[Senate Hearing 109-887]
[From the U.S. Government Publishing Office]
S. Hrg. 109-887
NORTH KOREA: ILLICIT ACTIVITY FUNDING
THE REGIME
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HEARING
before the
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT
INFORMATION, AND INTERNATIONAL
SECURITY SUBCOMMITTEE
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
APRIL 25, 2006
__________
Available via http://www.access.gpo.gov/congress/senate
Printed for the use of the Committee on Homeland Security
and Governmental Affairs
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia
Michael D. Bopp, Staff Director and Chief Counsel
Joyce A. Rechtschaffen, Minority Staff Director and Chief Counsel
Trina Driessnack Tyrer, Chief Clerk
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND INTERNATIONAL
SECURITY SUBCOMMITTEE
TOM COBURN, Oklahoma, Chairman
TED STEVENS, Alaska THOMAS CARPER, Delaware
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
LINCOLN D. CHAFEE, Rhode Island DANIEL K. AKAKA, Hawaii
ROBERT F. BENNETT, Utah MARK DAYTON, Minnesota
PETE V. DOMENICI, New Mexico FRANK LAUTENBERG, New Jersey
JOHN W. WARNER, Virginia MARK PRYOR, Arkansas
Katy French, Staff Director
Sheila Murphy, Minority Staff Director
John Kilvington, Minority Deputy Staff Director
Liz Scranton, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator Coburn............................................... 1
Senator Carper............................................... 3
WITNESSES
Tuesday, April 25, 2006
Peter A. Prahar, Director, Office of Africa, Asia and Europe
Programs, Bureau for International Narcotics and Law
Enforcement Affairs, U.S. Department of State.................. 4
Michael Merritt, Deputy Assistant Director, Office of
Investigations, United States Secret Service, U.S. Department
of Homeland Security........................................... 6
Seong Min Kim, Vice Chairman of the Exile Committee for North
Korea Democracy, and President, Free North Korea Radio......... 15
David L. Asher, Institute for Defense Analysis................... 17
Chuck Downs, Author, ``Over the Line: North Korea's Negotiating
Strategy''..................................................... 19
Marcus Noland, Senior Fellow, Institute for International
Economics...................................................... 21
Alphabetical List of Witnesses
Asher, David L.:
Testimony.................................................... 17
Prepared statement........................................... 57
Downs, Chuck:
Testimony.................................................... 19
Prepared statement........................................... 69
Kim, Seong Min:
Testimony.................................................... 15
Prepared statement........................................... 52
Merritt, Michael:
Testimony.................................................... 6
Prepared statement........................................... 49
Noland, Marcus:
Testimony.................................................... 21
Prepared statement........................................... 75
Prahar, Peter:
Testimony.................................................... 4
Prepared statement........................................... 35
APPENDIX
Chart submitted for the Record by Senator Coburn entitled
``Uncovering Supernotes''...................................... 33
Chart submitted for the Record by Senator Coburn entitled
``Satellite Image of the Korean Peninsula''.................... 34
Questions and Responses submitted for the Record from:
Mr. Phahar................................................... 86
Mr. Merritt.................................................. 93
NORTH KOREA: ILLICIT ACTIVITY FUNDING THE REGIME
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TUESDAY, APRIL 25, 2006
U.S. Senate,
Subcommittee on Federal Financial Management,
Government Information, and International Security,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:30 p.m., in
room SD-342, Dirksen Senate Office Building, Hon. Tom Coburn,
Chairman of the Subcommittee, presiding.
Present: Senators Coburn and Carper.
OPENING STATEMENT OF SENATOR COBURN
Senator Coburn. The Subcommittee of the Homeland Security
Committee on Federal Financial Management, Government
Information, and International Security will come to order. I
want to welcome all of our guests. Thank you for being here,
those that are testifying, as well.
The Orwellian, so-called ``Democratic People's Republic''
of Korea, otherwise known as North Korea, is a rogue nation and
one of the most dangerous regimes in the world. North Korea is
a closed society under the grip of the ruthless dictator, Kim
Jong-Il. From the little we know about this secretive
dictatorship, it is clear that there is little the regime won't
do in order to increase its stranglehold of power and its
threat to the world.
While the attention of the world is focused on nuclear
proliferation in Iran, North Korea is continuing its own
dangerous proliferation. Since the last decade, when we heard
the same platitudes from North Korea that we are hearing today
from Iran--about so-called ``peaceful nuclear energy''
pursuits--we have instead seen the regime develop nuclear
weapons and sell their technologies to Iran and others. Just
recently, we've heard reports that North Korea shipped missiles
to the Iranians. It is my hope that the United States is
aggressively working with South Korea and other allies to
instigate a rigorous interdiction policy to prevent such
devastating shipments from occurring in the future.
But the purpose of this hearing is to explore other facets
of North Korea's agenda beyond weapons proliferation, although,
as we will see, these illicit activities are in no way
independent of weapons proliferation. The regime of Kim Jong-
Il, including its own nuclear program as well as its support of
terrorist states, receives much of its funding from a vast
criminal network of state-sponsored illicit activity. North
Korea engages in drug trafficking, counterfeiting of U.S.
currency, counterfeiting of products, including
pharmaceuticals, and slave labor producing goods it then
exports, and also slave labor in foreign countries.
The unclassified information that we know about these
activities leaves no doubt that they are, in fact, state-
sponsored. In the criminal cases that have been made public,
North Korean diplomats and state-owned companies were directly
involved in activities such as narcotics trafficking and money
laundering. Testimony from North Korean defectors describes
with great detail the horrifying conditions of the political
prisons and concentration camps inside of North Korea and the
forced-labor farms and factories that are owned by the North
Korean Government and operated in places like the Czech
Republic, Russia, Libya, Bulgaria, Saudi Arabia, and Angola.
The income from these illicit activities is substantial and
provides a reliable revenue stream supporting the regime's
weapons programs, both internal and with its terrorist allies.
Experts say that this state-sponsored criminal network is
generating between $500 million and $1 billion annually. With
income this substantial, it is easy to see why the North Korean
regime is still able to pursue its proliferation agenda despite
sanctions and isolation.
Drug smuggling, counterfeiting, and slave labor are
integral to sustaining the regime's agenda, including
bolstering the power of the government, maintaining oppressive
control over its citizens, feeding and equipping an enormous
military force, and continuing nuclear weapons proliferation.
By cracking down on this illicit activity, the United States
could substantially erode this economic ``crutch'' which
enables the regime to remain hostile and unresponsive at the
Six Party negotiation table.
It is imperative that our North Korean policy is
comprehensive--utilizing all intelligence, all government
expertise and leverage, and implementing every statutory tool
at our disposal to protect Americans, South Koreans, and other
allies, and even the unfortunate innocent Korean population
from the dangers of Kim Jong-Il's tyrannical rule.
This week is North Korean Freedom Week. Some of our
witnesses and many of those who helped us in preparing for this
hearing are people who courageously defected from North Korea
at great personal peril. I would like to take a moment to honor
these men and women by recognizing those who have joined us
today and ask them to rise from their seats.
All of you have made a tremendous sacrifice to be here
today--many of you have left behind your spouse, children,
family, and friends. It is our goal here today to ensure that
you have not made this sacrifice in vain. Thank you so much for
your courage.
[Applause.]
Senator Coburn. Behind Senator Carper, you will see a
satellite photo which I keep on my desk at all times. It is
under my glass on my desk in my personal office. It is a photo
of the Korean peninsula, taken at night by satellite. The South
is all lit up with the light of economic development--
infrastructure for electricity and industry literally makes the
terrain glow in the dark from the satellite's point of view.
Just a few decades ago, South Korea was as poor as some of
the poorest countries in the world. Now, it is an economic
powerhouse that has joined the world community and brought
democracy and a high standard of living for its citizens.
Above South Korea, the rest of the peninsula is pitched in
black--no development, no infrastructure, no industry, no hope,
no future. It is a stark reminder I like to keep for myself
about the intangible fruits of freedom, economic development,
the rule of law, and a government accountable to its citizens.
No amount of black-market thuggery such as counterfeiting,
narcotics production, and trafficking in persons, will bring
light to North Korea.
I hope that today's hearing can remind us that when people
are ruled by force and deprivation, by fear and oppression,
when their God-given freedom is suppressed, the soul of the
nation, like its topographical satellite image, is trapped in
darkness. But we are not helpless. America can make a
difference in the darkest corners of the earth as America
always has. Our security depends on it.
I want to end as I began, with a reference to George
Orwell, who once said, ``In an age of universal deceit, telling
the truth is a revolutionary act.'' I hope today we will peel
back the veil and tell the truth about North Korea.
I want to thank again all our witnesses for being here
today. I look forward to your testimony.
I would like to recognize my Co-Chairman and partner in our
oversight duties, the Senator from Delaware, Tom Carper.
OPENING STATEMENT OF SENATOR CARPER
Senator Carper. Thanks, Mr. Chairman. It is great to be
with you again, and to our witnesses today, welcome. To our
special guests, a very special welcome to each of you.
As our Chairman has said, this is a week that we also think
of as North Korean Freedom Week. I think the idea of scheduling
a hearing--I don't think this is just a coincidence, but the
idea of scheduling a hearing that can offer some insights into
a way to get North Korea back to the negotiating table where
human rights, where humanitarian aid, and our nuclear weapons
concerns can be discussed could not be more timely.
North Korea's public declaration in 2005 that it had a
nuclear deterrent confirmed what many believed was already the
case and why U.S. strategic interests and foreign policy in the
Asian-Pacific region should be elevated. Since 2002, North
Korea claims to have reprocessed enough spent fuel to yield
between eight and ten nuclear weapons. In addition, U.S.
officials maintain that North Korea is pursuing uranium
enrichment for a nuclear weapons program using technology
apparently sold them by Pakistani scientist A.Q. Khan.
In September, a breakthrough was made in getting North
Korea to agree to relinquish its nuclear arsenal and related
capabilities in exchange for aid through these so-called Six-
Party Talks. However, since that monumental agreement, the Six
Party Talks have been on hiatus. I am told that this hiatus is
in part due to North Korea's affront to the U.S. Treasury
Department's designation of a bank in the region as a front for
North Korean counterfeiting operations at the exact moment in
which the talks were moving forward.
In any event, today's hearing is important in determining
the North Korean Government's role in counterfeiting, their
role in drug trafficking, and their role in other illicit
activities, but more importantly, to what extent these
activities are used to support North Korea's nuclear weapons
program.
Today's hearing is also important for determining what role
U.S. efforts to target North Korean illicit activities should
play. I think it is easy to argue that the United States and
the international community should act to prevent North Koreans
from selling illicit drugs and passing counterfeit currency
because they are detrimental to the U.S. economy and, in
general, really, to society. However, I think it is also
important to consider how our focus on these activities could
be instrumental in getting North Korea back to the bargaining
and negotiating table.
Again, we look forward to the testimony of these witnesses
and others that will come before us today. Thank you for
joining us, and Mr. Chairman, I thank you for convening this
hearing.
Senator Coburn. Thank you, Senator Carper.
Our first panel will be recognized. I would ask all our
witnesses to limit their oral testimony to 5 minutes. Your
complete written statement will be made a part of the record
and we will hold our questions until the entire panel has given
their testimony.
First, let me introduce Peter Prahar. He is a member of the
Senior Foreign Service and is now serving at the State
Department as the Director of the Office of Asian, African, and
European Programs in the Bureau for International Narcotics and
Law Enforcement. He was the Deputy Director of that office from
2001 until 2003.
Michael Merritt was appointed Deputy Assistant Director of
the Office of Investigations at the Secret Service in 2005. His
areas of responsibility include the Criminal Investigative
Division, the Investigative Support Division, the Forensic
Services Division, and all foreign offices for the U.S. Secret
Service.
Thank you, Mr. Prahar, and you are recognized for 5
minutes.
TESTIMONY OF PETER A. PRAHAR,\1\ DIRECTOR, OFFICE OF AFRICA,
ASIA AND EUROPE PROGRAMS, BUREAU FOR INTERNATIONAL NARCOTICS
AND LAW ENFORCEMENT AFFAIRS, U.S. DEPARTMENT OF STATE
Mr. Prahar. Mr. Chairman, thank you for the opportunity to
appear today before you to discuss narcotics trafficking and
other criminal activity with a connection to the Democratic
People's Republic of Korea, the DPRK, and what actions the
Department of State is taking to address these activities.
Please allow me to briefly summarize the material in my written
statement.
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\1\ The prepared statement of Mr. Prahar appears in the Appendix on
page 35.
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Let me begin by stating that there is no doubt that the
government of the Democratic People's Republic of North Korea,
the Korean Workers' Party, and the Korean People's Army are all
involved in criminal activity in order to, we believe, obtain
hard currency. We are well aware of the possibility that DPRK's
state-directed criminality could contribute to the financing of
DPRK weapons development by a state that is listed as a state
supporter of terrorism and could offer financial support to a
state that is otherwise failing economically. The profit
realized from these illicit activities could be an important
source of funds for the regime and its leadership, although
given the covert nature of these activities and the challenge
of obtaining reliable information on the DPRK, any estimates
are necessarily highly speculative.
My colleague from the U.S. Secret Service will discuss the
production and distribution of counterfeit U.S. currency, which
is taking place with the full consent and control of the North
Korean regime. This is a crime and a very serious one.
Additionally, security enforcement investigators for major
American, British, and Japanese cigarette companies have
concluded after extensive investigation that at least one
factory located in the DPRK manufactures and trafficks in
counterfeit cigarettes. There are reports of as many as 12 such
factories, some of which appear to be owned and operated by
North Korean military and security organizations, while others
appear to pay the DPRK for safe haven and access to
transportation infrastructure to conduct their criminal
activities. These factories have the capacity to produce
billions of packs of counterfeit cigarettes annually.
This criminal activity extends to the United States itself.
Industry investigators report that from 2002 through September
2005, DPRK source counterfeit Marlboro cigarettes, for example,
were identified in 1,300 incidents in the United States.
Finally, there are also indications, as yet rather sketchy,
that North Korea has entered the enormously lucrative market
for counterfeit pharmaceuticals.
With regard to narcotics production and trafficking,
however, the evidence we have to date is somewhat less
conclusive. As we have reported, over a period of 30 years,
officials of the DPRK have been repeatedly apprehended for
trafficking in narcotics and engaging in other criminal
activity, such as passing U.S. currency and trafficking in
endangered species. In my written statement, I have also given
several examples of cases in which state-owned assets,
particularly ships and even military patrol vessels, have been
used to facilitate and support international drug trafficking
ventures. This list is meant to be illustrative rather than
exhaustive. Others have compiled and placed in the public
record lists of numerous incidents involving the DPRK.
Although there have been no public reports of specific
incidents linking the DPRK to narcotics trafficking since 2004,
given DPRK involvement in other forms of state-directed
criminality and the authoritarian centralized nature of the
DPRK state, the Department of State retains the view it stated
at the 2005 International Narcotics Control Strategy Report
that it is likely, but not certain, that the North Korean
Government sponsors criminal activities, including narcotics
production and trafficking ``as a way to earn foreign currency
for the state and its leaders.''
What is the Department of State doing about DPRK illicit
activities? First, the Department is working through the
Illicit Activities Initiative to ensure that information
available in law enforcement channels is compared and
coordinated with information available in diplomatic and
military channels. This interagency coordination mechanism is
working. For example, the Illicit Activities Initiative Working
Group on Illicit Finance coordinated the sharing of
intelligence that led to the Treasury Department's designation
last September of a bank in Macau, Banco Delta Asia, as a
primary money laundering concern pursuant to Section 311 of the
USA PATRIOT Act, primarily based on its links to North Korean
Government agencies and front companies involved in illicit
activities.
On the diplomatic front, the Department of State has
alerted our allies and friends to the possibility of state-led
criminality by the DPRK and encouraged a vigorous law
enforcement response. Major narcotics seizures by Taiwan and
Japanese authorities demonstrate the commitment and capacity to
control this. And we have made it clear to the North Koreans
and other countries involved within the context of the Six
Party Talks that outstanding bilateral issues, including DPRK's
involvement in illicit activities, need to be resolved before
we can normalize our relations.
The Department of State continues to work with and
acknowledges the critical work being done by other agencies of
the U.S. Government in combating North Korean illicit
activities.
In closing, I would like to thank you, Mr. Chairman, for
this opportunity to discuss this issue. Focusing the public
spotlight on this aspect of DPRK state behavior is one of the
ways to increase the risk and deter such criminal activity in
the future. I am happy to answer your questions.
Senator Coburn. Mr. Prahar, thank you very much. Mr.
Merritt.
TESTIMONY OF MICHAEL MERRITT,\1\ DEPUTY ASSISTANT DIRECTOR,
OFFICE OF INVESTIGATIONS, U.S. SECRET SERVICE, U.S. DEPARTMENT
OF HOMELAND SECURITY
Mr. Merritt. Mr. Chairman, I would like to thank you as
well as the distinguished Ranking Member and other Members of
the Subcommittee for the opportunity to address you today
regarding the Secret Service's investigative efforts into the
production and distribution of high-quality counterfeit U.S.
currency, Federal Reserve Notes, which in this case are
collectively referred to as the Supernote.
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\1\ The prepared statement of Mr. Merritt appears in the Appendix
on page 49.
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The worldwide use of the U.S. dollar as the currency of
choice continues to grow. With as much as two-thirds of the
approximately $750 billion of U.S. currency in circulation
outside of our borders, the U.S. dollar is truly a global
currency. In addition to dollarized economies--those nations
that have adopted the U.S. dollar as their own currency--
businesses and individual interests worldwide depend upon the
integrity and stability of the U.S. dollar.
This is why counterfeiting activity can have a profound
effect on not only our economy, but the international markets,
as well. Counterfeiting reduces consumer confidence in our
currency and has the potential to affect the perception, and
thereby the strength, of the dollar in all dependent economies.
The Supernote family of counterfeit notes was first
detected in 1989. Since its initial discovery, the
investigation into its origin and distribution has been a top
priority for the Secret Service. The Supernote investigation is
an ongoing strategic case with national security implications.
This investigation has spanned the globe, involving more than
130 countries and resulting in more than 170 arrests.
Through extensive investigation, the Secret Service has
made definitive connections between these highly deceptive
counterfeit notes and the Democratic People's Republic of
Korea. Our investigation has revealed that the Supernote
continues to be produced and distributed from sources operating
out of North Korea.
The Secret Service has seized approximately $50 million of
the Supernote globally, which equates to seizures of
approximately $2.8 million annually. To provide a frame of
reference, during the fiscal year 2005, the Secret Service
seized over $113 million in counterfeit U.S. currency.
The high quality of these notes and not the quantity
circulated is the primary concern for the Secret Service. The
Supernote primarily circulates outside of the United States.
The Supernote is unlikely to adversely impact the U.S. economy
based upon the comparatively low volume of notes passed.
However, the introduction of the Supernote into a micro economy
can have a significant influence not only due to the monetary
losses sustained as a result of the Supernote passes, but also
because of the loss of integrity of the U.S. dollar.
It should be noted that the Supernote, while highly
deceptive, is detectable with minimal training. There are also
machines which are commercially available that can detect the
Supernote.
Throughout the 1990s, numerous North Korean citizens
traveling throughout Europe and Asia working in an official
capacity were apprehended by law enforcement for passing large
quantities of the Supernote. In each of these cases, the North
Korean officials evaded prosecution for these crimes based upon
their diplomatic status.
The Secret Service has developed and employed a three-prong
strategy to address the distribution of this counterfeit. The
first part of the strategy focuses on containment based on an
aggressive investigative response to all appearances of this
counterfeit currency. Secret Service agents posted around the
world work closely with their foreign counterparts to identify
and arrest distributors of this counterfeit as rapidly as
possible.
The second part of our strategy focuses on disruption. With
the support of the international law enforcement community
through Interpol, this strategy is designed to deny North Korea
the supplies and equipment required to manufacture high-quality
counterfeit notes.
The third part of our strategy focuses on education. The
Secret Service provides detailed training seminars to financial
institutions and law enforcement personnel across the globe on
the detection of counterfeit currency.
Mr. Chairman, that concludes my prepared statement and I
would be pleased to answer any questions that you or other
members of the Subcommittee might have. Thank you very much.
Senator Coburn. Thank you, Mr. Merritt.
Mr. Merritt. Yes, sir.
Senator Coburn. Mr. Prahar, who is the present director of
the Illicit Activities Initiative and who does that director
report to?
Mr. Prahar. The Illicit Activities Initiative I referred to
in my written statement as well as my oral statement is, in the
current form, building on work previously done by a group
called the North Korea Working Group. The participants, there
are about two dozen participants in this Illicit Activities
Initiative program. They are organized in five specialized
interdepartmental committees dealing with smuggling, narcotics
trafficking, money laundering, counterfeiting, as well as
abuses of diplomatic privileges. These committees are directed
by the Department's Office of Korean Affairs in the Bureau of
East Asian and Pacific Affairs and they have a direct reporting
chain to senior officials in each member agency. I believe that
answers the question.
Senator Coburn. But there is not one individual who reports
directly on that, or that is in charge of that working group?
Mr. Prahar. The Director of the Office of Korean Affairs
reports to the Assistant Secretary of State for East Asia and
Pacific Affairs, sir.
Senator Coburn. And the group is currently meeting? Do you
have----
Mr. Prahar. The current group meets very actively.
Senator Coburn. And you answered the questions on who that
group is. Has the State Department considered appointing a
North Korean czar that operates in the Secretary's office and
coordinates with all the pertinent agencies and foreign allies
to create a comprehensive policy on North Korea, including the
WMD proliferation? Has that been considered, or is that
ongoing? Can you teach us a little bit about that?
Mr. Prahar. Certainly, Senator. The suggestion is an
interesting one. The Illicit Activities Initiative--as it is
currently operating and constituted--we believe is a model,
frankly, of interagency cooperation. I cited one example of
success involving Treasury Department's Section 311 designation
of this bank in Macau.
On the theory of if it isn't broke, we won't fix it, we
don't believe this is a broken process. We believe it is
mobilizing the resources and the expertise and the legal
authorities throughout the U.S. Government to deal with this
very serious problem we have in North Korea. The answer, of
course, again, goes back to who is responsible within the
Department of State for affairs within East Asia and the
Pacific. It is the Assistant Secretary for East Asia and
Pacific Affairs and the Secretary of State.
Senator Coburn. Thank you. Is it possible to bring
indictments against Kim Jong-Il and his high-level government
officials in charge of the regime? One of the things that
hasn't been said but has been referred to: There are violations
of international law here, as well.
Mr. Prahar. We regularly and systematically review
intelligence about all suspected narcotics traffickers and
entities in the world, including North Korea. We have not yet
gotten sufficient information to designate any North Korean
individuals or organizations under the Kingpin Act. An
indictment would require probably a certain level of evidence
that I don't believe exists. You might wish to direct that
question, though, to the Department of Justice.
Senator Coburn. OK. Is there enough information to put
North Korea under the drug majors category?
Mr. Prahar. No, sir. That is another item that we consider
on a regular basis within the Department of State. As you know,
a country can be put on the majors list for basically two
reasons. First of all, it is producing 1,000 hectares or
cultivating 1,000 hectares or more of opium poppy or coca. We
have been unable to confirm reports that we have received over
time that there is significant opium poppy cultivation in North
Korea, so we have been unable to consider North Korea for
placement on the majors list for its involvement as a major
cultivator or drug producer.
The other way to get on the majors list is as a major drug
transit country having a significant impact on the United
States. We have no information of drugs entering the United
States through North Korea, although we are very concerned
about the possibility of that happening, especially given the
apparently well-established cigarette smuggling networks that
are in place. We certainly can't meet the threshold requirement
of demonstrating a significant impact on the United States.
But this is something, Senator, that we consider regularly
within the Department of State. If we have information that
will substantiate that finding, that is a recommendation we are
going to make.
Senator Coburn. Is there some thought that there is a new
direction for the drug trafficking coming out of North Korea
rather than from North Korea directly? Would you comment on
that?
Mr. Prahar. Yes. We have not noticed or detected any major
drug activity with a DPRK link since 2003 when a vessel named
the Pong Su was stopped by Australian authorities off the coast
of Australia. There are many explanations or possible
explanations for that.
One is perhaps that the North Korean regime has decided to
follow the path of the least resistance and make its money
through illicit activities by counterfeiting currency,
counterfeiting cigarettes, and counterfeiting drugs. These are
enormously lucrative and don't have some of the problems
associated with them that large-scale state-directed narcotics
trafficking would certainly have.
Another possible explanation is, as you suggested, that
there has been a change in trafficking networks from maritime-
based efforts to take drugs to drug markets or deliver them to
organized Asian criminal groups to using land borders and
moving product to Asian organized trafficking groups across
land borders, which would be less visible to us. So there are a
couple of possible explanations why we haven't seen significant
drug activity since 2003.
Senator Coburn. Thank you. My time has expired. Senator
Carper.
Senator Carper. I had to step out of the room and take a
phone call from one of our colleagues over in the House of
Representatives, so I apologize for missing your testimony. I
have glanced through it, though. Would you start off by
outlining for us the different forms of criminal activity that
we have associated with North Korea? They include drug
trafficking, counterfeiting currency, maybe trademark
violations, but just kind of go through the list, if you will,
and then I am going to ask you to come back and see if you can
maybe not quantify them, but at least give us some idea what
the magnitude of importance one is over the other.
Mr. Prahar. Certainly, Senator. I would say there are
probably five major categories of criminal activity that have
been associated with the DPRK. In my testimony, I spoke of the
counterfeiting of U.S. currency, and Mr. Merritt has done that,
as well.
A major source of income to the regime and its leadership,
we believe is the counterfeiting of cigarettes. This is a
potentially enormously lucrative business, again with a U.S.
connection and, of course, these cigarettes have shown up in
Asian markets, as well.
We also see, as I said in my testimony, some sketchy
evidence that the DPRK is also counterfeiting pharmaceuticals.
This is something that we are watching very carefully. We will
work with industry to develop accurate information about it, as
we have with the cigarette industry, to deal with and report.
There are a number of incidents involving trade in
endangered species. These typically involve North Korean
diplomats or state enterprise employees, whatever, stopped at
one international border or another with something that is a
covered product of the Convention on Endangered Species, the
CITES Agreement.
And finally, the issue of drugs. As I said, the evidence
with regard to state-directed drug production and trafficking
is less conclusive than in some of the other categories that I
have discussed.
Senator Carper. Now, the second half of my question was--
and I thank you for that enumeration. The second half of my
question was giving us some idea of what the magnitude in terms
of relative importance of each of those categories might be.
Mr. Prahar. Any assessment of the value of a criminal
activity to the DPRK is just necessarily highly speculative. We
have seen and heard, as Senator Coburn had, estimates that the
total value of this business is $500 million to $1 billion. I
certainly can't confirm that today.
What I can say is it appears from what we understand about
the cigarette counterfeiting that it may be the single most
lucrative item in their portfolio.
Senator Carper. I am sorry, which one?
Mr. Prahar. Cigarette counterfeiting. Again, our
information with regard to pharmaceutical counterfeiting is
very sketchy. We can't even begin to put an estimate on the
value of that. Mr. Merritt has spoken about counterfeiting of
U.S. currency and the U.S. Secret Service has taken some $50
million in U.S. currency out of circulation since 1989. The
value of trade in endangered species, again, almost anyone's
guess on what that could amount to.
And finally, probably the most controversial and difficult
thing to get to is the value or the possible value of narcotics
production and trafficking. We don't know how much, if any,
illicit drugs are produced in North Korea. If opium poppy is
being grown, we don't know the yield of those fields so we
don't know how much opium gum is generated by these yields. We
don't know how much of this opium gum is actually used for what
could be considered legitimate purposes, such as pain killers
for the Korean People's Army. We don't know how much is
actually entering, if any, the illicit trade, or what value the
North Koreans may be getting in selling these drugs to
organized crime groups. In general, we know that cultivators
and producers at the lower end of the drug chain don't reap the
huge profits and value that people do distributing at retail.
North Koreans are not distributing the drugs at retail.
So unfortunately, I think the honest answer that people can
give is it is very difficult and a highly speculative process
trying to assess the value of these illicit activities.
Senator Carper. Is it likely that any time soon we will
have a better idea what the nature of those activities are and
the magnitude of them?
Mr. Prahar. We watch this issue extremely carefully and, as
you know, there have been some Federal indictments filed on
both coasts recently. Ongoing investigations and prosecutions
of this type may reveal additional information about this. We
believe that these funds, as I said in the testimony, could be
supporting weapons of mass destruction development and
otherwise supporting a tottering regime and the leadership
elite of that country. So it is a matter of great concern.
Senator Carper. I would like to come back maybe in a second
round and pursue that, if we could, but thanks so much for
responding to those questions.
Senator Coburn. Mr. Merritt, would you explain to us how
the PATRIOT Act is involved in operations to combat
counterfeiting and trafficking? What specific aspect of that
Act has allowed you, for example, in Macau to identify and then
put a bank on notice or on a list that will lessen its impact
in terms of trafficking?
Mr. Merritt. Actually, Mr. Chairman, the Treasury
Department makes that determination. We were fortunate in that
we were the recipients of the Section 311 instituted by the
Treasury Department in the Macau bank in China. There was an
incident prior to that with the involvement through a series of
transactions of a deposit of $600,000 in the Supernote into one
of these accounts, the Taehung Trading Company, which is a
Korean Workers' Party-sponsored company. Two diplomats were
detained for that and then a search incident to arrest at the
Taehung Trading Company. Other Supernotes were found. Again,
because of the diplomatic status, nobody was arrested. But as
far as that having affected our investigation at the time, sir,
that came later. But I think it is one of the reasons they did
use for that particular approach.
Senator Coburn. Tell me what other agencies the Secret
Service works with besides the State Department in order to
combat this counterfeiting by North Korea.
Mr. Merritt. I would say that for us, obviously, our
authority and the jurisdiction we have to investigate
counterfeiting stops at our borders, per se, the authority
given us by Congress. Now, because this has been such a
protracted, lengthy investigation spanning 16, almost 17 years,
we have depended heavily on our foreign law enforcement
counterparts. Most of the Supernotes circulate outside of the
United States. We have depended mostly on them.
Now, recently, we have been partners in some investigations
involving some of the aspects with the FBI of counterfeiting
cigarettes, but primarily, counterfeiting is--we pretty much
work it based on our 141 years of expertise and experience.
Senator Coburn. One other thought. The reports that we have
read or looked at say that North Korea obtained most of their
counterfeiting technology from European sources. Is there
anything that the Secret Service can do to protect the currency
and technology that is possessed by foreign companies? Is there
anything that we in Congress can do to help give greater
protection to that technology not falling into the hands of
somebody who is going to use it inappropriately?
Mr. Merritt. Interesting question, Mr. Chairman. Part of
the strategy that we have employed in combating counterfeiting,
as I mentioned, there are three strategic, three different
approaches: Aggressive investigative technique, the education
for the general public and businesses on how to identify
counterfeit currency. The third one that I mentioned earlier
was, in fact, disruption, and we have through our foreign law
enforcement community, through Interpol, as well, enacted what
we call to be a disruptive part of our strategy.
Interpol, on our behalf, enacted what we call the Orange
Alert, which put on notification the 184 member countries of
Interpol that North Korea was producing counterfeit U.S.
currency and have encouraged the private industry all over the
world, but mainly European, to refrain voluntarily from
providing North Korea with printing supplies and printing
equipment.
Senator Coburn. Mr. Prahar, we had numerous testimonies
from North Korean defectors that tell of slave labor factories
and farms that are owned by the North Korean regime but located
in places outside of North Korea, like Poland, the Czech
Republic, Russia, Bulgaria, Saudi Arabia, and Angola. What is
happening within the State Department in terms of our relations
with these other countries to combat this form of human
trafficking?
Mr. Prahar. Senator, my office deals with law enforcement
and narcotics matters exclusively. I will have to take the
question and----
Senator Coburn. OK. We will submit that for the record. We
would appreciate it if you could pass that on up the line.
Mr. Prahar. Yes.
Senator Coburn. Senator Carper.
Senator Carper. Thank you. This could be for either
witness. Mr. Merritt, why don't you take the first shot at it,
if you would. In your opinion, what has been the impact of U.S.
efforts to target counterfeiting and drug trafficking, some of
the illegal activity that Mr. Prahar was talking about earlier?
What has been the impact on North Korean involvement in the Six
Party Talks, to your knowledge? And is your work guided by or
in concert with Six Party Talks negotiations?
Mr. Merritt. Sir, I really wouldn't know whether the impact
of our efforts to combat counterfeiting produced in North Korea
have impacted the Six Party Talks. I think that is probably--I
hate to pass it to you, but it is all yours. [Laughter.]
Mr. Prahar. The matters we are discussing are law
enforcement matters affecting the security of the United
States, even global security. They are being handled as law
enforcement matters in the United States by the U.S.
Government. Investigations are undertaken and proceed at the
pace that they proceed, and when they are ready, we bring them
to the indictment stage and seek prosecution. Examples are, for
example, the recent Royal Charm case, which has gotten a lot of
press attention. It extended over many years and finally, with
some extremely creative and even courageous activities by the
FBI.
This type of activity, we have made clear to the North
Koreans, will continue. It is not negotiable. It is not tied in
any way to the objectives of the Six Party Talks.
Has it had an impact? Yes. As you are aware, the North
Koreans are stating they will not return to the Six Party Talks
until their money that was frozen in the Section 311
designation action in Macau is returned. Again, we say to the
North Koreans that is a law enforcement or regulatory matter.
An investigation of that bank's activities is proceeding and
the chips will fall where they may when they may.
Since this is North Korean Freedom Week, perhaps I should
mention that in these Six Party Talks, the United States and
its partners have placed a very attractive offer on the table
for the DPRK if it chooses to abandon its nuclear weapons
program, illicit activities, and proliferation, including sales
of missiles and missile technology. We are prepared to resume
negotiations at any time the DPRK decides it wishes to begin
implementing its commitments to denuclearize, which it
undertook in the context of the September 19 joint statement,
and to begin to receive the international economic, diplomatic,
and security-related benefits to which it is entitled in
exchange for denuclearization and cessation of reliance on
proliferation and illicit activities. That is the position of
the U.S. Government.
Senator Carper. Maybe you said it and I missed it. To what
extent when these Six Party Talks are going on do they talk
about counterfeiting, do they talk about trademark
infringements? To what extent do they talk about illicit drugs?
And if they bring them up, what is the reaction of North Korea?
Mr. Prahar. In the Six Party process, the United States and
all of its partners in this process have made it clear to the
North Koreans that if North Korea wishes to return to the
community of nations, it must give up its illicit activities.
Senator Carper. I am told that South Korea and China at
various times have protested, or at the very least not
supported the efforts of this government, our government, to
stop illicit activity, and I would ask if that is true, why do
you think they are taking those positions amongst the Chinese
and the South Koreans? And I would like to ask if you think our
efforts will have the potential to negatively impact legitimate
business or the economy of that region.
Mr. Prahar. OK. Well, the United States is working with all
its Six Party partners, including South Korea, on this issue,
and all of us agree that the DPRK must abandon illicit
activities if it wishes to normalize its participation in the
international state system.
With regard to South Korea specifically, the South Korean
Government vigorously investigates criminal activities within
its own borders including those attributable to the DPRK and
cooperates with U.S. law enforcement, for example, in a recent
case involving counterfeit U.S. currency sourced to the DPRK
and in another case involving DPRK sourced counterfeit
cigarettes.
With regard to China, again, they would agree with us that
North Korea must cease its illicit activities if it wishes to
rejoin the international community. The Chinese, to be
perfectly honest, hold the position that economic reform,
economic development and engagement are perhaps a better way to
go about dealing with the problem of North Korea and illicit
activities. However, our discussions with the Chinese on this
subject continue with a view towards developing actionable
intelligence regarding these activities. And, in fact, the
Chinese do cooperate with us on at least a limited level. For
example, in the investigation of the bank in Macau that was
designated under Section 311, they have cooperated with us on
that one. Senator, there is a divergence with the Chinese on
this.
Senator Carper. My time has expired. Mr. Chairman, I have
some questions I would like to submit for the record if there
is not another round here.
Senator Coburn. I think for us to expedite our hearing, we
will ask that you respond to questions that come from the
Subcommittee within 2 weeks. We would very much appreciate you
hanging around and hearing our other witnesses if you have the
time to do so. Thank you both very much.
I want to welcome our second panel. Let me introduce them
to you. Mr. Kim Seong Min is a former writer for the North
Korean military until he defected to South Korea in 1999. He
has a Master's degree from Tumong University [ph.]. He
currently is the Vice Chairman of the Exile Committee for North
Korea Democracy, President of Free NK Radio, and President of
the Association of North Korean Defectors.
Dr. David Asher is currently an adjunct research staff at
the Institute for Defense Analysis, previously served at the
Department of State as the coordinator of the North Korean
Working Group. He also served as the Director of the Illicit
Activities Initiative to combat North Korean criminal activity.
This group involved law enforcement officers, intelligence
analysts, and policy makers among 14 U.S. Government
departments and agencies as well as 15 foreign government
partners.
Chuck Downs' career in defense and national security issues
spans three decades. He served as Deputy Director in the East
Asia office of the Pentagon's International Security Affairs
Division. Earlier, he held positions of Assistant Director in
the Office of Foreign Military Rights Affairs and as Chief of
Policy Analysis at the Department of the Interior's Territorial
and International Affairs Office, both of which involved
significant international negotiations.
Next is Dr. Marcus Noland, who was educated at Swarthmore
College and the Johns Hopkins University, from which he
obtained a Ph.D. He is currently a senior fellow at the
Institute for International Economics. He was senior economist
at the Council of Economic Advisors in the Executive Office of
the President of the United States and has held research and
teaching positions at several U.S. and international
universities.
Mr. Kim, we would like to recognize you first. Please limit
your time to 5 minutes.
TESTIMONY OF SEONG MIN KIM,\1\ VICE CHAIRMAN, EXILE COMMITTEE
FOR NORTH KOREA DEMOCRACY, AND PRESIDENT OF FREE NORTH KOREA
RADIO
Mr. Kim. [through interpreter] A territory may belong to a
state, but the state is not immune from the universal roles and
values. Nevertheless, Kim Jong-Il's regime since his father's
time continues to refuse to abide by such universal roles and
values.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Kim appears in the Appendix on
page 52.
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There has been much illicit activity carried out by Kim's
regime. However, the whole truth has not been receiving much
spotlight in the world community until recently. As a true
dictatorship, Kim's regime has total control of the press.
Attempts by international press, such as the U.N. and the
Reporters Without Borders, to bring out the truth have been
thwarted by the dictatorship.
We have various organizations representing North Korean
escapees. There are approximately 8,000 escapees in South Korea
and about 200,000 in third countries, including China. From the
escapees, the world is finally hearing the truth, the stark
realities facing the people of North Korea.
We now know the truth about the dictatorship. We are
hearing about the human rights abuses, the drug trade,
counterfeit production, and weapons of mass destruction, and
all these are being carried out by the dictatorship in Kim's
regime.
There is a firsthand account of Song-Jong Kim, who had been
forced to work in a reeducation camp for 10 years in North
Korea. He tells of witnessing the death of over 1,000 inmates
during that time. These were directly related and due to the
harsh working conditions at the so-called reeducation camp.
We have heard from Ms. Keum-Soon Choi during North Korea
Human Rights Forum in November of year 2005. Keum-Soon Choi was
incarcerated in a political prison for 10 years in North Korea.
She was subjected to heavy labor on a daily basis. Her daily
meal consisted of less than 100 seed count from maize,
supplemented with salt soup, and during rice planting seasons
in the province of Pyung-An Nam Do, she testified that she
would work from 4 a.m. in the morning to 10 at night, and she
testified that she had witnessed the death of 12 of her
cellmates during this time period because of the harsh
conditions.
There are about 10 political prisons and about 20
reeducation camps, and forced labor subjects, all men, women,
young and old alike, and through this forced labor, North Korea
manufactures bicycles, munitions, and other commodities.
Cultivation of opium in North Korea is no exception. Kim's
regime started a large-scale opium cultivation operation in the
provinces of Hamhaebuk-do and Hamkyungbuk-do. All these started
in 1983, and retired soldiers are forced into labor on these
cultivation fields by the direct order of the Supreme
Commander.
It would not be possible to discuss all the atrocities
taking place inside the iron veils of North Korea. That would
take many days and nights. Even then, that would not be
sufficient. Instead, I would like to conclude my remarks by
telling you about a writing by a teenager escapee.
The teenager was 13 years old when he was forced to work on
a farm under the guise of farm support. The work on the farm
was heavy for this youngster. The work would have been
difficult even for a grownup. One day, the teenager found
intestines to a goat in a trash dumpster. They were thrown away
by soldiers. After washing the intestines 20 times or so, the
stench became mild. After boiling the intestines three times,
they were somewhat edible. He shared the intestines with his
sister. He stated in his writing that the goat intestines were
the most delicious things in the world. His writing made big
news in South Korea. It also exposed the dark realities of
North Korea.
The North Korean regime forces young children to the fields
under the guise of farm support. During the spring, children
are sent to the fields for 40 days. During autumn, they are
subjected to 30 days of forced labor. Children would be
planting seeds for corn and rice stocks.
In the provinces of Hamhaebuk-do and Hamkyungbuk-do, there
are large-scale farms for growing opium. Students in nearby
schools work on the fields to gather the opium extracts and to
dry opium flowers and stocks. Those activities are carried out
at the direction of their teachers and the state.
It is a well-known secret that hard currency collected from
the sales of opium produced with forced labor from children,
gold is mined and collected from slave labor in the
Czechoslovakia, Russia, and counterfeit monies which is
laundered by diplomats is deposited in the banks in Macau and
Switzerland. The money is a slush fund for Kim Jong-Il's
personal use, and we have heard of these things from diplomats
and other escapees from North Korea.
Kim Jong-Il holds up that he has no money to buy corn for
the starving people of North Korea. At the same time, he has
money for catering to his personal needs. He has spent $900
million worth of money to permanently conserve the deceased
body of his father. He is spending astronomical amounts of
money for his nuclear program. Yet he has no money for the
people. Kim Jong-Il is no ordinary sinner that can be forgiven.
He is the satan himself. He must not be forgiven.
Once Kim Jong-Il is expunged and a new democratic
government is established in North Korea, the problems of human
rights abuse and other criminal activities that have been
plaguing the world community will all be yesterday's use. There
are various means for achieving unconditional surrender from
Kim Jong-Il. One of those would be to freeze his slush funds
resident in the Switzerland bank accounts. I implore the U.S.
Congress to investigate Kim Jong-Il's accounts in Switzerland
and freeze those accounts.
I believe it is also possible to pressure Kim Jong-Il by
acting quickly on the human rights acts which have been passed
in the U.S. Congress already, and also allowing for safe
passage of the North Korean escapees into third countries,
including the United States.
Senator Coburn. I want to limit your testimony. We have
gone 12 minutes now, and to be fair to our other witnesses, we
need to limit this, so I will give you 30 seconds to sum up.
Mr. Kim. [through interpreter] In concluding, I would like
to thank the people of the United States for taking an interest
in the issues surrounding the North Korean people and also the
Congress of the U.S. and also Ms. Suzanne Scholte of Defense
Forum. Thank you.
Senator Coburn. Thank you. Dr. Asher.
TESTIMONY OF DAVID L. ASHER,\1\ INSTITUTE FOR DEFENSE ANALYSIS
Mr. Asher. Mr. Chairman, thank you very much. Three years
ago, Assistant Secretary Kelly and Deputy Secretary Armitage
asked me to put together an initiative to counter North Korean
illicit activities. The decision was born out of a
comprehensive review of the North Korean economy that had been
conducted over the previous year, a project that had identified
an alarming build-up in transnational criminal dealings by the
DPRK in the previous decade.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Asher appears in the Appendix on
page 57.
---------------------------------------------------------------------------
In March 2003, the State Department requested the
Department of Justice to look into the issue of North Korean
criminal violations of U.S. law. The DOJ appointed a highly
capable senior prosecutor, Suzanne Hayden, who was charged with
pursuing the evidence trail wherever it might lead.
In April 2003, we launched an interagency effort under the
auspice of the East Asia Principals Coordinating Committee.
This became known as the Illicit Activities Initiative (IAI).
To oversee the IAI and to provide policy support for the Six
Party Talks, in the summer of 2003, the Department established
what was called the North Korea Working Group under the Office
of the Deputy Secretary. I was appointed as Special
Coordinator, and William Newcomb, a senior Asia analyst in our
intelligence bureau, was made my deputy. We operated out of the
seventh floor and had the full authority of the State
Department to represent it at meetings related to our work in
the NSC, which eventually itself formed a special coordinating
committee that I co-chaired.
I want to underline that the Illicit Activities Initiative
was never designed as a substitute for diplomacy. Assistant
Secretary Kelly and I considered our work in the Six Party
Talks, in which I participated as the delegation advisor, to be
of paramount importance. We felt that the United States needed
a strong two-track policy with both tracks directed toward
creating the grounds for a normalized relationship with the
DPRK.
On track one, we needed an empowered negotiator equipped
with a broad series of transformational incentives that could
spur the denuclearization process forward in concert with the
other parties. On track two, we needed a process that would
hold the North Koreans to a normal standard of behavior in the
international community by enforcing our laws, by also guarding
our flank more effectively against the growing threat of
weapons proliferation.
The IAI, as you noted, sir, eventually came to involve 14
different government agencies and departments as well as over
100 policy officials, intelligence analysts, and enforcement
officers. We had superb interagency cooperation and strong
support from our leadership all the way up to President Bush,
who I was pleased to serve. This was a major team effort.
Although I may have been the quarterback, the coaches and
players deserve most of the credit.
Between the spring of 2003 and the summer of 2005, we
briefed and enlisted the cooperation of around 15 different
governments and international organizations. I have to say, we
enjoyed extremely strong support internationally. We developed
a range of sophisticated policy options and plans, including
the careful use of the USA PATRIOT Act and other tools that cut
off North Korea's access to its networks of illicit banking
partners internationally.
We instigated and coordinated the interdiction of
contraband and helped to shut down front companies' illicit
trading networks around the world. We also worked assiduously
to provide support to our U.S. law enforcement brethren, some
of whom are here today.
As noted before, the IAI spawned a series of large-scale
U.S. and international criminal investigations. These involved
U.S. Secret Service, Federal Bureau of Investigations, DEA,
ICE, ATF, and many other foreign partners working in tremendous
teamwork. Results of these investigations, for the most part,
have yet to see the light of day, but I am confident when they
emerge, the allegations of state-led North Korean criminal
activity will be more than fully borne out.
Let me close with a review of implications for U.S. policy.
First, law enforcement efforts and diplomatic outreach under
the illicit activities need to be continued vigorously. Strong
interagency coordination, calibration, and most importantly,
leadership, are essential. Management structures for
coordination need to be centralized, not dispersed, and those
in charge need to be sufficiently highly placed and properly
empowered to do their jobs effectively.
Second, we all need to better guard our flanks against the
DPRK proliferation threat, especially at a time when we are
cracking down on their illicit activities and finances. I
recommended on previous occasions we need to take more
aggressive protective measures, including enhancing the
Proliferation Security Initiative and expanding the Container
Security Initiative to inspect North Korean containers being
exported abroad to our partner relationships in countries such
as China and the Republic of Korean (ROK).
As I suggest in my prepared remarks, the threat of DPRK
cooperation with Iran on nuclear weapons and missiles has to be
taken extremely seriously, and especially at a time when both
feel to a degree under seige, quite justifiably. In my mind,
the United States has to take prudent measures against these
major threats to our national security, but we need to
understand that the more that we do, the more incentive they
will have to collaborate.
Third, law enforcement and counterproliferation are not
antithetical to a diplomatic strategy. To the extent that the
North Koreans can sup on a moonshine economy, they will have
very little interest, I believe, in sunshine engagement, a
process which I support.
Fourth, change needs to begin in Pyongyang much more than
Washington. It is in North Korea's objective interest to shift
directions. As Secretary Powell used to tell us, they cannot
eat nukes. The DPRK needs to engage what it calls on us to do,
a bold switchover away from nukes, crime, and repression as the
pillars of the regime buttressed by a bankrupt concept of self-
reliance, ``Juche,'' and an army-first state policy that is
draining the economy dry. Instead, like China in the late 1970s
and Vietnam in the late 1980s, at the very least, North Korea
must turn toward denuclearization, demobilization of the army,
and economic and gradual political opening. As part of this,
they most certainly have to abandon their criminal activities
and repression of their populace.
Fifth and finally, the members of the Six Party Talks--
America included--need to offer help to North Korea for it to
transform. I don't think we can be naive about the scale of
transformation that is required in North Korea nor of the
disruption to the surrounding states, the world, if North Korea
were just to collapse spontaneously. I certainly do not support
this regime in North Korea, but I think we have to be realistic
about the implications of an aggressive regime change policy
that some suggest.
It is in North Korea's interest to open up and it is in our
interest to help them, provided they are willing to play by
international rules. As Secretary Rice has said, it is North
Korea's choice to be isolated. If they stop engaging in hostile
acts and start cooperating, they will reap the benefits of
engagement.
I am happy to answer any questions that you or any other
Subcommittee Member have.
Senator Coburn. Thank you, Dr. Asher. Mr. Downs.
TESTIMONY OF CHUCK DOWNS,\1\ AUTHOR, ``OVER THE LINE: NORTH
KOREA'S NEGOTIATING STRATEGY''
Mr. Downs. Thank you very much, Mr. Chairman. I would like
to thank the Subcommittee for inviting me to speak today and
for its attention to this very important issue. I speak as a
private citizen and author of a book on 50 years of how North
Korea negotiated, not in my capacity as a member of the Board
of the U.S. Committee for Human Rights in North Korea, of whose
work I am extremely proud.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Downs appears in the Appendix on
page 69.
---------------------------------------------------------------------------
As other witnesses have said, North Korea is a criminal
state, but it is more than that. It is actually an extra-legal
state. It does not even abide by its own laws. Under the
constitution of North Korea, the presidential authority is
actually vested in a dead man, and this is the constitution
that was put in place 4 years after Kim Il-Sung died. Kim Jong-
Il, who actually rules North Korea, rules from a position as
deputy of the National Defense Commission, a ruse that gives
him the opportunity to say he is not really in charge even
though everyone knows that he is.
Kim Jong-Il punishes those he finds threatening in mock
judicial proceedings that defy North Korea's own laws. He
orders executions in public that children are forced to attend,
in defiance of international standards of human rights. And he
incarcerates thousands of political prisoners, as we have heard
Kim Seong Min say, in a gulag that he claims does not exist.
It should not be surprising to us that a Nation that
subverts its own laws also defies its international
obligations, but I would like to focus on the questions that
you and Ranking Member Carper, Senator Carper, asked about the
effect of American enforcement activities on the talks that
deal with important issues such as the nuclear issue.
First, a word about how North Korea negotiates based on my
research. North Korea understands that it has very little to
bring to the negotiating table. Its economy is always in a
shambles. It has very little in terms of natural resources. It
has very little to offer the rest of the world. It believes
that it can only gain power and attention by making threats and
by creating aggravation. And it has learned over 50 years of
negotiating experience that this approach actually works for
them.
They create crises that make other nations want to bring
North Korea to the negotiating table. North Korea's own
negotiating objectives are never to enter into an agreement.
They are actually to avoid agreements, draw out the
negotiations as long as possible to draw down the other side's
negotiators and to win concessions during this tiring process.
They like to demand concessions while yielding nothing in
return, which may seem obvious for every country, but it really
isn't. They like to get benefits. In fact, they demand benefits
just for agreeing to attend negotiating sessions. And they like
to block progress at the talks because they know that if they
extend this, they have more opportunities to gain leverage.
And when they are finally forced to sign onto agreements,
they like to make sure that there are provisions in those
agreements that make them unenforceable. Implementation is
always deferred to some organization that has to be set up by
mutual consent and they withhold their consent later on. This
happened with very promising agreements in 1991 and 1992.
But North Korea does benefit during this process of
avoiding negotiations. What it means is that they have a topsy-
turvy approach to what we see as an attempt to actually get
work done.
So how can we deal with this, and I would suggest in
response to the questions that you asked and the questions that
Senator Carper asked about the impact of the enforcement
activities on the negotiations that the enforcement activities
are actually a better means of getting what we want done with
North Korea, and specifically on the negotiations, taking
adverse action against North Korea's and specifically Kim Jong-
Il's financial interests, we have produced the following
benefits.
We have advanced multilateral unity. No country--not China,
not South Korea, not Japan, certainly--is interested in being
seen as an advocate of counterfeiting. If you call North Korea
to task for these activities, other nations will side with you.
As Mr. Asher just said, we have had extremely strong support
internationally on these efforts.
Taking these actions like the Section 311 designation also
gives North Korea the impression that its own leverage gained
by making threats and creating these crises diminishes, and
whether for the near term or the long term, they begin to feel
uncomfortable with the strategy that Kim Jong-Il, who they see
as a genius, has taken. It chastens the regime for its behavior
and makes it act, at least temporarily, somewhat compliant, and
it sends North Korea, these enforcement activities, a signal of
American resolve that Kim Jong-Il, who rules by coercion, can
understand.
It can't help but make North Korea wonder whether--
particularly the ruling party--it can't help but make the inner
circles of the very nervous ruling group wonder if Kim Jong-Il
is the genius that they say he is. It gives them a little bit
of information of what Kim Jong-Il does on the international
scene. And when you are talking about, if I can use the term
gravy train, when you are talking about benefits that are
gained illegally, there are always other people who wonder if
they aren't being cut out of the gravy train, if they are not
somehow being disadvantaged.
And even in a closed society like North Korea, if you task
diplomats with trying to explain and defend North Korea's
counterfeiting activity, some of those diplomats will get the
word around and in the ruling circles in Pyongyang, people will
begin to wonder about whether Kim Jong-Il is doing what he
should be doing and whether his strategy is a good one. They
will begin to feel insecure and this could have a very
important impact on our dealings with the regime.
So let me conclude. I know that there are other people who
have very important things to say and I certainly want to give
Kim Seong Min, who is a very heroic center of the defectors'
efforts in South Korea today, more of a chance to talk, but let
me just conclude that confronting North Korea on their
lucrative illegal activities holds far more benefits than
losses for regional security and international peace. And, in
fact, it enhances the allied posture in the process of
negotiation. Thank you.
Senator Coburn. Thank you. Dr. Noland.
TESTIMONY OF MARCUS NOLAND,\1\ SENIOR FELLOW, INSTITUTE FOR
INTERNATIONAL ECONOMICS
Mr. Noland. Chairman Coburn, Ranking Minority Member
Carper, it is an honor to be here this afternoon. I feel as
though we have reached that moment in the afternoon in which
nearly everything has been said, just not said by me. So rather
than repeat what previous witnesses have said, in some cases
far more definitively than I could, I would like to emphasize a
few points that may not have received appropriate attention.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Noland appears in the Appendix on
page 75.
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First of all, the first one involves the role of illicit
activities and state culpability. To understand North Korea
today, you really have to go back 10 or 15 years to the famine
period of the 1990s. Under the trauma of the famine, in some
essential ways, the state failed and what came out of that
state failure were two things. One was a bottom-up process of
marketization of the economy and the second one was a loss of
central control over the economic and political institutions of
the country.
Now, the relevance to that for our discussion today is that
one can interpret in part the intensification of emphasis on
illicit activities as a response to that economic failure, and
at the same time, it suggests that while it is clear that the
state is involved in these activities, the pervasive nature of
the state within North Korea--virtually every economic asset is
owned by the state in some form, most everyone works for the
state in some way--means that--and combined with the
decentralization that has occurred, that some of these
activities may not be centrally directed, that they may reflect
essentially decentralized gangsterish behavior.
The second issue has to do with the role of U.S. policy. As
we have heard from previous witnesses, U.S. attempts to impede
this activity have met with some success. They have also
negatively impacted legitimate commerce, as well. Basically,
what has happened this spring in response to the financial
pressures has been essentially financial disintermediation.
Foreign financial institutions no longer want to deal with DPRK
institutions. And some people who are doing legitimate business
in North Korea are finding it more difficult to do so.
Now, how one evaluates that depends on what one's goal is.
If the goal is simply law enforcement, as we heard from the
first panel, then impeding the illicit activities is good and
the collateral damage on legitimate commerce is unfortunate. If
the goal is to achieve diplomatic goals in the context of Six
Party Talks, as Senator Carper raised, then one's response is
ambiguous. It probably is going to require both carrots and
sticks to achieve those goals, and so in that sense, one is not
so worried about the negative impact on North Korea.
But if one has a more ambitious goal of achieving regime
change through some sort of financial pressure, then I think
that this policy is unlikely to succeed, basically because
China and South Korea fear instability far more than they fear
the status quo and they would move to offset U.S. pressures.
The third point addresses the labor issues that Senator
Coburn raised in his remarks and in some questions, and here, I
think there is potentially a specific Congressional legislative
point of action rather than the broader oversight issues that
we have been talking about today, and that could come up in the
context of the free trade negotiations between the United
States and South Korea that are scheduled to begin in June and
the role of the Kaesong Industrial Complex in those
negotiations.
The Kaesong Industrial Complex is an industrial complex in
North Korea established essentially by the South Korean
Government, and in previous free trade negotiations, the South
Korean Government has requested its partners to grant duty-free
status to the products produced in Kaesong. Now, this
immediately raises labor issues with respect to the United
States. There will surely be a labor standard chapter in the
FTA agreement, assuming that an agreement is reached, and
including Kaesong in that agreement would raise two sorts of
issues. The first is substantive and the second is procedural.
Substantively, North Korea does not meet any core labor
standards. The right to organize or associate to bargain
collectively are absent entirely. The workers in Kaesong earn
$57.50 a month as base pay for a 48-hour week, but the North
Korean Government takes money out of that to pay for various
things and so at the end of the day, the workers get about a
dollar a day. But that dollar is translated into their wages at
the official exchange rate into North Korean won, which is
completely fictitious. If you use the black market exchange
rate, which is a more realistic measure of what the North
Korean won is really worth, those workers are making maybe $2
to $3 a month. And the real problem which I want to underscore
with North Korea is that as exploitative as those terms might
be, they are probably much better than other jobs in North
Korea or in the labor camps that you mentioned. As a
consequence, there may be no shortage of workers willing to
take those jobs.
The second issue is procedural. South Korea has no way to
enforce any commitments in a FTA agreement in Kaesong where
North Korea is sovereign. Jay Lefkowitz, President Bush's
Special Assistant for Human Rights in North Korea, has
suggested involving a third party, such as the International
Labor Organization, to monitor conditions, as was done in the
Cambodian textiles case. The problem, of course, is that North
Korea is not a member of the ILO and may not agree to that, and
indeed, even this relatively minimal sort of proposal was
recently criticized in some fairly intemperate terms by a
spokesman for the South Korean Ministry of Unification.
In conclusion, the controversy over Kaesong as well as some
of the illicit activities that we have discussed this afternoon
bring us back to, in some ways, the famine experience of 10
years ago and raises the practical and ethical issues that
outsiders have in dealing with North Korea in a situation where
the North Korean people are completely victimized by a
government over which they have no real control, and the
problem of trying to do right by the North Korean people in a
context in which some other major countries do not share our
priorities in dealing with this country whose values are in
very large part antithetical to our own.
It has been an honor to be invited here and I would be
happy to take any of your questions. Thank you.
Senator Coburn. Thank you very much.
Mr. Kim, are there any reliable reports from recent
defectors that would substantiate a continued large number of
hectares in poppy production?
Mr. Kim. [through interpreter] We have escapees from the
provinces of Hamkyungbuk-do and Hamhaebuk-do who are testifying
that as of recent, there still are these fields containing
opiums. Also, we hear from people that youngsters are forced
into labor to collect the extracts from these opiums.
Senator Coburn. What I am trying to get a handle on is are
there any reports as to the actual number of hectares? In other
words, the report is less than 100 hectares of poppy
production, and yet if that is the case, then there would be a
limited production for domestic use only. If it is above that,
then there would have to be a question raised if, in fact, this
is for illicit production. Can you give us an estimate of what
people have told you about the size in terms of acreage or
hectares of that production?
Mr. Kim. [through interpreter] In the province of
Hamkyungbuk-do, there is an area, a county called Yun-San Kun,
and also in the area of Hamhaebuk-do, there are two counties
called Bu-Pyung Kun and Chang-Jim Kun, and my understanding is
that 70 percent of all fields that could be cultivated are
being used for production of poppy seeds. As to the actual
hectares, this would be, in Korean scale, 300,000 jung-bo--
correction, 30,000 jung-bo in Korean terms.
Senator Coburn. Can you relate that to hectares?
Mr. Kim. [through interpreter] That also equals to about
30,000 hectares.
Senator Coburn. OK. So a significant difference in what we
can ascertain versus what we are hearing.
Mr. Kim, one other question for you. Can you respond to Dr.
Noland's suggestion that some of the activities that we may be
seeing are decentralized, in other words, are part of non-
directed, non-controlled government behavior outside of Kim
Jong-Il's control?
Mr. Kim. [through interpreter] As to your earlier question,
sir, I only know of those three different counties, and as to
the exact numbers, I will assure you that I will get back to
the Subcommittee with the correct numbers.
And as to your second question, it is true that the central
command has weakened quite a bit. We have seen that the people
of North Korea are witnessing their neighbors dying right in
front of their eyes, and just for their own survival, they are
having to break the laws, and when they are breaking the laws
to survive, it becomes hard for the central government to place
more control on these people. It is also true at the same time,
however, that the central government is trying to hang on to
their control as much as possible.
So what has increased in the recent years, as we have
witnessed on the first day of March and second day of March of
this year, there are more public executions that are taking
place by firing squads.
Senator Coburn. One last question, and this I am asking for
your opinion. Is it your feeling that the government of South
Korea makes it somewhat difficult for North Korean defectors to
go public with their eyewitness accounts of atrocities
committed by the Kim Jong-Il regime?
Mr. Kim. [through interpreter] There is no public mandate
from the South Korean Government that stops us from talking
about or discussing the occurrences in North Korea. However,
there seems to be a tacit agreement between the South Korean
Government and Kim Jong-Il that there is some sort of a
conciliation between the two regimes and that the South Korean
Government makes it known that it is not happy when we do talk
about North Korea in negative manners.
However, the escapees whom I know and my comrades who I am
working with, we are not afraid of these pressures coming from
the government and we do our very best and we put our lives on
it as we work towards a peaceful unification of the Korean
peninsula.
Senator Coburn. Thank you. Dr. Asher and Mr. Downs, after
we have seen numbers of North Korean diplomats, well, not
arrested, but interdicted and sent home, in your opinion, what
is it going to take for us to bring an indictment against the
North Korean Government for this illicit behavior? And will
that hurt or help U.S. negotiations?
Mr. Asher. This is something that we, of course, people
have discussed. The Secret Service, the Department of Justice
and the Secret Service investigation has indicted the North
Korean Government, in effect, for counterfeiting the U.S.
dollar. One could imagine that the leadership ultimately could
be held accountable. But we also need to consider the fact that
indicting the leadership of a foreign government, a government
that we are committed to a diplomatic process with, would not
be particularly constructive, obviously.
We were able to work with Qaddafi and able to transform a
relationship that seemed in sort of a pitiful and abjectly
backward state. I think there is some precedent from that case
that could be applied to North Korea. But we also have to
approach North Korea open-minded and realistically. This is a
government that has been correctly described as a criminal
state. Some joke of it as sort of a ``Soprano'' state.
We have to, I think, apply law enforcement pressure
aggressively against the networks which are distributing
contraband being produced in North Korea. The perpetrators,
ultimate perpetrators of those crimes, of whom I am confident
the North Korean leadership is tied into, need to understand
that they should be under notice, and to the extent that they
don't stop in a reasonable period of time, I think we have to
consider more extraordinary measures. But we also need to
understand that to take unilateral actions without the full
support of the Chinese and the ROK, and indeed Russia and
Japan, would not be particularly constructive.
We have had success in unilateral financial actions, which
have definitely crimped the ability of the North Koreans to
illegally distribute merchandise, such as counterfeit
cigarettes, counterfeit currency. I even brought some for you,
not that anyone really needs to see it, but it is amazing, the
quality of counterfeit cigarettes being produced in North
Korea. Counterfeit Viagra is a major market.
These items are providing income that goes right to the
top. So mere law enforcement actions conducted effectively can
have a significant impact on the bearing of the leadership and
their attitudes. Again, as I said in my testimony, to the
extent they cannot rely on moonshine, on economic moonshine,
for their existence--and I should note that this money, again,
goes to the top, they rely on it, it doesn't go to the people
of North Korea, so it is a very targeted approach--their
incentive to take sunshine seriously, engagement seriously,
will certainly increase over time.
Senator Coburn. So let me ask you a follow-up question. Are
we continuing a very aggressive two-track strategy, in your
opinion?
Mr. Asher. Yes, I think we are continuing it. It perhaps is
being approached with less centralized coordination than we had
during my time.
Senator Coburn. Why would that be?
Mr. Asher. Well, I think it is strictly the way that the
management of the Department, who I applaud, I am a tremendous
fan of Secretary Rice and Assistant Secretary Hill, but they
want to work this much more through standard operating
procedures and bodies like the Korea Desk, which is full of
some very outstanding diplomats, rather than having specially
appointed people like myself, whose job was more or less to
ride herd on the North Korean----
Senator Coburn. Is there loss of coordination with that
movement?
Mr. Asher. I don't think there is a loss of coordination.
It may be a loss of spit and vinegar determination. It is hard
to be in charge of the Six Party Talks at the same time you are
going after their bad side, undoubtedly. I was involved in the
Six Party Talks intermittently, but that was as an advisor and
as a planner, basically trying to come up with means of how we
could get them out of these sorts of businesses and out of
repression of other people toward something better as other
Communist States which have transformed have shown to be
possible. I don't think the North Koreans necessarily believe
that, but it is our responsibility at the State Department to
at least be prepared for that.
At the same time, most of our time, we were devoted with a
large degree of interagency support, literally well over 100
people, you could say hundreds of people involved in pursuing
their activities globally, and I am very proud to see that work
continues.
Senator Coburn. Mr. Downs, any comments?
Mr. Downs. I don't have much that I would want to add to
that except a point that may actually be overly obvious. When
the U.S. Government takes action like the Section 311
designation, there is immediately one bank, and maybe more,
that is not providing what it used to provide to the regime to
help the regime carry out its illegal activities. It also has a
multiplier effect because other banks see what has happened to
that one bank. In this case, it was Banco Delta Asia. They see
what happened when the United States makes a determination like
that on that bank's business, legitimate business, and they
don't want to be in the same position, so they stop the funding
flow for North Korea's activities.
Eventually, much of what the regime does gets back to this
illicit funding flow. They have to have, according to Nick
Eberstadt's estimate, at least $1.2 billion that they cannot
generate domestically in order to satisfy the elites, in order
to keep the Mercedes running in the hands of the generals in
Pyongyang.
If you begin to cut back on these things, you are also
cutting back on the faith they have in Kim Jong-Il. So the
long-term impact of these kinds of activities can be very real
and very constructive. That cannot be said for the negotiating
process.
Senator Coburn. Dr. Noland, you presented a very concise
picture of kind of where we stand and the delicacy of collapse
and what that might mean, and also the other interested
parties, especially their two neighbors, in why they would not
want anything to come near that. My question is, how do we
continue this process and still be available to offer
humanitarian aid to so many people out there who need it? Is
there a way that we can do that without showing weakness and
still offer a humanitarian hand that won't complicate the Six
Party Talks, that won't complicate our interdiction, and at the
same time help supply basic foodstuffs and necessities of life
to those people who are the subject of this dictator?
Mr. Noland. Historically, the United States has pursued a
policy in which we, at least rhetorically, separate
humanitarian aid and broader foreign policy concerns, though in
reality we often mix the two.
In the case of the humanitarian aid, the U.S. Government, I
believe, particularly under the Bush Administration, which I
have often criticized on other grounds, I think has done a very
good job of attempting to deliver humanitarian aid in a way
that is most effective in actually getting aid to the people
who need it and has been a very strong supporter of that
process multilaterally.
Specifically what I mean, it basically has to do with three
things. We know that geographically, the incidence of need is
not uniform across North Korea either socially or
geographically, and what the U.S. Government and U.S. AID has
done is push the World Food Program, which is the major
multilateral conduit of that aid, to provide the aid in forms
that are not liked by the elite. So instead of rice, provide
corn, barley, millet, things of that sort, and then push that
food aid into the northeastern part of the country, which is
the worst affected area, where the greatest need is. So send
that into ports like Chongjin. I think that has been very
effective.
The second thing that the United States has supported,
though less effectively, is to have a strong monitoring system.
We have a situation which at its peak was well below the WFP
program, was well below international standards. We had a
situation in which the North Koreans did not allow Korean
speakers, for example, to participate in that monitoring
process, in which visits to these institutions that were being
supported required pre-notification. And we only had 50
monitors trying to monitor an area roughly as big as New York
State or Louisiana.
What we have seen in the last 6 months is a retrenchment
that was alluded to by another one of the witnesses. The North
Koreans have banned the trade in grain, private trade in grain,
and have essentially tried to force people to go back to the
old centrally planned and state-run public distribution system.
At the same time, it has demanded that both the private NGOs
and initially the World Food Program leave the country.
My understanding is that in March, the Executive Board of
the World Food Program approved a program that would greatly
reduce both the volume of aid, but it would extremely reduce
the quality of monitoring. The five regional sub-offices around
the country would be shut down. There would be less than 10
people in the program, all in Pyongyang and only allowed to
leave the city of Pyongyang once every 3 months. That process
has been supported by better than expected harvests for the
North Koreans this past fall as well as large, relatively
unconditioned aid flows from China and South Korea.
The problem, of course, is that the North Koreans are
playing a very reckless game with people's welfare and the
situation they have set up--seizures of grain in the rural
areas, banning private trade in grain, which was the mechanism
by which most people got their food--sets up the possibility
that the situation internally may worsen significantly later in
the year, and indeed, there are already reports that the
revived PDS is failing even in the city of Pyongyang.
Senator Coburn. I have one final question, and I want to
state that I am a great supporter of Secretary Rice. I think
she is doing a phenomenal job for us. But I still am at a
little bit of a loss to think that we have lost some of this
coordinated two-track effort, and I am going to ask our
panelists if they think if we had a--and I know we have a North
Korean Desk and I know we have somebody for East Asia policy--
but would it be to our benefit to reinstitute what we had or
have a czar that covers this area, that coordinates both the
Six Party Talks, coordinates humanitarian relief, and also
coordinates our interdiction, that one person, one responsible,
one person that can be looked down the line, this is the person
that is doing all that? Any comments on that?
Mr. Asher. Well, I mean, most certainly, that was the goal
of the Office of the North Korea Working Group Coordinator that
I had reporting directly to the Deputy Secretary, and it was
housed on the seventh floor, so it was very clear to people who
was behind us.
I think that, frankly, at least as far as proliferation
illicit activities go, sort of the dark side of North Korea, it
makes sense to have one person tasked to coordinate an
interagency effort. I also think--and my colleagues know this--
that there is an unnecessary, not certainly helpful bifurcation
between the Illicit Activities Initiative and the Proliferation
Security Initiative as it is applied to North Korea. Perhaps
for that reason, we have had some failures on the proliferation
front, not that we were aware of them at the time, but there
are some things that we could do better, undoubtedly. I think
that there is an effort to do better at this time.
But as I said, the relationship between the DPRK and Iran
is undoubtedly evolving quite precipitously. The shipment of
the BM-25 missile, which is the most powerful missile ever
exported to another country, as far as I know, by the North
Koreans apparently to the Iranians in the couple years has
potentially very destabilizing impact on our European allies,
on Israel, and ultimately on U.S. security interests. One,
frankly, wonders why the Iranians would procure such a missile
if they didn't have something to go inside it. Our official
view, of course, as a government is that there isn't, a weapons
program is far away in Iran, and I have no reason to doubt
that. But it is interesting and somewhat curious.
I think the more that we can centralize both the diplomatic
efforts and empower the diplomats and empower the people who
are engaged in policing the North Koreans, in effect, around
the world, the more effective a basis for a policy, a sort of
sunshine and the stick. The two can go together. I don't
disagree with Mr. Downs that there is, despite the obvious
upset of the North Koreans at being called out for
counterfeiting the U.S. dollar, a Casus Belli Act under
international law, an act of economic war--which we have not
treated that way but undoubtedly could be classed that way--is
indicative, frankly, of the extent to which the North Korean
leadership has come to rely on these activities.
They just have to stop, and if we have to force them to
stop, well, that is fine. But at the same time, we have to open
up a line of communication to them and our negotiator has to be
empowered. Thank you.
Senator Coburn. I just would make note that in relationship
to Iran, we have Nicholas Burns who is a face and a name that
handles all that. Again, I would just say, North Korea does not
in terms of our State Department.
I want to thank each of you for being here. We will leave
the record open if you have additional things. We will have
some additional questions for you. Your interest, knowledge,
and effort to attend the Subcommittee is very much appreciated.
I want to thank you for your time and your testimony and God
bless you.
The hearing is adjourned.
[Whereupon, at 4:15 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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PREPARED STATEMENT OF SENATOR LEVIN
Let me join the Chairman in welcoming our witnesses. I would also
like to thank the Chairman for holding a hearing on North Korea.
For about 4 years a nuclear crisis has been building on the Korean
peninsula. Regrettably, the Administration has been unable to manage
this crisis. Indeed, it appears that over the last several years North
Korea may have increased its nuclear weapons arsenal from one to two
weapons to up to 12 nuclear weapons this year. The reactor the North
Koreans restarted over a year ago continues to produce plutonium, and
another reactor which had been under construction could produce 10-
times more plutonium than the existing one.
Meanwhile, the six-party talks remain stalled over counterfeiting
issues that the United States raised in the same month the last round
of talks concluded. There is no diplomatic progress, and North Korea
has not frozen its nuclear activities during the talks. North Korea
continues to use the time to bolster its nuclear arsenal.
The Administration has relied on a six-party talk constructed at
the expense of making progress. While the North Koreans said they
wanted bilateral talks, the Administration refused to meet unless it
was in a multilateral setting. So we now appear dependent on China and
on continued cooperation among the four countries working with us to
bring North Korea to the negotiating table. Yet, our relations with
South Korea, are at a low mark in recent history, with the South Korean
Government reportedly fearful that this Administration may advocate
using direct punitive action to force regime change, rather than
negotiations to settle the nuclear crisis. And just last week Japan and
South Korea averted a confrontation over a cluster of islands in the
Sea of Japan, or East Sea.
North Korea's illicit activities violate human rights, damage world
trade, and undermine international financial systems. At the same time,
we need to address these activities in a way that does not undermine
our abiding national security interest in ensuring that nuclear weapons
are eliminated from the Korean peninsula. I hope that our witnesses
will give us their views on the relationship between the
Administration's new policy on illicit activities and how to revive the
program comes from illicit revenues? Will decreasing North Korea's
illicit revenues make it more difficult for the country to support
their nuclear program, or will they simply divert other income to the
nuclear program? How can we clamp down on counterfeiting, money
laundering, and other misconduct, while continuing to press for North
Korea to eliminate its nuclear weapons and programs? I look forward to
today's testimony.
PREPARED STATEMENT OF SENATOR BROWNBACK
Mr. Chairman, thank you for calling this timely hearing during
North Korea Freedom Week, an important event to shed light on the
horrific suffering in North Korea. This week, many will gather in a
variety of forums to hear refugees and defectors from the North tell
their stories about life under one of the most repressive regimes in
all of history. People from across the country and Asia will be here to
stand up for the suffering people of North Korea.
Unfortunately, the state of affairs in North Korea is deteriorating
further as the regime continues to misuse its resources and funnel
profits from illegal activity toward malign ends. There are very few
places in the world today that could compete with the level of
corruption and terror imposed by this failed state.
On May 20, 2003, Senator Peter Fitzgerald sponsored a similar
hearing to the one being held today titled, ``Drugs, Counterfeiting,
and Weapons Proliferation: The North Korea Connection.'' In that
hearing, two North Korean defectors gave a detailed account on how the
regime has made the export of narcotics and missiles a state-run
business. It is also no secret that North Korea is suffering from one
of the worst human rights situations in the world today. One of the
reasons for that is because the regime, under Kim Jong-Il, has been
able to bolster support with financial backing via illegal activities.
All of the illicit activities North Korea have engaged in poses a
threat not only to the people of North Korea, but also to the rest of
the world. All of the evidence leads me to believe that the proceeds
from counterfeiting are used to maintain the North Korean dictator's
taste for luxury imports, the need to subsidize his inner circle of
supporters, the production and sale of several missiles systems, and
the expansion of North Korea's WMD programs. North Korea may even be
favoring the cultivation of more drugs on land meant for agricultural
purposes, despite the massive starvation that has overrun the destitute
state.
I would like to commend the Bush Administration for aggressively
taking steps to isolate the North Korean regime through the
Proliferation Security Initiative and the Illicit Activities
Initiative. By imposing sanctions on financial institutions involved in
laundering North Korea's counterfeit currency and the proceeds from
narcotics and arms trafficking, the U.S. is influencing the power of
the North Korean state to continue its misguided policies.
The depressing facts about the state of affairs in North Korea
underscore the need for more hearings like this one, and again I
commend the Chairman for convening this hearing. Let me conclude by
noting that the real victims of North Korean regime's illicit
activities are the people of North Korea. The North Korean regime's
power is sustained because of its successful involvement in illegal
activity. The U.S. and the international community should do everything
it can to stop North Korea from profiting from drugs, weapons,
trafficking, and counterfeiting. Only with sustained pressure will this
evil regime be forced to face up to its obligations to international
law and the basic human rights that its citizens deserve.
Thank you, Mr. Chairman.
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