By Miguel Cassagne

The curius case of North Korean Restaurants.

Introduction.

The world of financial crime and money laundering is ever-evolving, with perpetrators continuously seeking new avenues to legitimize their illicit gains. Recent reports highlight a concerning trend where the restaurant industry, particularly in the case of North Korean establishments in Laos, has become a potential hub for money laundering activities.

While these North Korean restaurants were once popular for offering a glimpse into the secretive regime, their dwindling customer numbers and evolving business practices have raised suspicions. In this article, we explore the implications of this growing trend, its relevance to Argentina, and the crucial role of preventive measures in combating money laundering and terrorist financing.

Money Laundering and Restaurants.

In the world of financial crime, restaurants have long played a role in the shadowy business of money laundering. Contrary to the stereotypical depiction seen in gangster films, these aren't just small, inconspicuous operations with few customers. They are legitimate businesses with real profits, intermingling their legitimate earnings with the proceeds of illegal activities such as drug trafficking and human smuggling.

But What Exactly is Money Laundering?

Money laundering is the art of disguising the source of illegally acquired funds, often referred to as "dirty" money. It's about making illicit wealth appear clean, so that it can be used to buy homes, cars, and other assets, seemingly earned through legal means.

How Does Money Laundering Through Restaurants Work?

The first step for criminals is to find a pre-existing restaurant to acquire. Why? Well, it's simple. An already operational restaurant comes with employees, adding to its authenticity. Most employees, however, are typically kept in the dark about the money laundering activities. The goal is to maintain the appearance of a legitimate business.

The success of this operation depends on one crucial factor: getting the dirty money into the bank without raising suspicion. To achieve this, criminals blend their ill-gotten gains with the restaurant's earnings. This daily mingling of legal and illegal income helps maintain a façade of normalcy.

Popular restaurants can be particularly useful for money laundering, as they create the perfect cover. A bustling eatery with many customers coming and going helps justify the revenue. It appears as if the cash on hand is entirely within the normal range for a thriving restaurant.

Why Restaurants?

Restaurants have characteristics that make them attractive for money laundering. They deal with substantial cash transactions, which are not easily traceable. Unlike credit card or wire transactions, cash is virtually untraceable. Thus, many criminals prefer businesses like restaurants, where large sums of cash can be deposited in the bank without raising eyebrows.

FAFT has already said that the use of retail and service businesses such as restaurants, pubs and convenience stores have long been used by criminals to facilitate the laundering of illicit cash. These legitimate businesses are sometimes referred to as ?front companies? if they are set up to provide plausible cover for illegal activities.

Moreover, restaurants are not subject to rigorous oversight, making them even more appealing. If a restaurateur falsely claims a constant stream of customers, authorities may not immediately catch on.

The Curious Case of North Korean Restaurants.

In a recent report published on September 11, 2023, Al Jazeera highlighted a perplexing situation involving North Korean restaurants operating in Laos.

The Paektu Hanna Restaurant in Laos's capital, Vientiane, is just one example of North Korean restaurants that continue to operate despite the odds. Named after the mythical mountain in which former North Korean leader Kim Jong Il was said to be born, these establishments were initially designed as soft-power vehicles to showcase North Korean culture to curious tourists worldwide. However, their heyday has passed, and today, only a few such restaurants remain open, defying United Nations sanctions imposed in December 2019.

On the surface, these restaurants appear to be failing businesses, with empty tables and minimal customer traffic. However, experts suggest a more sinister motive. Reports indicate that North Korean "IT workers" stationed in China, Russia, and Laos may be generating illicit funds through cybercrime, which are subsequently laundered through these restaurants.

Joshua Stanton, a lawyer involved in drafting U.S. North Korea sanctions, speculates that these restaurants serve as a front for money laundering. This hypothesis gains credence when we consider the significant sums generated by North Korean IT workers engaged in cybercrime activities. These activities include hacking, cryptocurrency theft, and malware distribution, all of which contribute to North Korea's nefarious agenda.

The Link between Restaurants and Cybercrime.

The evolving nature of financial crimes has seen an increase in North Korean IT workers stationed in China, Russia, and Laos. These workers are now linked to hacks, malware distribution, and cryptocurrency theft, with the proceeds channeled back to the North Korean regime.

For instance, in 2022, the UN Panel of Experts documented cases of North Korean IT workers using platforms like Upwork for freelance work while concealing their true identities. These IT workers earned substantial sums, with estimates suggesting over $300,000 per year for each worker. These funds, however, serve little purpose until they pass through North Korea's elaborate money-laundering network, which now appears to include restaurants in Laos.

Red Flags and Risk Mitigation.

While most restaurant owners operate legally, some warning signs may indicate potential abuse of a restaurant for illicit financing. Being able to recognize red flags and implement countermeasures can help protect legitimate businesses. Some of those red flags could be:

- A discrepancy between the amount of business activity and declared revenue

- A willingness to accept large cash payments without question 

- Purchases and expenses that seem excessive for the restaurant's operations

- Employees on payroll with no clear job duties

- Sudden changes in ownership or management for no clear business reason

Conclusion.

The trend of money laundering through the restaurant industry, as exemplified by North Korean establishments in Laos, underscores the adaptability of financial criminals. While these restaurants may seem inconspicuous, they potentially serve as key components in a larger network of illicit activities, including cybercrime.

By staying vigilant for money laundering red flags and having strong controls in place, restaurant owners can reduce exploitation and protect their business' integrity. Though the cash-based nature of restaurants creates risks, being informed, compliant and proactive with AML measures can help deter criminal abuse.

To combat money laundering and terrorist financing effectively, robust preventive measures, stringent enforcement of sanctions, and international cooperation are essential. As we face evolving financial crime tactics, staying ahead of the curve in the fight against money laundering remains imperative for global security and stability.

Sources:

https://www.aljazeera.com/news/2023/9/11/few-customers-but-plenty-of-cash-n-korean-restaurants-remain-open-in-laos