HEROIN BUSTS POINT TO SOURCE OF FUNDS FOR NORTH KOREANS

The Taiwanese fishing vessel steered into waters off North Korea last June,
hoisting a black flag with the image of a bull. A North Korean gunboat,
manned with sailors in what looked like naval uniforms, soon pulled up. A
member of each crew showed a torn half of a red Taiwan hundred-dollar bill
bearing the image of Sun Yat-sen, founder of Taiwan's government. When the
halves matched, the North Koreans transferred 198 plastic-wrapped bricks of
heroin to the fishing vessel.

The incident, described by police and lawyers for some of the Taiwanese,
was part of a broad North Korean campaign to finance its regime by selling
contraband around the globe, say U.S. and Asian intelligence officials.
Going back to the 1970s, North Korean diplomats and military officers have
been arrested in Europe, the Mideast, Russia and Africa, accused of trading
in cocaine, heroin, bootlegged alcohol, endangered animals and even
counterfeit U.S. dollars.

High-level defectors allege that North Korean dictator Kim Jong Il and his
late father, Kim Il Sung, have personally overseen development of the
narcotics trade. As the economy began contracting in the late 1980s, the
defectors say, the North Korean leaders ordered state collective farms and
youth brigades to produce opium to earn hard currency. Villagers had to
meet production targets, and the military helped with distribution. U.S.
and Asian intelligence officials say North Korea linked up with criminal
gangs in the region to enhance its network.

"North Korea is essentially now a state-run criminal syndicate," asserts
Raphael Perl, a researcher at the U.S. government's Congressional Research
Service, who has tracked the country's drug trade for a decade.

North Korea's exports from legitimate businesses totaled just $650 million
in 2001, according to South Korea's central bank. But its annual revenue
from illegal drugs runs between $500 million and $1 billion, officials at
the U.S. military command in South Korea estimate. Another source of hard
currency: secret missile sales that U.S. forces in South Korea estimate
added up to $560 million in 2001.

As multilateral talks on North Korea's nuclear program begin Wednesday in
Beijing, one concern is that if they chose, the North Koreans could readily
convert their smuggling networks to selling nuclear fuel. North Korea
restarted its nuclear reactor this year and has been making noises about
beginning to reprocess its spent fuel rods into plutonium, which can be
used for bombs. Says a senior U.S. official in Seoul: "North Korea has a
historical record of smuggling anything to anyone anywhere." (See
(http://online.wsj.com/article/0,,SB105103374832818000,00.html?mod=artic
le-outset-box) more on the Beijing talks.)

The most recent drug bust came Sunday, when the Australian navy chased down
and stormed aboard a North Korean cargo ship, the Pong Su, off Sydney.
Tuesday, Australia charged its 30 North Korean crew members with trying to
smuggle in about 110 pounds of highly pure heroin, a charge the defendants
denied.

Besides opium, of which North Korea is believed to be the world's largest
source after Afghanistan and Myanmar, North Korea produces amphetamines. It
was the origin of more than a third of amphetamines seized in Japan from
1999 to 2001, Japanese drug officials say.

The North Korean government denies that it has been involved in drug
trafficking. The police in Australia say they are still investigating the
exact relationship between the drug-ship crew and the Kim government. But
some U.S. officials say the government control in North Korea is so
absolute it's difficult to imagine that gangs of North Korean nationals
could operate independently. And interviews with a half-dozen defectors, as
well as drug-enforcement officials in four North Asian countries, suggest
involvement of the top leadership.

Kim Dok Hong was a senior official of North Korea's Workers' Party in the
early 1990s, a member of the Central Committee and the top aide to founder
Kim Il Sung's secretary. Central Committee documents he read outlined Kim
Il Sung's orders for opium production in the early 1990s, before the
founder's 1994 death, says the 64-year-old defector in an interview at a
guarded safe house in Seoul. The economy was withering as aid declined from
traditional benefactors China and Russia. North Korea's economy has
suffered still more since then -- its legitimate exports falling by more
than half since the early 1990s -- prompting a search for new sources of
foreign currency.

Kim Il Sung visited a collective farm in the province of Namjak-Ri in the
fall of 1993 and instructed managers to "produce more opium, which is to be
bartered for food," recounts Kim Dok Hong, who says he read the comments in
official Communist Party bulletins. The 1997 defector adds that in speeches
to party cadres, outlined in Central Committee documents, the founder known
as "the Great Leader" spoke of how opium could be a crucial means for
earning hard currency.

Kim Jong Il, the founder's son and now North Korea's ruler, traveled to
provincial towns, where meetings were held to discuss which would be the
best areas for growing opium poppies, the defector says he read in Central
Committee documents. He says the government chose the provinces of Southern
Hamkyung and Northern Hamkyung.

Park Sung Hak, a 2000 defector who had been a leader of the Kim Il Sung
Youth Association, says his organization was tasked in the mid-1990s with
overseeing opium-poppy cultivation. Traveling through farms in mountainous
regions, Mr. Park says, he helped enforce production quotas laid down by
the state. Farmers who came up short faced punishment. Their produce was
transferred to government factories where it could be processed into
heroin, says Mr. Park, 35, who now works for a software company in Seoul.

"Opium gets you 300 times the profit you can get from corn," Mr. Park says.
He says farmers were kept in the dark about the opium's use. An unknown
portion apparently went for medicine, because North Korea, lacking most
painkilling drugs , uses opium as a substitute.

Kim Dok Hong says that, before his defection, he was personally involved in
escorting Southeast Asian drug lords around the North Korean capital. He
recounts how North Korea once sent a bad batch of heroin to Japan that
sickened users. "There was real concern that some of the people may have
died from ingesting the bad drugs ," he says.

Mr. Kim says a Laotian businessman and three Burmese drug merchants,
sitting in an office of a North Korean military trading company in 1996,
schooled him and officers from a military trading company on what had gone
wrong with the drug shipment. The Laotian explained that too many chemicals
had been used, he says, while the Burmese merchants instructed the North
Korean military men in how to make their heroin more pure.

Though quality improved, distribution channels began proving troublesome.
Detention of North Korean diplomats abroad for alleged drug smuggling rose
sharply in the mid-1990s, say South Korean and U.S. officials.

North Korea's dealings in contraband have deep roots. Virtually North
Korea's entire diplomatic corps in Scandinavia was expelled in 1976 for
allegedly running a smuggling ring through Norway, Denmark and Finland,
dealing mostly in alcohol and cigarettes. Arrests of North Korean diplomats
for allegedly dealing in marijuana, cocaine, morphine and the "date rape"
drug rohypnol have also been reported over the past three decades.

A North Korean envoy arrested in Russia in 1996 with nearly 50 pounds of
heroin committed suicide while in custody, a South Korean police report
says. Other arrested diplomats have signed statements saying they were
acting alone. In the early days, contraband sometimes moved in diplomatic
pouches. In more recent years, North Korea increasingly has turned to
partnerships with Asian gangs for distribution.

"The recent trend is for these [gangs] to send boats into North Korean
waters. Fishing boats come to pick up the drugs ," says Yoo Dong Ryul, an
analyst for the South Korean police department.

One reason for North Korea's success has been cooperation with Japanese
organized crime, say U.S. and Japanese drug-enforcement officials. Between
1999 and 2001, Japanese authorities seized more than 2,400 pounds of
amphetamines en route from North Korea, 34% of Japan's total seizures of
the drug . China, which in past years was the main source, accounted for 38%.

North Korean spy ships make their way into Japanese waters and rendezvous
with Japan's yakuza gangs. One such ship sailed into the waters off
southwestern Japan on Dec. 22, 2001. When Japanese Coast Guard boats
ordered it to halt, the North Korean crew opened fire. The Coast Guard
fired back and sank the vessel, which the Japanese government later
determined to be a North Korean spy vessel that was also selling
amphetamines to Japanese gangsters. All crew members were presumed drowned.

Taiwan, too, has seen more drugs flowing in from North Korea through local
gangs. The Taiwanese vessel that linked up with a North Korean gunboat and
matched torn halves of a bill took aboard about 174 pounds of heroin, say
Taiwan police and prosecutors. The July 2002 bust of the fishing ship,
called the Shun Chi Fa, yielded 13% of the heroin Taiwan seized last year,
according to Taiwan's Investigation Bureau.

The prosecutor of the arrested Taiwanese crew, Wu Tzong-guang, estimates
the ship had made five or six successful smuggling trips to North Korean
waters before being caught. He says the smuggling suspects told him the
July haul was their smallest.

Taiwanese authorities began tracking the ship early last year, tipped off
by a man who said he had taken part in one voyage. Police tracked several
trips but were foiled when the fishing ship, after returning from North
Korean waters, always moved its cargo onto small boats as it neared Taiwan.
But last June 16, police watched as the mother ship set out again for North
Korean waters. Taiwanese authorities eavesdropped on calls the crew made to
their contacts back in Taiwan. On June 21, in North Korean waters, the crew
of the Shun Chi Fa raised its flag and picked up its cargo from the North
Korean gunboat.

Back in the vicinity of Taiwan, the ship halted near an island and crews
transferred the heroin bricks to a small boat called the Hsie Man 18. The
"little bucket," as they called it, headed into the Shen Au port. This
time, police were able to track the smaller boat, and were waiting when it
docked.

Among those they arrested, and are now trying in court, was the alleged
ringleader, Lin Jing-kwo, a 34-year-old member of a wealthy Taiwanese
family. His attorney declined to comment. Lawyers for three of the six
other suspects -- who like Mr. Lin are currently on trial -- say their
clients were indeed involved in smuggling, but didn't know that the
contraband was heroin.

The heroin in this seizure came in three unremarkable boxes. In several
earlier raids in Taiwan and Japan, says Taiwan's Investigation Bureau, the
packages were more noteworthy. The drugs were packed in rice bags -- the
same bags used to hold rice that Taiwan donates to North Korea to ease its
hunger crisis.