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Investigation Uncovers North Korean Ghost Companies Hidden in Tax Haven

Geoffrey Cain and News Desk
Sunday, 9 Jun 2013 | 10:39 PM ET
STR | AFP | Getty Images

Ghost companies set up in international tax havens could be sheltering the North Korean regime's fortune, an investigation by South Korean journalists suggests.

The Korea Center for Investigative Journalism (KCIJ) has identified four shell companies that it believes are linked to Pyongyang. All based in the British Virgin Islands, one is registered to a North Korean address and the others have names related to North Korea.

While there is no confirmation that the companies are tied to the North Korea regime, the KCIJ's report has prompted speculation that they could be tools for managing the slush fund accumulated by former North Korean leader Kim Jong Il, who was long been suspected of stashing his wealth overseas.

(Read More: Two Koreas in First Talks in Over Two Years 'Without Argument')

Alternatively, the shell companies may have enabled North Koreans to evade the international financial sanctions that are supposed to prevent money-laundering and stymie trade.

North Korea is the most heavily sanctioned nation in the world, with the state bank the main target of the latest round of United Nations sanctions passed in February. Even though embargoes apply mostly to what governments call "dual-use" products, or products that can be used for both civilian and military purposes, legitimate businesspeople avoid North Korea altogether because of its stigma.

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A shell company is one way to get around the wall and to back underhanded projects. Still, it is unclear from the report how and if the companies' directors used the shells to funnel money into North Korean operations.

(Read More: North Korea Surrenders to Foreign Currency Invasion)

A company named Larivader Solutions Inc. was set up in the British Virgin Islands on Nov. 19, 2004 and existed until at least October 2009, the KCIJ said on its website. One of its two registered directors, Mun Kwang Nam, gave his address as "2 Kin Mal Dong, Mao Lang Bong District Pyong Yang Republic of Korea," the non-profit news organization reported, citing its analysis of documents obtained from a trust that helps people establish paper companies in tax havens.

KCIJ said it also found three shell companies in the British Virgin Islands — Chollima, Chosun and Koryo Telecom — that are not registered to North Korea but have North Korean-style names.

Two people, Lim Jong Ju and Wong Yuk Kwan, were registered as directors of all three paper companies set up between 2000 and 2001, KCIJ said.

(Read More: North Korea Sends Top Kim Jon-Un Aide to Beijing)

The two are believed to be investors involved in the telecommunication business in North Korea. It is not clear whether they are linked to Orascom Telecom, an Egyptian-owned firm that operates North Korea's sole 3G network and counts some 2 million North Korean subscribers.

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