North Korean gold and globalization

You have to admit, it's impressive when researchers stumble across North Korea while investigating something completely different

You have to admit, it’s impressive when researchers manage to stumble across North Korea while investigating something completely different

Back in April we asked who would buy Kim Il-sung’s bling? At the time, we were certain that China was importing North Korean gold; however, we did not expect to find several high-profile American firms sourcing North Korean gold for their products. And yet this is exactly what dozens of companies admitted to in their own reports to the U.S. Securities and Exchange Commission in May.

If you are picturing evil investment bankers flying to Pyongyang with suitcases filled with good American dollars to execute some complex tax evasion scheme involving a vault in Switzerland and discreet meetings on random Caribbean islands, allay those fears. It is not nearly as egregious.

During an investigation to assess whether suppliers to U.S. corporations were sourcing minerals from mines controlled by armed groups in the Congo, a dozen companies including Hewlett-Packard, IBM, and William-Sonoma discovered that they had been supplied with North Korean gold.

But how did this happen? After all, these major companies (or at the very least their army of lawyers) are fully aware that the sourcing of North Korean gold in any form constitutes a violation of Washington’s sanctions on Pyongyang.

According to the Wall Street Journal, many of these companies relied on a draft template created by the nonprofit organization Conflict-Free Sourcing Initiative to assess the legality of their supplies and apparently this early version of the template had listed the Central Bank of the Democratic People’s Republic of Korea as a South Korean entity.

Ah yes, over sixty years since the end of the Korean War and people still confuse the two Koreas.

Of course we can tender the idea that these well-educated folks did see the error but chose not to correct it because it suited their profit margins in some way or another – but then again, considering the average person’s ability to immediately discern between abbreviations ROK and DPRK, this theory might be giving corporations too much due consideration.

But this issue raises important questions regarding the existing sanctions regime on North Korea.

According to Julie Schindall, a spokeswoman for the Conflict-Free Sourcing Initiative, while the mistake on the problematic template has been corrected, it remains “impossible for us to know… whether or not suppliers in China are still using [gold smelted by the DPRK Central Bank]”

Indeed, the porous DPRK-PRC border renders enforcement mechanisms unable to easily differentiate between export goods actually produced in China and those originating from North Korea (if there is a modicum of an effort to obfuscate the information).

And why should we expect anything less? We are already well-aware that the North Korean market is not shielded from economic shocks and tremors in the region. Therefore, we know there exists an exchange of goods between North Korea and the rest of the world. And as such, Washington should anticipate some North Korean exports finding their way into American products. This is simply the reality of the contemporary, globalized economy.

So how effective is the sanctions regime in this day and age? What diplomatic or political gains has it tangibly provided or promised for Seoul or Washington? And how costly has it actually been for Pyongyang?

These are just some questions to mull over as Tokyo takes the first step in lowering its sanctions to jump start talks with Pyongyang on the repatriation of Japanese abductees.


About Yong Kwon

I develop trade advocacy strategies for a DC-based consulting firm. Studied economic history at the London School of Economics, and can be found on twitter at @ykwon88
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