Kim Kwang-Jin, a former banker to the North Korea regime, addresses the 9th Annual Geneva Summit for Human Rights and Democracy – see quotes below, followed by full prepared remarks.
On the emergence and operations of North Korea’s alternate economy:
“Following the collapse of the global socialist market, an unexpected thing happened on North Korea’s road to financial oblivion. The same economy that cannot produce a usable enough toothbrush is now arming itself with nuclear weapons.”
“An economic corpse has been able to produce such nuclear achievements by creating a secret, invisible financial system, scavenging off the West and the military-industrial complex named “royal court” economy.”
“This [royal court economy] was solely created to serve Kim’s interests and obsessions, including the development of nuclear weapons; and, this separate economy creates by my estimates fully 200 times the foreign cash revenue of the cabinet-run people’s economy.”
“The most lucrative foreign cash-generating businesses and industries belong to this royal court economy, the Kim family economy.”
“The royal court economy may have been expanded under duress as a short term answer to the Soviet bloc’s collapse but it has since become a ruthlessly successful adaptation for Kim’s purposes. It serves as the backbone of the regime’s survival.”
On the danger North Korea’s alternate economy represents:
“The danger lies in the transfer of Kim’s dollars from the royal court economy into the development of North Korea’s nuclear arsenal and WMDs, and the proliferation of those assets around the world.”
“Danchon remains the largest bank in North Korea in terms of assets and operation volume. I estimate that Danchon Bank may have handled several hundreds of millions of dollars every year, most of which are generated from sales and proliferation of WMDs.”
Ladies and gentlemen, distinguished guests and human rights advocates.
Personally, I’m very sad to listen to endless stories of sufferings here and there, everywhere in the world and also it’s very sad to speak about these sufferings which are continuing in North Korea for three generations; not one term or two terms of dictatorship, but eternal dictatorship going on in North Korea.
North Korea is notorious enough to shoot missiles many times on holidays, American Independence Day and Chinese National Day, and it is notorious enough to have a New Year’s Day nuclear test whilst starving their millions of people; and now, it is notorious enough to kill in daylight the half-brother of the Kim family in Malaysia a few days ago, just a few days before his father’s 75th birthday. It was on February 16.
I’d like to draw your attention to the situation in North Korea and my background as a Revolution Fund Manager for Jang Song Thaek, Kim Jong-Un’s uncle, and North Korea’s leadership. I’d like to talk today about the so-called “royal court” economy of North Korea, how the leadership raises hard cash and where it goes, and you can find reference of my speech here to the contributed paper to the World Affairs Journal.
Following the collapse of the global socialist market, an unexpected thing happened on North Korea’s road to financial oblivion. The same economy that cannot produce a usable enough toothbrush is now arming itself with nuclear weapons. The central riddle of this is wrapped in the mystery of its economic structure. An economic corpse has been able to produce such nuclear achievements by creating a secret, invisible, financial system, scavenging off the West and the military-industrial complex which I named the “royal court” economy. This was solely created to serve Kim’s interests and obsessions, including the development of nuclear weapons; and, this separate economy creates by my estimates fully 200 times the foreign cash revenue of the cabinet-run people’s economy.
The first stages of constructing a secret pipeline for diverting the flow of funds from the state coffers to the rulers’ free disposal began in the 1970s. The munitions industry was excised from the cabinet while establishing the committee for economy too in 1972 to run this sector. At the same time, his heir Kim-Jong Il created a new central party department called Office 39 and under its umbrella, there some general bureau emerged forming a new economic sector completely independent from the central planning and cabinet control. The ensuing event of new foreign exchange banks would also contribute to this process.
In that journal, there’s a chart and on the left side, there is the flow of the funds through the cabinet system, the so-called central planning economy and on the right side, the royal court economy side, how the fund is flowing there to the leadership. And this left side of the chart represents the standard model bank communist system that the West is familiar with. Controlled by the Prime Minister and the cabinet, this people’s economy receives the guidance of the Korean Workers’ Party planning and finance department now changed into economy department last year and the national planning commission sits and enforces the public Five Year Plans. The Korean Foreign Trade Bank, FTB, the only bank in North Korea that is ostensibly authorised to manage the foreign currency transactions of the people’s economy functions as the bank for the cabinet ministries. Yet, in truth, the bank has been technically bankrupt a long time ago.
The right side of the chart, the royal court economy, is directly controlled by Kim, designed to focus on foreign trade and the generation of hard currency revenue and to directly funnel it back to him. Each group is created as a conglomerate, including operational planning, production elements, a training division, ship management, and investment capabilities. Most critically, they enjoy independent hard currency management and their own dedicated exchange bands. Office 39 and Daesong bank have continued to handle manufacturing and trade since first being established in the 1970s, while Office 38 – these numbers were named after their offices on floor 3 of Kim Jong Un’s office building at the central committee of the party – and office number 38 of Daesong bank both now merged into Office 39, had 100 service industry, hotels and department stores and get catered to foreigners. So, the most lucrative foreign cash-generating businesses and industries belong to this royal court economy, the Kim family economy.
Korean Workers’ Party organisation and guidance department [OGD], the most powerful department of the party responsible not only for the overall organisation but party life guidance and determining the political fate of party officials and institutions through internal inspection, punishment and projects were also granted control of one, among others, the most lucrative areas in North Korea’s international operation: insurance. Although there are other forms of illicit activities, such as counterfeiting, product piracy and drug trafficking, with the exception of the munitions industry, the largest generation of foreign currency for Kim comes from claims filed through international insurance operations and insurance frauds.
KNIC, Korean National Insurance Corporation, is not at all concerned with losses or the results of internal North Korean insurance operations. In fact, the common understanding in the industry is that the more accidents and misery there are in the nation, the more hard cash goes to Kim and his family. Every year, while working at KNIC, as a birthday celebration gift, we presented 20 million US dollars in cash on Kim Jong-un’s birthday, produced as the direct result of the suffering of the North Korean people. In this manner, KNIC maintains its exclusive privilege and access. Specifically, domestic insurance operations of the KNIC based on the North Korean currency, the won, are little more than an automated paper trail in which operations are planned by the state, claims are filed by the state organisations and payments are made to those same state organizations. With no concern for providing coverage for risk, but solely concerned for generating hard currency by KNIC, we could shift and distribute the largely mythical internal costs to international reinsurers mainly via the brokers.
The vast system of distributing insurance risk freely between Western companies becomes completely unglued in the North Korean cases for two reasons. First, because there’ll be few or no prosecutions for fraud; if there are oppressions, it will usually end up in the North Korean court system where the result is preordained. So, all courts are controlled by the party and the government, so there is no independent ruling from the court. Second, because KNIC was able to maintain reinsurance policies by making it appear as if the Western exposure was essentially rational. KNIC did this by paying higher premiums on policies that are again quite rational considered higher risk.
Yet, KNIC accepted these high prices because no matter what actually happens in the fiscal world, they will inevitably make claims for reimbursement. Every year, a claim is carefully planned and targeted and one year it may be a fire, the next year a flood and after that sunken ships or dead livestock. By employing KNIC’s overseas operations to make a free breath – we have a kind of saying where we say that a free breath in the air – with various reinsurance companies, North Korea company has been able to produce prodigious sums of hard currency while simultaneously reinvesting, expanding the network of KNIC insurance operations around the world’s major operational regions, always shifting table to table, always operating with a fresh stick from London to Paris, Germany to Pakistan and Switzerland to Singapore.
The danger to the West goes far beyond fraudulent claims. Indeed, there is a common hazard of doing business with the developing world or even the suffering of the North Korean people. The danger lies in the transfer of Kim’s dollars from the royal court economy into the development of North Korea’s nuclear arsenal and WMDs, and the proliferation of those assets around the world. The head of the army structure, sometimes called the second economy, is the Korean Workers’ Party Munitions Industry Department. To explain what this agency actually does and to estimate the size and scale of revenue, we can check the total assets of munitions-related banks. The most prominent is Danchon Bank, widely known as Chang-Kwang credit bank. They changed these names to avoid UN sanctions and international sanctions.
During the 1990s, Danchon advertised that it was handling 6 billion US dollar assets. Although North Koreans like exaggerating such figures, this doesn’t diminish the fact that Danchon remains the largest bank in North Korea in terms of assets and operation volume. I estimate that Danchon Bank may have handled several hundreds of millions of dollars every year, most of which are generated from sales and proliferation of WMDs; and actually the FTB, Foreign Trade Bank, which is handling the whole foreign cash of the cabinet of the people’s economy, they have only around 7 million US dollar in assets, in cash.
The royal court economy may have been expanded under duress as a short term answer to the Soviet bloc’s collapse but it has since become a ruthlessly successful adaptation for Kim’s purposes. It serves as the backbone of the regime’s survival and drawing sources for the Kim family, extravagant Kim family extravagancy and funding for nuclear ambitions at the expense of the misery of North Koreans. I call on governments, organisations, NGOs and human rights advocates to pay close attention to this conglomerate and efforts to stop North Korea’s imminent nuclear threat to improve the human rights situation in North Korea and to implement all UN Security Council resolutions including the latest 23, 21. The most effective remaining option for us is to expose, boycott and bring down this royal court economy.
Thank you for your attention.