North Korea's "Office 38" back in business

A North Korean soldier looks south, as a South Korean soldier (front) stands guard, at the truce village of Panmunjom in the demilitarised zone separating the two Koreas in Paju, about 55 km (34 miles) north of Seoul, December 8, 2010.

SEOUL (Reuters) - North Korea has revived its "Office 38," the party bureau that manages the funds of its ailing leader Kim Jong-il and ruling elites, South Korea said on Monday, as sanctions squeeze the secretive state's finances.

Office 38 mainly oversees transactions involving foreign currency, hotels and trade, a unification ministry official told reporters in Seoul, according to Yonhap news agency.

The official said the bureau was merged in 2009 with the ruling party entity codenamed "Office 39" that oversees illicit economic activity, such as drugs smuggling and arms trading, to support the government.

The offices are known as Kim's "personal safes" for raising and managing secret funds and procuring luxury goods.

Yonhap said the spin-off suggests that Pyongyang has been experiencing difficulties in earning foreign currency since merging the two offices.

North Korea is currently under U.N. sanctions for conducting nuclear and missile tests in 2009. It was subjected to more U.S. and South Korean sanctions last year for the sinking of the South's Cheonan warship. The North denies it sank the vessel.

(Reporting by Jeremy Laurence; Editing by Sugita Katyal)