As sanctions loom, Russia keeps North Korea at work

Vladivostok’s dreary Soviet-era prefab apartment blocks, muddy potholed streets and treacherous back alleys are hardly a dream destination for foreign labor. But here, on Russia’s frozen Pacific coast, thousands of North Korean workers are employed in the construction industry while others toil in local factories at low wages.

Widely regarded as hard-working, diligent and willing to endure harsh working conditions, it’s no wonder that they are popular with their Russian employers. However, later this year they will all have to return home to North Korea if Russia is faithful to its pledge to implement UN Security Council resolution 2397.

Passed on December 22, 2017 in response to North Korea’s ballistic missile tests the previous month, the UN sanctions call for the repatriation of all North Koreans “earning income abroad…within 24 months.” The deadline for implementing the measure, which will impact both overseas North Korean workers and companies, is December 22 this year.

The aim of the targeted sanction is to force North Korea to give up its weapons of mass destruction (WMD) program, which Pyongyang has made clear it will not do until sanctions are lifted.

A host of UN-approved sanctions are already in place which limit the amount of fuel North Korea can import, ban the export of coal and valuable minerals, and restrict Pyongyang’s access to international monetary institutions.

Those measures have impacted but not crippled North Korea’s economy — and the reason is geopolitical. The United States, Japan and the European Union are the strongest proponents of sanctions, while Russia and China are reluctant partners with no interest in a North Korean regime collapse.

It’s a Catch 22 situation which in the end may work to Pyongyang’s advantage, as sanctions against any nation are never 100% effective as market distortions create economic incentives to circumvent them.

In Russia, there is a rising pushback against enforcing the punitive measures against North Korea. On January 12, the English-language Moscow Times reported that Russian politicians had petitioned for North Korean laborers to be allowed to remain in the country despite the sanctions.

Russian partners have also willingly helped North Korean state corporations hide their true identities under new names, according to Western investigators who have probed the companies and requested anonymity.

On March 22, countries worldwide were required to report to the UN on the number of North Korean companies and workers they had in residence. According to the sanctions, all of those activities must cease before the December 22 deadline.

A Russian government statement on March 26 said that Russia had sent home nearly two-thirds of some 30,000 North Koreans working there as of 2018. If true, that still leaves 10,000 North Korean workers in Russia, most of whom work for companies in Vladivostok and other far eastern cities close to North Korea.

US government sources estimate that before sanctions were imposed Pyongyang was earning more than US$500 million a year from its overseas enterprises, which includes labor exports as well as commercial activities by a host of state-run enterprises.

That may not be a huge amount for any industrialized nation, but it is a fortune for cash-starved North Korea. As such, the implementation of the labor-related UN sanctions may have a more profound impact on what is already a precarious economic situation in North Korea.

Russia, or the erstwhile Soviet Union, is the oldest destination for North Korean labor. North Korean workers began arriving there in 1967, when the countries’ leaders reached an agreement to bring manpower to the sparsely populated areas of eastern Russia.

At that time, most of them worked in remote logging camps. International human rights organizations have since reported that the salaries paid by Russian partners are often collected by a North Korean state corporation and the laborers receive little more than pocket-money.

According to other reports, North Korean laborers in Russia are actually able to save some of their salaries to send money home to their families.

The fact that many of those workers have to pay bribes to officials to get jobs abroad lends credence to that suggestion – and so do new household appliances in the homes of their families, modern wares not readily available in local markets even in Pyongyang.

Either way, living conditions are known to be hard and of a nature that local Russians would not be willing to work.

Russia is not the only place where North Korean workers are earning money for the regime back home in Pyongyang. US government sources estimate the total number of North Korean workers worldwide to be at around 100,000.

China is another major destination for North Korean workers, in which the near-total lack of transparency when it comes to dealings with North Korea makes the situation even more obscure than in Russia.

Tens of thousands of North Koreans are believed to be working illegally in China. The workers, most of whom are in areas in the Chinese side of the border and inhabited by fellow ethnic Koreans, send money earned home to their relatives in North Korea.

This may not directly benefit the Pyongyang regime, but it helps alleviate poverty in the country. It also stifles possible social unrest on the level that actually hit North Korea during a severe economic crisis in the mid-1990s which led to famine and the death of hundreds of thousands of people.

North Korean workers are also toiling in other regional countries in various industries. Malaysia expelled some 50 North Korean workers after relations soured in the wake of the presumed Pyongyang-sponsored assassination of North Korean leader Kim Jong Un’s estranged half-brother Kim Jong Nam at Kuala Lumpur’s airport in 2017.

The workers had been working in Sarawak in the Malaysian part of Borneo. In the past — and well before the most recent rounds of sanctions came into force — North Korean workers were also deployed to Qatar, the United Arab Emirates, Mongolia, the Czech Republic, Poland, Bulgaria, Saudi Arabia, Namibia and other African countries.

If Security Council resolution 2397 is fully implemented, the North Korean government would also have to close the many restaurants it runs in the region.

One such eatery in Myanmar’s commercial capital Yangon was closed in June last year, but those in Bangkok and Phnom Penh are still open, even if the number of customers, mostly South Koreans, are staying away because of UN sanctions.

Those restaurants are known to be a major source of income for the Pyongyang regime.
Even more important than worker remittances are profits generated by North Korean state enterprises that are active overseas.

Years of sanctions have turned their executives into skilled businessmen who operate front companies under various vague names and with proxy directors and shareholders. One such example is the Korea Rungrado General Trading Corporation, an affiliate of the Pyongyang City committee of the ruling Workers Party of Korea.

The company has attracted attention from Western analysts for its export of North Korean workers to Russia, China and other countries. The US and European Union sanctioned Rungrado in December 2016 for generating income for Pyongyang’s WMD program.

But Rungrado has since registered several of its Russia-based subsidiaries as local companies under Russian and other names while several of its North Korean owners are listed as Vietnamese, according to Western investigators.

Rungrado-linked companies have also been listed as entities outside Russia. For instance, Arrowcrest Limited, a company registered in Cyprus, was the main shareholder for Rungrado in Moscow. Its listed address was the same as a North Korean restaurant in the Russian capital.

An Irkutsk-based company, a known Rungrado subsidiary, was listed as a China-based firm. Mekhyansan, another Irkutsk-based company, is held by a number of people with Korean names but many are listed as Russian or Chinese nationals.

Mekhyansan is a mountain in North Korea and is a common name used by Rungrado-affiliated joint venture companies. North Korea is also known to have used its diplomatic missions to evade sanctions.

Another United Nations Security Council resolution, number 2321, limits the number of bank accounts North Korean diplomats can have to what is needed for their diplomatic and consular services.

Despite this prohibition, the North Korean consulate in Vladivostok has shared its address with no less than twelve North Korean-owned companies. Some of those have innocuous-sounding names like “Engineering Classes”, ostensibly an industrial consulting company.

With the North Koreans barred from using international monetary institutions, they have also become masters at using other means to move their money. In November 2018, a North Korean citizen was busted at Vladivostok airport while trying to board a flight by Air Koryo — the North Korean national airline — back to Pyongyang with $192,300 in cash in a shoe box.

A month before that, another North Korean was caught with $180,000 having just got off from a cargo ship.

According to the website Pyongyangpapers, which collects data about North Korea’s trading activities: “While these two smugglers were caught by the authorities, these transfers are likely to be only the tip of the iceberg of illegal cash movements” across border between North Korea and Russia.

Pyongyangpapers also spoke to an employee at Vladivostok airport who said that security for flights to North Korea is extremely loose and there is not much control of what happens on Air Koryo flights to and from the city.

Without the income from its workers and companies abroad, North Korea could be plunged into a crisis comparable to the one which devastated the country in the mid-1990s.

That could, of course, be avoided if North Korea gave in to international pressure to roll back its WMD program. But that is highly unlikely, particularly if Russia opts to only marginally support and enforce UN sanctions on employing North Korean workers and doing business with its companies.

That means there will likely continue be North Korean workers and front companies in Vladivostok and elsewhere after the UN’s December 22 deadline, giving Pyongyang the lifeline it needs to continue its WMD programs and keep the US at bay.