Wednesday, March 14, 2007

The Treasury Department yesterday placed a Macao bank off-limits to U.S. financial institutions — a move that could allow North Korea to recover millions of dollars in frozen accounts and remove a key obstacle in nuclear negotiations with the communist state.

If the funds are released, as expected, that would satisfy a U.S. commitment in a landmark Feb. 13 nuclear agreement with Pyongyang to resolve a dispute over the frozen accounts at Banco Delta Asia no later than today.

Some $24 million in North Korean funds have been frozen in the Macao bank since 2005 under pressure from the U.S. Treasury Department, which had threatened to bar U.S. financial institutions from maintaining correspondent accounts with the bank — in effect shutting it out of the international financial system.

By converting the threat into a reality yesterday, analysts said, the United States removed any incentive for the bank to continue to hold the North Korean funds.

U.S. authorities were reluctant, however, to acknowledge a direct link between yesterday’s Treasury action and the negotiations with North Korea.

Treasury Undersecretary for Terrorism and Financial Intelligence Stuart Levey said in Washington that the administration was acting because of a “gamut of illicit activities” that the bank has “facilitated” on behalf of North Korean-related parties.

Macao authorities expressed “deep regret” over Treasury’s rule on the Macao bank and promised to issue a fuller statement soon.

“In response to the development, Banco Delta Asia will continue to be under the management of the MSAR [Macao Special Administrative Region] Government. Under any circumstances, the MSAR Government will take necessary measures to protect the interests of depositors and safeguard the stability of the financial system.”

A State Department official, speaking on the condition of anonymity, said that should the bank change its management and practices, Washington would be willing to reconsider its decision.

In Beijing, U.N. nuclear watchdog chief Mohamed ElBaradei made clear after talks with a North Korean delegation that the Macao bank decision was central to any further progress in shutting down the North’s nuclear reactor at Yongbyon, the source of plutonium for its atomic weapons program.

North Korea promised it is “ready to work with the [International Atomic Energy Agency] to make sure we monitor and verify the shutdown of the Yongbyon facility including the plutonium factory,” said Mr. ElBaradei, who returned to Beijing after a day of talks in the North Korean capital, Pyongyang.

“They are, however, waiting, in their view, for implementation by the other parties of their commitments; specifically they are waiting for the lifting of financial sanctions associated with the Macao bank” including those “in connection with the freezing of North Korean assets.”

“Once that happens,” Mr. ElBaradei said, “they said they are ready to fully cooperate with us and make sure we implement the agreement within the time frame envisioned, which is one month from today.”

North Korea agreed on Feb. 13 to shut down the Yongbyon reactor and eventually disable it in exchange for shipments of heavy fuel oil and other concessions. The pact included 30- and 60-day deadlines for the achievement of various benchmarks, including the resolution of the Macao bank issue and the beginning of talks on diplomatic normalization.

Meanwhile chief U.S. negotiator Christopher Hill, who arrived in Beijing yesterday for a new round of talks with the North Koreans, vaguely acknowledged that the Treasury action was expected to meet American obligations under the Feb. 13 deal.

“The purpose of this is to resolve our role and turn this over to the Macanese authorities; beyond that I really don’t want to go into details,” he said.

In Washington, the State Department official expressed hope that the Treasury action would make it possible for the nuclear deal to proceed.

While refusing to predict that the action would satisfy Pyongyang, the official noted that the bank is free to make its own decisions — including whether to release the frozen North Korean funds — because it essentially has nothing more to lose.

Mr. Levey said the bank was sanctioned because a Treasury investigation had confirmed the findings that led to its actions in 2005 and “revealed additional illicit financial conduct” at the bank, “including activity related to entities facilitating weapons of mass destruction proliferation.”

Many North Korean account holders at the bank “had connections to entities involved in North Korea’s trade in counterfeit U.S. currency, counterfeit cigarettes and narcotics, including several front companies suspected of laundering hundreds of millions of dollars in cash through Banco Delta Asia,” he said.

In addition, he said, the bank “allowed its North Korean clients to use the bank to facilitate illicit conduct and engage in deceptive financial practices” and “in exchange for a fee, the bank provided those clients access to the banking system with little oversight or control.”

• Nicholas Kralev in Washington contributed to this article. Ed Lanfranco reported from Beijing.

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