North Korean authorities have recently confiscated the trade certificates, or waku, of several mid- to large-sized trading companies in the country.
According to a Daily NK source in North Korea on Wednesday, the Central Public Prosecutor’s Office arrested about 10 trade officials this month, confiscating the waku of their trading companies as well.
During North Korea’s efforts over the last month to merge trading companies, the authorities have discovered cases where companies have taken on excessive debt. The government has taken issue with officials of these companies for poor accounting practices and filing false financial reports.
Daily NK recently reported that North Korean authorities have started restructuring the country’s trade sector as the first step to restoring the state’s “unitary trade system.” These efforts have included merging and disbanding trading companies and making companies directly report their trading and sales details to the country’s Cabinet.
The individuals arrested in the latest round-up include officials with trading companies attached to major state institutions, including the Supreme Guard Command, Ministry of State Security, and External Construction Guidance Bureau. North Korea has apparently punished individuals and companies when their financial audits have turned up problems, regardless of the company’s size or parent organization.
However, trading companies that had their waku confiscated are crying foul. They say it is wrong for prosecutors to take away their waku simply because “rash financial audits” turned up “excessive debts” or missing numbers when the prosecutors themselves know nothing about the companies’ trade transactions.
North Korean trading companies usually pay only a portion of a shipment’s cost up front, paying the rest in cash or kind only after they have received the entire shipment. In particular, mid- to large-sized trading companies often pay for several transactions all at once rather than pay each and every time they make an import. Due to this practice, companies can appear on paper to have accrued massive debts.
The problem is that with the authorities suddenly confiscating the waku of certain trading companies, traders in China and other countries who had connections to those companies might not get paid.
In fact, according to the source, overseas traders are responding in a hardline fashion, making direct petitions to North Korean authorities and filing damage claims with their own national authorities.
Because of this, there are worries in North Korea that the matter could blow up into a diplomatic dispute at the drop of a hat.
Following discontent over the government’s crackdown, North Korean authorities pondered whether to completely invalidate the confiscated waku or to return them on condition that the companies resolve their debt issues.
Ultimately, North Korean authorities decided to merge the problematic companies and reissue waku to their new parent trading companies on the condition that they resolve the debts. Essentially, the authorities have forced the parent organizations to assume the debts of the merged entities.
North Korean trade officials aware of this situation speculate that the authorities arrested the individuals and confiscated their companies’ waku to shift the blame for having to assume the unexpected debt that emerged as they tried to merge trading companies and put them under direct control of the Cabinet.
Daily NK’s source said that, typically, few arrests or detentions take place prior to the holiday marking the birthday of late national founder Kim Il Sung on Apr. 15. However, given how quickly the authorities moved to arrest the trade company officials and take away their waku, the government appears quite concerned about the state possibly taking on the trading companies’ debts. He added that, as a result, the mergers could take longer than expected.
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