North Korea’s self-imposed isolation during the pandemic has made it increasingly difficult for the regime to obtain the hard currency needed to fund its weapons programs and cover trade deficits.
magazine says National Interest North Korean exports have only shrunk to tens of millions of dollars annually, while the proceeds from smuggling that the regime previously used to evade UN sanctions have also fallen, according to the US.
Because of these factors, the Kim Jong Un regime has increasingly turned to focus on crypto theft to cover its need for “hard currency,” according to the magazine, which said the issue requires greater attention from governments and international regulators as cryptocurrency investments become more popular around the world.
A recent UN Panel of Experts report on North Korea stresses that cyber attacks that generate cryptocurrency “remain an important source of revenue” for the regime.
This 2022 report is consistent with the 2021 UN Panel of Experts report that found that Pyongyang’s cryptocurrency hacks and other illicit activities “directly and indirectly support the country’s weapons of mass destruction and ballistic missile programs.”
A non-confidential report from the Office of the Director of National Intelligence also notes that the cryptocurrency stolen in North Korea “may… [تستخدم] to fund government priorities, such as its nuclear and missile programs.
Given the fungible nature of money, it is undoubtedly true that cryptocurrencies help North Korea finance its weapons programs, however, these same illicit activities are also a major source of hard currency for the regime to cover its trade deficit.
Traditional means, such as exporting goods and attracting investment, are no longer viable in North Korea due to sanctions and its lack of credit. However, during the pandemic, North Korean crypto theft has become an increasingly important tool for the regime to finance its trade deficit.
The magazine says it is likely that Pyongyang has financed its trade deficit through a combination of legal means such as foreign aid, foreign direct investment, trade in services and remittances from North Koreans working abroad.
These legal revenues were supplemented by revenues from illegal activities such as arms sales, drug trafficking and counterfeiting.
After the UN Security Council switched to sectoral sanctions in 2016 to address North Korea’s accelerating ballistic missile and nuclear weapons tests, North Korea’s trade deficit grew dramatically as sanctions restricted its exports.
Between 2016 and 2019, North Korea’s exports to China, which account for more than 90 percent of North Korea’s total trade, fell from $2.6 billion to $215 million. In contrast, North Korean imports from China fell only 19 percent over the period. itself to $2.6 billion.
In 2016, North Korea’s trade deficit with China was only $558 million, and by 2019, it had expanded to $2.4 billion.
In addition to restricting North Korea’s exports, UN sanctions have also limited other ways for North Korea to finance its trade deficit.
It is likely that North Korea was able to finance much of its growing deficit during this period through smuggling sanctioned goods such as coal, and hacking banks and cryptocurrency exchanges.
Once the epidemic started, North Korea imposed strict border restrictions to prevent the local spread of COVID-19. While these restrictions appear to have prevented infection locally, hard currency is becoming more and more difficult for North Korea to obtain.
In 2020, North Korea exported only $48 million in goods to China while it imported $491 million.
In 2021, exports to China increased to $57.7 million, but imports fell by regarding 50 percent to $260.1 million.
According to a recent report by Chainalysis, North Korean hackers stole nearly $400 million in digital assets in 2021 and nearly $300 million in 2020.
The site also found that North Korea still has $170 million in stolen cryptocurrency holdings, in some cases traceable back to hacks dating as early as 2017, and has yet to exchange it for hard currency.
Given that North Korea is sitting on such a relatively large amount of money five years following implementing UN sanctions and two years following the pandemic began, its theft of cryptocurrency and other illicit projects is strong enough to cover its weapons programs and trade deficit.
