Slave to the Blog: Tech Edition

September 15, 2015 7:00 AM

Following up on Marc Noland's post yesterday on information, several other stories have appeared in the last week on technology and IT issues and I bundle them here.

First up is the perennial hacking question: do they or don't they, if so how much and whom? A new report by Fireeye provides new evidence they do. The target in question is Hangul Word Processor (HWP), an application used largely in the public sector in South Korea. The Fireeye report is highly technical, showcasing how Fireeye tracked it to earth. But the section on attribution enumerates the circumstantial evidence: the interest in a South Korea target; a command-and-control IP address that is the same as one used in another malware called Macktruck, compiled earlier in the year and also linked to North Korea; and the similarities in code structure among a relatively small and infrequently-used family of malware, suggesting similar developers and target interests (including Macktruck, Peachpit and Hangman, the malware in question in the HWP attack); all have been implicated in attacks that are plausibly North Korean.

Thanks to North Korea Tech we were alerted to a new installation of the ongoing trouble over at Orascom. I took a closer look at the report in question, and it suggests even wider problems than those outlined in the North Korea Tech coverage. The statement in question is not the quarterly financials per se, but the Limited Review report by Deloitte on them. Are the stated financials correct? The short answer is that it depends on the exchange rate.

For a political economist, the report is a case study on the hold up problem, starting with the magnitude of Orascom’s commitment. According to the Deloitte review, the net assets of Koryolink account for no less than EGP 6.4 billion ($832 million) of the Group’s consolidated net assets of EGP 8.9 billion ($1.15 billion). And of this EGP 6.4 billion, no less than EGP 4.9 billion ($637 million) is in won cash balances.

However, the first problem—as we have reported on repeatedly—is the exchange rate. The Orascom accounting assumes the official rate at which businesses are often constrained to operate of about 100 won to the dollar. That is fine for North Korea when the money is coming in, but less advantageous when firms want to repatriate. As the report drily notes, “the Group’s management has no exchange rate available other than the official exchange rate announced by the Central Bank of North Korea which is being used by the Group’s management in translating the subsidiary’s financial statements, however, the currency exchange rate is not available at such official rates unless a prior approval from the authorities is obtained.” The report doesn’t even bother to finish the sentence; clearly, no such authorization to walk away with $600 plus million is on offer. The market rate is around 8200 at the moment according to our friends at DailyNK. At that exchange rate, Orascom would be out of business: its cash holdings would be worth a little more than $7 million. The report provides evidence of how accounting rules can make a silk purse out of a sow's ear.

But for the first time I can recall, the report also makes mention of the international sanctions on financial transactions, which have crimped the ability to “operate, maintain and develop” the local network. Since the Group can’t repatriate to finance equipment imports, and because some of those imports might be limited by constraints on dual-use technologies, the group is limited in its ability to sustain and possibly even repair the network (assuming it would want to).

And if this were not enough, the trifecta is complete with the fact that the government—a shareholder in Koryolink—has launched a competitor in which it is also a shareholder, forcing Koryolink into negotiations over a merger. If that is not hold-up it is hard to know what is. Does the regime understand that other firms are watching these important investments closely? Or are its time horizon and concern with credibility so limited that it doesn’t care?

Finally, following directly on Marc's post from yesterday on outside information, DailyNK highlights the crackdown on illicit consumption of South Korean fare on Bluetooth enabled smartphones. These phones are now in the market and favored by both party officials on the one hand and smugglers and blackmarketeers on the other. According to DailyNK—and crosschecked with a second source—three hapless private citizens were arrested and executed for watching South Korean movies on their phones. Although the executions were not public, that can hardly be called progress. This is a political system in which the boundaries of the acceptable are not only continually shifting, but in which miscalculating them is deadly.

Comments

Frank Plantan

Gentlemen,
I'm curious about your overall assessment or even impression as to whether executions have increased under Kim Jong Un over those or his father and grandfather and speculation as to why? Are the gulags full? Is it just simply cheaper and less hassle than internment? Likewise, has the list of "crimes" punished by death increased and/or are they simply more arbitrary than in the past?
thank you for continuing your excellent work...
Frank

kboydston

Hi Frank, thanks for the comment. Those are questions we're regularly trying to get to the bottom of. Here are a few good references of posts we did a few months ago: http://blogs.piie.com/nk/?p=14261 and http://blogs.piie.com/nk/?p=14249

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