North Korea using crypto to subvert International Sanctions
North Korea, the hermit kingdom on the Korean Peninsula is reportedly using cryptocurrencies and other related virtual assets to undermine the international sanctions imposed on them by the global community.
According to two experts based in the American capital, Washington D.C., Lourdes Miranda and Ross Delston, Kim Jong-un’s kingdom is reportedly dealing in and even establishing their own cryptocurrencies. Miranda is an independent financial intelligence analyst and an investigator specializing in financial crimes and intelligence collection, while Delston is an independent Washington attorney and specialist in cases that are centered around anti-money laundering and combating the financing of terrorism (AML/CTF).
The story was first broken by The Asia Times to whom the aforementioned experts said, “International criminals everywhere prefer crypto-currencies and the DPRK is no exception. Crypto-currencies have the added advantage to the DPRK of giving them more ways to circumvent US sanctions. They can do so by using multiple international exchangers, mixing and shifting services – mirroring the money laundering cycle – to exploit international financial institutions that have correspondent banking relationships with the United States.”
Speaking on the issue of a North-Korean specific currency, they said, “DPRK can create their own crypto-currencies or use established ones like Bitcoin. Having their own crypto-currency would also facilitate their ability to open online accounts under the guise of a non-adversarial nation using anonymous communication to conceal the user’s locations and usage on the internet.”
In order for a cryptocurrency of such a nature to survive, an underlying customized blockchain is essential to which the pair agreed and said that this would be done “to appear that transactions are coming from legitimate sources.”
To further facilitate the process, the DPRK could even have a specific wallet, bank accounts that can store and distribute cryptocurrencies into European wallets which lack Personally Identifiable Information (PII) requirements and have no direct sanctions against them.
Miranda and Delton broke down this escapade into two overarching objectives, “(Firstly, to) avoid AML/CFT scrutiny from European financial institutions that have US correspondent banking relationships, DPRK could hire people to act as nominees who have legitimate PII to open wallets to receive, store and transfer DPRK-disguised crypto-currency.”
They added, “(and second) once the DPRK miners transfer the crypto-currencies into multiple European wallets that appear to come from legitimate sources, the money laundering can begin by mixing, shifting and exchanging crypto-currency into US financial institutions.”
The pair mentioned the use of a transaction mixer to perplex intelligence agencies from tracking the transfer, they refer to the same as a “Laundry Tumbler and a Washer,” to collect small amounts in several directions in order split linear transactional data while remaining on the same chain. Breaking down the idea of the mixer, they mentioned, “sending crypto-currency and receiving the same crypto-currency type back. It is equivalent to requesting change for a $100 and receiving different denominations in return totaling a $100.”
Following the mixing, ‘instant’ crypto shifters like ShapeShift and Changelly can be used to convert cryptos to Altcoins. DPRK can then exchange their cryptos in crypto-exchanges for fiat currencies.
Interestingly, North Korea is on the verge of hosting its first International Blockchain and Cryptocurrency Conference in October. Given the presence of the international sanctions and the reputation that the country carries it is unclear how the conference will play out but it is nonetheless a significant stride for the country.