This building is believed to house the nerve center of North Korea's activities in Macau

December 18, 1999
Web posted at: 10:07 a.m. HKT (0207 GMT)

From Hong Kong Bureau Chief Mike Chinoy

MACAU (CNN) -- Macau, the tiny enclave, known for its casinos and gang wars, has been a financial haven in recent years for North Korean drug traffickers and money-launderers, according to law enforcement and intelligence sources.

But some people are wondering if China will tolerate North Korea's clandestine operations, or if it will seek to rein in its socialist neighbor.

"Macau is their center overseas point. The collapse of Eastern Europe as part of the Soviet Union has denied North Korea a base of operations in Europe," Former U.S. National Security Council Asia specialist Doug Paal said.

"Now they're really left only in Macau, which is a relatively lawless environment," Paal added.

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North Korea has used the tiny Portuguese enclave as a base for clandestine operations for years, diplomats, law enforcement and intelligence sources say.

"Macau was used as a conduit for money-laundering, for forgery, and as a waystop, as a platform for mini-operations within Southeast Asia," said Lee Chong-min, of Yonsei University, Seoul.

The nerve center

A nondescript building -- housing the Zokwang Trading Co. staffed by dozens of North Koreans carrying diplomatic passports -- is believed to be the nerve center for North Korea's activities in Macau.

Macau police raided the company in 1994, and found several North Koreans carrying hundreds of thousands of dollars in fake U.S. currency. Sources say the counterfeiting continues.

"They also launder a lot of counterfeit $100 bills," Paal said. "Even the new American currencies designed to counter counterfeiting have in fact proven to be copy-able by the North Koreans, and they're already circulating them."

The North Koreans' diplomatic status and Macau's lax laws regarding money movements make it easier for suitcase-loads of fake American currency, worth millions of dollars, to be carried into the enclave.

The bogus money, sources say, is laundered through a North Korean trading house in nearby Zhuhai, located in China's Guangdong province, where it is exchanged for Japanese or German currency.

"Macau is attractive to the North Koreans probably because of the very complex banking sector, in which money laundering is commonplace," said Lo Shiu-hing, of Hong Kong University.

"In other words, the North Korean government may be able to raise funds and channel money quite easily through Macau," he added.

North Korea's Air Koryo arrives in Macau, one of its few overseas destinations

Drug trade

The North Koreans, sources add, are also into the drug trade. The U.S. Congressional Research Service estimates North Korea generates $70 million a year in illegal drug sales.

Amphetamines are the primary drug sold. They are made in North Korea, exchanged for cash on the high seas with gangs, who distribute the drugs in Taiwan and Japan, and the North Koreans deposit the money in several of Macau's banks.

"Moving money is relatively easy. We know there are a lot of North Koreans who pass through Macau," Gen. Manuel Soares Monge, the enclave's security secretary, said.

"We have sniffer dogs that can intercept drugs ... but inside a suitcase, there's no guarantee we can intercept counterfeit currency," he added.

Learning about the West

Macau's freewheeling environment is also a valuable training ground for North Korean intelligence agents to learn about the West.

Kim Hyun Hui, a young agent, said he spent several months in the mid-1980s living in Macau and learning how to operate outside North Korea's closed and tightly controlled society.

He eventually posed as a Japanese tourist, and planted a bomb on a South Korean airliner in 1987. The explosion killed 115 people.

North Korean government officials told CNN they don't know of any illegal North Korean activities in Macau. Sources confirmed the North Koreans have legitimate business transactions in the enclave.

Zokwang, the sources said, purchases and transports televisions, liquor, cigarettes, food and other luxury goods to Pyongyang. North Korea's military, sources add, operates a commercial department in Macau known as New Hap Heng.

The military's main mission, sources note, is to handle sales of weapons and missile and nuclear technology to nations such as Pakistan and Iran.

Pakistan's medium-range ballistic missile, the Ghauri, is considered to be a copy of North Korea's Rodong 1. Intelligence sources say North Korea has sold missile components to Iran.

"The Iranian agents can send the money to any Macau banks. Then (the North Koreans) can collect the money, redivert it to other banks and then, through the North Korean company, back to North Korea," Lo said.