North Korea

US over a barrel on N Korean funds

PUBLISHED : Saturday, 31 March, 2007, 12:00am
UPDATED : Saturday, 31 March, 2007, 12:00am


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By the standards of the sovereign commerce of states, the US$25 million linked to North Korea still frozen in Macau's Banco Delta Asia is pretty small beer. In diplomatic terms, it is exacting an increasingly higher price.

Little is officially emerging over talks under way in Beijing between China, the US and North Korea over how to release the funds. Pyongyang was expecting the money two weeks ago. With each passing day, the concern mounts about the possible impact on the already-complicated effort to implement agreements to denuclearise North Korea.

On Thursday, Foreign Ministry spokesman Qin Gang described the US discussions as 'intensive'. US Treasury Department officials, once outspoken on the sins committed by Banco Delta on behalf of North Korea, said even less, saying they had no updates.

Christopher Hill, the US State Department's lead negotiator on North Korea, earlier spoke volumes with his unusually frank comment that the release involved 'technical problems which were unforeseen by everybody including me'.

Diplomatic sources close to the talks are more frank. 'The Treasury Department is at risk of falling into a trap of its own making,' said one senior Asian diplomat. 'China is showing it is willing to talk to find a solution but is making sure the US side pays ... China has never been happy with the heavy-handedness shown by Washington over this whole Macau situation. Right now, Washington is over a barrel as it tries to work a solution and save some face.'

The Treasury Department's high-profile efforts to blacklist Banco Delta as a 'willing pawn' in three decades of North Korean state-sponsored criminal activity also were accompanied by heavy backroom warnings to banks across the region about the danger of doing business with the Stalinist regime of Kim Jong-il.

The department's action forced the freezing of the funds in September 2005 but Washington recently agreed to their release given progress over six-nation talks to end North Korea's nuclear programme. The future of Banco Delta remains in doubt, however, after the department formally stood by its money laundering allegations and barred US banks and institutions from future dealings with it. It remains in the hands of Macau government-appointed receivers.

In short, no sensible bank would touch the funds without exceptional diplomatic assurances and planning. That also includes the Bank of China, North Korea's choice of a conduit but an institution now publicly listed with its own good governance standards to meet.

It must be remembered that it is impossible to simply electronically transfer the funds back to North Korea given the primitive nature of its banking system. Banking sources say all the money originating in North Korea would have had to be hand carried out and either delivered directly to Banco Delta, or transferred by a foreign bank serving as a middle man. And given the difficult nature of carrying large amounts of cash about, North Korea certainly doesn't want to receive it back in that form.

Then there are problems with the 50-odd accounts behind the US$25 million. They cover small Macau concerns, North Korean state banks or institutions and North Korean trading companies. Banco Delta officials are struggling to get approval to move the funds, with one key signatory to some of the trading accounts having died.

Some US$7 million belongs to a foreign-owned North Korean bank, Daedong Credit - controlled by a Hong Kong-registered fund, Koryo Asia. Daedong Credit is determined that its funds are released into its control, and not the North Korean state. Koryo Asia representative Colin McAskill met chief receiver Herculano de Sousa on Thursday and received assurances that its funds were safeguarded.

When they will get their money, however, is far from clear as an extraordinary diplomatic saga continues.