A group of offspring of senior North Korean communist and military leaders, including Kim Jong-il's sons, have been linked by Western intelligence authorities to Pyongyang's illicit activities around the world, including distribution of counterfeit $100 bills and drug trafficking.
The unofficial group, known as "Ponghwajo" ("Torch Group"), is led by Oh Se-wan, the son of a senior leader in North Korea's National Defense Commission. That senior leader, Gen. Oh Kuk-ryol, is also a key player in the succession of North Korean leader Kim Jong-il to his son Kim Jong-un.
The group, which operated internationally and inside North Korea until at least 2005, was disclosed as the United States, South Korea and other nations are set to step up pressure on the North after an international investigation made public on Friday revealed that a North Korean torpedo fired from a submarine sank the South Korean warship Cheonan, killing 46 sailors.
A Treasury Department official involved in monitoring and countering North Korean illicit activities for the past five years said, "We have had concerns about the North Korean involvement in a wide range of illicit activities, including counterfeiting and drug trafficking."
"We continue to have concerns about North Korean counterfeiting, both manufacturing and distributing counterfeit $100 notes," the official said, noting that North Koreans are continuing to use international financial institutions as part of the criminal activities.
Asked whether additional financial restraints could be imposed on North Korea in the aftermath of the international findings of the probe into the Cheonan sinking, the official said additional measures continue to be reviewed.
The North Korean Torch Group was described by officials as similar to China's "princelings," the sons and daughters of Chinese Communist Party and military leaders who have amassed fortunes through businesses and their family connections within the ruling Communist Party system.
Kim Kwang-jin, a former North Korean official who was involved in Pyongyang's state-run insurance fraud to earn hard currency, said he was not familiar with the Torch Group. However, he said its existence "is very likely since there were several cases similar, including some officials who were running their small groups with different code names like the Mokran group." The groups would seek to emulate Kim Jong-il's lifestyle, which included parties and sex orgies.
Oh Se-won, 39, was first identified several years ago by U.S. intelligence after investigators linked him to counterfeit bills found in Las Vegas in 2004 and to the drug-trafficking case of the North Korean ship Pung Su, which was seized by Australian authorities in April 2003 and found with 330 pounds of heroin on board.
The Washington Times first reported in June 2009 that Gen. Oh Kuk-ryol, Oh Se-wan's father, was in charge of producing supernotes.
A spokesman for the North Korean mission to the United Nations could not be reached for comment. However, Sin Son Ho, an official at the North Korean mission, has said his government has rejected all charges of counterfeiting.
In addition to Oh Se-won, officials identified other Torch Group members as:
• Kim Chol-un, son of Kim Chung-il, who is a close aide to Kim Jong-il within the secretarial office. His current title is chief of the office of secretaries, and he is deputy director of Kim Jong-ils personal secretariat and a member of the Korean Workers' Party central committee.
• Kang Tae-seung, son of Kang Sok-ju, a first vice foreign minister and key figure in North Korean diplomacy who recently traveled to China with Kim Jong-il.
• Kim Chang-hyok, son of Kim Chang-sop, deputy director of the State Security Department.
• Kim Chol, son of Kim Won-hong, head of the military secret police known as the Korean People's Army Security Command.
Michael Madden, author of the blog North Korea Leadership Watch, said it is believed that Oh Se-won resides outside North Korea.
In an e-mail, Mr. Madden said that in addition to the Torch Group members, another elite North Korean is Jon Yong-jin, a vice chairman of the Committee on Cultural Relations With Foreign Countries and son of Jon Hui-jong, Kim Jong-il's chief of protocol and director of the National Defense Commission Foreign Affairs Department.
According to the Western intelligence officials, Kim Jong-il's third son and designated successor, Kim Jong-un, has close ties to the Torch Group and has known its members since he was in his 20s.
Kim Jong-chol, Mr. Kim's second son, also is linked to the group and, according to the officials, he obtained drugs from the Torch Group.
The Torch Group first surfaced in 2005 after investigators were able to link the North Koreans to the 2003 upgraded version of the supernote counterfeit $100 bill. The bills were traced to production in late 2004 at a plant in North Korea called the Pyongsong Trademark Printing Factory, the national mint in Pyongyang.
The Torch Group initially operated under cover by claiming it was part of a special unit of the Korean Workers' Party Operations Department.
The group transported the counterfeit bills to China and Macao and then on to Southeast Asian nations, where the notes were exchanged for legitimate currency. The group was able to obtain $20 in legitimate currency for every counterfeit $100 supernote.
The U.S. government crackdown on the Banco Delta Asia in Macao was prompted in part by the counterfeit supernote operations that were run by the Torch Group, the officials said.
The Treasury Department in September 2005 ordered U.S. banks to sever links with Banco Delta Asia, which at the time held an estimated $25 million in North Korean money in its accounts. In exchange for a promise from North Korea to denuclearize as part of the six-party nuclear talks, the funds were unfrozen in 2007 by the administration of President George W. Bush.
The Torch Group also took part in the heroin-smuggling operation by North Korea that was uncovered when the freighter Pung Su was intercepted by Australian military forces on April 16, 2003, acting on U.S. intelligence tips.
According to the U.S. and Western officials, Oh Se-won and Kim Chol-hun were involved in the case and their activities were reported to Kim Jong-il. Oh Se-won's father, Gen. Oh Kuk-ryol, told the North Korean leader after the ship was seized that North Korea should claim the ship had no link to North Korean authorities, a Western intelligence source said.
Many of the Torch Group's members' addiction to heroin was viewed by the officials as the reason for the increasingly brazen acts of selling supernotes and trafficking in heroin.
However, after the Pung Su incident and the crackdown on Banco Delta Asia, the financial noose began to tighten around their activities, the officials said.
As a result, the group shifted to selling narcotics inside North Korea. In 2005, the North Korean security services cracked down on the group, resulting in some members being detained and eventually ordered to remote parts of North Korea.
However, most were pardoned as a result of their family connections, and North Korean watchers say they are hoping to make a return to the international scene after the ascension to power by Kim Jong-un.
That prospect is looming as Kim Jong-il appeared frail during his visit to China earlier this month, when he walked with a noticeable limp.
A U.S. official said North Koreans are very aggressive at raising money and "will pretty much do anything … including many things we would consider illegitimate or illegal."
"These fundraising activities are tightly controlled by the government, and while the senior political and military elites certainly benefit from the racketeering, freelancers in those circles may not be welcome," the official said. "They might actually be seen as competitors to the regime. Its not to discount the possibility that some exist, but if they go too far, it might not end well for them."
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