Banking Issue Has U.S., North Korea at Impasse

A banking matter is stalling progress on denuclearizing North Korea. Two years ago, the U.S. accused a Macau bank of laundering counterfeit money and froze $25 million in North Korean funds. Freeing the money is proving to be a problem.

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And I'm Steve Inskeep.

The effort to get North Korea to abandon nuclear weapons has run into trouble -it's an international financial problem. It involves the question of who is willing to hand $25 million to North Korea. There are many possible solutions, none of which seems like a sure thing right now.

And since every solution contains some risk, it may be appropriate that one possible solution would involve a casino in Las Vegas. That takes some explaining.

And NPR's Mike Shuster begins with the problem that diplomats want to solve.

MIKE SHUSTER: The problem is the Banco Delta Asia, a small family-owned bank in Macau, a semi-autonomous island in China best known for its gambling casinos. In 2005, the U.S. Treasury Department cited Banco Delta Asia for alleged money laundering.

The treasury said the bank was helping North Korea launder counterfeit U.S. currency and proceeds from elicit activities. As a result, the government-controlled monetary authority in Macau froze $25 million in bank accounts controlled by North Korea.

The action brought howls of protest from Pyongyang, which promptly refused to continue the six-party talks on ending its nuclear program. In February, the U.S. and North Korea struck a deal. North Korea could get its money back if it would begin a complex multistage process of denuclearization.

The trouble was no bank was willing to help return the money to North Korea, not banks in China or in Europe. The U.S. tried to get Wachovia Bank to handle the transaction with no success.

The U.S. had acted against Banco Delta Asia under the USA Patriot Act, and all the banks feared helping North Korea would taint the banks in the eyes of the Treasury Department, even though the request came from the State Department, says John Park, a former Wall Street investment banker now with the U.S. Institute for Peace in Washington.

Mr. JOHN PARK (Former Wall Street Investment Banker; U.S. Institute for Peace): The stigma of the treasury ruling, that's something that's very, very difficult to reverse. In practice, it's very, very low probability that in reversing it, it becomes acceptable to the private sector.

SHUSTER: Reports surface this week that the U.S. is making another stab at sending the money to Pyongyang, rooting funds from the Federal Reserve Bank of New York through a Russian bank. Nevertheless, earlier this week, the chief U.S. negotiator for North Korea, Assistant Secretary of State Christopher Hill, expressed frustration the problem had not been solved yet.

Mr. CHRISTOPHER HILL (Assistant Secretary of State): I do believe we are making progress on it. I mean, Lord knows it's not the pace I want to see, but we are making progress on it.

SHUSTER: Part of the problem appears to be that the North Koreans want to receive their money through a private bank, which would send a message that the U.S. Treasury action had not blocked their access to the global financial system.

That may be one reason why the State Department didn't simply wire the money to Pyongyang directly when this problem arose. A mechanism is in place to make that happen, provided North Korea agrees, says Jack Pritchard, former special envoy for North Korea.

Pritchard set it up more than five years ago to facilitate payments to North Korea under a now-defunct denuclearization agreement.

Mr. CHARLES "JACK" PRITCHARD (Former State Department Special Envoy, North Korea): The United States could have easily handled the money transaction itself had they thought about it, had they wanted to do it. Early on, the money probably could have gone from Bank of Macau into State Department coffers into wire transfers into Pyongyang.

SHUSTER: The other parties to the talks on North Korea's nuclear program, especially China and South Korea, have expressed frustration at the money tangle. So there is great hope that the Russian option will untangle it, says Christopher Hill.

Mr. HILL: We have tried to be helpful in this process, and I think other members of the six-party process are trying to be helpful, namely the Russians. And the drill here is to try to get the North Koreans their money and then when they have their money, they will then agree to move on and do what they have to do in this February agreement, which is shut down this nuclear facility.

SHUSTER: It should be clear this week whether the Russian route will work. If it doesn't, that's where the Las Vegas casino operators might come in. John Park, who used to work for Goldman Sachs, held discussions with investment bankers in Hong Kong.

He says there is interest in a private buyout of Banco Delta Asia. Such a deal will see the Macau Money Authority send the 25 million to North Korea and a restructuring of the bank itself.

Among potential buyers are Las Vegas casino operators, who hope it might lead to acquiring a hard-to-get Macau casino license. This could become a live option, says Park, if the possibility of a funds transfer reaches a dead end.

Mr. PARK: Many had been hoping for this third-party bank to come out and process the fund. As that prospect is looking less and less likely, I think that's where the Macanese and others will be more willing to think of different out-of-the-box and more private sector-oriented proposals.

SHUSTER: As for the North Koreans, they appear content to watch the Bush administration struggle to undo its own policy. The North Koreans believe right now they have the upper hand, says Jack Pritchard.

Mr. PRITCHARD: They're not in any particular rush. If the Bush administration is going to let this thing play out to without any resolution in the near term, what's the harm for the North Koreans? They are what they are from their point of view, and that's a nuclear power.

SHUSTER: Which makes any solution to North Korea's nuclear status, including the Las Vegas option, a long shot.

Mike Shuster, NPR News.

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