Tuesday, March 27, 2007

MACAO — The United States is scrambling to find a bank willing to accept the transfer of $25 million in North Korean funds from Macao and is offering assurances that no institution will suffer as a result of agreeing to do so, diplomats and banking officials said yesterday.

The Bush administration is trying to create a special account in an Asian bank, most likely but not necessarily in China, that would provide safeguards while allowing the money to be used only for humanitarian purposes, the officials said.

But the administration, which will not allow the money to go directly to Pyongyang, where it could be used by North Korean officials, is having difficulties finding a middleman.

Banks in the region fear they will be subject to U.S. actions similar to those taken against Macao’s Banco Delta Asia (BDA), the current depository of the funds, which was effectively cut off from access to the world financial system.

Washington pressured Macao authorities to freeze the North’s account in 2005, saying the money came from illicit activities such as money laundering and counterfeiting. The U.S. Treasury Department dropped its objection to the release of the funds after it barred U.S. institutions from dealing with BDA earlier this month.

U.S. officials conceded in private that they had not thought through the consequences of their decision to put the $25 million into a third-country bank, and that they had failed to foresee the impediments to the transfer.

The initial plan was to send the money to the Bank of China, but officials there expressed reluctance to accept funds that are linked to illegal activities. The delays prompted North Korea to walk out on the latest round of six-party nuclear talks just when other issues appeared to have been resolved.

A delegation headed by Daniel Glaser, the Treasury Department’s top official in charge of thwarting terrorist financing and other financial crimes, held a second day of talks in Beijing yesterday discussing that and other issues with Chinese and North Korean officials.

Mr. Glaser visited Macao late last week to make sure authorities in the autonomous Chinese territory were ready to release the funds.

The top U.S. nuclear negotiator, Christopher Hill, said in Washington on Monday that he expected the transfer problems to be resolved within a couple of days.

But matters were further complicated yesterday when a British investor who is buying a controlling stake in the North Korea-based Daedong Credit Bank — to which $7 million of the $25 million belongs — said he would take “all necessary steps” to halt the transfer.

“They are Daedong’s funds,” Colin McAskill told The Washington Times in a telephone interview. “Once it’s [transferred to another bank], it’s lumped with everything else; it becomes associated” with the tainted North Korean government money.

Mr. McAskill said he had laid out his objections in a letter to the Macao Monetary Authority, which oversees BDA and has since announced that it cannot release the North Korean funds without the expressed authority of all account holders.

The investor said he has discussed the issue with U.S. and North Korean authorities, but declined to give details.

Delays in the release of the funds have become the main obstacle to the implementation of a breakthrough agreement under which North Korea is to shut down its nuclear program. North Korea refuses to return to talks on implementing the February agreement until it receives the $25 million.

For more than a year, the administration has insisted that the BDA matter has nothing to do with the nuclear issue. But foreign diplomats and business executives in Macao said the BDA action had given Washington much-needed leverage when the North was refusing to scrap its nuclear programs.

They also said the North Koreans are known to have accounts in other Macao banks, as well as in other countries.

U.S. officials would not say why they chose to focus on BDA in September 2005, shortly after an earlier breakthrough in nuclear talks with North Korea. U.S. officials said they had known about Pyongyang’s relationship with the Macao bank for years.

After its funds were frozen, North Korea boycotted the six-party talks with the United States, Japan, South Korea, China and Russia for more than a year.

None of the officials who spoke to The Times would agree to be quoted by name because of the sensitivity of the issue and the continued lack of a resolution.

A spokesman for the Monetary Authority of Macao declined to answer questions at all, referring a reporter instead to a press release expressing “deep regret” at Washington’s decision to blacklist BDA.

• Special correspondent Andrew Salmon in Seoul contributed to this story.

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