Jeffrey LewisWill Treasury Scuttle Six Party Process?

Chris Nelson in the national treasure that is The Nelson Report has the crucial backstory on how Administration hardliners may be fighting efforts to lift Treasury sanctions on North Korea’s “licit” funds as part of an effort to scuttle the nascent Six Party agreement:

Had we reported last night, we would have used a quote from a very senior, closely involved source who was frankly worried that hard-liners known to oppose the Feb, 13 deal worked out by A/S Chris Hill had apparently prevailed on Treasury to renege on a key section of the Feb. 13 declaration.

IAEA director ElBaradei certainly was concerned, and said so, while in Pyongyang to start the promised actions at the Yongbyon nuclear complex.


Still, observers in and out of State were shocked at the very firm declaration by Treasury that even though the Ernst & Young audits completed last October had apparently found nothing to confirm the various charges, as of yesterday, Treasury firmly stated that each and every one was proven beyond doubt.

And so since many observers, in and out of State, had thought both they and Pyongyang were being told that the DPRK would see Treasury “complete action” yesterday…with some indication that would mean a lifting of US sanctions on the DPRK-related banks…Treasury’s firm declaration that US banks would continue to be banned from anything to do with the DPRK seemed to raise the specter of a broken deal.

Waiting 24 hours produced a grudging consensus that, once again, the deal or deals cut back-channel between Hill and DPRK negotiation Kim Gae-gwan may have included the possibility of greater flexibility and understanding on the part of Pyongyang than might have been expected, and which all of us clever analysts had divined.


Maybe…some of our experts are frankly skeptical at the rosy scenario offered above, and warn that “Hill is going to have to practice some very adroit diplomacy to keep this from getting more difficult, just when we thought it might start to move.”

One expert … warns “When Hill says, ‘I think we will get ourselves into a situation where BDA will not pose a stumbling block to the six-party process’, what he really means is he we’re not at a stumbling block yet.”

Chris has way more detail, but for that you have to have a sweet hook-up.

For more on the Ernst & Young audit that “found no evidence” that Banco Delta Asia “facilitated North Korean money-laundering,” see Kevin Hall’s excellent story for McClatchy.

Late Update: Treasury has posted the full text of its final rule prohibiting “U.S. financial institutions … from opening or maintaining correspondent accounts for or on behalf of BDA” barring “BDA from accessing the U.S. financial system, either directly or indirectly.” (press release, final rule)


  1. abcd

    Even the Chinese press has hopped on board with the “disablement” craze:

  2. Joe Cirincione (History)

    Great post, Jeffrey. And you are right, the Neslon Report is an invaluable resource. I had missed this in his recent emails. Thank you for highlighting it.

    So, why then don’t the major papers report this story as Chris does: a factional fight that threatens to torpedo a crucial nuclear negotiations? The Washington Post story on Sunday runs it like this is all part of some complicated but coordinated strategy. Not a word about the Cheney’s role in this, or that it involves an internal dispute.

    I can think of three possible reasons:1. It’s not true; there is no real dispute.2. The Post, Times, etc., don’t know what is going on.3. The reporters fear loss of sources if they describe the internal divide.

    Unless (1) is actually the case, this is sad statement on the state of our nuclear journalism.

  3. Andy (History)

    Saw this tonight:——————————-China Says US, North Korean Envoys Resolve Bank Dispute

    By Daniel SchearfBeijing18 March 2007

    The U.S. chief negotiator on North Korea’s nuclear programs says sanctions against a Macau bank for allegedly helping North Korean money laundering are no longer an obstacle to six-nation talks. As Daniel Schearf reports from Beijing, the financial sanctions have been a key problem to de-nuclearizing North Korea.

    The chief U.S. negotiator on the nuclear talks, Christopher Hill, told reporters financial sanctions against Banco Delta Asia are no longer an issue and would not obstruct six-nation negotiations on North Korea’s nuclear programs.

    Ambassador Hill said he is expecting an announcement very soon on the fate of about $24 million in North Korean accounts at the bank frozen by Macau authorities for investigation under U.S. suspicions of illicit activity.

    North Korea’s chief negotiator to the talks Kim Kye-Kwan said Saturday North Korea would not implement a February agreement to move towards giving up its nuclear programs until the accounts were unfrozen.

    The agreement calls for North Korea to shut down its main Yongbyon nuclear reactor and allow international nuclear inspectors back into the country within 60 days in exchange for aid and diplomatic incentives.

    Despite the comments, Hill said North Korea is on schedule with the agreement. But he said negotiators from the two Koreas, China, Japan, and Russia needed to work out a step-by-step process beyond that two-month plan when they meet beginning Monday for talks in Beijing.

    “We are going to need a roadmap ahead. I think we are going to have to discuss that. I think the DPRK wanted to keep the discussions pretty much focused on the sixty-day obligations. But, we need to keep, continue to go forward,” said Hill.

    Wednesday, the U.S. Treasury Department finished its investigation of the Macau bank, declared it guilty of helping North Korea with money laundering and counterfeiting and officially banned U.S. banks from doing business with the family-owned operation.

    The bank denied knowledge of any wrongdoing and China’s foreign ministry spokesman called the ban “regrettable.”

    North Korea had refused to participate in talks on its nuclear programs for more than a year because of the sanctions. But the United States agreed to discuss the issue in December, leading to the breakthrough agreement in February on a timetable for de-nuclearization.

    China’s official Xinhua News Agency quoted Chinese State Councilor Tang Jiaxuan as saying North Korea and the United States had worked out a solution to the frozen funds, but did not elaborate.

  4. Robot Economist (History)

    Dr. J – On the way into work today, NPR’s Morning Edition had a short piece on the issue. The consensus was that the Treasury Department was going ahead with rule, but the North Koreans will be allowed to take out $25 million after the fact. Here’s the transcript off of their site:

    U.S. Eases Freeze on North Korean Assets
    by Anthony Kuhn

    Morning Edition, March 19, 2007 · Negotiations on the North Korean nuclear issue are under way again in the Chinese capital of Beijing.

    But just before the talks resumed, U.S. officials announced the release of $25 million in frozen North Korean assets, clearing away a potential stumbling block in the negotiations.

    Over the weekend, North Korea said that it would not shut down its nuclear facility at Yongbyon until the $25 million — frozen in a Macau bank — was released.

    Daniel Glaser, a deputy assistant U.S. treasury secretary, said in a prepared statement Monday that the funds would be transferred to North Korea through a Chinese bank.

    “North Korea has pledged within the framework of the six-party talks that these funds will be used solely for the betterment of the North Korean people, including for humanitarian and educational purposes,” the statement read.

    The funds are in the Banco Delta Asia in the Chinese territory of Macau. Last Wednesday, the Treasury barred U.S. financial institutions from any dealings with the BDA because of the bank’s alleged involvement in North Korean counterfeiting and money laundering. That ruling still stands.

    The financial issue has dogged the six-party talks for more than a year. Chinese lead negotiator Wu Dawei opened a new session of negotiations today.

    “The six parties have decided on initial steps in an agreement signed last month. The talks have now entered a new phase of reciprocal actions,” he said in Chinese.

    Last month’s agreement calls for Pyongyang to shut down its main nuclear facility within 60 days and get fuel aid and economic assistance in return.

    The chief U.S. envoy to the talks, Assistant Secretary of State Christopher Hill, said that the initial steps were going according to schedule. He noted that Pyongyang last week assured the United Nations International Atomic Energy Agency of its cooperation.

    “We would look forward to that process continuing in the next 30 days, so that we will have the shutdown of the Yongbyon facility, the sealing of it and the monitoring of it by IAEA personnel,” Hill said.

    Japanese lead negotiator Kenichiro Sasae suggested difficult negotiations lie ahead.

    “The working groups have just gotten up and working,” Sasae said in Japanese. “It’s going to be a long process, and we need a long-term view of the issues. We shouldn’t get caught up in each day’s developments.”

    Hill said that Monday’s decision clears the way for talks on more substantial issues later.

    The U.S. had initially said that releasing the money was up to authorities in Macau. But in the end, the U.S. agreed to North Korea’s demand and announced the deal.

  5. yale (History)

    When Dr. Jeff wrote…

    For more on the Ernst & Young audit that “found no evidence” that Banco Delta Asia “facilitated North Korean money-laundering,” see Kevin Hall’s excellent story for McClatchy.

    … it is important that the “found no evidence” not be seen as a vindication of BDA.

    Ernst & Young was NOT investigating whether BDA engaged in money-laundering for NK. It was to see if the bank records included evidence of hanky-panky.

    What E&Y found was that the bank (either thru incompetence or purposely) had no records to audit.

    As the IHT pointed out on March 12th (HERE)

    In a letter sent to Treasury officials on Oct. 16, McLaughlin, the American lawyer for Banco Delta Asia, cited findings from the Ernst & Young investigation that criticized the bank over internal record keeping, poor computer systems and the absence of a written money-laundering policy.“The bank paid insufficient attention to maintaining its own books,” McLaughlin wrote. “Consequently, money could have been laundered, but there is no specific evidence that the bank was aware that it was being used for this purpose, nor that it facilitated any criminal activities.”


    One issue of concern identified in the Ernst & Young report was that Banco Delta Asia maintained an account for Tanchon Commercial Bank of North Korea, which is on a U.S. government list of entities aiding the proliferation of weapons of mass destruction. …Banco Delta Asia had kept the account with Tanchon open until just a few days before the United States acted against the bank in September 2005. …The presence of Tanchon on the U.S. weapons proliferation list was “initially overlooked at the bank” because of poor information technology systems, McLaughlin told the U.S. Treasury.

    This in one case where Absence of Evidence most certainly should not be taken as Evidence of Absence.

    While the US has apparently (rightly, IMNVHO) chosen to detour around the problems with the bank, it appears to be more from keeping our eyes on the prize, rather than accepting the innocence of the BDA.

  6. John McGlynn (History)

    Joe Cirincione lamened that nuclear journalism may be in a sad state. So perhaps is basic financial journalism, or even more simple for journalists to follow, the statements of the North Koreans through their KCNA website. Since at least Dec. 2005 the North Koreans have consistently said they wanted the financial sanctions removed. That would have meant, prior to Treasury’s recent issue of its final rule, the cancellation of the proposed rule (no correspondent accounts in the US with BDA or any bank doing business with BDA) Treasury announced in Sep. 2005, or possibly something of equivalent interest to the North Koreans, such as removal from the list of terrorist states. I think the media is missing half the story by constantly harping on the return of the $25 million on deposit at BDA as representing a final resolution. Presumably we’ll get more word in the coming days on why the North Korean delegation quit the Beijing talks today. Careful reporting by someone will no doubt reveal that the North Koreans are serious when they say they don’t want their access to the global financial system cut-off or restricted. The apparent refusal of even a Chinese bank to accept the transfer of the funds from BDA seems to indicate that Treasury’s final rule still leaves North Korea in trouble with the world’s banks.