The DPRK is capitalist when it wants to be: the story of Drugs Incorporated (Parts 1&2)

The profound crisis of widespread drug usage in North Korea was recently covered by South Korean press. Soon afterwards, several defectors came forward to say that DPRK’s Central Party officials, the People’s Army, the National Defence Agency and other such official institutions were manufacturing drugs and selling them directly in order to obtain foreign currency. However, official DPRK involvement in the drugs trade has been grossly exaggerated, and such accounts provide a false picture of the way the regime operates: Kim Jong-il was a smart criminal, and was never carelessly public about the illegal activities that went on with his blessing.

The DPRK regime conducts its drugs trade clandestinely, through what seems at first glance a legitimate company. Situated Between Pyongyang’s Botong-gang Hotel and Chungru-gwan is a gigantic building called ‘Ryugyong’. It is the home of Ryugyong Corporation, which trades under the auspices of the Party’s Foreign Relations Department. Its Director is a man named Son Geon-ha.

With the absolute support and full protection of the regime, Ryugyong Corporation oversees the DPRK drug industry and its production chain: from cultivation of opium plants to point-of-sale. The land that Ryugyong Corporation holds for the purposes of opium production alone is the size of one English county. In order to conceal the illegal nature of their officially approved activities, Ryugyong Corporation operates its farms in two provinces, South Pyongan and North Pyongan; it also employs a principle whereby each farm is one small cooperative. This division of labour is aimed at concealing opium cultivation from satellite imagery, among other reasons.

In 2001, Ryugyong imported specialist equipment through Hong Kong to help with quality enhancement and mass production strategies.

Ryugyong paid tens of thousands of dollars in hard foreign currency to Kim Jong-il every year. In return, Director Son Geon-ha received a Medal for Heroic Achievements on Feb 16, 2003.

The Sons are a well known family among the North Korean merchant and business classes. Son Geon-ha’s elder brother, Son Gyun-chul, was the first to initiate property development and associated investment schemes in a country where all land belonged to the State. Son Geon-ha’s wife, Lee Hae-soon, was also a pioneer. Previously, any department store which received foreign currency from its customers, such as Nakwon and Daesung, were wholly operated by the State. Lee was the first private individual in the DPRK to open a foreign-currency department store: Seogyong in Pyongyang-joongu station, Changwang.

Building on from the success of Seogyong, the family opened other department stores in Shinwon-dong in Botong-gang and in Boksae-dong, among other locations. They may be called the tycoons of North Korea, and have been at the helm of North Korean economic development since proposal 7.1 was passed in 2001 and Kim Jong-il confirmed his absolute faith in the family.

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How was such privilege granted to the Son family and how was their wealth built up? In North Korea, there are two types of elite. One is based on power and the other on capital. Those who belong to the latter type of elite follow in the tradition of businessmen who worked with the backing of pro-DPRK ethnic Koreans living in Japan, or were ‘Overseas Agents’ dispatched by the regime. Currently, there are very few pro-DPRK ethnic Koreans left in Japan. Consequently, the elite-capital class is comprised now of agents posted abroad and their family members.

Director Son of Ryugyong Corporation falls under the latter category. In the late 50s, his father received US$24,000 and was dispatched to Macau as an Overseas Agent. His assignment was to create a hangout for the regime’s top members outside of North Korea. To this end, he gained permanent residency in Macau and invested his assets in the gambling industry. He found great financial success and received a medal from the DPRK regime as the most successful Overseas Agent in the history of the Foreign Relations Department.

Son’s father had two sons and one daughter. Because of a so-called ‘hostage policy’ whereby the regime keeps other family members under strict guard in North Korea whenever another family member is posted abroad, he was only allowed to take his eldest son Son Gyong-chul with him to Macau. When Socialism began to collapse in the Eastern Bloc, Office 39 – responsible for international trade – was diminished to insignificance. In its place, the covert Trade Department of Kim Jong-il’s Office 38 began to play an influential role. It was around this time that Kim Jong-il set his eyes on the foreign businesses set up by Kim Il-sung’s Overseas Agents.

Consequently, businesses fell out of private hands and into the hands of the State; the DPRK’s former Overseas Agents eventually wrote to Kim Il-sung in protest. However, the Overseas Agent who instigated this protest died under suspicious circumstances. In the midst of ensuing violence and chaos, the first Overseas Agent who changed loyalties and reported for duty to Kim Jong-il in the renewed capacity of State Agent was the father of Director Son.

To cement the relationship, Son offered foreign currency gifts to Kim Jong-il. Moreover, he decided to appoint his son-in-law as his successor in lieu of his own sons: the son-in-law was a State Agent who had impeccable Party credentials, and had married into the family at the behest of the Party. It was with this deed that Son earned the absolute faith of Kim Jong-il, and received his second State medal.

In 1995 however, this son-in-law was murdered by a gang member in Macau. Son’s eldest son Son Gyong-chul was recalled to Pyongyang as the prime suspect. Kim Jong-il told him that if he did not interfere in the sphere of Macau and left the business interests there to be handled by his younger brother Son Geon-ha, he would receive in exchange the exclusive privilege to preside over all business related activities in North Korea.

Son Gyung-chul accepted this proposal. He was the first to introduce the following property development model to North Korea, whereby the State provided the land and individuals provided the capital. The profits were split 60 / 40. In a socialist country which prohibits ownership of private property, the first luxury condo sold for the price of $50,000 per unit. This building is located in Sunnae-dong 5-ban opposite the Chosun Computer Center, in Pyongyang Mangyongdae. When I defected in 2004, Son Gyung-chul was still using the 8th and 9th floors as his personal flat.

Kim Jong-il, after seizing the business capital built up by an Overseas Agent over decades, had made Son Geon-ha – who was educated in North Korea – its sole heir. In North Korea, there are extreme business regulations – companies may only sell those products in certain numbers they are registered for. Ryugyong Corporation is an exception. To ease its drugs trade, it has no import or export quotas imposed on it.

The criminal activities of Ryugyong Corporation have manifold impact. On the international level, foreign criminal groups – and even the DPRK’s own embassies and official companies – are used as fronts for money laundering.

On the domestic level, the northern parts of the country, especially around South and North Pyongan, are witnessing a profound crisis of addiction. The regime runs multiple cultivation areas in order to hide its crimes, but this makes it easier for ordinary North Koreans to get access to opium. In the belief that individuals aiding the drug production effort will bring increased profits, many households have access to manufacturing equipment. This has only made the problems of addiction worse.