A shadowy organisation’s alliance with the Queensway Group helps Pyongyang bring in cash
In the middle of last year, the residents of Pyongyang began to notice a new fleet of taxis operating in the North Korean capital. With their maroon and gold bodywork, the gleaming sedans were easy to spot as they cruised the city’s orderly streets. The cars bore the taxi company’s logo: KKG.
While western powers’ relations with Iran and Cuba appear to be thawing, the hermit kingdom’s political isolation is as deep as ever. Even China, long an ally, has grown frostier with Pyongyang in recent years. A UN investigation last year described “unspeakable atrocities” perpetrated against the inmates of its prison camps.
The sabre-rattling under Kim Jong Un — including a cyber attack against Sony that Washington blamed on Pyongyang and last month’s test-firing of a ballistic missile from a submarine — has added fresh impetus to efforts to understand how the regime plugs itself into the world economy.
The domestic economy has either contracted or grown at 1 per cent in recent years, according to South Korean government estimates based on limited data, with annual exports of about $3bn falling well short of the import bill.
As prices for the coal and other commodities that North Korea exports to China fall, business networks such as the one behind KKG are likely to become increasingly vital in garnering crucial foreign exchange for the regime.
The North Korean end of the KKG network leads to a shadowy organisation called Office 39 of the Workers’ party, according to Asian and US officials.
The US has described Office 39 as “a secretive branch of the government . . . that provides critical support to [the] North Korean leadership in part through engaging in illicit economic activities and managing slush funds, and generating revenues for the leadership”.
North Korea’s rulers have had to resort to such tactics after years of international sanctions. Imposed in response to nuclear tests in 2006, 2009 and 2013, the sanctions comprise an arms embargo designed to stop North Korea trading weapons and sourcing parts for its atomic programme;
an asset freeze to apply financial pressure to the leadership; and a ban on luxury goods that is meant to deprive senior figures of the trappings of power, from lobster and cigarillos to furs and yachts. The UN sets the overall structure of sanctions; states decide what to prohibit.
But annual reports by a UN panel that monitors the sanctions describe a game of cat-and-mouse, as North Korea’s rulers use an ever-shifting web of subterfuge to disguise commercial activities abroad.
The most recent UN report, sent to the Security Council in February, documents arms sales in Africa and the use of “flags of convenience” to conceal North Korean control of shipping.
The UN report also suggests that “legitimate business structures have been used for illegitimate activities”. In 2010, the US added Office 39 to its sanctions list. The EU followed suit.
North Korea has brought in foreign exchange by exporting guns, methamphetamines, mushrooms and indentured labourers. Perhaps most lucratively, it also sends textiles, coal and minerals across its border with China. Andrea Berger, a North Korea expert at the UK’s Royal United Services Institute, a think-tank, says:
“Office 39 is extremely important. It’s generally regarded as the regime slush fund.”
The EU says Office 39 reported directly to Kim Jong Il, North Korea’s ruler from 1994 until his death in 2011, when his son, Kim Jong Un, took over. Office 39 is “among the most important organisations assigned with currency and merchandise acquisition”, the EU says. The US and the EU also imposed sanctions on what they said were Office 39 front companies.
One, which is known as Korea Daesong General Trading Corporation and several similar names, “is used to facilitate foreign transactions on behalf of Office 39”, the US Treasury said. The company did not respond to a request for comment. The EU describes it as part of the broader Daesong group, “the largest company group of the country”.
According to the Asian official and JR Mailey, a researcher at the Pentagon’s Africa Center for Strategic Studies, Daesong is one of the backers behind KKG.
Another, according to these people and court documents from Hong Kong, is the business network known informally to those who have studied it as Queensway Group, after the address of its headquarters at 88 Queensway in Hong Kong’s financial district.
Over the past decade, the Queensway Group has built a multi-billion-dollar corporate empire that stretches from Zimbabwe to Manhattan.
The precise nature of the KKG partnership is unclear — whether it is an incorporated joint venture or a more informal arrangement. Searches by the FT yielded no records for a company called KKG that matched the profile of the one active in North Korea.
Nor did searches in English and Korean for Kumgang Economic Development Corporation, KKG’s name when written in Korean characters. That suggests that KKG is either simply a brand, or, if it is a company, it is registered within North Korea, which does not keep company records online. The FT was unable to find contact details for KKG.
The relationship between KKG’s backers was formed around the end of 2006. According to the Asian official, details of whose account were corroborated by others, the Queensway Group’s foray into North Korea was spearheaded by the frontman who has advanced its interests in Africa and elsewhere. He goes by at least seven names — but is best known as Sam Pa.
An FT investigation last year found that Mr Pa and his fellow founders of the Queensway Group have connections to powerful interests in Beijing, including Chinese intelligence and state-owned companies. They also have ties to big western groups: Queensway Group companies are in business with BP in Angola, Glencore in Guinea and others.
Mr Pa did not respond to requests for comment. Only one of the Queensway Group figures and companies contacted for comment replied. Jee Kin Wee, group head of legal at China Sonangol’s arm in Singapore, says his company and KKG “are separate and unrelated companies”. He did not clarify the link between his company in Singapore and its sister company,
China Sonangol International Holding, registered at the Queensway address in Hong Kong. That company is jointly owned by Mr Pa’s business associates and Angola’s state oil group.
It is named in Hong Kong court documents as having made payments related to KKG projects.
Mr Wee did not answer specific questions about the Queensway Group’s dealings in North Korea. But he stressed that “China enjoys full diplomatic and economic relations with North Korea and . . . scores of countries around the world, including EU countries, have bilateral diplomatic relations with North Korea”.
Mr Pa is said to have met senior North Korean officials as he began his courtship of the regime in 2006. At the time, Pyongyang needed new partners. It had found itself increasingly locked out of the global financial system.
A year earlier, the US had accused Macau-based Banco Delta Asia of laundering money for the regime, causing the near-collapse of that bank and prompting others to avoid North Korea.
Mr Pa struck a deal with Daesong for an eclectic range of North Korean projects, the Asian official says, ranging from power plants to mining to fisheries. Money started to flow — although it is unclear how much flowed directly into North Korea.
A ledger published in a 2013 Hong Kong high court ruling in a dispute between some of Mr Pa’s business associates refers to Queensway Group payments including “Pyongyang city bus system”, “Korea airport”, “Korea: 5,000 tons of soyabean oil” and “exhibition sponsored by the Korean consul”. There are no further details. But the list of payments also contains references to KKG.
KKG first came to the attention of Pyongyang’s residents around 2008. That year, photographs posted online showed a billboard displaying a spectacular image of a planned property development close to the Pyongyang Mullet Soup Restaurant.
Located by a bend in the Taedong River, the planned properties included a pair of shimmering skyscrapers that would not have looked out of place in London’s riverside Canary Wharf business district. The new development was to be called KKG Avenue and bore the same KKG logo that would appear on Pyongyang taxis.
KKG Avenue made little headway beyond some rickety hoardings and preliminary work on foundations, according to foreign officials, visitors to Pyongyang, photos and satellite images.
Despite such setbacks, KKG has been described at least once as a major North Korean company. A 2014 presentation by Hawtai Motor Group, a privately owned Chinese carmaker based in Tianjin, indicates that the company supplied the vehicles for the KKG taxi fleet. The presentation describes KKG as one of “North Korea’s largest state-owned enterprises”. Hawtai declined to comment.
Some who have observed Queensway’s thrust into North Korea say it is seeking to replicate a model it pioneered in Africa: striking infrastructure-for-natural resources deals with oppressive governments such as Angola’s, Zimbabwe’s and a military junta that briefly ruled Guinea. The group appears to have set its sights on North Korea’s untapped potential for oil.
Mr Mailey, who was one of the authors of a 2009 US congressional report who recently published a second detailed study of the group, says:
“The KKG taxis might earn the regime some foreign currency from tourists visiting Pyongyang, but most signs point to the oil and mining sectors as the Queensway Group’s true target.”
A 2009 report by the UK’s Chatham House think-tank said Queensway’s China Sonangol in 2007 lined up a Chinese state-owned group to carry out seismic explorations on two oil prospects in North Korea. A China Sonangol jet was spotted in Pyongyang in 2013.
Like the taxi venture and the Pyongyang property project, the search for oil appears to be taking place at least in part via KKG, the Queensway partnership with Office 39. According to the Asian official and an oil industry insider familiar with North Korea, KKG has looked for oil in several parts of the country, so far without success.
In November 2013, North Korean state television broadcast footage of an event in the city of Kaesong, close to the demilitarised zone between North and South Korea established in 1953.
Dignitaries hailed the start of work on a “high-tech industrial park”. According to state media, the park was to house an information technology centre, a hotel, houses, a school and a power plant.
One of the speakers was a man in a dark suit with a neat haircut, identified by local media as Jang Su Nam. He is described as the representative of the “Peace and Economy Development Group”. Mr Mailey says Mr Jang once worked for Daesong. Mr Jang could not be reached for comment.
The camera panned across the other honoured guests. Among them was Lo Fong-hung, a petite Chinese businesswoman. According to interviews and court documents, she is Mr Pa’s principal business partner in the Queensway Group. Also present were ambassadors from African countries where the Queensway Group has interests.
Standing beside them was Nik Zuks, the Australian founder of a London-listed miner of west African iron ore called Bellzone, in which China Sonangol has built a majority stake. Neither Ms Lo nor Mr Zuks responded to requests for comment.
Mr Pa was not present for the groundbreaking ceremony. But since Mr Kim assumed the leadership in 2011, Mr Pa appears to have maintained his relationship with North Korea’s regime.
The unpredictable ruler’s most high-profile visitor to date has been Dennis Rodman, the former US basketball star who first turned up in Pyongyang to attend a game in 2013, shortly after North Korea’s most recent nuclear test.
According to the Asian official, Mr Pa visited Pyongyang as recently as December and sent the North Korean leader a personal birthday letter in January.
The pair have something else in common apart from an urge to do business: Mr Pa was placed under US sanctions last year in relation to his dealings in Zimbabwe, where he has been accused of funding Robert Mugabe’s secret police in exchange for rights to trade diamonds. Mr Pa has called the allegations “baseless”.
“Sam Pa’s role is to be a window for the Pyongyang regime to capitalist markets,” the Asian official says. “I think his future is bright in that regard.”
Additional reporting by Tae-jun Kang in Seoul