Originally appeared at ZeroHedge
In a fascinating report that provides a glimpse into the shadowy North Korean black-market economy, the Washington Post has published a story about a 2016 incident in which Egyptian authorities intercepted a North Korean ship bearing a Cambodian flag after being alerted by US authorities. After searching the ship, Egyptian law enforcement discovered something unexpected: a trove of nearly 24,000 rocket launchers, and components for 6,000 more weapons, hidden below a large pile of loose iron ore.
But perhaps the biggest surprise for the Egyptian authorities emerged when they tried to determine for whom the weapons were intended, and discovered that they had been secretly purchased by the Egyptian military in violation of international sanctions against NK arms sales. Further compounding the irony, Egypt had recently joined the UN Security Council – the international body sponsoring said sanctions – before deciding to circumvent them and buy the weapons.
As has been widely reported in the US media, North Korea reaps profits from several illegal rackets, believed to include counterfeiting of US dollars to the sale and distribution of methamphetamine. Now, we can add to that list the clandestine sale of Soviet-area conventional weapons, of which the North retains a massive stockpile, though it also manufactures its own copies.
According to WaPo, North Korea continues to sell arms to a handful of countries, including Chad and the Congo, which have relied on North Korea to equip their armies for decades, largely because of one simple reason: North Korea is one of the few remaining manufacturers of Soviet-era arms and components. For military managers in smaller, cash strapped economies, being able to upgrade their existing weapons systems with North Korean arms instead of replacing their entire inventory.
The WaPo story, which appears to stem from a UN Security Council report about the incident that was shared with the reporter, details the backlash that Egypt faced – the incident was one reason why the Trump administration abruptly withheld nearly $300 million in development aid to Egypt over the summer, an announcement made during a trip by Jared Kushner to discuss terror-related matters with Egyptian officials.
But it’s unclear whether the US, which has struggled to strangle the North Korea economy for years, only to see the country continue making progress on its weapons program with the help of Ukrainian rocket-engine manufacturers and various conventional-arms clients.
The incident highlights just how reluctant many of North Korea’s clients may be to give up their relationship with the isolated North for one simple reason: they can buy better weapons for lower prices.
But U.S. officials confirmed that delivery of the rockets was foiled only when U.S. intelligence agencies spotted the vessel and alerted Egyptian authorities through diplomatic channels – essentially forcing them to take action – said current and former U.S. officials and diplomats briefed on the events. The officials, who spoke on the condition of anonymity to discuss U.S. and U.N. findings, said the Jie Shun episode was one of a series of clandestine deals that led the Trump administration to freeze or delay nearly $300 million in military aid to Egypt over the summer.
Whether North Korea was ever paid for the estimated $23 million rocket shipment is unclear. But the episode illustrates one of the key challenges faced by world leaders in seeking to change North Korea’s behavior through economic pressure. Even as the United States and its allies pile on the sanctions, Kim continues to quietly reap profits from selling cheap conventional weapons and military hardware to a list of customers and beneficiaries that has at times included Iran, Burma, Cuba, Syria, Eritrea and at least two terrorist groups, as well as key U.S. allies such as Egypt, analysts said.
Some customers have long-standing military ties with Pyongyang, while others have sought to take advantage of the unique market niche created by North Korea: a kind of global eBay for vintage and refurbished Cold War-era weapons, often at prices far lower than the prevailing rates.
And as international sanctions against the regime has tightened, North Korea has become adept as smuggling, relying on ships bearing “false flags” (like the Cambodian flag flown by the Jie Shun, the North Korean ship intercepted by North Korea authorities) and concealing illegal cargo.
Over time, the small-arms trade has emerged as a reliable source of cash for a regime with considerable expertise in the tactics of running contraband, including the use of “false flag” shipping and the clever concealment of illegal cargo in bulk shipments of legitimate goods such as sugar or — as in the case of the Jie Shun — a giant mound of loose iron ore.
“These cover materials not only act to obfuscate shipments, but really highlights the way that licit North Korean businesses are being used to facilitate North Korean illicit activity,” said David Thompson, a senior analyst and investigator of North Korean financial schemes for the Center for Advanced Defense Studies, a nonprofit research organization based in Washington. “It is this nesting which makes this illicit activity so hard to identify.”
The weapons discovered by the Egyptian authorities, which were headed to a shell company later revealed to be a front for the military, were North Korean copies of the Soviet-era PG-7, a variant of a weapon first built in the 1960s.
Asked about the boxes, the crew produced a bill of lading listing the contents, in awkward English, as “assembly parts of the underwater pump.” But after the last of the 79 crates was unloaded and opened at Egypt’s al-Adabiyah port, it was clear that this was a weapons shipment like none other: more than 24,000 rocket-propelled grenades, and completed components for 6,000 more. All were North Korean copies of a rocket warhead known as the PG-7, a variant of a Soviet munition first built in the 1960s.
A closer examination by U.N. experts would reveal yet another deception, this one apparently intended to fool the weapons’ Egyptian recipients: Each of the rockets bore a stamp with a manufacturing date of March 2016, just a few months before the Jie Shun sailed. But the label, like the manifest, was false.
“On-site analysis revealed that they were not of recent production,” the U.N. report said, “but rather had been stockpiled for some time.”
And despite the latest string of US sanctions, as well as the US’s attempt to make an example out of Egypt by cutting its aid, the North continues to do a brisk business with clients who can’t access, or can’t afford, weapons from other suppliers – clients that include the regime of Bashar al-Assad and groups like Hezbollah. The North has created something of a market niche for itself: selling replicas of Soviet arms no longer available in commercial markets. Even Libya’s former dictator Gaddafi bought weapons from NK.
The sanctions stigma inevitably scared away some potential buyers, but the trading in the shadows remains brisk, intelligence officials and Western diplomats say. Some remaining clients are fellow pariah states such as Syria, whose recent purchases have included chemical-weapons protective gear. Other long-term customers are nonstate actors such as the militant group Hezbollah, which has acquired North Korean rockets and missiles from arms smugglers and sympathetic regimes. North Korean-made rifles have even been recovered from the bodies of Islamic State fighters in Iraq and Syria, although U.S. officials believe the guns were probably looted from stocks sold to the late Libyan leader Moammar Gaddafi years earlier.
Still other customers look to North Korea as one of the last suppliers of low-cost parts and ammunition for older weapons systems that are scarcely found in commercial markets. The list includes sub-Saharan African countries such as Uganda and Congo, which for decades relied on North Korea to train and equip their armies.
Even Egypt, a longtime US aid recipient and ally, has an arms-buying relationship with Pyongyang that stretches back to the 1970s. And as several experts quoted in the story claimed, these old habits are difficult to break.
The list also includes Egypt, a major U.S. aid recipient that still maintains diplomatic ties and has a history of military-to-military ties dating back to the 1970s with Pyongyang, said Berger, the Middlebury researcher. Although Cairo has publicly sworn off dealing with North Korea, she said, incidents such as the Jie Shun show how hard it is to break old habits, especially for military managers seeking to extend the life of costly weapons systems.
Egypt’s army today still has dozens of weapons systems that were originally of Soviet design. Among them are at least six types of antitank weapons, including the RPG-7, the 1960s-era grenade-launcher that uses the same PG-7 warhead as those discovered on the Jie Shun. The number of Egyptian RPG-7 tubes in active service has been estimated at nearly 180,000.
“Egypt was a consistent North Korean customer in the past,” Berger said. “I would call them a ‘resilient’ customer today.”
When the Egyptians were first confronted by the US and the UN about the military’s involvement in buying arms from North Korea, the country’s first move was to deny the claims, before moving to suppress an official UN report about the incident.
When Egyptian officials were first confronted about their country’s possible ties to the Jie Shun’s rockets, the response was denial, followed by obfuscation, Western diplomats said.
At the time of the discovery, Egypt was a newly elected nonpermanent member of the U.N. Security Council, and its delegation resisted including information in official reports linking Egyptian officials or businesses to illicit North Korean weapons, said U.S. officials and diplomats familiar with the discussions. The embassy statement said Egyptian officials sought only minor delays to ensure that their views on the events were properly reflected. It noted that Security Council officials had “recognized and praised Egypt’s role” in assisting the investigation.
In any case, the February U.N. report on the incident sidesteps the question of who was meant to receive the rockets, saying only that the munitions were destroyed by Egypt under U.N. supervision, and that “the destination and end user of the equipment was investigated by the Egyptian general prosecutor.”
So, for anybody wondering how Kim Jong Un manages to afford all that caviar and expensive whiskey, not to mention ballistic missiles, this should provide some insight. And as the US seeks to strangle the North Korean economy in hopes of forcing them to the negotiating table (if that is still the plan; recent comments from President Trump has suggested otherwise) North Korea’s longstanding black-market ties might prove too difficult to sever.