North Korean Economy Watch

From the Joong Ang Daily:
Bankbooks at Kaesong: Furor starts to subside
9/22/2006

The “scandal” over Woori Bank accounts given to a North Korean entity seemed to lose considerable steam late Wednesday night and yesterday, when government documents and explanations by officials clarified, at least partly, the ownership of the accounts and their purpose.

In its late city edition yesterday morning, the JoongAng Ilbo reported that a letter in March from the Unification Ministry to Woori Bank, which allowed a North Korean agency to open an account at Woori’s Kaesong branch, was less incriminating than it appeared. The document was in response to a letter from the bank asking if Woori was within the law by having opened two bank accounts for the agency in late 2004.

The owner of the accounts was the Kaesong Industrial District Management Committee; it is headed by a South Korean and has members from both countries. Two additional accounts were opened last year.

Oh Seung-wuk, Woori’s public relations manager, told the JoongAng Daily yesterday that the accounts were controlled by the South Korean members of the committee and were used to channel South Korean workers’ salaries and wages payable to North Korean workers at the industrial complex into their paychecks. He said that only South Korean committee members had access to the accounts.

He also said the bank had sought the ministry’s advice before authorizing the first two accounts, and sought a written confirmation last March. The ministry’s reply to that written request was the document produced by a Grand National Party lawmaker, Kwon Young-se, Wednesday.

But the ministry apparently did try to use its influence in a related but separate matter; other documents provided by Representative Kwon showed that it pressed the bank to allow the North Korean General Bureau of Special Zone Development, which oversees Pyongyang’s capitalist experiments in operating special economic zones, to open other accounts. Woori Bank, supported by the finance and foreign ministries and the National Intelligence Service, objected strongly and prevailed at a meeting in Seoul on March 7.

The issue of “unauthorized transfers” to North Korea flared up partly because of new sensitivity to bank accounts opened by the communist country in the wake of U.S. attempts to limit its ability to finance its weapons and illicit product trade. Earlier accusations said Woori Bank had been involved in $2.37 million in “unauthorized” transfers to Kaesong.

Technically at least, the Woori transfers were indeed “unauthorized” at the time; the Bank of Korea had not been informed of them. In July, the administration agreed to waive the reporting requirement for South Korean investors in the Kaesong project.

The Finance Ministry said the waiver was justified because the purpose of the transactions was clearly documented elsewhere and the transactions themselves were transparent.

A Unification Ministry official also defended the transfers yesterday, saying they were within the bounds of an approved inter-Korean cooperation project, the industrial complex operations.

As the controversy flared yesterday, the unification minister, Lee Jong-seok, said his office had acted properly. “The Kaesong Industrial District Development Committee is a North Korean entity by legal definition, but South Koreans manage it,” he told reporters. “It was formed for the convenience of our companies, so the government allowed the opening of bank accounts.”

He also said international sanctions on North Korea did not exist when the accounts were opened, adding, “It is inappropriate to raise issues against a matter of the past with the view of the present.”

He apologized, however, for the fact that transfers had been made for over a year in violation of the foreign remittance laws.

From Yonhap:
9/21/2006

No S. Korean bank accounts for N. Korea: Unification Minister

No South Korean bank has opened accounts for exclusive use by North Korea or its officials, South Korea’s point man on North Korean affairs said Thursday.

Unification Minister Lee Jong-seok said the claim was untrue.

The remarks came in reaction to a report by local daily JoongAng Ilbo that the government may have influenced the country’s Woori Bank to open up four accounts for a North Korean organization overseeing an inter-Korean project to build a joint industrial complex in the North’s border town of Kaesong.

The organization, the Kaesong Industrial District Management Committee, is a North Korean entity by legal definition, according to the minister. But, he said, it is a South Korean body, established and managed “by our people and for our convenience.”
“Naturally, (the bank) opened accounts for the management committee, headed by (South Korean) Chairman Kim Dong-keun,” Lee said in a regular press briefing.

“It is a very fanciful story to say (the bank) opened the accounts for North Korea and that this may be linked to North Korea’s efforts to evade U.S. financial sanctions, but one that helps no one,” the minister said.

Washington imposed financial sanctions on North Korea late last year, accusing it of counterfeiting U.S. dollars and engaging in various other illegal activities, such as drug trafficking, money laundering and illegal weapons sales.

An group of 34 South Korean officials are working with five North Korean officials at the joint management committee, according to Goh Gyeong-bin, head of the Unification Ministry’s office for the Kaesong project.

But the organization is considered North Korean in a strict sense because it was established under a North Korean law governing the complex, although the law itself is a product of an agreement between the divided Koreas.

“All South Korean companies (operating at the Kaesong complex) are North Korean entities in that sense and pay taxes to the North, but we cannot prohibit (South Korean banks) from opening bank accounts for the South Korean companies there,” the unification minister said.

“That is the unique characteristic that a special economic zone (with the North) carries,” he added.

Thirteen South Korean companies were employing about 8,300 North Koreans at the industrial park as of the end of August, while 24 other businesses from here have begun building factories in the joint complex, or are soon expected to do so, according to Goh.

The government had earlier planned to allow an additional 250 South Korean businesses to move into the joint industrial complex this year, but the planned expansion is at a standstill following the North’s launching of seven ballistic missiles in early July.

“I do not think it would take too long (before the government executes the planned expansion), but it would not be appropriate for now to say when the right time would come,” Lee said.

A key symbol of reconciliation between the Koreas, the joint development project is one of the prominent results of the historic Pyongyang meeting between then South Korean President Kim Dae-jung and North Korean leader Kim Jong-il in 2000.

Seoul hopes to have as many as 2,000 South Korean companies move into Kaesong before the end of 2012, when the joint industrial complex is expected to be in full swing, employing nearly half a million North Koreans.

The Koreas have been divided along a heavily fortified border since the end of Korean War more than five decades ago.

from the Donga:
North’s Account Requests Kept Quiet

It was revealed that North Korea had been insisting on opening an account at the Gaesong Industrial Complex branch of Woori Bank for six months since the first request it made to the South Korean administration committee of the Gaesong Industrial Complex through the General Bureau for the Guidance on the Development in the Central Special Zone (GB hereafter) which administers and oversees the Gaesong Complex on September 14 last year.

But the government did not disclose this fact for a year thinking that such a request by North Korea can be interpreted as an attempt to avoid the financial sanctions by the U.S. and can give bad influence on the South-North relationship.

Stubborn North Korea-

The first request by the North Korean GB to open an account was verbal, but the request was made again on paper in December last year.

While Woori Bank kept from giving a firm answer, North Korea asked the bank persistently to explain why the account installation was being delayed, and hearing the bank answer that opening an account would be difficult, even threatened the South Korean administration committee that it would close down the Gaesong branch of the bank. North Korea backed up a step when it saw the signs of this sensation spreading, saying, “We didn’t mean it (when we mentioned the close down).”

The government held several meetings until March this year attended by officials of the Ministry of Finance and Economy, the Ministry of Foreign Affairs and Trade and the National Intelligence Service regarding such request by the North. An official in the Ministry of Unification said, “We had discussions on the backgrounds of the request by the North to open a bank account and the influences it could give to the South-North relations.”

Silent Government-

“Woori Bank refused the account installation based on its policy that the banks only deals with the enterprises within the Gaesong complex and the South Korean resident workers, and this issue came to a pause when the North said in March it would not raise any more complaints,” the government explained on September 19.

The behind the curtain story of why the government kept quiet about the request by the North to open an account is another controversy.

Only two days after September 14 last year when the North made its first request, the U.S. took measures to freeze the North Korean account of the Banco Delta Asia Bank in Macao. This fact gives us a hint on what North Korea was after when it attempted to make a financial account in Gaesong Complex.

Some people point out that the government could have been taking into consideration the fact that North Korea could be the target of another series of criticisms in case the request by the North is revealed to the world.

Joong Ang Daily
Lee Young-jong, Shin Eun-jin, Sohn Hae-yong
9/20/2006

North Korea has filed claims with British and Russian reinsurance companies after four disasters in the North, and seeks millions of dollars in compensation, a source in Seoul said yesterday. His comments were confirmed by government officials.

The sources said the claims were filed by Minjok Insurance General Company, and asked for payments related to two rail crashes and two other incidents.

Reinsurers help policy-issuing insurance companies spread the risk involved in their policies to other insurance companies around the world. Companies buy “packages” composed of parts of many policies, and share in both the policy payments and claims made under those policies.

The reinsurers reportedly received permission from Pyongyang to conduct investigations at the accident sites before paying the claims; those visits have already taken place, these sources said, adding that the visits were made to places normally off-limits to foreigners.

One of the incidents was the sinking of a passenger ship traveling between Wonsan and Heungnam, both east-coast ports. Half of the ship’s 200 passengers lost their lives, Minjok reportedly told its reinsurers. Industry officials here estimated that the insurance payment would be in the millions of dollars. Another incident was a train accident in South Hamkyong province in April, which resulted in the deaths of 270 soldiers and 400 civilians. Rumors had circulated in Seoul about the latter accident, but those rumors were dismissed at the time by South Korean government officials.

Another train crash occurred near Nampo, a west-coast port, in April. Dozens were reportedly killed in that crash. Little is known about a helicopter crash near Pyongyang in May, these sources said.

“North Korea has been in a bad plight since September 2005, after its assets in Banco Delta Asia in Macau were frozen and the United States announced financial sanctions,” a Seoul official said. “It is my understanding that the North is also trying to press claims linked to flood damage this summer.”

One observer said the North’s rare disclosure of disasters indicates how serious Pyongyang’s cash crunch is. “It means that Pyongyang is more interested in gaining tangible benefits despite the risk of airing its dirty linen in public,” said Yang Moo-jin, a North Korea-watcher at the University of North Korean Studies in Seoul.

Others said Pyongyang may be learning to tweak global financial systems. “North Korean entities have been involved in competition to earn foreign currency, and now one of them is focusing on loss recovery through insurance,” said Lee Yeong-hun, a North Korea economic specialist at the Bank of Korea.

Experts said reinsurance payments to the North are outside the scope of any financial sanctions. “The North is operating all of its legitimate dollar-earning channels at full capacity,” a Seoul official said.

Joong Ang Daily
Ser Myo-ja, Lee Sang-il
9/20/2006

Japan and Australia yesterday announced new sanctions against North Korea in another sign of increased financial pressure on the communist state, which has declared it possesses nuclear arms.

The announced purpose of the sanctions was to push Pyongyang back to six-party talks in Beijing to disarm the country in return for diplomatic recognition and financial aid.

In Washington, U.S. officials also signaled that additional sanctions against the North may be in store.

In Tokyo, the cabinet approved a partial freeze on North Korean assets in Japan, imposing restrictions on 15 North Korean agencies or companies and one individual.

“This shows the resolve of the international community and Japan,” said Shinzo Abe, the chief cabinet secretary and heir-apparent to Prime Minister Junichiro Koizumi.

The restrictions on financial transactions were directed, Tokyo said, at figures related to North Korea’s missile and nuclear programs.

After North Korea test-launched a barrage of missiles in early July, Tokyo barred the entry of a North Korean ship to its ports for six months and forbade the entry of North Korean government officials into Japan.

Australia, one of the few Western countries that had diplomatic relations with North Korea, acted the same day, imposing similar bans on financial transactions by people and companies it said were involved in North Korean arms programs.

Foreign Minister Alexander Downer told the press, “This supports and complements similar action taken by Japan today and previous actions taken by the United States, and sends a strong message to North Korea.”

In Washington, a State Department official told Korean journalists in a background briefing that the United States might reimpose sanctions lifted after an accord in 1994, which temporarily reduced tensions over the North’s nuclear programs. He said a proposal to restore the sanctions existing before 1994 was being studied. The relaxation was modest; U.S. companies were allowed to offer telephone service to North Korea and import some raw materials.

In Seoul, Song Min-soon, the Blue House senior security advisor, reacted cautiously to the announcements, saying it would be “inappropriate” to comment on sanctions imposed by other governments. He said the matter was one for capitals to decide, based on a United Nations Security Council resolution critical of North Korea’s missile and nuclear programs and those nations’ own laws.

Separately, Beijing rebuffed a U.S. invitation to a meeting Thursday of financial ministers in New York to discuss North Korea.

From the BBC:
New sanctions target North Korea

Japan and Australia have announced new financial sanctions against North Korea, stepping up pressure on the secretive state over missile tests.

The sanctions will freeze the transfer of money to North Korea by groups suspected of having links to its nuclear or missile programmes.

The move, which follows similar action by the US, comes after Pyongyang launched several missiles in July.

South Korea has urged other countries not to push the North into a corner.

The South is worried that the North may retaliate by carrying out a nuclear test, which would destroy any remaining hope of a diplomatic solution to the stand-off.

Japanese government spokesman Shinzo Abe said the new sanctions were in line with a United Nations resolution which denounced the missile tests.

The Japanese measures affect 15 groups and one individual, and will come into effect later on Tuesday, according to Japanese media.

The Australian measures applied to 12 companies and one person, according to Foreign Minister Alexander Downer, who said the sanctions were “consistent with our strong international stand against the proliferation of weapons of mass destruction.”

Media reports said the two lists were almost identical.

Tough stance

North Korea’s decision to test-fire seven missiles in July – including a long-range Taepodong-2 which is believed to be capable of reaching Alaska – angered the international community.

A UN resolution demanded that North Korea suspend its ballistic missile programme, and barred all UN member states from supplying North Korea with material related to missiles or weapons of mass destruction.

In the immediate aftermath, Japan imposed limited sanctions, including a decision to ban a North Korean trade ferry from Japanese ports and a moratorium on charter flights from Pyongyang.

The new measures also called for closer scrutiny of those wanting to send money or transfer financial assets to North Korea.

“By taking these measures, we have demonstrated the resolve of the international community and Japan,” said Chief Cabinet Secretary Shinzo Abe.

“I do not know how North Korea will respond, but I hope North Korea will accept the UN Security Council resolution in a sincere manner.”

The BBC correspondent in Tokyo, Chris Hogg, says there is still some doubt about how effective these sanctions will be.

Although Japan looks to be clamping down on North Korea, other countries that exert a strong influence on the country – notably China and South Korea – are reluctant to impose similar measures.

Following the Japanese announcement, China restated its opposition to sanctions and called for further dialogue.

Nuclear fears

In addition to fears over North Korea’s missile programmes, the international community is also worried about its nuclear intentions.

The United States, China, Japan, Russia and South Korea have repeatedly tried to persuade the North to abandon its nuclear programme.

But the so-called six-party talks have been on hold since November 2005, because North Korea refuses to attend until Washington lifted economic restrictions against it.

Exactly a year ago, North Korea agreed in principle to give up its nuclear weapons programme in return for economic help and security guarantees.

The move was greeted by surprise and relief, but a joint statement issued at the time failed to bridge the wide gulf between North Korea and the US. One year on, the North remains as isolated as ever.

The region remains on alert in case Pyongyang decides to follow up on the July ballistic missile tests with a nuclear test.

Analysts say the North has enough plutonium for several bombs, but has yet to prove it can build a reliable weapon.

From the Joong Ang Daily:
9/21/2006
Lee Young-jong

Contrary to its statement on Tuesday, the Unification Ministry pressured Woori Bank to consider allowing North Korea to open a bank account, government documents obtained by a Grand National Party lawmaker showed yesterday.

A Unification Ministry official who asked not to be named said it was just a discussion and not formal pressure against the bank. He said the bank made its own decision, without being pressured by the ministry.

Representative Kwon Young-se obtained a copy of correspondence that the Unification Ministry sent to Woori Bank on March 28, and provided it to the JoongAng Ilbo.

According to the letter, the ministry tried to stretch the laws governing inter-Korean projects to grant the North’s wish. The North, in September of last year, asked the bank, which operates a branch in Kaesong Industrial Complex, to open an account under the name of the Kaesong Industrial District Management Committee, headed by a South Korean official. The bank informed the Unification Ministry and consulted with it.

“The committee is composed of South Korean members, thus opening the account under its name is within the scope of approved inter-Korean cooperation projects,” the ministry told the bank in the letter.

The committee, however, is a North Korean corporation established under North Korean laws. Contrary to the ministry’s claim, North Korean officials are also working there.

Minutes of a meeting on March 7, where government officials discussed the issue, were also provided to the JoongAng Ilbo, showing the Unification Ministry apparently pressured the bank despite objections from other ministries. “We urge the bank to make a wise decision,” the ministry said, according to the minutes.

The bank, however, was opposed to opening an account for North Korea, citing South Korea’s financial laws and the U.S. Treasury Department’s anti-terror law. The bank also cited expected opposition from the Financial Action Task Force on Money Laundering in turning down the North’s request, the minutes said.
 

From Yonhap:
N. Korean request to open account with S. Korean bank in Kaesong rejected
Byun Duk-kun
9/19/2006

North Korea sought to open an account with a South Korean bank at an inter-Korean industrial complex in its border town of Kaesong last year, but the South Korean bank rejected the request, officials at the Unification Ministry said Tuesday.

The report comes amid U.S. financial sanctions against the communist state for its alleged involvement in illegal activities, including counterfeiting, laundering and the proliferation of weapons of mass destruction.

Ministry officials, however, dismissed suspicions that North Korea may have tried to use the South Korean bank to evade, or find a safehouse from, the U.S. financial sanctions.

“North Korea first filed its request to open an account with the Woori Bank on Sept. 14, 2005, one day before” Washington imposed sanctions on a Macau bank suspected of aiding the North launder counterfeit U.S. dollars, ministry spokesman Yang Chang-seok told reporters.

A spokesman for the South Korean bank said the bank first heard of the North’s request in December, but did not rule out the possibility that North Korea may have filed its initial request with the South Korean government as early as September.

Goh Gyeong-bin, the ministry official in charge of the inter-Korean project to develop an industrial complex in Kaesong, said an account with the South Korean bank, if one was opened, would not have provided a safe haven for the communist state.

“The North said it wished to open an account at the Woori Bank branch in Kaesong and collect the wages of its workers at the industrial complex through the account,” Goh said.

He said the South Korean bank remained reluctant to comply with the North’s request since the beginning and notified the North Korean side in March that it decided not to approve the request. Woori Bank officials confirmed Goh’s statement.

“The North said it understood the bank’s position and that’s when the situation was concluded,” Goh said.

Nearly 8,300 North Korean laborers are currently working for 13 South Korean firms operating in the joint industrial complex, producing some US$5 million worth of goods a month, according to Goh.

A number of U.S. officials, including Jay Lefkowitz, a special envoy for North Korean human rights, have expressed concerns over possible violations of the North Korean workers’ human rights there and the diversion of their wages to help the North’s weapons program.

Seoul dismisses the concerns, saying the amount of money paid in wages is insignificant even for the impoverished North.

About $600,000, in U.S. dollars, are paid each month to North Korean workers there, whose minimum monthly wage is set at $57, according to Goh.

The joint industrial complex is expected to house some 2,000 South Korean firms, employing as many as half a million North Koreans, when it is in full swing in 2012, according to the Unification Ministry.

From the Korea Herald
9/20/2006

A bank spokesman said Woori serves South Korean companies and their employees from the South producing goods there.

“We rejected the request because we are not regulated to handle transactions with North Korea,” said Cho Seong-kwon.

The request was made last December, Cho said. It came after the U.S. strengthened its crackdown on firms it suspected of aiding Pyongyang in illicit activities such as counterfeiting.

Washington imposed sanctions on a Macau bank in September, accusing it of helping North Korea launder counterfeit U.S. dollars.

A month later, the United States also froze U.S.-based assets of eight North Korean firms on suspicions of illegal activities, including counterfeiting, laundering and proliferation of weapons of mass destruction.

The Unification Ministry, however, said the North’s request had nothing to do with the U.S. sanctions, saying an account with Woori Bank, if one were opened, would not have been used for such illegal financial activities.

“The North said it wished to open an account at the Woori Bank branch in Gaeseong and collect the wages of its workers at the industrial complex through the account,” Goh Gyeong-bin, ministry official in charge of the joint industrial complex project, said.

Goh said the South Korean bank was reluctant to comply with the North’s request since the beginning and notified the North Korean side in March that it decided not to approve the request.

The complex is run by an affiliate of the South’s Hyundai Group. The South sees the park as a model of economic integration that can serve as an example of the path for future unification of the peninsula.

From the Joong Ang Daily:
Ministry says North sought bank account with Woori
Ser Myo-ja, Shin Eun-jin
9/20/2006

North Korea attempted last year to open an account with a South Korean commercial bank at the Kaesong Industrial Complex, but the request was rejected, the Ministry of Unification said yesterday.

In response to a report by the Dong-A Ilbo newspaper, the ministry said a North Korean agency made a verbal inquiry to the Kaesong Industrial District Management Committee on Sept. 14, 2005 about opening an account with Woori Bank. In December, the agency submitted a written request.

Seoul held about four meetings to talk about the issue, the ministry said, but the matter was basically up to Woori Bank.

The North Koreans were quoted by the ministry as saying they wanted to collect income taxes from South Korean workers at the inter-Korean industrial complex.

The North also said it wanted the convenience of collecting salary payments for North Korean workers from their South Korean employers.

North Korean officials must visit the office of each South Korean factory in Kaesong every month for all financial transactions.

Woori Bank has continued to reject the North’s requests. Under Korean law, the bank said, the scope of its operations was limited to South Korean companies that operate factories in Kaesong and their South Korean employees.

The bank has not sought permission from the South Korean government to extend operations to North Koreans in order to meet Pyongyang’s request, the Unification Ministry said.

North Korea threatened Woori Bank that it would shut down the branch, but gave up in March, the ministry said.

From Reuters:
9/5/2006

The chairman of British investment advisory firm Koryo Asia, which has bought North Korea’s Daedong Credit Bank, said on Tuesday it was pressing the U.S. to ease sanctions against the isolated communist country.

Colin McAskill confirmed to Reuters a newspaper report that Koryo Asia had taken over Daedong Credit Bank. Koryo is also an adviser to the Chosun Fund, which invests in North Korean assets.

“We will take on the U.S. over the sanctions stand-off. They’ve had it too much their own way without anyone questioning what they are putting out,” McAskill said in a report in the Financial Times on Tuesday.

Asked later by Reuters about the reported remarks, McAskill said, “That is true,” but declined to comment further.

North Korea defied international warnings and test-fired seven missiles in early July. Dubbed part of an “axis of evil” by U.S. President George W. Bush, the heavily militarised state enforces tight censorship and a strong personality cult of its leader Kim Jong-il.

The United States imposed strict economic sanctions on North Korea in 1950, some of which were eased under the Clinton administration in the 1990s.

The United Nations passed a resolution in July this year imposing sanctions on the country, demanding that North Korea suspend ballistic missile tests.

Daedong Credit Bank has most of its cash frozen under U.S. trade sanctions imposed last September, the Financial Times said. However, its new UK-based owners want to demonstrate that the accounts were earned legitimately and get sanctions lifted.

McAskill has asked U.S. officials to scrutinse the records of Daedong and has written to the U.S. Treasury department about the matter, the newspaper said.

The latest move comes after Anglo-Sino Capital, a firm based in London which is involved in day-to-day management of the Chosun Fund, won regulatory approval from Britain’s Financial Services Authority in May this year.

The Chosun Fund aims initially to raise $50 million, eventually rising to a total asset size of around $100 million, targeting, for example, a possible revival in North Korea’s financial and mining sectors.

From AFX News on Yahoo:
9/3/2006
NKorea opens bank accounts in Russia to dodge US sanctions – report

TOKYO (XFN-ASIA) – North Korea has opened about 10 bank accounts at Russian financial institutions in an effort to secure fund flows now blocked by US financial sanctions, the Sankei Shimbun here reported at the weekend.

The newspaper, quoting sources who it described as being close to North Korean affairs, said senior North Korean officials were transferring their funds through the accounts.

Thi is part of Pyongyang’s efforts to escape pressure from the US, which has moved to freeze North Korean funds it claims are the profits of drug trafficking, money laundering and other illegal activities.

Washington is aware of North Korea’s money flows through the Russian banks and it may step up pressure on the Russian authorities to abandon such support for North Korea, the newspaper said.

North Korea has warned the United States it will take ‘all necessary counter-measures’ against Washington for increasing the the pressure on North Korea through financial sanctions.

In November, Pyongyang walked out of six-way talks on its nuclear ambitions after Washington accused a Macau-based bank of helping Pyongyang launder earnings from fake US currency, and told US financial institutions to stop dealing with the bank.

Bloomberg
Bradley K. Martin

Koryo Asia Ltd., a London-based financial adviser, said it will buy North Korea’s Daedong Credit Bank for an undisclosed amount and lobby the U.S. to lift sanctions on the foreign-run bank.

Daedong Credit is among North Korean banks whose accounts in Macau’s Banco Delta Asia SARL have been frozen since September 2005 after the U.S. Treasury Department alleged Banco Delta laundered money from North Korea and worked with front companies trafficking drugs for the communist state. The Macau government has taken control of the bank.

The value of Daedong Credit “would be enhanced if we can resolve the sanctions issue with the U.S.,” Koryo Asia chairman Colin McAskill said in an e-mail interview. Koryo Asia is adviser to London-based Chosun Development & Investment Fund LP, which aims to raise $50 million for investments in North Korea.

North Korea has demanded removal of the financial sanctions before it will return to six-nation talks to prevent the country from developing nuclear weapons. The U.S. and China urged North Korea to resume the talks that include South Korea, Russia and Japan, after the country in July tested a missile that may have the capability to reach the U.S.

Daedong Credit’s general manager Nigel Cowie confirmed the sale and that he would stay on. He declined further comment. Cowie said in an interview last year that the bank’s assets –including those frozen in Macau — totaled around $10 million.

A former HSBC Holding Plc banker, Cowie was hired in the mid- 1990s by Peregrine Investment Holdings Ltd. to start the bank. Following Peregrine’s 1998 collapse, Cowie and three other investors bought the 70 percent foreign stake from the liquidator in 2000.

Transparent

Koryo Asia signed an agreement to buy the majority share in Daedong through a wholly owned subsidiary that McAskill, 65, did not name. The majority shareholders had approached Koryo Asia to propose the sale, he said.

McAskill said he won’t take a direct management role in the bank, instead serving as a consultant to persuade U.S. officials to release as much as $7 million of Daedong’s and its customers’ assets in Macau. The total of frozen North Korean bank assets in Macau is about $24 million.

McAskill’s argument that Daedong Credit Bank serves only foreign, not North Korean, customers and that its transactions are legal and transparent may not win an audience at the U.S. Treasury Department.

“Given the regime’s counterfeiting of U.S. currency, narcotics trafficking and use of accounts worldwide to conduct proliferation-related transactions, the line between illicit and licit North Korean money is nearly invisible,” Stuart Levey, Treasury’s undersecretary for terrorism and financial intelligence, said last month.

Asked if the purchase of Daedong Credit Bank is a big gamble, McAskill said, “Not a gamble — a gambit.”

He said his strategy is to demonstrate that Levey’s blanket condemnation of all North Korea-related finance is counter to U.S. interests.

Exempting Daedong on its merits from the sanctions would bring a potentially big payoff, he said, “an atmosphere in which Kim Jong-il can consider a return to the six-party talks.”

Anselmo Teng, chairman of the Macau Monetary Authority, didn’t immediately return a phone call and e-mail to his office seeking comment on the sale and any impact the ownership change may have on the status of Daedong’s Banco Delta Asia accounts.

Korean Investment

McAskill said the Chosun Development & Investment Fund LP aims to raise funds for “transaction-based” investments, such as procuring mining equipment and receiving mine output in return.

“We believe we will fully subscribe the fund from investors in Europe, Asia, the People’s Republic of China and possibly South Korea,” he said. “Global investor interest in this potential emerging market was not affected by the missile launches in July,” he said, without giving details.

Taking over the bank “gives us a legitimate foothold and provides a conduit for investment in the country, whether through Chosun Fund or other sources,” McAskill said. “In the long term, the goal is to facilitate the resuscitation of the legitimate economy.”

Chosun Fund, managed by London-based Anglo-Sino Capital Partners Limited, is denominated in U.S. dollars. If the sanctions issue cannot be resolved, the fund has the option to switch to denomination in euros or pounds sterling, McAskill said.

“There’s no point in taking in U.S. funds if the United States is going to try and block them,” he said.

Room 39

The minority owner of Daedong Credit is Korea Daesong Bank, a unit of North Korea’s Daesong Group.

A 1995 U.S. government study cited close ties between Daesong and Room 39, an office of the ruling North Korean Workers’ Party said to handle foreign exchange-gathering projects for the country’s leader.

McAskill said the minority owner does not run the bank. Daedong is “not only majority foreign-owned and foreign- controlled but also foreign-managed,” he said, adding he was given access to all of Daedong’s activities and concluded it’s a legitimate business.

Only North Korean-owned banks can do business with state enterprises and North Korean individuals, Cowie said last year, so Daedong’s customers are all foreign — mostly Chinese, Japanese and Western individuals and institutions.

As of Aug. 17, that had not convinced Levey at the U.S. Treasury.

“The U.S. continues to encourage financial institutions to carefully assess the risk of holding any North Korea-related accounts,” he said.

The undersecretary traveled in Asia in July to push that line, which resulted in the closure of some North Korean banks’ accounts in Vietnam.

from the Joong Ang Daily:

North funds lose havens in sanctions
8/24/2006

Vietnamese banks have closed down North Korean accounts over the past few weeks, most likely forcing Pyongyang to move its money to its last remaining haven, Russia, said Peter Beck, head of the International Crisis Group’s Seoul office, on Tuesday.

Mr. Beck said Nigel Cowie, general manager of North Korea’s Daedong Credit Bank in Pyongyang, e-mailed him last week and said Vietnamese banks have shut down Daedong’s and other North Korea-held accounts.

Daedong expected such a move by Vietnam after U.S. Treasury Undersecretary Stuart Levey visited Hanoi early last month, and had moved its funds elsewhere, Mr. Cowie said in the e-mail. He did not say where the money was moved to, but Mr. Beck said it’s most likely Russia.

“The only financial window [North Koreans] have left now is Russia, I am told,” Mr. Beck said at a roundtable on North Korea hosted by the Mansfield Foundation. Daedong is one of the several North Korean entities accused of shady financial transactions through Macao-based Banco Delta Asia.

The U.S. Treasury in September designated the Macao bank the primary money-laundering concern abetting Pyongyang’s illicit financial activities that it says range from counterfeiting of American currency to drug trafficking, smuggling of contraband and sales of weapons of mass destruction.

North Korea now demands that the United States lift the punitive measures on Banco Delta Asia before it will return to the six-nation nuclear talks. 

From Yonhap:

Vietnam already shut down N.K. accounts in past few weeks: ICG Seoul director
8/22/2006

Vietnamese banks have already closed down North Korean accounts over the past few weeks, most likely forcing Pyongyang to move its money to its last remaining haven, Russia, said Peter Beck, head of the International Crisis Group’s Seoul office, on Tuesday.

Beck said Nigel Cowie, general manager of North Korea’s Daedong Credit Bank in Pyongyang, e-mailed him last week and said Vietnamese banks have shut down Daedong’s and other North Korea-held accounts.

Daedong expected such a move by Vietnam after U.S. Treasury Undersecretary Stuart Levey visited Hanoi early last month, and had moved its funds elsewhere, Cowie said in the e-mail.

He did not say where the money was moved to, but Beck said it’s most likely Russia.

“The only financial window they (North Koreans) have left now is Russia, I am told,” Beck said at a roundtable on North Korea hosted by the Mansfield Foundation.

Daedong is one of the several North Korean entities accused of shady financial transactions through Macau-based Banco Delta Asia (BDA).

The U.S. Treasury in September designated BDA the primary money laundering concern abetting Pyongyang’s illicit financial activities that it says range from counterfeiting of American currency to drug trafficking, smuggling of contraband, and sales of weapons of mass destruction.

North Korea now demands that the U.S. lift the punitive measures on the BDA before Pyongyang returns to the six-nation nuclear disarmament talks.

The Treasury’s designation led to a run by BDA clients, and the Macau bank froze US$24 million of funds related to North Korea.

Cowie has said in the past that Daesong’s accounts at BDA were not involved in any illegal activities, that its funds are all from legitimate sources.

“Talking to Cowie and others, he’s led me to conclude that it’s not just $24 million in Macau that North Korea is worried about,” Beck said.

“They are worried that Macau is just one step and means of cracking down on all North Korean financial activities, and Stuart Levey’s visit to Hanoi was clearly designed to further tighten the financial noose and get Vietnam to shut down,” he said.

Vietnamese central bank officials said earlier Tuesday that acting upon Levey’s suggestion, Hanoi has ordered all banks to investigate North Korea-related accounts.

Daily NK
Yang Jung A
8/21/2006

Vietnam, 1 of 10 Countries with North Korean Accounts

After the U.S. financial sanctions last year, the Kim Jong Il regime has set-up accounts with 23 banks from 10 countries including Vietnam, Mongolia, Thailand and Russia. The U.S. now sends a warning to countries with financial relationships with North Korea.

On the 20th, U.S. data and analytics provider ‘Bloomberg’ published a report by Professor Lee Young Hwa of Japan’s Kansai University, stating that Vietnam has set-up at least 10 accounts with North Korea.

Furthermore, the report stated that North Korea has established accounts with other South-East Asian countries and parts of Europe.

Professor Lee said “Through counterfeit money, fake cigarettes and illegal acts, North Korea is not conducting lawful trade nor initiating proper bank accounts. This report depicts the true melancholic situation of North Korea.”

After his visitations to South Korea, Vietnam and Singapore, on July 18th-19th, U.S. Secretary for Terrorism and Financial Intelligence (TFI) Stuart Levey, informed Bloomberg’s to alert and warn countries with financial ties to North Korea.

Following the U.S. warning, Vietnam Central Bank began investigations on Vietnam’s City Bank accounts with North Korea.

In addition, on the 19th a newspaper Sankei Shimbun also reported that 23 banks of 10 countries had established financial accounts with North Korea.

The newspaper which cites news and issues on North Korea, reported that Vietnam, Mongolia and Russia were a few of the 10 countries associating with North Korea.

Further, the newspaper revealed that the U.S. is insisting that it would freeze banks in order to intervene in North Korea’s transfer of funds,

U.S. authorities say that the affect of the U.S. financial sanctions was stronger than the affect of Banco Delta Asia. As a result, it appears that North Korea began to instigate accounts with countries in South-East Asia in which it already has international relationships.

It was reported that North Korea began to use hidden personal identities to open accounts so as to avoid regulations and account freezes.

I stole this from Wikipedia: 

SiliBank is a financial institution based in Shenyang, Liaoning, China, closely related to the Democratic People’s Republic of Korea (DPRK).

The name “sili” means “true profit” in both Chinese and Korean.

In 2001 the bank began offering a limited electronic mail relay service to and from North Korea where Internet access with outside is limited. Along with Chesin.com, SiliBank appears to be one of only two e-mail gates to DPRK.

SiliBank maintains dedicated servers in Pyongyang and Shenyang, between which e-mail transmissions are exchanged once every 10 minutes (when the service commenced, this was hourly).

The fee for sending an e-mail to North Korea from abroad (as of May 10, 2003) costs 10 Eurocents per kilobyte for up to 40 kilobytes, and 0.2 Eurocents for each additional kilobyte in each e-mail transmission. The minimum charge per e-mail is 1 Euro. Customers must first pre-register with SiliBank with prepayment for estimated usage over a three-month period. SiliBank only allows e-mail relay between registered users of this service.