Analysis | Virtual Currencies are Handing North Korea an Economic Lifeline
Gibraltar — North Korea's foundational ideology, 'Juche', is often loosely translated to 'self reliance', the commitment that North Koreans harvest their own collective success as a means of immunising the state from foreign pressure. Born from Juche, North Korea's wholesale rejection of international engagement has resulted in an inverted, seemingly impenetrable economy bolstered by illicit money and goods. Despite heavy sanctioning from the international community, the North Korean regime’s efforts to profit through illicit means persist.
The US Department of the Treasury Financial Crimes Enforcement Network concluded in 2016 that “the North Korean government continues to access the international financial system to support its WMD and conventional weapons programs.” North Korea's means of accessing the international financial system are well understood, including bulk smuggling of cash, acquiring luxury goods and making use of multiple front companies to evade international sanctions. However, one of the newest means through which the North Korean regime intends to continue its fundraising activity is through the exploitation of the cryptocurrency industry.
The advent of the cryptocurrency economy has been a gift for North Korea's economic woes. The key traits of any cryptocurrency — user anonymity, speed to market, and liquidity — make it a feasible and fruitful channel for those in the business of reinforcing North Korea's finances. As Barbara Stettner, attorney at law states, 'peer-to-peer transaction authentication was created to permit coin holders to bypass institutional intermediaries, which otherwise act as essential gatekeepers in the global AML regime.'
We can divide North Korea's young relationship with cryptocurrencies into thirds, as per Carlisle & Izenman (2019) of the Royal United Services Institute:
Fundraising: To sustain its ongoing needs for cash, North Korea may obtain cryptocurrencies with the aim of converting them to fiat currencies in the short term.
Stockpiling: North Korea could accumulate reserves of cryptocurrencies with the objective of eventually spending them or converting them into fiat currency at some point in the future.
Circumvention: North Korea could use cryptocurrencies to pay directly for goods, services and resources that are explicitly prohibited by international sanctions.
In reality, fundraising and stockpiling serve as a means to the end of circumventing sanctions. North Korea's efforts to fundraise and stockpile can further be broken down into their ability to mine cryptocurrencies themselves, and their ability to hack the technology that underlines crypto assets in the cyber world.
How successful has North Korea been in these pursuits, and what clues can we derive from North Korea's ideological makeup to inform us of its government’s future ambitions in cyberspace?
It is doubtful that North Korea could ever utilise mining cryptocurrencies for domestic economic development. A founding premise of the crypto world is consumer decentralisation — the emancipation of buyers and sellers from third party intermediaries and governments. This is of course anathema to North Korea’s highly centralized state structure, and there is little evidence to suggest a paradigm shift in this regard. While there is little hope that modern technology in the cyber world would boost the prospects of North Korean citizens, it may still be utilised for the purpose of state survival and for the Kim regime itself.
The South Korean Financial Security Institute reported in the summer of 2017 that North Korea hacked into a South Korean company server to mine $25,000 worth of Monero, a crypto asset that has also garnered the interest of white supremacists. American cybersecurity firm AlienVault have also noted that the fruits of North Korea's Monero mining efforts are sent to Kim Il Sung University in Pyongyang. To date, North Korean success has been modest, but there is no evidence to suggest the regime will stop pursuing vulnerable exchanges as a source of revenue.
Beyond the regime's ability to mine cryptocurrencies, North Korea has been much more active in the straightforward theft of crypto assets. In 2017, the North Korean cyber attack Wannacry resulted in the equivalent of $140,000 stolen in bitcoin.All things considered, this is a modest figure, but the importance of the Wannacry attack was was hardly limited to financial loss. Rather, the attack signalled to the international community that North Korea is serious about exploiting the cyber-deficiencies of cryptocurrency technology in order to steal from unsuspecting victims.
North Korean Hacking Activity
Post-Wannacry, North Korea has turned her attention to her regional neighbours. On June 29, 2017, North Korean hackers targeted South Korean cryptocurrency exchange Bithumb for the first time, demanding $7 million worth of Bitcoin in exchange for stolen information. In January of 2018, North Korea stole $534 million worth of NEM, a Japanese cryptocurrency. Several months later in June of 2018, Bithumb fell victim to North Korea for a second time, losing approximately $13 million worth of Bitcoin to Pyongyang which was then laundered through YoBit, a Russian cryptocurrency exchange. Reports stated that the Lazarus Group — an organization of North Korean hackers— operating under the direction of North Korea's Reconnaissance General Buraeu were likely behind the attack.
Kaspersky Lab, a global cybersecurity company, has provided in depth insight as to how North Korea’s hacking ambitions are being spearheaded through Lazarus Group. From mid-2018 onwards, the Lazarus Group has been able to target macOS software. Kaspersky Lab also found that since November 2018, the group has utilised a new external control operation targeting ‘Windows systems and macOS malware for Apple users.’The group achieves this by issuing commands and control server scripts that are disguised as Wordpress files. Once the group's files access foreign computers,Lazarus can collect host information, download and update files, and manipulate the malware configuration. (Kaspersky Lab, 2019)
Given that it is 'no secret that Apple products are now very popular among successful internet startups and fintech companies', one can infer from the Lazarus Group's concerted effort to access this software that North Korea is serious about exploiting crypto technology in the long term.
North Korea’s Future Intentions
The new and exciting world of virtual currencies offer undeniable potential for growth, although amidst that excitement the global financial system is in danger of overlooking the threat North Korea poses to the industry's future legitimacy.
It is commonplace to assume that North Korea's founding ideology, Juche, promotes self-reliance above all other values. After all, the Workers' Party Monument proudly pays homage to this value through the hammer, sickle and paintbrush standing tall in the centre of Pyongyang. Consequently, one might doubt the seriousness of the threat North Korea poses to virtual currencies by virtue of the contradiction to their own value system. How can a regime that prides itself on self-sufficiency seek to bolster their economic wellbeing by fighting for unearned scraps in the cyber world?
North Korean affairs expert Andrei Lankov argues in his book 'The Real North Korea, Life and Politics in the Failed Stalinist Utopia', that the Juche ideology means much more than self-reliance.Abpve all else, Juche embraces the notion of North Korean exceptionalism above all else, championing the 'need to give primacy to one's own national interests and peculiarities.' (Lankov, 2015)
In this light, it should come as no surprise that North Korea is eager to pursue economic gain at the expense of others. Approximate estimates today put North Korea's profit margins from illicit cryptocurrency activity at anywhere between $500 million and $750 million. Left unchecked, North Korean ambition could see these figures increase exponentially, at the expense of an exciting and promising partnership of finance and technology.
All views expressed in this article are solely those of the author, and do not represent the views of The International Scholar or any other organization.