Kim Jong Un's art of the deal - make friends for spare parts

[June 06, 2018]  By Polina Nikolskaya

MOSCOW (Reuters) - On a shelf in a cramped office on the outskirts of Moscow, businessman Igor Michurin has a framed photograph of himself shaking hands with one of his important customers - a North Korean embassy official whom Michurin calls Lee.

It's a relationship which offers unusual insights into the negotiating techniques of Pyongyang officials, and the ways North Korea has gone about commerce in the face of international economic sanctions – from trading in spare parts or wine and cigarettes, to offering labor for hire.

The Russian, whose two companies had revenue of nearly 42 million roubles ($671,000) according to 2016 records, was blacklisted a year ago by the U.S. Treasury Department because he often did business with a North Korean company that, according to the United Nations Security Council, helped Pyongyang's weapons program.

Michurin does not deny doing business with North Korea, but says he believes he did not break any laws.

The story is rooted in an old alliance. North Korea was founded by the Soviet Union, which supplied much of its original defense equipment. In the years since Pyongyang's nuclear weapons tests sparked sanctions, Moscow often resisted the measures. U.S. President Donald Trump said in January that Russia was helping North Korea evade sanctions; Moscow says it is now actively cracking down on potential violations.

Around 2011, when Michurin got involved with Lee, U.N. monitors saw how Pyongyang would adapt bits and pieces of old, off-the-shelf, civilian equipment, and obsolete or unwanted parts to use in missiles. These parts reached North Korea from all over the world, including from past Soviet allies.

That's the kind of item Michurin started out selling to the North Koreans.

One of his companies, Ardis-Bearings, specializes in trading ball bearings - the steel balls that fit between the moving parts of a machine to help it run smoothly. Bearings can be used for military and civilian purposes, so are known as a "dual-use" technology. U.N. member states are expressly forbidden from exporting certain types to North Korea.

Those were not the types Michurin sold Lee, he said. Instead, he provided "regular mass-produced stuff, surplus stock, old bearings."

Michurin said the Russian foreign ministry had questioned him last year about his sales to North Korea, and at the time ministry officials had told him they were responding to a message from the United States. Neither the foreign ministry nor the U.S. Treasury Department answered questions for this story.

"A SPARK"

Tall, with grey hair, and casually dressed in jeans, Michurin is a 39-year-old native of Belarus who set up his own business seven years ago after working in small Moscow firms in the industrial bearings trade. He quickly found interest from Asian customers.

"As soon as I place an ad on the internet to say I have some bearings for sale, some Asians will always turn up," he said in the office in Moscow South where he ran the business until earlier this year. "They're always buying different bearings, they apparently have a demand for them."

At the end of 2011, soon after the funeral of Kim Jong Un's father, Kim Jong Il, Michurin said Lee invited him to the North Korean embassy. They walked together up a red carpet toward a portrait of the deceased leader, where they offered flowers.

"A spark ignited between us," Michurin said. He returned several times, attending concerts of national songs and dances, eating in a North Korean restaurant in the embassy compound, and negotiating in embassy meeting rooms.

"We treated each other as friends," Michurin said. "He was here in Moscow with his family, his wife and his child, we used to meet up, we spent time socializing as families."

In 2013, Lee persuaded Michurin to make a $1,000 contribution to a North Korean charitable fund: the Kim Il Sung-Kim Jong Il Foundation. The foundation's website is not available in Russia, but a video on YouTube says it was set up after Kim Jong Il's death, preserves the Kumsusan Palace of the Sun and raises money for "education, public health and environmental protection."

In return, Michurin got a certificate. "Great president Kim Il Sung and great leader Kim Jong Il will remain forever in the hearts of humankind," it said, alongside portraits of the leaders.

Lee's business with the Russian was small. He would arrange for someone to collect a few dozen bearings at a time - the most the North Koreans ever paid was 100,000 roubles ($1,500).

Michurin said he sold the items as an 'individual entrepreneur,' a designation under Russian tax law that does not require a vendor to have a contract with a customer, or to obtain proof of their identity. All the vendor needs do is give the customer a receipt.

"When you buy bread from a shop, you don't get asked for your passport and ID documents, do you," Michurin shrugged.

COMMUNISM

His account of how the North Koreans established their relationship was echoed by another Russian entrepreneur.

Ruben Kirakossian, who supplies specialist metals to Russian state defense manufacturing firms, said he first met North Korean diplomats at a trade fair in Moscow, then visited the embassy; Pyongyang's representatives came to his office. He said they were interested in a range of goods from Armenian cigarettes and wine to rolled aluminum and steel.

The U.S. Treasury Department also blacklisted Kirakossian last year, alleging he procured metals for the Korea Tangun Trading Corporation, which the U.N. Security Council has said has a role in Pyongyang's weapons program.

Kirakossian says he didn't supply anything because he didn't have the metal the North Koreans wanted, and they were proposing unrealistic terms. "The Koreans have a Communist set-up," Kirakossian said. "And in today's world that's not a relevant proposition."

A general view shows the embassy of North Korea in Moscow, Russia February 27, 2018. Picture taken February 27, 2018. REUTERS/Tatyana Makeyeva

Tangun could not be reached and North Korea's mission to the United Nations did not respond to a request for comment.

DIVERSIFICATION

Michurin's friend Lee "always looked for an opportunity to make money beyond bearings," Michurin said. About three years ago, he said, Lee proposed the partners branch out into hiring cheap North Korean labor.

Almost 100,000 North Korean expatriates, most of them in China and Russia, funnel some $500 million a year in wages to help finance Pyongyang, the U.S. government says.
 

Michurin set up a construction company and signed a contract with a North Korean firm called Ryungseng Trading Corporation. Ryungseng would recruit workers in North Korea and organize their flights to Moscow, while Michurin would billet them and pay their wages.

The Russian put the North Koreans to work on construction sites. One contract he landed was a housing development called Orlov in Moscow region, about 20 km (12 miles) south-east of Moscow.

Yuri Ilyushkin, a representative of the developer, Pekhra-Pokrovskoe, said Michurin's North Korean workers were "even better than some Russians. Not excellent, but good."

The U.N. agreed last year to phase in a ban on employing North Koreans. Michurin said he still employs 19 of them, but he expects them to leave when their permits expire.

"DESIRE TO ACQUIRE"

Back in 2015, Michurin said, Lee kept pushing him for help. Late that year, the North Korean asked him to set up a meeting with executives at a Moscow-based firm called Augur RosAeroSystems.

Augur has been active in projects related to Russian state defense procurement since the late 1990s, according to its website: It has carried out testing for the Russian defense ministry, and the Russian military uses some of its products.

The North Koreans wanted to discuss the purchase of an airship, also known as an aerostat, for around $1 million, Michurin said. He said he twice took a North Korean delegation to Augur's plant at Peresvet, north-east of Moscow.

The company's former commercial director, Mikhail Talesnikov, confirmed the North Koreans had been in contact with Augur when he was at the company. "They wanted to buy some kind of small aerostat and asked for broad cooperation," he said. But he did not know about the visits and said he had not held any talks with the North Koreans.

Aerostats in themselves are not military equipment, Talesnikov said. But "you can suspend from them things that are for surveillance, eavesdropping, detecting gases, and the package together with the payload can already have a military or semi-military use."

In the end, there was no deal. For Augur, the prospect was too risky because "it contradicts international sanctions," Talesnikov said. Augur is now going through bankruptcy proceedings related to other business.

Michurin said the North Koreans had "particular requirements." Asked what those were he said: "A tendency to copy technology, a desire to set up joint ventures on North Korean soil, requests for non-standard equipment and dirigibles of non-standard sizes."

He described them as "very particular customers," with "an absence of money, but at the same time, a desire to acquire."

BACK TO PYONGYANG

Two and a half years ago, Lee and his family went back to North Korea, Michurin said. Before the men parted, they met up with their families in a Moscow café to toast their relationship.

And before long, Michurin said he was contacted by another North Korean, who introduced himself as a trade representative at the embassy in Moscow, and said he was interested in acquiring bearings, as well as other items. The new trade representative of the North Korean embassy is Kim Ju Hyok, two of his colleagues said. He did not answer emails.

Michurin said he went on to sell more bearings to other Asian customers, who he presumed were also North Korean. Early last year, he said he was visited by Russian foreign ministry officials and gave them a list of equipment he sold to the North Koreans.

Then on June 1, 2017, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC), which enforces America's sanctions, put Michurin and his company on its sanctioned list.

The department had found Ryungseng – the company Michurin contracted to import North Korean laborers - is an alias for the foreign operations of the banned Korea Tangun Trading Corporation. Ryungseng could not be reached.

Michurin says he had no idea. "I am practically 100 percent sure that there was no violation here from my behalf," he said. "Why do I leave a shadow of doubt? Because the laws, you cannot keep up with them all, there are so many of them. I hope I did not violate anything."

(Reporting by Polina Nikolskaya; Additional reporting by Josh Smith in Seoul and Stephanie Nebehay in Geneva; Edited by Sara Ledwith)

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