North Korea’s Transnational Arms Industry
By Des Carney for ISN
Acting on a tip-off from US intelligence, external pageofficials at Don Muang Airport in Bangkok searched an Ilyushin-76 cargo plane, registered as flight 4L-AWA, reportedly carrying ‘oil industry spare parts’ that had stopped to refuel on 11 December 2009.
The search yielded a 35-ton haul of North Korean weaponry that included rocket-propelled grenades, missile and rocket launchers, missile tubes, surface-to-air missile launchers, spare parts and other heavy weapons, at an estimated value of $18 million. The shipment was widely reported to be headed to Iran, while the weapons are typical of non-state armed groups such as Hamas or Hizbollah, or militant organizations in Africa.
It is the first time a North Korean weapons shipment by air has been interdicted. Weapons cargoes from several ships have been seized in recent years, most significantly aboard the ANL Australia, a Bahamas-flagged vessel that contained 10 container loads of weapons bound for Iran, after the ship docked in the United Arab Emirates in July 2009.
The external pagesanctions regime banning North Korea’s $1 billion per year arms exports is intended to curb their nuclear weapons program and stems from UN Security Council resolutions 1718 (2006) and 1874 (2009).
State-led criminal industry
However, during North Korea’s years in international isolation it developed all manner of tactics with which to conduct its criminal industry.
A UN Panel of Experts interim report examining the efficacy of the sanctions regime claims that the Second Economic Council of the ruling North Korean Worker’s Party, in charge of production and export of weapons, “has established a highly sophisticated international network for the acquisition, marketing and sale of arms and military equipment.”
The report, which was issued in November to the UN Security Council external pagebut was obtained by several media outlets, forewarned of the tactics used aboard flight 4L-AWA by highlighting methods that “include falsification of manifests, fallacious labelling and description of cargo, the use of multiple layers of intermediaries, 'shell' companies and financial institutions to hide the true originators and recipients."
Aside from the arms trade, a external page2008 US Congressional Research Service report documents how the pariah state uses its external pageforeign diplomats and external pageworkers stationed abroad and taps into criminal gangs to shift narcotics, counterfeit currency and contraband cigarettes, and engage in endangered species and human trafficking.
“Whenever a state is subject to UN sanctions, the level of clandestine and illicit trade increases,” Hugh Griffiths, expert on illicit arms trafficking at the external pageStockholm International Peace Research Institute, told ISN Security Watch.
“This is because trade is criminalized - trading patterns may change as a result, but research from the former Yugoslavia and Iraq shows that state authorities will not stop trade simply because a UN Security Council resolution has now ruled it to be illicit.
“On the contrary, trade may become more centralized in that state security services may play a more prominent role in organizing it,” he said.
Forging illicit networks
Meanwhile, the Bangkok interdiction highlights Pyongyang’s use of a globalized trading network and, importantly, how illicit arms brokers escape international attention.
external pageAccording to documents obtained by Chicago-based external pageTransArms and Brussels-based external pageInternational Peace Information Service (IPIS), Flight 4L-AWA was registered to AirWest Ltd in Georgia, and is currently owned by Overseas Cargo FZE, based in Sharjah in the United Arab Emirates. The plane had previous registration links to self-professed gunrunner Tomislav Damnjanovic and to airlines owned by Victor Bout, a notorious arms dealer that was arrested in Thailand in 2008.
On 5 November 2009, the plane was leased to New Zealand-based SP Trading, which had been external pageincorporated four months earlier by GT Group Ltd, a Vanuatu-based financial secrecy consultancy that specialises in “offshore company services for privacy, legal tax avoidance, asset protection, financial independence and freedom.”
The analysis of TransArms and IPIS suggests that Hong Kong-based Union Top Management chartered the plane from SP Trading on 4 December and took charge of the arms delivery. The plane was scheduled for multiple stops en route to Iran, including Thailand, Sri Lanka, Azerbaijan and Ukraine, before its interdiction in Bangkok.
The crew of Flight 4L-AWA, a Belarusian and four Kazakhstanis, were arrested and charged with illegally transporting arms, but efforts to trace the holding companies to the chief organizers have thus far resulted in a series of dead ends.
“The complexity of the operation points to an experienced international organization that knows how to set up shell companies and cut-outs to insure the real owner of the shipment and its ultimate destination remain very difficult to trace,” Douglas Farah, expert on arms smuggling and senior fellow at the International Assessment and Strategy Center in Virginia, told ISN Security Watch.
Shadow globalization
While the brokers behind the delivery are yet to be revealed, the case illustrates how technological and economic globalization provides opportunities to work in the shadows. National attempts to attract international capital, such as tax havens and minimal registration procedures, and financial liberalization in global banking, create transnational spaces that allow illicit brokers to set up front companies and cover their payment transfers to give the appearance of an essentially legitimate business network.
In New Zealand, where lax incorporation laws do not require a proof of identity or a registered residential address, ‘ready to go’ shell companies are easily created and often used to protect anonymity. external pageThe Dominion Post reports that SP Trading is one of 1,089 registered New Zealand companies owned by VicAm (Auckland) Ltd, 338 of which share the same ‘virtual’ offices at level five, 369 Queen St, Auckland. Company registration documents show that none of the companies have a stated trading function, while SP Trading appears to be a one-time use, legitimately incorporated company that was created to pass funds from the buyers to North Korea.
“Nearly all arms brokers involved in illicit arms transfers are 'legitimate' businessmen 98 percent of the time,” Griffiths told ISN Security Watch. “As such, they have companies and bank accounts and use the same methods employed by 'upperworld' or licit businesses all over the world.
“The real difference is in the level of document falsification they may have to undertake and the number of sub-contractors or front companies they work through.”
Officials in New Zealand are investigating individuals connected to the companies involved, while the US Justice Department is external pagereportedly ready to indict SP Tradingfor its participation in shipping arms to Iran. However, the relative fixity of state regulation and a lack of intergovernmental cooperation on arms trafficking practices allow transnational informal networks a far greater degree of flexibility.
That Pyongyang would use such networks makes good business sense. Outsourcing various facets of production and delivery has been a trend in the defense industry for years, and there is no reason to suggest that North Korea would not follow the same path. By outsourcing delivery, North Korea creates a division of labor that minimizes the risk of interdiction and exposure.
“[A]nything traceable to North Korea will be scrutinized [...] so it is in [their] interests to disguise the movements of these weapons,” Farah told ISN Security Watch. “North Korea has long mastered this 'outsourcing,' and seldom, if ever, delivers anything directly.”
So have illicit arms dealers found a prolific and obdurate wholesaler? While there is no way of knowing how many shipments slip through the net, officials concerned with weapons proliferation can at least take heart in the latest interdiction.
Arms brokers “tend to operate on the basis of a relatively cautious risk assessment unless offered a deal which is too good to be true,” Griffiths concluded. “[T]here seems to be a risk of interdiction and subsequent exposure attached to sourcing arms from North Korea that may not be the case elsewhere.”