Unfreezing North’s funds now up to Macao, says U.S.

Joong Ang daily

One obstacle to successfully concluding nuclear talks with North Korea may have been removed Wednesday in Washington when the U.S. Treasury Department concluded an 18-month investigation into a Macao-based bank suspected of money laundering activities on behalf of Pyongyang.

As part of its action against Banco Delta Asia, the U.S. will cut all ties between the small lender and the American financial system, a move that clears the way for Macao authorities to release $25 million in frozen North Korean assets held by the bank.

The money has been a major issue in the six-party talks with North Korea.

Stuart Levey, undersecretary for terrorism and financial intelligence, told reporters that it was now up to Macao to decide what to do with the frozen accounts.

“I think we still have some consultations to go but I think we won’t get ourselves into a situation where the BDA will pose a stumbling block to the six-party process, so what was important about the announcement was the treasury went final on this ruling,” Christopher Hill, Washington’s chief envoy to the six-party talks, said yesterday.

The Treasury Department said in a press release, “Abuses at the bank included the facilitation of financial transactions related to illicit activities, including North Korea’s trade in counterfeit U.S. currency, counterfeit cigarettes and narcotics.” Mr. Levey said, “In fact, in exchange for a fee, the bank provided its North Korean clients access to the banking system with little oversight or control.”

By barring the family-owned Banco Delta Asia from transactions with U.S. banks, the firm is essentially cut off from the global monetary system.

“Do you think I look worried? I’ll take it as it comes,” Delta Asia Group (Holdings) Ltd. Chairman Stanley Au told a television reporter in Beijing. Mr. Au is close to senior leaders in Beijing.

In taking the action, U.S. anti-money laundering laws are enforced and the talks with North Korea are no longer in peril over a relatively small amount of money.

Sources had said earlier that once the investigation was completed, Washington would leave the final decision to unfreeze some of the $25 million to Beijing, which has sovereignty over Macao. Kim Gye-gwan, the North’s chief representative to the six-party talks, demanded earlier that all the money be freed. North Korean officials who met with Mohammed ElBaradei, head of the International Atomic Energy Agency, earlier this week reiterated that demand as a precondition to taking initial steps to implement a deal to denuclearize the North.

That is a message to the Chinese, a South Korean government official said yesterday. “Pyongyang wants to get back as much as possible so they are telling Beijing what they want,” said the official. “If the amount released is below Pyongyang’s expectation it could still hamper the negotiations.” Another government official said that Beijing needed to come up with a “magic number” that could save face for both Pyongyang and Washington.

“If they release all of it, that would mean Washington created a fuss about nothing but they can’t go too low either,” said the official. “And as host of the nuclear talks China wants the thing to move on.”

Asked yesterday by reporters whether he expected all of the money to be released, Kim Myong-kil, deputy chief of North Korea’s U.N. mission, said, “As far as I know there was an agreement to do that.”

The implementation of a broad agreement reached in September 2005, under which Pyongyang committed to scrap its nuclear programs in exchange for security guarantees and energy aid, hit a wall almost immediately when Washington designated Banco Delta Asia a “primary money laundering concern” in the same month. U.S. banks and other financial institutions cut ties with the bank, thus severing a vital link between the isolated North and global finance.

Pyongyang agreed last month to take initial steps to implement the 2005 agreement only after Washington indicated that the bank issue would be resolved.

Analysts have speculated that the frozen funds ― as well as the proceeds of counterfeiting and other activities ― have been used by North Korean leader Kim Jong-il to lavish goodies on his inner circle.

The six-party talks are set to resume Monday in Beijing.

The small bank with the big problem

Once virtually unknown outside of Macao, Banco Delta Asia is a small family-owned bank that has had a big impact on nuclear negotiations with North Korea. The bank emerged from the shadows when it was designated in September 2005 as a “primary money laundering concern” under Section 311 of the U.S. Patriot Act by the State Department. The designation put control of the bank in the hands of Macao authorities who have reviewed procedures at the bank to prevent money laundering. Established in 1935, the bank has a total of 15 branches in locations such as Hong Kong and Japan. In 2004, it listed deposits of $423 million and loans of $1.4 billion. Bank executives had a long-standing relationship with the North, the U.S. says.

Reportedly, up to $12 million of the $25 million in frozen North Korean money could be from legal activities, and that could be a ball park figure of how much may be released. Washington has now barred all U.S. financial institutions from conducting business with the bank, but the eventual fate of the firm rests with Chinese-controlled Macao. Sources said recently that among the findings by the Treasury department, transactions were confirmed with the Pyongyang-based Tanchon Commercial Bank, which has been identified by Washington as the main North Korean financial agent for arms and ballistic missile deals.

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