For decades, Kuwait was a critical hub in North Korea's network of foreign outposts. Every year, thousands of labourers would take an Air Koryo flight from Pyongyang via Islamabad before being dispatched to construction sites across the oil-rich Gulf state or elsewhere in the Middle East and Africa.
At its peak, the sweat of about 100,000 overseas workers generated as much as $500 million in hard currency a year for the nuclear-armed regime, according to US government estimates.
But a few years ago the flow of workers declined to a trickle as Kuwaiti authorities acted in accordance with United Nations sanctions banning the workers. Consular staff assigned to process the workers’ visas, contracts and their salaries were fast becoming obsolete – also curtailing their opportunities for kickbacks and smuggling schemes.
According to people familiar with an official cable sent to diplomats in Seoul in 2019, North Korea had struggled to afford the rent on its embassy in Kuwait and was forced to move to cheaper premises.
“Things were completely different after sanctions took effect,” says one person with knowledge of the situation.
The demise of the scheme to raise funds in the Gulf is one result of the 15-year-long campaign of increasingly harsh sanctions dubbed "maximum pressure", led by the UN and the United States, that have been designed to choke off the regime's sources of income.
Yet despite some successes, experts say North Korea is still managing to find new ways to get around the sanctions, including cryptocurrency theft and lucrative cyber heists.
The sanctions ultimately cause more harm by pushing the secretive state deeper into its shell, some experts say. They add that there are clear signs that the state’s acquisition of stocks of nuclear and chemical weapons has not been curtailed by the sanctions regime.
Ordinary North Koreans have suffered as a result of the sanctions and their plight has worsened in the past 18 months: a crackdown on cross-border trade and travel – a bid by Pyongyang to keep the coronavirus pandemic at bay – has severed access to China, North Korea’s main economic lifeline. All the while, the lavish lifestyle of the leader Kim Jong-un and his court continues unabashed.
Rachel Lee, a former US government analyst now with the 38 North programme at the Stimson Center think tank in Washington, describes the dichotomy as "two different worlds – there is definitely a disconnect between the lifestyle of not just the Kim family but the top elite, and the remainder of the population".
The failure of sanctions is prompting calls for President Joe Biden’s administration to overhaul what has been a de facto policy in four successive administrations.
“The original intention has not been achieved – North Korea’s nuclear weapons and missile capabilities have been strengthened,” says one former senior presidential adviser in Seoul who has dealt directly with Pyongyang. “Yet the collateral damage has been widespread. The North Korean people are suffering. Efforts towards reform and opening and a market system have been further delayed. But they cannot get away from it because sanctions have become a kind of theology in Washington, nobody can touch it.”
Violation and defection
North Korea’s overseas labourers are just one strand in a massive web of duplicitous schemes designed with a singular purpose: to bring in cash for the Kim regime. UN investigators, as well as law enforcement and military officials from scores of countries, have for years tracked individuals, companies and governments in order to stamp down on sanctions breaches.
A small sample of the alleged UN violations linked to Pyongyang’s foreign embassies in recent years include military delegations advising countries in Africa, Iranians suspected of smuggling gold and cash to North Korea, an attempted arms deal in Egypt and coal shipments brokered by Indonesian commodity traders.
Few nations have managed to avoid being touched by the Kim regime’s long tentacles. Between 2015 and 2017, North Korea procured luxury goods from as many as 90 countries, according to the Center for Advanced Defense Studies, a Washington research group.
For many experts, the state’s increased aptitude for cyber crime is of greater worry than where Kim sources his black Mercedes-Maybach limousines.
In March, a UN report included an estimate of cryptocurrency theft worth $316 million from 2019 to November 2020. According to one complaint filed by the US justice department in August 2020, one hacker linked to North Korea “allegedly stole over $272,000 worth of alternative cryptocurrencies and tokens, including Proton Tokens, PlayGame tokens and IHT Real Estate Protocol [blockchain] tokens”.
“The targeting of virtual assets and virtual asset service providers is rampant,” says Stephanie Kleine-Ahlbrandt, who for five years until 2019 served as the finance and economics expert on the UN panel of experts tracking North Korean sanctions.
Even phone calls to family members outside the country have become too risky
Not only are the sanctions still proving porous, but some critics say the effort to impose such heavy economic pressure on Pyongyang can have unintended consequences because North Koreans’ chances of engaging with the world have been cut off, blocking the flow of information and ideas.
Sokeel Park, director of Liberty in North Korea, a group that helps North Koreans defect and resettle in South Korea, says sanctions – including the ban on foreign workers – weaken the chances of change inside North Korea. There are also fears that Kim's renewed fervour for the doctrine of self-reliance developed by his grandfather, the country's founding leader Kim Il Sung, is laying the ground for years of deepening isolation.
“North Korea changes the more you interact with it,” he says. “If you isolate it from the outside, you actually play into the worst tendencies or instincts of the system. Fewer North Koreans get the crucial contact and exposure to the outside world which does change their awareness and mentality, and downgrades North Korean official ideologies and narratives.”
Instead, people such as Park who maintain contacts inside North Korea say the space for engagement is shrinking.
The border restrictions in place since coronavirus cases spread from Wuhan, China, in January 2020 have been beefed up to include shoot-to-kill orders for violators. The meagre savings of people reliant on trade and the grey markets, known as jangmadang, have been eviscerated.
Ha Jin-woo, a defector in South Korea, says the networks designed to help people leave North Korea, as well as facilitate the smuggling of money and information into the country, are eroding. “The North Korean people have suffered a huge blow,” Ha says.
The number of brokers facilitating cross-border contact is in decline. Consumption of foreign media inside North Korea – including South Korean-made dramas and K-pop smuggled in from China – has fallen under renewed levels of scrutiny. Even phone calls to family members outside the country have become too risky, meaning defectors are finding it “almost impossible” to make arrangements to send money back to their families, Ha says.
“The extent of control and punishment has been strengthened,” he adds.
Human rights groups have noted that since 2012 – after Kim and Chinese president Xi Jinping rose to power – border controls have become progressively more draconian.
According to official South Korean data, the number of North Koreans who successfully navigated their way through China and southeast Asia and arrived in Seoul fell to about 1,000 in 2019, from 3,000 a decade earlier. Ryu Hyun Woo, who was Pyongyang's envoy in Kuwait as sanctions began to hit the embassy's operations, was one of the most recent high-profile defections. Between April and June this year only two new defectors landed in Seoul, the lowest number since records began.
Waterslides and warheads
In early June, fleets of jet skis were seen cruising atop emerald waters alongside stretches of white sand near Kim’s summer retreat at Wonsan, on North Korea’s southeast coast. A month later, an 80m-long floating water park – complete with an Olympic-sized swimming pool and twin spiralling waterslides – was docked at one of the 37-year-old leader’s four beachside mansions in the area.
The scenes illustrated that neither international sanctions nor 18 months of strict border closures aimed at keeping out coronavirus have restricted the lives of luxury enjoyed by the ruler’s family and his court.
Yet in the intervening weeks, Kim publicly reprimanded top cadres in Pyongyang and called for emergency measures over what state media conceded was a “food crisis” in the country.
"It is clear evidence they are enjoying themselves when they are not playing up for the camera," says Colin Zwirko, a Seoul-based analyst with information service NK Pro, who uncovered the Kims' latest water-based leisure activities while meticulously poring over satellite imagery.
North Korea's latest inward turn marks a stark change from 2018 and early 2019 when Kim embarked upon a period of unprecedented summitry
For some North Korea watchers, the question of why sanctions have failed to significantly tarnish the opulence enjoyed by those at the top, nor rein in Kim’s nuclear weapons technology advancements, has a simple answer: China.
Speaking in late November, the final days of the Trump presidency, Alex Wong, then deputy assistant secretary of state for North Korea, made a series of stunning claims.
China, Wong said, still hosted as many as 20,000 North Korean labourers. On 555 separate occasions in 2020, the US had observed ships carrying prohibited coal or other sanctioned goods from North Korea to China.
Wong said Beijing was “seeking to undo the UN sanctions regime they themselves voted for . . . They are seeking to revive trade links and revenue transfers to the North.”
Beijing, Wong explained, also turned a blind eye to “shadowy avenues” enabling North Korea’s weapons procurement. “The DPRK cannot do that without middlemen. It cannot do that without illicit bank accounts. It cannot do that without a network of money launderers. The overwhelming number of those middlemen, bank accounts and money launderers operate within the borders of China.”
Beijing has long denied allegations of supporting North Korea’s illicit activities.
Recent UN reports have noted allegations that North Korea and Iran have resumed technical co-operation on long-range ballistic missile development – officials in Tehran dispute the claims as based on “false information and fabricated data”.
Others argue the US itself should not escape blame for inconsistent sanctions enforcement.
"When I first heard this expression, 'maximum pressure', my answer was: I'll believe it when I see a nine-digit civil penalty against one of the banks that's helping to launder this money, including the cryptocurrency transactions," says Joshua Stanton, an American lawyer who helped draft the US sanction laws on North Korea. "I don't think that we're serious."
Back in Seoul, the former South Korean adviser believes the pressure from sanctions will only ever have one outcome: pushing Kim towards a greater dependence on illegal activities and further into China’s orbit.
“Sanctions, for the US, is a matter of policy choice. For North Korea, attempting to overcome sanctions is simply a matter of life and death. North Korea will do whatever it takes to survive.”
Unstable status quo
North Korea's latest inward turn marks a stark change from 2018 and early 2019 when Kim embarked upon a period of unprecedented summitry, meeting China's Xi, Russian leader Vladimir Putin and then-president Donald Trump.
When Kim arrived at the Hanoi’s Metropole Hotel and shook hands with Trump on February 28th, 2019, even some of Washington’s most sceptical observers conceded that a potential US-North Korea deal was finally on the cards.
Kim’s 4,500km journey on his personal, heavily armoured train from Pyongyang through China suggested he was willing to ink a deal that exchanged steps towards denuclearisation for easing of sanctions. But after negotiations fell apart – the US deeming Pyongyang’s promises insufficient – plans for further talks in Berlin and Stockholm were abandoned. The fleeting Trump-Kim bromance dissipated and the two sides have returned to an unstable, acrimonious status quo of sanctions and weapons development.
Since then the North Koreans have become even more impoverished, with the state facing its worst economic downturn since Kim was handed power after the death of his father, Kim Jong Il, in late 2011.
Crop production has been worse than usual after devastating flooding over the past two years. Scarcity of goods and a crackdown on foreign exchange dealers have sparked volatility in the won, the North Korean currency, and rises in the prices of basics such as rice, corn and cooking oil.
There are also rising expectations North Korea will slip to the back of the queue in the rollout of Covid-19 vaccines. Pyongyang can access the Covax programme under Gavi, a UN-backed alliance, but foreign medical experts have not gained access to the country to assess the status of its distribution networks.
I think it is very possible that the North Korean leadership will at some point realise what a deep hole it's got itself into
Sydney Seiler, national intelligence officer for North Korea at the US Office of the Director of National Intelligence, reiterated last week that Washington has always "made clear" the benefits North Korea would accrue from giving up its nuclear weapons.
“We’ve arranged the carrots in different ways in different administrations. But all we’ve learned . . . is that Kim Jong-un is not a rabbit,” he said.
Still, given the signs of the worsening humanitarian situation, some analysts believe the US should orchestrate limited relief from the UN sanctions – even if a wholesale sanctions review is not on the cards in Washington, nor a comprehensive freeze on nuclear weapons development in Pyongyang.
Daniel Wertz, a senior adviser at the National Committee on North Korea, a US think tank, says specific steps might include a limited reopening of trade and potentially raising the international cap on oil imports. A barter arrangement could also be offered to allow Pyongyang to export some commodities in exchange for food or medicine. And small-scale inter-Korean economic projects could be restarted.
All are moves that would help boost North Korean industry rather than the nuclear programme. Such concessions could draw Kim back to the table for nuclear talks. “I think it is very possible that the North Korean leadership will at some point realise what a deep hole it’s got itself into and seek to come to the negotiating table to get itself out,” he says.
The US and South Korea agreed “to explore humanitarian initiatives” in North Korea, Washington said last week. But others fear that the problems posed by an increasingly isolated, yet still nuclear-armed North Korea are no longer at the forefront of American foreign policy.
Eventually, says Kleine-Ahlbrandt, the US will again be “forced to do something” in response. In the meantime, she asks: “We lose how many more years? How much more fissile material is that?”
The Biden administration, she says, “will come to regret this”. – Copyright The Financial Times Limited 2021
