugs would be smuggled out of the country through China. This was in the mid-'80s, when opium was the big drug. These days, the drug of choice for export out of North Korea is ice, methamphetamine.

SMITH: Ma never smuggled the drugs herself. But in a crazy way, she did end up smuggling other products. When she traveled in China, tracking down those nongovernment-approved drug dealers...

CHACE: The government didn't give Mrs. Ma a corporate credit card when she travels.

AE: (Through Translator) Over time, I was given a pack of cash, in dollars. And I was trained. I was told, I was explained that these are fake dollars.

SMITH: One of North Korea's illegal exports is counterfeit U.S. currency: $100 bills. They call them super-notes. But even this shows you what a strange position North Korea is in. Nobody is going to take a brand-new-looking $100 bill from a North Korean. So the North Koreans would sell the super-notes to the Chinese dealers who knew they were fake. The Chinese would give the North Koreans 60 real U.S. dollars for every fake $100 bill.

CHACE: And when Mrs. Ma was on these smuggling trips, she noticed, you know, the Chinese have a much better standard of living than we do across the river. When she got the chance, she defected.

SMITH: It would be nice if we could give you an estimate of how much money illegal exports bring into the country, because besides the illegal drugs and the counterfeit currency, North Korea is widely believed to deal a lot of weapons, armaments - rifles, missiles, perhaps even nuclear technology - hundreds of millions of dollars worth. But the thing is nobody knows how much.

CHACE: Just a couple of weeks ago in Libya, the rebels found a bunch of North Korean rocket launchers in a box labeled bulldozer parts.

SMITH: Which is a little bit funny since North Koreans definitely don't make bulldozer parts or much of anything else. And Curtis Melvin of North Korea Economy Watch says to try to put together a balance sheet for North Korea is missing the point of what Kim Jong-Il is trying to do.

MELVIN: The North Korean leadership knows that what they're doing is not necessarily what's going to make them the most money. They're primarily concerned with maintaining control. North Korea is one of those cases where you can almost say do the opposite of that and your country will achieve prosperity.

CHACE: We do know Kim Jong-Il makes enough money to give the country's elite a pretty good life. Despite international sanctions, he's always getting caught sneaking in iPods, Mercedes, cognac and big screen TVs.

SMITH: The rest of North Korea gets barely enough to survive. I'm Robert Smith. Transcript provided by NPR, Copyright NPR.