Kim Jong Un Sees Bigger Cash-Cow in Russia Arms Than Embassies

(Bloomberg) -- Leader Kim Jong Un is launching his biggest scaling back of North Korea’s embassies, likely betting he can earn a larger payout in arms deals with the Kremlin than through missions suspected of sending him a cut of their alleged crimes.

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While Kim’s isolated regime has ramped up its diplomatic activity with Russia, official media reports said it shuttered its embassies in Uganda and Angola in October. North Korea’s Foreign Ministry said in a statement posted on its website Friday the move to withdraw and establish diplomatic missions “is being done in accordance with a changing global environment and national diplomatic policies.”

Pyongyang plans to shut its consulate in Hong Kong and more than a dozen diplomatic establishments in Africa and elsewhere, according to Japan’s Yomiuri newspaper, citing a source familiar with North Korea’s internal affairs that it did not name. Its embassy in Spain is among the targeted closures, Yonhap News Agency of South Korea reported.

South Korea’s Unification Ministry believes Kim is running out of money to keep all its diplomatic facilities operating due to global sanctions draining his coffers of cash, Yonhap reported. Pyongyang currently has 47 embassies, three consulates, and three representative offices, according to the ministry.

North Korea’s embassies have occupied an unusual place in the diplomatic world with the US, UK and others accusing many of them of hatching illegal financial schemes to fund their operations, procure luxury goods for the leaders in Pyongyang and send back cash generated through nefarious means.

North Korea regularly denies any accusations made by the US and its partners of wrongdoing.

The closures come as North Korea appears to have stepped up a lucrative business in sending munitions to Russia to help in its assault on Ukraine.

“The North Koreas are cost-benefit people,” said King Mallory, director of the Rand Center for Global Risk and Security. He added the embassies are marginal operations in terms of net cash flows to North Korea and less essential to Kim now than his deals with Russia.

Since August, North Korea has sent more than 1 million artillery shells for Putin’s war machine, South Korean lawmaker Yoo Sang-bum said Wednesday after attending a briefing by the country’s spy agency. About 2,000 containers of military equipment have been sent since September and shipments may have also included short-range ballistic missiles and portable anti-aircraft missiles, Yonhap reported, citing a senior military official it did not name.

High demand from Russia’s war on Ukraine has driven up global artillery prices, with the 155 mm shells used by NATO forces priced at about $3,000 each. If North Korea sold shells at similar prices, the value of its shipments to Russia would exceed $3 billion, more than 10% of North Korea’s economy, based on an estimate of its annual output by South Korea’s central bank.

North Korea holds some of the largest stores of munitions and rockets that are interoperable with the Soviet-era weaponry Russia has sent to the frontlines in Ukraine. Cooperation between Pyongyang and Moscow has increased as the two have been pushed into global isolation.

Russian Defense Minister Sergei Shoigu made a rare trip to North Korea in late July to join in celebrations to mark the end of fighting in the 1950-1953 Korean War and was given a tour of the country’s latest weaponry by Kim. Soon after that, Russia sent a VIP military jet to Pyongyang, stoking concerns that North Korea was about to embark on a major arms transfer with Russia.

Kim then met Putin in Russia in September and Foreign Minister Sergei Lavrov went to Pyongyang in October, making his first trip there in five years.

“You don’t have Shoigu, the foreign minister and the president of Russia courting Kim Jong Un for peanuts,” Mallory said.

Smuggled Cigarettes

Russia is likely offering Kim a package of assistance that may include cash, access to its banking systems, technology transfers and help in procuring components overseas that could be used to build weapons, he said.

This is probably a far better deal than what he gets from embassies.

The world first got a glimpse of some the activities in 1976 when Denmark, Norway, Sweden and Finland accused a ring of North Korean diplomats of illegally smuggling duty-free cigarettes and liquor for sale on the retail market, as well as trying to traffic hashish.

In places such as Zimbabwe, Zambia and Angola, North Korean officials were suspected of using their diplomatic pouches and other means to traffic items such as rhino horn and elephant tusks, according to a report by UK think tank the Royal United Services Institute for Defence and Security Studies.

A United National Panel of Experts’ report on sanctions evasion released in September said embassies are offering diplomatic cover for front companies to engage in insurance fraud.

The practice has been going on for decades. Defector Kim Kwang Jin, who worked as a manager for Korea National Insurance Corp. told the Washington Post in 2009 about using his firm for insurance fraud. On one occasion the proceeds were collected and a cut sent to former leader Kim Jong Il in the form of a birthday present that consisted of two heavy-duty duffel bags stuffed with $20 million in cash.

Kim Jong Un’s decision to close embassies is probably more about difficulties in financing diplomatic activities rather than Pyongyang’s shifting foreign policy or waning interest in diplomatic engagement, according to Rachel Minyoung Lee, a regional issues manager at the Vienna-based Open Nuclear Network.

“In fact, because of its confrontational relationship with the US, one could argue that it now more than ever needs to strengthen and expand ties with like-minded countries that are willing to stand with North Korea on the anti-US front,” said Lee, who worked as an analyst for the CIA’s Open Source Enterprise for almost two decades.

--With assistance from Shinhye Kang and Sam Kim.

(Updates with North Korean statement in second paragraph.)

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