The North Korean Restaurant Franchise

Every so often, stories appear in the Western press about the network of North Korean restaurants, mostly in Asia. In 2011, for example, Sebastian Strangio did a piece for the Atlantic which pretty much outlined the main elements of the story, and the genre. The restaurants are foreign-exchange earning cash cows organized by the regime that also engage in intelligence gathering and illicit activities. They play off North Korean kitsch and exoticism, but with labor practices that exploit—and confine—their attractive, Pyonyang hostesses. Recently, the BBC’s Ed Butler offers up a report from Phnom Penh, with another standard element: the effort of the intrepid reporter to get the waitresses to break form and reveal secrets.

But in poking around, we discovered a piece from last October by Bill Gertz at the Washington Free Beacon that had a bit more meat, in part because of interviews Gertz did with the US intel community. It is definitely worth reading.

Gertz’s informants have identified 60 such restaurants in Asia: 44 in China (including 11 in Beijing; six in Shanghai and six in Dandong), five each in Vietnam and Cambodia and one each in Bangladesh, Burma, Malaysia, Nepal, Indonesia, and Laos. A quick search also turned up one in Dubai. Operating in these permissive business environments is clearly easier than cracking the European market: a North Korean effort to open a restaurant in Amsterdam in 2012 ultimately closed over labor issues with its Dutch owner. (It reopened earlier this year.)

Labor issues are not the only barrier to moving beyond Asia. According to Gertz, the network is controlled either by the North Korean military’s General Reconnaissance Bureau, Bureau 39, or both. The motives are not limited to the foreign-exchange earning efforts of Bureau 39, but reflect an effort of the state to push foreign intelligence operations to finance themselves. All of the reports cited note the intelligence motives of the restaurants, which extend to commercial intelligence on South Korean businesses as well as other illicit activities such as money laundering and perhaps passing of counterfeit supernotes.

The big question is how much they generate. Gertz’s sources in the intel community think the restaurants may remit about $1.8 million in total–he cites a figure of $10,000-30,000 a year in payments to Pyongyang each. (We initially read Gertz to suggest the restaurants were remitting $1.8 million each, which was clearly implausible; thanks to James Cotton below). If true, this amount would be only a small fraction of total labor remittances, which Gertz’s sources estimate at about $100 million (again, thanks to James Cotton for catching this point).

Remittances of this size necessary raise the sanctions question. Currently there are few means to squeeze this lucrative source of foreign exchange—and other overseas services income—except by targeting the financial networks through which earnings pass. But these networks probably include couriers carrying cash, use of the immunity of the diplomatic pouch and other informal financial networks as well as banks. Nonetheless, financial sanctions would at least raise the issue of such service income, which is a non-trivial source of foreign exchange.

7 comments on this post.
  1. ZacharyT:

    While it would be an interesting experience to eat at one of these places…I know way too much about the NK regime to willingly give them money. thank you for write up and links to all those articles.

  2. Adam Cathcart:

    A great deal more crowdsourcing is needed on this question, particularly if funds from the karaoke side of the operations are going to be estimated with anything approaching accuracy. There is a lot of movement from place to place (North Korean businesses seem largely allergic to high rents); no sooner have you located a North Korean restaurant than it is demolished or is moved. In other words, one has to be careful in adding up businesses that in fact may be the same business in a new location. Is the “newest” North Korean restaurant/karaoke bar in Yanji a retooled version of the one that used to be in the Luojing Hotel? Beats me. I think they make a hell of a lot more money doing karaoke than serving food. Incidentally, a Budweiser (beer of champions, and imperialists) is about 8 times cheaper at these places than the North Korean beers which are presumably hand-imported, and often bottled (illegally) in used Qingdao bottles. Careful economizing runs parallel to the epicureanism.

    Along those lines, this essay by Chris Green deserves more discussion — because it considers the notion of North Korean profit margins outside of the criminal sphere, to which the rest of us are fluttering irresistibly. http://sinonk.com/2014/05/02/public-private-partners-rethinking-north-korean-command-criminality/

    Personally (signposting for a tangent…), I think the restaurants need to be considered from the cultural aspect, as this certainly does come into play from the North Korean control point of view. The restaurants are bubbles of North Korea which endure and are sustained precisely upon a direct, if not wholly uncontrolled, exposure of the workers to foreign capitalism, foreigners, and of course South Koreans in Izod shirts. Perhaps if more South Korean youth groups touring China would make stops into such establishments, a few more minds could be changed (or washed, depending on your perspective), even as the Songun melodies blare on…

  3. Walter L. Keats:

    I would mention regarding the propaganda value of the restaurants, that in the mid-2000s when I first encountered these restaurants in Beijing and Dandong the ladies sang more North Korean songs. In more recent times I noted that they had learned various Chinese and Western songs that, in my opinion, helped attract a broader audience, and softened the focus to more of entertainment and getting clients to buy more booze and also bouquets (reusable plastic) to give (loan) to favored performers (and since it was necessary to be egalitarian, one for each performer in a duo or triplet, etc.)

    I really find it difficult to believe that the Chinese or many of the other “host” countries for these restaurants will clamp down on the finances of these places. With so much cash flowing I’m sure that some of it can find its way to host decision makers, if necessary.

    Regarding the hard life for the ladies, certainly by non-North Korean standards it is a tough/constrained life, but I would be pretty sure that these ladies earn lots of brownie points for serving their country (and families) well and “honorably.” As others have commented as well, these are accomplished ladies, most presumably from higher ranking, trusted families; ladies who know how to act so as not to endanger their families and to bring honor and some economic and other benefits to them by their loyalty and stoicism.

    I find it hard to believe these ladies (and the guys running the restaurants who never seem to be out front) don’t also have the opportunity to return at least once to the DPRK with some modern purchases from their host country. Anyone going through the Pyongyang airport can’t fail to be amazed at the volume of outside things returning North Koreans are able to bring with them. Rewards for loyalty and a job well done for their families and country and the Kim family.

  4. James Pearson:

    As sexy an angle though it may be, the idea that these restaurants are hotbeds of intelligence gathering and East Asia’s answer to Cafe Adler really seems a little far fetched (not to rubbish Gertz’ article, which is by far the best of the crop).

  5. North Korean restaurants springing up around Asia to raise money for regime – The Guardian | Everyday News Update:

    […] • Read more about the Pyongyang restaurant chain […]

  6. JamesC:

    Actually, I don’t think the Gertz article claims that the total is $1.8M PER restaurant – but “From the 60 restaurants in Asia—including 44 in China, one each in Bangladesh, Burma, Malaysia, Nepal, Indonesia, and Laos, and five each in Cambodia and Vietnam—up to $1.8 million is remitted to Pyongyang.” – so this is the total of all 60 restaurants.

    Similarly, the $100M isn’t claimed to all come from the restaurants – “estimates of the amount raised by Pyongyang through its overseas activities run as high as $100 million” – this includes (mostly) labourers in various places, not just the restaurants and restaurant workers – “We know that the workers that North Korea sends abroad are mostly labourers” is quoted elsewhere in the article.

  7. Stephan Haggard:

    James:

    Thanks for your comment, and good to hear from you. The text was a little ambiguous to me, as it seemed like $1.8 million from 60 restaurants was in fact quite low. If the restaurants account for only $2 million a year, it means that they are in fact a tiny share of the total amount of remittances. The post has been corrected to point out these ambiguities.

    Again, good to hear from you,

    SH

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