Summary
- North Korea has a robust cyber-crime industry, which helps to fund its regime and weapons programs.
- At the end of 2022, it test-launched a new missile with capability to strike the US mainland.
- As the crypto industry matures, it is important that it manages these risks to protect consumers, and national security.
- These are some of the findings from a report, The North Korean Crypto Threat by Juan Zarate.
In 2022, North Korea launched more than 90 missiles, more than any other nation in a single year, and a huge rise on the eight it fired the previous year. Just before Thanksgiving, it launched a brand-new intercontinental ballistic missile (ICBM), which experts warned could have the potential to strike the US mainland.
While North Korea often describes itself as a “Hermit Kingdom,” it has numerous ways of bringing in revenue to fund the country and its weapons programs. Increasingly, North Korea has resorted to cyber warfare, hacking financial institutions and misusing crypto.
This underlines why it is imperative that the crypto industry comes together to protect itself – and its customers – from North Korea and other states that misuse crypto and technology.
The North Korean Crypto Threat explores the threat the country poses and how it utilizes crypto in its cybercrime efforts. Authored by Juan C. Zarate, the first Assistant-Secretary of the US Treasury for Terrorist Financing and Financial Crimes, Chairman of the Center on Economic and Financial Power at the Foundation for Defense of Democracies (FDD), the report provides in-depth analysis on how North Korea uses crypto.
Here is what you need to know, underlining why we need to address the issue of North Korea – and other rogue actors – now.
1. This is the moment to mature crypto risk management
The crypto industry has matured during the past two years and now its risk management abilities need to go through the same process. Crypto’s underlying technology and use continue to grow, despite the so-called ‘Crypto Winter’ and meltdown of FTX and Alameda Research.
Reflecting the growing threats from North Korea and other such actors, we need sensible, transparent and thoughtful regulations and risk management.
2. The regime openly supports illicit cyber activities
According to the country’s Supreme Leader, Kim Jong-un: “Cyber warfare, along with nuclear weapons and missiles, is an ‘all-purpose sword’ that guarantees our military’s capability to strike relentlessly.”
The regime regularly relies on criminal enterprises to fund its weapons programs. Among its known activities are large-scale drug trafficking and counterfeiting; it produces some the best counterfeit US $100 bills. As the US has imposed sanctions on the regime, North Korea has found new illicit methods – including crypto – to ensure a continued supply of funds.
3. North Korea has made it a business to exploit emerging tech
In the report, Zarate noted: “A rogue and dangerous nation state has made it a business and security imperative to exploit and corrupt the emerging crypto economy and technologies – with real world consequences as North Korea resumes missile tests and rattles its nuclear saber.” This challenge requires those who care about the legitimacy, growth, and promise of the crypto economy and related innovations to target North Korea as a preeminent risk, he says.
North Korea’s hacking capabilities allow it to steal financial resources from central banks, financial institutions, and virtual currency exchanges and users. A 2019 UN report stated that Pyongyang’s cybercrime capabilities generated up to $2 billion in revenue for its nuclear weapons program, using “widespread and increasingly sophisticated” cyber-attacks. This type of activity has subsequently accelerated.
The Lazarus Group, a Pyongyang-based cybercrime organization, is known to have hacked and stolen hundreds of millions of dollars from global financial institutions in India, Mexico, Pakistan and Taiwan. A more recent attack perpetrated by the Lazarus Group involving cryptocurrency occurred in March 2022, when it stole $620 million in crypto from the video game Axie Infinity through its underlying blockchain, Ronin. This exploit was fruitful for the DPRK, considering its annual total cryptocurrency theft in 2021 was worth around $400 million, according to blockchain analytics firm Chainalysis. In June 2022, the Lazarus group was allegedly behind another successful attack, this time stealing $100 million from California blockchain, Harmony.
4. North Korea is a preeminent crypto risk but we need cooperation and concerted action
North Korea is arguably the biggest geopolitical threat to crypto. Federal regulators and leading companies must work together to effectively manage risks in the crypto industry, which can in turn, affect matters of national security. North Korea presents a clear case – and opportunity – to build these relationships with countries and companies.
According to Zarate: “Deterring and neutralizing North Korea’s cyberattacks and exploitation of the crypto economy should be a core goal of international cooperation. North Korea presents an opportunity to focus attention and innovation on the highest form of risk in this domain – and how we will collectively address it.”
5. Offshoring crypto would increase national security risks
Policymakers, regulators, and enforcement agencies are focused on North Korea’s pivot to crypto – which represents a dangerous convergence of national security, cyber, and financial integrity risks. This comes at a time of heightened regulatory scrutiny over the sector and ongoing global debates on the treatment of cryptocurrencies, blockchain technologies, and DeFi.
The importance of the crypto economy, new payment systems, and the innovations stemming from these technologies should be viewed as a national security and economic asset – to be tended to carefully and with an eye toward competition with other state actors like China. This is critical as China continues to prove a financial and commercial outlet and backstop for North Korea and fears the loss of central control in state-authoritarian capitalist system.
Crypto and digital payment technologies will continue to be a source of growth, innovation, and economic freedom. It is critical that the US continue its role as a leader in innovation.
