- The Washington Times - Wednesday, May 9, 2007

The Bush administration said yesterday that it would consider allowing North Korea to transfer $25 million from Macao to an account in a U.S. bank — a move that would disregard Washington’s own policy on terrorism financing — in the hope of nailing down an agreed deal for North Korea to shut down its main nuclear reactor.

The State Department said it badly wanted the North Koreans to withdraw their money from Banco Delta Asia (BDA), which was blacklisted by the Treasury Department in March, so negotiations with Pyongyang on ultimately scrapping all its nuclear programs can resume.

But any bank that would accept the transfer in effect would be doing business with BDA, facing potential U.S. penalties. The Treasury has so far not been able to satisfy any third-country institution that it can safely handle the money, and diplomats said it might be easier to grant an exemption to an American bank.

“If there is any requirement for an opinion from the Treasury Department as to whether or not this is a transaction that the financial institutions involved would feel comfortable doing, then the Treasury Department will take a look at that, see what it is that they can do,” State Department spokesman Sean McCormack said when asked if the money could be deposited in an American bank.

“The main issue is to get BDA over and done with, to have it completed so we can get back to the six-party talks and focus on denuclearizing the Korean Peninsula,” he said at a daily briefing.

Treasury officials refused to comment but did not dispute Mr. McCormack’s remarks. A senior State Department official declined to rule out that the $25 million — or part of it — might end up in a U.S. bank account. The money has been linked to illicit activities.

The two departments have had disagreements in the past on how to handle the funds, with Secretary of State Condoleezza Rice championing a more conciliatory approach.

In a landmark Feb. 13 deal with the United States, China, Japan, South Korea and Russia, the North agreed to shut down the Yongbyon nuclear reactor by April 14. But it missed the deadline, demanding the $25 million be released first.

The Bush administration designated BDA as a “primary money-laundering concern” in the fall of 2005 under Section 311 of the Patriot Act. U.S. officials said the action had a significant impact on the North’s proliferation and other illicit activities, and it sent a strong signal to other violators, such as Iran.

But as nuclear negotiations with Pyongyang progressed this spring, Washington allowed BDA to release the money even as the Treasury banned U.S. banks from doing business with the Macao bank.

Administration officials could not explain yesterday the legal process of granting an exemption from that ruling for one bank, or how allowing that same $25 million into a U.S. bank would not violate the Patriot Act.

Former administration officials, who belong to opposite sides of the North Korea policy debate, expressed shock and disbelief yesterday that the administration was thinking of letting the “dirty” North Korean money make its way to an American institution, with full access to the international financial system.

“I can’t believe they will do that,” said Charles L. Pritchard, the State Department’s former special envoy for talks with the North who resigned in protest at the administration’s hard-line policy in 2003. “They would be violating their own [March] ruling.”

The hard-line policy fell apart this year when the United States agreed to rewards for the North if it dismantled its Yongbyon reactor. Moreover, the State Department said it would trust Pyongyang to spend the $25 million properly.

The North Koreans have refused to withdraw the money in cash, insisting that it be transferred to an account in another bank so they can make withdrawals and deposits as they please. They first wanted to use a Chinese bank, and then were reported to have approached institutions in Russia, Italy, South Korea, the United States and other countries.

“The individual banks, regardless if they are American or Italian or Russian or whatever flavor, they are going to have to make their own decisions about risk and reward, about any reputational risk that might come along with this,” Mr. McCormack said of a potential transfer.

“I would assume that, as part of that calculation, that they are going to look at what the reaction from the Department of Treasury might be,” he said. He added that the Treasury would be willing to give “some opinion or signal.”

The White House said yesterday that President Bush called Chinese President Hu Jintao from Air Force One to discuss North Korea. It was not clear if the financial issue was mentioned, but China has also been trying to help resolve the matter.

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