The Hariri Tribunal and the Approaching Lebanese Train Wreck

China Abstains and Gets out of the Way

The Security Council, by a vote of 10-0-5 (five abstentions by China, Russia, Indonesia, Qatar, and South Africa), authorized the imposition of a tribunal to investigate, try, and sentence the murderers of Lebanese Prime Minister Rafik Hariri, and maybe some other Lebanese citizens possibly murdered by Syrian agents.

Middle Eastern affairs are way out of my bailiwick, but this is nuts.

Lebanese Prime Minister Siniora invited the United Nations in because he was unable to reach an agreement with pro-Syrian and Hizbollah forces inside Lebanon concerning the investigation.

In the least generous interpretation, Siniora surrendered Lebanese sovereignty for the sake of advantage in a domestic political squabble.

That’s not the kind of international action China likes.

Theoretically, if Taiwan deadlocked between pro and anti-reunification forces, a pro-independence president could cite the Hariri precedent and ask the Security Council to help out.

I imagine China abstained, instead of vetoing the tribunal resolution, in order to stay on the good, not-blowing-up people side of the debate and avoid an argument over a situation in which it has little leverage and few compelling interests.

Syria is a bridge too far for China: too distant, too isolated, too beyond sustained, effective Chinese assistance for China to risk its political and diplomatic capital in the Middle East with an overt demonstration of support for Syria against the concerted efforts by Europe and the United States to establish the tribunal.

But after the tribunal gets going, well that’s another matter.

The tribunal is authorized under Section VII of the UN Charter—making cooperation an enforceable, binding obligation on member states, including Syria--which is meant to give it intimidating weight.

News reports sometimes imply that Section VII authorizes military action to enforce the resolution.

Not quite.

Here are the relevant articles of Section VII:

Article 39

The Security Council shall determine the existence of any threat to the peace, breach of the peace, or act of aggression and shall make recommendations, or decide what measures shall be taken in accordance with Articles 41 and 42, to maintain or restore international peace and security.

Article 40

In order to prevent an aggravation of the situation, the Security Council may, before making the recommendations or deciding upon the measures provided for in Article 39, call upon the parties concerned to comply with such provisional measures as it deems necessary or desirable. Such provisional measures shall be without prejudice to the rights, claims, or position of the parties concerned. The Security Council shall duly take account of failure to comply with such provisional measures.

Article 41

The Security Council may decide what measures not involving the use of armed force are to be employed to give effect to its decisions, and it may call upon the Members of the United Nations to apply such measures. These may include complete or partial interruption of economic relations and of rail, sea, air, postal, telegraphic, radio, and other means of communication, and the severance of diplomatic relations.

Article 42

Should the Security Council consider that measures provided for in Article 41 would be inadequate or have proved to be inadequate, it may take such action by air, sea, or land forces as may be necessary to maintain or restore international peace and security. Such action may include demonstrations, blockade, and other operations by air, sea, or land forces of Members of the United Nations.

Long story short:

Any enforcement action requires further Security Council action. Article 41 actions are limited to non-military measures. Article 42 is the kitchen sink, including military action.

As far as China is concerned, Article 42 ain’t never gonna happen. China is dedicated to denying the United States and its allies a hunting license for military action in the Middle East or elsewhere. "No more than Article 41--if that" has been the Chinese rallying cry on Iran and North Korea. And that will be the case on Syria.

Bloggers can be wrong about anything and everything, but I think this is one piece of China Matters wisdom you can take to the bank. UN military action against Syria is off the table, forever.

Getting Beijing to support Article 41 action against Syria would require not just Chinese enthusiasm for truth, justice, and goodness in the matter of Hariri’s assassination. It would require some major geopolitical benefit to compensate for the destabilization of an anti-US, pro-Chinese regime. I don’t see that happening either.

Of course, blocking enforcement actions by the Security Council isn’t the end of the story.

I think the United States, Russia, and China—and Syria and Lebanon and France and the UK and Germany—all understand that the Security Council resolution’s main utility is to provide legal and diplomatic cover for unilateral US/”coalition of the willing” actions against Syria if and when the tribunal stalls and the Security Council waffles.

If America and its allies decide to impose a Proliferation Security Initiative-type economic blockade against Syria (presumably with greater success than the disastrous North Korean blockade, which failed embarrassingly without regional support beyond Japan and against the active opposition of South Korea, China, and Russia), there’s not much the Chinese can do about it.

But the Chinese won’t do anything.

Maybe they don’t need to.

Events inside Lebanon may overtake the anti-Syria campaign.

To my mind, the subtext for the Hariri tribunal is “The West needs a win in the Middle East”, especially to assert continued Western prestige and influence after the Iraq and Iran debacles.

The Bush administration yearns for the creation of a strongly pro-Western Lebanese state, an objective which was partially accomplished by the Cedar Revolution. It also yearns for the destruction of Asad’s regime in Syria, a seemingly attainable goal that has been frustrated by US mis-steps in Iraq and Asad’s craftiness.

The Hariri tribunal, with its broad mandate, its Section VII authority, and its renewable three-year term, seems to offer the promise of productive months of legal, diplomatic, and economic isolation and harassment of Asad’s regime.

The theory is that putting Syria on the defensive will strengthen the pro-Western forces in Lebanon.

But perhaps just the opposite will occur.

The March 14 coalition has created an advantage for itself by obtaining UN backing for its position. But that’s a step away from grudging coexistence with Hizbullah and pro-Syrian forces, let alone reconciliation.

To my mind, the Hariri tribune represents an escalation of a domestic political conflict that will further polarize the factions inside Lebanon.

That’s not good, because the only way that Lebanon’s rickety and illogical political structure can survive is if the various confessional and political factions agree to co-exist and make things work.

Lebanon’s political power-sharing is based on having a Christian Maronite President (Emile Lahoud, strongly pro-Syrian; go figure), a Sunni Prime Minister (Siniora, rich, secular Hariri associate), and a Shi’ite Speaker of Parliament (Nabih Berri, Hizbullah sympathizer whose refusal to convene parliament to debate a Hariri tribunal impelled Soniora to petition the UN to establish it unilaterally).

When one group, like the March 14 coalition of pro-Western forces, decides to upset the political balance, much craziness can quickly ensue.

The March 14 coalition apparently believes it holds enough cards to maintain its political ascendancy. But demographics seem to be against them.

Seats in the Lebanese parliament (the bunch that Berri refused to convene) are apportioned to the Taif Agreement that ended Lebanon’s civil war with a power-sharing arrangement between Christians and Muslims.

What kind of arrangement?

The Agreement says:

G. Abolition of Political Secterianism (sic): Abolishing political secterianism is a fundamental national objective. To achieve it, it is required that efforts be made in accordance with a phased plan. The Chamber of Deputies elected on the basis of equal sharing by Christians and Muslims...

So the Lebanese parliament has 64 Christian deputies and 64 Muslim ones (that was an improvement over the previous arrangement--a legacy of French colonialism--in which Christians held the majority. That's why the civil war ended).

There’s only one problem with that.

Lebanon’s government got out of the population census business to avoid awkward questions, but...

...a private researcher crunched the numbers for Lebanese birth records and, as translated on the Middle East website Voices on the Wind, concluded:

Lebanon's population is 64.29% Muslim and 35.33% Christian.

Ouch. That means Christians should only have 46 seats instead of 64.

Guess Berri would be much more willing to convene that kind of parliament.

And he certainly has some grounds for regarding the current parliament as a political tool of a minority, rather than a truly representative body.

But there’s worse news:

The more telling statistic in Dweihy's report is that among those under the age of 20 , the Christians form only 23.31% compared to a whopping 76.59% for the Muslims.

Demographics—and not the undeniable Syrian influence and intimidation in Lebanese politics—is the biggest threat to the pro-Western coalition.

And there’s even worse news:

The Taif Agreement consensus—the basis for the various factions ignoring Lebanon’s demographic reality—is breaking down.

Israel’s attack on Lebanon in 2006, targeted Hizbullah and also destroyed beaucoup non-Hizbullah assets in order to try to convince Sunnis and Christians to blame Hizbullah for their misfortune (which they did) and turn on Hizbullah and destroy or marginalize it (which they didn’t, perhaps because of nationalistic qualms or because Israel made such a hash out of the war that the prospects for defeating Hizbullah with or without Israeli help were non-existent).

There are rumblings that Israel and the United States, having learned from their (numerous) 2006 mistakes, are going to try for a do-over war this summer, perhaps with support from the March 14 coalition this time around.

Hizbullah and the Shia are now questioning the viability of the Taif Agreement (or as a Hizbullah member of the Lebanese cabinet stated during the 2006 Israel attack, “the accord is no longer a document of national agreement”), on the understandable grounds that, if Hizbullah is going to be the target of an attack by the state of Israel, it deserves to have at least equal representation in the Lebanese government that may determine its fate.

Which makes the existing Taif Agreement an implement of sectarianism, rather than the solution it was meant to be.

Muslims will be demanding—and getting—a bigger share of the parliamentary pie. The only question is when.

The United States and the May 14 coalition are staking their political and diplomatic fortunes on propping up the Taif system (UN involvement in the Hariri matter, including the current unilateral tribunal, are justified by the de-Syrianization that was an element to the Taif Agreement) despite the demographic tidal wave bearing down on it.

By increasing the polarization within Lebanese society, they may be unwittingly accelerating the collapse of the Taif system—with its enforced supremacy of Christians and prosperous Sunni and Druze—instead of forestalling it.

And if another US-backed Israeli attack on Hizbullah occurs this summer, the collapse of Taif and a existential political crisis inside Lebanon—rather than the destruction of Hizbullah and Lebanese Shi’ites as a Lebanese political force or the destabilization of Syria—would seem to be pre-ordained.

With this oncoming train wreck inside Lebanon, maybe all China and Syria need to do is try to stay out of the way.

Ask and ye shall receive...

I asked Wachovia Bank, today, May 25:

I haven't seen anything on Wachovia's participation in the BDA matter since May 18.

Is Wachovia's participation still a possibility? Any developments?

and they replied:

No additional updates at this time.

FYI

North Korea Funny Money Story Gets More Interesting

Another nail has been tapped into the coffin of the North Korea Supernote counterfeiting story by McClatchy.

Recall Stanley Au’s sworn statement that Banco Delta Asia didn’t come across significant quantities of counterfeit currency in the deposits of North Korean account holders since 1994, the U.S. claim that Pyongyang is faking our currency looks ever more dubious.

Add to the mix, a 2006 Congressional Research Service report that had this to say:

Subsequent press reports (of February 2, 2006) cite a Uri Party Member of Parliament’s account of a closed briefing by South Korea’s National Intelligence Service to members of Korea’s National Assembly to the effect that North Koreans were arrested abroad for counterfeiting offenses in the 1990’s but that the Service had no evidence of the North making bogus currency after 1998. (Raphael Perl and Dick Nanto, North Korean Counterfeiting of US Currency, March 22, 2006, Order Code RL33324)

That’s probably because after the 1996 redesign of the US currency (meant to foil the new computer age threats such as digital scanning by switching to special inks and security threads), counterfeiting US currency became really, really hard and incredibly expensive and the North Koreans probably, quite sensibly, got out of the business.

Now McClatchy reports that the Swiss police issued a report challenging US assertions that North Korea is printing US$100 Supernotes:

The Swiss federal criminal police, in a report released Monday, expresses serious doubt that North Korea is capable of manufacturing the fake bills, which it said were superior to real ones.
...
The fact that the Swiss are questioning the veracity of the U.S. allegations against North Korea carries special weight in the insular world of banknote printing.

McClatchy quotes financial journalist Karl Bender:

"The producers of the most sophisticated products used in banknote printing are Swiss or at least of Swiss origin. That goes for the (specialty) inks and that goes for the machines," said Klaus Bender, a German foreign correspondent and the author of "Moneymakers: The Secret World of Banknote Printing."

"Can the North Koreans do it, are they doing it? The answer is couched in diplomatic language, (but) the answer is clearly no," Bender said.

In January, Bender also posted a long, technical article on what makes the US$ 100 bill so difficult to counterfeit, and does a persuasive job of debunking hardline talking points about North Korean access to presses and inks.

He also claims that Interpol’s US director convened a conference in the summer of 2006 to make the case for North Korean counterfeiting of the Supernote.

However, at the end of the one-day conference, to which even specialists from the United States had been flown in, not one single conference participant was fully convinced of the American viewpoint, according to a survey. Some were even making jokes. The South Koreans, who should really have been interested in the topic, did not even attend.

I find this interesting, because if there was a criminal case—as opposed to an unproved accusation—concerning North Korean complicity in Supernote counterfeiting, Interpol would have been carrying the ball instead of the U.S. State and Treasury Departments.

The fact that Interpol—and its highly regarded secretary general (previously the U.S. Treasury Department’s Undersecretary for Enforcement) Ron Noble, could not make the case against North Korea is of itself significant.

A few interesting elements in the McClatchy article caught my attention.

First, the notes, though perfect to the naked eye, contain microscopic errors that appear to be deliberate, in order to make the bills detectable under close examination:

The supernotes are identical to U.S. banknotes except for added distinguishing marks, which can be detected only with a magnifying glass. In addition, under ultraviolet or infrared light, stripes appear or the serial numbers disappear on the supernotes.

As a for instance, the McClatchy article shows an enlargement (reproduced here; click on the image for a nice, clear view) of the spire of Independence Hall on the back of the century note. The good note has a gap in the outline; the “bad” note has neatly closed it.

McClatchy quotes the Swiss report as saying these distinguishing marks apparently make it impossible for the notes to be passed within the US:

On their return to the U.S., the issuing bank after examination can easily distinguish the `supernotes' from originals using banknote testing equipment, due to altered infrared characteristics. For this reason, the United States over the years has hardly suffered economic damage due to the `super dollar.'

Second, considering the prodigious criminal effort that would be involved in acquiring the necessary presses and inks, and tracking 19 redesigns of the US notes (not to mention adding those puzzling markers that make the bills impossible to pass within the US), only $50 million worth of Supernotes has been seized over 16 years.

$50 million is a drop in the bucket. There are $780 billion in US greenbacks circulating now, two-thirds of them overseas.

And how long does it take to crank out $50 million in hundred dollar notes?



McClatchy:

In theory, if North Korea were producing the notes, it could print $50 million worth of them within a few hours - as much as has been seized in nearly two decades, the report said.

Of course, the North Koreans could have ordered up another, completely perfect, set of plates and kept the presses running entirely undetectable Supernotes for the other 364 days of the year, an idea that conspiracy theorists would find irresistible...

...especially since the only way to pass a significant, obviously suspicious wad of hundreds of millions or billions in US currency, even if the bills were perfectly undetectable, would be with the collusion of Chinese or Russian banks—and their governments.

Now that's a conspiracy. Anybody want to run with that one?

Ladies and gentlemen, I present Balbina Hwang:

Balbina Hwang, a researcher at the Heritage Foundation, says the North Korean government has been making and circulating forged $100 bills for more than a decade."They produce some of the best quality supernotes," she says, adding that the North Koreans make $250 million a year from the bills. (Bill Gertz, Arrest ties Pyongyang to counterfeit $100 bills, Washington Times, September 20, 2005)

Bender treats this number with scorn, and it’s easy to see why. In a report by the Federal Reserve Board in 2002 , the total amount of counterfeit currency circulated per annum is estimated at $40 million—less than 1/10,000 of total US currency in circulation.

Given an estimated profit of 50% of face value for counterfeit currency, Hwang’s guesstimate implies the North Koreans would be circulating $500 million in funny money per year—about ten times what the U.S. government estimates total worldwide counterfeit flows to be.

But it’s interesting to have an idea of the kinds of useful if dubious assumptions the hardliners were plugging into their North Korea equations to make their policies work.

Which makes me wonder if hardline architect of the North Korea sanctions David Asher’s chain of logic went like this:

Let’s assume North Korea has the capability of forging supernotes;


then I will further assume that the notes are undetectable so we hardly ever find them;


then I will assume they are forging them in enormous quantities to cover their current account deficit;


finally I will assume that Chinese banks are knowingly accepting and laundering these funds;

Therefore I will threaten the Chinese government with a money laundering investigation under Patriot Act Section 311 unless they cease and desist in providing financial services to the North Koreans...


...and I will initiate an action against Banco Delta Asia to demonstrate the seriousness of my intentions.

I think this is as good an explanation as any for Mr. Asher’s notorious “monkey” statement:

“Banco Delta was a symbolic target. We were trying to kill the chicken to scare the monkeys. And the monkeys were big Chinese banks doing business in North Korea...and we’re not talking about tens of millions, we’re talking hundreds of millions.” David Asher, oral testimony, April 18, 2007

Suspicions of money laundering on Pyongyang’s behalf might have served as a convenient pretext for threatening China if it didn’t moderate its support of North Korea.


However, I don’t know if Mr. Asher would take such a big step on the shaky assumption that North Korea was grinding out hundreds of millions of dollars in absolutely undetectable supernotes. I suppose we’ll have to await the publication of his memoirs to learn his true feelings on the subject and whether I am pummeling a straw man on this subject.

A conspiracy theory that seems much more likely to me is that the CIA or the Russian secret service—which must have some of the most sophisticated press facilities in the world for forging every imaginable document from currencies, financial instruments, and passports in small runs to one-off picture IDs, business correspondence, and compromising photographs—would have the capacity to do a limited run of phony dollars with special markings, maybe for a sting.


Bender notes:

In light of all these facts, leading representatives of the high-security printing industry and counterfeit money investigators have been wondering for some time now what the CIA is actually doing in its secret printing works. There is a machine in this plant, which is located in a well-known city north of Washington, which is exactly of the type required for printing these super counterfeit bills.

(By the way, this statement is a lot clearer and more categorical than the clumsy translation from the Frankfurter Allgemeine Zeitung that Kevin Drum excerpted : It is in this facility, thought to be in a city north of Washington D.C., where the printing presses needed to produce the Supernotes is said to be located.)

Bender doesn’t accuse the CIA of printing the supernotes, but he does note an interesting area in which suspicions of US involvement could be tested—the color shifting ink.

Maybe, against all odds, the North Koreans were able to reverse engineer the inks.

Maybe not.

We could find out.

The top-secret color shifting ink is only manufactured by Sicpa and is exclusively reserved for the BEP [the U.S. Bureau of Engraving and Printing—ed.] ... It would be easy for the Swiss corporation to determine whether the inks on the «supernotes» really are original Sicpa inks. Secret markings known as «tagging» permit the security inks to be traced right back to an individual production batch.

However, at the Interpol conference mentioned at the beginning of this article, Sicpa of all people were conspicuous in their absence. There is a reason for their silence: BEP is a major customer and vital for Sicpa’s survival.

Interesting story.

A Fragile Friendship

The Wu Yi/Hank Paulson photo-op a.k.a. the Strategic Economic Dialogue, has come to an end.

Obviously, the purpose of a two-day meeting is not to negotiate—even if one counts Secretary Paulson jawboning Mdme. Wu over dinner about the merits of opening up China’s financial markets to his eager buddies on Wall Street.

The meeting is political theater—meant to announce agreements and concessions previously negotiated.

And for whatever reason, we came up with a whole lotta nuthin’.

The Great White Whale of PRC-US economic relations—RMB revaluation—escaped our Ahabs once again, leading to appropriately dismissive coverage of the meager catch our negotiators hauled in.

Considering I read somewhere that China seriously considered cancelling the summit as an expression of displeasure at the US CVD and WTO complaints that sprouted like weeds earlier this year, expectations should not have been too high.

However, Henry Paulson is the great white hope of the Bush administration as far as a sophisticated, adroit, and effective China policy is concerned, so it was disappointing that so little came of the meeting.

Steve Clemons’ The Washington Note reprinted a column from the Nelson Report alluding to the apparent frostiness of the meeting, and blaming Paulson for a gaffe:

...witnesses agree that something definitely was "missing" today. Commented one, privately, "it was as cold as ice in there. The Chinese just looked like they wanted to get off the stage quickly. They really didn't bother to put on a show for the cameras back home."
...

One normally hesitates to ascribe too much to the theater of body language, but here's something that just bashes you right between the eyes: Paulson, the guy with 72 private trips to China, all that hands-on experience, he who told the White House, State and USTR not to worry, that he would be the China Guy in this Administration...at the closing press conference, Paulson stalked in, well ahead of Wu Yi, and then started reading his statement before she even reached the podium.

Excuse me? An American or European would have cold-cocked the President for such calculated rudeness! In China (Japan, Korea, etc.) you watch older married couples walk into someplace. . .the husband is 10 feet in front, and the subservient wife is dutifully plodding behind. You think for one minute that elderly maiden lady Wu Yi didn't catch the insult here?


It seems that Mr. Paulson might have been disappointed that his friendly efforts on behalf of China over the years had yielded him little more than a middle finger salute at the SED, and he used the setting of the closing statement to convey his unhappiness.

But he shouldn’t be surprised.

He should be chastened.

In my experience with Chinese bureaucrats, they respect power and admire those who can combine friendship and power.

But to attempt to extract through friendship concessions that should only be demanded from a position of power is a blunder, even an insult.

Right now, with a Democrat-controlled Congress considering 27 different pieces of anti-China legislation and President Bush scraping along in the polls at under 30%, Henry Paulson doesn’t have much of a negotiating position.

The Chinese, for all their Pollyannish wonder at the independence of our legislative branch, know full well that the unpopular, lame-duck Bush administration can deliver very little on China policy.

So if the Chinese were frosty, it was a calculated frostiness, designed to show that Secretary Paulson can’t use his weakness as a negotiating point and ask the Chinese to make substantial or face-saving concessions so he can save them from the big bad Democratic Congress.

I think China will be facing some hard decisions on its economic future—which may require serious engagement with a US government that can negotiate seriously and deliver on its promises--so they aren’t going to make concessions that only enable the continued, directionless flailing of an impotent administration on the wrong end of a dysfunctional relationship with Congress .

The Chinese attitude is probably, How about Paulson showing he’s still got some mojo by slapping around Chuck Schumer a bit before he asks us help him out.

And Mr. Paulson should reflect on the lesson that weakness makes it difficult—and dangerous—to presume upon a friendship.

I have in my hand a list of names...

Nothing like a good conspiracy theory to liven up a dusty diplomatic and banking dispute.

Via Onefreekorea , the March 19 Washington Times informs us that Congressman Ed Royce (whose positions closely follow those of the hardline crowd on North Korea) wrote a letter to Condoleezza Rice accusing the State Department of trying to “unravel” the Treasury sanctions against North Korea by approaching Wachovia Bank to handle the BDA money:

By asking Wachovia to deposit the money in an effort to clear the way for the closure of the North's main nuclear reactor, the State Department is trying to "unravel" the Treasury Department's decision to ban U.S. banks from dealing with Macao's Banco Delta Asia, wrote Mr. Royce, who is a member of the House Financial Services and Foreign Affairs Committees.

This supports my take on the underlying dynamic: that the State Department took the initiative in approaching Wachovia and announced the deal in order to put Treasury in the difficult position of either giving a thumb’s up—or refusing to cooperate and thereby openly admitting that Treasury recalcitrance (and not North Korean scheming or finicky attitudes of international bankers) is holding up the remittance.

Royce’s letter and Bolton’s op-ed both seem to be weak efforts to divert the focus from Treasury obstruction to alleged State Department perfidy.

Onefreekorea tries to connect the dots on Royce and Bolton’s behalf by accusing Christopher Hill of criminal conspiracy to engage in moneylaundering.

So here’s something I though I’d never see: U.S. government officials more-or-less openly engaging in a conspiracy that would land anyone else in a federal prison for international money laundering.

The underlying rationale is that US law is preventing the release of the BDA funds, and, by actively seeking to involve an intermediary bank to handle the money, Hill is seeking to evade those laws.

Big problem with this argument is that, although the Treasury Department asserted that some of the funds were illicit, it didn’t prove it—which is why BDA was stigmatized as “a bank of money laundering concern” and not “a money laundering bank”.

The only action taken against those funds was a request to the Macau Monetary Authority to freeze them.

Considering the fact that Macau has not seen fit to initiate any criminal proceedings with respect to BDA and there is no apparent legal basis for characterizing the funds as illicit, Onefreekorea’s effort at intimidation of Christopher Hill looks rather ineffectual as well as ignoble.

So, count the criminal money laundering charge against Christopher Hill as another example of misleading rhetorical chaff thrown by the hardliners in an attempt (I know I’m mixing metaphors here) to muddy the waters and whip up a firestorm of allegations against the State Department in order to derail the Six Party Agreement.

I see this a last ditch effort to assert that the Six Party Agreement is not only flawed, but also tainted by improper State Department activity, so it should be ditched in favor of that one shining beacon of consistency and legality, the Patriot Act sanctions against BDA.

However, I think that a narrative requiring war on enemies in the State Department as well as North Korea will be too much for anybody beyond the hard core of the hardliners to swallow.

Also, since President Bush has endorsed the deal, pushing this line would also require a Hirohito defense for the Commander in Chief—that he was a dupe of evil forces exploiting his ignorance and gullibility to promote their sinister designs.

That’s just too much political baggage for one lousy agreement with North Korea to bear.

So I think the hardliners will be placed in an uncomfortable position in which burden of proof is on the Treasury Department to demonstrate that its resistance—and not the State Department’s persistence—is justified.

That is, of course, if anyone pays attention—which nobody seems to be doing. There’s been no sign of that Wachovia trial balloon reappearing this week.

Maybe the whole matter will finally be resolved by Treasury Secretary Paulson in the context of the give and take between the US and China at the Strategic Economic Dialogue.

If so, we might have to wait a few more weeks.

China's Great Speedbump of Cash

From McClatchy’s article on the US-China strategic economic dialogue now going on in Washington, I learned that China’s immense foreign exchange reserves have earned the nickname "The Great Wall of Cash".

In keeping with China Matters’ kneejerk tendency to question conventional wisdom and conceptual shortcuts, I was compelled to calculate how big a wall of one-dollar bills equal to China’s forex reserves would be.

Based on greenback dimensions of 6” x 2 ½”, 312 bills to an inch,1.2 trillion bills would build a wall 4000 miles from Shanhaiguan to Lop Nor 30 feet wide...

...and 0.55 inches high.

That’s not a wall.

That’s a speed bump.

Despite the fact that China’s greenback barrier is too low to give an invading barbarian even a twisted ankle, Beijing has taken a big step in moving part of its cash hoard into overseas financial markets.

As McClatchy reports:

Cash-rich China rattled the U.S. bond market Monday with the announcement that it was taking a 10 percent stake, worth $3 billion, in the Blackstone Group, one of the world's largest private-equity companies.

Some analysts saw the move as a sign that China intends to diversify from Treasury securities. If true, that could spark investors to demand higher interest rates from Treasuries and could increase the amount of interest that the United States must pay on its debt.

China’s US$ holdings have become a headache for the Chinese government.

There are only a few ways Chinese government bureaucrats can safely and efficiently off-load the billions of trade dollars pouring through the door every month.

Traditionally, the only practical destination was US Treasuries, which made the Chinese government (in their view) hostage to the US government. No matter how annoyed Beijing became with Washington, Bank of China would have to continue to buy Treasuries in order to find a safe haven for its forex, and maintain the value of existing holdings of US debt.

The Chinese government took a small step to allocate central forex reserves through market forces by involving "qualified investors" but I expect was properly anxious about the sticky fingers on the invisible hand.

They also tried to buy our stuff (a.k.a. direct interest in corporations that own or make things) but the CNOOC debacle taught them high profile asset purchases can attract US domestic political opposition and push up the price (or make the deal impossible).

So the Blackstone deal looks like a smart way out of the forex dead end.

Smart, greedy capitalists allocate the capital more efficiently and profitably than any BOC bureaucrat ever could.

They provide the public face of acquisition, with the Yellow Menace just one of many silent partners.

Wall Street types hungry for their bite of the China asset eggroll create a political constuency for a moderate China policy in Washington.

And the Chinese government gets more leverage over the business community through a continual presence as owner, rather than an occasional buyer of US products.

I, for one, would be interested to see if China puts a chunk of change into Cerberus, the investment firm that made big headlines for grabbing the Chrysler anvil and plunging into the deep and stormy waters of the global automotive business.

Cerberus—owned by ex-Secretary of the Treasury John Snow—is also the main shareholder in NewPage Corporation, whose countervailing duty (CVD) complaint was adopted by Treasury to argue the case that China’s paper industry enjoys a de facto subsidy through preferential lending policies by China’s sclerotic state-controlled banks.

It looks to me like this complaint is more likely to seek increased access to Chinese financial markets for US companies as a competition/rationalization measure, than it is to achieve relief for US manufacturers.

In other words, tit for tat.

If China wants to pump forex into our investment houses, we want to do the same over there.

This is a state of affairs that Hank Paulson—who seems to run our China policy these days—can understand, and perhaps even appreciate.

And, so we can better understand--and perhaps appreciate--the US-China trade and economic relationship, I've added China Economics Blog to the blogroll.

The Moustachio'd One Phones It In

Thanks to readers David and BB, I had a chance to read John Bolton’s Wall Street Journal op-ed.

I had anticipated a laborious and tedious fisking might be required, but there’s not a whole lot of there there.

Owing to frustration, despair, or an emotion familiar to many people covering the Banco Delta Asia saga—boredom—the moustachio’d one seems to be phoning this one in.

The rhetorical reed he leans on is that resolving BDA was not part of the original agreement, the North Koreans are renegotiating, the State Department is caving, (I’m paraphrasing here) Chamberlain, rolled umbrella, appeasement, blah, blah, blah.

Bolton writes:

... we now face the nagging question whether there are other secret side deals beyond BDA. Of course, the BDA agreement was not so secret that Kim Jong Il was barred from knowing about it, by definition. Most troubling, however, is that State apparently thought it too sensitive to share with the American people until the February deal broke down in an unavoidably public way. (John R. Bolton, Pyongyang’s Perfidy, Wall Street Journal, May 18,2007)

The first, surprising point, is the incoherent statement “the BDA agreement was not so secret that Kim Jong Il was barred from knowing about it...”

“...by definition...”

Huh?

This apparent non-sequitur (which reads like the remnant of some biting apercu that, though perhaps fully formed in Mr.Bolton’s mind, did not quite make it to the printed page), is a poor set-up for his accusation that the promise to resolve BDA was “too sensitive to share with the American people until the February deal broke down”.

Let’s go to the transcripts—from February 13, the day the deal was announced (not, of course, the day it "broke down"):

Secretary Rice, February 13 briefing:

QUESTION: Madame Secretary...we've been told that the North Koreans expect that the issue of the Macao bank will be resolved shortly and that within 30 days they will see some of their funds released. Is that true?

SECRETARY RICE: Let me speak to the second of those first, Barbara. We have agreed that we will, in the separate working group that has been working on this issue that the Treasury Department heads, seek to resolve the issues concerning Banco Delta Asia. Now, remember that the case is against the bank for activities and so we do need to resolve that. Treasury is working to do that. We've been having good discussions with all of the parties involved in that and we'll look to what kind of remediation needs to take place to resolve our concerns. But that's a legal channel. We've been very clear that it has to be resolved within that channel. But we've said that in 30 days we would seek to resolve it. I think the Treasury will be speaking to these issues at another time.


From Christopher Hill’s February 13 television interview with AP :

QUESTION: You mentioned the thirty days to resolve BDA. I mean, can you give more specifics on that? Is that all the accounts?

ASSISTANT SECRETARY HILL: I can’t at this point, but we said we would resolve them in thirty days. We have had senior level discussions about that. I think we will get that done.

QUESTION: And that was at the Berlin meeting that you discussed that?

ASSISTANT SECRETARY HILL: I discussed their offer in the Berlin meeting, but we’ve been working very hard to make sure it can be wrapped up.

QUESTION: People say you are caving in -- this was a line that you guys took, and you gave up on these sanctions, and --

ASSISTANT SECRETARY HILL: Well, I think you will always have people that think any concession you make is a cave-in, but I think one must understand that in any negotiations both sides have to give. So I think we’ll just have to see what we can do to move the denuclearization process forward.

QUESTION: Is that part of the whole strategy to use that pressure? I mean, you have leverage on one side?

ASSISTANT SECRETARY HILL: Well, the North Koreans have been involved in some illicit activities which are, very frankly, unacceptable. You know, you can get away with having a bad human rights record, you can get away with having a bad human rights record and being engaged in illicit activities. But I think it’s tough to get away with having a bad human rights record, having illicit activities, and making nuclear weapons. So I think the North Koreans have found that, increasingly, there was a sense they needed to be scrutinized. It’s no surprise that when you are involved in making weapons of mass destruction, people have a tendency to look at your finances.

QUESTION: And the Treasury issue is being resolved?

ASSISTANT SECRETARY HILL: Well, I mean with respect to the BDA, the Banco Delta Asia, we’re prepared to resolve that within thirty days. But with respect to the overall issues, overall financial issues, I think the North Koreans seem to understand that they need to get out of this money laundering business and ultimately start getting out of this nuclear business.

Hopefully this will put paid to the hardliner talking point that the BDA demands were not part of the deal and came out of left field--or that the State Department was secretly canoodling with Kim Jung Il and treacherously keeping their greasy transactions secret from President Bush.

I do not think, however, it will mark an end to efforts to distract attention from actual hardline attempts to derail the Six Party Agreement by sounding misleading alarms about “Pyongyang’s Perfidy” and State Department betrayal.

Things are getting more desperate for the hardliners on North Korea...

There are encouraging signs that the bizarre inability of the world’s only hyperpower to enable the remittance of $25 million to North Korea is attracting more and more skeptical interest.

And there are signs that the hardliners are getting desperate. John Bolton has been summoned to muddy the waters with a conspiracy theory op-ed.

Arms Control Wonk posts critically on a John Bolton op-ed in the Wall Street Journal attempting to create a narrative involving “secret agreements” to explain why the Banco Delta Asia issue is still holding up the Six Party Agreement.

Now, the Wachovia bit. Bolton is obsessed that the North Korea deal has some secrety side arrangement including US bankers (code word!), the Trilateral commission and the Illuminati. Well, at least one bank, Wachovia:

Third, we now face the nagging question whether there are other secret side deals beyond BDA. Of course, the BDA agreement was not so secret that Kim Jong Il was barred from knowing about it, by definition. Most troubling, however, is that State apparently thought it too sensitive to share with the American people until the February deal broke down in an unavoidably public way. (blockquote from Bolton’s op-ed)

I haven’t got my hands on the full op-ed yet, but it appears that Bolton is pushing the idea that there is a conspiracy between the State Department and Wachovia to appease the North Koreans by using the BDA remittance to provide North Korea with a permanent conduit to the world financial system.

For that premise to work, you’d have to believe that a U.S. bank would be willing to defy the Treasury Department for the sake of North Korean business and whatever goodies the appeasement-happy State Department can push its way.

Not too likely. There’s a more logical explanation.

I added my two cents in the comments:

Bolton’s argument makes no sense. He’s trying to substitute an implausible narrative (the North Koreans are scheming not to get their money back) for a more plausible one: that hardliners in the Treasury Department allied with Bolton are scheming to block the BDA resolution so the Six Party Agreement will fall apart. His gyrations have to be even more difficult and contrived because the State Department is seeking to force the issue by identifying a bank (Wachovia) that is willing to take the money if Treasury agrees.

So here come Bolton’s bizarre conspiracy theories about “secret side agreements”.

It’s all rhetorical chaff, thrown with increasing desperation because, if there’s another Condi talks to Hank moment, Treasury grants the approval and the money goes to North Korea and the Six Party Agreement proceeds, journalists and Congresscritters are going to start thinking: it looks like some people in Treasury held up this agreement for three months. What was all that about?

I’m glad ACW is paying attention to this issue. Maybe other outlets will follow.

Neo-Conundrum

Hardliners in the U.S. Government Struggle not to Accept the Consequences of the Failure of their North Korea Policy

China Matters goes meta, summarizing dozens of posts and tens of thousands of words written over the last six months to explain why Banco Delta Asia matters—and why the mainstream media should and actually might begin covering it critically and responsibly.

As the Banco Delta Asia farce groans into its third month, it should be time for even the most credulous, lazy, and bigoted observers to realize there is a problem.

The problem isn’t with our North Korea policy.

The problem is with the refusal of elements within the Bush administration—perhaps at the highest level--to come to terms with their failure on North Korea, and the unwillingness of much of the media and Congress to question, investigate, or even think about that.

The big screwup at the heart of our North Korea problem is that at the beginning of its second term the Bush administration committed itself to an aggressive effort to isolate North Korea from the international financial community in the service of a policy of...

...well, nobody really knows.

The easy answer is regime change.

But I had this interesting exchange with Onefreekorea, a vociferously pro regime-change website on the issue of the Six Party Agreement (the “February surrender”):

As an occasional reader, I was struck by your statement:

To them, our February surrender reaffirmed that Their Way prevailed and Our Way — a policy of regime change by pressure that in fact never really existed — has been abandoned.

If “Our Way” never really existed, what was “our” actual policy before Chris Hill & Company took control?

Can you clarify? Thanks!
...

As I stated above, a policy of regime change by pressure that in fact never really existed
I think what in fact really existed, though it was initially opposed by some, was a policy of continuing the Clinton policy of pursuing an Agreed Framework, on slightly less gullible terms.

I agree with his observation.

I think the Bush administration wasn’t prepared to make a full-court press on regime change remotely approaching what we did on Iraq

However for the sake of political expediency in pandering to the conservative political base, President Bush gave free reign to a purely economic campaign of isolation and destabilization against North Korea led by John Bolton, coordinated by David Asher, and executed by Robert Joseph at the State Department and Stuart Leavey at Treasury.

And I wouldn’t be surprised if there was a lazy internal justification for the half-a-loaf policy, as in “If they can achieve the results they are promising, then President Bush will go before the American people, our allies, and the UN and do what it takes to finish the job”.

Trouble is, achieving true financial isolation and an internal crisis in North Korea through the aggressive application of economic sanctions alone was a fundamentally unviable policy.

The Chinese and North Korean regimes have many differences, but they have a shared interest in preventing the establishment of a pro-American regime in North Korea through coup, collapse, or insurrection.

And as long as China was keeping North Korea’s economic lifeline open, a campaign of financial isolation was doomed to failure.

The fatal piece of hubris by the hardliners was to assume that “will” could trump “skill” and circumstance, and a determined escalation of the confrontation to involve China would compel the Bush administration to back their policy and force Beijing to blink and abandon North Korea.

It appears that the hardliners chose Macau as a point of attack, both to cut off North Korean access from the international financial system at an important node, and to threaten China with sanctions against its banks.

So in September 2005, the hardliners announced a Patriot Act Section 311 investigation against Banco Delta Asia as a demonstration project to “kill the chicken in order to scare the [Chinese] monkey”—words of exquisite self-delusion by David Asher that will probably be carved on the headstone of the Bush administration’s failed North Korea policy.

And then, quietly and inevitably, the wheels came off.

The North Koreans walked out of the Six Party talks, as the hardliners probably hoped they would.

But the Chinese didn’t blink, for hundreds of millions of good reasons—China’s size and strategic importance, the US debt it holds and buys, and the value of the trade between it and America.

And the North Koreans didn’t come back to the international scene until they had a powerful new bargaining chip—an atomic bomb they had hastened to completion during their absence from the talks.

The hardliners attempted to use the outrage to rally international support for an anti-North Korea united front, but failed miserably.

A UN resolution condemned and sanctioned North Korea, but Chinese and Russian vigilance ensured that it could not be used as a pretext for escalation.

John Bolton energetically if misleadingly and futilely promoted the resolution as an endorsement for a broad campaign of economic warfare against North Korea under the banner of the Proliferation Security Initiative.

Condoleezza Rice dutifully jetted around the world trying to rally support for an aggressive anti-Pyongyang policy, but in Asia could only count on Japan, Australia, and Singapore.

President Bush squandered his diminished political capital after the November mid-term elections in a fruitless attempt to advance the hardline agenda at the APEC conference, but South Korea’s pointed refusal to abandon its Sunshine Policy of engagement for PSI-driven confrontation probably signaled the death knell for the US effort.

So Bush dumped the hardline policy and let the realist team of Condoleezza Rice and Christopher Hill take over.

They held direct discussions with North Korea in Berlin in January; then they let China orchestrate the Six Party talks, midwife the agreement, and strengthen China’s claim to hegemony over the affairs of the Korean peninsula.

After this debacle, the hardliners retired to lick their wounds and consider their options.

It couldn’t have been easy.

Their policies had turned out disastrously.

They had grossly misjudged their ability to construct a global web of economic sanctions against North Korea—and compounded their perhaps willfully wishful thinking with an over-estimation of how far the Bush administration would back them on China.

Failure was virtually preordained.

And that failure had consequences: it strengthened the position of China, alienated South Korea, and given US foreign policy an image of incompetent intransigence.

And, most damagingly of all, this failure had resulted in the emergence of North Korea as a nuclear weapons power—a genuine policy disaster.

The hardliners have been toying with Dolchstoss (stabbed in the back) memes to explain their failure, but there are so many knives in their back—from the Chinese, the South Koreans, the Russians, the realists, Bush himself—they look like pin cushions.

Going after their numerous enemies would only emphasizes how isolated and discredited the hardliners are.

A source of continual hardliner concern must be worrying about getting blamed for letting Kim Jung Il get The Bomb.

Condoleezza Rice pointedly fired a shot across their bow in early March with a studiously orchestrated campaign of leaks, backgrounders, and Congressional testimony designed to assert that John Bolton’s hyping of North Korea’s (possibly nonexistent) highly enriched uranium program triggered an excessively confrontational policy that led to Pyongyang’s withdrawal from the talks and assembly and test of their bomb.

If the intent was to forestall an attack by the hardliners that Appeasers Incorporated a.k.a. Rice, Hill, & Company had sold out the interests of the United States for the North Korea deal, it seems to be working.

But it looks like the hardliners are still working fanatically and almost overtly to sabotage the Six Party Agreement by preventing the resolution of the Banco Delta Asia matter.

Perhaps they believe that the only way to escape condemnation for a policy that strengthened China and gave North Korea the bomb is to make the alternative policy fail.

Then they can return to their self-assigned roles of being the voices of truth, righteousness, and realism—and power-- on Asian policy.

If you’re keeping track, that’s faulty logic.

No amount of sabotage of the Six Party Agreement will vindicate the hardline policy.

To their eternal discredit, the hardliners haven’t stopped trying...

...even though the North Koreans, apparently confident of their advantageous position, refuse to bite on the series of provocations and delays the hardliners have thrown up.

On the simple matter of resolving the issue of frozen North Korean accounts in Banco Delta Asia, the hardliners have apparently engaged in a three month campaign using government rulings, secret briefings, prevarication, and procrastination—and spinmeistering to the US media--in an attempt to stall remittance of the funds and sabotage the Six Party Agreement

By now, the North Koreans and the world financial and diplomatic community are simply standing on the sidelines observing the ridiculous battle the Bush administration is engaged in—with itself.

And now we get the first murmurings from the mainstream media that Treasury’s refusal to expedite the Banco Delta Asia agreement—an absolute anomaly in an administration that subscribes to the theory of the unitary executive and the unchecked right of the President to set policy—has its roots in a dark and familiar place: the office of the Vice President.

U.S. government officials first disclosed the request made to Wachovia. Treasury officials declined to comment, but sources said that many officials are dismayed that the administration is now asking a major U.S. bank to work around an order issued two months ago. Some White House officials have also objected to using a U.S. bank, but Secretary of State Condoleezza Rice supports the possible deal with Wachovia. (Glenn Kessler, Transfer of N. Korean funds sought, Washington Post, May 17, 2007)

As I blogged on May 17:

First time, by the way, I’ve seen a report that “White House officials” and not just Treasury Department types are opposing the BDA deal.I’d guess you’d have to say the only “White House official” who has the juice on Asian matters to oppose Condoleezza Rice—President Bush’s favorite apparatchik—and blithely shrug off the humiliating two month farce this has become for US diplomacy is probably Vice President Cheney.

The indefatigable Vice President Cheney, by the way, apparently used his recent trip to Asia in an ad hoc, off the reservation effort to will a new Asian anti-China coalition into existence.

Cheney’s continued defiant willfulness could strike a blow at the cherished doctrine of the unitary executive, which shelters all actions of the executive branch under the umbrella of presidential prerogative.

In the matter of the vendetta against Joseph Wilson and Valerie Plame, Cheney’s lawyers made the jaw-dropping defense that any actions he took to defame Wilson and expose Plame were protected by his unique Constitutional position as a quasi-President—which gave him the right to define and defend “policy”, by outing CIA agents and orchestrating press campaigns against his critics if necessary.

If Cheney tries that argument to justify interference in the North Korean issue—where he is apparently undermining an explicit administration diplomatic initiative—it would be clear his objective was not to promote policy: he would be seen defying presidential policy to enhance his influence, preserve his power, and maintain his ability to act with impunity.

By highlighting the sordid contradiction between power-grubbing reality and the Hegelian ideal of the unitary executive, we might be as close to a constitutional crisis as we’re likely to get with this anything-goes administration.

Leaving aside the pulse-quickening question of whether the North Korean question could finally put the kibosh on Dick Cheney, the issue before us is this:

Perhaps the BDA story has become so ridiculous—and its role in the political maneuvers of a rogue clique within the administration sabotaging this country’s foreign policy in order to regain its influence and initiative so apparent-- that journalists and Congressional investigators will finally say:

It’s not a case of where there’s smoke there’s fire. Here we have the smoldering embers of a colossal bonfire of failure and delusion.

Well, maybe they won’t.

My preferred explanation for why the main media outlets, with the exception of McClatchy, don’t use their squishy cranial matter to make sense out of the ludicrous Banco Delta Asia story, instead of mindlessly transcribing anonymous administration backgrounders:

Journalists don’t want to see truth used in the service of evil.

Clear-eyed critical reporting by the mainstream outlets could have undercut US and international political support for the invasion of Iraq; but very few journalists and editors were ready to assume the moral responsibility of prolonging the reign of Saddam Hussein by reporting on the factual and logical deficiencies of the Bush administration’s case.

It’s easier to say, Their guy’s bad and I’ll give our guy the benefit of the doubt in my reporting, even if his facts look a bit dodgy.

Same with North Korea.

We’re supposed to let the North Koreans get some money tied up in a sanctioned bank in Macau as a confidence-building measure so the Six Party Agreement on nuclear disarmament can proceed.

The stated cause for the two month delay is absurd: that a Treasury rule under Patriot Act Section 311—a rule that can be revised or discarded through secret, unilateral deliberations—is somehow binding the hands of the most authoritarian executive in recent American presidential history .

But the media seems to be acutely aware of the embarrassment and the possible moral cost of providing aid and comfort to the toadlike Kim Jung Il by taking cognizance of the fact that our North Korea policy is built on bullsh*t.

So one can almost feel the strain of cognitive dissonance that’s making the sweat pop out on the foreheads of journalists as they try to blame the North Koreans for the fact that we won’t give their money back to them:

QUESTION: Given that it's been a month since the April 14th deadline and initially you were saying that you would give it days and that your time was not infinite, your patience wasn't infinite. What have you heard from the North Koreans besides the fact that they intend to meet their February 13th obligations, about how they're actively working to resolve the BDA issue?
...

QUESTION: But when you say the time was not infinite before, are there any kind of punishments for North Korea if they don't move quickly on this?
...

QUESTION: What do you see that gives you confidence that they are trying to work through it?

That’s enough for one day (May 15) at the State Department press briefing.

The Democrats have a similar problem on the issue of oversight. Beyond the immediate political desirability of looking tough on Kim Jung Il, Democrats are probably enamored of Patriot Act Section 311 sanctions as the prime example of the virtuous, consensual soft-power coercion they expect to apply as their primary diplomatic tool in the post-Bush era.

Also, with our hard-power forces bogged down in Iraq, financial sanctions look like one of the few effective weapons left in our arsenal—ones that should not be weakened by public criticism.

Blogs like China Matters, of course, don’t wield any political influence, so we don’t have the weight of the world on our shoulders.

We can follow the story—and the truth—where it leads.

But it’s also the right way.

Governments don’t lie just for the sake of speed and efficiency.

They lie because they haven’t managed to address real problems, because if these problems were revealed and discussed, our leaders might become discredited and lose the political initiative

Sometimes these are problems that can’t be solved. Sometimes the problems could have been solved but the lie has forestalled public scrutiny, so the caravan can move onto the next problem—and maybe the next lie...

...and the next, and the next...

...until the consequences of all those successful lies—the fatal accretion of faulty assumptions and failed policies--come home to roost.

What I believe we have on the BDA matter is a small clique trying to sabotage our current North Korean policy, not because it has a better policy, but because it wants to avoid accountability and responsibility for a policy that has already failed.

And I think the media and Congress should go after it.

It’s not an issue of giving Kim Jung Il a hand.

It’s a matter of helping the United States get out of a jam that the hardliners put us in—and perversely want to keep us in.

There’s no point anymore in giving failure the benefit of the doubt—or the protection of willfully obtuse and credulous coverage.

Lost in the "Universe of Waivers"

The State Department Fights the Treasury Department to get the Banco Delta Asia Deal Unstuck

The Washington Post reports that Wachovia Bank is willing to handle the North Korean funds at Banco Delta Asia...

...if it gets the necessary blessing from its regulators a.k.a. the Treasury Department.

Wachovia, by the way, is on the long list of US banks (two; the other was HSBC, according to the Financial Times) that handled transactions for BDA prior to September 2005.

It didn’t take two months to find that bank, which seems to indicate that the State Department has entered into the realm of desperate, last-second improvisation in trying to get the money moving.

Then, according to Yonhap, we get this :

The U.S. Treasury deferred all questions to the State Department."That request was initiated by the State Department, so you need to speak with them," Treasury's spokeswoman, Molly Millerwise, told Yonhap through e-mail.

Snap!

The Washington Post story puts the State--Treasury conflict (something we’ve been blogging on since March—see Treasury’s Not So Secret War Against the Six Party Agreement ) on the front burner again.

U.S. government officials first disclosed the request made to Wachovia. Treasury officials declined to comment, but sources said that many officials are dismayed that the administration is now asking a major U.S. bank to work around an order issued two months ago. Some White House officials have also objected to using a U.S. bank, but Secretary of State Condoleezza Rice supports the possible deal with Wachovia.

Maybe the media will turn its attention to what Treasury’s Daniel Glaser really did on his trip to Macau after the BDA rule was announced on March 14 (a seemingly gratuitous visit during which he presented further “evidence” from Treasury dossiers on a case that was already closed, but might have been a foray to intimidate the government of Macau into more enthusiastic cooperation)...

...and why Glaser spent ten days in Beijing in end-March/early April working on “implementation” of the BDA agreement but apparently accomplished nothing.

First time, by the way, I’ve seen a report that “White House officials” and not just Treasury Department types are opposing the BDA deal.

I’d guess you’d have to say the only “White House official” who has the juice on Asian matters to oppose Condoleezza Rice—President Bush’s favorite apparatchik—and blithely shrug off the humiliating two month farce this has become for US diplomacy is probably Vice President Cheney.

That kind of backup would explain the Chinese-style passive-aggressive stalling that Treasury is bringing to bear on the issue.

The Treasury Department has not been involved in the effort to find a financial institution to handle the money, leaving the search to the State Department. But Treasury would need to grant significant waivers, such as special permission for a U.S. bank to deal with Banco Delta Asia. One senior U.S. official said that it is not clear "what universe of waivers" would be needed to ease the bank's concerns that it would not be putting its reputation at risk.

Ah, the “universe of waivers”.

How could we conceivably get around a rule—a rule, by the way, not a law—that can be unilaterally revised or even discarded by the Treasury Department according to its own secret and arbitrary criteria?

What in the “universe” could we do?

Think...think...think.

How about:

“The Treasury rule against Banco Delta Asia will go into effect on June 1, 2007”.

Because if the ruling is about the bank—as it’s supposed to be—and not about the money—which we’ve already agreed to give to North Korea—that should give enough time to get the money out electronically and solve the problem before the doors swing shut on BDA.

I think that should take care of it.

Creative readers are welcome to suggest improvements in the comments.

China Matters cited in McClatchy reporting on Banco Delta Asia

From Kevin Hall, Bank owner disputes money-laundering allegations, McClatchy Newspapers Washington Bureau, May 17, 2007:

"In the next couple of years, the Bank was periodically contacted by other U.S. government agents and we cooperated in their inquiries," Au said in a statement to the Treasury first published by China Matters, an Internet blog.

The full texts of the petition from Delta Asia Group and Stanley Au’s supporting personal statement to the U.S. Treasury Department requesting that its rule against Banco Delta Asia be rescinded, and an analysis of the key points involved, can be found in the post Stanley Au Makes His Case for Banco Delta Asia by clicking on this link.

Benedict's Travels

The American media is waking up to the fact that the Eurocentric Pope Benedict has a Third World problem...

...and a Middle East problem.

...and an Asia problem.

...as China Matters readers already knew.


via Tapped’s Adele Stan, we learn that the Pope alienated some Brazilians:

HONEY, I SHRUNK THE CHURCH. It seems as if Pope Benedict XVI is really out to prove his philosophy that he's willing to accept a smaller, but more loyal flock for the Roman Catholic Church. Among the loyalty tests -- aside from the traditionally misogynist stands against women in the priesthood and reproductive rights for women -- one rarely discussed appears to have roiled to the surface: acceptance of Western civilization and culture as superior to all others.

Yesterday, as his Brazilian sojourn drew to a close... reports Raymond Colitt of Reuters, [Benedict said]:

[Brazil's indigenous people] had welcomed the arrival of European priests at the time of the conquest as they were "silently longing" for Christianity, he said.

... Particularly telling is reaction of Brazilian Indians who are Catholic, as well as the priests who minister to them. "The Pope doesn't understand the reality of the Indians here, his statement was wrong and indefensible," Father Paulo Suess, who runs the Brazilian church's advocacy group for the indigenous, told Colitt. "I too was upset."

Thanks the convoluted character of Catholic doctrine and Benedict’s penchant for high-minded hairsplitting, it’s a bit difficult to tease out the Pope’s point.

The bottom line is that Benedict regards attempts to understand and acknowledge and reconcile what the indigenous people lost in that whole bloody genocide, forced conversion, and slavery fracas with the Conquistadors in South America as deluded carping by liberation-theology types who should be grateful that their once-pagan ancestors are not broiling in eternal hellfire.

So, thank you Christian Europe! for the wafers and wine that allowed this Godforsaken land to realize its destiny as a Christian continent.

An unsentimental farewell to whatever was going on here before the guns-germs-and-steel action!

And stop trying to put that pre-Columbian toothpaste back into the tube!

The Utopia of going back to breathe life into the pre-Columbus religions, separating them from Christ and from the universal Church, would not be a step forward: indeed, it would be a step back. In reality, it would be a retreat towards a stage in history anchored in the past." (quoted in comments to Stan's post)

That kind of condescending dismissal is at the heart of Benedict's thought--and his problems as Pope.

Pope Benedict is quite the expert on the futility of non-Catholic spiritual exercises, as is clear in my post from 2006 riffing on the Pope’s notorious remark equating Buddhism with masturbation.

The post provides background on the Pope's travails in Brazil by exploring his clash-of-civilizations view of European Catholicism as the bulwark of the true faith against assaults by secularists, Freudians, and those brown and yellow people whose traditional cultures and philosophies offer only barren ground for Christianity.

It provides an interesting perspective on why the guy who previously headed the Inquisition might be better equipped to shrink the church to a core of true believers, than grow it by addressing Catholicism’s philosophical and historical relationship to other faiths.

I recall some rough handling from a commenter or two in the Peking Duck thread. My response at the time is included at the end of the post.

Pope Benedict and the Buddhism/Masturbation Controversy
originally posted September 26, 2006

Pope Benedict’s recent scuffle with Islam, including his non-apology—characterized by Middle East observer Abu Aardvark as “that time-honored classic ‘I'm sorry that you got angry when I called you fat’” dodge--- has highlighted his confrontational stance toward other faiths.

A column by Madeleine Bunting in The Guardian makes a case for his hostility toward Judaism and Buddhism as well.

In the process, Bunting retails the notorious statement made by Benedict while he was still Cardinal Ratzinger, purportedly equating Buddhism with masturbation.

Buddhist Channel reported that the full quote, delivered in an interview with L’Expresse in 1997, went like this:

"If Buddhism is attractive, it's only because it suggests that by belonging to it you can touch the infinite, and you can have joy without concrete religious obligations,'' Ratzinger said. ``It's spiritually self-indulgent eroticism.''

Other outlets cut Cardinal Ratzinger some slack, opining that “auto-erotisme”, the term used in the original article, could more accurately translated at “self-love” or “narcissism”.

Actually, auto-eroticism is an English-language term coined by the sexologist Havelock Ellis to describe mental or physical sexual activity not directed toward a sexual partner. It was later picked up by Freud. Cardinal Ratzinger knows his Freud. He considers Freud an originator of the secular spirit he detests, and entitled one of his major pronouncements on the decadence of Europe “Europe and its Discontents”—a play on Freud’s Civilization and its Discontents.

In this case, I assume Cardinal Ratzinger employed auto-eroticism as a term of art, using a modern term for the sinful, non-reproductive sexuality abhorred by the church to condemn a kind of shallow spiritual gratification that he considers futile, degenerate, and dangerous to the soul.

So, although the Pope was not referring to Buddhists as masturbators, they can find little consolation in the awareness that what he really meant is that he was dismissing their spiritual exercises as pathetic and contemptible.

In any event, Benedict’s hostility toward non-Catholic faiths is a matter of public record. Religions that have felt the lash of his disapproval include Buddhism, Hinduism, Judaism, and Anglicanism.

In 2000, the National Catholic Reporter published a list of Cardinal Ratzinger’s greatest hits, including a money quote from the same L’Expresse interview:

"In the 1950s someone said that the undoing of the Catholic church in the 20th century wouldn't come from Marxism but from Buddhism. They were right."

Reportedly, at the time Cardinal Ratzinger was incensed that there were allegedly more Frenchmen studying to be Buddhist monks than Benedictine monks.

As the Catholic Church’s top doctrine cop—running the Congregation for the Doctrine of the Faith, a.k.a. the Inquisition--he also ordered a German Benedictine monk, Willigis Jager, a.k.a Zen master Ko-un Roshi, to cease and desist from all public statements and activities promoting dialogue between Catholics and Buddhists.

Beyond strict demands for doctrinal conformity and acknowledgement of the Catholic Church’s unique role as interlocutor between humanity and the one true God, Pope Benedict’s worldview is apparently militantly Euro-centric. Europe, in the Pope’s view, is a creation of Catholicism and the implication is that Catholicism without Europe cannot survive.

There was speculation that Cardinal Ratzinger chose his papal title not to commemorate Pope Benedict XV, but to honor St. Benedict, who founded the Benedictine order and is credited with saving Catholicism from extinction in the European Dark Ages.

The Pope considers Europe to be Catholicism’s home turf, under assault from alien faiths and lazy tendencies toward syncretism (literally “Cretan towns forming an alliance” according to my Webster’s, but figuratively speaking a meaningless mishmash).

Islam at the gates of Europe is Pope Benedict’s particular bugbear.

The Pope’s perspective—in which Catholicism is inextricably bound to its European matrix—has a creepy clash-of-civilization vibe and his recent statements criticizing Islam were undoubtedly a conscious “stay outta my yard” challenge to the demographic, social, and political encroachment of Islam into Europe.

In the lament on decadent, faithless Europe that he coauthored—Without Roots—Cardinal Ratzinger wrote:

At the hour of its greatest success, Europe seems hollow, as if it were internally paralyzed by a failure of its circulatory system that is endangering its life, subjecting it to transplants that erase its identity. At the same time as its sustaining spiritual forces have collapsed, a growing decline in its ethnicity is also taking place.

Hmmm…”a growing decline in its ethnicity”. I don’t think he’s referring to a shortage of good Vietnamese restaurants in Rome.

Pared to the bone, the Pope’s attitudes look a lot like racism cloaked in theology.

Reuters reported on an interview Cardinal Ratzinger gave to Le Figaro in 2004:

Joseph Ratzinger... has said Muslim but secular Turkey should seek its future in an association of Islamic nations rather than the EU, which has Christian roots. In an interview last year for France's Le Figaro Magazine, Ratzinger, then doctrinal head of the Roman Catholic Church, said Turkey had always been "in permanent contrast to Europe" and that linking it to Europe would be a mistake.

If Pope Benedict is going to be busy re-fighting the crusades in Europe and the Middle East and reliving the glories of the Inquisition, he’s not going to have a lot of interest and energy in dealing with Buddhism except as a competitor for the hearts, minds, and souls of the parfit knights of his Caucasian Round Table.

Indeed, since he is wrapped up in his theory that European civilization is uniquely Catholic, he seems ready to write off the rest of the world—at least those parts with “great cultural protagonists”, as he termed them, such as East Asia and South Asia--as spheres that are innately Buddhist , Muslim, or Hindu.

It will be interesting to see how the Roman Catholic Church fares in China under Benedict’s reign.

Comments:

Some commenters on Peking Duck made the point that it’s understandable that the Pope should have the right to speak his mind. And if he believes that Buddhists are (doctrinal) jerk-offs, well, free speech doesn’t stop at the Inquisitor’s door.

A few thoughts.

The Pope believes his is the one true faith, qualitatively different from all others.

That’s his right, even his duty. It’s the cornerstone of his faith.

He can also trash other religions, not only as inferior in doctrine and rigor but also false paths to salvation.

No problem.

But he’s also the head of a religion that claims not only to profess the true Word of God, but also to serve as God’s instrument on earth, and provide the means of human salvation that is not only unique but universal (“Catholic).

It’s a test of his leadership—and God-given duties as Pope—to put points on the board for the Catholic Church worldwide, and not just in the European homeland.

Pope John Paul II, who shared many of Cardinal Ratzinger’s views including, presumably, revulsion at Buddhism, understood that his job was to condone inter-faith dialogue so that the Catholic Church could claim to encompass the good points of other religions and at the same time assert its superiority in the critical matters of revealed truth and salvation.

Benedict XVI, on the other hand, appears to have made the dubious decision that other religions have to be discredited en toto so that Catholicism is the last faith standing.

It’s an understandable position for an Inquisitor to take.

It’s the necessary stand for the leader of an embattled sect, which is how Pope Benedict sometimes appears to regard himself.

But it is not a viable position for the leader of a global church that considers itself not only unique in truth but infinite in its understanding and universal in its scope.

Tearing every other religion (and for good measure, secular humanism) to their foundations so that the deluded turn to the true faith would be a tough job even if the Savior appeared in person to do the job. For fallible men and a fragile church to attempt it by themselves is simply beyond their capacity.

So instead of engaging in a multi-millennial argument with Islam, Buddhism, and every other religion that won’t be decided until the true God shows up to settle accounts, I think the interests of the Catholic Church and the world would be better served if Pope Benedict decided his faith could be most effectively protected and propagated by looking for good in the hearts of Buddhists, Muslims -- instead of making remarks easily construed as deriding them and their religions.

Stanley Au Makes His Case for Banco Delta Asia

As sharp-eyed reader David pointed out, the owners of Banco Delta Asia group are petitioning the Treasury Department to rescind its final rule against BDA.

In a China Matters exclusive, I’ve obtained and posted the files for Delta Asia Group’s petition and the personal statement of DAG’s largest shareholder, Stanley Au.

Au’s petition, in particular, provides some interesting detail on BDA’s operations, describing it as a small bank with 8 branches and 150 employees, handling deposits for 40,000 local account holders (about 10% of Macau’s population).

According to Au, BDA’s business with North Korea developed out of a relationship with Pyongyang’s Daesong Bank and the Foreign Trade Bank of DPRK, and grew to include handling North Korea’s bullion sales—a business that Midland Bank apparently gave up on because the margins were so low. He states that business with North Korea and North Korea-related entities accounted for about 7% of the bank’s total revenues in 2005.

Concerning the notorious allegations that North Korea was using BDA to inject counterfeit currency into the world financial system, Au declares under penalty of perjury that BDA received counterfeit currency from North Korea on one occasion—in 1994.

Au further states that BDA closed accounts for two of the three depositors (believing that the third had unwittingly deposited the funny money), reported the matter to the Macau police, and...

“After the Bank reported this incident to the Macau police, I was contacted by agents of the United States government...they asked a number of questions about the circumstances under which the counterfeit notes came into the Bank’s possession. I cordially answered the questions and asked if their preference was that we should desist from doing business with North Korean entities. They said that they would like us to continue to deal with them, as it was better that we conducted this business rather than another financial entity that might not be so cooperative with the United States."

Unfortunately, Au doesn’t recall the names of the agents he dealt with.

However, he did state that since 1994, “the Bank made the policy decision to send all large value deposits of US dollar bills from North Korean sources to the Hong Kong branch of Republic (which became HSBC) to certify authenticity using its advanced technology. "

Unless the Treasury Department can introduce evidence of significant counterfeit dollar activity handled by BDA since 1994, Au’s statement should cause serious heartburn for the hardline crowd.

The background of the petitions is this:

The final rule against Banco Delta Asia isn’t a law; it’s a rule by a regulatory agency.

Because it’s not a law, there is no evidentiary/due process/transparency hocus-pocus.

The whole process is conducted secretly and unilaterally, which is pretty much the way the government likes it, I’m sure.

Beefs about rules are handled under the Administrative Procedures Act, which was enacted in 1946 to address concerns about the broad range of regulatory, quasi-legal powers wielded by agencies of the executive branch starting with FDR’s New Deal.

Interested parties may petition the relevant agency, in this case the Treasury Department, to review its ruling. Upon receipt of the petition, the Treasury Department can decide to reverse its rule or reject the petition; there’s no requirement to have any kind of hearing, rebut arguments, etc.

If the interested party is dissatisfied with the outcome, it can sue—in this case in district court.

However, the only basis for allowing a lawsuit to proceed is if Treasury abused its regulatory powers, in legal speak if Treasury acted arbitrarily and capriciously, abused its discretion, or otherwise acted not in accordance with the law.

BDA has already filed its petition.

Stanley Au is an “interested party” not just because he’s the majority stockholder in Delta Asia Group, the holding company that owns BDA.

He’s an interested party because the Treasury Department declared that his continued ownership of the bank is the sole reason why the Treasury Department can’t rest easy and accept the improvements that BDA, the government management committee running the bank, the Macau Monetary Authority, and the government of the Macau SAR undertook to improve bank management, tighten financial controls, and pass anti-money laundering and anti-terrorism laws during the 18 months of the Treasury’s investigation of BDA.

As Treasury put it in the final rule:

Despite any remedial measures and regulatory changes, this historical pattern of disregard by the bank’s management and primary shareholder regarding both the systemic due diligence failures at the bank and the potential use of the bank for illicit purposes, and the resultant likelihood of recidivism...leave us concerned about the potential for the bank to be continued to be used for money laundering and other illicit purposes. [emphasis added—ed.]

Since the 2005-era managers of the bank are long gone and not coming back, that leaves Stanley Au as the only reason why BDA can’t be trusted to be a clean bank.

Obviously, Treasury doesn’t like Stanley Au.

But maybe that’s not a good enough reason to cut his bank off from the U.S. financial system.

Treasury has not taken the step of calling a Stanley Au a criminal banker.

Treasury chose not to classify BDA as a money-laundering bank e.g. a bank that as a matter of conscious policy conducts money-laundering on behalf of illicit actors.

BDA was sanctioned as a bank “of primary money laundering concerns”, one with weak financial controls, instead. The whole point of that designation is to get the bank and the local authorities to tighten controls, which they did.

So Treasury is now trying to use a bait and switch approach, threatening sanctions meant to effect a tightening of financial controls, then, after the controls are tightened, saying that was not enough because the real issue is suspicion of undesirable intent by the bank’s owner.

The interesting (and for Treasury, rather awkward) question of why the Macau Monetary Authority should be judged incapable of preventing recidivism by its most famous or notorious corporate citizen—implying that the real problem is with the Macau government—is begged by the muddled Treasury rule, but never addressed.

Furthermore, how enticing are the temptations of recidivism to Stanley Au?

I don’t think that impartial observers would believe that the potential profits from future illicit North Korean transactions are so great that Au would take the colossal risk of pursuing them while under the scrutiny of new management, a new board, the Macau and Hong Kong monetary authorities, and the U.S. Treasury Department.

In the conclusion of his statement, Au does a convincing job of pointing out that “recidivism” on his part would be little more than professional suicide:

"Successful resolution of the concerns raised by the U.S. government, which have been publicized around the world, has been a matter of greatest importance both to the Bank and to the Government of Macau...I understood that it was of paramount importance, for my own sake, for the Bank’s sake, and for the Government’s sake to make every effort to fully implement commitments made by my Government’s representatives in my bank’s name, while under the scrutiny of the U.S. authorities and the international media. To have done otherwise would have been unthinkable."


The alternate view—one that is probably shared by Stanley Au, the Macau Monetary Authority, China, the UN as it interpreted its sanctions against North Korea’s nuclear, missile, and proliferation networks, and, I suspect a large percentage of the world’s nations—is that legitimate North Korean financial activity does exist, BDA had a right to solicit North Korean accounts and handle North Korean transactions, and Stanley Au should be allowed to run his bank as long as he conforms to the laws of his jurisdiction--and not be used as a political football in Washington's dealings with Pyongyang.

The Delta Asia Group petition observes:

But BDA’s owners and former managers had no reason to know, prior to FinCEN’s September 2005 finding, that the United States now held the view that bank dealings with North Korea must be entirely avoided. Whether for geopolitical reasons or otherwise, the U.S. government chose not to avail itself of any of the formal mechanisms available to it to put banks on notice of this apparent change of policy...Instead it “announced” this new position by singling out for sanction one small Macau bank, apparently hoping to achieve by in terrorem effects what it did not wish to impose by straightforward regulation.


In terms of attempts to get the rule rescinded, the allegation with the most damaging potential is that the Treasury Department never raised its fears of recidivism during its investigation and rule-making process in order to give Au a chance to give a satisfactory response—it announced these concerns for the first time in its final rule and, what's more, made them the central justification for imposing the most onerous "Special Measure Five".

If BDA decides to try to overturn the rule with a lawsuit, this appearance of “arbitrary and capricious action” by the Treasury Department may persuade the judge to let the legal system open the whole North Korean policy/Patriot Act 311 can of worms to determine if evidence or diplomatic strategy drove Treasury’s seemingly flawed, self-contradictory rule on BDA.

If so, damning statements like this one from David Asher, the self-styled architect of Washington’s North Korea initiatives, may persuade a US judge that the burden of proof is on the Treasury Department to substantiate its allegations against BDA in open court—or abandon them:

The Illicit Activities Initiative prominently involved the use of several—the development of the—conceptualization of the use of several of the tools you’re discussing today including USA Patriot Act Section 311. We worked hand in glove with the Treasury Department to apply and plan to apply against North Korea, and after a time of deep research we came to conclude that one of the best spots was in Macau against Banco Delta Asia."

...

“Banco Delta was a symbolic target. We were trying to kill the chicken to scare the monkeys. And the monkeys were big Chinese banks doing business in North Korea...and we’re not talking about tens of millions, we’re talking hundreds of millions.”

This looks like it’s really it...

Commenter David provides the link to a news report indicating that he was right and I was wrong in predicting whether or not a US bank would receive the BDA funds. Congrats Dave, and thanks.

Looks like Washington blinked again and Pyongyang’s “dirty” money is headed for a US bank, rather than to South Korea.

Since it comes from the Washington Times, I guess we can assume the report reflects bleak hardliner despair rather than frothy realist optimism:

The Bush administration has found a U.S. bank willing to accept $25 million in North Korean funds, and officials hope the transfer -- the final hurdle to the closure of the North's main nuclear reactor -- can take place in the next few days, The Washington Times has learned.

...

U.S. officials did not identify the American bank, although they suggested that it is not one of the bigger and more recognizable institutions.

...

"This time, I think we really do have something," [Christopher Hill] said.

As to why it happened:

The highly unusual decision to let North Korean money labeled by the Treasury as "dirty" be deposited in a U.S. bank -- entailing full access to the international financial system -- was made by Secretary of State Condoleezza Rice and Treasury Secretary Henry M. Paulson Jr., officials said.

...

Mr. Paulson is said to have agreed with Miss Rice because he does not want to risk his good relations with Chinese officials.

All in all, a good, credible article courtesy of Nicholas Kralev. From the Washington Times. Who’da thunk it?

Along the way, it indirectly acknowledges China’s central role in advancing the agreement.

There was, however, a paragraph in the report that indicates that there will continue to be a role for blogs that can remember past last week and have the sense to parse administration spin.

The State Department used the issue as leverage to force North Korea to return to the six-party talks late last year after an 18-month boycott.

Gee, I guess that ATOMIC BOMB in Kim Jung Il’s pocket didn’t have anything to do with restarting the talks.

Or that UN resolution.

Or China’s decision to withdraw its diplomatic protection from Kim Jung Il.

And of course, North Korea left the Six Party talks in late 2005 in response to the BDA action, which one might consider the exact opposite of “rejoining” them.

But all in all, some substantive, positive news on the issue is cause for celebration