Politics of Financial Warfare: The Banco Delta Asia Case- Part 1

  1. Setting the Stage: Disproportionate Relations and Unexpected Outcomes

The United States of America and North Korea are mismatched opponents.  North Korea has less people than the state of California and the 197th lowest GDP in the world, whereas the U.S. is the single most powerful nation state.[i]  Despite the disparity, North Korea has consistently outmaneuvered the more powerful nation.  From 1953 to 2003 North Korea has been responsible for 1,439 major provocations and for the deaths of at least 90 US service men.[ii]   In response to these provocations, the U.S. has not retaliated, and has even provided North Korea with aid.

North Korea’s disproportionate military strength and geostrategic location allows for a great deal of freedom in provoking the U.S.  At 22.3%, North Korea has the largest rate of military spending per GDP in the world.[iii]  Seoul, the capital city of American ally South Korea, is only about an hour away from the North Korean border, and its ten million people would suffer tremendously in any armed conflict.  Any use of force in response to a North Korean attack would have the possibility of drawing in Pyongyang’s major ally, China, into the conflict.  China last fought America during the Korean War, during which there was the serious threat of escalation to total war between the two powers.  This reality has constrained American ability to proactively constrain North Korea.  The one coercive strategy available for dealing with North Korean threats has been economic sanctions.

From 2003 to 2005 State Department official David Asher led a program, the Illicit Activities Initiative (IAI), targeting North Korea’s illicit activities and finances.  This task force included support from fourteen U.S. government departments and agencies, along with cooperation from fifteen different countries and international organizations, and was a comprehensive effort to target the North Korean regimes access to the world financial system.[iv] The basic principle of the group was that by targeting North Korea’s illicit activities the initiative could serve a basic law enforcement function while also weakening the elites in the Kim regime without hurting the North Korean people.  Working with the Treasury Department, the group’s primary success was the Banco Delta Asia (BDA) operation that targeted a bank in Macao for its involvement with North Korean illicit finance.  During the peak of this action, its financial restriction was so successful that in 2006 then North Korean leader Kim Jong Il told Chinese president Hu Jintao that he feared that sanctions would cause the collapse of his government.[v]  In order to understand the history of this financial war, I will use the BDA operation as a case study, and it will serve as a comparison to the current sanctions regime.  This case study will show that even when the US has the upper hand and leverage it managed to be out maneuvered by the weaker North Korean party.  North Korea is uniquely vulnerable to financial sanctions, however due to lack of domestic American interest, competing bureaucratic impulses, and the strategic planning of the Kim family regime successfully implementing effective sanctions will remain difficult.

2. Criminal Money: North Korea’s Financial Lifeline

Experts estimate that 33% of North Korea’s entire economy is made up of illicit activities such as drug dealing, counterfeiting currency and cigarettes, and arms trafficking.[vi]  These activities are so important that the Kim regime has established Office #39, a part of the official Korean Workers Party bureaucracy dedicated to earning foreign currency.[vii]    The current leader, Kim Jong Un, is believed to have slush funds located in European banks worth several billion dollars generated from criminal profits.[viii]  Kim Jong Un depends on these foreign funds to live lavishly; in 2012 he spent $645,800,000 on luxury goods alone.[ix]

North Korea has little in the way of natural resources or manufactured goods that other states are interested in trading for, and has long been subject to traditional state oriented sanctions.  Pyongyang needs to launder and hide its money, which makes it uniquely vulnerable to financial warfare that would freeze foreign assets and cut off access to the international dollar based system.  Rather than conducting trade in a transparent manner, it relies on state controlled front companies and other money laundering techniques.  Since international financial businesses that conduct transactions in dollars must go through U.S. Treasury Department regulated banks, the United States is well positioned to block or freeze North Korean funds.


[i] Korea, North (accessed April 10, 2014); available from https://www.cia.gov/library/publications/the-world-factbook/geos/kn.html

[ii] Andrew Scobell and John M. Sanford, “North Korea’s Military Threat: Pyongyang’s Conventional Forces, Weapons of Mass Destruction, and Ballistic Missiles,” Strategic Studies Institute, April 200, 27.  http://www.strategicstudiesinstitute.army.mil/pdffiles/pub771.pdf

[iii] “South v North Korea: how do the two countries compare? Visualised,” The Guardian, April 8, 2013. http://www.theguardian.com/world/datablog/2013/apr/08/south-korea-v-north-korea-compared

[iv] . David L. Asher, The Heritage Foundation, The Impact of U.S. Policy on North Korean Illicit Activities, April, 2007 http://www.heritage.org/research/lecture/the-impact-of-us-policy-on-north-korean-illicit-activities

[v] One Free Korea, A Financial Constriction Strategy for North Korea, May, 2012.  http://freekorea.us/plan/

[vi] Victor Cha, The Impossible State, (Harper Collins, 2012), 265.

[vii] 2. Paul Rexton Kan, Bruce E. Bechtol, Jr. and Robert M. Collins, Criminal Sovereignty: Understanding North Korea’s Illicit International Activities (Strategic Studies Institute, 2010), 1 http://www.strategicstudiesinstitute.army.mil/pdffiles/pub975.pdf

[viii] Bradley K. Martin, Under the Loving Care of the Fatherly Leader (New York: St. Martin’s Press, 2010), 197.

[ix] Joshua Stanton and Sung-Yoon Lee, “Pyongyang’s Hunger Games,” The New York Times, March 7, 2014. http://www.nytimes.com/2014/03/08/opinion/pyongyangs-hunger-games.html?_r=0

About Leon Whyte

I'm a recent graduate of the Fletcher school of Law and Diplomacy. My interests include Pacific Asia and Security. I am looking for related opportunities.
This entry was posted in Crime, Economics, geopolitics, International Relations, Korea, Pacific Asia, Uncategorized and tagged , , , , , , , , , . Bookmark the permalink.

1 Response to Politics of Financial Warfare: The Banco Delta Asia Case- Part 1

  1. Pingback: Politics of Financial Warfare: The Banco Delta Asia Case Part-2 | Small Crowded World

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s