The North Korean Crypto Threat

Excerpt

North Korea (the Democratic People’s Republic of Korea “DPRK”) presents a fundamental and growing international security challenge – and now represents the most serious nation-state risk to the crypto ecosystem. Over the last two decades, the regime in Pyongyang has expanded its nuclear and ballistic missile programs; threatened South Korea (including the sinking of a South Korean naval vessel), its neighbors, the United States, and political opponents; and accelerated its cyber capabilities and attacks against government agencies, banks, and the private sector.

Kim Jong-un, the latest in the dynastic leadership of North Korea’s totalitarian regime, has been explicit about the use of cyber capabilities in the country’s arsenal: “Cyber warfare, along with nuclear weapons and missiles, is an ‘all-purpose sword’ that guarantees our military’s capability to strike relentlessly.”1 These capabilities have expanded over time, coupled with an ability to access and subvert international systems for the regime’s advantage.

To fund their ambitions and ensure regime survival, North Korea has operated as a mafia state – leveraging criminal enterprises, rogue networks, and illicit financing to raise funds and evade scrutiny beyond its borders. In the face of two decades of sanctions and pressure, the regime in Pyongyang has adapted – finding novel ways to access, raise, and move money into the regime’s coffers surreptitiously.

With the advent of the crypto economy, the North Korean regime has taken full advantage of its ability to engage in cyber heists and obtain cryptocurrencies as a means of accessing capital. This has been both a means of funding the regime and an asymmetric posture to attack enemy systems. Exploiting the crypto ecosystem has now become a consistent source of revenue for the regime as well as being another weapon to be wielded against its enemies.

The North Korea threat to the crypto ecosystem is the highest form of immediate risk to the crypto-economy driven by a regime that seeks to profit from its misuse to reinforce its regime and fuel all its programs – without concern for the integrity, security, or stability of the evolving crypto economy and technologies.

The Honorable Juan C. Zarate was the first-ever Assistant Secretary of the U.S. Treasury for Terrorist Financing and Financial Crimes and former Deputy Assistant to the President and Deputy National Security Advisor for Combatting Terrorism (2005–2009).

He is the Chairman of the Center on Economic and Financial Power at the Foundation for Defense of Democracies (FDD); Chairman and Co-Founder of Consilient; and Global Co-Managing Partner and Chief Strategy Officer for K2 Integrity. He is the author of numerous articles and books, including “Treasury’s War: The Unleashing of a New Era of Financial Warfare” (PublicAffairs 2013). Since 2014, he has been an independent advisor to Coinbase, and for eight years, he was a Lecturer on Law at the Harvard Law School. Follow him on Twitter @JCZarate1. FDD is a Washington, DC-based, non-partisan research institute focusing on national security and foreign policy.