U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

28–241 PDF 2007

S. Hrg. 109–887

NORTH KOREA: ILLICIT ACTIVITY FUNDING

THE REGIME

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

(

(II)

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

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 

GEORGE V. VOINOVICH, Ohio 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

THOMAS CARPER, Delaware 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

KATY FRENCH, Staff Director 

SHEILA MURPHY, Minority Staff Director 

JOHN KILVINGTON, Minority Deputy Staff Director 

LIZ SCRANTON, Chief Clerk 

(III)

C O N T E N T S 

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

(1)

NORTH KOREA: ILLICIT ACTIVITY FUNDING 

THE REGIME 

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 socalled ‘‘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 

2

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 

3

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 blackmarket 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 

4

1The prepared statement of Mr. Prahar appears in the Appendix on page 35. 

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. 

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 curVerDate 0ct 09 2002 11:57 May 14, 2007 Jkt 028241 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 C:\DOCS\28241.TXT SAFFAIRS PsN: PAT
5

rency. 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 

6

1The prepared statement of Mr. Merritt appears in the Appendix on page 49. 

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. 

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. 

7

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. 

8

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 

9

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 

10

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 

11

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’ Partysponsored 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. 

12

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 

13

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 

14

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. 

15

1The prepared statement of Mr. Kim appears in the Appendix on page 52. 

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. 

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. 

16

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 

17

1The prepared statement of Mr. Asher appears in the Appendix on page 57. 

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 buildup in transnational criminal dealings by the DPRK in the previous 

decade. 

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 

18

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,’’ 

19

1The prepared statement of Mr. Downs appears in the Appendix on page 69. 

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. 

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 acVerDate 0ct 09 2002 11:57 May 14, 2007 Jkt 028241 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 C:\DOCS\28241.TXT SAFFAIRS PsN: PAT
20

tivities 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. 

21

1The prepared statement of Mr. Noland appears in the Appendix on page 75. 

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. 

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 

22

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 

23

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 Hamkyungbukdo, 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? 

24

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, noncontrolled 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 

25

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 

26

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. 

27

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 reVerDate 0ct 09 2002 11:57 May 14, 2007 Jkt 028241 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 C:\DOCS\28241.TXT SAFFAIRS PsN: PAT
28

sponsible, 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.] 

(29)

A P P E N D I X 

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 deVerDate 0ct 09 2002 11:57 May 14, 2007 Jkt 028241 PO 00000 Frm 00033 Fmt 6601 Sfmt 6621 C:\DOCS\28241.TXT SAFFAIRS PsN: PAT
30

tailed 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.

31


28241.001
32


28241.002
33


28241.003
34


28241.004
35


28241.005
36


28241.006
37


28241.007
38


28241.008
39


28241.009
40


28241.010
41


28241.011
42


28241.012
43


28241.013
44


28241.014
45


28241.015
46


28241.016
47


28241.017
48


28241.018
49


28241.019
50


28241.020
51


28241.021
52


28241.022
53


28241.023
54


28241.024
55


28241.025
56


28241.026
57


28241.027
58


28241.028
59


28241.029
60


28241.030
61


28241.031
62


28241.032
63


28241.033
64


28241.034
65


28241.035
66


28241.036
67


28241.037
68


28241.038
69


28241.039
70


28241.040
71


28241.041
72


28241.042
73


28241.043
74


28241.044
75


28241.045
76


28241.046
77


28241.047
78


28241.048
79


28241.049
80


28241.050
81


28241.051
82


28241.052
83


28241.053
84


28241.054
85


28241.055
86


28241.056
87


28241.057
88


28241.058
89


28241.059
90


28241.060
91

Æ


28241.061