That’s Going to Buy a Lot of Cognac for Someone (Updated 7/2009)

How likely a story does this sound to you?

The accident took place in April 2005 when, it is claimed, a helicopter owned by Air Koryo, the North Korean state airline, was dispatched from Pyongyang, the capital, to collect a woman who was in labour with triplets from a remote island. On the return flight it crashed into a warehouse on the outskirts of the city, causing a fire that destroyed a large amount of humanitarian relief goods. [Times of London]

It didn’t sound very likely to a consortium of reinsurers, including Lloyds of London, either. Suspecting fraud, they refused to pay, so the North Koreans sued in a British court. There have been previous reports that North Korea has engaged in fraud and staged accidents to collect reinsurance payments. This particular case resulted in years of expensive litigation.

Today, the Moonie rag Segye Ilbo is reporting that North Korea has won the case, for 39 million Euros (linked story is in Korean).

So what can we all learn from this? For one thing, if you are going to do business with some of the world’s most notorious international criminals, at least read the contact carefully before signing it:

According to the contract, disputes were to be settled under North Korean law and last month a court in Pyongyang ordered the reinsurers to pay the North Korean company the €44 million. They refuse to do so. [….]

The contract also states that claims in North Korean won will be converted at a rate of 160 won to the euro, close to the Government’s exchange rate. But the black market rate, which is used for all practical purposes in North Korea, is closer to 2,000 won to the euro. If this were applied it would reduce the reinsurers’ bill from €44 million to €3.5 million.

More background here. An interesting question this raises is how the insurers will be able to pay that sum to the North Koreans without violating UNSCR 1718, which would require them to “ensure” that the North won’t spend the whole sum — or any of it — on uranium centrifuges and large-bore aluminum tubing. Of course, there are some who take a less skeptical approach:

“All this business about spending the money on their nuclear programme is complete tosh,” a source close to the North Korean side said. “They just don’t like the contract they wrote and they regret it bitterly.

Right. What could I possibly have been thinking?

Update:  Noted North Korea authority Aidan Foster-Carter notes that North Korea obtained a settlement, not a judgment.  That’s consistent with what I’ve heard more recently.  He also notes that the largest payor was Allianz, not Lloyds.  I will defer to Mr. Foster-Carter on that point.  By all means, read what he has to say about this subject.