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Kim Jong Il Gets the Gifts, and All North Korea Ends Up Paying

Wednesday, May 16th, 2007

Bloomberg
Bradley Martin
5/16/2007

For decades, tourists visiting North Korea have been brought to a 200-room, 70,000-square-meter palace completed in 1978 that displays presents to Kim Il Sung, the “Great Leader,” who died in 1994.

Starting with Joseph Stalin’s 1945 gift of a bulletproof railway carriage, the items include a stuffed bird from American evangelist Billy Graham and a piece of the Berlin Wall donated by a German writer.

These days most visiting foreign dignitaries bring gifts for Kim’s eldest son and successor, Kim Jong Il, 65. The junior Kim’s loot is housed in a 20,000-square-meter (215,278-square- foot) annex that was completed in 1996 — a time when a famine was starving tens of thousands of North Koreans.

Why would the country have spent vast sums on four-ton bronze doors and polished marble floors? “Our people couldn’t display all these precious gifts in a poor palace,” says tour guide Hong Myong Gun. “So we built this palace with our best.”

The gifts in the windowless “International Friendship Exhibition” at Mt. Myohyang, a two-hour drive north of the capital, Pyongyang, range from the trivial to the grandiose.

Cable News Network founder Ted Turner donated paperweights with the CNN logo. A tribal chief in Nigeria offered a throne featuring carved lions, with matching crown and walking stick. Romanian communist dictator Nicolae Ceausescu brought the stuffed head of a bear he had hunted and killed.

Giving and Receiving

In Asia, the protocol of gift-giving has been well established since Chinese emperors began expecting visitors to bear tribute. The Chinese know how to give as well as to receive: Pride of place in the exhibit goes to one of their presents, a life-sized wax figure of Kim Il Sung standing on a three-dimensional representation of a lake shore.

Reverent music, calculated to induce bowing, plays in the background of the posthumous gift, the final exhibit viewed by visitors to the hall.

The elder Kim’s title of President for Eternity makes him the world’s only dead head of state, and Hong says he continues to receive gifts. As of last year, his presents numbered 221,411.

“No other president could draw so many presents, so our people live in pride,” she says. “Except for this place, where can you see such a sight?”

The annex for Kim Jong Il, whose titles include secretary general of the Workers’ Party and chairman of the Military Commission, houses 55,423 additional presents, Hong says. As with his father’s gifts, most of them were never used but were immediately donated to the exhibition.

A Dynasty Sedan

Some highlights in the annex: a 1998 luxury sedan from the founder of South Korea’s Hyundai group — the model named, appropriately enough, Dynasty — and two roomfuls of carved, gilded furniture from South Korea’s Ace Bed Co.

From time to time, groups of uniformed soldiers troop past to see the gifts. A high percentage of them are five feet tall or shorter. In the 1990s, North Korea reduced the minimum height for military service to 148 centimeters (4 foot 9 inches) from 150 centimeters and the minimum weight to 43 kilograms (95 pounds) from 48 kilograms, according to South Korea’s National Intelligence Service.

A 2004 World Food Program nutritional survey found that 37 percent of North Korean children suffered chronic malnutrition. The state “bears central responsibility” for the shrinking of North Koreans, says Marcus Noland of Washington’s Peterson Institute for International Economics, co-author of a new book about the famine.

Freeing Up Foreign Exchange

“As aid began arriving, the North Koreans cut commercial food imports, freeing up foreign exchange,” Noland said in an e-mail exchange.

The saved money was used to purchase surplus military aircraft from Kazakhstan and to build monuments “to the recently departed Great Leader Kim Il Sung and his son,” Noland says. If the regime had maintained the rate of commercial food imports during the 1990s, using aid as a supplement instead of a substitute, he says, “the famine could have been avoided.”

Noland estimates the death toll at 600,000 to 1 million; others have said as many as 4 million people may have died.

Tour guide Hong, 27, places the blame elsewhere. “From 1993 to 2000 our people suffered from countless natural disasters and also from other pressure in the economic field owing to the U.S. aggressors,” she says, referring to sanctions. Even during such hardships, she says, constructing the annex with the best materials was “the greatest desire of our people.”

As she speaks, there is a brief power blackout, a frequent occurrence in the energy-short country. When the lights come back on, Hong continues.

“Our people are very grateful because the Great Leader Kim Jong Il sent all the gifts here for the people to look at freely,” she says. “It was our duty to preserve them and show them to the new generation.”

Posted in 1990s Famine, Arduous March, Banking, Civil society, Finance, Fiscal & monetary policy, Military, Pediatrics, Political economy, UN World Food Program | Comments Closed

Bank owner disputes money-laundering allegations

Wednesday, May 16th, 2007

McClatchy Newspapers
Kevin G. Hall
5/16/2007

The owner of a tiny bank in faraway Macau that the U.S. government blacklisted after accusing it of laundering the illicit gains of North Korea’s leaders has appealed to the U.S. Treasury to reverse its decision. He claims that the U.S. government itself had encouraged him to maintain North Korea’s accounts.

The May 2 statement by Stanley Au raises new questions about the Treasury’s decision March 19 as well as the Bush administration’s assertions that the North Korean regime has used the Banco Delta Asia to introduce counterfeit U.S. $100 bills into circulation.

In his declaration, Au said that some $160,000 in counterfeit American currency had turned up at his bank in 1994 but that he’d reported the incident to Macau’s police after he’d learned the money was fake. A short time later, U.S. government agents called on him, he said.

“I cordially answered the questions and asked if their preference was that we should desist from doing business with North Korean entities,” Au wrote. “They said they would like us to continue to deal with them, as it was better that we conducted this business rather than another financial entity that may not be so cooperative with the United States.”

Au made his statement as part of an appeal of the Treasury’s blacklisting of his bank for what it describes as insufficient controls against money laundering and passing fake U.S. currency into the global financial system. The family-owned bank in the Chinese-controlled enclave of Macau is now in government receivership.

Au said that because the meetings took place 13 years ago, he’d forgotten the agents’ names. The U.S. Secret Service, under Treasury control at the time, investigates the counterfeiting of American currency, but Au didn’t specify with what agency he met.

The Treasury declined to comment on Au’s statement or the appeal.

“In the next couple of years, the Bank was periodically contacted by other U.S. government agents and we cooperated in their inquiries,” Au said in a statement to the Treasury first published by China Matters, an Internet blog.

“Since those meetings, I believed that the U.S. government knew of my willingness to cooperate with regard to the Bank’s North Korean business and, indeed, to end that business if this would help prevent unlawful conduct.”

The statement to the Treasury also said that international accounting giant Price Waterhouse Coopers audited the bank’s finances annually and didn’t raise questions about its business or accounting practices.

Shortly after the Treasury’s initial September 2005 action sent the bank into receivership, Macau’s monetary authorities asked independent auditor Ernst & Young to audit the bank’s books. The audit, obtained and published by McClatchy Newspapers, found insufficient money-laundering controls but no evidence that North Korea used the bank to introduce fake $100 bills.

Au’s 10-page declaration also countered another allegation by the Treasury, that Banco Delta Asia maintains a relationship with one source of the bills in 1994.

Au said he’d closed two of the three accounts into which the counterfeit bills had been deposited, San Hap General Trading Co. and Kwok Tou, an individual. Both were known to have been doing business with North Korea, and neither challenged the closure. Au said he’d assumed that was an acknowledgement of guilt.

However, the third company, Zokwang Trading Co. Ltd. – which the Treasury alleges remains in an unsavory relationship with Banco Delta Asia – told authorities and bank officials that the counterfeit money deposited into its account had come from China and that it had no knowledge that it was fake.

Au said he’d warned Zokwang officials that the account would be closed if counterfeit money came through again. Shortly afterward, Banco Delta Asia began sending all large U.S.-dollar deposits to Hong Kong for screening at what today is banking behemoth HSBC.

“To the best of my knowledge, Zokwang has never since 1994 been found to be the source of counterfeit funds deposited with Banco Delta Asia,” Au said.

Posted in Banking, Counterfeiting, Finance, Fiscal & monetary policy, Illicit activities | Comments Closed

North seeks Russian or Italian home for its funds

Tuesday, May 1st, 2007

Joon Ang Daily
Brian Lee
5/1/2007

Still seeking access to the international financial system, Pyongyang has asked Macao authorities to transfer $25 million in funds to unnamed banks in Russia and Italy, signaling some progress in the deadlock over money held in a Macao bank.

Chinese Deputy Foreign Minister Wu Dawei told Japanese lawmakers visiting Beijing that North Korea broached the idea, the Kyodo News Agency reported. Wu said that Macao authorities are trying to determine whether the move is possible.

South Korean government officials held out hope that the news could be a catalyst in finally resolving an issue that has been dragging on for weeks. “We are ready at anytime to move on; we are just waiting for the clouds to clear,” said one official. Italy was the first European country to open diplomatic ties with Pyongyang in 2000.

The dispute over the money led the North to miss the April 14 deadline for shutting down its main nuclear reactor.

In what was viewed as a major concession, Washington announced on April 10 that it supported measures by Macao to unblock the North Korean funds held in Banco Delta Asia. The U.S. had said the money was the result of illegal activities.

However, other than saying that it has taken notice of such measures, Pyongyang has delayed withdrawing the money. Instead, through state media, the North said it was looking to integrate itself into the international financial system rather than just retrieve the money.

With China and Macao entering the labor day holiday starting today, it could be a few days before any transfer takes place, the government official in Seoul conceded.

A source said that Pyongyang had also asked banks in Singapore, Vietnam and Mongolia to agree to a transfer but was rebuffed.

Washington has endorsed measures to unfreeze the funds, but it has not withdrawn its designation of Banco Delta Asia as a confirmed money launderer.

Posted in Banking, Finance, Italy, Russia, Singapore | Comments Closed

N. Korea, Switzerland try new bank program to help N.K.’s farmers

Monday, April 30th, 2007

Yonhap
4/30/2007

Years of efforts to cultivate North Korea’s mountainous farmland is beginning to yield results, and Swiss and Korean officials are testing a bank credit program for the farmers in the Asian country, a Swiss aid office said on Sunday.

North Korea is showing “many promising signs of changes in progress,” including the emergence of consumer markets that are now established as part of the country’s economic system, Adrian Schlapfer, assistant director-general of the Swiss Agency for Development and Cooperation (SDC), said on the agency’s Web site.

Schlapfer was comparing the current situation to that during his previous visit to Pyongyang four years ago.

“The farming land in which the starving people started to work back then is now recognized as providing scope for agricultural initiative,” he wrote.

“The SDC, together with North Korea’s Central Bank, is therefore in the process of testing a micro-credit program to encourage farmers to base their investment decisions on economic feasibility considerations — an innovation for North Korea,” he said.

But North Korea still suffers from food scarcity, and aid is still essential, he said.

The SDC, an agency of the Swiss Foreign Ministry, has maintained an office in Pyongyang since 1997, focusing on agricultural programs to improve food production and on supporting domestic reform. The Swiss government started providing humanitarian assistance to North Korea in 1995.

Schlapfer described North Korea as the most little-known and enigmatic partner of the SDC, and acknowledged there are constant doubts on whether Swiss engagement there will yield results.

“Are there any meaningful approaches for long-term development partnership in this country with its planned economy, backwardness and secretiveness? Given the context, is it at all possible to initiate change?” he asked.

Pyongyang is “not an easy partner,” he said. “The key values, priorities and methods of Switzerland’s development cooperation have to be repeatedly insisted upon.”

“However, the projects implemented over the past 12 years are encouraging,” Schlapfer added.

Posted in Agriculture, Banking, Central Bank, Finance, Switzerland | Comments Closed

S. Korea’s asset management company may take over BDA: sources

Friday, April 27th, 2007

Yonhap
4/27/2007

South Korea’s state debt-restructuring agency may take over Banco Delta Asia (BDA), which is now virtually facing bankruptcy over accusations of engaging in money laundering for North Korea, diplomatic sources here said Friday.

Last month, the U.S. Treasury Department ordered all U.S. banks and companies to sever ties with the BDA, putting the Macao-based lender at risk of closing its business as global banks and companies are reluctant to do financial transactions with it.

“It is difficult for the U.S. to lift the sanctions on the BDA….so an option to let South Korea’s state-run agency take over the lender is now being reviewed,” a diplomatic source said.

According to the source, a way for the Korea Asset Management Corp. (KAMCO) — which buys bad debts from financial companies and turns them around — to purchase bad loans from the BDA is being studied, thus preventing the lender from going bankrupt.

KAMCO has been seeking to make inroads into overseas countries by taking over bad debts from troubled financial institutions.

North Korean funds frozen at the BDA, estimated at US$25 million, have not been transferred to the communist state so far, holding up progress in a landmark agreement over the North’s denuclearization.

Pyongyang said it will not implement the first 60-day denuclearization measures unless the funds are transferred to another bank, so the North can confirm the free transfer of its funds in the international financial system, upon which the U.S. Treasury Department has a strong influence.

North Korea has said that it will take the first steps toward nuclear dismantlement as soon as it confirms the release of its funds, which have been frozen at Banco Delta Asia since September 2005.

Under the Feb. 13 agreement, North Korea pledged to shut down its main nuclear reactor and allow U.N. inspectors back into the country within 60 days. In return, North Korea would receive aid equal to 50,000 tons of heavy fuel oil from South Korea.

Posted in Banking, Finance | Comments Closed

32 Out of 52 BDA Account Holders Revealed

Friday, April 27th, 2007

Daily NK
Nangung Min
4/27/2007

While the transfer of BDA’s North Korea’s accounts continues to linger on, a defector once a high authority in North Korea, recently revealed the names of 32 account holders used in North Korea.

A list of 32 account holders (out of the 52 BDA North Korea accounts) were released on the internet site of “Chogaje.com” on the 26th, in which the defector claims to be well acquainted or have conducted direct transactions with while working in foreign trade in North Korea.

This list recorded financial ministries including the No. 39 Department for Kim Jong Il’s personal funds, the People’s Military Department, National Security Agency and Safety Agency.

If this list is proven to be true, at present the international trades of North Korea’s 4 key financial centers, the Party, the military, the administration and the security agency can be analyzed to be in a frozen state.

In addition to unveiling the list of account holders, the defector informed, “BDA is commonly known as ‘Delta Bank’ amongst the elites in North Korea” and certified, “The North Korean government used this bank to import luxury goods, gifts and undoubtedly nuclear armaments and weapons of mass destruction.”

Furthermore, the defector said that “22% of all North Korea’s transactions were conducted through BDA” and implicated that BDA played a vital role as Kim Jong Il’s personal funds.

The U.S. State Department recently accused BDA of engaging in counterfeit dollars and hence all U.S. transactions with BDA was terminated. Since, the U.S. suspended its transactions with BDA, any official bank has also been placed in a difficult position to transact with BDA.

For now, the Bank of China, Hong Kong’s HSBC and 27 other Macau banks are known to have suspended transacting funds with North Korea.

For the past 2 weeks, North Korea has refused money regarding the 52 accounts. Meanwhile, the U.S. and China are urging that either each of the 52 account holders send the money directly or a third party remits the whole amount and the frozen measures returns to normal. As a result, North Korea’s part in the preliminary implementations of the Feb 13 Agreement continues to be delayed also.

Posted in Banking, Counterfeiting, Finance | Comments Closed

Seoul bid to solve North bank row

Monday, April 23rd, 2007

BBC
4/23/2007

South Korea’s chief nuclear negotiator is travelling to the US to try to resolve a major stumbling block to North Korea’s nuclear disarmament.

Chun Yung-woo said he did not want to see a dispute over North Korean bank accounts scupper progress towards ending the North’s nuclear programme.

Washington has lifted a freeze on the North’s accounts, but Pyongyang appears to be unable to access the money.

On Sunday South Korea agreed to resume food aid shipments to the North.

Following five days of talks in Pyongyang, Seoul said it would begin delivering 400,000 tonnes of rice to its impoverished neighbour.

While no reference was made to the North’s nuclear programme in the final communique at the talks, Seoul has insisted the aid is linked to progress on disarmament.

Unification Minister Lee Jae-joung reiterated the South’s position on Monday, saying the aid was dependent on whether the North fulfilled its pledge to begin the process of dismantling its nuclear programme.

“The rice issue is not just a humanitarian issue, but a very symbolic and essential task for peace,” he told MBC radio.

‘Technical issues’

The North missed a mid-April deadline – agreed on 13 February between the two Koreas, Japan, China, Russia and the US – to “shut down and seal” its Yongbyon reactor in return for aid.

Pyongyang made clear it would only close the reactor if $25m (£13m) of its money frozen in the Macau-based bank Banco Delta Asia (BDA) was returned.

The US has said the accounts are now unfrozen, and insists it does not know why the North has left the funds untouched.

South Korea’s Chun Yung-woo said his talks with US counterpart Christopher Hill in Washington would focus on “technical issues” over the banking dispute.

“We cannot continue putting off the more important denuclearisation issue because of this BDA issue,” he said before leaving Seoul.

He said the North’s demands had “generally been identified”, but more time was needed to fully resolve the issue, Yonhap news agency reports.

“Let us wait and see for a little longer because the parties are working hard for the resolution,” he said.

The nuclear issue, as well as rice aid, was central to intense negotiations between the two Koreas, which went into an unscheduled fifth day on Sunday.

Seoul, a major food donor to its northern neighbour, suspended aid after Pyongyang’s missile tests in July 2006, which was followed by a nuclear test in October.

The BBC’s Charles Scanlon in Seoul says Pyongyang badly needs the aid, because stocks from last year’s harvest are running out.

The first rice shipments are due to begin arriving in the North in May.

Posted in Banking, Finance, Fiscal & monetary policy | Comments Closed

Macau Bank Dealt Gold for N Korea

Wednesday, April 18th, 2007

Associated Press
4/18/2007

Macau Bank at Center of Nuclear Talks Dealt Gold for North Korea

A small Macau bank accused of laundering money for North Korea also dealt gold for the reclusive country, with gold pieces flown in to the Chinese territory then carried to nearby Hong Kong and sold there, a news report said Wednesday.

Citing an audit report by the accounting firm Ernst & Young, the South China Morning Post said Banco Delta Asia’s ties to North Korea go back 30 years, and that besides accepting deposits, the bank also handled gold and silver sales for clients from the country worth $120 million.

The Post said six North Korean companies shipped gold pieces stamped with “Central Bank of North Korea” to Macau.

The gold was then moved to Banco Delta Asia’s Hong Kong subsidiary, Delta Asia Credit, by hand, then sold to a German trader, according to the Post.

Hong Kong is an hour by high-speed ferry from gambling enclave Macau.

The report says Banco Delta Asia’s North Korean business accounted for 22 percent its turnover during the 30 years, the Post reported.

The U.S. announced last month the bank would be blacklisted and blocked from doing business with American banks, a potentially crippling blow to most lenders.

The move came after American investigators accused the bank of helping North Korea launder money and handle counterfeit currency.

Macau’s Monetary Authority took control of the bank and froze about $25 million in North Korean funds. That enraged the North Koreans, who for more than a year boycotted the six-nation talks that aim to disarm the North’s nuclear program.

The bank has repeatedly denied knowingly helping in North Korea’s alleged illicit activities and said Monday it filed a challenge against the U.S. ruling.

It said it was a family-owned lender that lacked the sophisticated equipment and procedures to combat money laundering and counterfeiting.

Banco Delta Asia and Ernst & Young’s Macau office didn’t immediately respond to messages from The Associated Press.

Posted in Banking, Finance, Gold | Comments Closed

U.K. banker in Macau to transfer BDA funds

Tuesday, April 17th, 2007

Korea Herald
4/17/2007

London investor Colin McAskill yesterday said he would attempt to transfer $7 million from Macau’s Banco Delta Asia, which the U.S. Treasury has labeled a money launderer, to test if North Korean-linked accounts have access to the international financial system.

The money is part of some $25 million in Banco Delta accounts belonging to North Korean entities and individuals that Macau authorities froze in 2005 after the United States said the bank was laundering money for the communist state. The funds were unfrozen last week as a concession in talks with North Korea to end its nuclear weapons program.

McAskill, who has agreed to buy North Korea’s Daedong Credit Bank and advises a fund that seeks to invest in the country, said legitimate bank transfers of all the deposits are needed to demonstrate the U.S. Treasury is not shutting North Korea out of the international financial system. He declined to name the bank or country he would attempt to move the funds to.

“I am not sending a truck, or queuing outside in a trench coat with a battered old suitcase to bring the money out in cash, and neither should the DPRK,” McAskill said, using the initials for the Democratic People’s Republic of Korea, the formal name of North Korea. “The money should and has to be moved through the international banking system to verify both the efficacy and the integrity of the apparent concession by the United States.”

North Korea on Friday said it will only implement a Feb. 13 accord on ending its nuclear program once it confirms “valid” release of the entire $25 million. It missed an agreed upon deadline on April 14 to begin shutting down its nuclear facilities and allowing inspections by the United Nations’ atomic energy agency.

North Korea should “realize fully its commitments under the Feb. 13 agreement by inviting back the IAEA immediately” and sealing the Yongbyon nuclear reactor, U.S. State Department spokesman Sean McCormack said in a statement posted on the department’s website on Sunday.

Maria de Lurdes Costa, a lawyer and member of Banco Delta Asia’s administration committee, said yesterday that she did not know which if any North Korea-related depositors had been talking with the bank about withdrawing their funds. Even if she knew, “still I wouldn’t tell you,” she said, emphasizing the matters are confidential.

She declined to say if the bank had enough dollar reserves to disburse the full $25 million in U.S. currency. “I would not reply to any of those questions,” she said.

The administrative committee chair, Herculano Jorge de Sousa, received similar queries by fax, a secretary in his office said, but had not had time to respond. The Banking Supervision Department at Banco Delta Asia declined to comment.

The U.S. Treasury ruling that Banco Delta Asia is a “money-laundering concern” becomes final on Wednesday this week, raising the possibility international banks will not do business with the Macao institution. (Bloomberg)

Posted in Banking, Daedong Credit Bank, Finance | Comments Closed

40 Trillion Won Needed for North Korea Reform & Development

Wednesday, April 11th, 2007

Yonhap
Park Hyun Min
4/11/2007

An report estimated that it would cost North Korea 39.7 trillion won (approx. US$ 42.7 billions) during the first 14 years of reform and development.

A report released on the 9th by Managing Director Kim Won Bae and fellow associates of the Northeast Asian Regional Development Center for the Korea Research Institute for Human Settlements, analyzed the costs required by North Korea to commence essential reform based on agreements made to the resolution of North Korea’s nuclear issues.

On an optimistic premise that North Korea and foreign diplomatic relations normalize and that proactive reform and development policies are implemented, the report forecasted that the North Korean economy would rapidly grow similar to China and Vietnam. Contrastingly, if reform policies remained passive and the normalization of foreign relations delayed, the report predicted that the country would be unable to escape from the adverse state.

The report estimated that a minimum of 23.7 trillion won and maximum 39.7 trillion won would be needed for investments, if active reform were to take place. Retrospectively, if reform were to take a slow stance, then approximately 11.5~26.4 trillion won would be needed.

For every 1 trillion won North Korea invested in construction, the report claimed that it would gain approximately 2.7 trillion won. If South Korea were to invest 1 trillion won in North Korea, then the affect would be a little less with a profit of 2.5 trillion won.

Furthermore, if North Korea development was based on South-North cooperation, then South Korea would have the burden of supporting North Korea 319~698 billion won annually during the first phase (2007~2011), and then an additional 1.29~1.95 trillion won during the second phase (2012~2020).

If the international community became involved, South Korea would only need to support 336~515 billion won annually in the first phase and 651 billion won to 1.11 trillion won during the second.

The report also claimed that the direction of the development on the Korean Peninsula should be based on cooperation between South and North Korea with the possibility of transferring this support to neighboring countries.

Further, basic facilities managed by South-North Korea cooperation would be supervised into three industries and development around the border locations currently separating South and North Korea would be managed by North Korea. This would extend to raw materials and production also.

Mr. Kim who was in charge of the research project said, “Already, cooperation between the South and the North is accurately and effectively taking precedence over the North Korea issue within the international community” and added, “North Korea, the Korean Peninsula, nations interested in understanding North Korea and the international community must join to destroy North Korea’s nuclear development, support the North Korean economy and help solve its issues.”

Posted in Banking, Economic reform, Finance, Foreign direct investment | Comments Closed

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