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Recently, one of my North Korean friends told me that she had sent another money transfer to her native town deep in the North Korean countryside. This did not surprise me at all. This woman, in her mid-30s, has spent the last 10 years supporting her family which includes a son in his early teens back in North Korea. She is a North Korean refugee, of course, and she wires money to her hometown twice a year.
One can ask, though, how it is possible to send money from South Korea to the North: First, it is illegal according to the laws of both Korean states. Second, North Korea is a country without a banking system worth speaking of, and what little exists is not permitted to receive remittances from South Korea.
However, over the last decade or so, it has become quite simple to send money from South Korea to the North. Banks have almost nothing to do with this, since such money transfers are handled by networks of brokers. While there is no legal paperwork, and trust is basically everything, these networks are quick and remarkably reliable, though very expensive. Indeed, the usual fee for a money transfer is 30 percent of the balance, though my friend has managed to negotiate a serious discount, only paying 20 percent. But this fee also means that money is rarely stolen or gets lost.
The system works as follows. First, money is transferred by wire transfer to a bank account in China. The bank account usually belongs to a rich North Korean resident, usually a Chinese citizen with permanent residency rights in North Korea (known as the "), but in some cases a North Korean citizen with a trustworthy agent in China, usually a family member.
Hwagyo is a small group, numbering only about 5,000 people, but they play a disproportionately important role in North Korea's new market economy. Being Chinese citizens, they have no problem getting access to the Chinese financial system. They frequently use Internet and/or mobile banking to keep tabs on transfers — many of them live in border regions with Chinese mobile phone coverage.
Once the transfer is received, the hwagyo dealer will arrange for the balance, minus the service fee, to be paid to the North Korean recipient in cash. If the receiver lives in a different place, as often is the case, it is still not difficult for a hwagyo to arrange a payment through a highly developed network of brokers who also handle unofficial, large-scale domestic money transfers within North Korea. Without such networks modern North Korean economy would be unable to function. So, hwagyo intermediaries call their representative in the area concerned and arranges payment of the money to the final recipient.
As long as the destination is within range of Chinese mobile service, a quick phone call is usually made to confirm payment. Otherwise, the receiver has to arrange for a letter of confirmation to be smuggled out.
In most cases, such transfers take five to 10 days, but there are remarkable exceptions. In one case, I saw a transfer take only 45 minutes. In that particular case, the hwagyo's agent in the destination city just happened to have the necessary funds in cash ready, and also lived few blocks away from the recipient.
There are no statistics about this operation, but according to some rough estimates it appears that between $10 million and $20 million are sent North every year in this way. Given the small size of North Korea's economy, this is not a negligible amount, especially because it largely goes to particular areas where most refugees come from.
Surprisingly, there are even some cases where money goes in the other direction. On one occasion, a rich Northerner chose to help a relative struggling to adapt to life in the South. There are also some North Korean businessmen who moved South (largely because they had some troubles with the law), but still maintain business interests north of the truce line. With the cooperation of their partners and agents in the North they run businesses and occasionally use the same networks to "repatriate" profits. Of course, such instances are rare, but not unheard of.
So, as usual, the human ingenuity and, alas, greed triumphed over the bureaucratic and legal restrictions. If things have to be done by the people, they are usually done, no matter what power holders think about the issue.
Professor Andrei Lankov was born in St. Petersburg, Russia, and teaches at Kookmin University in Seoul. You can reach him at anlankov@yahoo.com.
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