In his State of the Union address in January 2002, President Bush famously described North Korea as part of an “axis of evil,” together with Iraq and Iran. That stern rhetoric underpinned the efforts of the Illicit Activities Initiative. Aside from Smoking Dragon and Royal Charm, the initiative scored some notable successes. Some of them involved drugs. In response to U.S.-generated intelligence, the Australian Navy in 2003 boarded and seized the Pong Su, a North Korean vessel that had been carrying 150 kilograms of pure heroin. North Korea has been heavily involved in drug trafficking, both to its neighbors and farther afield, for many years. In 2003, U.S. defense officials said it had become the world’s third largest producer of opium, after Afghanistan and Burma. Unclassified Pentagon documents say this is converted to heroin at state-owned factories. China’s narcotics-control commission described North Korea as one of three “golden routes” for heroin supply, using a Chinese term—“Ku’mdallae”—which had a deliberate double meaning: the Chinese character “Ku’m” is also that used to represent the name Kim Jong Il. Office 39 also organizes the import of ephedrine, the main precursor chemical for making crystal methamphetamine, and the manufacture and export of the drug. Japanese police believe a high percentage of the meth sold on Japanese streets comes from North Korea. As Syung Je Park observes, “drug money and counterfeit money go to Office 39. Office 39’s money is directly controlled by Kim Jong Il. And Kim Jong Il’s first priority is to develop nuclear weapons and missiles.”

The Illicit Activities Initiative also went after banks. In June 2004, American pressure persuaded the government of Austria to shut down the Golden Star Bank in Vienna. Wholly owned by North Korea, Golden Star was suspected by Austrian intelligence of sponsoring the distribution of supernotes and also of attempting to buy fissionable material. Then, in September 2005, a month after the arrest of Wilson Liu and his associates in Los Angeles, the U.S. Treasury designated North Korea’s most important financial entrepôt, the Banco Delta Asia, in Macao, as an institution of “primary money-laundering concern,” in part because it was being used to distribute supernotes. The designation amounted to an American declaration that any entity that did business with the bank would itself be considered a pariah. “The Banco Delta was critically important to the regime,” says Juan Zarate, the senior official behind the Treasury Department’s action. (Zarate later became Bush’s deputy national-security adviser.) “Designating it compelled other institutions, especially Chinese ones, to realize that they risked jeopardizing their own business relationships with the U.S.” That, in turn, “gummed up North Korea’s ability to operate in the normal financial world—for example, to issue letters of credit in dollars to pay for what they were doing,” including arranging payment for parts for new missiles.

The Illicit Activities Initiative had a lot more planned. The final stage, which David Asher says President Bush had been fully briefed about, would have been the unsealing of criminal indictments. “We could have gone after the foreign personal bank accounts of the leadership because we could prove they were kingpins,” Asher says. “We were going to indict the ultimate perpetrators of a global criminal network.” “The world wanted evidence that North Korea is a criminal state, not a lot of hoo-ha,” says Suzanne Hayden, a former senior prosecutor at the Department of Justice who ran its part of the Illicit Activities Initiative. “The criminal cases would have provided the evidence. It would have been in the indictments. As with any money-laundering investigation, we would have identified the players and traced them back, from Macao to those who were behind it in North Korea.” Hayden spent several years attached to the International Criminal Tribunal for the former Yugoslavia, working on the case against the Serb leader Slobodan Milošević and his financial criminality. She sees close parallels between his activities and Kim Jong Il’s: “The most difficult thing is connecting evidence of criminality to a state’s leader, because there is so much deniability built in. But there isn’t a whole lot of activity in North Korea that isn’t sanctioned by the leadership, and the evidence we had already built up was very good. These cases were very doable.” The criminal cases, says Asher, were based on information from undercover agents, informants, and a vast surveillance operation. At the initiative’s outset, in June 2003, says Asher, his boss, former secretary of state Colin Powell, directed them “to use law enforcement, not intelligence, to prove beyond a doubt what they were doing,” noting, “I don’t want this to be like Iraq’s W.M.D.”—a lot of heated rhetoric with no smoking gun. The result, Asher says, was that “this was not an emperor-with-no-clothes scenario. We had video. We had audio. North Korean generals meeting with Chinese criminals, and with Secret Service and F.B.I. agents.”