Jul 06 2017Add to Favorites
David Tweed, Slav Okov, and Marta Waldoch, Bloomberg
A hostel in Berlin, apricot-hued wedding rooms in Sofia and a sound production studio in Warsaw are facing trouble due to their landlord: Kim Jong Un.
The private businesses have rental agreements with North Korean embassies in Eastern European capitals, providing income for his cash-strapped regime. The arrangements violate United Nations resolutions but the businesses are still operating -- and governments are struggling to terminate their leases.
The difficulty that even U.S. allies have in cracking down on relatively innocuous business activities shows the challenges in getting sanctions against North Korea to bite. While the U.S. has mainly focused on pressuring China, Secretary of State Rex Tillerson wants the rest of the world to do more to restrict financial flows to North Korea.
“It is very easy to talk about more sanctions, but the reality is that when you try to translate that into action on the ground, each country has its own priorities,” said Brian Bridges, a Malaysia-based adjunct professor of Asian politics at Hong Kong’s Lingnan University who has written books about North Korea. “If you are thousands of miles away, and North Korea isn’t a direct threat, then it’s going to be a fairly low priority.”
After North Korea test-fired an intercontinental ballistic missile on July 4, bringing it closer to being able to target the U.S. with a nuclear warhead, Tillerson called for a global response. “Any country that hosts North Korean guest workers, provides any economic or military benefits, or fails to fully implement UN Security Council resolutions is aiding and abetting a dangerous regime,” he said.
It’s impossible to know exactly how much income North Korea generates from embassy activities. Zang Hyoung-soo, a professor at Hanyang University who has studied North Korea’s finances, said only 10 or so of its 47 embassies are big enough to make money. “Because Kim doesn’t pay his diplomats, any money made at the embassies are just enough to make payments necessary to operate the embassies,” Zhang said.
Still, it is the tip of a very large iceberg. Besides renting real estate, North Korea has generated billions of dollars a year dealing drugs, selling weapons, counterfeiting currencies and exploiting guest workers, according to the International Network for the Human Rights of North Korean Overseas Labor.
North Korea’s properties in Germany, Bulgaria, Poland and Romania are particularly spacious. After the regime’s founding in 1948, Eastern European countries granted their new Marxist friend generous plots of land in prime locations. By contrast, embassies in locations such as London, which established ties in 2000, are more cramped.
Germany, Bulgaria, Poland and Romania have all told the UN they are taking steps to get the embassies to stop renting out their premises. Still, they can’t just move in and close them down, in part because they are among the nations that have embassies in Pyongyang.
“If there is an international sanctions regime, we as European states have to follow that but we also need to balance the risk of counter measures in Pyongyang,” said Niklas Swanstrom, director of the Stockholm-based Institute for Security and Development Policy, who met with officials in North Korea in May. “It is probably important to keep those diplomatic links because so few states have them.”
In Berlin, the North Korean embassy leases property to Cityhostel Berlin, where travelers can rent a dormitory bed for as little as 20 euros ($23) a night not far from the Brandenburg Gate. As of last week the hostel was still taking bookings, and an employee said it had no comment beyond a statement issued in May.
Cityhostel said then that “rental payments are frozen until international clarification” is made of the situation, adding its lease complies with German law. Any suggestion its business is run by the embassy or proceeds fund North Korea’s nuclear program are “completely absurd and manifestly untrue,” it said.
Germany’s foreign ministry said that implementing UN and European Union sanctions is an important concern. “We use the legal possibilities that are available to us,” it said in an emailed response to questions about the hostel.
In Sofia, the Bulgarian government is also facing difficulty terminating rental agreements between the North Korean embassy and several businesses.
Bulgaria has notified the embassy "that it should take the necessary measures to stop leasing its diplomatic immovable property” in accordance with UN resolutions, the foreign ministry said in an email.
Ognyan Trayanov, chief executive officer of TechnoLogica EAD, said he contacted the embassy a few months ago when he heard about the UN resolution and said he’d stop paying rent until the situation is resolved. He said he has rented from the embassy for 21 years.
“I might have to pay that rent later to the foreign ministry or whoever,” Trayanov said by phone. “I don’t know what solution they’ll find.”
The former residence of the North Korean ambassador in Sofia, now rented to event planner Terra Residence.Photographer: Slav Okov/Bloomberg
Terra Residence Ltd., an event planning company, leases space in a building in Sofia that formerly housed the ambassador’s residence, an employee in charge of booking who declined to identify themselves said by phone. They declined to comment further, and said nobody else would be available for comment.
The residence is built on a 5,920 square meter (64,000 square feet) block of land -- equivalent to the floor space of the White House. Pictures from the company’s website show a range of sumptuous reception rooms available for hire.
Poland has known about North Korea’s real estate activities since at least 2006, when daily newspaper Gazeta Wyborcza wrote about them.
One tenant, sound production studio Dreamsound, worked on Afterimage, a film depicting the struggles of an artist working under a restrictive Stalinist regime. Dreamsound’s co-owner Kacper Habisiak declined to comment when reached by phone.
The building is also the headquarters for mergers and acquisitions boutique TDI Corporate Finance, which didn’t respond to emailed questions.
The Polish foreign ministry didn’t immediately reply to emailed questions. It demanded that North Korea stop renting these premises in 2006, according to the Gazeta. In a February report to the UN, Poland said it asked the embassy to stop leasing the premises.
Recent queues at North Korean gas stations indicate the regime is short of foreign currency to pay for fuel, adding pressure on diplomats to generate cash, Enna Park, South Korea’s ambassador for public diplomacy, told reporters in Hong Kong last week.
“It will take time before there is full coverage of sanctions,” she said. “They are trying to do all kinds of business to make money.”
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Off the back of successfully settling a $48m syndicated first mortgage for a residential apartment development in Sans Souci just weeks ago, Sydney-based real estate investment manager Centennial Property Group (CPG) opened a new fund with a focus on the industrial and logistics market, Centennial Industrial and Logistics Fund II (CIL II). The fund, available only to wholesale and private high net worth investors, opened on 1 November and was seeking to raise c. $38 million. CPG closed the fund less than two weeks later, well before the official close date, due to oversubscription.
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