SEA: Neutralizing North Korea’s Crypto Threat

Asia Blockchain Review
November 21, 2019

In April this year, North Korea held its first-ever cryptocurrency conference with about 100 people reportedly in attendance. Building on the purported success of the conference, the reclusive country is planning to hold another cryptocurrency conference in February 2020. The geographical distance between North Korea and Southeast Asia (SEA) notwithstanding, it may be worthwhile for Southeast Asian countries to keep track of North Korea’s crypto plans, as the British defense and security think tank Royal United Services Institute (RUSI) noted in its report, “Closing the Crypto Gap Guidance for Countering North Korean Cryptocurrency Activity in Southeast Asia”, that the growing cryptocurrency sector in SEA could be the unfortunate target of North Korea’s malevolent activities. In this article, we will be looking at the use of cryptocurrencies by North Korea, some of which may be a tad unconventional.

North Korea’s Crypto Plans

In spite of the political showmanship between the leaders of the United States and North Korea, the fact remains that North Korea is still subject to a plethora of economic sanctions by both the US and the United Nations. Given the underlying ideals of cryptocurrencies to liberalize the financial landscape, it is not too surprising that the hermit state has reportedly resorted to the use of such currencies to evade sanctions imposed against it. This is not unique to North Korea, as other countries, notably Russia, Venezuela, and Iran, have used cryptocurrencies to circumvent their respective sanctions

However, North Korea is taking the game to another level by developing its own cryptocurrency, which will apparently be backed by physical commodities such as gold, not unlike Venezuela’s cryptocurrency the Petro, which is backed by national oil and mineral reserves. Regardless of its political connotations, from a purely economic perspective, the development of North Korea’s cryptocurrency to bring a new dimension to economic warfare by trying to escape the US-dominated global financial system coheres with the underlying ideals of cryptocurrencies of liberalizing the financial landscape. The same, however, cannot be said of North Korea’s other crypto-related activities.

North Korea’s Crypto Attacks

Based on a report released by the UN, North Korea reportedly carried out at least 35 cyberattacks against 17 countries, which included cryptocurrency exchanges and users as targets. According to the report, North Korea adopted a two-pronged approach for its crypto attacks. For its attacks against cryptocurrency exchanges, North Korea reportedly hacked into the system of such exchanges and stole cryptocurrencies from them. As for its attacks against cryptocurrency users, North Korea reportedly used the crypto-jacking method, which involves infecting targeted computers with malware before using the resources of the computers to mine cryptocurrencies. The report further states that the illicit gains, which amounted to a whopping US$2 billion, were then used by North Korea to fund its nuclear weapons development program. In the context of Southeast Asian countries, it is worth noting that two such countries, Malaysia and Vietnam, have been the target of North Korea’s cyberattacks at least once. 

Following the crypto attacks, North Korea would presumably have to find a way to cash in on its illicit gains. The country reportedly used the blockchain platform of a Hong Kong-based shipping and logistics firm known as Marine China to launder stolen cryptocurrencies in its possession. In its quarterly report for the third quarter of 2019, the UN Security Council’s Sanctions Committee on North Korea reported that the country circulated its stolen cryptocurrencies through more than 5,000 transactions involving a myriad of countries, in order to cover up the source of the cryptocurrencies.

Need for Coordinated Regional Response in SEA

In an increasingly connected yet paradoxically divided world, economic warfare is an inevitable part of the cut-throat game of geopolitical power plays. As SEA’s financial network and crypto domain grow to become a more integral part of the global financial system and crypto landscape, Southeast Asian countries would do well to heed the RUBI’s recommendation in its report for the development of a coordinated regional response against crypto-threats, particularly in relation to North Korea, lest crypto turn out to be a bane rather than a boon for countries in the SEA region.

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