BEIJING—On a wintry day earlier this year, couriers from North Korea landed at the airport in Mongolia's capital bearing diplomatic passports and toting $1 million in U.S. dollars and Japanese yen.
Mongolian intelligence agents snatched the cash and accused the couriers of importing phony currency.
The Bush administration, angry over charges that North Korea is counterfeiting U.S. currency, is squeezing Pyongyang hard. On that day, Feb. 21, the pressure came to bear in Ulan Bator, the Mongolian capital. But around the globe, banks now skitter away from cash dealings with even the faintest whiff of a North Korean connection.
U.S. officials are gleeful over the results. Finally, they believe they've found a way to jab a poker hard into North Korea's ribs.
Critics of the policy, however, say that legal business dealings have been frozen along with criminal ones and that sanctions have left the six-nation talks on ending North Korea's quest for nuclear weapons at a dead end. North Korea views the sanctions as part of a hostile American policy, and it's refusing to return to the negotiations.
The Bush administration accuses North Korea of running a criminal network earning $500 million to $1 billion a year from drug trafficking, counterfeiting and production of fake U.S. cigarettes. American officials first detected the fake bills in 1989.
"You've got an illegal regime that is living off of counterfeiting and narcotics and others," Deputy Secretary of State Robert Zoellick told a House of Representatives panel this month. "We have to protect our country. We can't allow people to counterfeit."
The squeeze began last September, when the U.S. Treasury blacklisted a bank in Macau, a casino haven in China, accusing it of laundering real and counterfeit cash for Pyongyang. Since then, under threat of U.S. sanctions, banks around the world have cut ties to the Stalinist Kim Jong Il regime.
It's been a scattershot approach, not a pinpoint attack, and the collateral victims include a group of British bankers who set up a small private bank in North Korea 11 years ago to cater to merchants and importers.
"All of our customers are foreign or foreign-related in some way," said Nigel Cowie, general director of the Daedong Credit Bank. "Most of them are importing goods ... food-related stuff like cooking oil and sugar."
North Korea's economy operates on cash. Sanctions mean Cowie's bank has difficulty moving capital abroad. Banks in places such as Singapore won't touch it.
"The only way we can top up the account is to physically take the cash from here," Cowie said in a telephone interview from Pyongyang.
That's what couriers were doing Feb. 21 for the Daedong Credit Bank. They were taking $1 million and 20 million Japanese yen (about $182,000) from Pyongyang to the Golomt Bank, an established bank in the Mongolian capital still willing to deal with a North Korean bank.
At the Ulan Bator airport, Mongolian agents seized the cash and detained the couriers, Cowie said. The next day, Mongolia alleged that $61,700 of the cash was believed to be counterfeit. It took 14 days before Mongolia said further examinations showed all the cash to be legitimate and let it go.
Cowie and fellow British bankers in Daedong boil at the U.S. sanctions, saying their bank employs a strict code of ethics and money-laundering rules.
"They are tarring everybody with the same brush, whether they're legal or illegal," Cowie said, adding that humanitarian and U.N. agencies also are finding it hard to move money in and out of Pyongyang.
Bush administration officials say the sanctions are effective.
"The Bush administration has been pleasantly surprised by the effect of the financial sanctions. ... They will be in place as long as the Bush administration is in office," predicted Peter M. Beck, the Seoul-based Northeast Asia project director for the International Crisis Group, which advocates for peaceful resolutions.
But Beck said that the South Korean government, which is a party to the nuclear talks, feels that the United States is showing it has "no appetite for further negotiations" on the nuclear issue by pressing ahead with the sanctions.
Assistant Secretary of State Christopher Hill, the U.S. envoy to the talks, said this month that about $20 million in North Korean funds is frozen, a minimal amount compared with the benefits in energy aid that North Korea would gain if it gave up its nuclear programs.
Lim Wonhyuk, a South Korean expert on North Korea's economy, said the immediate release of the frozen funds would be more important to North Korea as a confidence-building measure than promises of future aid. Some of the legal earnings mixed up in the frozen accounts belong to North Korean elites, he said.
Meanwhile, the U.S. Treasury is spending hundreds of millions of dollars to redesign the $100 bill, which will begin circulating next year. David L. Asher, a former State Department expert on North Korea's criminal activities, wrote in a recent paper that the only major reason for the redesign is North Korean counterfeiting.
Cowie said he thinks the U.S. sanctions will likely force legitimate businesses in North Korea to give up or start "going into more dodgy methods," while illegal transactions pass deeply underground.
(c) 2006, Knight Ridder/Tribune Information Services.
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