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Cryptocurrency Heists Fuel North Korea’s Nuclear Program

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The growing intersection of cryptocurrency and global security concerns has prompted US lawmakers to raise alarms about North Korea’s burgeoning reliance on stolen digital assets to fund its nuclear program. Three Democratic senators have called on the Biden administration to disclose its efforts to counteract this worrisome trend, as they consider it a severe threat to national security.

The Wall Street Journal reported in June that North Korean hackers had successfully stolen more than $3 billion in cryptocurrency-related thefts since 2018. Disturbingly, US officials revealed that these ill-gotten funds now finance roughly 50% of North Korea’s ballistic missile program, leading to a rapid escalation in missile launches and successes.

Cryptocurrency’s appeal for North Korea lies in its ability to evade international sanctions while acquiring substantial financial resources. The secretive regime has methodically built expertise in digital assets over the past few years, making it a formidable player in the cryptocurrency space.

According to Anne Neuberger, a deputy national security adviser in the Biden administration, North Korea’s reliance on crypto is deeply entrenched. “Crypto is arguably now essential to North Korea. By any standard, they are a crypto superpower,” says Nick Carlsen, a former North Korea analyst at the FBI.

In a worrying trend, North Korean operatives have been masquerading as job applicants to siphon money from unsuspecting companies. Elliott Garlock, founder of Stella Talent Partners, recounts his experience of encountering suspicious candidates during job interviews for a crypto firm. The applicants would keep their cameras off and provide vague information about their locations. Little did Garlock know that these individuals were funneling money to North Korea.

The Lazarus Group, a hacking outfit associated with the North Korean government, orchestrated a catastrophic hack in March, draining over $600 million in crypto from the popular NFT game Axie Infinity. Chainalysis data revealed that North Korean hackers stole $840 million in the first five months of 2022, surpassing their previous hauls in 2020 and 2021 combined.

North Korea’s tactic is to avoid liquidating stolen cryptocurrency immediately. Instead, it sells small batches of bitcoin and ether over an extended period, avoiding easy detection. Nick Carlsen, who tracks North Korea’s blockchain activities, highlights that the regime faces challenges in laundering the stolen funds within the crypto ecosystem. The process involves using bridges to send crypto between different blockchains and mixers to obscure the origins of the funds.

“Crypto laundering is easier than laundering US bills, but it still requires work,” notes Joe Dobson, senior principal analyst at cybersecurity firm Mandiant. The process entails sending money between bridges and mixers to hide blemished tokens within clean ones, making it difficult to trace.

US authorities are taking measures to mitigate the impact of North Korea’s illicit activities. In August, the US Treasury banned Tornado Cash, a cryptocurrency mixer that masks the origin of transactions. Brian Nelson, the US Treasury’s undersecretary for terrorism and financial intelligence, declared, “We are taking action against illicit financial activity by the DPRK and will not allow state-sponsored thievery and its money-laundering enablers to go unanswered.”

One significant challenge faced by authorities is determining who purchases North Korea’s stolen cryptocurrency. It is believed that much of it is offloaded to Chinese buyers, but specific details remain shrouded in mystery. A 2020 Department of Justice investigation found two Chinese nationals guilty of laundering some of the $100 million North Korea stole from a Hong Kong-based exchange. However, most transactions involving these stolen funds are yet to be traced.

The convergence of cryptocurrencies and national security concerns has led to a serious threat posed by North Korea’s growing dependence on stolen digital assets to fund its nuclear program. With North Korea’s expanding expertise in digital assets, the Biden administration faces the challenge of devising a comprehensive strategy to counter these illicit activities effectively.

On one hand it is likely a good thing that cryptocurrency can be anonymized, since government tracking is getting worse and worse. On the other hand it is disturbing that the most advanced technologies can be hacked so easily. North Korea is a communist regime, a nuclear power and a bad actor by any definition.

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