Mar.14, 2010, 9:26PM GMT

South Korean intelligence officials told The Daily Telegraph that much of the money was held in Swiss banks until authorities there began to tighten regulations on money laundering.

Mr Kim’s operatives then withdrew the money - in cash, in order not to leave a paper trail - and transferred it to banks in Luxembourg.

The money is the profits from impoverished North Korea selling its nuclear and missile technology, dealing in narcotics, insurance fraud, the use of forced labour in its vast gulag system, and the counterfeiting of foreign currency.

“I believe this is the most extensive money-laundering operation in the history of organised crime, yet the final destination of the funds has not been given the proper attention it deserves,” said Ken Kato, the director of Human Rights in Asia.

“Somewhere in the world, there are bankers who are earning a large sum of money by concealing and managing Kim Jong-il’s secret funds, and at the same time, almost nine million people in North Korea are suffering from food shortages,” he said. “I believe the secret bank accounts are now in Luxembourg, or have recently been transferred from Luxembourg to other tax havens.”

A spokesman for the Luxembourg government said that it was obliged to investigate all transactions involving Stalinist North Korea.

“The problem is that they do not have 'North Korea’ written all over them,” he added. “They try to hide and they try to erase as many links as possible.”

Peter Lilley, author of Dirty Dealing: The Untold Truth About Global Money Laundering, International Crime and Terrorism, describes Luxembourg as “one of the great dark horses” of banking.

He said that there was evidence that Colonel Gaddafi and Saddam Hussein had made use of Luxembourg-based banks.

Mr Kato said: “If Kim Jong-il’s $4 billion secret bank accounts are frozen, it would change the course of history. He has no choice but to respect human rights, give up his nuclear weapons and beg the international community to release the funds because he needs that money to buy the loyalty of high-ranking officials.”

A South Korean intelligence official said: “If the North Korean people were aware of this money while they have suffered, then it is possible they could rise up against the regime.”

Despite a vice-like grip on North Korea since he assumed the post of Supreme Leader when his father, Kim Il-sung, died in 1994, Mr Kim, 68, has in place elaborate measures to escape in the event of a military invasion by a foreign power, with China his most likely destination.