If U.S. President Joe Biden thinks his sanctions on North Korea will curb Kim Jong Un’s behavior, he is not paying attention to cryptocurrency markets.
A new report from blockchain research firm Chainalysis reckons the Kim regime’s haul from hacking crypto platforms surged 40% in 2021 to roughly $400 million. Written between the lines in bold font is the very high likelihood that Kim’s cyber-scamming army is netting far more than that.
Really, can anyone think of a less transparent financial universe than digital assets for Kim to exploit to fund nuclear weapons, retain power and menace world markets? This marriage between crypto world’s extreme opacity and the most opaque regime anywhere is a bigger problem for Bitcoin than investors realize.
With the most-watched cryptocurrency flirting with a move below $40,000, Bitcoin bulls have enough on their minds. But U.S. Treasury Department officials cannot be happy to see Kim’s regime scoring ever-bigger and harder-to-monitor windfalls from digital assets. U.S. Securities and Exchange Commission chair Gary Gensler’s phone at his office must be ringing off the hook.
Even without North Korean intrigue, investors are on edge, wondering how Gensler’s team will come down on this regulatory netherworld. For watchdogs worried the crypto space is too rife with fraud and bad actors, Pyongyang’s attack on at least seven cryptocurrency platforms last year is now Exhibit A in their closing arguments.
“These behaviors, put together, paint a portrait of a nation that supports cryptocurrency-enabled crime on a massive scale,” Chainalysis concludes. Erin Plante, senior research director at the consultancy, adds, “they have been very successful,” as evidenced by the “flagship year” that just ended for Pyongyang.
Granted, Kim making a bundle from cybercrimes is not news to Washington. In an April 2021 report, the U.S. Office of the Director of National Intelligence said Kim’s hacker army helps his family dynasty “fund government priorities, such as its nuclear and missile program.”
Investigators for U.S. government agencies and the United Nations estimate Kim’s regime has already profited to the tune of $2.3 billion via cyber hacking and that Pyongyang is getting better at it all the time.
The U.S. Cybersecurity and Infrastructure Security Agency warns Kim’s “malicious cyber activities” are stealing military secrets along with attacking global banks’ defenses. North Korea is hoovering up digital currency and using it to engage in ransomware blackmail and launder its illegal spoils.
Kim is now into his second decade as supreme leader. The success of state-sponsored crypto heists will say much about the stability of Kim’s economy and nuclear ambitions. It gives Kim a ready way to cushion the blow from sanctions from Washington, Tokyo or the UN community. And less reason to negotiate.
The Donald Trump years were grand indeed for Kim. The former U.S. president rewarded him with two summit meetings with essentially nothing in return. Kim got the photo opportunities of which father Kim Jong Il and grandfather Kim Il Sung could only dream. While Trump got some nice headlines in the short run, his stunts gave Kim space to accelerate his nuclear and missile programs and grow the ranks of his hacker corps.
Kim’s crypto exploits are a sort of realpolitik. Global-positioning systems make it hard to smuggle in the Mercedes-Benz’s, cases of Hennessy cognac, designer fashions, electronics and perks the Kim family used to reward the generals looking over their shoulders. Nor is shipping mountains of counterfeit $100 bills worth the trouble anymore.
Hence the pivot to digital assets. As paradoxical as it sounds, Kim’s hackers are plenty sophisticated, innovative and nimble.
Many suspect the Lazarus Group, a consortium of programmers believed to be backed by Pyongyang’s intelligence agencies, is involved. Lazarus is thought to have masterminded the Sony Pictures hack in 2014, the Bangladesh Bank heist in 2016 and who knows how many others. It is not like companies and exchanges want anyone to know they were just fleeced by a regime that can barely feed its people.
One telling change is how Pyongyang is diversifying thefts beyond Bitcoin. Chainalysis notes that, in dollar terms, Bitcoin accounts for less than 25% of North Korea’s crypto thefts.
In 2021, Ether, the Ethereum network’s currency unit, accounted for about 58% of Pyongyang’s heists. This creates a whack-a-mole nightmare for anti-money-laundering agencies, wondering how, when and where Kim is replenishing his treasure chest. Considering the number of cryptocurrencies is approaching 10,000, that is a lot of cyber-sleuthing for security agencies.
Environmental concerns are rising, too. This month, the U.S. Congress is holding a hearing on how the “meteoric rise in popularity” of crypto mining is increasing carbon footprints. China voiced similar concerns when it banned mining. That, and fear of Communist Party bigwigs using crypto assets to spirit ill-gotten gains overseas and evade taxes.
Could the Pyongyang effect be a key tipping point? It might be one of the rare global risks that gets Washington, Tokyo, Seoul and Beijing on something approaching the same page.
It is reasonable to think Kim’s $400 million windfall, coming just as ballistic missile tests put North Korea on Biden’s radar screen, ups the pressure on the Treasury and SEC to respond. North Korea could indeed make 2022 the year of regulatory crackdowns that cryptocurrency bulls long dreaded.
Read full story on Nikkei Asia
