KEI Spotlight

This article was published on The Diplomat on November 29, 2022.

Earlier this month, one of the world’s largest cryptocurrency exchanges, FTX, collapsed. While the sudden implosion of FTX sent shockwaves through the cryptocurrency industry, its demise also has implications for North Korea’s ability to continue to exploit weaknesses in the virtual asset ecosystem.

Due to the Kim Jong Un regime’s self-imposed isolation during the pandemic, North Korea has struggled to acquire the hard currency needed to fund its weapons programs and trade deficit. In pursuing a zero COVID strategy, North Korean exports shriveled to only tens of millions of dollars during 2020 and 2021, while the regime’s ability to engage in smuggling to evade U.N. sanctions was also hindered.

To compensate for its losses of hard currency, the regime has increasingly turned to the theft of cryptocurrency to fill its coffers. According to Chainalysis, a blockchain analysis firm, North Korea stole around $300 million in virtual assets in 2020 and nearly $400 million in 2021. So far this year, Chainalysis estimates that North Korea has stolen approximately $1 billion in cryptocurrency.

Hacking cryptocurrency exchanges and exploiting DeFi, or decentralized finance, are attractive options to North Korea for a series of reasons. While not fully anonymous, these new tools of finance are largely unregulated. They also use mixers that can obscure the origin of funds on blockchains. Know your own customer and anti-money laundering practices have not been universally adopted by the industry, making it attractive to actors like North Korea looking to avoid detection in the financial system.

To read the full article on The Diplomat, please click here.