Kim’s Son: Not Ronery

The producers of South Park hilariously depicted North Korean dictator Kim Jong-Il in their movie Team America: World Police in a musical sequence titled I’m So Ronery. Apparently, that song wouldn’t apply to Kim’s jet-setting son, whom the London Telegraph noted has the kind of latitude denied the subjects of his father’s regime:

The son of Kim Jong-il, North Korea’s reclusive dictator, has been living in five-star luxury in the gambling haven of Macau even as his people starve, according to reports in Hong Kong yesterday.
Kim Jong-nam, 35, was tracked to the Mandarin Oriental Hotel, where he has been staying on and off for three years.
While the international community alternates sanctions on his father for his nuclear weapons programme with economic aid for his starving subjects, the younger Kim has been spotted gambling in Macau’s numerous casinos and eating in local restaurants, according to the South China Morning Post.
Although travel is strictly proscribed for North Korean citizens, Kim Jong-nam has roamed the world.

Apparently, his father isn’t amused by Jong-nam’s lifestyle. He has replaced Jong-Nam in the succession with his half-brother, which might have happened after Jong-nam got caught with a forged passport in Japan five years ago. He told authorities that he wanted to take his own young son to Tokyo Disneyland.
The proximity to Macau sounds somewhat intriguing, however. Kim Jong-Il used a Macau bank as the center of his massive counterfeiting operation that flooded the globe with high-quality fakes of American $100 bills, an operation which resulted in sanctions that Pyongyang wants ended before any other talks on denuclearization can proceed. Jong-nam might be his father’s envoy to the financial world of Macau. It would explain his presence there rather than home in Pyongyang, working in the family business. One would assume that Daddy Kim would cut off his money if he wasn’t doing something useful in Macau, even if he has become something of a dissolute embarrassment to the regime.

You Knew Darned Well I Was A Snake Before You Took Me In

I often think about the wisdom contained in the classic, “The Snake”, about the fatal naiveté of a woman who succoured a snake back to health, only to receive a fatal bite in the end. That parable struck me when I read this story about Lloyds of London balking at paying a £30 million reinsurance judgment to North Korea after agreeing to underwrite under the terms of North Korean law:

North Korea, the last Stalinist dictatorship, is fighting a £30 million legal battle with insurance syndicates at Lloyd’s of London, which accuse it of making fraudulent claims in an attempt to prop up its collapsing economy.
Supporters of North Korea’s claim say that the insurers are trying to renege on a risky contract. It is also suggested that they failed to differentiate between North Korea, one of the most repressive and isolated countries, and South Korea, its rich democratic neighbour, when the contract was signed.
The state-owned Korea National Insurance Corporation (KNIC) is demanding €44 million in a London court from a group of reinsurers, including Lloyd’s syndicates, for damage caused in a catastrophic helicopter crash in 2005.
The North Koreans have supplied exhaustive documentation and their claims have been authenticated by independent loss adjusters and upheld in a North Korean court. But the reinsurers argue that the nature of the regime makes it impossible to trust and that the claim is a fraudulent one intended to bring in desperately needed foreign exchange.
“It’s not possible for the North Korean regime to do anything legitimate,” says Michael Payton, of the law firm Clyde & Co, who is representing a group of reinsurers, including Allianz of Germany. “We are very concerned about the circumstances of the claimed loss.”

To start with, Lloyd’s of London is probably correct in its skepticism. A few weeks ago, I blogged on the scam that Kim Jong-Il was running on insurers in order to gain hard currency, now that the US has shut down their counterfeiting fence. Kim has raked in over $150 million already in insurance fraud, primarily life insurance, because he has control of all of the official agencies that would substantiate any claims. At the time, I warned that the reinsurance market would bear the brunt of Kim’s fraud and suggested that they declare any claim without independent verification as baseless.
And that’s exactly what Lloyd’s intends to do, but unfortunately, their contract forces them to accept North Korean courts as the authority having jurisdiction for any dispute. Why they accepted these terms is a question they have yet to answer, but the fact is that they did, and they have been accepting the premiums for nine years on this policy. Until their client insurer filed the claim, they seem to have been satisfied with the arrangement.
The case sounds ludicrous. The North Korean insurer, KNIC, paid a claim for a helicopter transport company that had supposedly suffered an accident. According to the claim, a helicopter carrying a pregnant mother of triplets from an island without proper medical facilities. On the way back, the helicopter crashed into a warehouse of relief goods intended for the poor, creating a fire that destroyed most of it and presumably killed the pregnant woman and her unborn children. All that’s missing is a dog, and we could have a Lifetime channel movie, or perhaps a country song had it happened down in San Antone.
However, North Korean courts — which LoL contractually accepted as the authority in disputes — upheld the evidence of the loss and demanded Lloyd’s pay the bill. Lloyd’s cashed the checks for the premiums after doing business with North Korea and accepting its laws despite knowing the nature of the regime and their control of the courts. They had to know that they were embracing a snake for a long time before it finally sunk its fangs into LoL’s pocketbook.
This should be an object lesson to any capital firm: deal with dictators at your peril. If for some reason the lure of the business is too much to resist, be sure to write the contract so that your business doesn’t rely on the whim of some kleptocrat looking for any hard cash he can find. If businesses can’t do that, then don’t scold the snake for biting you when the inevitable happens.

Bilateral Talks Produce ‘A Certain Agreement’

North Korea announced that they and the US had reached “a certain agreement” in the lower-level talks between American negotiator Christopher Hill and their envoy, Kim Kye-gwan in Berlin. During the talks, the Kim Jong-Il regime asked what they would get in return for verifiably shutting down their nuclear reactor, and although the answer did not get made public, it apparently pleased the North Koreans:

North Korea has expressed interest in a U.S.-backed proposal that it suspend its nuclear program and allow U.N. inspectors to verify the suspension as an initial step toward dismantling its nuclear capabilities, diplomats said yesterday.
During three days of talks in Berlin that ended yesterday, North Korea’s chief negotiator, Kim Gye-gwan, asked his U.S. counterpart, Christopher R. Hill, what the United States would be willing to do if the North turned off its nuclear reactor. A U.S. response, if any, was not made public.
North Korea’s foreign ministry today called the Hill-Kim talks “sincere and positive.” In the upbeat assessment, the communist state said the talks yielded “a certain agreement,” but it declined to elaborate on the nature of the dialogue. The ministry said the talks were held in a “sincere atmosphere.” Its comments appeared in a statement released by the country’s official Korean Central News Agency.

That seems strikingly upbeat, considering the source, and it seems to underscore the broad nature of the talks Hill conducted with the North Koreans. Condoleezza Rice insisted yesterday that all of this was just preparation for the six-nation talks commencing in a few weeks, and that all agreements would be made there. Pyongyang apparently feels differently, or at least they want people to believe that substantive decisions were reached by Hill and Kim in Berlin.
Pyongyang does not make a habit of issuing conciliatory and complimentary statements regarding the Americans under any circumstances, so this seems fairly meaningful. If the North Koreans put that question to Hill as baldly as reported, then it indicates a desire on their part to end the standoff, naturally while maximizing their bounty from the exercise. It may show that the isolation and sanctions have begun to really bite, and perhaps that the brinksmanship might have affected Kim Jong-Il’s grip on power. The cessation of luxury goods had to affect more than just KJI — undoubtedly, Army commanders and other power brokers in the North had access to a similar lifestyle until Kim decided to defy China and set off a nuclear test. The threat of nuclear armament by Japan combined with the chilly wind blowing in from Beijing these days may also have convinced KJI to play Monty Hall.
All of which brings into question the continuing American demurral about the Hill talks in Berlin. The US could ill afford another collapse in talks at the six-party conference; the domestic and international pressure for direct talks would increase yet again. Rice and President Bush would want to guarantee some kind of progress, and one way to do that would be to quietly allow Hill to make deals with Kim that would just require ratification at the multilateral talks. Unlike with the Agreed Framework, the US would keep China, Japan, and South Korea informed of the offers and make sure they participated in the final agreement by staging it at the talks next month.
It’s subtle and nuanced, and might actually work, as long as verification gets included in the final product. The six-nation talks will have set the stage for the Pyongyang capitulation on nukes, but Kim gets his bilateral agreement with the US in the end.

Bilateral Talks With North Korea?

The US and North Korea have quietly conducted one-on-one talks in advance of the next six-nation meeting on Kim Jong-Il’s nuclear-weapons program. The pre-meeting seems to reverse the Bush administration’s position against bilateral negotiations on the issue, but the White House insists that the meetings are intended to just lay the groundwork for the wider forum:

Seeking to revive stalled negotiations to end North Korea’s nuclear weapons program, the United States held “substantive” talks with North Korean diplomats here on Tuesday and Wednesday, said the chief American envoy, Christopher R. Hill.
The unusual one-on-one sessions, the first to be held outside Beijing during the Bush administration, were signs of progress since negotiations broke off in December after North Korea demanded that Washington lift financial sanctions against it.
“It was a substantive discussion,” Mr. Hill said in an interview on Wednesday, though he refused to give details. “The proof of the pudding will be when we all sit down together in the six-party negotiations.”
Mr. Hill briefed Secretary of State Condoleezza Rice on his meetings upon her arrival in Germany after a mission through the Middle East and Persian Gulf. Ms. Rice said later that Mr. Hill’s discussions “should help to prepare the way for a more favorable atmosphere at the time of the resumption of the six-party talks, which we would hope would be soon.”

The US has resisted the calls for bilateral talks with the Kim regime, preferring to use the leverage provided by China as Kim’s ally to pressure Kim into concessions. This has led the Bush administration to avoid even the lower-level contacts, although they have occasionally occurred depending on circumstances, usually to resolve one particular point.
This seems different; Hill and Kim Kye-gwan apparently met on the broad spectrum of issues involved in the impasse, according to Hill’s comments afterwards. He mentioned that the normalization of the relationship between Pyongyang and Washington would have to develop “bilaterally” and over a long period of time. He also hinted that the US might loosen its sanctions on Kim’s financial network, especially the bank in Macao through which he funnelled his counterfeit American currency, a key demand from North Korea for their continued participation in the six-nation talks.
Both Hill and Condoleezza Rice were quick to respond to questions about the apparent change of policy. Both said that the lower-level bilateral meeting was intended to find areas of agreement on which to build at the upcoming multilateral forum. They emphasized that they expected to return to those talks in the next few weeks and that any agreements would be made there, and not in these impromptu talks in Berlin.
Perhaps so. It appears, though, that the Bush administration has tried to use more flexibility in its approach to Kim Jong-Il, and that may well work. If it results in verifiable dismantling of the North Korean nuclear program and an end to the kind of provocations we saw last year, we will cheer this flexibility. However, we’ve been down that road before, and regardless of the venue, the Bush administration has to remain firm on verification — and it’s difficult to see how that will work without the looming presence of China to force compliance.

Kim Testing Again?

ABC News is reporting tonight that Kim Jong-Il has prepared for a new nuclear test. According to their sources, North Korea has “everything in place”:

North Korea appears to have made preparations for another nuclear test, according to U.S. defense officials.
“We think they’ve put everything in place to conduct a test without any notice or warning,” a senior U.S. defense official told ABC News.
The official cautions that the intelligence is inconclusive as to whether North Korea will actually go ahead with another test but said the preparations are similar to the steps taken by Pyongyang before it shocked the world by conducting its first nuclear test last Oct. 9.
Two other senior defense officials confirmed that recent intelligence suggested that the North Koreans appear to be ready to test a nuclear weapon again, but the intelligence community divides over whether another test is likely.

The equipment apparently has gone to the same region as their nuclear test in October, P’onggye. Analysts have seen some of the same activity in the area and are convinced that Kim could conduct another nuclear test within the next 60-90 days. Whether he intends to do so remains a point of contention, even among ABC’s sources.
Kim and China had better be prepared to reap the whirlwind if he does. The UN will not be able to contain the counterreaction to another Pyongyang nuclear test. Japan will tilt further towards militarization and nuclearization, and the US relationship with Taiwan will get re-evaluated in light of the Korean threat. Even South Korea, with its inclination towards appeasement, has already begun to acknowledge the threat Kim poses, and will be forced to do so even further.
China may wind up with no choice but to consider its options for Kim’s removal. Kim undoubtedly knows this. We’ll see what happens.

No Agreement On North Korea

The six-party talks have adjourned without any agreement, the BBC reports:

Despite five days of negotiations in Beijing, the talks broke up and no date for a resumption has been announced.
The talks involved the US, North Korea, China, South Korea, Japan and Russia.
They had resumed after a 13-month break, and two months after North Korea sparked international condemnation by carrying out a nuclear test.
Chinese envoy Wu Dawei released a statement that simply reaffirmed an agreement from September 2005 that the North would agree to disarm in return for aid and guarantees of security.

The US accused the Kim regime of failing to take the talks seriously, which in this case is akin to noting the sunrise in the East. Kim Jong-Il wants his nukes, and diplomatic niceties will not shake him from his pursuit of WMDs. Only China can put enough pressure on him to achieve that result, and China still has not found the will or the desire to do so in sufficient measure. As Christopher Hill pointed out, each day the DPRK came up with a different excuse — the banking sanctions that shut down their profitable counterfeiting ring, some perceived diplomatic slight, or another impossible demand. It all adds up to continued intransigence by Pyongyang.
What next? If China cannot get Kim to agree to any concessions, then we will probably see Japan take further steps towards militarization and possibly nuclearization. The US will start to fortify its positions in the Pacific Rim, and we have already begun talking about military expansion. China, which wants to establish East Asia as its economic playground, will see their efforts eroded by the projection of power from America and its allies — and at some point, they will find the motivation to get Kim to agree to take the talks seriously.
Or, perhaps, the Chinese will find someone to take Kim’s place. That possibility still exists, and since Kim is not as successful in keeping the North Koreans benighted these days, they may have plenty of help for that kind of mission. At this point, it’s hard to see how we could do much worse than Kim.

You First

Kim Jong-Il has rejoined the six-party talks aimed at ending his nuclear-weapons program and opening North Korea for foreign aid and trade. The other parties have promised an end to sanctions and economic assistance if Pyongyang ends its development of nukes, but the Kim regime has challenged them to act first:

North Korea has said it would only consider scrapping its nuclear weapons when all international sanctions against it are lifted, as disarmament talks resumed here after a 13-month break.
Declaring itself “satisfied” with becoming a nuclear power following its first-ever atomic test on October 9, North Korea offered no signs of compromise at the six-nation talks Monday, according to officials who were at the forum.
Instead North Korean chief envoy Kim Kye-Gwan called, in his opening remarks to the talks, for
United Nations and US sanctions to be lifted, as well as repeating long-held demands for help in developing a nuclear power industry.

So once again Kim has come to the table only to emphasize his intransigence. That, of course, is his opening position, but it won’t be his final word on the subject. Kim came back to the table because he knows that China has just about decided to wash their hands of him, particularly him. Beijing found him useful only until he disobeyed them and made them look impotent by actually detonating his nuke earlier this year.
He’s just about finished unless he can get the sanctions lifted, and he knows it. Kim survived three coup attempts in the 1990s with China as his ally, but he won’t survive another with them disaffected from his regime. If he cannot feed his Army, they are likely to start looking for a leader who can, revered father or not.
What’s worse is that the nature of the six-party talks almost guarantees that he will lose on this point. All five other nations want him to recommit to his previous disarmament plan and are not looking to take no for an answer. They will not allow Kim to wriggle off the hook; Japan will drive that more than the US. China and Russia understand that an end result of failure will be a nuclear and more militarized Japan, and they both want to avoid that more than they want Kim Jong-Il as a client.
North Korea will, in the end, give up its nukes. Whether Kim remains in charge at that point is the real question.

Cat’s Out Of The Bag In North Korea

After years of regime propaganda, North Koreans have started discovering just how poor they are in comparison to their cousins in the South. The London Telegraph reports that refugees now understand their economic position in the world before they flee Kim Jong-Il and his worker’s paradise:

Many North Koreans are now aware of the poverty of their country and are voicing discontent after years of near-starvation, according to the fullest study yet conducted of refugees from the Stalinist dictatorship.
While the popular image of North Koreans is of a nation living in blissful ignorance of the outside world and unquestioning loyalty to the leadership of Kim Jong-il, refugees interviewed while in hiding in China reported that there were increasing signs of dissent.
Eighty per cent of those questioned said North Koreans no longer believed official propaganda that living standards were better than in capitalist South Korea. In reality, income per head is 20 to 30 times higher in the South.

Kim and his father have managed to keep the North benighted enough to believe that they lived as well as anyone else. That happened for a couple of reasons: the regime controlled all the methods of communication, and the Chinese lived at about the same subsistence level as the North Koreans. Both have changed over the past few years. The Chinese have embraced Western economies and has raised its standard of living considerably as a result, which the North Koreans have gone backwards. Meanwhile, revolutions in communication have allowed the reality of their poverty to finally seep into the national consciousness.
The Chinese revealed that Kim weathered three coup attempts over the last fifteen years, apparently with the help of Beijing, after Kim tested his nuclear weapon this fall. The unrest that has begun may herald another coup attempt, one that China may have little interest in stopping. In fact, the Chinese may want to assist in pulling down the Kim regime if it keeps a flood of refugees from swamping out the Chinese north of the peninsula. That flood may begin soon, if the starving victims of Pyongyang decide to act on their desperation.
And their desperation will only get worse. Thanks to the nuclear test, Kim will get less aid to get him through this winter. Less aid means less food for the people, which means even more unrest and anger towards Dear Leader. This will quickly develop into a vicious cycle, one that Pyongyang will not easily control, let alone reverse.
Kim’s days are numbered. Either his army will get him out of the way, or the Chinese will arrange a long vacation at a Pacific Rim resort to save his life. Once the blinders come off of millions of impoverished and starving North Koreans, the outcome will not be in doubt.

Carrots For Dear Leader

The US has made an explicit offer of aid and trade to North Korea in an attempt to get them to verifiably abandon their nuclear weapons program, an effort made outside the stalled six-party talks. The plan calls for assistance in energy and food while Kim Jong-Il dismantles his nuclear infrastructure:

The United States has offered a detailed package of economic and energy assistance in exchange for North Korea’s giving up nuclear weapons and technology, American officials said Tuesday.
But the offer, made last week during two days of intense talks in Beijing, would hinge on North Korea’s agreeing to begin dismantling some of the equipment it is using to expand its nuclear arsenal, even before returning to negotiations. …
The combination of incentives and demands was the focal point of three-way meetings on Nov. 28 and 29 involving Assistant Secretary of State Christopher R. Hill; North Korea’s vice foreign minister, Kim Kye-gwan; and Chinese officials at the Diaoyutai State Guesthouse in Beijing. The incentives offered by the United States include food aid from the United States, Japan and South Korea, a senior administration official said.
The offer is significant because the administration has resisted making clear to North Korea exactly what kind of aid it would receive if it agreed to begin taking apart facilities like the plutonium reprocessing facility that turns spent fuel into weapons, and to provide a list of all its nuclear facilities. Hawks in the administration, particularly in Vice President Dick Cheney’s office, have long opposed what they call “rewarding” North Korea for its nuclear test.
But State Department officials have argued that while the argument has gone on in Washington, the North has produced fuel for six or more weapons. They say the only successful strategy will be one that results in the beginning of dismantlement.

The US also offered to find ways to allow Kim to comply with financial regulations in exchange for a restoral of his banking partners to the global market. This is a veiled reference to Kim’s counterfeiting ring which used his Macao bank as a front for distribution of phony $100 bills, perhaps totaling over $1 billion. The Bush administration posed this as an opportunity to help Kim comply with international law, not as a concession, but the offer appears to answer Kim’s demands to retract economic sanctions before his participation in further disarmament talks.
The tactic has its merits. The Bush administration has maintained a hard-line approach to the Kim regime, and a change of pace might find an opening — especially since Bush took care to keep China engaged in the process. If it bears real fruit, it could bring an end to the nuclear standoff on the Korean peninsula. However, it also runs the risk of being seen as weakness by Kim and his cronies in Pyongyang, and in the past that has signaled a new round of intransigence and lies.
Kim will likely find another excuse to abort the process. He cannot afford to lose the US as a bogeyman. His position in a starving nation is too tenuous to allow his people to believe that no overwhelming external threat exists. If that pressure disappeared, his people could find it within themselves to cast off his dictatorship, perhaps even faster than the North Korean military could do it. The 40-carrot approach should proceed to the deployment of more sticks if Kim balks.

Kim’s New Racket: Insurance

Kim Jong-Il has expressed indignation, fury, and even tested a nuclear device in his attempt to get the US to back down from banking sanctions that has put a damper on his counterfeiting ring, one of the few sources of hard currency North Korea had. Now Kim has a new racket to generate some badly-needed cash, and this time he’s targeted the insurance industry:

The cash-strapped regime of North Korea, which has a worldwide reputation for its criminal dealings in weapons sales, drugs and near-perfect counterfeit U.S. $100 bills, may have found a new illicit source of hard foreign currency: international reinsurance fraud.
A growing number of major underwriters around the world strongly suspect that communist dictator Kim Jong-Il’s regime is running an elaborate major insurance and reinsurance scam on them, to the tune of tens of millions of dollars or more.
The alleged fraud involves a wide variety of North Korean industrial and personal calamities where insurers have been presented with perfect government-controlled documentation of accidents, including deaths, along with carefully gathered photographic evidence, all compiled in a startlingly brief time.

The major portion of the new fraud appears to be life insurance. This makes sense, because if North Korea produces anything in abundance, it’s dead bodies. The government falsifies the causes of death and manufactures evidence in support, and voila! (or the Korean equivalent), Pyongyang gets a check. It’s amazing what someone can do when they run all of the official machinery of the state.
Make no mistake about this: Kim is conducting an economic war against the West, albeit a rather low-key and pathetic one. He wants to sap the Western systems for as much cash as he can generate, and at the same time undermine confidence in the same systems. The counterfeiting ring provides an excellent example of this. Not only did he get the cash he needed, he also managed to flood the market with American currency, lowering its value, and called into question its legitimacy.
This again represents a small amount of money overall, but a disturbing development in a market that requires some measure of honesty in the governments that participate in it. Kim has received as much as $150 million in a $1.5 trillian industry, but the number is rising sharply of late. Kim appears to have honed his fraud and is now making it very lucrative — and his success might get copied by other rogue regimes strapped for cash. The fraud could threaten the stability of reinsurers around the world, making insurance much more costly for everyone with legitimate needs for it. If the trust in this market collapses, it could cause widespread economic damage.
The solution should be rather simple. Insurers should declare all North Korean policies null and void until Kim is removed from office. They should absolutely refuse to pay any claim buttressed by Pyongyang’s documentation. Kim may find another scam shortly afterwards, but in the meantime let’s shut this one down.