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'Partially Privatized' Criminality Flourishes in North Korea

A free market economy has emerged in the hermit nation, producing and smuggling drugs and counterfeit banknotes to fund the state with hard cash.
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Kim Jong Un's regime is allowing private companies to produce and smuggle illegal products to raise cash for activities such as North Korea's nuclear program and missile tests, according to a report released Tuesday.

For decades, Pyongyang has propped up its beleaguered economy by being involved in the trade in narcotics and endangered animal products as well as making some of the world's highest-quality counterfeit currency.

But the Washington-based Committee for Human Rights in North Korea (HRNK) said a fledgling free-market economy has now emerged with firms taking over some of these activities from the state.

Kim's regime reaps the benefits of the arrangement -- taking up to 70 percent of the profits.

Authored by Dr. Sheena Chestnut Greitens of the Center for East Asia Policy Studies at the Brookings Institution, the report said: "Much of the illicit activity in North Korea has become decentralized and partially privatized, operating in a hybrid space between public and private."

Greitens added that "politically powerful people protect and benefit from the activities of those involved in illicit trade and vice versa."

Image: Men suspected of smuggling methamphetamines from North Korea
Five men were extradited from Thailand to the U.S. in November 2013, suspected of being part of a ring smuggling methamphetamine from North Korea.Banmuang / AFP - Getty Images, file

The 115-page report was compiled using interviews with North Korean defectors. It said the illicit activity has provided as much as 30 percent of the country's trade, and with it "a lifeline for a regime long said to be on the brink of collapse."

Between 20 percent and 30 percent of the North Korean economy is thought to be spent on defense. And the report said the U.S. and other members of the international community need to better understand how its economy is evolving so it can tailor sanctions aimed at halting Pyongyang's nuclear program and stopping human rights abuses.

North Korea's involvement in illicit exports can be traced back to the 1970s when its economy collapsed. It produced narcotics and amphetamine-type substances in state-run factories and printed what the Secret Service said were some of the best counterfeit $100 bills on the market. They were informally dubbed "supernotes" because they are so hard to detect.

The report said the state focused on production of these goods, as well as fake pharmaceutical products, endangered animal products, and counterfeit cigarettes, even while as many as one million people died in the "Arduous March," a famine between 1994 and 1998.

From the 1970s to the 1990s the government produced these goods and smuggled them itself, often by overseas envoys using diplomatic bags. North Korea then began outsourcing distribution to criminal gangs, such as the Chinese Triads and Japanese Yakuza, according to the report.

However, since 2005 the state has had less control, with production and sale shifting toward a free-market economy.

The report said this has come with a decentralization of the economy as a whole. People are now permitted to invest and run state-run enterprises, such as restaurants, while donating between 30 percent and 70 percent of the profits back to the state, it said.

HRNK co-chair Andrew Natsios said that this "criminal" economy "is feeding off the suffering and deprivation of the population."