RFA-Korean recently reported that the Dandong bureau chief of the DPRK National Economic Cooperation Federation had been summoned to the capital, Pyongyang, after authorities launched a high-profile investigation of the Federation. The National Economic Cooperation Federation (NECF) manages the disbursement of humanitarian aid to North Korea as well as South Korean investment in the North, and has offices in Dandong and Yanji, China, and Vladivostok, Russia.Korean American and Chinese investors have complained that the funding is not being properly disbursed, and this has triggered the investigation by the North Korean authorities. Investors often get ripped off. All South Korean investors have to go through the NECF and subsequently approach the Federation to express interest in investing in North Korea, but quite often the end result is that they are discouraged from proceeding with that investment.
According to a Chinese Korean travel agency, “operating in North Korea is risky, as one has to deal with NECF people who don’t really understand how the market economy operates.” A Chinese Korean businessman attempted to establish a restaurant in the Kaesong Industrial Park, but spent tens of thousands of dollars trying to start up the business over a one-year period, and eventually ended up in failure.
Korean investors from South Korea and other countries hope that the current investigation will result in enhanced transparency and reliability in North Korea’s handling of foreign investment.
After an investigation into the activities of the NECF, the North Korean authorities have also begun investigating the North Korean People’s Council for National Reconciliation. Overseas Koreans entrepreneurs who have applied through the NECF or the North Korean People’s Council for National Reconciliation to do business in North Korea have reported abuse and corruption in dealing with these two agencies.
Overseas Koreans trying to invest and do business in North Korea have linked the corruption allegedly affecting the NECF with the importation of fisheries and farm produce from the North into South Korea, and with the facilitation by the NECF of the process of identifying partner firms in the North.
North Korean agricultural produce and fisheries are imported into South Korea duty-free. With the exception of North Korean products, the duty levied on imported agricultural produce and fisheries is rather high.
One of the most common scams is to smuggle Chinese agricultural produce and fisheries into North Korea, and then ship them to South Korea duty-free, as North Korean produce, from the North Korean port of Nanpo to the South Korean port of Inchon. South Korean authorities have uncovered instances where Chinese sesame was imported into South Korea following that route.
NECF is under investigation for having issued fake “Made in North Korea” certifications for agricultural produce and fisheries produced in China, smuggled into North Korea and then shipped to South Korea duty-free as North Korean produce. According to overseas Korean entrepreneurs, the NECF employees demand large amounts of money to issue such certifications to prove that certain products originated in North Korea.
North Korean labor is cheap and relatively well-qualified, so many overseas Korean entrepreneurs are interested in investing in North Korea, engaging in production at North Korean factories. The NECF employees allegedly demand large bribes in order to put potential investors in touch with factory managers and other relevant North Koreans who can make such investment happen.
A South Korean entrepreneur approached the NECF to explore the possibility of setting up a red pepper paste factory in North Korea. He was asked if he had a lot of money. His answer was negative, and then the NECF employee retorted: “How can you do business in the fatherland if you have no money?” The South Korean answered that he would get a loan from the South Korean government. The NECF reply came promptly, clearly indicating that they were familiar with the process: “Oh, so you’re thinking of financing your business using economic cooperation funding!”
Once that was established, the North Korean official asked: “How much are you willing to invest in the fatherland?” The South Korean entrepreneur misunderstood this as a question about actual investment and said he would think about it, but what the North Korean official meant was a bribe, and later the South Korean was asked for 50,000 dollars. Eventually, the South Korean had to give up his business plans in the North, although he had already secured approval from the South Korean Unification Ministry, including approval to approach North Korean citizens, and also a North Korean visa.
“Investing in the Fatherland:” North Korean Authorities Investigating Corruption Allegations against the National Economic Cooperation Fund (NECF)
(RFA Reporting by Kwang-chool Lee and Jungmin Noh)