North Korean House of Cards

The success of this venture seemed to solidify Jang’s position within Kim
Jong-un’s inner circle, which began to evolve. The powerful Chief of the GSD, Ri
Yong-ho, who had risen significantly in influence at the Third Party Conference,
now appeared to be in an increasingly precarious position. Choe Ryong-hae and
Jang Song-taek appeared to be the beneficiaries of Ri’s downfall. Choe benefited
politically and Jang benefited in terms of the economy. Following Ri Yong-ho’s
purge in June (2012), rumors emerged that at the source of his power struggle with
Jang Song-taek was the latter’s schemes to transfer control over several hard currency
operations from the military to the KWP Administrative Department. After Ri’s fall,
Jang secured control over Department 54, the GSD unit responsible for supplies and
necessities for the armed forces. Within a year, Department 54 became the centerpiece
of Jang’s network, commanding twenty-four coal mines and other foreign currency
operations across the country. 481
An investigation after Kim Kyong-hui’s stroke in the fall of 2012 allegedly
revealed that Jang controlled multiple funding streams into the Royal Economy
to an extent that the Kim family had not anticipated. Not only had he used his
position as Vice Chairman of the NDC and Department 54 to siphon off funds
from military-run operations, he had also used his growing power within the
leadership to engineer the transfer of administrative control over lucrative operations,
such as trade companies and mines, to the KWP Administrative Department,
including some operations belonging to Office 39. 482 This not only made it easier
for Jang’s faction to pay its loyalty tax, it also made it more difficult for other critical
parts of the regime to demonstrate their worth to the Leader. 483
481 Kim Min-Seo. “When Its Investment is Defrauded by the North, China Says that It Can No
Longer Put Up With North Korea,” Segye Ilbo, February 16, 2015. Department 54 managed North Korean
coal sales to China, an especially lucrative hard currency operation. Between 2004 and 2013, China
tried to advance into North Korea by investing in 21 mines, which resulted in making investment in
equipment or acquiring mining concessions through joint ventures with six of the mines. These were not
just coal mines, but mines involved in the extraction of other critical minerals such as iron and copper.
482 “N. Korea Abolishes Secret Fund Organ for Kim Jong-il,” Kyodo World Service, October 18
2012. In October 2012, rumors began to emerge that Kim Jong-un had eliminated large parts of the
Royal Economy apparatus, shifting their roles and missions to the Cabinet. He allegedly abolished Office
39 because of its close ties to the military, which had been forged during the “Military First” (Songun)
era and were now suspect in the aftermath of Ri Yong-ho’s purge. According to regional media, Kim was
eager to weaken the military’s vested interests and shift more resources and investment toward economic
development. These reports also contended that Kim’s efforts to streamline the economy had led to the
elimination of Office 38 with many of its responsibilities being transferred to the Cabinet’s “Moranbong
Bureau.” It is most likely that these stories were false. The rumors were likely sparked by Jang’s activities,
which may have raised questions inside the regime about the stability of the Royal Economy apparatus.
483 According to some sources, despite the profits from these operations that were accruing to
Jang’s apparatus, he was taking an increasingly larger cut of the loyalty tax for himself.
Ken E. Gause
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