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  • The Complex Relationship between Sanctions and North Korea's Illicit Trade
  • Justin V. Hastings (bio)

North Korea's illicit trade and sanctions have a complex relationship.1 In this essay, I argue that while North Korean companies do engage in illicit trade to bypass sanctions, much of such trade is actually the result of the fundamental dysfunction of the Kim regime and how the North Korean economy has evolved in the past several decades. That said, North Korea has been forced by sanctions to adapt the way it does business inside and outside the country. Because much of the illicit trade does not benefit the regime directly, it may actually behoove the international community to encourage some types of illicit trade and to provide an outlet for the regime to make money other than through dealing in weapons and illicit goods.

Sanctions and the Illicit Economy

North Koreans do indeed engage in illicit trade as a way of bypassing sanctions and sanction-enforcement mechanisms, specifically in buying or selling goods that have been declared off limits by UN Security Council resolutions. But there are two other main reasons that North Koreans engage in illicit economic activities and trade that have little to do with sanctions. First, the North Korean system at its most basic level encourages, and in many cases practically requires, economic activities to be illicit. In the years since the Arduous March killed a significant percentage of the North Korean population and citizens responded by going into business for themselves as a means of survival,2 North Korea, particularly under Kim Jong-un, has developed a modus vivendi whereby the lines between formal [End Page 28] and informal status, state and nonstate trade, and licit and illicit economic activities are blurred.

Nearly every economic actor in North Korea is involved directly or indirectly in illicit trade, or more generally the illicit economy. Central state companies defy sanctions to export proscribed goods and import sanctioned items (which have long since ceased to be merely the technology that could be used in weapons programs). Other state companies with trading licenses go abroad (usually to China) to make money via whatever means they can. Private companies masquerade as state-owned companies by paying off state officials to buy and sell both legal and illegal goods, while state officials moonlight as entrepreneurs using their public positions. Private individuals use family members and other connections in China to move consumer goods and food across the border, often outside formal checkpoints or in violation of trade regulations.3

The North Korean economy as a whole functions as what has been called a "food chain," where every level of society and the state must pay rents to their superiors for the right to operate, and Kim Jong-un and his circle serve as the apex predators collecting rents indirectly from everyone below them.4 Because all private enterprise in North Korea is technically illegal, the state benefits from a system in which officials can collect bribes and fees to allow private and hybrid businesses to operate but have the legal leeway to crack down on them at any time. The state does not really care where the income to pay rents up the food chain actually comes from. This leads to a situation where the state (and officials) can indirectly benefit from what are often large-scale, institutionalized illicit economic activities without being directly involved. Drug trafficking, for example, likely has not been directly run by the North Korean government (in the sense of using central state–owned factories for production and ships for trafficking) since the mid-2000s, but the state continues to benefit indirectly from drug-trafficking profits.5

Second, many North Koreans engage in illicit economic activities, particularly trade, as a way of mitigating state-imposed political and [End Page 29] economic risk and moving profits out of the country (such as through smuggling gold into China).6 Because North Korea has few financial institutions or dispute-resolution mechanisms that encourage commerce, and because market actors must cultivate relationships with government officials (through bribes, gifts, and a cut of profits) as a way of getting any business done, regardless of the ostensible...

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