Wednesday, October 4, 2006

North Korea and Iran are being squeezed financially by U.S. efforts to discourage international banks and financial institutions from helping the regimes’ illicit activities, said the Treasury Department’s point man on the issue.

Stuart Levey, Treasury undersecretary for terrorism and financial intelligence, said that sanctions based on the USA Patriot Act are making it harder for Pyongyang to find banks to help it launder money and counterfeit U.S. currency.

“On North Korea, you basically have a regime that is engaged in a whole litany of illicit and threatening conduct,” Mr. Levey said. “When you put it all together, it’s striking.”

He said North Korea is producing fake $100 bills, called supernotes because of their high quality, and is using banks worldwide to launder the proceeds from drug trafficking and counterfeit cigarette manufacturing, as well as profits from the sale of nuclear, chemical, biological and missile goods.

The financial actions against North Korea are based on what Treasury calls 311 investigations, after Section 311 of the Patriot Act that is aimed at curbing money laundering by criminals and terrorists.

“It’s an incredibly useful tool and it’s been very powerful not just when we use it, but frankly just by having it gives us an enormous amount of leverage,” Mr. Levey said.

Treasury is following a similar tactic in trying to curb Iranian arms proliferation and support for terrorism, Mr. Levey said.

“Banks are looking at the conduct of the regime in the Iran and they are starting to make decisions to reduce business with the government, and asking themselves, ‘Do I really want to be the banker for this government?’ And they’re answering no,” he said.

Treasury took the first major step in cracking down on North Korean financial activities last year by blocking a Macao bank, Banco Delta Asia, from conducting financial transactions with U.S. financial institutions.

The North Korean government used the bank as its “hub” for illicit activities, Mr. Levey said.

“You can’t be a successful criminal if you can’t launder money, and Banco Delta Asia was the primary way North Korea was getting money into the international financial system,” Mr. Levey said.

Mr. Levey has been working with banks and financial institutions in Asia, Europe and elsewhere to prevent them from picking up these North Korea operations.

U.S. officials said some banks in Russia have begun helping the North Koreans with financial transactions. The U.S. government is working to stop the assistance.

Last month, Treasury took action against Iran’s state-owned Saderat bank, Mr. Levey said. The bank was found to be funneling money to Hezbollah and other terrorist groups, he said.

“That kind of thing as well as the nuclear program as well as the kinds of things Iran says all have an effect on whether banks really want to do business with them and we’re starting to see a very similar dynamic,” he said.

Banks linked to organized crime in Syria, Latvia, Cyprus and Ukraine were hit with 311 sanctions, which in many cases were lifted after the banks curbed the illicit activities, he said.

“Most important is the reaction of the private sector, the informal response to this,” Mr. Levey said. “Which is virtually every bank in the world has looked at this and said, ‘You know what, I don’t want to be involved in this, I don’t want to be the banker for this.’”

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