N. KOREA'S GROWING DRUG TRADE SEEN IN BOTCHED HEROIN DELIVERY

WYE RIVER, Australia - For a day and a half last month, the people of this
small tourist town watched in puzzlement as the rusty freighter Pong Su
maneuvered off the coast. At times, they say, the 350-foot cargo ship came
within a few hundred yards of the rugged shoreline that is famous for
shipwrecks.

Just after midnight April 16, the ship approached a rocky, deserted beach
and launched a rubber speedboat. In it were two men and the only cargo the
ship had been carrying: at least 110 pounds of high-quality heroin. The
Pong Su was an unlikely drug-running vessel from an unexpected place: North
Korea.

The sea was especially rough that night, and 8-foot waves swamped the
little boat. The heroin and one North Korean made it to safety, but the
other crewman did not. His kelp-entangled body washed up on shore. Later
that day, police in a nearby town seized three men and the heroin,
estimated to have a street value of $50 million.

The 4,480-ton Pong Su led Australian police vessels on a four-day chase in
30-foot swells until commandos boarded the freighter by helicopter and
boat. The 29 remaining crew members, also North Koreans, were arrested and
charged with aiding and abetting narcotics smuggling.

North Korea has been quietly involved in the drug trade since at least
1976, when a North Korean diplomat in Egypt was arrested with 880 pounds of
hashish. Since then, there have been at least 50 arrests or drug seizures
involving North Koreans in more than 20 countries, William Bach of the
State Department's Bureau for International Narcotics and Law Enforcement
Affairs told a Senate Governmental Affairs subcommittee Tuesday.

In the past several years, most North Korean trafficking has involved
methamphetamine and heroin destined for Japan, Taiwan, China and Russia,
Andre D. Hollis, a Pentagon counter-narcotics official, testified at
Tuesday's hearings.

The Pong Su's covert mission in southern Australia appears to have been a
daring expansion into the Australian heroin market by a bankrupt regime
increasingly desperate to stay afloat. The ship is owned by a company
headquartered in Pyongyang, the North Korean capital, and several of the
arrested crew members were members of the ruling Korean Workers' Party.

'Smear Campaign'

The North Korean government has denied allegations that it was involved in
the heroin delivery and says the charges are part of a U.S. "smear
campaign" to increase international pressure on the regime to shut down its
nuclear program.

The Australian government says it is investigating whether the communist
regime was behind the smuggling enterprise. Officials and defectors said
any other explanation would be hard to accept.

"North Korea is a socialist state. There is no private enterprise in North
Korea," Australian Foreign Minister Alexander Downer said after issuing a
protest to the regime's ambassador.

"I am confident that the drugs seized [from the Pong Su] were North Korean
products," a North Korean defector, whose name was withheld to protect his
identity, told the Senate panel. The man, who wore a hood and was a former
high-level government official who defected to South Korea in 1998, said he
had direct knowledge of 30 other officials involved in narco-trafficking.

North Korea's narcotics business has long been overshadowed by the regime's
program to build nuclear weapons. The Bush administration recently
expressed concern that the regime may try to manufacture weapons-grade
plutonium and smuggle it abroad. If so, the Pong Su's journey to Australia
raises the possibility that the same method could be used to smuggle plutonium.

The North Korean government says that the Pong Su is a "civilian trading
ship" and that its owner had no knowledge of the heroin.

According to shipping industry insiders, the Pong Su is the flagship of a
commercial shipping company known as Pong Su Ship Management, which owns
six vessels and has been expanding in recent years.

"The company is owned by North Korea," said Neil Tsang, a ship broker based
in Taiwan who sold several vessels to the company and helps the firm lease
them out for transporting products such as lumber, coal, steel and feldspar
around Southeast Asia.

He said he doubts that company managers knew the ship was carrying drugs.

The company's manager, Kim Chu Nam, could not be reached by telephone at
his office in Pyongyang.

It is unlikely that a North Korean company would be dealing drugs without
government involvement, said Cho Sung Kwon, a South Korean criminologist
who has advised his country's intelligence service on North Korea.

"North Korea is a socialist country, so everything is closely monitored and
controlled," he said.

"It is not just the kind of state-sanctioned drug trafficking you might see
in Latin America. It is state-sponsored."

The defector who testified to the Senate on Tuesday said North Korea
started secret drug production in the mountains in the late 1970s but that
it only began to produce and sell drugs in earnest in the late 1980s, when
North Korean founder Kim Il Sung, father of the current leader Kim Jong Il,
designated an area around the town of Yonsa in North Hamgyong province as
an opium poppy farm.

"Kim Il Sung told his people to grow opium because he needed cash," the
defector said.

In late 1997, the government decreed that all North Korean collective farms
must allocate about 25 acres of land to poppy farming, the defector said.

The opium is sent to pharmaceutical plants in the Nanam area of the east
coast city of Chongjin, where it is processed into heroin under the
supervision of seven or eight drug experts from Thailand - all under direct
government control, he said.

North Korea produces a ton of heroin and a ton of methamphetamine a month,
which can be sold for about $5,000 a pound in China or about $7,500 a pound
elsewhere, he said.

Yoon Yong Sol, a former North Korean police official who lives in Seoul,
said in an interview last month that he was personally involved in ordering
farmers to switch their fields to poppy cultivation during the height of
the famine that killed an estimated 2 million people.

"There were some complaints that during the famine we should be growing
grain, not poppies, but the instruction from the central government was
that if we grow poppies we can sell the product for 10 times as much to buy
grain," Yoon recalled.

Asian Drug Market

He said drugs were sold by security agency officials at the Chinese border
or shipped to Taiwan, Hong Kong, Macao and Japan. Yoon said he once made a
delivery of illegal narcotics to the Chinese border.

"This country is so desperate to go on that they will do anything to
survive," Yoon said. "Ninety-nine percent of their factories are not
operating, there are no raw materials and no energy. Even fishing boats
can't fish because there is no oil for fuel. The only way to earn hard
currency is by drugs."

While high school students elsewhere might get lectures on the evils of
narcotics, another defector, who lives in Seoul and who declined to be
named, said that he and his classmates were assigned at harvest time to
work in the fields, slashing open the poppies for their resin.

"The boys used to work for 40 minutes, the girls for only 30 minutes. You
would get dizzy if you stayed too long," the defector recalled. "We didn't
really know what it was, and we didn't ask. When I think back on it, I
realize that North Korea is an ideal place to grow and export drugs because
nobody will question the authorities or even question whether it is legal."

Key Producer of Opium

U.S. military intelligence officials in Seoul say that North Korea is the
third-largest producer of opium despite its inhospitable climate and soil.
Estimates of drug revenue range from $100 million to $500 million a year.

The botched Australian deal appears to mark the beginning of a more
ambitious approach by a regime badly hurt by a crackdown on weapons exports
after the Sept. 11 attacks and by cuts in international donations of fuel,
food and fertilizer.

According to drug experts, North Korea had not attempted to sell its own
heroin in Australia because the quality was so poor. This time, Australian
police say, the heroin was of the high-quality Double UOGlobe brand most
likely produced in Myanmar, another dictatorship largely closed off to the
outside world.

The Pong Su was registered in Tuvalu and flew the small Pacific nation's
flag. Its owners equipped the vessel with extra fuel tanks so it could
travel long distances - even circumnavigate Australia - without having to
stop. The ship most likely picked up its cargo of heroin in Myanmar or
Thailand and headed south around Australia's west coast, using established
shipping lanes. By mid-April, the Pong Su had reached the southern end of
the continent and headed toward Wye River, a popular tourist town about 80
miles southwest of Melbourne.

If the smugglers had done their homework, they might have come up with a
different plan.

The place they chose to make their delivery is one of the country's most
treacherous stretches of coastline. Similar to California's rugged Big Sur,
it is known as the Shipwreck Coast because so many vessels ran aground here
during the 19th century.

The smugglers also picked the worst time for their rendezvous. Heavy surf
is so predictable this time of year that an annual surfing contest is held
up the coast at Bell's Beach.

The week the Pong Su arrived, Wye River was packed with visitors enjoying a
school holiday.

"Everyone along the whole coast was wondering, 'What's that ship doing?' "
said Richard Buckingham, a longtime Wye River resident. "It got so close
people thought it was going to run aground. They did it right in front of
everybody."

About that time, Australian police were conducting electronic surveillance
on two Malaysians and a Singaporean who were visiting Australia and were
suspected of involvement in drug smuggling.

But police were not on hand to see the Pong Su approach Boggeley Creek, two
miles from Wye River, and launch its speedboat to hand over the drugs to
the three foreigners. It's not clear where the small boat overturned;
police suspect some of the shipment may have been lost in the surf, though
110 pounds made it to shore. For days afterward, divers searched the water
and police scoured the beach.

"No officers saw the boat capsize," said Frank Prendergast, the Australian
Federal Police's southern operations director.

Hours after the bungled delivery, police found the body on the beach and
arrested the three foreigners with the heroin in the nearby town of Lorne.
It wasn't until the next day that an officer stumbled on the surviving
North Korean smuggler hiding in the bushes at Boggeley Creek. Soon after
the arrests, the chase of the Pong Su began.

The cargo ship, traveling 10 knots, headed along the coast toward Sydney
with surveillance planes and police, customs and navy vessels hot on its
tail. The captain refused orders to pull into an Australian port, saying he
had come from Indonesia and was headed to Papua New Guinea.

For four days, the waves were so huge that police and customs agents could
not board.

"There was no chance that the vessel was going to get away," said customs
spokesman Leon Beddington. "It was just a matter of deciding when it was
safe to board it."

When the seas calmed April 20, special forces commandos were lowered from
helicopters, landed on the deck and seized the ship. More commandos boarded
by boat. The Pong Su's crew offered no resistance. The ship was seized and
taken into Sydney Harbor, where authorities discovered the custom-made fuel
tanks. Authorities meticulously searched the vessel, using a particle
analyzer so sensitive that it can find a grain of sand in an Olympic-size
swimming pool.

'On Illegal Mission'

"In circumstances where the vessel had no cargo, no reason to be in
Australia, was so far away from where it normally travels, and appears to
have been modified for the purpose of making the journey, we say the ship
was on an illegal mission to deliver that heroin to Australia," prosecutor
Scott Bruckard told a Melbourne court in April at a hearing for the members
of the crew. All 30 are being held for trial this year.

Like the rest of Wye River, Max Rathbone, 77, was captivated by the vessel
offshore, which he could see from his house on the hill above town.
Smuggling heroin, the retired builder said, is more effective in destroying
the West than making nuclear weapons.

"It's a good way to kill a country," he said. "You don't have to fire
bullets. They'll make a lot of profit, and they'll bring the young of the
country down to their knees."

Paddock reported from Wye River and Demick from Seoul. Times staff writer
Sonni Efron in Washington and researcher Rie Sasaki in The Times' Tokyo
Bureau contributed to this report.