- The Washington Times - Thursday, March 29, 2007

MACAO — This autonomous Chinese territory’s economy has been booming for five years, but if its transformation into Asia’s premier gambling center had not put it on the map before, Washington’s decision this month to blacklist one of its banks did just that.

Not only are foreign reporters descending on the former Portuguese colony, but investors around the world are taking serious notice of how an obscure financial institution on a small island can suddenly be cut off from the global banking system with the stroke of a pen 8,000 miles away.

The Treasury Department’s decision to bar U.S. companies from dealing with Banco Delta Asia (BDA), saying it was a “willing pawn” in illicit North Korean activities, has provoked mixed feelings among investors and diplomats here and in neighboring Hong Kong.

On one hand, they said in interviews, the move was a necessary measure to “clean up” the financial system of a city with increasingly global visibility. On the other, it unfairly gave Macao a bad name.

Pyongyang cash frozen

“It was unfortunate what was done to Macao,” one senior business executive in Macao said. “At the same time, whatever disagreements one might have with the Bush administration’s policies, this was one thing they got right.”

Washington pressured Macao authorities to freeze North Korea’s $25 million BDA account in 2005, saying the money came from illicit activities such as money laundering and counterfeiting. The Monetary Authority of Macao took over the bank’s management and cooperated with the U.S. investigation.

The Treasury dropped its objection to the release of the $25 million after blacklisting BDA, but now U.S. officials are having trouble finding a bank willing to accept the transfer for fear of punishment.

The United States has known for years that Macao, which reverted back to Chinese rule in 1999 when the Portuguese left their former colony after more than four centuries, is a popular stopping point for North Korean money and people.

Kim’s eldest lives here

It is no secret among residents here that North Korean leader Kim Jong-il’s first-born son, Kim Jong-nam, lives in Macao, though the government has not acknowledged his presence.

In 1983, North Koreans killed 18 South Korean officials during a visit to Burma, and in 1987 self-admitted Pyongyang spies put a bomb aboard a Korean Air plane that exploded over the Indian Ocean. Reports at the time suggested that both plots had been hatched in Macao.

Nevertheless, the authorities tolerated North Korea’s activities and kept quiet for years.

“That aspect is a leftover from the old Macao,” said a business executive in Hong Kong. “The Portuguese were not that tough.”

U.S. training helps

However, it is time, said diplomats and business executives, for the local authorities to clean up the corruption and other shadowy activities that are still facts of life here, if they want foreign investment to keep pouring in.

“The U.S. decision will bring about significant positive outcomes for Macao in the future,” the Macao executive said.

The United States is helping the city, which recently adopted a money-laundering law and created a financial intelligence unit, with training provided by the Treasury, the Secret Service and the FBI, U.S. officials said.

“With or without BDA, Macao ought to have the strongest and most secure financial system it can have,” said James Cunningham, U.S. consul-general in Hong Kong who is also in charge of relations with Macao.

Macao attracted more than $2 billion in U.S. investments last year, and that number is expected to exceed $8 billion in the next three years, Mr. Cunningham said.

Part of the culture

Steve Wynn, the casino resort developer, opened the $1.2 billion Wynn Macao in September. The hotel’s president and general manager, Grant Bowie, said Macao provides an opportunity to “transform the gaming and entertainment experience.” Even though gambling is illegal in China and Hong Kong, “it is part of Asian culture, in which finding luck and creating opportunities are very important,” Mr. Bowie said.

Macao has been called Asia’s Las Vegas, and its economy relies heavily on gambling and other service industries associated with it, such as hotels, restaurants and entertainment. Economic growth exceeded 28 percent in 2004 and 15 percent in the first three quarters of last year, according to government data.

Last weekend, the streets of the downtown area known as Old Macao were packed, as were the casinos. The Statistics and Census Service said that in January and February, more than 4 million visitors arrived here, more than 22 percent above the number for the same period last year. More than half of these visitors came from mainland China.

“The question is, can Macao’s economic growth be sustained in the medium and long term,” said Joe Lo, an economist with Citigroup in Hong Kong.

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