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The Rise of Lil' Kim

The best way to understand North Korea is to think of it not as a traditional nation-state, but as a nuclear-armed organized crime family, albeit one that will soon find itself in need of a new boss. Like any successful gang, the Kim Jong-Il crew is involved in several different lines of business:

Illicit drugs: Factories in the North manufacture amphetamines and refine opium, and North Korean diplomats have taken advantage of their official status to assist in the smuggling and distribution of narcotics.

Counterfeiting: North Korean entities produce fake versions of popular pharmaceuticals (Viagra is apparently a top earner). Phony Marlboro and Camel cigarettes are also big sellers across Asia. The North employs some of the world’s best forgers and provides them with state-of-the-art machinery with which to produce near-perfect knock-offs of American $50 and $100 bills. The precise quantity of these “supernotes” in circulation worldwide is unknown, but in the past 20 years the U.S. Secret Service has confiscated some $63 million worth.

Arms dealing: Though it has virtually no legitimate commercial exports (aside from cement, fish, mushrooms, and a few minerals) North Korea is more than happy to sell arms to anyone with the cash to buy them. Because they are desperate and willing to pay top dollar, governments being sanctioned or embargoed by the rest of the international community are especially good customers. Over the years, Pyongyang has sold everything from small arms to submarines, tanks, and ballistic missiles to countries like Iran, Burma, and Congo Brazzaville.

Technology smuggling: As the North’s nuclear program has grown in size and sophistication, so too have concerns that it might sell technology, materials, and even nuclear weapons themselves to other countries and perhaps even directly to terrorists. Illicit nuclear transactions could become an extremely lucrative business for the North; indeed they may already be. In 2007 Israeli planes destroyed a nearly completed nuclear reactor that North Korean entities were secretly helping to build in Syria. How much Pyongyang earned from this project, and whether there may be other, similar ones in the works is not known.

Extortion: Last but not least, North Korea is skilled at the art of the shakedown. Over the years it has learned to use threats, belligerent rhetoric, and occasional violent outbursts to squeeze money, food, and fuel aid out of its neighbors (including South Korea, Japan, and China) while stopping just short of provocations that might justify a military response.

As is true for most crime families, North Korea is a strictly cash business and the revenues from its various illicit activities are jealously controlled by the “boss of all bosses,” Kim Jong-Il himself. The hard currency earned from selling drugs and missiles is either smuggled back directly to the North, where it is managed by the mysterious “Office 39,” or stashed in a handful of overseas banks.

Dollars are the lifeblood of the regime. Without them it would not be able to import the materials and machinery that it still needs to run its nuclear weapons and ballistic missile programs. Like other Mafia dons, Kim Jong-Il uses dollars to finance his extraordinarily lavish lifestyle (yachts, fast cars, villas, expensive liquor, gigantic indoor pools with wave machines). Perhaps most important, Kim has skillfully used money, and the things that money can buy (including not only luxury goods but quality medical care) to reward—and secure the loyalty of—his closest associates.

As my fellow Entanglements blogger Gordon Chang notes, an ailing Kim Jong-Il now appears to be moving belatedly, and hastily, to prepare for the succession of his youngest son, Kim Jong-Un. Assuming that he becomes Korea’s new maximum leader, Kim the Younger will face numerous challenges to his rule; he is still in his twenties, has virtually no known experience in government or the military and has not yet built the reputation for toughness that helped his father intimidate potential challengers.

But North Korea’s new heir apparent will have another, potentially fatal, problem on his hands. Just as he is trying to consolidate his rule, the United States will be implementing tough new financial sanctions that could significantly reduce the quantity of dollars at his disposal. On August 30, 2010 Under Secretary of the Treasury Stuart Levey (the Eliot Ness of today’s struggle against proliferation finance) announced the signing of a new Executive Order specifically targeting a number of trading firms and individuals thought to be at the heart of Pyongyang’s global criminal enterprise. These measures come in response to the North’s recent sinking of a South Korean naval vessel. They are similar to, but more extensive than the financial sanctions that the Bush administration briefly imposed and then unfortunately withdrew in hopes of achieving some kind of deal with the North to stop its nuclear weapons programs.

The new financial sanctions are in addition to ongoing efforts to disrupt drug smuggling, arms dealing and all other cash generating activities in which North Korea is presently engaged. If they work as they are supposed to, they will make it much harder for Kim Jong-Il’s successor not only to earn, but to move, accumulate, and spend hard currency. And that will make it much harder for him to keep his regime together, and perhaps even to stay alive. When the money dries up it will be every man for himself and the devil take the hindmost. There is no honor among thieves and there is not likely to be much among the hardened few in Pyongyang who have lived so well for so long, even as their countrymen have suffered.

Aaron L. Friedberg is a professor of politics and international affairs at Princeton University. His new book, A Contest for Supremacy: China, America and the Struggle for Mastery in Asia, will be published in 2011 by W.W. Norton.