NORTH KOREA 'CASHES IN ON DRUGS'

In January, Interpol officials at Moscow's international airport
spotted two North Korean diplomats arriving from Mexico, an unusual
event because that impoverished Asian nation has little money for its
diplomats to travel. An inspection of their luggage showed the two
were carrying 77 pounds of cocaine, worth about $4.5 million, which
they hoped to sell in Russia.

A few months earlier Japanese police had seized almost $100 million
worth of methamphetamines aboard a North Korean cargo ship. The cargo
was discovered, according to a U.S. official familiar with the case,
because the containers were labeled "honey," and "officials asked
themselves why a country in the midst of a massive famine would be
exporting food."

Isolated diplomatically, short of resources, facing
widespread famine and desperate for hard currency, North Korea is
rapidly expanding state involvement in the production and distribution
of heroin and methamphetamines, in addition to a host of other
criminal enterprises, according to U.S. and international drug
officials.

U.S. concerns about North Korea's state-sponsored drug
trafficking have been overshadowed bythe West's preoccupation with
North Korea's clandestine development of nuclear arms and its rapidly
advancing missile programs.

U.S. officials admit their information is sketchy because Washington
has no diplomatic ties with Pyongyang, and they rely heavily on South
Korean intelligence services. But anecdotal evidence, such as the
sudden jump in arrests of North Korean diplomats and the accounts of
defectors, indicate that the illegal activities are carried out with
the direct authorization of the North Korean government.

"The state is the mafia," said James Lilley, former U.S. ambassador to
South Korea, adding that North Koreans routinely use their diplomatic
pouch, immune to search, to ship drugs and other contraband.

A February report by the 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.

North Koreans at the United Nations did not answer requests for
comments, but in the past North Koreans have insisted that any
criminal activities were the work of individuals, not the state.

U.S. intelligence officials said that in about 1994 the government
created the Korean Workers Party Bureau 39, a special office to
generate hard currency that is under the direct control of North
Korean leader Kim Jong Il.

At about the same time, officials said, North Korea shut down many of
its embassies because of the financial crisis, and their remaining
diplomats overseas were told they would have to start earning enough
hard currency to pay the cost of operating their diplomatic posts and
remit some home. "These poor guys are sitting there trying to spin
gold from straw," said one official. "I suspect that is where you get
some of the drug dealing."

U.S. officials said much of the bureau money is channeled through the
Kaesong Bank for hard-currency purchases abroad."These two offices,
office 39 and Kaesong Bank, are Kim Jong Il's personal finance
secretariat, [and the money is] basically discretionary income for Kim
Jong Il to spend it on whatever [he likes]," said a U.S. official. "He
can spend it on bicycles or Mercedes or watches."There is growing
concern that North Korea is using drug trafficking proceeds to fund
its weapons program and maintain its military, the fifth largest in
the world. At the behest of Congress, the Clinton administration
ordered a review of all aspects of U.S. policy toward North Korea.
Senior House Republicans said that the review "needs to clearly
highlight the reality that North Korea has entered the illicit
narcotic production and trafficking business, especially the
production of opium and methamphetamine."

This year's State Department report on annual worldwide drug
trafficking concludes that, in North Korea "estimates of the area
under poppy cultivation range from 10,378 acres to 17,300 acres and
estimates of opium production range from 30metric tons to 44 metric
tons annually. This would yield from 3 to 4.5 metric tons of heroin,
if all the opium were refined into heroin."

The greatest concern, according to Barry R. McCaffrey, the Clinton
administration's drug policy director, is methamphetamine production,
which requires much less expertise and fewer precursor chemicals than
heroin production.

U.S. officials trace the rise in methamphetamine production to 1997,
after rains destroyed much of the opium crop.

"The target appears to be Japan and Thailand," McCaffrey said. "Meth
is worth their attention as a technique to generate international
cash, and it takes no skill."