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Bush administration plan may unfreeze North Korean funds

WASHINGTON—After a behind-the-scenes battle royal, the Bush administration announced steps on Wednesday that could lead to the unfreezing of North Korean funds at a small bank in Macau and, conceivably, the dismantling of North Korea's nuclear weapons program.

The action took the unusual form of an announcement that after an 18 month investigation, the Treasury Department had formally cut off the small family-owned Banco Delta Asia from the U.S. financial system for allegedly laundering counterfeit U.S. currency and other illicit gains on behalf of North Korean officials.

The bank, which North Korean leaders have used for their private accounts for decades, is now in government receivership. Paradoxically, the action empowers the government of Macau to release at least part of the roughly $25 million in frozen North Korean funds at the bank.

It was unclear whether Wednesday's announcement would satisfy Pyongyang and maintain recent momentum to a potentially historic nuclear disarmament agreement. What did emerge was evidence of the intense and continuing friction within the Bush administration about how to proceed with the North Korea negotiations.

State Department officials have privately accused Treasury of sabotaging diplomacy, and Treasury officials have accused U.S. diplomats of seeking a North Korea deal at any cost, according to U.S. aides who spoke on condition of anonymity.

Wednesday's action was the subject of last-minute, high-level phone calls, and Deputy Secretary of State John Negroponte intervened to get it finalized, said a senior State Department official.

"It's been a cliffhanger working through this," said the official, speaking on condition of anonymity to describe internal government disputes.

As to the North Korean reaction, he said: "We may have to weather, at the very least, some heavy head-scratching and, at the worst, some very tough statements from Pyongyang."

U.S. actions against Banco Delta Asia, taken under a controversial portion of the USA Patriot Act known as Section 311, have roiled nuclear negotiations with North Korea for the last year-and-a-half. As part of an interim nuclear deal reached with North Korea on Feb. 13, the United States promised to resolve the case within 30 days.

Earlier Wednesday, International Atomic Energy Agency chief Mohamed ElBaradei said North Korean officials told him they would be willing to shut down their main nuclear facility under international supervision as soon as Washington lifted sanctions against the bank.

"Once that is to happen, they said, they are willing to fully cooperate with us and make sure that we implement the agreement. . . . . So I believe we are moving forward," ElBaradei said after returning to Beijing from his first visit to North Korea since that country evicted U.N. nuclear inspectors in 2002.

At a Washington press conference, two senior Treasury officials made no mention of unfreezing the $25 million in frozen accounts.

"Ultimately it will be a Macanese decision as to how to proceed with respect to the funds," said Treasury deputy assistant secretary Daniel Glaser.

Published reports have said that between $8 million and $12 million could be released.

Treasury Undersecretary Stuart Levey said the U.S. investigation that began in September 2005 when Treasury blacklisted the bank confirmed that the bank was involved in money laundering.

"It also revealed additional illicit financial conduct at BDA . . . including activity related to entities facilitating weapons of mass destruction proliferation," Levey said.

The U.S. government has never publicly detailed the evidence behind its charges. Nor has it sought to initiate legal action, relying instead on Section 311 of the Patriot Act, which critics say extends U.S. laws to cover other countries.

Paul Downs, a partner at the U.S. law firm Heller Ehrman, which has represented the bank, was dismayed by the decision.

"Needless to say, we are disappointed that despite the bank having addressed . . . everything in the government's original allegations, this action, unsupported by the public record, has been taken without providing the bank an opportunity to see, evaluate or challenge the evidence on which the government relies," Downs said via e-mail.

Section 311 is controversial because it allows Treasury to make serious allegations without having to show proof. It is an administrative, not legal, proceeding and thus lacks due process rights like the presumption of innocence and the right to see the details of the alleged wrongdoing.

Treasury officials also noted that management of the bank has taken steps like hiring two independent auditors to check its books and advise on better controls. But the information provided to auditors by the bank was incomplete, it said.

McClatchy Newspapers reported earlier this month that an audit of the bank's finances by accounting firm Ernst & Young found no evidence that the bank had facilitated North Korean money-laundering, either by circulating counterfeit U.S. bank notes or by knowingly sheltering illicit earnings of the North Korean government.

But Glaser said the audit, conducted at the behest of Macau authorities, "does nothing but confirm" the U.S. concerns.


(Hall reported from Merida, Mexico. McClatchy Newspapers correspondent Tim Johnson contributed from Beijing.)


(c) 2007, McClatchy-Tribune Information Services.


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