N. KOREA'S CONDUIT FOR CRIME

Cash-Poor Pyongyang Uses Tiny Macau to Move Its Dirty Money

MACAU0 - The run-up to the 87th anniversary of the birth of Kim Il Sung,
North Korea's late "Great Leader," was a busy time for North Korean
operatives around Macau. Intelligence reports say North Korean diplomats
ferried $620,000 in counterfeit U.S. currency through this tiny Portuguese
enclave from late December to March.

"They needed money for the festivities back home," a Western intelligence
official said. "They moved counterfeit currency through Macau and it helped
them pay for a party in Pyongyang."

There is no exact estimate of the celebration's cost. But singers, dancers
and other performing troupes from more than 30 countries, including Russia,
China and Canada, participated in the festival commemorating Kim's birthday
April 15 in Pyongyang. Kim died nearly five years ago; the North Korean
government has renamed his birthday "The Day of the Sun."

Trafficking in U.S. dollars is just one part of a skein of secretive North
Korean government operations that use criminal activity to obtain hard
currency for the cash-strapped hermit kingdom. While the focus of Western
intelligence agencies remains North Korea's on-again, off-again program to
build a nuclear weapon, what Western and Asian intelligence officials call
the criminalization of North Korea's government is also raising concerns.

"In Macau, we are very attentive about this nuclear issue and at the same
time about North Korean crime," a Western security official said. "The same
people are doing both."

Two weeks ago, South Korea's National Intelligence Service charged that
North Korea refined 50 tons of opium last year along with five tons of
morphine and heroin for sale abroad -- up from three tons of opium in 1992.
A February report by the U.S. Congressional Research Service said
"conservative estimates" of North Korea's criminal activity, "carefully
targeted to meet specific needs," generated about $86 million in 1997 -- $71
million from drugs and $15 million from counterfeiting.

Since January 1998, North Korean diplomats have been caught trafficking in
77 pounds of cocaine from Mexico to Russia, attempting to sell an
unspecified amount of North Korean-made heroin in Germany, passing $30,000
of counterfeit U.S. currency in Vladivostok, Russia, and trying to smuggle
500,000 tabs of the stimulant methamphetamine into Egypt, according to
published reports.

North Korean production of inexpensive methamphetamine has contributed to a
three-fold drop in the price of the drug in South Korea, police there say.
On April 13, Japanese police discovered 220 pounds of it on a Chinese cargo
ship that had just arrived from Hungnam, North Korea.

The motivation behind these criminal enterprises is money. Since 1994, when
food shortages began in North Korea, the country has fallen into an economic
tailspin. Thousands of North Korean refugees have poured into China; they
speak of a country lacking an economy, pockmarked by empty factories and
hungry children.

The $9.39 billion budget that Pyongyang announced on April 7, for example,
is less than half of North Korea's budget in 1994, the last time the
Stalinist nation announced its annual expenditures. The United Nations,
mostly through the World Food Program, plans to send $376 million in aid to
North Korea this year. Last year, relief
agencies gave $218 million in aid.

Western and Asian intelligence officials say the gambling enclave of Macau,
a tiny speck on the coast of southern China known for its sometimes lax law
enforcement and links to organized crime, has been the center of North
Korean activity for 25 years. Portugal established ties with North Korea
following Portugal's 1974 revolution. In all, about 38 North Koreans have
diplomatic passports and live in Macau; another 60 or so travel frequently
to the territory. Macau, a kind of Asian Casablanca where tattooed triad
members and Russian prostitutes freely operate, has been a natural base for
Pyongyang's operations.

In 1983, for example, North Korean agents are believed to have used Macau to
plan a bombing in Burma that killed 21 people, including top South Korean
officials. And a North Korean agent, Kim Hyun Hui, was trained in Western
ways for two months in a Macau flophouse before she planted a bomb on a
Korean Air Lines jet in 1987 that killed 115 people.

North Korea's main base in Macau is the Zokwang Trading Co., which is
staffed by officials who carry diplomatic passports from Pyongyang. In June
1994, Zokwang executives were arrested after they deposited $250,000 in
counterfeit notes at a Macau bank.

Zokwang apparently has not reformed its ways. Asian intelligence officials
identified Ahn Jin-Woo, a senior Zokwang executive, as the courier who
brought $100,000 in counterfeit bills to Macau in late December. They said
Zokwang officials also brought $400,000 in fake U.S. currency to Macau in
January. Two months later, a North Korean diplomatic courier moved $120,000
in bogus U.S. bills through a branch of the North Korean Bank of Trade in
Zhuhai, a Chinese city over the border from Macau, intelligence officials said.

At Zokwang's headquarters in Macau, where the doorbell plays "Frere
Jacques," times seem to be tough.

The office is vacant except for one room with overstuffed leather couches
and photographs of North Korea's father-son leadership duo -- Kim Il Sung
and Kim Jong Il, North Korea's current leader. Executives are meticulous
about saving electricity. All the lights are turned off.

Booted out of a three-story colonial mansion that has since been
redeveloped, Zokwang has relocated to the fifth floor of a shoddy apartment
building on a bustling avenue.

"We have opened the gates to our country," said Han Myong Chol, the firm's
deputy general managing director, who has been in Macau for six years and
speaks fluent Mandarin Chinese. "The time has come to invest in North Korea."

Brig. Gen. Manuel Suares Monge, the secretary for security in Macau and a
Portuguese army officer, said he believes companies like Zokwang are an
indication of how far North Korea's economy has fallen. "They are buying
things like milking machines for cows," he said. "They really have nothing
in their country."

Monge said his government watches the North Koreans closely and cooperates
with Western security organizations.

"North Korea is a very serious dictatorship, and its illegal businesses are
sometimes state businesses," he said. "It's very difficult to deal with
these activities. We have diplomatic relations with North Korea and we have
to follow diplomatic protocol."

South Korean officials said they feared that their government's "sunshine"
policy, which encourages contacts between Seoul and Pyongyang, could result
in more North Korean dirty tricks and crime. "When West Germany embraced
ostpolitik [its opening to the east], East Germany responded with espionage
and other problems," said a South Korean diplomat. "We are very aware that
Pyongyang could do the same."

Perhaps North Korea's presence in Macau is tolerated because it is better to
have its agents operating in a Westernized city than somewhere less exposed.

"It is much easier to watch them here than if they worked in Iran," said
Monge with a smile. "Open spaces like Macau are exceptional for espionage."

In December, Macau will return to Chinese rule. Western and Asian sources
say North Korean businesses are eager to move -- next door, to Hong Kong,
the Asian financial center.

Since that former British colony returned to Chinese control on July 1,
1997, North Korea has been lobbying Beijing for permission to establish a
presence in the territory, Western and Asian sources said. The issue was
raised when Kim Sungki, an official from the North Korean Foreign Affairs
Ministry, secretly went to Beijing on March 7 to help plan the celebration
of the 50th anniversary of diplomatic relations between the countries,
Western sources said.

In Pyongyang, the criminal enterprises are run from Bureau 39, a shadowy
wing of the Korean Workers' Party under President Kim's control, Western and
Asian intelligence officials said. They say the bureau, which runs a string
of factories and opium fields, was formed in 1994, when North Korea's
economic troubles became apparent.

In April 1998, Kil Chaegyong, a 65-year-old North Korean government
official, was caught trying to exchange $30,000 in counterfeit U.S. bills in
Vladivostok. He was later identified as the deputy director for
international affairs of the Korean Workers' Party and an official attached
to Bureau 39. In the 1970s, Kil was deported from Sweden after he was linked
to a narcotics smuggling case.