After reading for the last week that North Korea is just waiting for the money, I’ve started to wonder what the big deal is; just take it already. Turns out, they haven’t been able to withdraw it from the bank, unless of course they want $25 million in bank notes.
Although the $25 million has been released for withdrawal, the U.S. Treasury’s final rule on prohibiting U.S. finacial institutions from doing business with Banco Delta Asia goes into effect today, April 18. (See Jeffrey’s post for links to the full document.) In September 2005, the U.S. Treasury found Banco Delta Asia to be of primary money laundering concern with regard to its business with North Korea. Under the Patriot Act this means no more business from the U.S.
After blacklisting by the U.S., other banks worldwide did not want to deal with BDA either, which brings us to the current problem. No bank wants to touch North Korea’s 25 million, just in case they too could be investigated. How many suitcases would it take to carry $25 million?
Why does North Korea care so much about 25 million dollars? Writing for McClatchy News Service, Kevin Hall suggests it’s not all about the money, or not this money at least.
The audit by international accountant Ernst & Young, obtained by McClatchy News Service, found that one of the bank’s most important acts for the communist dictatorship was shepherding gold into the international marketplace.
[snip]
There’s never been a prohibition on purchasing gold from North Korea despite its unsavory rulers. But by threatening to blacklist the family-owned bank, the country’s chief facilitator in Macau, the Treasury appears to have choked off a vital source of foreign exchange earnings for North Korea.
Gold became an economic lifeline for North Korean leader Kim Jong Il after President Bush sought to isolate the country’s economy in 2001 as part of the so-called axis of evil, according to experts on North Korea.
[snip]
The details in the audit may help explain why North Korea reacted so strongly when the Treasury first announced its proposed blacklisting of the North Korean regime’s preferred bank in Macau. North Korea abandoned talks on dismantling its nuclear program after the Treasury’s announcement on Sept. 20, 2005.
So did Treasury go after the counterfeiting claim in order to also block the flow of other money to North Korea? For NK, gold is one of the few things they have and can sell. It is unclear, but this discussion again points to an issue which has been disused on this blog several times; the 25 million may be the most visible hang up, but the dispute most likely has more significant financial issues at stake.
Yet even if we are talking about vast sums and market access, the question of whether this is indeed about the money remains. I am thinking of the debate over whether North Korea’s nuclear program is a matter of uncompromising security concerns, a bargaining chip for concessions, or somewhere in between. If North Korea is really responding to financial measures, then this suggests that its nuclear program, at least in some ways, could be bought. Or they could just be stalling and stringing us along (because that never happens), in which case who knows… price not high enough, or just kidding, not for sale.
But back to the bank. Banco Delta Asia has always claimed everything is legit, and Ernst & Young agreed, both in refuting Treasury’s counterfeiting claim and on the shady but legal gold sales.The Ernst & Young report is not news by the way; it has been cited for a while. Except the bars of gold part; I have not read that before. I can see it now… somewhere in a secret vault, ingots stamped with Kim Jong Il riding a missile. Kind of like riding a Segway, but not as spiffy.
The BDA issue has always been about North Korea’s ability to engage with the international financial network rather than the $25 million itself. The financial restrictions hurt NK because they eliminated its main conduit for legal and illegal transactions with the outside world (instead of thinking of the $25mn which is what happened to be in the accounts the day they were frozen, think in terms of annual throughput). Also, by publicly sanctioning NK’s illegal activities, it had a chilling effect on international banks’ and companies’ willingness to risk dealing with Pyongyang. So, even if NK gets all the money back in cash, it won’t allow NK to reintegrate with the int’l financial network nor trigger new FDI. NK has been balking at simply unfreezing its accounts because it wants the money transferred via third country bank to set the precedent for other countries to open their banks and businesses to NK. So, Pyongyang’s next demand will be rescission of Treasury’s ruling and suspension of the international restrictions.
we might add that blockinng north korea out of the international monetary system has occured during the reported famine and its aftermath; so the human consequences of Bush’s actions are by no means trivial. furthermore by blocking north korean access it can only enhance the hand of hardliners who oppose any deng xiaoping reform programme, precisely those who would most favour NK’s “army first policy”. don’t also forget that this happened right after sept 2005 6 party talks and should also be read in the context of team bush’s fake allegations on uranium enrichment.
It may be unexpected or interesting or alarming to anti-proliferation enthusiasts, but there are significant factions in the Bush administration that do not consider de-nuclearizing North Korea through the Six Party Agreement to be an ultimate good or overriding priority.
One of these factions resides in the Treasury Department’s Office of Terrorism and Financial Intelligence, headed by Stuart Levey with Daniel Glaser in charge of anti money laundering.
Levey’s department has been working intensively behind the scenes for years to cut North Korea from the international financial security and hinder its ability to engage in legitimate transactions (like selling its gold, attracting investment, etc.), using NK’s illicit activities as justification. Its primary legal weapon is Patriot Act Section 311—which gives it the authority to require U.S. financial institutions to break off relations with banks it implicates in terrorism financing operations. Treasury has been leaning on international financial institutions to cut off ties to North Korea.
When gentle persuasion doesn’t work, the threat of Section 311 action—which can destroy a bank by cutting it off from the US financial markets—is wielded. That’s what happened in Macau. Section 311 authority is supposed to be shielded from international and domestic law, diplomatic interference, and politics by its special national security status under the Patriot Act. It’s a major source of prestige, power, and legitimacy for the OTFI.
When Christopher Hill agreed to “resolve” the Banco Delta Asia matter in thirty days, he devalued Section 311 from a terrifying unilateral weapon to an ordinary bargaining chip at a single stroke. Treasury didn’t go along and President Bush has apparently found himself unwilling or unable to instruct Treasury to drop its sanctions against BDA and its ongoing investigations into North Korean financial activities in Macau. So we have the rather ridiculous situation where we say the money is unfrozen but Treasury is actually working actively to make sure it doesn’t go anywhere.
Anti-North Korea hardliners inside and outside the Treasury Department are stating openly that continuing Patriot Act Section 311 activities against North Korea are more important than implementing the Six Party Agreement.
It’s a battle between State Department realists and hardliners in Treasury and elsewhere that President Bush seems unable to end. It’s destructive to the Six Party Agreement and the reputation and effectiveness of State Department diplomacy, especially with regard to Iran. And I’ve blogged the matter to death with over a dozen posts at China Matters.FYI
Dear God, Marko – are you seriously blaming the Bush Administration for the famine in North Korea?