North Korean Supernotes

NORTH KOREAN SUPERNOTES: NUCLEAR ARMS FINANCED BY COUNTERFEIT CURRENCY MICHAEL YATSKIEVYCH Intelligence and National Security Studies APPROVED: Larry A. Valero, Ph.D., Chair Damien Van Puyvelde, Ph.D. Alexandra Luce, Ph.D. Bess Sirmon-Taylor, Ph.D. Interim Dean of the Graduate School Copyright © by Michael Yatskievych 2014 NORTH KOREAN SUPERNOTES: NUCLEAR ARMS FINANCED BY COUNTERFEIT CURRENCY By MICHAEL YATSKIEVYCH, B.A., B.S. THESIS Presented to the Faculty of the Graduate School of The University of Texas at El Paso in Partial Fulfillment of the Requirements for the Degree of MASTER OF SCIENCE Intelligence and National Security Studies THE UNIVERSITY OF TEXAS AT EL PASO May 2014 TABLE OF CONTENTS TABLE OF CONTENTS ......................................................................................................... iv LIST OF TABLES .................................................................................................................. vii LIST OF FIGURES ............................................................................................................... viii LIST OF ABBREVIATIONS AND ACRONYMS ................................................................ ix CHAPTER 1: INTRODUCTION ..............................................................................................2 1.1 Background ................................................................................................................2 1.2 Research Area of Study ..............................................................................................3 1.3 Research Aim and Objectives ....................................................................................4 1.4 Assumptions, Preliminary Questions, and Preliminary Hypotheses .........................5 1.5 Framework of Thesis .................................................................................................6 CHAPTER 2: LITERATURE REVIEW ..................................................................................7 2.1 Introduction .................................................................................................................7 2.2 Why Would DPRK Use Supernotes? .........................................................................8 2.3. How are Supernotes Dangerous to the US and the World? .....................................15 2.4. Where and How are Supernotes Made? ...................................................................25 2.5. How the US and the Global Community Addressed Supernotes ............................28 2.6. Perspectives Not Concurrent with the Dominant Paradigm ....................................36 iv CHAPTER 3: METHODOLOGY ..........................................................................................40 3.1 Research Question, Aim, and Objectives .................................................................40 3.2 Data Collection, Reliability Assessment, and Limitations .......................................41 3.3 The Traditional Method of Intelligence Analysis .....................................................42 3.4 What is ACH? ...........................................................................................................43 3.5 What is Intuitive Analysis? .......................................................................................45 3.6 Three Key Contrasting Elements: ACH vs. Intuitive Analysis ................................48 3.7 Is ACH Methodology Superior to Intuitive Analysis? .............................................49 3.8 Is ACH the Proper Evaluation Tool for Studying Supernotes? ................................56 3.9 The ACH Process ......................................................................................................57 CHAPTER 4: RESULTS .........................................................................................................63 4.1 Data Set One .............................................................................................................65 4.2 Data Set Two.............................................................................................................65 CHAPTER 5: ANALYSIS ......................................................................................................67 5.1 Is North Korea Capable of Producing Supernotes? ..................................................67 5.2. Are Supernotes Responsible for the DPRK’s Nuclear Program? ............................70 v CHAPTER 6: CONCLUSION ...............................................................................................74 APPENDIX - A: Key Assumption Check – ACH 1 ...............................................................83 APPENDIX - B: Is DPRK Printing Supernotes? – ACH Matrix 1 .........................................85 APPENDIX - C: ACH Inconsistency Score vs Hypothesis, Matrix 1 .....................................87 APPENDIX - D: Is DPRK Printing Supernotes? –Evidence List 1 .......................................88 APPENDIX - E: Key Assumption Check – ACH 2 ...............................................................93 APPENDIX - F: Supernotes Financing DPRK's Nuclear Program -ACH Matrix 2 ..............96 APPENDIX - G: ACH Inconsistency Score vs Hypothesis, Matrix 2 ....................................98 APPENDIX - H: Supernotes Financing DPRK’s Nuclear Program - Evidence List 2 ...........99 BIBLIOGRAPHY ..................................................................................................................106 CURRICULUM VITA ..........................................................................................................110 vi LIST OF TABLES Table A.1 : Is DPRK Printing Supernotes? – ACH Matrix 1.1 ................................................... 85 Table A.2: Is DPRK Printing Supernotes? – ACH Matrix 1.2 .................................................... 86 Table A.3: Supernotes Financing DPRK’s Nuclear Program – ACH Matrix 2.1 ....................... 96 Table A.4: Supernotes Financing DPRK’s Nuclear Program – ACH Matrix 2.2 ....................... 97 vii LIST OF FIGURES Figure 3-1. Doctor’s Anecdote - Less is More ............................................................................ 54 Figure A.1: Inconsistencies- Is DPRK Printing Supernotes? ....................................................... 87 Figure A.2: Inconsistencies- Supernotes Financing DPRK’s Nuclear Arms Program ................. 98 viii LIST OF ABBREVIATIONS AND ACRONYMS A.Q.K. Abdul Qadeer Khan, chief nuclear scientist, Pakistan BDA Banco Delta Asia BEP Bureau of Engraving and Printing CIA Central Intelligence Agency CBRN Chemical, Biological, Radioactive, Nuclear [weapons/arms] DPRK Democratic People’s Republic of Korea – North Korea EO Executive Order HEU Highly Enriched Uranium HRES House Resolution IAEA International Atomic Energy Agency IAI Illicit Activities Initiative IRBM Intermediate Range Ballistic Missile KOMID Korea Mining Development, Trading Corporation KPA Korean Peoples’ Army KWP Korean Workers Party LWR Light Water Reactor MTCR Missile Technology Control Regime NIS National Intelligence Service NGO Non-government organization NMD National Missile Defense NPT Non-Proliferation Treaty OECD Organization for Economic Co-operation and Development ix OFAC (US Department of the Treasury) Office of Foreign Assets Control ROK Republic of Korea – South Korea TOC Transnational organized crime UNSCR United Nations Security Council Resolution USFK United States Forces Korea x CHAPTER 1: INTRODUCTION 1.1 Background North Korea is considered to be one of the most closed and secretive nations on Earth. The reasons for its isolationist identification are multifold, but can be best explained that after the Korean War, 1950-53, the DPRK, founded by President Kim Il Sung, adopted a policy of ostensible diplomatic and economic self-reliance, or Juche. Under this doctrine, strong military posturing and dependence on national resources made for a self-imposed segregation from the international community. North Korea maintains that it is still in a state of war, yielding in a highly militarized area, where its Songun, or military-first policy, continues to isolate this country from the world. The sensitivity of this situation creates an obscure vision of North Korea. DPRK’s isolationist posturing can be demonstrated, for example, by denying economic monitoring agencies access to vital national statistics. Verifiable information as to how North Korea manages its finances and ultimately how DPRK manages to survive as a nation is coveted, but withheld. The prevalence of academic research on this nation, in regards to domestic analyses and relationships with the international community, are difficult to find. Currently, the extent of academic knowledge of North Korea’s nuclear motivations are primarily based on theoretical security disciplines (namely, rational deterrence and organizational bureaucratic political theories) comprised of political negotiations, economic strife, and social and class misalliance.1 Historiographical research that analyzes past events and attempts to introduce new empirical data to formulate new economic and military oriented 1 David Albright, Peddling Peril (Free Press), p. 6-9.; Scott Sagan and Kenneth Waltz, The Spread of Nuclear Weapons: An Enduring Debate (W.W. Norton and Company, New York, 2012), p. 3, 46. 2 patterns or causalities can also be found, however, the presence of specialized academic knowledge, due to DPRK’s nature of withholding information, is limited and research

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