The U.S. doesn’t have much leverage against North Korean dictator Kim Jong Il, as years of failed diplomacy have shown. So our first thought upon hearing from our sources that the Bush Administration has agreed to discuss abandoning the “financial sanctions” on Pyongyang was, oh, no, here we go again. The brains at the State Department are preparing to negotiate away the only lever that has gotten Kim’s attention. As it turns out, they can’t do that--unless they are prepared to violate U.S. law.
The financial measures that Kim is so steamed about aren’t really sanctions at all, and they aren’t imposed against his country. Rather, he’s upset about U.S. action against a bank in the Chinese territory of Macau that did business with Pyongyang. The U.S. Treasury watch-listed Banco Delta Asia on September 15, 2005. A few weeks later, in November, an enraged Kim withdrew from the six-party talks. He has been acting out ever since.
Treasury acted under Section 311 of the USA Patriot Act, which amended the anti-money-laundering provisions of the Bank Secrecy Act to allow Washington to combat the international financing of terrorism. In the case of Banco Delta Asia, Treasury issued a “notice of proposed rule-making,” stating that it is monitoring the bank’s transactions with respect to North Korea. Among other charges, it said Banco Delta Asia “facilitated” the criminal activities of the government and its front companies, including “distributing counterfeit currency and smuggling counterfeit tobacco products.” If it issues the ruling, U.S. banks will be formally barred from dealing with Banco Delta Asia. More than a year later, Treasury still hasn’t finalized its ruling, but it doesn’t have to. The “proposed” rule has had the desired effect. In an effort to keep their reputations intact, banks world-wide immediately shunned Banco Delta Asia, which is now under receivership by the Macanese government. Macau froze $24 million in North Korean accounts.
More important, the Treasury action sent a warning to other financial institutions that had North Korean accounts--notably the Bank of China--that they too could find themselves on a Treasury watch list. A Chinese proverb calls this killing a chicken to scare the monkey. Banks world-wide stopped doing business with North Korea-- effectively locking Pyongyang out of the international banking system. This, far more than the $24 million frozen at Banco Delta Asia, is the reason for Kim’s pique.
It’s worth noting that Treasury’s decision to take action against Banco Delta Asia last year was made after consultation with State, the Federal Reserve and other government agencies, as required under the Patriot Act. But now that Banco Delta Asia has been cited, the State Department does not have the unilateral authority to negotiate that away. Of course, North Korea could rejoin the global financial system in an instant--providing that it ceases its illegal activities. But somehow we don’t think that’s what Kim has in mind when he demands talks on lifting the sanctions.
When the six-party Korean talks resume next month, we hope the conversation isn’t restricted to negotiators from Washington and Pyongyang. The North’s criminal activities also affect China, South Korea, Japan and Russia. It could be instructive for all five parties to exchange notes on Pyongyang’s counterfeiting, smuggling and drug dealing.
Americans, too, might like to know what’s going on--including in their own country. We hope the U.S. will bring up the federal indictments of 87 people in August 2005 on charges related to international conspiracies to launder money and smuggle millions of dollars in counterfeit currency, drugs (including fake Viagra) and cigarettes into the U.S. At the request of the State Department, which argued that the six-party talks were at a delicate moment, the indictments don’t mention North Korea and China by name.
Those indictments, which implicate several banks in Macau, were unsealed three weeks before Treasury’s action against Banco Delta Asia. David Asher, who focused on North Korea at the State Department during President Bush’s first term, believes the timing was pertinent. China got the message, he says, calculating that it had more to gain from cleaning up banking in Macau?home to growing U.S. investment in the gaming industry-- than it did from protecting its banking relationship with North Korean criminals.
Without access to the international financial system, North Korea’s money laundering antics and its trade in illicit goods are a lot more difficult. When the six-party talks resume next month, one of Kim’s chief goals will be to return to the Banco Delta Asia. Until Kim agrees to stop his illegal operations as well as abandon his nuclear program the way Libya’s Moammar Gadhafi did, it would be a strategic blunder and a legal affront to let Kim off the hook.