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Sanctioning Russia Curtails North Korea’s Hard Currency Intake

As international sanctions on Moscow have triggered a decrease in the ruble’s value, North Korean workers in Russia are struggling to meet the remittance quotas set by Pyongyang, according to multiple sources in Russia and official North Korean documents obtained by VOA’s Korean Service.

North Korea is believed to use the hard currency to fund development of its weapons.

North Koreans working at Pyongyang’s entities and front companies contracted with enterprises in Russia are paid in rubles. As of 2020, there were 1,000 North Koreans working in Russia, according to the Russian Foreign Ministry.

Because the regime prefers dollars to rubles, the North Koreans convert their rubles before remitting them to Pyongyang. The sharp drop of the ruble has slashed the amount of dollars North Korean workers can send back to Pyongyang. When Russia invaded Ukraine on Feb. 24, $1 was worth 84.05 rubles. On March 4, $1 was worth 106.47 rubles.

VOA’s Korean Service is in regular contact with several sources in Russia who are familiar with the situation of North Korean workers there. Only the most trusted North Koreans are allowed to work in Russia and elsewhere outside their country.

Workers are “feeling extreme pressure from their supervisors” at North Korean enterprises operating in Russia, said one source who said the workers fear further devaluation of the ruble and are in a panic-driven rush to convert rubles to dollars.

The service has verified the credibility of the sources in Russia and to protect their identities, cannot reveal further information about them. The sources provided several documents including the list of monthly remittance quotas and instructions for meeting them.

Devalued ruble

The ruble plunged below $0.01 in value this week after the U.S. and European countries imposed sanctions against Russia on Feb. 26 to financially isolate and punish Moscow for invading Ukraine.

Included in the sanctions was a ban on several Russian banks from accessing the SWIFT global bank payment system.

Eager for foreign currency, Pyongyang has long dispatched North Korean workers to Russia to make money. The U.S. estimated 30,000 were in Russia before the U.N. issued sanctions in December 2017 banning countries from authorizing work permits to North Koreans. Many remain in Russia and work using student or travel visas.

North Koreans work in various sectors but most are employed on construction or logging projects.

From January to August 2022, each North Korean construction worker was expected to remit $6,500 in dollars, according to a monthly list of quotas set by Pyongyang and obtained by VOA’s Korean Service.

That was equivalent to 710,000 rubles using the current exchange rate of 110 rubles per dollar. In October 2021, $6,500 was equivalent to 460,000 rubles when the exchange rate was 70 rubles per dollar.

This means North Koreans must now earn 30% to 40% more to fulfill the required remittance quotas.

North Korea “doesn’t need rubles and requires the payments in dollars only,” said a source. “It won’t reduce the quota amounts that were ordered to be submitted unconditionally” despite the ruble’s fall.

A copy of a document obtained by VOA’s Korean Service included instructions for workers to meet quotas “unconditionally.”

In addition to the money destined for Pyongyang, each worker must earn approximately 30,000 rubles per year to pay to Russian universities to obtain a student visa.

Financial pressure

In December, the U.S. ostracized Moscow-based university European Institute Justo and its provost for sponsoring student visas for North Korean workers whose income the Treasury Department said supported Pyongyang’s weapons program.

Additionally, the SWIFT ban on Russian banks restricted North Korean workers from sending money to Pyongyang. The dollar-based SWIFT global messaging network is used by more than 11,000 financial institutions in 200 plus countries to send and receive information about cross-border transactions.

North Korean workers in Russia now “can’t send money” using their old method, said Heo Kang Il, a former manager of a North Korean restaurant in China, who spoke with VOA’s Korean Service.

Heo said North Korean entities in Russia used to deposit their earnings to North Korean banks operating secretly in Russia. Then the banks would wire the money to a global online payments system using online accounts created under pseudonyms in China. From there, the money was sent to Pyongyang.

VOA’s Korean Service contacted the North Korean mission to the U.N. to obtain Pyongyang’s position on the economic impact the drop in the ruble’s value is expected to have on Pyongyang but did not get a reply.

William Brown, a former CIA analyst who closely monitors the North Korean economy, said difficulties faced by heavily sanctioned countries like North Korea and now Russia could lead them to forge closer trade and financial relations.

“They are going to create a sort of an island of sanctioned countries – North Korea, Russia now, and Iran,” said Brown.

“So the more this island gets bigger, the more they’ll trade and invest within that group,” he said. “In the Cold War era, we didn’t do much business with any of the bloc [made of] China, Russia, Eastern Europe, all those countries. There were essentially two separate financial systems. They did a lot of trade finance amongst themselves.”

Bradley Babson, a former World Bank adviser and current advisory council member of the Korea Economic Institute of America, said Pyongyang will now forge even closer economic ties with its top trading partner China.

The North Koreans “are going to have to rely almost entirely on China for whatever economic benefits that they can get out of opening up their trade relationship and whatever remittances they might be able to receive from North Koreans working in China as opposed to Russia.”

Source: Voice of America