North Korea and Criminal Activities

North Korea's Nuclear Push May Be Stymied by U.S. Banking Rules

By Bradley K. Martin with reporting by Alison Fitzgerald and Jeffrey St.Onge in Washington, Bloomberg.com , 7 March 2006

March 7 (Bloomberg) -- U.S. law enforcement actions that are hobbling North Korea's financial system may be as important as diplomacy in persuading the country to give up its nuclear weapons program.

U.S. efforts to cut off funds from counterfeiting and drug trafficking may move dictator Kim Jong Il to trade warheads for development aid, says David Asher, coordinator of the State Department's North Korea working group from 2003 to 2005. U.S. officials plan to present evidence of North Korea's money-laundering to Kim's representatives today in New York. ``There's no doubt this is the most powerful reverberation we've ever had on North Korea,'' Asher says. ``Cutting into the illicit foundations of their regime should provide an incentive for them to start opening up and cooperating.''

The Treasury Department in September said Macau, China-based Banco Delta Asia SARL helped North Korean officials make ``surreptitious'' deposits and withdrawals. The bank responded by freezing all accounts linked to North Korea, blocking access to millions of dollars. Last month, Banco Delta said it would no longer accept business from North Korean customers.

The crackdown had an immediate effect on Daedong Credit Bank, the only foreign-run bank in North Korea, which used Banco Delta as its primary correspondent for overseas transactions. General Manager Nigel Cowie says banks in Germany and Singapore also severed their links to Daedong.
``Banks with any kind of U.S. ties are just terrified to have anything to do with any North Korean bank,'' says Cowie, 43. Daedong represents international account holders and has nothing to do with money laundering, he says.

No Official Link

Officially, the U.S. State Department says there is no link between the financial clampdown and the effort to dismantle North Korea's nuclear weapons program through negotiation. U.S. law on illicit financial transactions ``is not targeted against any one regime,'' State Department spokesman Adam Ereli said at a Feb. 23 briefing in Washington. Five days later, North Korea denied any involvement in criminal activities. ``The U.S. argument is quite childish and nonsensical,'' the official Korea Central News Agency said, citing an unidentified Foreign Ministry spokesman.

Under provisions of the USA Patriot Act of 2001, the Treasury Department may prohibit U.S. financial institutions from doing business with banks designated as money-laundering concerns. At a minimum, the act requires U.S. banks to know the customers with whom they do business. The U.S. opened another front in the financial war on June 28, when President George W. Bush signed an executive order directing Treasury to freeze the assets of those that help distribute weapons of mass destruction, including three North Korean companies. Investigators later froze the U.S. assets of eight more North Korean entities it said were involved in illegal activities.

`Raised the Scrutiny'

Stuart Levey, Treasury undersecretary for terrorism and financial intelligence, says the U.S. can take further steps against North Korea. The Patriot Act permits labeling an entire country a ``money laundering concern,'' effectively isolating it from access to U.S. financing of any kind. ``We do have a number of tools, and we have used two of those tools recently with respect to North Korea,'' Levey says. ``It's raised the consciousness and raised the scrutiny of financial institutions of the world.'' The Treasury designated Ukraine as a money laundering concern in December 2002. The label was rescinded four months later after Ukraine strengthened laws against illegal transactions and pledged greater financial transparency.

Heroin and Viagra

North Korea typically uses trading companies to pass counterfeit $100 bills, and earns hard currency by selling fake Viagra pills and trafficking heroin, in addition to culling cash from illegal trade in weapons, Asher says. ``Nukes, crime, repression -- these are the key aspects of support for the North Korean leadership,'' says Asher, a researcher at the Alexandria, Virginia-based Institute for Defense Analyses, which advises the U.S. government on national security issues.

Financial pressure on North Korea is growing as diplomats step up efforts to curb the proliferation of nuclear weapons. The U.S., South Korea, Japan, China and Russia have been negotiating with North Korea for the past 2 1/2 years in an effort to get Kim to dismantle his weapons program. Though all six parties called in September for a nuclear-free Korean peninsula and economic cooperation in energy, trade and investment, the next round of talks ended Nov. 11 with no further agreement.

On Feb. 4, the International Atomic Energy Agency, an arm of the United Nations, called on Iran to halt uranium-enrichment and open its military sites to inspection. Iranian President Mahmoud Ahmadinejad said his country would continue its nuclear research.

Isolated Society

North Korea's government has isolated its citizens for almost 60 years, under founder Kim Il Sung and his son Kim Jong Il, who has ruled since 1994. Under the Kim regimes, the country pursued a nuclear weapons program, even as its 20 million citizens suffered from a famine in the late 1990s. Food shortages killed as many as 2 million people, according to the U.S. Agency for International Development.

Lee Dong Bok, a former South Korean lawmaker who has negotiated with North Korea, says the Kim regime dispatched officials from the ruling party to try to reverse Banco Delta's decision to stop doing business with North Korea. ``Apparently, it was unable to win the support of China because of China's own interest,'' Lee says. He adds the government of the world's fastest-growing economy wants to maintain its access to western finance. ``China relies heavily on transactions with New York.''

Primitive State

Daedong's Cowie, a former HSBC Plc banker who has been in Pyongyang for a decade, says the U.S. actions are likely to reduce North Korea's financial system to a primitive state, hurting law-abiding businesses as well as the government. ``Everybody doing trading business is just going to be carrying cash into China,'' he says, noting that Chinese traders provide most of the consumer goods sold in North Korea.

Daedong has about $10 million in assets and has only foreigners as customers, mostly Chinese, Japanese and Western individuals and institutions, Cowie says. Wendy Sherman, President Bill Clinton's special adviser on North Korea, says a crackdown on criminal activities at this stage may hurt chances for success at the six-party talks.

``If indeed one wants to say to North Korea, `We have a way to slow down your access to capital and we're prepared to use it,' that becomes part of the negotiation,'' Sherman says. ``But to do it in advance of negotiation loses benefit.'' Sherman is now a principal at the Washington-based Albright Group LLC, run by former Clinton administration Secretary of State Madeleine Albright.

Australian Setback

The U.S. case against Kim's government was set back on March 5, when a Melbourne jury acquitted the captain and three crew members of the North Korean freighter Pong Su of drug trafficking. Australian police said they discovered 275 pounds (125 kilograms) of heroin on the Pong Su after seized the ship in April 2003. U.S. officials had cited the case as evidence of North Korea's involvement in drug smuggling.

A face-off with the Bush administration may even shore up domestic support for North Korea's government, says Kim Myong Chol, a resident of Japan who encourages reporters to refer to him as an unofficial spokesman for the regime. ``The crackdown gives North Korea time and pretext to continue nuclear weapons production,'' Kim says. ``The North Korean government's legitimacy only comes from standing up to America.''

Increased Activity

While the U.S. has known about North Korea's illegal activities for years, they have accelerated recently, says Michael J. Green, a former senior director for Asian affairs at the National Security Council who left that post in December. Many of the efforts appeared to be tied to Rooms 35 and 39 at the North Korean Workers' Party headquarters, says Green, who is now a senior adviser at the Washington-based Center for Strategic and International Studies. The Room 39 unit is charged by Kim Jong Il with bringing in foreign currency, and Room 35, formerly known as the Overseas Intelligence Department, has been linked to the abductions of foreign nationals.

North Korea is making tentative moves toward the sorts of change that have transformed China's economy. The country has designated special economic zones, and Kim visited China in January to see its booming southern region.

Meeting With Hu

In a suggestion the visit may have been related to concerns about the Banco Delta crackdown, Japan's Kyodo News reported that Kim told Chinese Premier Hu Jintao that continued U.S. financial pressure could cause his regime to collapse. The news service cited unidentified people close to the six-nation talks.

U.S. policy can be characterized as ``squeeze, but keep the talks going,'' Green says. In the end, Kim may return to the negotiating table only when there is no other way to guarantee his continued rule.``Their main goal is to ensure continuation of their regime and their country,'' Green says.

Ship’s crew freed: Trio not guilty of heroin haul

AAP, 06/03/2006

Lawyer Nick Pappas, who represented first mate Man Jin Ri, said the verdict showed that justice had been done and the jury system was working. “We’re very happy with the verdict obviously and all the accused are very pleased to be freed after nearly three years in custody,” Mr Pappas said.

Mr Pappas said he was looking forward to celebrating with the men by having a beer. “They’ve got a visa as such and they’re walking down the street, so we might go and have an Australian beer with them,” he said.

Defence lawyer, John O’Sullivan, said the men would not be deported but he expected they would go home to North Korea within days. He said his client, Dong Song Choi, was still trying to come to terms with the verdict. “Clearly, he’s spent three years in custody, so it’s been a shock to him today,” he said. “But it would be hard to believe that the men wouldn’t be pleased with the result.”

Experts point finger at leader

By Keith Moor, The Advertiser, 06 March 2006

THE jury that acquitted four Pong Su crew members yesterday never got to hear evidence about the North Korean Government's alleged role. Two eminent US experts on North Korea, Balbina Hwang and Joe Bermudez, gave written and verbal evidence during the Pong Su trial. But Supreme Court judge Murray Kellam ruled the jury was not allowed to hear it.

Both experts said they had no doubt the North Korean Government was involved in the heroin run. They revealed the North Korean Government created a secretive department, known as Bureau 39, to control and increase the flow of foreign exchange through legal and illegal imports. "Its officials are involved in heroin and amphetamine trafficking that generates as much as $500 million annually," Ms Hwang said.

Mr Bermudez said he had spent 30 years studying North Korea and had access to classified information and government and intelligence officials. He said the North Korean Government must have been aware the Pong Su carried heroin. "The Pong Su could not have left North Korea without the official sanction of the Korean Workers Party and the government," Mr Bermudez said. "It's most probable that the Pong Su Shipping Company, employing the Pong Su, was a front company established by the Korean Workers Party at the behest of Bureau 39 to co-ordinate the delivery of narcotics to Australia." Mr Bermudez said Bureau 39 was under the direct control of North Korean leader Kim Jong-il and the Pong Su's political secretary would have been reporting back to it.

Australian-based Korean affairs expert Dr Adrian Buzo also gave evidence it was his belief the Pong Su was owned by the North Korean Government and was under its direct control.

Australian Federal Police agent Damien Appleby, who was in charge of the Pong Su investigation, said the AFP was unable to find any admissible evidence the North Korean Government was involved in or aware of the heroin importation. But AFP efforts to try to get evidence were hampered by the North Korean Government's refusal to co-operate. "We could easily find out everything about this case in terms of the Pong Su if they assisted us, such as providing passports, fingerprint and other details," agent Appleby said.

U.S. DRAWS LINE BETWEEN BRIEFING, NUKE TALKS AHEAD OF MEETING

Yonhap News reported that the US on Monday drew a strict line on the scope of Tuesday's contact with the DPRK, saying it will be only about Washington's actions against Pyongyang's illicit financial activities. DPRK officials are in New York to receive a briefing by US Treasury specialists on actions taken last September against Macau-based Banco Delta Asia (BDA). ("U.S. DRAWS LINE BETWEEN BRIEFING, NUKE TALKS AHEAD OF MEETING", 2006-03-06)

STATE DEPT. TO SEND HILL'S DEPUTY TO N.K. BRIEFING

Yonhap News reported that the US State Department will send a deputy assistant secretary to Tuesday's Treasury briefing for the DPRK, department officials said Monday. Kathleen Stephens of the East Asian and Pacific Affairs Bureau will represent the department at the briefing that will be led by the Treasury and the Secret Service, they said. ("STATE DEPT. TO SEND HILL'S DEPUTY TO N.K. BRIEFING", 2006-03-06)

N. KOREA, U.S. SET FOR SHOWDOWN IN NEW YORK ON FINANCIAL ROW

Yonhap News reported that after months of wrangling over Washington's application of financial restrictions on a Pyongyang-affiliated bank, the two sides are preparing for a rare bilateral contact this week. A contingent of DPRK officials led by senior Foreign Ministry official Ri Gun reportedly arrived in New York, a traditional rendezvous for high-level contact between the two sides, on the weekend. ("N. KOREA, U.S. SET FOR SHOWDOWN IN NEW YORK ON FINANCIAL ROW", 2006-03-06)

DPRK NARCOTICS INVOLVEMENT "LIKELY BUT NOT CERTAIN"

US State Department press release, 1 March 2006

North Korea most likely sponsored narcotics production and trafficking in 2005, although there were no public reports of incidents with clear, demonstrable links to the Pyongyang government, according to a State Department report released March 1. The International Narcotics Control and Strategy Report 2006 (INCSR) noted that North Koreans have been apprehended trafficking in narcotics and engaging in other illicit activities for decades.

Given developments during 2005 that linked the North Korean government to "other forms of state-directed criminality," the report says, the State Department reaffirmed its opinion that "it is likely, but not certain, that the North Korean government sponsors criminal activities, including narcotics production and trafficking, in order to earn foreign currency for the state and its leaders." The report found "substantial evidence" that North Korean government entities and officials have laundered proceeds of illegal activities such as narcotics trafficking and counterfeiting through a network of front companies that use overseas financial institutions.

In September 2005, the Department of the Treasury designated Banco Delta Asia SARL in Macau as a "primary money laundering concern," asserting that the bank had been "a willing pawn for the North Korean Government to engage in corrupt financial activities." Governments in the region have identified incoming narcotics as having originated in North Korea, the INCSR says.

In 2003, Australia's seizure of 125 kilograms of heroin from the Pong-Su, a cargo vessel owned by a North Korean state enterprise, raised the possibility of state trading in drugs by the North Korean government. The trial of the ship's senior officers began in January 2005 and should be completed in 2006.

The Japanese government believes a significant amount of methamphetamine smuggled into Japan is refined and/or produced in North Korea. "There were no seizures of methamphetamines in Japan during 2005 linked to North Korea," the report acknowledges. But in past years, it says, "30 per cent to 40 per cent of methamphetamine seizures in Japan" have been linked to North Korea. Methamphetamine manufactured in North Korea now may be identified as Chinese-source, the report notes, because ethnic Chinese criminal elements are working with North Korea in narcotics production and distribution, abroad and within China.

The 2006 INCSR is the 23rd annual report to be published in accordance with the Foreign Assistance Act of 1961. The report provides the factual basis for the designations contained in the president's report to Congress on major drug-producing and drug transit countries. A country's performance in controlling drug trafficking crimes is a factor in determining the assistance it will get from the US government.

N. Korea orders entities to stay away from illegal acts: sources

Saturday February 18, 6:40 PM

(Kyodo) _ North Korea has recently ordered its embassies and trading entities to stay away from any kind of illegal activities, sources close to the matter said Saturday, in what may be an attempt to dispel international criticism over its alleged wrongdoings.
The order, issued earlier this year through the channels of the nation's Foreign Ministry, specifically tells the entities not to engage in any money-laundering, counterfeiting or drug trafficking activities, according to the sources.

The sources said that North Korean authorities have also told their trading partners recently that while they have come across counterfeited bills through transactions with third countries, they were victims, not the source, of such crimes.

The actions come at a time when Pyongyang is complaining bitterly about financial sanctions the United States has imposed on entities suspected of taking part in North Korea's alleged money-laundering and counterfeiting activities.

One of them involves the Macao-based Banco Delta Asia SARL, which the United States suspects of having laundered money for North Korea. Washington has barred U.S. financial institutions from dealing with the bank.

Pyongyang has refused to return to the six-party negotiations on its nuclear programs -- which also involve the United States, China, South Korea, Japan and Russia -- unless Washington lifts the sanctions. North Korea is denying state involvement in money-laundering and counterfeiting activities, and says it is willing to punish those involved, should any be discovered.

"The DPRK will, as ever, actively join international actions against money-laundering," a North Korean Foreign Ministry spokesman was quoted as saying by the official Korean Central News Agency in a dispatch released earlier this month.

Korea Herald ("U.S. TO ISSUE NEW $100 NOTES NEXT YEAR ", 2006-02-15) reported that the US will roll out newly designed $100 notes next year to enhance the security of US currency, the Treasury Department said. The US says the DPRK has for years been making and circulating "supernotes," highly refined bogus $100 notes. In Seoul, US ambassador Alexander Vershbow said the DPRK should hand over all equipment used in making the fake dollars, including the plates, to prove it will stop counterfeiting.

Kyodo News ("U.S. BELIEVES N. KOREA COUNTERFEITING DOLLARS: S. KOREAN ENVOY", 2006-02-16) reported that the US believes the DPRK is counterfeiting US dollars in a state mint, Yonhap News Agency reported Thursday, quoting the ROK ambassador to the US. "The U.S. believes North Korea counterfeited 'supernotes' in a place where it issues its currency, not in separate facilities," Yonhap quoted Ambassador Lee Tai Sik as saying. "Supernotes" refer to high-quality counterfeited $100 bills that Washington accuses Pyongyang of producing and
circulating.

"Keeping North Korea from the Brink"

By Peter Beck in YaleGlobal Online Magazine, 14 February 2006
 

If the Bush administration had hopes that cracking down on North Korea’s illicit money laundering activities in Macao last fall would bring Pyongyang back to the nuclear negotiating table, Kim Jong Il dashed them once and for all with his field trip to China. Judging by North Korea’s shrill reaction, the sanctions did hit Pyongyang where it counts, but rather than making North Korea more acquiescent, the crackdown has pushed the nation further into China’s orbit. This makes China’s role more important than ever for resolving the nuclear standoff, and at the same time constrains Washington’s policy choices.

China’s relationship with North Korea is based on mutual economic necessity rather than political loyalty or shared ideology. Relations are nowhere near as close as the “lips and teeth” once proclaimed by Beijing. China’s pragmatic leaders have difficulty relating to their Stalinist counterparts in Pyongyang. The clothes worn by President Hu Jintao and Chairman Kim during their January tete-a-tete spoke volumes: The urbane technocrat in a $1,000 suit meets the recluse in a jumpsuit.

Chinese in regular contact with the North often quietly complain to interviewers with the International Crisis Group – an independent non-profit NGO that provides field-based analysis and advocacy to prevent deadly conflict – about the never-ending difficulties of working with the North. More than a few Chinese leaders feel Pyongyang is ungrateful for the sacrifices China has made since the Korean War, which alone took at least 500,000 thousand Chinese lives. There is not one public memorial in North Korea acknowledging China’s contributions, from food to fuel to arms. Some analysts even suggest that Beijing would be willing to abandon North Korea, if that would help in the quest to take Taiwan, and question whether China would come to Pyongyang’s defense if a second Korean war were to break out.

Beijing shares Washington’s goal of a nuclear-free North Korea, if for no other reason than to discourage a nuclear arms race in region, with arch enemies Japan and Taiwan then quickly trying to catch up. The problem is that Beijing places far greater priority on North Korean stability and regime survival than on the peninsula remaining nuclear-free. The cost of conflict or collapse in the North is too great for Beijing to consider putting serious pressure on Pyongyang, so long as Kim does not upset the status quo with an overly provocative act, such as a nuclear test or transfer of nuclear material to a third country. Thus, China is committed to the six-party nuclear talks as a means of keeping the lines of communication open and maintaining the status quo. Beijing is satisfied to play the role of convener and occasionally arbitrator, not dealmaker or enforcer. Achieving a nuclear accord is purely optional.

As Pyongyang’s economic ties with Japan and the US have atrophied, China and, to a lesser extent, South Korea have emerged as North Korea’s economic lifebuoys. However, unilateral assistance is quickly being replaced by trade. Chinese exports to North Korea rose more than 50% last year to break the US $1 billion level - comprising nearly half of the North’s imports. During several visits to the China-North Korea border, in both the east where most ethnic Koreans live and refugees hide and in the west where most trade takes place, ICG researchers observed trucks laden with rice and fuel entering the North and iron ore coming into China. Moreover, China has become a source of crucial infrastructure investment, including road and port facilities that would give China’s two landlocked northeastern provinces of Jilin and Heilongjang easy access to Japanese and South Korean markets. A wave of Chinese consumer goods is washing over North Korea, accounting for over 80% of such products in North Korean markets.

South Korean officials almost never admit it openly, but they are increasingly worried about Beijing’s growing economic influence over the North. North Korea watchers in Seoul are already referring to the North as “China’s fourth northeastern province.” Given that China has released a development plan to reinvigorate this region, such concerns are well founded. Speculation is no longer whether Chinese forces would enter North Korea in the event of Kim’s regime collapsing, but how much territory they would try to hold if it did.

Chairman Kim’s fifth and longest trip to China focused on the wellspring of China’s economic reforms, giving rise to hopes in South Korea that the visit portends deeper economic reforms and opening. Given reports of banners in the North proclaiming the success of Kim’s trip to China and the extensive coverage his trip received on North Korean TV during the Lunar New Year, it is reasonable to conclude Pyongyang is committed to reform and opening its closed economy more than ever. But whether that will be enough to be successful remains an open question.

With the dramatic flair of the armchair movie director he professes to be, Kim saved the most crucial part of his China trip for the very end: his meeting with President Hu. China currently holds the biggest potential carrot and stick with the North. The carrot is the $2 billion economic assistance package rumored to be offered by Hu during his visit to Pyongyang last October. The stick is in the form of American pressure to crack down on the North’s remaining banking activities in China.

However, China opposes sanctions on North Korea because it anticipates they would lead to instability and, while they would not dislodge the regime, would damage the nascent process of market reforms and harm the most vulnerable segment of the population. China’s opposition to aid conditionality and infringements on sovereignty, as well as its general reluctance to embrace sanctions, is related to its own quest for reunification with Taiwan – not to mention human rights issues in Xinjiang and Tibet, and its own economic interests in Sudan and elsewhere..

Washington must face the fact that there is virtually no circumstance under which China would use its economic leverage to force North Korea’s compliance on the nuclear issue. Even though the crackdown on North Korea’s illicit banking activities in Macao demonstrated that China is not completely immune to outside pressures to rein in bad behavior, Beijing is unlikely to shut down the North’s remaining banking activities.

Given the military option is essentially off the table, Washington can either sit down and undertake real negotiations with North Korea, or accept it as a nuclear power. Waiting for China to compel North Korean compliance will only give Pyongyang more time to develop its nuclear arsenal.

Until Beijing, Washington and Seoul can agree on common goals and strategies for dealing with North Korea, the best we can hope for in the short term is to go though the motions of negotiations. For now, perhaps the only goal all parties can agree on is avoiding a crisis, but more meaningful engagement is needed if, in the long run, North Korea is not to loom as a flash point in Sino-US relations.

Peter Beck is the Northeast Asia Project Director for the International Crisis Group. The project’s latest report – China and North Korea: Comrades Forever? – can be viewed at www.crisisgroup.org

N. Korea a hub for fake smokes

Cigarette-makers trace source of counterfeits
THE WALL STREET JOURNAL, Saturday, January 28, 2006

In Philip Morris USA's war against counterfeiters, it was a fairly simple operation: Buy a pack of Marlboros from a corner bodega on Manhattan's Upper East Side to follow up on a tip about contraband cigarettes.

It took until 2005, the year after the pack was purchased, company officials said, before they could trace the artfully counterfeited smokes to one of the world's most isolated countries, communist North Korea.

The country has become a leading source of counterfeit cigarettes - with the capacity to churn out more than 2 billion packs a year, tobacco companies said. Philip Morris, a unit of Altria Group Inc., said that over the past several years it has discovered North Korean-made knockoffs of its Marlboro brand in more than 1,300 places, from New York to Oklahoma City, Seattle and Los Angeles.

Big cigarette companies, facing billions of dollars in lost revenue, have hired former intelligence and law-enforcement officials, recruited informants inside Asian crime syndicates and even sent agents into North Korea to stem what they say is a flood of illicit exports.

Andre Reiman, a senior vice president of Philip Morris International who oversees anti-smuggling programs, said that his company is "very concerned to find organized counterfeiting of our products in the Democratic People's Republic of Korea."

The scale of the distribution network - thought to include fleets of ships owned by global organized-crime groups - has the U.S. government taking a more active role after years of industry pleas to crack down on counterfeit cigarettes.

U.S. authorities seized more than a billion fake smokes - including many alleged to be from North Korea - in California last year as part of an undercover operation focusing on Asian smugglers. Millions more packs of bogus Marlboros, Mild Sevens and other cigarettes made in North Korea have been confiscated in Taiwan, the Philippines, Vietnam and Belize.

In a little-publicized 2004 case, three Asian men pleaded guilty to conspiring to smuggle counterfeit goods and currency, in connection with a scheme to send fake cigarettes, forged $100 bills and knockoff Cialis, an erectile-dysfunction drug made by Lilly ICOS LLC, into the U.S. The cigarettes, a U.S. official said, were made in North Korea.

The case started when an undercover investigator working for Philip Morris posed as a buyer looking for counterfeit cigarettes, according to papers filed by the government in federal court in Washington last year. The men took the investigator to a cigarette-making plant on the east coast of North Korea. They also offered to sell the investigator forged U.S. currency, prompting Philip Morris to alert the U.S. Secret Service. In all, the men accepted payments of more than $400,000 for counterfeit cigarettes and currency, prosecutors say.

Supplying counterfeit cigarettes has cemented North Korea's ties to crime organizations, giving the country access to a vast smuggling network that could allow it to move almost anything - from forged U.S. banknotes to weapons - in or out of the country, U.S. officials said.

"Much more dangerous things than cigarettes can flow along these same routes," warns a senior Bush administration official. "The North Koreans could import technology and export strategic goods and weapons. It's a big deal."

North Korea has long been accused of counterfeiting U.S. currency. In a news conference Thursday, President Bush said that the U.S. was moving aggressively to stop Pyongyang's forgers. "When somebody's counterfeiting our money, we want to stop them from doing that," Mr. Bush said.

Washington's efforts, however, have drawn criticism from other capitals, which worry that U.S. moves will keep North Korea from rejoining multilateral talks aimed at ending its nuclear-weapons programs.

North Korea denies that it engages in counterfeiting or other illicit acts. Its official news agency said last month that "such illegal activities are unimaginable in the DPRK."

In a report prepared by a consortium of tobacco companies that includes Altria, Japan Tobacco Inc. and British American Tobacco PLC and presented to U.S. authorities last year, investigators said that the North Korean regime could be earning $80 million to $160 million in annual payoffs from smugglers alone.

Those estimates are equal to roughly 8 percent to 16 percent of the total value of annual exports of legitimate goods from North Korea, whose economy collapsed after the fall of the Soviet Union. Profits from suspected state-run counterfeiting operations would likely push that number even higher, say tobacco-company executives.

"Counterfeit cigarettes are probably becoming one of their biggest sources of illicit income," said Raphael Perl, an expert on North Korean finances at the Congressional Research Service.

Two developments have helped North Korea establish itself in the fake-smokes business. First, major cigarette-makers, sued by the European Union and others on allegations that they supplied smugglers with cigarettes to circumvent taxes, have moved to keep their products out of criminals' hands.

Second, China has moved aggressively to clamp down on cigarette counterfeiting. Rather than engage in a high-stakes game of cat-and-mouse with the Chinese authorities, makers of high-end counterfeits have instead sought refuge in North Korea.

"North Korea is the perfect place," one tobacco executive said. "There's very little scrutiny from outside, and there's no risk of law-enforcement action because it's all sanctioned by the state."

The look of the counterfeits and their packages are very good, tobacco executives said. Packs of Marlboro seized in Miami even included forged pamphlets urging smokers to visit a Web site to find information about the health dangers of cigarettes and the admonition "Don't Litter" on the side of the box.

Executives said that packaging is the key to determining which cigarettes are fakes and where they come from. They compare suspect cigarettes with examples from previous raids that have been conclusively tied to a particular source. For example, counterfeiters often don't change the tracking numbers on counterfeit packages. Sometimes, printing flaws give them away.

CHINA WAITS FOR US REPORT ON NK MONEY-LAUNDERING

The Korea Times reported that the PRC is waiting for the results of the US's investigation of a Macau bank's alleged involvement in DPRK's financial illegalities, including counterfeiting of US bills, Kim Ha-joong, RO Korean ambassador to the PRC, said in Seoul on Monday. Kim also said that he hopes PRC President Hu Jintao's visit to the US in April could make a breakthrough in the six party talks? ("CHINA WAITS FOR US REPORT ON NK MONEY-LAUNDERING", 2006-02-13)

N. KOREA SEEN WILLING TO RESOLVE COUNTERFEITING ISSUE: LAWMAKERS

The Korea Times reported that South Korean lawmakers who visited Pyongyang last week said that the DPRK indicated it would make sincere efforts to resolve the dispute over its alleged counterfeiting activities. Headed by Lim Chae-jung of the ruling Uri Party, four lawmakers flew to Pyongyang last Tuesday for a five-day visit to meet the DPRKs high-ranking officials. (As for its alleged counterfeiting issues,) I've received the impression that the North is also willing to deal with the issue sincerely, Lim told the reporters as he arrived at Incheon Airport on Saturday. ("N. KOREA SEEN WILLING TO RESOLVE COUNTERFEITING ISSUE: LAWMAKERS", 2006-02-12)

SEOUL 'CONCEALED U.S. INFORMATION ON N.K. DOLLAR FAKES

Chosun Ilbo reported that the RO Korean government concealed the fact that US investigators told it US$140,000 in counterfeit dollars found in Seouls Namdaemun market last April was made in the DPRK. Police at the time arrested three people who tried to exchange 1,400 so-called supernotes at a local money changer. They allegedly bought the supernotes from a broker in Shenyang, PRC. ("SEOUL 'CONCEALED U.S. INFORMATION ON N.K. DOLLAR FAKES'", 2006-02-12)

DPRK TO JOIN INTERNATIONAL ANTI-MONEY LAUNDERING DRIVE

Mainichi, 9 February 2006

North Korea said Thursday it would join international efforts to fight money laundering amid accusations the communist regime is directly involved in financial crimes. A spokesman from the North's Foreign Ministry made the announcement, denying US allegations that the country has engaged in counterfeiting and money laundering -- an issue that has deadlocked talks on the North's nuclear programs. It was apparently the first time the North has publicly voiced its willingness to cooperate with international efforts to crack down on such crimes.

"There is no evidence proving (North Korea's) issue of counterfeit notes or money laundering," said the unnamed ministry spokesman, according to the North's official Korean Central News Agency. The country will "actively join the international actions against money laundering," he said.

The six-nation talks on eliminating the North's nuclear program haven't been held since November as Pyongyang has refused to attend, demanding Washington lift recent sanctions imposed for its alleged illicit activities. The USA has rebuffed the demand, saying the sanctions are a law enforcement matter unrelated to the nuclear talks, which include the two Koreas, China, Japan, Russia and the United States.

"A peaceful negotiated settlement of the nuclear issue can never be possible" unless the USA switches its policy, the spokesman said. Pyongyang has claimed the sanctions are a sign that the USA sticks to what it terms Washington's "hostile policy" aimed at overthrowing the regime. Washington has slapped sanctions on a Macau bank and North Korean companies believed to be fronts for weapons proliferation to halt the alleged illegal actions, which the USA says include drug trafficking. North Korea, which had used the Macau bank for decades as a main channel for outside funds, has reacted angrily to the sanctions, calling them a "sheer lie." "It is the consistent policy of the (North Korean) government to oppose all sorts of illegal acts in the financial field," the North's spokesman said Thursday.

KIM JONG IL'S CHIEF OF STAFF ARRESTED

Donga Ilbo reported that Kang Sang Choon (66), Kim Jong Il's chief of staff and secretary of the Worker's Party of the DPRK, was arrested by Chinese police last month for illegally transferring real estate ownership in Macau. Kang was released the following day. According to a number of sources familiar with the DPRK, shortly before Kim Jong Il visited the PRC(from January 10 to 18), Kang was arrested by the police after it was revealed that he had illegally transferred ownership of a patch of land he owned there three or four years before. The ROK government has recently confirmed this fact. ("KIM JONG IL'S CHIEF OF STAFF ARRESTED", 2006-02-09)

FAKE NOTES FEWER THAN PRESUMED

Joong Ang Ilbo reported that a diplomatic source in Seoul said Washington estimates the amount of DPRK-produced counterfeit US currency to be less than originally believed. Separately, a senior ROK official confirmed reports that during Kim Jong-il's recent visit to the PRC, one of his senior aides was detained in Macao in connection with an investigation into currency counterfeiting. The detention was a signal, the official concluded.  "With the arrest and the direct explanation by China to the North about what it thinks of the matter, the North seems to have realized how serious the problem is," he said.  An ROK intelligence official said that the DPRK has been faced with a shortage of foreign exchange after US financial sanctions were imposed on some of its trading companies and one bank the government uses in Macao, and has stepped up activities to bring in more foreign currency. ("FAKE NOTES FEWER THAN PRESUMED", 2006-02-09)  

SOUTH KOREA BANKS BACK US ON NORTH KOREA SANCTIONS

Today Online reported a second ROK bank has followed the US lead in severing ties with a Macau bank accused by Washington of laundering money for the DPRK. The National Federation of Fisheries Cooperation (NFFC), a bank specializing in transactions with fishermen, severed ties with Banco Delta Asia (BDA) last week, notifying the Macau bank on Friday. Korea Exchange Bank (KEB), controlled by a US equity fund, said last week that it had terminated all transactions with the BDA for the same reason. Officials at Shinhan Bank, another ROK bank, said they too were considering terminating ties with the Macau bank. The US Treasury in September halted all dealings between the Macau bank. The United States has also urged its allies to join its crackdown on the DPRK's alleged illicit financial activities. ("SOUTH KOREA BANKS BACK US ON NORTH KOREA SANCTIONS", 2009-02-09)

A SERIES OF ARMED ATTACKS ON DPRK BORDER POSTS

Donga Ilbo, 7 February 2006

Unidentified armed men carried out a series of attacks on North Korean border guards along the country's border with China right before the lunar  New Year, according to North Korean sources. The sources also claimed that some of the unidentified armed men who conducted the attacks carried  firearms and showed signs of organized movement, which has piqued curiosity as to their identity.

According to North Korean sources, on the night of January 28, a border guard in Onsong County, North Hamgyong Province, spotted several men crossing the Tumen River from Kaishantun, China, and tried to arrest them. However, there was a scuffle between the border guard and the unidentified men, ending in the death of the guard who was stabbed 38 times.

Although it is a rule to stand guard in pairs, the senior guard apparently went to have a drink alone, leaving the other to his fate. When the scuffle grew loud, guards from other posts several hundred meters away dashed out and a chase ensued. The panicking men jettisoned their bags and started running back to China. Three disassembled rifles, ammunition, a camcorder, and a cell phone were found inside the abandoned bags, North Korean sources claim. Specific details such as the types of rifles are unknown.

At around the same time, in Hoeryong City, 40km away from the above incident, several unidentified men crossed the Tumen River, fired their weapons at a North Korean border guard post, and returned to China. It is reported that North Korean border troops did not return fire. Similar cases have also been reported in neighboring Musan County and one other unnamed location.

In the past, there have been cases of armed North Korean soldiers crossing the border into China and engaging in robbery. Last January 17, eight armed North Korean soldiers attacked the Yangsujin mine in Tumen City inside Yanbian Korean Autonomous Prefecture, resulting in one dead soldier and three arrests. Nevertheless, it is unprecedented to have armed men infiltrating and attacking the heavily defended North Korean territory. A North Korean response is predicted.

North Korean sources say that North Korean authorities consider this the work of a dissident organization composed mainly of defectors who are emulating the June 1937 Battle of Pochonbo. In his memoirs titled: "With the Century," former North Korean Leader Kim Il Sung wrote, "The goal of the Pochonbo battle was to create the sound of gunshots in Korea and let everyone know the existence of an armed struggle."

Inside North Korea, rumors that the attacks were launched by defectors who went to South Korea are already spreading. Some claim that they were launched by defectors unable to live well in South Korea. Other rumors claim the attacks are the work of forces trying to strain North Korea-China relations after Chairman Kim Jong Il's visit to China.

Pong Su crew ignorant of cargo, says defence

By Peter Gregory, August 9, 2005

The captain of the North Korean ship Pong Su was duped by drug smugglers who used a bogus charter to bring heroin to Australia, a Supreme Court jury heard yesterday. Ian Hayden, representing Man Sun Song, 65, said the ship was chartered by smugglers using the name of a defunct Malaysian company. He said a conman told a customs agent he wanted to use the Pong Su to export BMW and four-wheel-drive vehicles from Melbourne to Malaysia. But two drug importers, posing as charterers' representatives, boarded the ship in China, he said.

The ship was stopped off Boggaley Creek, near Lorne, on charterers' orders, and the captain acted in good faith in following instructions, Mr Hayden said. "He didn't have an understanding … (about) what we all know now, that it was in fact a sting and it was a bogus charter," he said.

Song and three other senior crew members have pleaded not guilty to aiding and abetting heroin importation. The three other accused are the Pong Su political secretary Dong Song Choi, 61, chief mate Man Jin Ri, 51, and chief engineer Ju Chon Ri, 51.

AdvertisementProsecutor John Champion, SC, has told the jurors that two non-crew members headed for shore on April 15, 2003, in a rubber dinghy with the heroin. He said one drowned and the other was arrested, along with three other men from a "shore party" who came to collect the heroin.

Yesterday, John O'Sullivan, for Choi, said he had a purely political role on the ship, reinforcing the Communist Party line. Nick Papas, for Man Ri, said there was no evidence he knew narcotics were being imported. Stephen Russell, for Ju Ri, said the case against him was based on guesswork and speculation.

That Pong in the Bay is From a Ship Under a Cloud

By Ben Hills, November 8, 2004

In Snails Bay, a quiet corner of Sydney Harbour off the Balmain peninsula, a red and black-hulled freighter bobs at its moorings, surrounded by a cordon of flotation buoys.

Police and Customs allege that it is, in fact, a ship of shame. The Pong Su, they say, was used to smuggle the largest shipment of drugs ever seized in Victoria - 125 kilograms of exceptionally pure heroin with a street value of $164 million. Another 25 kilograms of heroin are believed to have been lost at sea, and the body of one alleged smuggler washed up on a beach.

The Commonwealth wants to get rid of the ship, but can't because - lawyers argue - it is a crucial piece of evidence in a huge drug-smuggling case which is not expected to begin in Melbourne until at least next February. Eight people - the ship's captain, chief engineer, chief mate, political commissar and a "shore party" of four - are to stand trial.

Peter Faris, QC, the former head of the National Crime Authority who is representing Captain Song Man-sun, has inspected the ship and says its layout may be important to the defence. He wants the jury to look around before it is sold or scrapped.

Early on, the Commonwealth Director of Public Prosecutions wrote to the ship's owners, the Pong Su Shipping Company of Pyongyang, telling the company it would be responsible for the costs of maintaining the ship, including having a marine engineer on board 24 hours a day.

However, a director of the company, Jon Hak-bom, refused. "Why we must pay?" he was quoted as saying during a visit to Melbourne last year. "If they give back ship we pay. Very much money is lost while she sleeps in Sydney ... we want ship back, and crew." As for the allegations that the Pong Su was a drug-runner, Mr Jon said: "I have never seen any drug in all my life. Our country not allow drugs."

Someone else who is unhappy that the Pong Su is rusting away in Snails Bay is retired Balmain ship's captain Gerry Seymour. Mr Seymour represents a syndicate of Vietnamese businessmen who want to take the Pong Su off the Government's hands. Earlier this year they organised a bank guarantee for $250,000 to buy the Pong Su and sail her away to be scrapped. However, the offer was snubbed and Mr Seymour was told not to bother making another one. 

"It's an absolute disgrace," he said. "It's costing the taxpayer an enormous amount to have her sitting there, the ship is deteriorating and losing value every day, and she is a pollution hazard." The argument is due back in the Victorian Supreme Court next Monday. Until then, the only people happy with the Pong Su are those with the marine engineering company which has that $2596.36-a-day contract to look after it.   

Pong Su crew members deported

August 3, 2004, The Age

Australian authorities have deported 18 North Korean crew members from an alleged drug-running freighter seized last year after a four-day chase off the Australian coast. But eight crew of the Tuvalu-registered Pong Su remained in Australia to face charges and further investigation, the Australian Federal Police (AFP) said on Tuesday. "We are not proceeding with charges against 18 of them," an AFP spokesman said. 

It is understood the immigration department sent the men back to North Korea on June 24. Pong Su captain Song Man Sun and three others have pleaded not guilty to charges of aiding and abetting the importation of heroin, while investigations are continuing into four other crew members. 

The Pong Su was seized after a four-day chase up the east Australian coast in April last year. Blocks of heroin, allegedly supplied from the Pong Su, were found in cars near the Victorian coastal town of Lorne. The AFP has alleged the drugs were loaded on to the Pong Su at the North Korean port of Nampo. Last month, two defectors told ABC television that the North Korean government was involved in the shipment of drugs, including those allegedly linked to the Pong Su.

Jumping to conclusions

By Martin Chulov, April 22, 2004

EXHIBIT A in the court of government opinion sits at anchor in a back stretch of Sydney Harbour, oil slowly seeping from its hull and the bill to keep it there nudging $1 million.

The Pong Su is more than the pivotal piece of evidence in an alleged state-sponsored drug-running conspiracy, it has also emerged as another symbol of how readily political conclusions can be drawn – despite the absence of evidence to back them. 

One year ago, almost to the day, the Pong Su and its crew of 30 North Koreans was boarded and seized by the Special Air Service and police off the NSW central coast. Left in its wake, off the Victorian coastal town of Lorne, was 125kg of heroin and a whole lot of intrigue. 

What was a modified North Korean freighter and its crew doing this far south? And who sent it? The questions – and answers – resonated around Canberra and all the way to a White House on a war footing. 

"The ship is North Korean-owned," said Foreign Minister Alexander Downer days after the Pong Su had been escorted into Sydney Harbour. "North Korea is a socialist state, there is no private enterprise in North Korea. We are very concerned there could be any association between North Korea and drug trafficking. 

"We are laying down some markers to North Korea today that we are very concerned about this, bearing in mind that North Korea is a totalitarian state and there has been an official of the Korean Workers Party aboard the ship." 

Downer stopped short of a direct accusation, in favour of a where-there's-smoke-there's-fire position. The US, however, went further. 

At the time of the Pong Su's interception, the Bush administration had not long tagged Pyongyang as the third arm in the axis of evil trilogy alongside Iraq and Iran. Dictator Kim Jong-il was galvanising his nuclear program and bankrolling his ambitions through criminal enterprise, the US alleged. 

The branding of North Korea as a terrorist threat was a central platform of the US case to go to war with another alleged terrorist state, Iraq – and to keep a surly eye on Iran. 

Briefed by the Australian Government and its agencies, US Secretary of State Colin Powell said of the Pong Su and its cargo: "With respect to nuclear weapons programs as well as proliferation activities and other activities of the regime, such as the drug trafficking that they do . . . if you take note of the ship that the Australians stopped not too long ago. These kinds of behaviour will not help the people of North Korea come out of the serious economic difficulties that they find themselves in." 

Soon after the ship was seized, the 30 crew members were flown to Melbourne, where they were jailed awaiting trial on heroin-trafficking charges, which carry sentences of 20 years to life imprisonment. 

Earlier this year during a court hearing, Peter Faris QC, amid cross examination of six of the defendants on trial, asked Australian Federal Police agent Damien Appleby: "But you are not saying that this is an enterprise of the North Korean Government as such, are you?" Appleby replied: "No." 

Faris continued: "So without putting too fine a point on it, you would almost say that this was a true example of private enterprise in North Korea?" 

Appleby's answer was instructive: "My own view on it is it was just organised crime. We have got no evidence of any government involvement." 

It was a significant blow to the position of both governments, but it strangely slipped by unnoticed. 

The AFP would not elaborate yesterday, and with the Pong Su's many defendants still before various courts and commissions, they are unlikely to change their tune soon. Downer's office would say only: "Obviously what happened with the Pong Su was of concern to Australia, but we just have to let it all run its course now." 

However, the evidence given by Appleby, which came after 10 months of inquiries in Australia and abroad, shoots a hole in the positions held since the ship's seizure by Australia and the US. Since Powell's remarks in July last year, his department's view had become even more entrenched. 

In March, it released the International Control Narcotics Strategy report, which stated: "The Pong Su seizure and numerous drug-smuggling incidents linked to North Korea over the past several decades reflect official involvement in the trafficking of [drugs] for profit and make it highly likely, but not certain, that Pyongyang is trading narcotic drugs for profit as state policy." The findings were in direct contrast to those of the lead investigating agency, the AFP, and the intelligence assessments of ASIS and the Defence Intelligence Organisation, which had spent the past year examining the ship's mysterious journey through the Gulf of Thailand, the South China Sea, the Indian Ocean, the Southern Ocean and, finally, the tempestuous waters of the Tasman. 

Yesterday, on the eve of a fresh application for the Pong Su's captain, first mate and chief engineer to be removed from jail and housed within the confines of the North Korean embassy in Canberra, Faris railed on the political imperatives that surrounded his clients' capture. 

"Australian authorities got over-excited and they jumped to the wrong conclusion – that they had a North Korean ship delivering heroin to Australia on behalf of Pyongyang," Faris said. "It was certainly what the US Government wanted to hear because they have used this any number of times as evidence of North Korean conduct. And had it been true it would have been a great coup for Australia in the eyes of America. The only problem with that is it isn't true." 

For the third time in as many months, the interaction between the Australian and US governments and their intelligence agencies has been called directly into question. But, unlike the imbroglio surrounding Iraq's missing weapons of mass destruction, the Pong Su case is not so much an allegation of doctoring the evidence to suit an agenda. It is a suggestion that governments ignored the evidence that was placed before them – or, worse, jumped to politically loaded conclusions without the benefit of evidence. 

"If this is the sort of intelligence that governments act on, you can see how pathetic intelligence services can be," Faris said. In opposing the crew members' bail application, Appleby told the court the applicants posed an unacceptable risk of flight. 

"They have tried to flee in the past . . . on the ship for four days when it was clear that they were required to return to Australia," he said. "I have concerns about it [the cash surety] coming from them [the employer]. The employer is a suspect in this investigation." 

Many questions still need to be answered about the Pong Su's journey. Chief among them are why the 3000-tonne freighter was registered in the Pacific Island of Tuvalu and who were the organised criminal figures who dispatched it. Inquiries so far have pointed to southern China, a familiar smuggling route for high-grade heroin of the calibre dumped overboard from the freighter off the coast of Lorne. 

Then there is what to do with the 27 crew members who were earlier this month released from court, only to be rounded up again – this time by the organised crime-fighting tsars, the Australian Crime Commission, which plans to keep them here while it explores the same issues covered by the federal police investigation and their appearances in court. 

According to Faris, the crew is unlikely to co-operate with the ACC, wanting instead to return home as soon as possible. "They can then be charged with refusing to give evidence, then convicted and fined, and given another court attendance notice," Faris said. "They could be here forever." 

Pong Su crew face questioning

By Chee Chee Leung, April 9, 2004

The Australian Crime Commission is expected to question the crew of a North Korean "heroin ship" after a judge dismissed an attempt to block the examination.

The 27 crew members of the freighter Pong Su had been accused of helping to import heroin worth $164 million, but were discharged last month because of insufficient evidence.

They have since been awaiting deportation at South Australia's Baxter detention centre, where they now face questioning as part of the crime commission's investigation into South-East Asian organised crime.

The Pong Su is alleged to have delivered 125 kilograms of heroin to Australia last year, the largest shipment of heroin yet seized in Victoria. The ship's captain and six others - including an on-shore party - have been committed for trial.

Lawyers for the crew members had applied to the Federal Court to prevent the crime commission from questioning the men, saying it would prejudice or interfere with federal judicial power. They said the investigation was intended to gather evidence against those committed to stand trial, and would take advantage of procedures not available in court. It was also alleged that questioning after their discharge was improper. 

But in his judgement, Justice Ron Merkel said he was not satisfied with these arguments. He dismissed the application and ordered costs against the crew. 

He said the commission's plan to question the crew was part of a lawfully conducted special investigation and would not give the Director of Public Prosecutions an advantage in prosecuting the accused.

The crew's solicitor, Jack Dalziel, said an appeal was being considered. He said crew members had been discharged from prison and felt insulted that they should have to submit to further questioning. "Certainly the situation that these people find themselves in does not just affect foreign nationals. It could happen to any person in Australia," Mr Dalziel said. 

Cleared Pong Su crew members may sue

A Melbourne lawyer representing 27 North Koreans cleared over drug smuggling allegations say they may sue the Australian Government. It is alleged 125 kilograms of heroin was smuggled onto the southern Victorian coast from North Korean freighter, the Pong Su last April. Seven men, including the Pong Su's master, have been ordered to stand trial but charges against 27 crew members have been dismissed.

The crew members' lawyer, Rainer Ellinghaus, says they may seek damages for inappropriate detention. "We're looking at the issue of what action can be brought by them, what damages we might be able to seek on the basis that they shouldn't have been kept in custody for the period of time in which they've been kept in custody," he said. "On the basis that it was possible for the agencies involved to determine the fact that there was no evidence against them since very shortly after their arrival."

Seven to face trial over Pong Su heroin haul

Seven men accused of smuggling heroin into Victoria on board a North Korean cargo ship have been ordered to stand trial. Charges against 27 of the ship's crew were dismissed. It is alleged 125 kilograms of heroin was smuggled into Victoria onboard the North Korean freighter, Pong Su, in April last year.

A committal hearing in the Melbourne Magistrates Court was told two men brought the drugs ashore near Lorne in southern Victoria but one drowned during the operation. Magistrate Duncan Reynolds has committed two of the men who were allegedly waiting on shore for the drugs to stand trial on several charges, including possessing a prohibited import. A third alleged member of the shore party was committed earlier.

The men who allegedly brought the drugs ashore - the Pong Su's master, chief mate and chief engineer - have been ordered to stand trial for charges including aiding and abetting the smuggling. Mr Reynolds said there was not enough evidence to support convictions against the other 27 crew members and dismissed their charges.

Outside court, the crew's lawyer, Jack Dalziel, said the men will now be held at an immigration detention centre. "We'll find out this afternoon how soon it is before they go home," he said. "Basically they're obliged to send them home as soon as practicable. "They're just looking forward to going home and seeing their families. We've spoken about this at length with them and it's been expected that they would be discharged. "Charges against them have been very weak since the outset."

Mr Dalziel said the men were charged without being questioned. "They've been sailing around the world, they've been pulled off a ship, put into custody in a maximum security prison in Australia," he said. "They've maintained from the outset they had nothing to do with it and police in other words assumed they were guilty before they even spoke with them and when they do get their day in court, as they call it, you'll certainly hear that they have had no involvement in this matter."

U.S. Says North Korea Dealing in Illegal Drugs

3/5/2004. U.S. officials say that North Korea is probably dealing in illegal drugs as a matter of state policy, Reuters reported March 2. The comments, which were included in the State Department's International Narcotics Control Strategy Report, address suspicions of the Bush administration that the North Korean government is involved in heroin and methamphetamine trafficking for profit. Among the evidence cited by the report was Australia's seizure of the North Korean ship Pong Su last April. The ship was carrying 275 pounds of heroin to Australia.

The report also cited an unnamed defector who said North Korean authorities order the cultivation of poppy, as well as heroin and methamphetamine production. "State trading of narcotics is a conspiracy between officials at the highest levels of the ruling party/government and their subordinates to cultivate, manufacture, and/or traffic narcotics with impunity through the use of, but not limited to, state-owned assets," the report said.

The report further stated that, "Law-enforcement cases over the years have not only clearly established that North Korean diplomats, military officers, and other party/government officials have been involved in the smuggling of narcotics, but also that state-owned assets, particularly ships, have been used to facilitate and support international drug-trafficking ventures."  

US ATTACKS NORTH KOREA'S "STATE" DRUGS TRAFFICKING POLICY

Agence France-Presse reported that the US said its "axis of evil" foe the DPRK was almost certainly running state-sanctioned drugs trafficking operations for profit. The seizure last year of a DPRK ship off Australia implicated in drugs trafficking and a string of other incidents "reflect official involvement in the trafficking of illicit narcotics for profit," the department said. Such evidence makes it "highly likely, but not certain, that the DPRK is trading narcotic drugs for profit as state policy," the department said in its annual International Narcotics Control Strategy report. 

The DPRK ship, the Pong Su, was seized by Australian police in April 2003 after apparently delivering 125 kilograms of heroin to criminals at an isolated beach, the report said. Another incident, which the report connected to the DPRK came in Pusan, ROK, last June when customs officers grabbed 50 kilograms (100 pounds) of methamphetamine from a PRC vessel which had stopped at the port of Najin, DPRK. ("US ATTACKS NORTH KOREA'S "STATE" DRUGS TRAFFICKING POLICY," 03/02/04)

NORTH KOREA CLAIMS DRUG-SMUGGLING SHIP 'NON-GOVERNMENTAL'

Ship Fouls Diplomatic Waters

by Fleur Anderson, The Courier-Mail (03 May 2003)

A VISIBLY angry North Korean ambassador yesterday was summoned to explain his government's alleged link with the captured heroin ship Pong Su. The discovery of a North Korean government official on board the Pong Su, the state-owned ship captured with $80 million worth of heroin, has strained relations between Australia and the totalitarian regime. 

Foreign Minister Alexander Downer said it would be a "complete outrage" if a foreign government was proved to be trafficking drugs into Australia. "We are very concerned that there could be any association between North Korea and trafficking in order to raise money," he said. "It is important they understand that what is completely beyond the limits for Australia is for another country to be trafficking drugs into our country and trying to sell them to our young people to make money for their economy."  

North Korean ambassador Chon Jae Hong was summoned by Foreign Affairs and Trade Department officials in Canberra. A day earlier, US Customs Commissioner Robert Bonner said officials in the North Korean capital of Pyongyang were behind the plot to smuggle 50kg of heroin into Australia on the ship. Mr Chon said yesterday he would not answer "such abnormal" questions – whether the embassy was accused of drug trafficking or would be expelled from Australia. "You should ask your foreign minister," he said when asked what had been discussed at the meeting. 

At the North Korean Embassy, a neat two-storey house in a leafy suburb, a North Korean diplomat said: "We have already expressed to Foreign Affairs their views are wrong." 

The captain of the Pong Su and three remaining crew members faced a Melbourne court yesterday. The rest of the crew, 26 people, and four people on land believed to be waiting to receive the shipment, appeared in court last month. One of the crew is an official of the ruling Korean Workers Party. The captured freighter is owned by the government because there is no private enterprise in North Korea. 

"There have been problems historically where North Koreans have been involved in drug trafficking in other parts of the world," Mr Downer said. "We at this stage don't know the details of what links there may have been between the Korean Workers Party, which is the governing party of North Korea, and the actual trafficking that's been taking place here." 

Opposition foreign affairs spokesman Kevin Rudd said Mr Downer should explain whether the Australian Government's "real outrage" at North Korea meant breaking diplomatic relations, expelling the North Korean ambassador or closing the embassy in Australia. He asked when Mr Downer would be able to reveal results of the Pong Su investigation, given the matter was clouded in secrecy and given it dealt with a regime engaged in nuclear brinkmanship with the US. 

A spokesman for Mr Downer said the Federal Government would not speculate on the issue. 

OFFICIAL ON DRUGS SHIP

by DANIEL FOGARTY and AAP, Saturday, May 3

A SENIOR North Korean government official was on board the ship linked to an $80 million heroin bust in Lorne last month, Foreign Minister Alexander Downer revealed yesterday. Mr Downer summoned the North Korean Ambassador to the Department of Foreign Affairs and Trade to express concern that the Pong Su was state-owned and had a ruling party official on board.

``We undersstand . . . one of the senior officials from the Korean Workers' Party was on the ship and we are very concerned that there could be any association between North Korea and drug trafficking in order to raise money,'' Mr Downer said. 

More than two weeks after the ship was impounded for its suspected role in Victoria's largest heroin bust, new developments unfolded yesterday:

FEDERAL Police and Customs agents scoured the coastline at Wye River in an effort to complete investigations;

THE captain and three remaining crew members of the Pong Su faced a Melbourne court on charges of assisting the importation of a commercial quantity of heroin estimated at 50 kilograms; and

UNITED States Secretary of State Colin Powell seized on the arrests, saying they were evidence of state-organised drug trafficking.

``North Korea is exporting not only missiles. But as we saw in an Australian bust the other day - drugs,'' Mr Powell said. 

In a Melbourne court yesterday the drug ship captain, Song Man Sun, 62, and three of his crew made a brief appearance. The three crew members were extradited from Sydney after treatment for suspected tuberculous along with their captain who was hospitalised after a possible heart attack.

Twenty-six other crew members of the Pong Su along with a four-man party based on shore to receive the heroin were remanded in Melbourne last month. The captain and three crew members - Hong Jong Dok, 25, Mun In Son, 42, and Ri Hong Pil, 42, all North Koreans - will face court along with their 26 colleagues on July 11.

Also yesterday, Federal Police finally cleared the name of a Melbourne man who was wrongly arrested at gunpoint in Mercer Street during last month's undercover sting. Federal Police said retired lawyer Peter Van Lierop was not a suspect and was in no way involved with the drug trafficking.

Australia Concerned Over North Korea Link to Drug Trafficking 

by Fergus Maguire, Canberra, Australia, May 2 (Bloomberg) 

The Australian Government has accused the North Korean government of a possible link with a drug-smuggling ship caught with $38 million of heroin. Foreign Minister Alexander Downer summoned the North Korean ambassador Chon Jae-Hong to the Department of Foreign Affairs in Canberra today to explain his country's role in the alleged smuggling into Australia of 110 pounds of heroin last month. 

Australian police arrested 30 crew on the North Korean ship Pong Su, which is under guard in Sydney after being spotted trying to off- load heroin to a fishing boat off the southern Australian coast. One of the crew was a member of the Korean Workers' Party, the ruling party of North Korea, Downer said. 

The Australian Navy and police boats forced the 4000-tonne Pong Su into Sydney Harbor after it was chased for four days and several hundred miles along Australia's east coast after being spotted by police off-loading the heroin. 

``We are very concerned that there could be any association between North Korea and trafficking in order to raise money,'' Downer told reporters in Adelaide. ``Whilst we can't prove that the (North Korean) government made the decision to send the ship and sell drugs into Australia to make money, we're concerned that instrumentalities of the government may have been involved in this. 

``There have been problems historically where North Koreans have been involved in drug trafficking in other parts of the world. ``It would be a matter of very great outrage to us if evidence continues to point to elements of the Korean government having knowledge of this.'' 

Australia Charges N. Korean Ship's Crew in Drug Case

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