Pyongyang starts liking crypto a bit too much

Cryptocurrency has emerged as a big moneymaking business for North Korea, both in trading and outright stealing. But their rewards also present some formidable risks, including the dwindling value of any ill-gotten gains they make.

A bitcoin representation is seen in an illustration picture taken at La Maison du Bitcoin in Paris, France, June 23, 2017. [REUTERS/YONHAP]

Cryptocurrency has emerged as a big moneymaking business for North Korea, both in trading and outright stealing.

Both are ways of getting around international sanctions targeting its missile and nuclear weapons programs. But their rewards also present some formidable risks, including the dwindling value of any ill-gotten gains they make.

Over the past five years, Pyongyang is estimated to have raised approximately $1.6 billion through cryptocurrency heists and trading, according to various investigators and experts.

Cryptocurrency theft, such as the suspected purloining of $100 million in cryptocurrency from U.S.-based Horizon Bridge on June 23, is just one tool in Pyongyang’s arsenal to evade sanctions. North Korea’s methods have become necessarily more sophisticated after United Nations Security Council resolutions targeted Pyongyang’s formerly preferred ways of raising foreign currency.

In the past, North Korea focused on narcotics manufacturing and trading, arms sales to anti-Western and non-aligned countries, and counterfeiting U.S. dollars to illicitly raise money for its weapons programs.

Mandatory remittances from North Korean workers dispatched abroad by the regime also helped Pyongyang amass foreign currency.

North Korea was estimated to have sent about a total of 100,000 workers to overseas construction sites, factories and restaurants in neighboring China and Russia, as well as far-flung countries such as Qatar and Poland, before the Covid-19 pandemic. The annual income generated by these workers was estimated to have reached about $500 million.

A less orthodox way through which the North raised foreign currency included exports of monumental bronze statues made by the state-owned Mansudae Art Studio to authoritarian rulers in Benin, Congo, Zimbabwe and Angola.

These activities did not escape the attention of the United States, which persuaded the Security Council to adopt two resolutions in August and December 2017 banning North Korea from sending its workers abroad and exports by Mansudae Art Studio.

The broadening of international sanctions, and Pyongyang’s self-imposed blockade on overseas movement as a result of the Covid-19 pandemic, forced the regime to ratchet up its illicit operation in cryptocurrencies, which are not bound by the existing sanctions network.

“From the view of North Korea, which closed its borders to prevent the spread of Covid-19, cryptocurrencies are attractive means of both evading sanctions and acquiring foreign currency,” said Jeong Yoo-seok, a researcher at IBK Economic Research Institute.

While North Korean operatives initially engaged in cybercrime by hacking foreign websites, companies and financial institutions, the regime’s hacking groups, such as Lazarus, turned their attention to cryptocurrency as interest grew worldwide.

For North Korea, one major advantage of cryptocurrencies is that many trades are conducted via peer-to-peer (P2P) transactions without government interference.

Cryptocurrency is not, however, without risks for Pyongyang.

Due to instability in the cryptocurrency market, the total value of cryptocurrencies stolen by North Korea may have decreased by more than $100 million due to the recent downtown in the cryptocurrency market.

Chainalisys, a U.S. blockchain analysis company, recently concluded that the value of cryptocurrency still retained by North Korea, which had not been converted into fiat currency, was worth $170 million (about 220.1 billion won) at the end of last year, but recently plunged to $65 million (about 84.1 billion won).

Such risks have not appeared to deter Pyongyang from engaging in cryptocurrency theft — rather, the regime’s crypto heists have only grown more brazen in the past year.

In a January report, Chainalisys estimated that the total value of cryptocurrency North Korea netted through cybercrime last year was $400 million, while it concluded in a separate May report that the amount of cryptocurrency the North illegally acquired this year was just under $1 billion.

BY MICHAEL LEE [lee.junhyuk@joongang.co.kr]