North Korea is losing a crucial source of income: Koreans in Japan

October 25, 2013
North Korean leader Kim Jong Un waves at Kumsusan Memorial Palace in Pyongyang on Feb. 16, 2012. (AP Photo/David Guttenfelder)
North Korean leader Kim Jong Un at Kumsusan Memorial Palace in Pyongyang last year. (AP/David Guttenfelder)

Possibly the only thing that North Korea needs and craves more than nuclear brinksmanship is hard currency, which is essential for the country's survival but which international sanctions make very difficult to secure. The hermit kingdom has a number of ways to bring in cold, hard cash, but one of its previously most reliable has hit yet another setback in what appears to be its permanent decline.

That source of income is a group known as Chongryon, or the "General Association of Korean Residents in Japan." The Japan-based, pro-Pyongyang group links North Korea with the sizable community of ethnic Koreans living in Japan. Since its 1950s founding, Chongryon has done three things, and done them all pretty well: pushed pro-Pyongyang ideology among Japanese Koreans, funneled money from those Japanese Koreans into North Korea and, most important, has run all sorts of business that existed solely to generate cash for the North Korean regime.

Chongryon was a very effective sanctions-busting enterprise -- but it went bust itself last year, going formally broke. It had run up big debts in the 1990s, when North Korea's famine left leader Kim Jong Il desperate for every penny he could scrounge. And then it became a political target of the previously tolerant Japanese government in the 2000s, after Japanese public opinion finally turned more fully against Pyongyang.

This week, in a sign of Chongryon's  waning importance to North Korea, the regime in Pyongyang has downgraded it within the all-important halls of power. After decades of reporting to the shadowy and powerful "Room No. 225" -- the part of the North Korean government charged with clandestine money-gathering activities abroad -- the disappearing cash funnel is now overseen by the United Front Department, according to the Japanese newspaper Asahi Shimbun. That might sound like simple bureaucratic shuffling, but it's a big deal in North Korean politics, an indication that Chongryon is no longer the Pyongyang power player and lifeline it once was.

The amount of money that Chongryon sent to North Korea in its prime isn't known for certain, but it is thought to have made up a substantial chunk of the national budget. Armin Rosen, profiling the group last year on TheAtlantic.com, wrote that in just the 1980s, "Chongryon's business and criminal enterprises, which included off-book pachinko parlors, pubs, prostitution rings, and real estate, reportedly produced over a billion dollars a year in revenue." Rosen added, stunningly: "As late as 1990, its banking system was capitalized to the tune of $25 billion." That's right: the group had its own banking system.

Now, however, Chongryon is bankrupt. So bankrupt, in fact, that the Japanese government ordered it to sell its headquarters and use the cash -- 5 billion yen -- to pay back the Japanese government on the debt it took on in the late 1990s. Though Chongryon had long worked within the Japanese political system, using its cash to generate support and mobilizing Koreans in Japan, public outrage against North Korea simply got too high after 2002, when Pyongyang formally admitted it had previously kidnapped Japanese citizens as a form of international extortion.

Earlier this month, the Wall Street Journal reported that Chongryon was being told to now focus its energies on "espionage," although it's not clear what that would entail. North Korea could really use the cash instead -- the loss of Chongryon will be a significant blow for the country's long-term financial health.

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