U.S. Order on Macau Bank Could Free North Korea Funds (Update3)

March 14 — U.S. Treasury Department officials took action today that could free North Korean funds in Macau’s Banco Delta Asia SARL and benefit nuclear disarmament diplomacy, even as the regulators cut off the financial institution from the U.S. banking system.

Treasury Undersecretary Stuart Levey told reporters in Washington that an 18-month probe found the bank had allowed North Korea to launder money. The findings will be shared with authorities in Macau, a Chinese enclave, who will then decide whether to release as much as $25 million in frozen North Korean accounts at the bank, Levey said.

North Korea is demanding the money before it will allow United Nations nuclear inspectors back into the reclusive country as part of a six-nation agreement reached last month to dismantle its nuclear-weapons program.

“What the State Department gets out of this is an ability to fulfill a promise that I believe it made to North Korea to free up the frozen assets,” said Jim Walsh, a nuclear expert at the Massachusetts Institute of Technology who attended an unofficial March 5 meeting in New York with North Korean Vice Foreign Minister Kim Kye Gwan. “But the hardliners in the Bush administration still get to punish a bank that did business with North Korea.”

Scrapping Weapons

The Treasury’s decision comes amid international efforts to persuade the North Korean government to scrap the development of nuclear weapons. The chief of the United Nations’ nuclear watchdog agency, Mohamed ElBaradei, said North Korea made the linkage between the Macau money and International Atomic Energy Agency inspections during talks in Pyongyang, the North Korean capital.

ElBaradei said in Beijing that his meetings helped to “open the door” for a better relationship with North Korea.

“I think the Macanese authorities will move swiftly now to unfreeze the accounts and some of that money will likely make it to the North Koreans,” said Charles “Jack” Pritchard, a former U.S. negotiator on North Korea.

Banco Delta Asia’s accounts were frozen soon after Treasury blacklisted the bank in 2005, saying it was a “money-laundering concern.” Treasury at that time also proposed today’s order, which prevents money from being moved between the U.S. and the bank, which is currently run by a committee appointed by authorities in Macau.

Rice’s Consent

Levey, who oversees terrorism issues and financial intelligence at Treasury, said the decision to bar the Macau bank’s access to the U.S. financial system was taken in consultation with Secretary of State Condoleezza Rice. The State Department sent Christopher Hill, its chief negotiator on the North Korean issue, to Beijing this week to further talks on implementing the nuclear agreement.

An investigation showed North Korea trades in counterfeit U.S. currency and cigarettes and traffics narcotics, and that “many” North Korean account holders at Banco Delta Asia had ties to those activities, Levey said.

“Today’s regulatory action is targeted at BDA as an institution and not at Macau as a jurisdiction,” Levey said.

Front companies laundered “hundreds of millions of dollars” in cash through the bank, he said.

In addition, the Treasury probe showed that North Korean “entities” involved in financing the proliferation of weapons of mass destruction were also doing business at the bank, Levey said. He declined to discuss the types of weapons involved.

`Responsible Owners’

Asked what would happen if Banco Delta Asia were brought under the control of “responsible owners” before a final order takes effect in 30 days, Levey said Treasury likely would review its action.

“This is not about punishment, this is about protecting the international financial system,” Levey said.

The U.S. designation, which prompted authorities in Macau to take over the bank, derailed past international negotiations over North Korea’s nuclear ambitions. North Korea abandoned talks in November 2005.

Efforts to revive the nuclear talks stalled again in December 2006 because of the designation