North Korea Financial Sanctions: Same Sh*t Different Decade

[Updated Jan. 17 & Jan. 20, 2015--CH]

A couple days ago I was interviewed by The Real News on the current round of sanctions against North Korea.  Link here.

I talked about a few things that I’ve covered in China Matters and on my twitter feed, not all of which made it into the report: the whiff of bogosity in the North Korean attribution in the Sony case, and the apparent need for a rapid-response, evidence be damned attribution process in the case of cybercrimes.  I speculate that a more immediate explanation for the quick sanctions slapdown was that Kim Jung Un had compounded his diplomatic crime of trying to split and circumvent the Six Party Talks united front through unilateral outreach by dealing with the Monster of the Century (actually monster of three weeks ago & I expect soon to resume the crown) Vladimir Putin.  Kim’s first overseas trip as head of state will be Russia, not the PRC, and I unpack the historically fraught and unfriendly relationship between the DPRK & PRC and the shift of the center of PRC--Korea economic and strategic gravity to the southern half of the Peninsula.  The PRC and the US, in fact, have a joint interest using the Six Party Talks to neutralize independent North Korean diplomacy and keep the initiative out of the hands of the DPRK and, for that matter, South Korea, Japan, and the Russian Federation.

The PRC, I think, wants to maintain North Korea as an impotent buffer state under its thumb and the United States wants to quarantine North Korea as a nettlesome nuclear power (and, perhaps, an important non-Chinese justification for the enormous U.S. North Asia military presence).  Neither superpower, in other words, places a high priority on seeing North Korean diplomacy evolve beyond the current futility.

I also made the point that US-DPRK diplomacy is, for the time being, hopeless--the term of art is "strategic patience"--since Obama is the “gotta get rid of your nukes” Nobel Peace Prize winner, and also “the guy who greenlit the overthrow and murder of Muammar Gaddafi, the guy who got rid of his nukes at US insistence.”

Just to recapitulate for readers who may have forgotten, after Desert Storm Gaddafi worried that he was next.  In one of the few victories for George W. Bush coercive diplomacy, Gaddafi revealed and decommissioned his nuclear and chemical WMD programs under international inspection, acceded to the Chemical Weapons Convention, re-opened Libya’s oil industry to foreign investment, and ponied up over US$1 billion in compensation for the Lockerbie bombing (if, as some suspect, Iran engineered Lockerbie as retaliation for the U.S. shootdown of Iran Air 655, the mullahs of Tehran must be grateful indeed).  In return, Libya got normalized relations, a U.S. shield from terrorism lawsuits, visits from Condoleezza Rice and Tony Blair, and the pleasure of receiving, incarcerating, and abusing repatriated anti-Gaddafi dissidents.  The “Libya model” was actually touted as a precedent for bringing North Korea in from the cold.

All that evaporated, together with Gaddafi and for that matter much of civilized Libya, as President Obama yielded to the urgings of the “we must not be on the wrong side of Arab Spring history” crowd and agreed to drop the hammer on the Gaddafi regime.

That definitely put the USA on the wrong side of the DPRK, which understandably cited the Libyan precedent as justification for why it could never, ever surrender its nuclear weapons.

And as for why President Obama is dealing with a publicly-demonstrated, full-fledged North Korean nuclear deterrent--instead of dealing with the discrete and selective displays of their nuclear capabilities at Yongbyon and elsewhere that the North Koreans used to put on for Siegfried Hecker--a trip in the Wayback Machine is in order.

For me, the anti-North Korea financial sanctions announced this week--and the concurrent hearing conducted by the House Foreign Relations Committee--were an exercise in nostalgia in the matter of policies, rhetoric, and even actors, and also a bitter reminder of two lost years of US DPRK policy, and the bomb they helped birth.

North Korean financial sanctions is truly a matter of Same Sh*t Different Decade, recapitulating and hopefully improving on one of the biggest and at the same time unreported fiascos of American foreign policy: the 2005 attempt to achieve regime change on the cheap against North Korea through covert financial sanctions.  The 2005 circus also featured a pair of principals in the January 13, 2015 congressional testimony: Congressman Ed Royce, a leader of the “something must be done about North Korea” caucus and Treasury’s Daniel Glaser, Assistant Secretary for Terrorist Financing, who is in charge of OTFI, the Office of Terrorism and Financial Intelligence a.k.a. sanctions central.

Since the miraculous efficacy of financial sanctions is now an article of faith thanks to the apparent success of Iran sanctions, I think it's a good time to lift up the curtain and look at what happened, what didn't happen, and what was misreported the first time America took a financial swing at North Korea.

I made my rattly bones blogging the sanctions story non-stop in 2007.  Long story short, the Bush administration, which had lost its multi-lateral mojo thanks to the Iraq f*ck up, decided it would further beef up America’s unilateral muscles by “weaponizing” financial enforcement. 

The U.S. Treasury Department’s FinCEN (Financial Crimes Enforcement Network) operation had done a bang-up job on its original, apolitical mission: tracking and blocking drug cartels’ ongoing struggle to launder the immense ocean of cash sloshing out of their operations.  Come 2001, FinCEN was, of course, recruited into the GWOT with the creation of the OTFI operation, but was of limited utility: the amount of money that actually needed to change hands through the international financial system to execute a terrorist attack is vanishingly small.  Under Bush, Section 311 of the Patriot Act was generously reinterpreted to exploit its coercive potential by employing FinCEN money laundering investigations against disliked state actors like North Korea.  Somebody coined the term "financial waterboarding" to describe the borderline legality and extremity of the tactic.

In 2005, after Bush’s re-election, Colin Powell was gone and the Cheney gang of f*ck-you unilateralists were enjoying a brief ascendancy in the foreign policy apparatus.  Aggressive North Korea regime change policies moved to the top of the agenda  and somebody, a.k.a. probably John Bolton, got the brainwave that the resources and legislation enabling FinCEN, coupled with the central U.S. position in the world financial system—which meant that U.S. unilateral actions against any foreign bank would cut it off from the world financial system--could be used to destabilize North Korea.

Ground Zero for the initiative was a small Macau bank, Banco Delta Asia, which had allowed North Korean entities to open some 50 accounts.  I suspect the proximate impetus for going medieval on BDA was that in 2000 South Korea under the engagement-minded Kim Dae Jung had funneled $500 million to North Korea in return for a summit (and, subsequently, a Nobel Peace Prize) through some Macanese banking channel, thereby making a mockery of US attempts to isolate, defund, and pressure North Korea.

The U.S. Treasury Department, under OTFI jefe Stuart Levey, designated BDA as an institution “of primary money-laundering concern” under Section 311, averring that it was suspected of laundering the infamous North Korean “supernotes”—a miraculous counterfeit of the US hundred-dollar note that was virtually indistinguishable from the real thing.  To “protect the U.S. financial system”, U.S. financial institutions were instructed not to have dealings with BDA.  Result: a run on the bank, and BDA went into receivership in the hands of the Macau financial authorities.

Mission accomplished, one might think.  Without any due process (the designation was merely the beginning point of an 18-month investigatory process, not a conclusion), the US government had successfully torpedoed a foreign bank.  And about $25 million in North Korea-related accounts was frozen and out of Pyongyang's reach!  Pow!  Power!!

By the lights of the Bush administration, the fact that this power could be exercised unilaterally, pre-emptively, without any checks and balances (the case, when investigated, is a completely internal US government star-chamberesque proceeding, without any opportunity for the targeted institution to confront its accusers, demand discovery, etc.) no doubt added to its intoxicating allure. 

In order to further accentuate the measure’s unilateral dark and mighty awesomeness a la Cheney (and shield the actions from any trace of international accountability or consultation), at first the Bush administration even peddled the myth that the BDA designation was just a plain vanilla Treasury enforcement action against a Macau bank with shoddy controls and had nothing to do with North Korea (even as Treasury conducted a secret global campaign of harassment  against any bank that dared to do business with the DPRK and also dished out the same treatment to Cuba).  

As a matter of evidentiary rigor, the Bush administration f*ked up royally.  It turned out that BDA routinely sent all its cash deposits over to Hong Kong & Shanghai Bank in Hong Kong for vetting, and the single time counterfeit currency had been detected—one decade before!-- the U.S. Treasury had been promptly informed.  But that did not deter the Treasury Department, which ground on with the apparently bogus case.  I assume that the flimsiness of the case was perhaps considered as not a bug, but a feature, a sign that U.S. financial might, diplomatic determination, and unilateralist ambitions would prevail under the most adverse circumstances.

The U.S. government’s determination to prevail had a lot to do, I suspect, with the fact that the real target of the BDA procedure was not BDA or even North Korea; it was the People’s Republic of China.

The PRC is the 800-pound gorilla in the room when it comes to Iran as well as North Korea sanctions.  If the PRC is unenthusiastic, the sanctions simply don’t work.  When Treasury officials talk about “cutting of North Korea from the world financial system” they’re really talking about the PRC.

The architect of the 2005 campaign, David Asher, came out and said it in congressional testimony in 2007.

“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.”

BDA’s chairman, Stanley Au, had been a delegate to the China People’s Consultative Congress, a prestigious “united front” talking shop that showcased pro-PRC overseas Chinese.  The BDA designation was a demonstration project, meant to show the PRC what could happen to its friends--and its banks--if the US line was not satisfactorily toed.

Since these kinds of activities allow the United States to throw its weight around without dropping bombs, IR types find the exercise of financial sanctions “soft power” incredibly beguiling, even though it ignores all the checks/balances/due process/proportionality stuff that is supposed to give “soft power” its moral and diplomatic strength.

As a result, I have seen reporters peddle the myth that the BDA designation “worked”.  

This is what “worked” looks like:

September 2005 U.S. Treasury Department announces designation of Banco Delta Asia as a bank of “primary money laundering concern”

April 2006 Six Party nuclear talks halt since US refuses to discuss North Korea’s frozen accounts.

October 2006 North Korea conducts its first successful nuclear test.

That’s not what success looks like.  

Even for the Bush administration, whose attitude toward foreign policy fiascos was usually one of callous insouciance, it was a Defcon 1 disaster.

In an undignified scramble, the Cheney hardliners, including regime change fire-eater in chief Bob Joseph, were pushed out of the way and Condoleezza Rice took over.  Various deals were cut in January-February 2007 and in March 2007 U.S. Assistant Secretary of State Christopher Hill announced the Norks would be getting their money (a whopping $25 million, half of which, by the way, was the property of hapless joint ventures in North Korea like British American Tobacco, not even Kim Jung Il’s) out of BDA.

In what is I think perhaps the most under-reported story of the Bush administration, hardliners in the U.S. government worked indefatigably to sabotage the deal negotiated by Christopher Hill.  In February 2007, as the statutory eighteen month investigatory period expired and the State Department was struggling to cobble together a deal, Treasury announced a scorched earth final rule against BDA citing Patriot Act Section 311.  

Using the patently false statement that the rule could not be revoked, Treasury then declared that any bank that was involved in repatriating the North Koreans’ $25 million out of BDA would be sanctioned.  The State Department frantically roamed the financial world looking for somebody who would dare handle the transaction.  After a futile four months’ quest for a commercial bank willing to handle the deal—the Chinese banks all demurred either out of fear or from a desire to watch the US twist painfully in the wind--in June 2007, the State Department finally cobbled together a channel using the New York Fed and the Russian central bank to get the cash back to the Norks.

Turning to the current actors, in 2007 representative Ed Royce also pitched in at the time, cosigning a letter with other anti-Nork heavyweights that raised the specter of prosecuting Christopher Hill for money laundering for his efforts in trying to arrange the repatriation.

And for that matter, I suspect Daniel Glaser may have wandered off the res and delivered some back-channel threats in Macau to try to derail the repatriation, and he was subsequently, I speculated at the time, dispatched to “eat crow in Beijing.”

 

Even the designated existential menace of 2005, the frickin’ Supernote canard, gets an occasional shoutout in current coverage.  Kevin Hall of McClatchy conducted a thoroughgoing investigation of the counterfeiting boondoggle and I did my share of the debunking.

I’m assuming the hardliners obstructing the repatriation of funds were getting their marching orders and political backing from a furious Dick Cheney.  To my mind, it is the most remarkable example of open insubordination within the U.S. executive branch that I can think of.  Hopefully, some insider will write it up some day.

The Obama administration was also entranced by the potential of the financial sanctions weapon.  Stuart Levey was the highest-ranking holdover from outgoing Bush administration other than Secretary of Defense Gates.

In his signature style, President Obama was more cerebral, patient, and multilateral in his planning.  The pretense of independent Treasury proceedings to “protect the US financial system” were dropped in favor of overtly legislating and applying sanctions in the context of multi-lateral diplomacy.

To my mind the biggest genuine achievement in US-PRC coordination under President Obama was Beijing’s decision to throw Iran under the bus and support UNSC sanctions in 2010.  The threat of US financial sanctions was a recurring a headache for the PRC and had changed its behavior in 2005 (though I suspect that financial channels between Beijing and Pyongyang were kept open even as China’s big banks dropped North Korea transactions) and I presume some combination of financial threats and political inducements prompted the PRC’s move against Iran.  Again, the inside story remains to be told.

Given the virtually total separation of the US and DPRK economies, Treasury measures that hit North Korea indirectly--by, effectively, sanctioning foreign financial institutions that do business with the DPRK, not the DPRK itself--quickly rose to the top of the agenda when it was time to "do something" about the Sony hack.

In his testimony before the House Committee on Foreign Affairs on January 13, Daniel Glaser advised that the Obama administration had crossed a Rubicon of sorts by openly deploying unilateral Treasury sanctions as a "because we can" tool of coercive diplomacy divorced from the financial violations they were originally designed to counter.  The "weaponization" of US financial regulation, in other words, is pretty much complete (and the inconvenience of trying to justify Treasury sanctions using boondoggles like the Supernote canard is pretty much circumvented):

E.O. 13687 [signed by President Obama on Jan. 2, 2015; gives Treasury the authority to sanction the DPRK government and Workers' Party of Korea for the Sony hack and "other egregious acts"--ed.] represents a significant broadening of Treasury’s authority to increase financial pressure on the Government of the DPRK and to further isolate the DPRK from the international financial system. With the issuance of E.O. 13687, Treasury, for the first time, has the authority to designate individuals and entities based solely on their status as officials, agencies,instrumentalities, or controlled entities of the Government of the DPRK or the WPK. Treasury also now has the authority to designate those acting on their behalf or providing them with material support.

In his written statement, Royce identified the Executive Order as enabling a full-spectrum financial jihad against banks of any jurisdiction doing business with North Korea.

[T]he significance of this new Executive Order may come from the broad power it gives the President to target anyone who is a part of the North Korean government or is assisting them in any way for anything. That is, if the Administration chooses to use it to its full advantage.

 We need to step up and target those financial institutions in Asia and beyond...

In his verbal opening remarks, Royce referred to the BDA sanctions as a success, a characterization I hope that readers of this post will take with a grain of salt.

Financial sanctions against the DPRK, of course, brings the unwelcome issue of the People's Republic of China back to to the fore.

In the matter of North Korea, despite Kim Jung Un's  geostrategic footsie with Park, Abe, & Putin, the foreign relationship, now as in back in 2005, that still matters most is the People’s Republic of China.  Glaser, in his testimony, described the PRC as still "taking the lion's share" in terms of providing North Korea's international financial facilities.  With a lot of American levers against the PRC losing their effectiveness, I suspect President Obama is loath to surrender the nuclear option: the threat that Chinese banks can be blocked from the global financial system.  When the financial sanctions weapon is trotted out, it is a signal that the PRC is supposed to take heed and “do something.”

But actively and aggressively wielding that weapon is another matter.

Sanctions that cut PRC institutions from the US-controlled international financial system is a wasting asset (though not evaporating quickly enough to satisfy RMB triumphalists, perhaps) as the PRC has prioritized its international forex/financial policy to wean the PRC both incrementally from the US dollar and from the need to clear transactions through the US and its allies.

I also suspect that the PRC believes that in 2015 the Obama administration is not going to risk accelerating this process of disintermediation over the case of a hack against a Japanese entertainment company that North Korea may or may not have committed.

It's worth noting that the testimony of Song Kim, the Obama administration's special representative for North Korea policy, was markedly short of fire-eating and notably larded with "doors open" verbiage, which leads me to believe that the Obama administration is actually more interested in fostering a Burma-type strategic realignment by North Korea toward the US tolerated by the PRC in a spirit of forbearance, and not really that enthusiastic about a regime change/collapse scenario that might please Ed Royce but also trigger a Chinese intervention.

So I suspect the current posturing on financial sanctions is more an exercise in political kabuki before the new Republican-controlled Congress than a genuine attempt to relive the dubious glories of 2005.

By the way, despite the US Treasury final rule, Banco Delta Asia is still in business. Thanks to its local retail operations and, perhaps, a generous helping of F*ck You, OTFI, sub rosa support from Beijing, it seems to be doing fine.

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.

If you’re still wondering where South Korea stands on BDA...

...after this morning’s post, here’s confirmation that Seoul is impatient to cut the Gordian knot and resolve the BDA funds issue so it can get on with the business of rapprochement.

Yes, it looks like South Korean expressions of frustration with the US strategy of ostracizing North Korea are becoming ever more explicit.

First, the leak:

A senior South Korean government official on Monday admitted that Seoul is reviewing the option of letting the state-run Export-Import Bank handle North Korea’s funds in a Macau bank.

...

[An unnamed “senior South Korean government official”, maybe the guy who handles the Unification portfolio—ed] hinted the government is prepared to take the flak if the EXIM Bank’s credit rating suffers from handling what the U.S. Treasury says is money from North Korea’s illicit activities. “What’s wrong with considering anything we can do? We can’t sit by and just watch (U.S.-North Korea negotiations) without taking any steps of our own,” he said.

Then the pissy editorial:

All banks around the world must go through a depository bank in New York when it comes to dollar transfers. And the U.S. Treasury Department regulates this process. If that’s the case, then it would only be proper for the U.S. government to handle the matter transparently through an American bank, rather than trying to dump that responsibility on an unwilling country and an unwilling bank.

And finally the news, with some more interesting detail about a meeting attended by just about every key South Korean government official, sending a public message that Seoul doesn’t want to see the BDA farce go on a moment longer:

Thursday’s meeting discussed enabling North Korea to open an account with an overseas branch of EXIM so it can withdraw its funds from BDA and move them to an Italian or Russian bank via the bank. A senior security source said the government proposed the measure since North Korea insists on having the money transferred rather than withdrawing it in cash. According to the source, the U.S. has agreed to Seoul’s suggestion and promised not to take issue with the bank over what would by Washington’s own earlier determination amount to abetting money-laundering.

According to a diplomatic source, North Korea is nearly done combining the money from its 52 accounts in BDA into a single one ready for transfer. The epic issue hit the latest snag when, after the U.S. gave the green light to unfreezing the funds, no bank in the world proved willing to receive the funds. That problem would be resolved if EXIM plays the intermediary role. The U.S. has already reassured countries concerned that the transfer will be an exception from its blanket ban on transactions with BDA. [emphasis added]

So it looks like the United States has finally capitulated 100% and issued the waiver on accepting BDA money that, as I wrote on April 8, Daniel Glaser should have granted during the ten days he spent in Beijing in late March--early April accomplishing, apparently, nothing.

This involves more than seven weeks and counting of wasted time (from March 14, the date that the BDA matter was supposed to be "resolved").

The belated concession makes us look foolish. More disturbingly, it makes our diplomacy look at best unreliable and at worst duplicitous.

Gold Digging

Getting to the Bottom of the Treasury Department’s Economic Campaign Against North Korea


Thanks to Asad in the comments for bringing up the issue of parallel U.S. efforts to cut Iran off from the international financial system, using the same laws, arguments, and tactics as it has employed to confront North Korea. It's an important reminder that US North Korea policy has to be viewed through an Iranian lens.

Looking at the self-defeating absurdity of America's half-hearted and self-contradictory execution of its obligations under the Six Party Agreement, it might be the case that the Bush administration wants to keep PA Section 311 investigations in its anti-Iran arsenal and not give European banks and governments an excuse to go wobbly, and that's why it hasn't taken the seemingly logical and sensible step of overturning them in the BDA case.

US North Korean diplomacy is now ridiculous, but it's a sideshow to the main event in the Middle East.

Reality-based reporting is making a comeback on the matter of Banco Delta Asia—the little Macau bank with the frozen North Korean accounts that has held up execution of the Six Party Agreement for almost two months.

McClatchy’s Kevin Hall is one of the few journalists who has followed this issue closely and critically. He recently posted two important articles on BDA.

As a result, a clearer picture is emerging of a concerted U.S. effort to exceed the scope and intent of U.N. sanctions by exploiting the domestic exigencies of the Patriot Act Section 311 anti-money laundering powers as a pretext for pursuing a worldwide economic blockade against North Korea.

Now the imperatives of the Patriot Act have collided with the demands of U.S. diplomacy over the issue of Banco Delta Asia. Diplomacy dictates that the BDA decision be overruled, but elements within the Bush administration are unwilling to surrender or curtail the investigatory and sanctioning power they enjoy under the Patriot Act for the sake of the Six Party Agreement.

The Bush administration’s head might understand the superiority of the State Department’s diplomatic approach to the North Korean (and Iranian) problems, but its heart is with the coercive anti-diplomacy of a faction within the Treasury Department.

Apparently unwilling to choose between one or another, the Bush administration has awkwardly attempted to split the difference and as a result its diplomacy in North Asia is thrown into confusion.

Now an unwelcome light is being cast both upon the use of Patriot Act Section 311 as a policy—as opposed to a national security—tool, and on the role of the Treasury Department in exploiting, misrepresenting, and, quite possibly abusing the Act in turf struggles with realists in the State Department.

At the heart of the BDA matter is the Bush administration’s fundamental conundrum in Asia—whether it should confront or conciliate China.

Hall’s first article, Money laundering allegations by U.S. false, report says describes the (relatively) clean bill of health Ernst & Young gave to BDA in its audit, characterizing it as a legitimate bank doing legal business, albeit with weak internal controls, and debunks the counterfeit supernote moneylaundering canard.

The second article, Gold sales may have spurred Macau bank’s blacklisting, posits that the real motive for the crackdown on BDA was to cut off North Korea’s (legitimate) gold bullion sales, noting that BDA purchased and resold about $110 million of North Korean gold.

The significance of McClatchy’s reporting is that it further undercuts the U.S. assertion that the BDA sanctions executed under Section 311 of the Patriot Act were independent Treasury efforts to protect U.S. currency from compromise by counterfeit currency and prevent terrorists from exploiting the world financial system--and should not, indeed can not, be subordinated to the exigencies of U.S. diplomacy.

However, cutting off bullion sales by the North Korean government was not part of the U.N.-approved international sanctions regime against Pyongyang’s WMD industries; and it could not be construed as a legitimate pretext for sanctioning BDA under the Patriot Act.

Cutting off North Korean government sales of bullion looks like part of a campaign of economic blockade and financial warfare that goes beyond the targeted sanctions regime endorsed by the United Nations.

And using Patriot Act Section 311 as the means to shut down BDA’s bullion purchases from North Korea looks less like a legitimate use of the Act to protect U.S. national security and more like an element in a campaign of coercion on behalf of a unilateral United States foreign policy—a secret policy that had regime change at its heart.

As to the question of how important BDA was to North Korea’s gold bullion sales, I will admit to being an agnostic.

Gold is as good as...gold. People like it, especially when desperate sellers provide a discount, as North Korea probably does.

North Korean gold is probably not that hard to sell, even in the context of North Korea’s rumored production of six tons per annum and in the face of a U.S. campaign to cut North Korea off from the world financial community.

What the United States has probably accomplished is simply to make it very difficult for North Korea to trade gold on the established international markets, and force it to dispose of the gold at a less desirable price.

As the Christian Science Monitor reported in January:

One indication of North Korea's need to sell gold was its decision to provide information needed by the London Bullion Market Association (LBMA) to list the North's central bank as a "good deliverer" of gold and silver. Listing with the LBMA is essential for refiners who want to sell their products in London. The bank's listing was suspended 2-1/2 years ago when it failed to respond to LBMA requests for "proactive monitoring."

The LBMA said it does not "take into account any political criteria," and will keep the bank on its rolls for another three years without monitoring.

Despite the listing, market experts say the big banks that are major buyers of gold – and form the LBMA's core membership – are not likely to flout the spirit of the US Treasury order against Banco Delta Asia, through which North Korea exported gold prior to the ban.

"The fact that they're on the list does not mean they can deliver to the London market," says Stewart Murray, the LBMA's chief executive. "When we have sanctions, none of the facilities will accept delivery from a company or a country that is subject to these sanctions."

Of course, North Korean gold exports haven’t been officially banned, so Murray’s statement that, despite being listed as a “good deliverer”, North Korea was not allowed to sell gold on the London market makes little sense except in the context of a U.S. campaign to discourage trade in North Korean gold on the London exchange, using either diplomatic pressure or the threat of some Treasury enforcement action.

Colin McAskill—who purchased Daedong Credit Bank, the bank which has $6 million in funds tied up in BDA—has been campaigning to make it possible for North Korean gold bullion and other metals to be sold freely on the international market, thereby making foreign investment in North Korea’s gold and other metals and raw materials industries more feasible and attractive.

I wonder if McAskill’s enthusiasm for bringing North Korea in from the cold on gold sales is a reason why the obviously legitimate and private character of his bank’s account at BDA has been ignored by the champions of the free market and capitalism at the Treasury Department and, instead of being repatriated separately, his monies will disappear into Kim Jung Il’s suitcase as part of the funds “resolution”.

As befits its anonymous, fungible character, North Korean gold has found its way into the world market through other channels.

An interesting article by Bertil Lintner in Asia Times describes the growth of North Korean gold and silver sales to Thailand. Precious metal exports from North Korea to Thailand grew from virtually zero to $40 million in 2006.

Along the way, Lintner also documents the financial harassment of North Korea in Europe:

The action against Banco Delta Asia, a privately owned bank that the Macau government later had to prop up to prevent it from collapsing, was the second move against North Korea's assets abroad. In a much less publicized action, North Korea's only bank located in a foreign country - the Golden Star Bank in Vienna - was forced to suspend its operations in June 2004.

The Golden Star was 100% owned by the Korea Daesong Bank, a state enterprise headquartered in Pyongyang, and was allowed to set up a branch in the Austrian capital in 1982. For more than two decades, Austrian police kept a close eye on the bank, but there was no law that forbade the North Koreans from operating a bank in the country.

Nevertheless, Austria's police intelligence department stated in a 1997 report: "This bank [Golden Star] has been mentioned repeatedly in connection with everything from money-laundering and distribution of fake currency notes to involvement in the illegal trade in radioactive material."

Eventually the international pressure to close the bank became too strong. Sources in Vienna believe the US played an important behind-the-scenes role in finally shuttering Golden Star's modest office on 12 Kaiserstrasse in the Austrian capital. Until then, Vienna had been North Korea's center for financial transactions in Europe and the Middle East. Visitors to North Korea have noted that euro coins in circulation in the country - the US dollar is not welcome in Pyongyang - invariably came from Austria. (Euro notes are the same in all European Union countries, but coins designate individual member countries.)

Here’s another data point, courtesy of Daily NK:

Singaporean newspaper “Singapore Lianhe Zaobao” reported, “Though the recent BDA issue ended in shambles, Macao and BDA did face some trials” and “With the U.S. able to strangle any county with international financial sanctions, the BDA issue rang alarm bells for illegal acts occurring throughout the world.”

The Zaobao’s online site reported on the 24th, “7~8 small scale family run banks in Macau banks are faced with the threat of closing down as BDA concluded that these banks were acting as North Korea’s ‘laundering black money.’

Macau has been caught in this political issue after being targeted as a place dealing North Korea’s money laundering.” The newspaper also analyzed that the international community had questioned China’s morals [emphasis added].

China’s morals are probably not the issue here.

China’s insistence on following the letter of the UN sanctions and not the broad interpretation favored by the United States is probably at the nub of it all.

China is North Korea’s largest trading partner. It can purchase exportable North Korean outputs for its own use or even repackage and re-export them.

It can pay for North Korean exports using foreign exchange, let North Korea hold the funds in a Chinese bank, and permit North Korean companies to use those funds to open letters of credits for imports.

Its jewelry industry can easily absorb North Korea’s bullion—or, if desirable, resmelt it into clean, pretty bars—without reference to any de facto sanctions by the London exchange.

Therefore, China is the weak link in any U.S. led financial blockade of China.

And we all know, a chain is only as strong as its weakest link.

Which means that an effective financial blockade of North Korea had to include an effective China component—something which is apparently lacking.

Unfortunately, diplomacy was apparently not part of the Bush administration skill set, and the big stick was trundled out to threaten China with dire consequences if it didn’t participate in the unilateral U.S. sanctions regime.

As David Asher—the State Department’s previous pointman for the North Korean effort at State—acknowledged in a recent interview, the ultimate target of Treasury’s investigations in Macau was China.

In comparison with Banco Delta Asia, the information that had been collected on evidence of money laundering by the Macao branch of the Bank of China was "voluminous," Asher said.

Asher insists that the move against Banco Delta Asia was the direct consequence of law enforcement efforts and was not designed as political leverage in talks that were taking place simultaneously with North Korea on nuclear disarmament.

He advocates that efforts to curtail North Korea's links to criminal activity, and to ensure that China joins the enforcement effort, should not be suspended for the sake of expediency in the disarmament talks in Beijing.

"Banco Delta may be a sacrificial lamb in some people's minds, but it is not about Banco Delta," he said. "It's about Macao, Macao's government, China, the Chinese government and their complicity and their accommodative behavior toward North Korea's illegal activities, proliferation activities and leadership financial activities." (Donald Greenlees and David Lague, How a U.S. inquiry held up the N. Korea peace talks, International Heritage Tribune, April 11, 2007)


It looks like Treasury took the provocative step of threatening Bank of China with a money laundering tag in a failed attempt to get Macau and its patron Beijing to fall into line on America’s unilateral sanctions initiative against North Korea.

The threats apparently persisted even after the so-called March 14 resolution of the BDA funds—the Treasury Department’s scorched-earth final decision denouncing BDA. After the decision was announced, Daniel Glaser went to Macau and presented the results of the Treasury investigation to the Macau authorities in an effort to persuade them not to release some of the BDA funds.

Reading between the lines, Glaser probably declared that Treasury’s campaign against purported laundering of North Korean funds by Macau banks would not be suspended unless Macau obeyed Treasury’s diktat concerning the BDA funds.

My hypothesis is when Macau didn’t respond with appropriate enthusiasm, Glaser injudiciously escalated the confrontation by promising further investigation of mom-and-pop banks in Macau, possibly an indictment of BDA’s directors for being knowing conspirators (something that was bruited about in the Macau press) and, most unwisely, threatened to make it known that Treasury considered Bank of China Macau to be implicated in the North Korean money laundering web.

This kind of threat against the reputation and viability of Bank of China Macau is the best explanation I can come up with for China’s remarkably harsh and pointed subsequent summons to Treasury.

On March 21, the Chinese Ministry of Foreign Affairs stated:

In an effort to safeguard the financial stability in the Macao Special Administrative Region (MSAR), China yesterday demanded the US consult and negotiate with the MSAR government to address the latter's concerns over the issue of Banco Delta Asia (BDA), a Macao-based bank.

Foreign Ministry spokesman Liu Jianchao made the remarks at a regular press conference commenting on the frozen capital of North Korea at BDA. ... He urged the US to negotiate with the MSAR government on the issue to maintain Macao's financial and social stability.

Nothing here about greasing the wheels for the Six Party Agreement. Or doing the right thing by a little bank that got caught in the middle of superpower diplomacy.

China’s talking about the “financial and social stability” of Macau.

That probably means Bank of China Macau.

So Daniel Glaser was called back for what appears to have been ten days of stonewalling during which he refused to lift the threats against Bank of China Macau and other banks handling North Korean money or gold.

His line of defense—in his discussions with perhaps his most determined opponent, the State Department—probably hinged on the fact that Patriot Act 311 enforcement had been sold as an independent U.S. enforcement initiative unrelated to whatever U.N. sanction or Six Party diplomatic process involving North Korea.

If the sanctions against BDA were removed explicitly to facilitate the Six Party Agreement, then the legitimacy of Patriot Act Section 311 investigations—and their intimidating aura of implacable, inexorable malice—would be lost.

And Daniel Glaser and his boss, Stuart Levey, would look like jerks who had been using the pretext of supposed U.S. law enforcement obligations to promote a secret, unilateral, destabilizing North Korea policy under false pretenses.

Which, in my opinion, is exactly what they did.

And now I think the world—and Beijing--knows it.

Which means the credibility of Patriot Act Section 311 investigations is shot. European banks (and governments) leery of the U.S. approach on North Korea and Iran will find it easier to opt out of an explicitly politicized Section 311 investigation and sanctions regime.

And obtaining explicit waiver from Section 311 investigations will emerge as a central theme in trade negotiations between China and the United States (whose team will be led by Levey and Glaser’s boss, Treasury Secretary Paulson).

Nevertheless, Levey and Glaser probably insisted to President Bush that the club of Section 311, exploiting the central position of the United States in the world financial system and shielded from international and U.S. law under the national security aegis, was too powerful a weapon to repudiate for the sake of the Six Party Agreement (indeed, this is an assertion that Glaser and Asher and their advocates have been making with suspicious frequency in public fora).

And perhaps President Bush, himself a big fan of coercive middle-finger unilateralism, backed them, in effect splitting the baby, letting State pursue engagement and Treasury continue with confrontation.

Maybe it was the Chinese and the State Department who blinked, in effect throwing up their hands, ginning up a workaround, proceeding with the Six Party Agreement, and leaving the question of what to do about Patriot Act initiatives against Chinese banks—and the issue of the Treasury Department’s refractory attitude--for Secretary Paulson’s upcoming China trade talks.

Given the general contempt for North Korea and the credulity and sloppiness of most Western reporting on this subject, the only reason that we know or care that the Treasury Department is out to screw the North Koreans no matter what is the embarrassment and chaos its intransigence has brought to American diplomacy.

But now, thanks to the saga of the $25 million that somehow could not make it out of Macau, the narrative emerging from the BDA mess is not of the threat from North Korean supernotes, contraband, or WMDs.

It’s a picture of a U.S. campaign of economic warfare against North Korea, a campaign which may have registered successes in cutting off access to U.S. financial institutions, intimidating European banks, ostracizing North Korea from the London gold exchange, and twisting the arm of the Macau monetary authority to stop BDA and possibly other Macau banks from selling Kim Jung Il’s gold.

And it’s the disturbing picture of a campaign that went too far, stalled and become meaningless except as an unnecessary irritant to China, a crucial world power, because the United States lacked the political will and international support to initiate a high-stakes confrontation with North Korea’s powerful protector over a little country with a little bomb.

Even more disturbing, it’s a picture of a campaign that has been so extensive, so prolonged, so demanding of our allies, so insistent and coercive upon international financial institutions, and so central to American prestige and credibility that we are unable to abandon it and move beyond a campaign of harassment against a tiny bank in Macau—and provocation directed against a country that is central to the United States’ economic and fiscal well-being.

But the true story is not one of confusion, contradiction, and mixed messages in U.S. policy.

The story is one of American shortsightedness.

If North Korea wants to be insulated from the international financial community, all it needs to do is hide behind China’s coattails.

But that’s not what it wants.

North Korea wants to achieve international legitimacy and access to world financial markets. It wants to export directly, attract foreign investment, raise capital on the international financial markets, and sell its gold on the world exchanges.

North Korea doesn’t want to grovel to the Chinese and sell energy, resources, and gold to Beijing at below-market prices.

Quite the opposite.

Returning from North Korea, Bill Richardson noted:

Interestingly, North Korea sees themselves eventually as an ally of the United States; in other words, as an ally against China. They see themselves as playing a strategic role as a buffer between the United States and China.

Every American comes back from North Korea with the same message.

North Korea wants to break free of Chinese domination and align itself with the United States.

And what do we do?

Every time the North Korean dog sticks its head out of its Chinese kennel, we beat it on the snout with a stick—and force it back to the heel of its Chinese master.

And we persist with the policy even when it runs counter to our current diplomatic efforts and security strategy for the region.

It’s a policy that’s blind, self-defeating, and futile.

And now that the U.S. has abandoned a policy of confrontation with North Korea, it’s also become ridiculous.

Groundhog Day for BDA Funds

Update:

The Washington Post’s Glenn Kessler weighs in with what I regard, in my dyspeptic mood, as an inevitable piece of behind-covering by Treasury officials trying to explain how they couldn’t move $25 million dollars in 12 days.

The North Korean diplomats, meanwhile, resisted the U.S. proposal of setting up a humanitarian fund with the money. They would not fill out forms, provide bank account numbers, or sign waivers that would allow the money to be released to a humanitarian fund. They stuck to a simple message: "We want our money."

The Treasury officials left China thinking no deal was possible...

Not much clarity here beyond an attempt to ascribe the inability to move $25 million to North Korean “show me the money” goofiness.

Recall that the original agreement was that the money would be deposited in a North Korean Foreign Trade Bank account at Bank of China, not some “fund”, and Pyongyang “pledged” to spend it on humanitarian and educational purposes.

The DPRK has proposed the transfer of the roughly $25 million frozen in BDA into an account held by North Korea's Foreign Trade Bank at the Bank of China in Beijing.

"North Korea has pledged, within the framework of the Six-Party Talks, that these funds will be used solely for the betterment of the North Korean people, including for humanitarian and educational purposes. We believe this resolves the issue of the DPRK-related frozen funds.

In other words, the North Koreans would get their money in their account and then they would promise to spend it on the widows and orphans. I expect Kin Jung Il would be on his best behavior and, even if he was stupid enough to blow it on cognac and cigarettes, who cares? We’re trying to de-nuclearize North Korea, not set up the Pyongyang branch of the Ford Foundation to disburse $25 million transparently and effectively.

As to whose idea this was, judging from remarks Daniel Glaser made at a press conference in Beijing on March 19 announcing the “humanitarian and educational” boondoggle, he seems to be saying that it was North Korea’s idea, not America’s:

QUESTION: After saying that it was totally up to the Macanese authorities how to hand over the money, why is the U.S. announcing this?

DEPUTY ASSISTANT SECRETARY GLASER: We had - I was in Macau just on Saturday, and we discussed a number of things with the Macanese authorities. It was an opportunity for us to present the results of the investigation that we had conducted into BDA, and we did that. It was an opportunity to discuss the finalization of the Section 311 rule, and it was an opportunity to discuss the overarching mechanisms that could be used with respect to bringing a resolution to the funds transfer issue. Now this is a North Korean proposal, and both we and the Macanese thought that it was a very promising proposal. So I don't think this is about anyone imposing anything on Macau. I think this works very well for Macau, and I think that they found it to be a promising proposal. It will have to be accomplished in conformity with their laws, and I'm sure it will be.

and

QUESTION: You said you were taking the North Korean proposal as is. This is a North Korean proposal that you have accepted, that the United States had no part in this proposal whatsoever. By doing that are you accepting that this was a problem - an issue with the bank - and that the bank is to blame for this issue, or does North Korea share some of the problem in this whole issue?

DEPUTY ASSISTANT SECRETARY GLASER: This was a North Korean proposal. It was actually put to us in the bilateral working group that we had with them. So yes, it's a North Korean proposal. With respect for who's to blame, I think there's a lot of blame to go around. There were problems with the bank that we've articulated, and we've also articulated problems with many of the account holders. I think that there's a lot of blame to go around.

No “fund” there. And a lot of “North Korean proposal”.

Maybe “fund” is just another example of the sloppy verbiage that the U.S. has been applying to this situation since December, and they were just talking about the North Korean account at BOC.

Or maybe the U.S. (or the Treasury Dept.) decided to throw some more sand in the gears by trying to place new obligations on the Bank of China and North Korea for tracking, disposing of, and accounting for the money through a “humanitarian fund” as we saw fit.

The theme that China, as Bank of China’s regulator, would have “obligations” concerning the account had already made an unwelcome appearance in March.

QUESTION: The fact that these are going into a Bank of China account - does that suggest that China will have some responsibility in ensuring that the funds are used appropriately?

ASSISTANT SECRETARY HILL: I think any regulator has certain responsibilities, and I would put the Chinese in that category, as would any regulator of any bank account anywhere.
...
QUESTION: Who's going to be in charge of the humanitarian funds?

DEPUTY ASSISTANT SECRETARY GLASER: I think the specific modalities of this have yet to be worked out, but it will be probably deposited into a foreign trade bank account at the Bank of China in Beijing. And as we said, we have assurances that it will be used for these purposes - humanitarian purposes. And this is going to be - and these assurances have been made in the context of an ongoing process, an ongoing dialogue. And we are going to use that to make sure that our concerns are addressed and that commitments are lived up to.

Maybe in March, the U.S. expected to be sitting on the sidelines while North Korea floundered in discussions with Macau trying to implement this ridiculous agreement.

After all, a significant chunk of the frozen funds belonged to foreigners involved in North Korean business and one of them, Colin McAskill, had been quite vocal concerning his unwillingness to see his money vanish into the maw of Kim Jung Il’s “humanitarian and educational” venture.

But then the Chinese demanded that the U.S. return to Beijing to iron out the kinks—including obstacles never specified that made the Chinese government unwilling to handle the funds—and all of a sudden Christopher Hill and Daniel Glaser had the job of making the deal work, but couldn’t or wouldn’t git ‘er done.

So maybe the U.S. is trying to claim credit for proposing the “humanitarian fund” because otherwise it would be clear that the Treasury/State team had neither initiated nor accomplished anything positive—indeed had made the North Korean proposal impossible to implement—during the last two dreary weeks in Beijing.

Below is the original post, Groundhog Day for BDA Funds, outlining the apparent lack of progress in resolving the BDA funds situation as of April 11.

Supposedly another breakthrough.

According to Reuters, Sean McCormack said:

"The bottom line is that they [the Macau monetary authorities—ed.] have unblocked these accounts and the ... authorized account holders can withdraw the funds from those accounts," U.S. State Department spokesman Sean McCormack said in Washington.

Here’s what the Monetary Authority of Macao had to say:

The SAR Government of Macao has noted the public statement released by the U.S. authorities in relation to the North Korea funds in Banco Delta Asia. The Monetary Authority of Macao will continue to coordinate all parties concerned in Macao to properly deal with this issue within the parameters of existing legislations. Simultaneously, it expects all parties concerned to come up with appropriate and responsible arrangements respectively.

That's the whole statement.

Wow. Try to curb your enthusiasm, guys.

Back to Reuters:

The Monetary Authority of Macau issued a written statement that made no mention of unblocking the accounts, but Japan's Kyodo news agency quoted an authority spokeswoman as saying account holders could now withdraw or transfer the funds.

A Banco Delta Asia spokesperson also said the relevant account holders were free to do as they wished with the money.

Let’s see what the South Korean media has to say:

South Korean top nuclear negotiator Chun Yung-woo said after a meeting with U.S. chief nuclear envoy Christopher Hill the situation has returned to the status quo ante of Sept. 2005, when the U.S. fingered the bank as a “major money-laundering concern.” Pyongyang can either withdraw the money or carry out banking transactions with the funds, Chun said.

“Status quo ante of September 2005” is, unfortunately, completely untrue.

Prior to Sept. 2005, North Korea was merrily funneling all sorts of money through BDA on its way to other banks and other accounts without restriction.

We’ve really just turned the clock back to March 19, 2007 when Treasury followed up on its no-quarter final decision on BDA under Patriot Act Section 311 by ostentatiously washing its hands of BDA and announcing that the matter of the frozen accounts was “between the North Koreans and the Macanese”.

A more accurate description was that “we spent three weeks running in circles and ended up right where we had started”.

They could make a sequel to the movie Groundhog Day, in which Christopher Hill has to relive the BDA fiasco in perpetuity.

The money’s there but no other bank dares accept it--presumably because of Treasury Department shenanigans--according to the South Korean report referenced above:

North Korea had been demanding that all the assets are transferred to the Bank of China, which refuses to handle the North Korean money.

What sophisticated maneuvers did Daniel Glaser come up with during his two weeks in Beijing to “implement” a way out of the difficulties that the Treasury Department had created?

Apparently nothing.

Certainly not the written waiver for Bank of China to handle the funds that I thought Beijing would get.

And apparently Secretary Rice was unable to muster the political will or clout to get Glaser’s boss, Henry Paulson, to overrule him. That’s perhaps the most significant and disturbing element.

Absent assistance from Treasury, Christopher Hill’s solution is apparently for Pyongyang to send some guy over to pick up a suitcase full of cash, neatly recapitulating the way a lot of North Korean money made it to the bank in the first place.

North Korea will probably have to withdraw US$25 million of unfrozen funds from the Macau-based Banco Delta Asia in cash. A South Korean government official on Sunday said the North wanted the money transferred to an overseas bank account, “but realistically there are too many difficulties. Both the U.S. and China are of the opinion that everything should be discussed between Macau authorities and North Korea." A diplomatic source said despite a visit to China by U.S. Deputy Assistant Treasury Secretary Daniel Glaser, Washington and Beijing have failed to find a solution in the way North Korea wants. “To my understanding, the U.S. and China instead reviewed ways for North Korea to open a new separate account at BDA and withdraw the money, and have suggested this to North Korea." The source said the practical way would be allowing North Korea to withdraw the money after providing details about the account holder, or do so after opening an integrated account at BDA.

In a recent meeting in New York, the U.S. chief nuclear negotiator Christopher Hill put the suggestion to the deputy chief of North Korea's UN mission Kim Myong-gil. But it is unclear whether North Korea will accept. Chun Yung-woo, South Korea's top negotiator at the six-party nuclear talks, recently said the North apparently wants to open an overseas bank account to withdraw the money in cash. But sources say even if Pyongyang accepts the suggestion, it would still take a considerable amount of time because North Korea has to undergo procedures like identifying the account holder before it can withdraw the money.

And what about the legit account holders, like Colin McAskill’s DCB bank? No clean bill of health for that $6 million? He’s got to get his money back through Kim Jung Il?

Sheesh.

In other words, after all this rigamarole, it looks like the timeline for “resolving” BDA and shutting down the Yongbyon reactor won’t be met.

And Sean McCormack is apparently spinning haplessly trying to cover up the fact that we couldn’t resolve the BDA matter as we promised and the timeline for executing the Six Party Agreement is about to slip out of our fingers.

One doesn’t have to be a fan of the Six Party Agreement to be concerned about how this inability to live up to the terms of an agreement concerning a piddling $25 million will affect perceptions of America’s good faith in pursuing diplomatic engagement with regimes it dislikes—not just North Korea, but the big one, Iran.

I hope we don’t have to take this as a sign that the Bush administration’s short-lived enthusiasm for diplomacy with the axis of evil has already evaporated, and we can expect military strife with Iran after all.