North Korea

You can bank on this issue lingering

PUBLISHED : Saturday, 09 June, 2007, 12:00am
UPDATED : Saturday, 09 June, 2007, 12:00am


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Whenever North Korea tests another missile, or the question of what the regime is up to is discussed by defence or foreign ministers in East Asia, the nagging issue of Banco Delta Asia is the backdrop.

It is nearly four months since the six-nation agreement that was supposed to pave the way for a denuclearised Korean peninsula and a new era of diplomatic engagement with Kim Jong-il's hermit state.

That deal - secured against the odds after North Korea's first test of a nuclear weapon last October - is now effectively on ice as North Korea waits to get its US$25 million previously frozen in Banco Delta Asia's Macau branches. It has degenerated, in the words of one diplomatic insider, into 'one hell of a mess'.

US Defence Secretary Robert Gates was the latest US official to face questions over the impasse during his first visit to Asia over the last week. He initially referred questioners to his State Department colleague. Then he said Pyongyang must be reminded that Washington's patience was not 'unlimited'.

North Korea has used the funds question - not originally part of the six-party discussions - to skip the first major test of the deal, the April 13 deadline to shut down the Yongbyon nuclear reactor.

So far, that US patience has been considerable. But given the way the saga unfolded, Washington has had few options but to show some flexibility. Initially, it sought to separate the US Treasury Department's crackdown against North Korea's state-sponsored crime in Macau from the six-party talks on denuclearisation.

But as the pressures mounted in the wake of last October's test, and the full impact of the crackdown emerged, Washington allowed it to be used as a bargaining chip. And now the deal has been signed, Pyongyang is trying to use that chip for its own ends, justifying delays and prevarication.

The Treasury Department pressure has been felt in the region and beyond. Taken in isolation, the move on Macau was a highly successful enterprise, squeezing Pyongyang's main route for international commerce and forcing Pyongyang to negotiate.

But the situation is more complicated. Beijing has been rattled by the Treasury Department heavy-handedness in Macau and wants a new approach. North Korea has now been turned into a banking pariah as commercial bankers shun any Pyongyang-linked business whatsoever. Even though the money has been released, the privately held Banco Delta Asia has been blacklisted, meaning no other bank will be involved in transferring the funds. North Korea doesn't want to take the money in cash and somehow wants to use the issue to force its way back into the international banking system.

As hectic US-led diplomacy continues behind the scenes, some novel solutions have been proposed, including the use of an American bank to move the money.

Nigel Inkster, director of transnational threats at London's International Institute for Strategic Studies, said it was clear the Treasury's crackdown was having 'unintended consequences', adding it had little option but to get tough given the evidence of counterfeiting.

'Far from being irrational or mad as they are often portrayed, the North Korean leadership can be entirely rational. They have a limited hand, but they play it very skilfully,' said Mr Inkster, a recently retired director of operations in the British Secret Intelligence Service.

'One of the problems is that if you give them an inch, they take several kilometres.'