When does President Bush wake up and smell the debacle cooking at his own State Department under the name of a “denuclearization” deal with North Korea? Thanks to U.S. backflips linked to this February 13 agreement, North Korean tyrant Kim Jong Il, while still clinging to his nukes, has now regained access to some $25 million in funds frozen until this week at Banco Delta Asia in Macau. There is plenty of reason to worry that along with the money, Kim has effectively secured from the U.S. a free pass for some of North Korea’s global crime and weapons rackets.
Cut through the diplo-speak, and the stark message to rogue regimes everywhere — notably Iran — is not only that nuclear blackmail pays, but America will help deliver the cash. In one of the most astounding, foolhardy, and humiliating episodes of U.S. foreign policy in recent years, the entire world has just witnessed Washington — at the urging of State Department envoy Christopher Hill — dispatching some of its ace terrorist-money trackers to Beijing, not to shut down the bad guys, but to hustle frozen funds as fast as possible back into the hands of Kim Jong Il.
This was all done in the name of saving Hill’s unwieldy North Korean deal, which has many parts, working groups, and rewards for Pyongyang, all spun out of the Six-Party talks in Beijing, and described by Hill, State’s envoy to the talks, as “an excellent plan.” This Saturday marks the deadline for the initial 60-day phase in which Kim was supposed to have spent the time shutting down his Yongbyon reactor, providing a map of his entire nuclear program and opening wide for inspections. As of today none of this has happened. Most eyes are now on the reactor, and the debate is now shifting to whether Kim will miss the deadline.
But let us focus first on what was clearly the most urgent issue for Kim Jong Il, which was his abrupt and dogged demand for the return of that $25 million or so frozen in accounts in Macau, before he would budge on any of the items he’d already agreed to. Clearly, Kim saw this money matter as so important that it was worth jeopardizing the entire agreement. U.S. envoy Christopher Hill, on the other hand, treated Kim’s demand for the funds as simply an eccentric glitch to be resolved without further debate, the idea being that it was not worth wrecking Hill’s grand deal over a dispute involving a mere $25 million or so stuck in Macau. Having promised the money to Kim, Hill in his press briefings relegated the issue to the level of a headache for financial geeks, a strictly “technical” matter.
Actually, it was far from merely technical. The Macanese freeze on those funds was the result of U.S. investigations of North Korean criminal rackets — with which Pyongyang earns an estimated $500 million to $1 billion or more per year via illicit deals in narcotics, counterfeit cigarettes, counterfeit U.S. currency and other scams, as well as weapons deals. Some of the players and money trails overlapped and intertwined with targets of two major inter-agency sting operations carried out in the U.S. in 2005, dubbed “Royal Charm” and “Smoking Dragon,” aimed at cleaning up alleged North-Korean-related criminal networks with tentacles reaching into the U.S.
In Sept., 2005, in connection with these massive financial investigations, Treasury designated one of Kim’s favorite banks, Macau’s Banco Delta Asia, or BDA, as a “primary money laundering concern.” Macau’s banking authorities cooperated by freezing the money in dozens of BDA North-Korea-related accounts. At least some of this was the $25 million that Kim Jong Il demanded Hill arrange to have turned over to Pyongyang.
Of course, bank accounts as a rule do not simply operate by themselves. There are holders of these accounts. Even more important than simply the cash caught in the freeze was the network of North Korean loyalists and account holders doing business via this hub. Macau is where Kim Jong Il’s eldest son, Kim Jong Nam, keeps a villa and reportedly likes to gamble in the casinos. It has also been home for many years to a roster of North Korean companies that effectively provide Kim’s regime with an entry point into world markets. While some of the BDA account holders are known, and some have said they are innocent of any wrong-doing, many have never been publicly named. Among those we do know something about, as noted in today’s Wall Street Journal, are account holders such as North Korea’s state-owned Zokwang Trading Co (accused by the U.S. in the 1990s, according to Asia expert Bertil Lintner, of dealing in counterfeit U.S. currency, arms smuggling and terrorist training) and North Korea’s Tanchon Bank (alleged by Treasury to be involved in North Korean weapons programs).
For Treasury to have homed in on this North Korean hub in Macau was not merely a matter of providing a negotiator like Chris Hill with a stick to match his carrots. It was an important move in trying to cut off Kim from some of his loyal bagmen, warn off banks and businesses worldwide from doing dirty deals with Kim, and undermine the rotten edifice of clandestine money flows, and weapons deals that have helped North Korea’s regime to survive and build its nuclear bombs. The crackdown in Macau was one of the successes of Bush’s foreign policy.
But not any more. Under the arrangement bulldozed through by Hill, and approved all the way up to the President, via Secretary of State Condoleezza Rice, Kim’s Macau network appears to have been granted a reprieve. Treasury announced on Tuesday that account holders are now free to retrieve their thawed out funds. The implicit message is that it has become a lot less risky to do dirty business with North Korea. “We are absolutely letting down our guard,” says a former State Department official, David Asher, an expert on North Korean financial networks.
As if to underscore that State will swallow anything Kim wants to dish out, Hill has assured us that North Korea has pledged to use the money for humanitarian and educational purposes. No one has explained how this might be monitored, or addressed the problem that “education” in the Orwellian realms of North Korea consists in substantial part of paying homage to Kim Jong Il.
Dreadful as this Macau turnaround is, it has been made even worse by State’s fumbling and fudging over the process. Perhaps the maneuvers of recent weeks count in the diplomatic world as big-think politics, but in the financial world, it’s been the Chris Hill Amateur Hour. North Korean negotiators reportedly discussed the frozen money at meetings with Hill in Berlin this past January. But in the Feb. 13 deal reached at the Six-Party talks in Beijing, and spelled out in a State Department release titled “North Korea — Denuclearization Action Plan,” there was no specific mention of the frozen funds.
By March, however –with Hill touting his deal as a mighty breakthrough — North Korea had tabled as a non-negotiable pre-condition for any further discussion the demand that the frozen money be released pronto to Pyongyang. Kim refused to budge until he got the cash. When the head of the International Atomic Energy Agency, Mohamed El Baradei, flew to Pyongyang, North Korea’s chief nuclear negotiator, Kim Kye Gwan, said he was too busy to get together. When Hill flew to Beijing in mid-March for more meetings, the North Koreans stiffed him, insisting that before they went any further, Hill had to make sure Kim got the $25 million.
At that point, Hill — or Rice, or Bush — should have scrapped the deal. Instead, apparently with backing all the way up to the White House, Hill treated the entire world to the spectacle of senior American officials, himself foremost, hustling frantically to get the allegedly tainted funds to Kim. Having begun by promising grandly that the whole pot would simply be transferred over to an account in China, Hill discovered it was not so simple. The money had been frozen not by the U.S., but by Macau. It was not all in one big account, as Hill initially seems to have assumed, but in many — held by a variety of individuals, trading companies and so forth. And, thanks in part to Treasury’s prior hard work in trying to roll up Kim’s rackets, other banks were reluctant to accept the allegedly tainted funds.
So, lest Hill’s North Korea deal fall right off the rails, a Treasury team headed by Deputy Assistant Secretary Daniel Glaser was dispatched to Beijing to find a way to meet Kim’s demand for the money. Glaser, whose job normally entails tracking terrorist money and financial crimes, had to spend 13 days in China sorting out a way to rush the frozen cash into the hands of one of the world’s worst tyrants.
What Treasury officials privately thought of this arrangement, we can only guess. In this bizarre episode, stage-managed by the State Department, the Treasury has been most diplomatically circumspect. But we can perhaps glean some hints from remarks by Treasury’s Stuart Levey, undersecretary for terrorism and financial intelligence, at a press conference March 14, in which he announced that Treasury was finalizing a rule cutting off Banco Delta Asia from the U.S. financial system.
Levey said that “Many North Korean account holders at BDA had connections to entities involved in North Korea’s trade in counterfeit U.S. currency, counterfeit cigarettes, narcotics trafficking, including several front companies suspected of laundering hundreds of millions of dollars through Banco Delta Asia.” He also noted that Treasury’s investigations since the 2005 designation of BDA as a “primary money laundering concern” have “revealed additional illicit financial conduct at BDA,” which included “activity related to entities facilitating weapons of mass destruction proliferation.”
So, as State moves toward the next phase of Chris Hill’s Six-Way deal with Kim Jong Il, what’s the score? Kim now has access to his Macau money, and it looks like his global networks now have breathing room to regroup. The U.S., having pushed through a set of limited United Nations sanctions on North Korea after Kim’s nuclear test last October, chose in January, while Hill was chatting up North Korean officials in Berlin, to ignore a sanctions-busting North Korean arms sale to Ethiopia. Pyongyang, having demanded bilateral talks with the U.S. got its wish, including a warm welcome for North Korean nuclear negotiator Kim Kye Gwan, who came to New York, made the rounds on the policy circuit and knocked back drinks with Chris Hill. And somewhere in there, South Korea, which in the excitement of all this deal-making has offered aid to Kim in any event, is poised to deliver 50,000 tons of heavy fuel oil promised to Kim under the Six-Way plan.
What has North Korea delivered? Promises, and maybe the prospect of shutting down the Yongbyon reactor and allowing in IAEA inspectors to play hide-and-seek for a while on North Korea’s totalitarian turf — until Kim’s next tantrum. Kim’s done it all before. He still has nuclear weapons, and all the signs are that until he’s gone, no matter how much tribute State delivers to his door, that’s how it will go.
– Claudia Rosett is a journalist-in-residence with the Foundation for Defense of Democracies, and blogs at http://claudiarosett.pajamasmedia.com/.