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U.S. works to resolve issue with North Korea funds

WASHINGTON—The Treasury Department dispatched its top expert on money laundering to China on Friday in an urgent bid to resolve a banking dispute that threatens the international negotiations aimed at dismantling North Korea's nuclear weapons.

Daniel Glaser, deputy assistant secretary for terrorist financing and financial crimes, will meet Saturday in Beijing with banking officials from China and Macau, the tiny enclave near Hong Kong that China controls.

At issue is about $25 million in North Korean funds that had been frozen as part of a Treasury action against Macau's Banco Delta Asia. The U.S. government announced that the funds could flow to North Korea, provided that they were used for humanitarian purposes—but no bank was willing to receive the funds.

North Korea walked out of the talks Thursday, saying it wouldn't make further moves until it gets the money back.

Despite the release of the funds, a U.S. Treasury declaration 10 days ago that said that North Korean deposits in the Macau bank had come from illicit activities such as counterfeiting U.S. currency and selling knockoffs of name-brand cigarettes put the bank in a pariah status and created a potential risk for any foreign bank or entity doing business with it.

Banks in Japan, South Korea and China have refused to take the North Korean money.

Secretary of State Condoleezza Rice said Friday that "there are implementation issues that, frankly, arose somewhat unexpectedly about how to complete the transfer of these funds to North Korea," while also dealing with U.S. concerns about the money.

"Everybody's working really, really hard to get it done," she said in an interview with newspaper reporters.

Glaser said in a statement that the policy and diplomatic issues have been solved and "this is now down to implementation." China and Macau want to ensure they don't violate their laws or international laws, he added. "We are bringing Treasury expertise to help the Macanese and Chinese wade through some of these implementation issues."

An official familiar with the Banco Delta controversy, who demanded anonymity because of the nature of the dispute, said Asian banks and particularly the Bank of China want written assurances from Treasury that they won't be subject to future action under Section 311 of the Patriot Act, which was used against the Macau bank. The official said he believed that the State Department had promised the North Koreans resolution on a matter without fully understanding the complications of Treasury's action.

"It's clearly a disconnect between State and Treasury," said the official, who described the stalemate like this: "There's a dance here and the dancing partners were given the steps, but we did not asked whether they liked the music."

Rice, however, strongly disputed reports of a rift between the State and Treasury departments.

"I've never had closer cooperation with a colleague on this than I've had with (Treasury Secretary) Hank Paulson," she said, adding that the two of them spent hours personally working the issue together.

Asked whether the action against Banco Delta Asia undercut diplomacy, Rice replied: "Whether it was helpful or unhelpful, it was a law enforcement matter that had to be done."

Treasury faces a difficult dilemma as the foreign banks ask it for assurances.

It has intimated that the Bank of China's dealing with North Korean entities could make it suspect for future action under Section 311. But a blanket waiver from any Section 311 action could represent a defeat for Treasury's efforts to use the controversial provision as a wedge to force foreign banks to adopt stricter controls against money laundering.


(c) 2007, McClatchy-Tribune Information Services.

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