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North Korea diversifies drug smuggling, counterfeiting, study says

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South Korean protesters hold a picture of North Korean leader Kim Jong Un during an anti-North Korea rally against recent missile launches and provocative acts, on the birthday of its founder, Kim Il Sung, in Seoul, South Korea, Tuesday, April 15, 2014. The banners read: "Denounce North Korea's dictatorship." (AP Photo/Lee Jin-man)

The ruling family despots of North Korea, always desperate for hard currency to finance their lifestyle and loyalties, are now funneling increasing amounts of drugs, counterfeit goods and currency, as well as legitimate trade, through China, according to a study released last week that is sponsored by  a committee that monitors the country’s boggling human rights abuses.

As part of the change, blatant government-sponsored criminal activity appears to be shrinking in comparison to a combination of “quasi-private production and crony capitalism” focused largely on its expanding relationship with the Middle East, Africa and especially China -- but still backed by the full brutality of the regime, according to the report from the Committee on Human Rights in North Korea, a bipartisan group based in Washington.

In the process, the regime now dominated by third-generation dictator Kim Jong-Un  is increasingly making its drug smuggling and other illegal activities harder to detect, as well as turning to a broad array of more legitimate ways to bring in the cash, especially an increase in trade with its huge neighbor.

The diversification includes the increased sale of natural resources, expropriation of the wages of North Korean laborers sent abroad to Africa and the Middle East, and even profiting from the increased number of cellphones circulating in politically favored hands in Pyongyang and other cities.

Those changes call for new responses from Western countries that previously used sanctions largely to cut North Korea off from the international financial system, the report suggests -- though what those responses might be, it does not say.

“The case of human rights in the DPRK exceeds all others in duration, intensity and horror.”

- Michael Kirby

Moreover, the study warns, “the North Korean regime will almost certainly see this as undesirable” -- a grim form of understatement when dealing with a saber-rattling power with nuclear ambitions that a U.N. human rights investigator called “a totalitarian state without parallel in the contemporary world.”

The report was prepared by Sheena Chestnut Greitens, an academic at Harvard and a senior fellow at the liberal Brookings Institution in Washington. Greitens told Fox News that one of the implications of her work is that the country’s economic changes “suggest it is not under as much pressure from sanctions as before,” and that the regime has proved to be “very good at adapting” to international financial pressure.

But even while noting that the regime has moved away from total control of all its cash-producing activities, and even, as the report puts it, developing a “symbiosis”  between state-run enterprises and “essentially private” firms, Greitens warns that North Korea has a long history of camouflaging its activities, and that “we have possibly not figured out” how its older illicit activities are continuing.

“The U.S. and the international community need to do more research on all of this,” she says.

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The study’s publication comes at another sensitive moment  in the relationship between North Korea and the outside world, when the combination of its outlandish human rights behavior, belligerent nuclear ambitions and bloody internal purges  have brought international concern to a simmering point -- but without much hope of resolution.

Last Thursday, the U.N. Security Council held a closed-to-the-press meeting to discuss the North Korean human situation at the behest of the U.S., France and  Australia. Russia and China, tacit supporters of the Kim regime, did not attend the session.  

Among other things, attendees were told by Michael Kirby, head of a U.N.-appointed commission looking into North Korean human rights abuses, that “the case of human rights in the DPRK”-- an acronym for the country’s formal self-designation as the Democratic People’s Republic of Korea -- “exceeds all others in duration, intensity and horror.”

Kirby says his commission recommends targeted sanctions “against those individuals most responsible” for North Korea’s horrors, and referral of the atrocities to the International Criminal Court in the Hague.

According to Greitens’ report, however, figuring out who to target, and how, could be more of a problem than ever before.

Among other things, due to its isolation from the West, North Korea is less vulnerable to general financial sanctions than other rogue states, such as Iran. “Unlike Iran, North Korea has no major foreign banks operating inside its territory,” the study notes, “and its industries do not rely to the same extent on the dollar as an international reserve currency.”

Indeed, the study says, “much of North Korea’s banking today is done in China”-- and its increasingly complex relationship with its huge neighbor is one of the major reasons behind its new ability to tap sources of international cash.

The fact is that China is more North Korea’s mainstay than ever, despite occasional signals from Beijing that it was joining in the pressure to squelch the Kim regime’s nuclear ambitions.

“China’s trade with North Korea dropped slightly in the first half of 2013, from $3.14 billion in 2012 to $2.95 billion,” the study reports. But then it took off again, to reach an “all-time high of $6.45 billion that year, an increase of 10.4 percent over the previous year.”  In addition to raw resources for China’s gaping industrial maw, the tally now includes manufactured goods such as clothing and textiles.

(Until recently all of that trade was managed for the regime by Kim Jung-Un’s uncle by marriage, Jang Song-taek, who was suddenly executed late last year in a purge that has now extended to many other members of his family and following. The report cites experts concluding that Jang wasn’t turning over enough revenues to the young dictator’s own ruling clique.)

The same goes for North Korea’s illegal exports, such as drugs, notably methamphetamines. Many more shipments are now being intercepted in China itself, or along the Chinese-Korean border, the study notes -- and North Korea itself has developed a significant drug problem among a population that is clearly able to bypass the government in accessing the drugs, perhaps because North Korean civilians also manufacture them to smuggle on a freelance basis.

A major result of the increased China trade, legal and illegal, is the development of more open consumer markets in North Korea, where  the foreign currency most common by far is the Chinese yuan -- another sign of the growing economic integration of the two countries.

As a result, something akin to free enterprise has arisen:  “In North Korea, it is now possible to operate a variety of businesses in a new business structure,” the study says, in which private entrepreneurs  take the earnings from  technically “state-owned” enterprises  in exchange for “revolutionary fund” or “loyalty offerings” of as much as 70 percent returned  to  the regime.

This new arrangement, the study says, is “arguably, the basis of power in contemporary North Korea.”  The question is whether it makes the Kim regime likely to change further, or for the better, under new forms of pressure.

Andrew Natsios, former head of USAID in the Bush administration and co-chairman of the committee that sponsored the new study, argues that the changes are a sign that “the government is beginning to lose control.” But that is not necessarily good news:  “it could possibly increase the regime’s panic; it depends on how threatened they are.”

It also, he feels, increases the potential for Chinese involvement: “they are increasingly alarmed. They don’t like the drug trade.”

But in the end, he admits, as does the study, that “our information is inconclusive. We just don’t know a lot of things.”

Except that the nightmare government in North Korea is murderous, unpredictable, and getting richer off its relationship with China, a country that seems to be doing the opposite of clamping down economically on its outlaw trading partner.

George Russell is editor-at-large of Fox News and can be found on Twitter @GeorgeRussell.

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