Jeffrey LewisThe Michael Ranger Files: Part 2

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 2

By Andrea Berger

Life isn’t easy if you’re an arms dealer trying to sell weapons from an embargoed destination to another embargoed destination, all without getting caught. Over the course of his interactions with North Korea’s Hesong Trading Corporation, UK-based arms dealer Michael Ranger discovered that Pyongyang’s wares didn’t have a particularly positive reputation overseas. He also found that North Korean arms manufacturers can be difficult and inflexible to the point of jeopardizing major prospective deals, and the fat commission he would have made from them (10-15% apparently). It turns out that negotiating with North Koreans can be frustrating – who knew?

The court transcripts from his 2012 case reveal some of the practical challenges that North Korea encounters when trying to open new markets for its military goods, and how the country’s arms manufacturers and trading firms do (or in some cases, don’t) try to manage them.

The Quest for Buyers and the Quality Debate

As mentioned in part one of this series, Hesong repeatedly gave Ranger information about their available products and any new ones readying for market. Ranger was then free to feel out prospective markets to see if they would be receptive to these goods. If he identified concrete leads which required formal quotes, he would relay them back to his point of contact, O Hak-Chol, usually by email or phone (reachable at one of his overseas offices).

From the discussion in the court transcripts, Ranger encountered a few issues when generating these leads. A major one was a lack of familiarity with North Korean weapons and concerns over their quality. To get around this, as in the Azerbaijan case, Ranger would first identify whether the buyer was open to a Soviet/Russian model of the type of weapon they were looking for.

When Azerbaijan asked for ‘Stinger’ missiles, for example, he informed them that there was no chance of procuring the US system, and instead suggested the ‘Russian equivalent’. It was clear that in saying ‘Russian equivalent’ he in fact meant the North Korean-made version of the Russian ‘Igla’, because he contacted Hesong about the order almost immediately after he was asked by Azerbaijan to source MANPADs.

At some stage Azerbaijan learnt that the weapons would in fact be North Korean, at which point they began to raise questions about quality. It is possible that Azerbaijan’s Ministries of Defence and Transport had heard other tales of inferior North Korean arms. Yemen ended up with a cache of allegedly defective North Korean Scud-B missiles in 2002 – a deal which caught global attention after the vessel carrying them was seized and subsequently released. Likewise, Ethiopia, another customer of North Korea’s, repeatedly complained about the quality of military goods purchased from Pyongyang (Wikileaks has a nice snapshot of conversations between American and Ethiopian officials on this very issue).

Azerbaijan may also have been directly comparing North Korean small arms and light weapons to their Chinese equivalents. Ranger at one point details his frustration with Hesong to O Hak-Chol: “You must be aware that I have spent a lot of time convincing everyone concerned as to the good quality of the goods from your country, especially to the Minister in Baku against what he had envisaged from reports on Chinese goods which are often used as similar [quality] as those from your country.” Baku had been investigating the possibility of sourcing arms from China for a number of years, so those products may have been at the front of their mind.

From my research it appears that one of the ways in which North Korea attempts to address this issue is to brand weapons on its marketing material using more common western designations. It describes its Scud missiles as ‘Scuds’ when selling them overseas and anti-tank missiles with their closest NATO designations. (A North Korean brochure of an “AT-4” anti-tank missile is in the annexes of Target Markets. If any of you are graphic designers, you’re clearly needed in North Korea). Another way is product testing in North Korea, as I’ll come back to.

Nevertheless, in discussions with Azerbaijan these doubts over quality in fact sparked a chain of events that nearly brought the deal to its breaking point.

Negotiating the Details

In general terms, the North Korean manufacturer and Hesong were not well coordinated. O Hak-Chol repeatedly mixed up and misinterpreted instructions about logistics relating to separate orders, passing incorrect information from Ranger to the manufacturer. Even once clarified, the manufacturer still did not appear to understand what was going on.

In addition, the manufacturer and Hesong were not willing to go out of their way to address (probably common) customer concerns over quality. Baku’s uncertainty about the quality of the goods led them to ask that a small sample of MANPADs (10 units) be sent to Azerbaijan for product testing before placing a larger multi-million Euro order of 70 units with launchers. Product testing is common practice in the defence market, though often the manufacturing country will send an accompanying delegation to assist with the testing.

For North Korea, however, in-country product testing was a red line. Initially O Hak-Chol said that Azerbaijan should simply send a delegation on a shopping trip to Pyongyang, where they could be shown the delightful wares that the North Korean defence complex could offer. Baku, no doubt wanting to avoid getting an earful from Washington, said that direct engagement between officials of either the two countries was a non-starter. Azerbaijan did not want North Koreans running around Baku, nor did it want to dispatch a delegation to the DPRK.

Hesong then quoted for a smaller sample of ten MANPADs at a higher unit price than was originally provided. While Ranger thought this was fine, there is no formal record stating whether Azerbaijan accepted the revised offer. Instead, the manufacturer, via Hesong, sent multiple contradictory emails shortly thereafter saying that they would not sell or otherwise provide ten units as initially indicated, and the minimum order was 70 units. They then revised that to 100. The suggestion of a minimum order of 100 angered Ranger, as Azerbaijan had only ever been talking about procuring 70. If 100 was indeed the minimum, then he’d wasted an extraordinary amount of time.

It appears that this minimum was not based on a technical assessment, namely that it would have only been economical to start a production line if a certain number of units would be manufactured and sold. Hesong told Ranger that the minimum order could be met by supplementing MANPADs “with other items like [multiple rocket launcher systems] and 7.62 projects”. Like a Pick ‘n’ Mix for North Korean arms.

A full explanation of why North Korea wouldn’t agree to allow product testing in Azerbaijan is never given in the transcripts, but we can assume the following were probably (reasonable) considerations:

  • For Hesong, it’s a lot of effort for a small number of MANPAD units. In-country product testing may not have been a regular feature of their deal-making with other clients, though we know that they did testing in Pyongyang for Sri Lankan and Burmese buyers;
  • If Azerbaijan was not willing to pay for the sample or its transport costs, this would have been a significant expense to accept without guarantees that a larger order would eventually be placed;
  • The chance of both parties getting caught in the act is higher if the order needed to be shipped in two batches (sample and then remainder of the consignment).

Whatever the reason, North Korea’s unwillingness to allow product samples to be tested in the purchasing country is significant. Combined with the lack of familiarity and poor reputation of its goods, this aspect could constrain North Korea’s efforts to generate new market leads. This is especially so if the prospective buyer in question is sensitive to any political backlash that might result if its dealings with North Korea were discovered. Fewer and fewer countries are comfortable with having their delegations caught going on weapons shopping sprees to Pyongyang, in the way that the Burmese were in 2008. Indeed, because North Korea was unable to address Azerbaijan’s concerns over quality in a reasonable fashion, the deal teetered on the edge of collapse when Michael Ranger was arrested in 2011.

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 three, I look at North Korea’s weapons pricing and the details contained in the Ranger transcripts outlining plans for the movement of the goods and funds.