US Aims to Close North Korea's Shady 'Office 39'

(Aug. 31) -- The Obama administration is tightening the financial squeeze on North Korea, intensifying sanctions against money laundering, drug trafficking and weapons proliferation and aiming to drain the slush fund used to procure luxury items for the impoverished country's leaders.

President Barack Obama issued an executive order freezing the assets and banning economic ties with five North Korean agencies or state companies and three individuals he accused of trying to "destabilize the Korean peninsula and imperil U.S. Armed Forces, allies, and trading partners in the region, and [who] thereby constitute an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States."

The order builds on earlier sanctions Obama put in place in June after North Korea was blamed for the sinking of a South Korean warship in March. Though the sanctions freeze assets under U.S. control and directly ban only Americans from dealing with the North Koreans, the implicit threat is that any person, business or government around the world could face similar punishments for helping them.

The biggest question is whether China, North Korea's chief economic patron, will help enforce the sanctions, a matter Obama administration officials said they would discuss with Beijing.

The sanctions come as Washington seeks new ways to make headway against a now nuclear-armed regime that neither the Clinton nor George W. Bush administrations managed to tame. They take effect as North Korea, the most isolated country on the planet, seems to be undergoing a slow transfer of power from leader Kim Jong Il to one of his sons, Kim Jong Un.

Stuart Levey, the Treasury's undersecretary for terrorism and financial intelligence, said the new measures are aimed at getting North Korea back to the nuclear negotiating table by hitting the leadership's biggest sources of income: selling conventional weapons and ballistic missiles to the likes of Iran and Syria, peddling narcotics and counterfeit cigarettes, and counterfeiting tens of millions of dollars in U.S. currency.

"All of this activity makes up a crucial portion of the North Korean government's revenues," Levey said. "These activities are carried out by a global financial network that generates this income and secures the luxury goods for the government of North Korea."

The named targets of the U.S. actions include the Reconnaissance General Bureau, Pyongyang's top intelligence agency; Green Pine Associated Corp., one of its biggest arms dealers; and an obscure agency with the mysterious name Office 39.

Levey called Office 39 "a secretive branch of the North Korean government that manages slush funds and raises money for the leadership, including by trafficking drugs" and said it was a "key piece" of the network of illegal activities.

According to the State and Treasury Departments, Office 39 -- officially part of the Korean Workers Party -- manages the "leadership's slush funds," generating foreign currency and using branches all over the country to distribute the luxury goods that maintain the loyalty of top officials -- and that the U.N. Security Council has tried to ban from North Korea for just that reason.

Among its other activities, Office 39 has produced methamphetamine, opium and heroin that it smuggles into South Korea and China, the Treasury said.

The drug income is then used to buy jewelry, cars and even yachts, despite "the fact that many of North Korea's people live in dire poverty," Levey noted.

Robert Einhorn, a top State Department arms control official, added that the Obama administration is trying to punish and pressure the leadership without hurting a population that lives under a totalitarian government and is frequently afflicted by famine and floods.

"We continue to support negotiations as the best way of achieving a denuclearized Korean Peninsula," Einhorn said, noting that North Korea walked away from the last round of multinational talks on the issue two years ago.

But "we're not prepared to reward North Korea simply for returning to the negotiating table, including by removing or reducing sanctions," he said. "North Korea needs to demonstrate convincingly through concrete actions that it's ready to take irreversible steps to live up to its [previous] commitment to denuclearize."