How North Korea earns money from arms sales

South Korea’s defence ministry said that the missile launches are an act of defiance against the United States, as Washington cracks down on the secretive state’s weapons proliferation. Following North Korea’s May 25 nuclear test, the UN Security Council has imposed new sanctions to halt the North’s missiles sales, a vital source of cash for the destitute state.

How much does North Korea make from arms sales?
The US-based Institute for Foreign Policy Analysis estimates that North Korea, with an annual GDP others estimate of about $17 billion, earns some $1.5 billion a year from missile sales. Other studies say the figure may be in the hundreds of millions of dollars, with prior UN sanctions and other restrictions cutting into exports. The United States suspects the North has also sold nuclear know-how.

Who are the customers?
Since the 1980s North Korea has sold missile systems to Iran, Pakistan, Egypt, Libya, Syria and Yemen, the International Crisis Group said in a report last month. Experts said these include the North’s variants of the Scud missile and its mid-range Rodong ballistic missile. The ICG report also said there is strong evidence that North Korea was cooperating with Syria in an attempt to build a reactor that could be used in a plutonium-based weapons programme. The suspected Syrian facility was destroyed by the Israeli air force about two years ago.   

Will UN sanctions work?
Sanctions from the UN and others have made it more difficult for the North to sell arms abroad, experts say, but Pyongyang has almost nothing else to export and is likely to search for ways to bust the sanctions. The key to enforcing sanctions is global cooperation, with China playing a major role. Fearful of moves that could lead to a collapse of the North Korean government and chaos on its border, China has expressed caution in the enforcement of sanctions. The US Treasury brought North Korea’s international finances to a virtual halt in 2005 by cracking down on a Macau bank suspected of aiding the North’s illicit financial activities. Other banks, worried about being snared by US financial authorities, steered clear of the North’s money.   

How else does it earn foreign currency?
The US government has accused North Korea of trafficking in narcotics, counterfeiting US currency and producing fake cigarettes. Intelligence sources say the North also earns foreign currency through insurance fraud.

Where does the money go?
The North uses foreign currency to buy goods overseas that reward the ruling elite. They are also used to buy materials for its arms and nuclear programmes.