The Michael Ranger Files: Part 3

Andrea Berger over at RUSI has access to 500 pages of court transcripts relating to the prosecution of an arms dealer named Michael Ranger,  who was convicted of brokering the sale of MANPADS  in violation of arms embargoes on North Korea and Azerbaijan.  The transcripts are filled with insights about DPRK arms sales.

Andrea was kind enough to write a three-part series on juicy bits related to DPRK arms marketing.

The Michael Ranger Files: Part 3

By Andrea Berger

Part two of this series discussed North Korea’s reputation for producing arms of questionable quality. Concerns that the MANPADs on offer from Pyongyang would not meet the standards of Azerbaijan’s Ministry of Defence had brought a deal close to implosion when its broker, Michael Ranger, was arrested by the UK authorities.

North Korea’s weaponry also has a reputation for being inexpensive. In 1991, the Defense Intelligence Agency assessed that by the end of the Cold War ‘North Korea [had] emerged as a significant arms exporter of inexpensive [conventional] weapons’. But that was around the time that North Korea was still in the practice of discounting and gifting weaponry. The Peruvians scored a 75-80% discount from the world market price when they bought 100,000 AK-47s from North Korea in 1987.

That all changed in the late 1990s when North Korea subordinated the foreign policy objectives of its arms exports to the goal of revenue generation. Despite that change, the ‘North Korean weapons are cheap’ line remains one of the most common informal explanations I hear for why countries around the world still buy from North Korea in violation of UN sanctions. North Korea, they imply, is the poor man’s defence supplier.

Even if it is true that North Korea’s military goods are cheaper than those on offer elsewhere, this factor does not sufficiently explain any North Korean military relationship in its entirety – whether that’s with Ethiopia, Iran, Syria, Burma, Cuba, or others. The picture is far more complex.

Nevertheless, it’s important to give detailed consideration to North Korean pricing and financing. News outlets have over the years carried countless estimates about how much seized cargo would have been valued at, or how much a particular North Korean deal was allegedly worth. Back in 2010, Josh Pollack gave a great run-down of some of those numbers in an Arms Control Wonk post.

It’s hard to say where those figures come from and therefore how reliable they are. Concrete, from-the-horse’s-mouth information about how much North Korea charges for its products is slim, but the Michael Ranger transcripts offer rare insight on this point.

Cheque, Please!

North Korean prices for two different systems and customers – the 12.7mm heavy machine guns destined for Yemen and the newly manufactured Igla MANPADs bound for Azerbaijan – are discussed in the Michael Ranger case.

Emails read out in court show that in 2010 the Hesong Trading Corporation relayed to Ranger a price of €2,850 per unit for 500 units of the heavy machine guns, where each unit included one spare barrel, a tripod, and an ammo case. Hesong expected a 45 per cent deposit and the buyer to travel to Pyongyang and take responsibility for the cargo from the loading port.

(I’ve had a look for comparable sales of the Soviet-designed NSV, but have struggled to find an open-source record of a transaction that includes specifics about whether spare barrels etc were included. Perhaps readers can help?)

Then there are the MANPADs. Unfortunately, the prosecutors never read out the initial quote from Ranger’s emails, which was for 70 newly manufactured units with their launch tubes (though excluding gripstocks, which are often negotiated separately). It is possible that Hesong actually meant its initial quote to be for 100 units. As discussed in part two, there was some miscommunication between parties.

We still have some clues as to what Hesong’s original price might have looked like. After Azerbaijan decided it needed to test a sample of ten units in-country before buying more, Hesong came back with the following:

The new price of this lot is €28,500 per PCS and the delivery is before 70 days according to your…chartering arrangement. I assure you the next continuous regular lot minimum 70 pieces can be supplied with the price I quoted you before. You can inspect the articles and confirm the shipment of this lot in loading site and all payments should be done at the same time.

In other words, for ten units the price would be €28,500 per unit including launch tubes (in 2010 prices), with full payment in advance. We know that Hesong’s original quoted a lower price when the order was for a larger number of MANPADs. After he received the quotation for ten units, Ranger responded: “Many thanks for the offer. I had already informed the end user that there would be an increase in price for a smaller quantity.”

Again, helpful comparative figures are difficult to come by. A black market Igla-1 – which these weapons were believed to be comparable to, though they are only described as ‘Iglas’ in court – can apparently be bought for as little as €4,200 (inflation and sensitivity adjusted for 2010 comparison). However, black market prices are really not useful points of comparison for governmental transactions of freshly manufactured stock.

Finding a comparison for this case is particularly challenging because Russia started manufacturing and selling newer Igla variants from the early 2000s, whereas North Korea was still selling the outdated models years later. One comparison for the Azerbaijan offer is the 1997 contract between Russia and Ecuador for the sale of 222 Igla-1s, priced at approximately €80,000 per unit (inflation and sensitivity adjusted). Though it seems this sale also included launch tubes and excluded the reusable gripstocks, it is not completely clear. There is therefore a fairly large margin of error in this comparison. However, if we assume North Korea’s original offer to Azerbaijan was much lower than the €28,500/unit they later quoted, then even with that margin of error it is reasonable to conclude that North Korea may indeed be cheaper than its competitors.

Before this conclusion can be generalised with high confidence, more evidence is needed. It is probable that when it comes to conventional weapons systems (training and repair are separate questions), North Korea may indeed be cheaper. From my examinations of their various military relationships, it appears that North Korea considers not only what the market will bear but also the categories in which it has competition.

For this reason, my suspicion is that North Korea’s missile- or nuclear-related sales, for example, are not that competitively priced. Tom Plant and Ben Rhode once astutely observed in Survival, that North Korea charged Libya $2 million for three canisters, or 1.7 tonnes, of slightly enriched uranium hexafluoride – about forty times the market rate of $45 per kilogram. By the time a customer has decided they want a ballistic missile or nuclear capability and need to consider North Korea as a supplier, price is probably not a primary concern as they don’t have many alternative sources of help.

A Quick Word on Financing

Note that all of the prices quoted by Hesong, whether for Yemen or Azerbaijan, were priced in Euros. The Republic of Congo’s 2009 contract with North Korea to refurbish tanks, armoured vehicles and artillery was also Euro-denominated.

According to my interviews with a dealer familiar with DPRK arms trade, North Korea switched from pricing in dollars to pricing in Euros around 2008. They allegedly directly translated their prices from dollars into euros without going through a rate conversion. In other words, if they had charged $28,500 for an Igla-1 in 2007, they charged €28,500 in 2008. I have no way of corroborating this, but I find it interesting.

I suspect that the Banco Delta Asia incident (and the introduction of UN sanctions on North Korea in 2006) made it much harder to find banks willing to process any transactions tha have a hint of a North Korea connection, especially if the transaction is dollar-denominated and therefore would touch US jurisdiction in the process. The Office of Foreign Assets Control is fearfully regarded as the Dementor of the global financial sector, sucking fines out of banks for transgressions of US law and forcing them to relive their worst memories.

That said, the Ranger transcripts show that finding a bank – even a reputable one – to facilitate your illegal North Korean arms trade is not impossible. Ranger set up front companies in Hong Kong exclusively for the purpose of his transactions relating to North Korea. He also opened bank accounts with two major Tier-1 banks specifically for those companies, and transferred money into them from an airport branch of an Omani bank. Classy.

A Rare Case

The Ranger transcripts are a treasure trove of details for North Korea wonks eager for first-hand information about Pyongyang’s arms trading practices. The more details we can glean from cases like this, the better. So you can understand my slight disappointment when the latest case (of a North Korean, using a Cambodian passport, who had registered a Greenpine International in Hong Kong, showed up in Hawaii trying buy night-vision goggles used by US Special Forces) struck a plea bargain in Salt Lake City. But for that I might have needed a five-part series…

In part one, I look at the evolution of Ranger’s relationship with North Korea and the role of brokers in North Korean weapons sales. In part two, I examine how Hesong and Ranger marketed North Korea’s catalogue of weapons and the sticking point that brought the Azerbaijan deal to the brink of collapse.