Follow the Money: The Rungrado-Armex Case
Market Motivations for State Engagement in Transnational Organized Crime
Theodore Chaffman
Dr. David B. Mislan
SIS-306-001
30 April 2018
Introduction:
This paper seeks to expand beyond traditional inquiries of why states are prompted to become involved in criminal networks that transcend the borders of sovereign states. Using an interesting case selection method, the paper develops a typology causal chain that connects the independent variables, the presence and willingness to accept competitive incentives, vulnerable host country institutions, and a blurred separation between state-controlled and privately managed firms, to state engagement in transnational organized crime – the dependent variable. Specifically, the analysis will be focused on North Korean guest workers employed in Poland. Despite sanctions, North Korean labourers work through complex state-managed neoliberal conglomerate firms and repair NATO Warships and their earnings are funneled directly back into the North Korean state’s efforts to finance its nuclear weapons program.
Research Question:
Transnational organized crime is characterized by criminals who seek opportunities to commit unauthorized acts across national boundaries, or by the cross-border transfer of illegal goods and services. Organized criminal activities are deeply ingrained in the global marketplace for both licit and illicit commodities and services, and its ramifications affect global market-driven processes both at the macroeconomic and microeconomic levels of production, economic development, and consumption and these illicit industries function both in and across developing and developed context.
The trafficking and forced migration of humans across sovereign borders in temporary labor schemes is a popular discussion among globalization scholars in International Relations. However, there persists an ever-present gap in the scholastic literature on the market-driven processes that motivate states who take advantage of such programs..
Literature review
My preliminary research aims to begin unravelling the larger phenomenon of why states are motivated to engage in illicit means of behavior; therefore, my literature review intends to outline three major schools of thought that concern the structural typology and market motivations for involvement in transnational organized crime. I intend to provide a discursive prose of research that includes major works from the general organized crime group literature.
One of the common schools of thought among the considered literature on the structural theory of organized crime is a rational-choice approach. States act rationally, making decisions that associate with their best interest. Game theory explains that states weigh the costs and benefits of engaging in illicit activities against their own logical, rational self-interest. Becker (1995) states, ‘‘people decide whether to commit [a] crime by comparing the benefits and costs of engaging in crime.’’ This approach to market-driven economic processes in small-scale crimes may be applied to similar principles with larger-scale criminal enterprises. Becker’s rational interest approach to scaling the opportunity cost of involvement in crime shares similarities with Schneider (2008), who claims that transnational crime syndicates are “generally rational actors” that “defy the state and the rule of law (except when there is state sponsorship).”
Some scholars among the transnational organized crime and forced migration literature contend that market-friendly business and labor regulations are positively associated with labor trafficking. In the Neoliberal Cosmopolitanism school of thought, market-friendly institutions and vulnerable regulations are positively associated with labor trafficking. According to Peksen (2017), “policies that promote market deregulation, reduced state size, and global economic openness are positively related to child trafficking and forced labor.” There’s a wealth of recent research that uses qualitative and quantitative measurements of transnational organized crime and human trafficking, such as Christine B.n. Chin’s "Cosmopolitan Sex Workers." This piece of research in particular – despite using a much smaller sample size for its analysis of female sex workers in Kuala Lumpur as a model for a global city – provides a substantial framework for its neoliberal economic reorganization process that encourages and sustains the transnational flow of migrant sex workers. Peksen, Dursun, and Blanton (2017) additionally hold up the construct for competitive with vulnerable institutions markets controlling organized crime industries. According to Peksen’s (2017) research, “liberalizing states take a proactive role in confronting this “dark side” of the global economy.”
The dark side of globalization is a serious conversation in the neoliberal school of thought that contends with the consequences or end-state of a globalized world. According to Heine and Thakur in their 2011 book The Dark Side of Globalization, “globalization is not a natural process, rather it is implemented by humans for specific aims.” According to the Peksen article (2017), “free-market policies provide a critical underlying mechanism that accounts, in part, for the flourishing of [human labor trafficking].”
A major factor concerning the success or failure of transnational illegal industries is the involvement and therein efficacy of multilateral counter-crime institutions and their enforcement of criminal activities. In the Geoeconomic Realism school of thought, a state’s goal is to maximize profit in a world of anarchy. Skaperdas (2001) discusses how organized crime "emerges out of a power vacuum that is created by the absence of state enforcement," and how it provides "primitive state functions" in lieu of legitimate authority. Wheaton’s Economics of Human Trafficking (2005) views organized trafficking industries through a unipolar outlook of Geoeconomic Realism – in which “human trafficking [is] a monopolistically competitive industry in which traffickers act as intermediaries between vulnerable individuals and employers by supplying differentiated products to employers.”
The considered literature contends to a variety of arguments concerning the market processes that allow transnational organized crime to thrive. However, many of the authors neglect to find an empirical means of concluding their results. According to Dorn, Levy, and King (2005), “Qualitative work on upper-level drug trafficking is much more extensive than quantitative work.” Their frustration is mirrored by Schneider (2008) and the Wheaton article (2010), which also concluded their extent of research on similar difficulties. According to Schneider’s (2008) conclusion, – before which, the author attempted a quantitative approach to measuring the annual revenues of transnational organized crime by country – “The revenues of organized crime are scientifically extremely difficult to tackle.” Organized crime is quantitatively measured differently by each given country – therefore, similar to other major census demography reports relying on regionally-reported data, “the measures taken against it are different and vary from country to country and it is not so all clear what really money laundering from the revenues of organized crime are.” The conclusion to Schneider’s article shares the difficulty in creating a standardized design to serve as a universal basis of empirical measurement in organized crime studies; a sentiment shared by Wheaton (2010) and Becker’s (1995) articles. In future steps of this project, I would, therefore, enjoy the opportunity to shed some light on the rationally-based, market-driven processes in transnational organized crime – to provide better empirical bases for interest and discourse.
The game theory approach is my preferred exercise for running the means in which state actors choose to become involved in transnational crime within a free market when provided the right incentives to do so (in otherwise unsatisfactory situations). This can be justified through a case example with DPRK guestwork in that, when offered the competitive incentives of a cheap, well-equipped workforce, European firms hire said-workers to cut costs.
After considering the examined body of transnational organized crime research and synthesizing the works into three relevant schools of thought, my review concludes that the game theory-rational interest approach will uphold the strongest standards of understanding the state motivations of illicit engagement in the criminal marketplace.
Case Selection and Strategy
My preliminary research is comprised of a small-N study and will focus around a single case, the presence of North Korean guest workforce in Poland. I believe this case is interesting in how it contradicts assumptions of how North Korea sustains itself economically in such a thick climate of sanctions. I chose to focus on this specific case because it represents my research question on a massive scale.
Ethical Issues
While I do not believe this project requires a proposal submission to the IRB for human subjects review, my project may still encounter ethical issues. This said, having studied the at-risk North Korean population before – including having completed in-person interviews with a North Korean defector for a Freshman Year project, I’ve become quite familiar with the delicate footwork needed to conduct thorough research on the country while avoiding stepping on the toes of institutional decency and good practice.
Analysis:
In August 2014, Chŏn Kyŏngsu was welding pipelines at the stern of The Polar Empress – an under repair Norwegian ship – when an ignition suddenly occurred and engulfed his entire uniform in flames. Chŏn was not a Polish or even an EU citizen though; he was a DPRK national, hired by Armex Sp z.o.o. and licensed with the appropriate and accurate labor permits to work in the EU.
At the time of the accident, Chŏn was 41-years-old and working 12-hour work days six days a week as a welder for Armex Sp z.o.o. – based in Gdansk, Poland. Chŏn was wearing flammable clothing provided by Armex and by the time he’d been transported to a local hospital, 95% of his skin had been severely burned by the fire and doctors unfortunately could not save his life. His story caught the attention of international headlines in 2015 spawned a Polish Labour Inspectorate investigation into the accident.
We study Chon’s case because the Polish Labour Inspectorate’s report allows us a detailed glimpse of a state system structured so that it ensures the divisions of state-managed and private entities are blurred. My research has begun to unravel a complex network of transnationally-organized workplace exploitation and human rights violations that stretch beyond sovereign boundaries. I used the International Consortium of Investigative Journalists’ offshore leaks database to analyze thousands of incorporated and limited liability entities, officers, intermediaries, subsidiaries, and conglomerates that have access to EU funding while having ties to the employment of a North Korean workforce. This research eventually led me to Nigel Richard James Cowie, an officiating director of Phoenix International, which is based in panama (even though Nigel works from the North Korean House of Culture in Pyongyang while being naturalized to Iran). includes shipbuilding companies such as Nauta S.A. and Crist S.A. – which both employ North Korean welders through Armex, which is linked to Kim Chol Sam, who is a business partner of Nigel Cowie through DCB Finance. It is clear that companies linked to North Korean workers are spread among a diverse range of sectors, most notably construction and shipbuilding – and these use of laborers in these industries have tended to grow despite mounting sanctions on the regime (See Figure 1). North Korea’s willing supply of an able, literate, quality-working, un-unionizable, financially competitive workforce is certainly not unmatched in the world’s labor markets, but these features are certainly rare and sought-after. The high number of DPRK workers abroad suggests that the state has grown its efforts around leasing its people to the highest bidders, whether they be located in China, Qatar, Kuwait, Poland or the Netherlands.
Figure 1: DPRK Work Permits in Poland by Year.
The Polish Labor Inspectorate discovered a number of breaches of provisions included in the Act on the promotion of employment and labour market institutions and of labour law provisions including:
irregularities related to operating as an employment agency without having the required permits for conducting such business, to the lack of written information for workers on the terms of their employment, the non–payment of salary for overtime work and/or bonus for overtime work, and missing or insufficient protection during the performance of particularly hazardous work.
Figure 2: Payslips sheet for North Korean Armex Workers for the month of August, 2014. According to the Polish Labor Inspectorate, The payslips should contain signatures and dates from each of the koreans themselves. According to Armex, the workers fulfill this regulation, but patterns in the handwriting found in the Polish Labor Inspectorate report conclude otherwise.
Conclusion:
It is the financial competitiveness of using North Korean labourers – especially in free markets where the minimum wage lies below the demand of the citizen workforce – that is the prime push factor keeping the DPRK guestwork market alive. The features and conditions that North Korean guest workers are exploited to in their host countries are constituent features one frequently encounters in inquiries of DPRK guestwork abroad; however, it isn’t often addressed just how profitable of a revenue model this exchange is for the North Korean state. Additionally, case reports seldom feature the push & pull factors that encourage and excite private Polish firms’ decisions to hire North Korean labor as a means of cutting costs in a competitive market. Lastly, it’s of utmost importance and completely necessary to note that this competitive advantage for the firms is detrimental of the workers, who are in no position to disengage from abusive situations given the strict state controls restrictive ideology that follow North Korean workers abroad. While the DPRK sends only its most loyal citizens to work abroad, the reality is that these individuals cannot protect themselves, have no access to legal remedies, and it’s required that these laborers have the family institutions to minimize the possibility of defections.
In an analogical context, my preliminary research concludes this case to be compatible with similar models of illicit commodities and services in competitive transnational markets. These workers present a lucrative opportunity for both the North Korean regime and the company that takes advantage of the competitive DPRK workforce. When governing institutions are vulnerable to abuse, competitive firms take advantage because the conditions exist for illicit transactions to occur at a substate level.
Given the Polish Labour Inspectorate’s minimal authority to sanction and counsel governing organizations, it’s quite disturbing to observe the EU’s lack of action to condemn Poland’s at-risk labor institutions is a disturbing finding. Institutions such as the U.S. State Department recently recognized Poland as a source, transit, and destination country for North Korean migrant workers:
Poland is a source, transit, and destination country for men, women, and children subjected to forced labour and sex trafficking. Labour trafficking is increasing in Poland; victims originate from Europe, Asia, and Africa. There is an increasing vulnerability to labour trafficking among Poland’s growing Ukrainian migrant population and North Korean migrant workers.
This is a step in the right direction to combating organized crime at the institutional level. Transnational Organized Crime is lucrative and penetrates the global economy for actors that seek rational incentives and advantages over their competitors; Therefore, it is urgent that we explore this phenomena further so that we may ratify and strengthen of financial institutions in vulnerable governments (e.g. Poland, Netherlands, EU) that stipulate and provide funds to private sector enterprises.
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