South Korea alleged that 70 percent of the wages and fees in US dollars paid to suspended Kaesong industrial project workers is being diverted by North Korea into weapons program and luxury goods for the elites. The operations at the Kaesong was suspended by Seoul following North Korea’s recent rocket and nuclear tests, in an attempt to halt the supply of money.

The shut-down of operations has been termed as a “declaration of war” by North Korea. It has turned out all South Koreans from the complex and froze the assets of the South Korean firms. The North has also declared that it would cut all key communication hotlines with the South, the BBC reported.

The manufacturing zone provided job opportunities to thousands of North Koreans, who worked for South Korean firms making clothes, manufacturing textiles, car parts etc.

South Korea formally acknowledged that the 55,000 North Korean workers at the Kaesong complex never got the US$160 (AU$223) that they were paid on average every month to themselves. The suspension of the project came as a punishment to the North for using the fund for nuclear and missile programs. The North conducted its fourth nuclear test last month.

“The wages for the North’s workers and other fees were paid in cash in U.S. dollars to the North’s authorities and not to the workers,” Reuters quoted South Korea’s Unification Ministry as saying on Sunday. “This is believed to be channelled in the same way as other foreign currency it earned.”

According to the ministry, the cash goes to the ruling Workers’ Party Office 39 and is kept and managed by it along with other agencies. It added that it traced the movement of the money through various sources, which it did not specify.

Office 39 is believed to finance the luxurious lifestyle of the North’s leader as well as the country’s nuclear and missile programs.