McClatchy did a big feature on the little bank in Macau, Banco Delta Asia.
Stanley Au, the bank’s principal stockholder, is adamant about getting his bank back.
The US Treasury is resisting, not a surprise, since the bank’s “potential for recidivism” under Au’s leadership was the rather lame justification for not giving Banco Delta Asia a clean bill of health after BDA and the Macau Monetary Authority spent 18 months jumping through Treasury’s hoops on improved anti money laundering (AML) practices—the ostensible objective of the Patriot Act Section 311 investigation.
The interesting piece of news is that the Chinese government is apparently backing Mr. Au:
China, which took back control of Macau from Portugal in 1999, has quietly come to Au's defense, resisting U.S. pressure to force him to sell the bank, saying the pressure amounts to interference. Quinones said senior Chinese officials had told him that "if the U.S. Treasury Department begins to intrude into private banking and business, then foreign investors will pack up and leave."
That posture has put Beijing at loggerheads with Treasury Secretary Henry Paulson, who hails the use of financial sanctions to rein in "rogue" nations and terrorists, and encourages other nations to give their finance ministries similar tools.
I think Henry Paulson and Treasury are asking China to save U.S. face by letting them have Stanley Au’s head on a pike, so we can claim that we weren’t wasting the world’s time for a year and a half on BDA.
As I wrote concerning the sorry denouement of the Strategic Dialogue, it’s always dangerous to presume on a Chinese friendship, especially if you admit that you’re in a weak position and want a little help from your buddies in Beijing to look good.
In the BDA matter, beyond the pleasure of beating the dog in the water (exploiting the opposite party’s unfavorable position to gain additional advantage and administer some rough justice), I suspect the Chinese feel that Treasury, instead of asking the them to acquiesce in the sacrifice of their loyal ally, Stanly Au, has to make amends for all the heartburn that its Office of Terrorism and Financial Intelligence inflicted on them.
My take on the Chinese state of mind is that they deeply resented the bullying that OTFI subjected them to in its quixotic effort to cut North Korea off from Chinese banks, typified by the notorious remark by the mastermind of our hardline anti-North Korea policy, David Asher, that the move against BDA was an exercise in intimidation against Chinese banks, “killing the chicken to scare the monkeys”, as he put it.
The message the Chinese received from the U.S. climbdown on the North Korean funds in BDA—arranging the remittance to Russia via the Fed—was that Patriot Act Section 311 investigations against foreign banks are not mere matters of U.S. domestic regulation.
The U.S. government can no longer hide behind the feeble fiction that these investigations are not an exercise in foreign policy, or that the State Department and the President are helpless to intervene in what they pretend are Treasury’s tenacious, apolitical efforts to protect the U.S. financial system against criminal and terrorist contamination.
And the fact that the Six Party Agreement was held hostage to the hardliners’ BDA vendetta for over three months probably convinced the Chinese that putting the Patriot Act Section 311 tiger back in its cage—or beyond the reach of determined bureaucrats willing to unleash a devastating regulatory assault on Chinese banks—is a matter of considerable importance and urgency.
To the Chinese, I believe it’s time for the U.S. government to acknowledge the foreign policy dimension of Patriot Act Section 311 investigations targeting Chinese banks, and make their imposition and resolution the subject of explicit prior bilateral negotiations between Beijing and Washington.
In particular, I think the Chinese have told the State Department that any unilateral Treasury Department actions targeting Chinese banks will be interpreted as--and responded to--as a hostile piece of anti-diplomacy.
And I don’t think Henry Paulson is going to get anywhere with the Chinese until he privately assures them that Patriot Act investigations against Chinese banks--and demands on Chinese regulators that go beyond AML processes and infringe on Chinese sovereignty--are off the table, and confirms the concession publicly by acquiescing to Stanley Au’s return to BDA in some form.
Friday, July 06, 2007
Thursday, July 05, 2007
Catfish Blues
Another Salvo in the Moderate-Intensity US-China Trade War
Planning to eat 100 tons of Chinese catfish? Relax. The FDA's got your back.
The FDA import alert targeting Chinese catfish, eel, basa, dace, and shrimp contaminated with antibiotics and anti-microbial agents revived recollections of the Chinese aquaculture industry.
Based on my past experience, the FDA’s prime directive vis a vis Chinese aquatic imports has traditionally involved preventing American consumers from becoming violently, acutely ill by products that had been improperly handled or stored after harvesting.
I remember a grizzled veteran of the shrimp trade telling me that unscrupulous importers faced with the rejection of a load of nasty frozen shrimp by the FDA could divert the rejected container to Mexico, thaw the product, wash it with chlorine to lower the bacteria count, refreeze it, and import it as Mexican product.
Yum! as Rachel Ray would say.
The current to-do about Chinese aquatic products has to do with an entirely opposite issue: China’s use of drugs as feed additives to prevent the spread of disease among live creatures in the ponds--and the long term risk of prolonged exposure to these drugs for U.S. consumers.
Farm-raised fish and shrimp are a huge business in China and throughout Asia. In China, enclosing coastal areas and creating fish ponds is seen as a way to utilize marginal coastal lands and improve farmers’ incomes through production of high-value, exportable crop. Chinese governments, corporations, and the World Bank have pitched in to create the necessary, expensive infrastructure of ponds and processing plant.
The downside of farm-raised aquatic products is that density=profits.
Which means you have a gazillion shrimp or carp swimming around inside an enclosed pond that is basically a gigantic fish toilet. To add to the biological load, you dump feed into this stew and hope that the critters eat (most of) it before it sinks to the bottom.
All sorts of bacterial, fungal, and algal yuck breeds in the ponds, can spread like wildfire through the population, and can even contaminate the mud at the bottom so thoroughly that the pond has to be drained, limed, and left to rest for a couple seasons until it is usable again.
Just as in the poultry industry, dosing the feed with antibiotics is a way to keep a pond full of sellable product, instead of thousands of pounds of dead, dying, or sick fish with fungus on their lips and gills or with holes eaten their heads by rampant bacterial infections.
In the United States, the FDA bans a certain class of antibiotics—fluoroqinolones—because widespread use quickly results in the emergence of nasty, resistant strains of bacteria.
If fluoroquinolones ring a bell it’s because one of the varieties—one used as a veterinary product, as a matter of fact—is ciprofloxacin a.k.a. Cipro a.k.a. the anthrax-killer that Americans hysterically stockpiled in the aftermath of 9/11.
Three states—Mississippi, Alabama, and Lousiana—banned Chinese catfish when it tested positive for fluorquinolones. An Alabama congressman, Artur Davis, made it a national issue, Chuck Schumer pontificates, and bingo there’s an FDA import alert, not just against certain importers but the whole country.
Even though the director of the Mississippi Poison Control Center stated (h/t to Left in Alabama) that you’d have to eat 220,000 pounds of Chinese catfish before getting sick...
...and the potential advantages of ingesting huge quantities of Cipro-laced Chinese catfish as an anthrax prophylactic have been inexplicably unaddressed.
Well, maybe not so inexplicably.
Mississippi, Alabama, and Louisiana may not be at the forefront of food safety, but they are the leading producers of farm-raised catfish and shrimp, the very products threatened by Chinese imports.
The Mississippi Delta, home of the blues, is also heart of the U.S. catfish industry. Big farms in places like Tupelo—Elvis’s home town--and the euphoniously-named Belzoni produce catfish, votes, and political clout.
This clout was displayed in 2005, when the same three states sounded the fluoroquinolone alarm against Vietnam, and Vietnam banned use of the antibiotic in response (the Mises Institute provides the protectionist backstory and waxes indignant here).
This year, I guess because it’s China, the FDA decided to pile on, dinging China for traces of carcinogenic anti-microbial e.g. anti-fungus agents malachite green, gentian violet, and nitrofuran in its aquaculture exports as well as fluoroquinolones.
You have to wonder how bad gentian violet can be, considering it’s used on tampons and to treat thrush in infants.
China’s injection of trace quantities of fluoroquinolones and carcinogenic anti-microbials in a limited sector of the U.S. food supply certainly isn’t an acute health risk.
As the FDA itself said ,
The products "could cause serious health problems if consumed over a long period of time," said [FDA Assistant Commissioner for Food Protection David Acheson].
Still, Acheson added, the low levels of contaminants means that there is "no imminent threat" to the public health.
And from the LA Times :
FDA officials, however, said the small quantities of the banned chemicals found in testing were not enough to pose an immediate threat to human health.
"We are not asking for this product to be withdrawn from the market or for people to take it out of their freezer and throw it away," said Margaret Glavin, head of the FDA's enforcement branch. "This is a long-term health concern … not an acute concern."
You get the feeling there’s a lot of things in the U.S. food supply that’s going to kill us a lot quicker than Chinese dace, basa, eels, shrimp, and catfish.
And that the FDA, by issuing an import alert against the entire country of the PRC, is making some kind of political statement instead of a public health move.
After fluoroquinolones were detected in Vietnamese catfish in 2005, the FDA response was kinda different:
Under FDA regulations, when an outlawed chemical is found in a product imported into the US, the importer is placed on a black list, and five more shipments from that importer would be tested before the import ban would be lifted.
Nevertheless, it’s not a bad idea to bring the Chinese feed and food industry in line with higher U.S. standards, so it’s easy to forgive the FDA for a piece of enforcement that’s a teeny bit politically motivated and selective.
In a heartening example of positive blowback, the Chinese central government is apparently responding to Western investigative reporting by making food safety a focus , and try to make the case for the CCP as steward of the Chinese peoples’ well-being and not just the reckless enabler of a grab the buck and damn the rules post socialist oligarchy.
Despite these potentially laudable outcomes, regulatory activities on the international stage that are skewed by politics and protectionism bring a certain set of problems with them.
Selective enforcement begets selective enforcement, or tit begets tat.
Torn from the headlines :
BEIJING - China said Saturday it had rejected a shipment of pistachios from the United States because it contained ants, the latest indication the government may be retaliating as Chinese products are turned back from overseas because of safety concerns.
The state television report, which showed inspectors wearing face masks and sealing the shipping container that held the pistachios, indicated an increasing push to show that other countries also have food safety issues. On Friday, Chinese food safety watchdog announced that shipments of health supplements and raisins from the U.S. had been returned or destroyed because they did not meet quality control standards.
If we want to turn food and product quality into an anti-China club, China has signaled it’s going to hit back.
Obliquely harassing China through a campaign of trade-related enforcement actions may seems to be a good match for the tactical impotence of the Bush administration and the passive-aggressive tendencies of the Democrats in negotiating with China.
However, the same unilateralism, tactical expediency, and political opportunism that make these enforcement actions cheap and easy to apply also signal the dearth of political will and international consensus backing them...
...and will encourage the targeted party to escalate instead of compromise if it believes it holds the stronger hand.
Time will tell if the Bush administration's targeted application of anti-dumping, anti-subsidy, and inspection measures against China will yield anything more than rancor and stalemate.
In our moderate-intensity trade war with China, the benefits to the United States, its businesses, and its consumers may be nugatory.
Perhaps the Chinese consumer protection movement will emerge as the real victor instead.
Planning to eat 100 tons of Chinese catfish? Relax. The FDA's got your back.
The FDA import alert targeting Chinese catfish, eel, basa, dace, and shrimp contaminated with antibiotics and anti-microbial agents revived recollections of the Chinese aquaculture industry.
Based on my past experience, the FDA’s prime directive vis a vis Chinese aquatic imports has traditionally involved preventing American consumers from becoming violently, acutely ill by products that had been improperly handled or stored after harvesting.
I remember a grizzled veteran of the shrimp trade telling me that unscrupulous importers faced with the rejection of a load of nasty frozen shrimp by the FDA could divert the rejected container to Mexico, thaw the product, wash it with chlorine to lower the bacteria count, refreeze it, and import it as Mexican product.
Yum! as Rachel Ray would say.
The current to-do about Chinese aquatic products has to do with an entirely opposite issue: China’s use of drugs as feed additives to prevent the spread of disease among live creatures in the ponds--and the long term risk of prolonged exposure to these drugs for U.S. consumers.
Farm-raised fish and shrimp are a huge business in China and throughout Asia. In China, enclosing coastal areas and creating fish ponds is seen as a way to utilize marginal coastal lands and improve farmers’ incomes through production of high-value, exportable crop. Chinese governments, corporations, and the World Bank have pitched in to create the necessary, expensive infrastructure of ponds and processing plant.
The downside of farm-raised aquatic products is that density=profits.
Which means you have a gazillion shrimp or carp swimming around inside an enclosed pond that is basically a gigantic fish toilet. To add to the biological load, you dump feed into this stew and hope that the critters eat (most of) it before it sinks to the bottom.
All sorts of bacterial, fungal, and algal yuck breeds in the ponds, can spread like wildfire through the population, and can even contaminate the mud at the bottom so thoroughly that the pond has to be drained, limed, and left to rest for a couple seasons until it is usable again.
Just as in the poultry industry, dosing the feed with antibiotics is a way to keep a pond full of sellable product, instead of thousands of pounds of dead, dying, or sick fish with fungus on their lips and gills or with holes eaten their heads by rampant bacterial infections.
In the United States, the FDA bans a certain class of antibiotics—fluoroqinolones—because widespread use quickly results in the emergence of nasty, resistant strains of bacteria.
If fluoroquinolones ring a bell it’s because one of the varieties—one used as a veterinary product, as a matter of fact—is ciprofloxacin a.k.a. Cipro a.k.a. the anthrax-killer that Americans hysterically stockpiled in the aftermath of 9/11.
Three states—Mississippi, Alabama, and Lousiana—banned Chinese catfish when it tested positive for fluorquinolones. An Alabama congressman, Artur Davis, made it a national issue, Chuck Schumer pontificates, and bingo there’s an FDA import alert, not just against certain importers but the whole country.
Even though the director of the Mississippi Poison Control Center stated (h/t to Left in Alabama) that you’d have to eat 220,000 pounds of Chinese catfish before getting sick...
...and the potential advantages of ingesting huge quantities of Cipro-laced Chinese catfish as an anthrax prophylactic have been inexplicably unaddressed.
Well, maybe not so inexplicably.
Mississippi, Alabama, and Louisiana may not be at the forefront of food safety, but they are the leading producers of farm-raised catfish and shrimp, the very products threatened by Chinese imports.
The Mississippi Delta, home of the blues, is also heart of the U.S. catfish industry. Big farms in places like Tupelo—Elvis’s home town--and the euphoniously-named Belzoni produce catfish, votes, and political clout.
This clout was displayed in 2005, when the same three states sounded the fluoroquinolone alarm against Vietnam, and Vietnam banned use of the antibiotic in response (the Mises Institute provides the protectionist backstory and waxes indignant here).
This year, I guess because it’s China, the FDA decided to pile on, dinging China for traces of carcinogenic anti-microbial e.g. anti-fungus agents malachite green, gentian violet, and nitrofuran in its aquaculture exports as well as fluoroquinolones.
You have to wonder how bad gentian violet can be, considering it’s used on tampons and to treat thrush in infants.
China’s injection of trace quantities of fluoroquinolones and carcinogenic anti-microbials in a limited sector of the U.S. food supply certainly isn’t an acute health risk.
As the FDA itself said ,
The products "could cause serious health problems if consumed over a long period of time," said [FDA Assistant Commissioner for Food Protection David Acheson].
Still, Acheson added, the low levels of contaminants means that there is "no imminent threat" to the public health.
And from the LA Times :
FDA officials, however, said the small quantities of the banned chemicals found in testing were not enough to pose an immediate threat to human health.
"We are not asking for this product to be withdrawn from the market or for people to take it out of their freezer and throw it away," said Margaret Glavin, head of the FDA's enforcement branch. "This is a long-term health concern … not an acute concern."
You get the feeling there’s a lot of things in the U.S. food supply that’s going to kill us a lot quicker than Chinese dace, basa, eels, shrimp, and catfish.
And that the FDA, by issuing an import alert against the entire country of the PRC, is making some kind of political statement instead of a public health move.
After fluoroquinolones were detected in Vietnamese catfish in 2005, the FDA response was kinda different:
Under FDA regulations, when an outlawed chemical is found in a product imported into the US, the importer is placed on a black list, and five more shipments from that importer would be tested before the import ban would be lifted.
Nevertheless, it’s not a bad idea to bring the Chinese feed and food industry in line with higher U.S. standards, so it’s easy to forgive the FDA for a piece of enforcement that’s a teeny bit politically motivated and selective.
In a heartening example of positive blowback, the Chinese central government is apparently responding to Western investigative reporting by making food safety a focus , and try to make the case for the CCP as steward of the Chinese peoples’ well-being and not just the reckless enabler of a grab the buck and damn the rules post socialist oligarchy.
Despite these potentially laudable outcomes, regulatory activities on the international stage that are skewed by politics and protectionism bring a certain set of problems with them.
Selective enforcement begets selective enforcement, or tit begets tat.
Torn from the headlines :
BEIJING - China said Saturday it had rejected a shipment of pistachios from the United States because it contained ants, the latest indication the government may be retaliating as Chinese products are turned back from overseas because of safety concerns.
The state television report, which showed inspectors wearing face masks and sealing the shipping container that held the pistachios, indicated an increasing push to show that other countries also have food safety issues. On Friday, Chinese food safety watchdog announced that shipments of health supplements and raisins from the U.S. had been returned or destroyed because they did not meet quality control standards.
If we want to turn food and product quality into an anti-China club, China has signaled it’s going to hit back.
Obliquely harassing China through a campaign of trade-related enforcement actions may seems to be a good match for the tactical impotence of the Bush administration and the passive-aggressive tendencies of the Democrats in negotiating with China.
However, the same unilateralism, tactical expediency, and political opportunism that make these enforcement actions cheap and easy to apply also signal the dearth of political will and international consensus backing them...
...and will encourage the targeted party to escalate instead of compromise if it believes it holds the stronger hand.
Time will tell if the Bush administration's targeted application of anti-dumping, anti-subsidy, and inspection measures against China will yield anything more than rancor and stalemate.
In our moderate-intensity trade war with China, the benefits to the United States, its businesses, and its consumers may be nugatory.
Perhaps the Chinese consumer protection movement will emerge as the real victor instead.
Monday, July 02, 2007
Darfur Sideshow
It’s Time to Focus on the Key Elements in the China-Sudan-US Equation
The Christian Science Monitor does the usual handwringing over Darfur and fingerpointing at China in Danna Harman’s article How China’s Support Shields a Regime Called Genocidal.
But before she can move on to Darfur and provide a hook for the genocide tag in the article, Ms. Harman does the public a service by devoting a few paragraphs to the true driving force in Sudanese security affairs—and China’s involvement: Sudan’s conflict with the oil rich south, an old fashioned, brutal, and desperate but non-genocidal incipient once-and-future civil war.
When it comes to what makes Sudan tick, Darfur is simply a tragic, terrible sideshow.
It’s a sideshow that the Western media has fixated on, perhaps because the Bush administration is unwilling to draw attention to the fatal rot at the heart of the Comprehensive Peace Agreement (CPA) it brokered between the South and Khartoum in January 2005.
I blogged in detail on the Bush administration’s remarkable, even bizarre engagement with Sudan’s Islamicist, bin-Laden-friendly regime in the service of its African objectives last year, but here’s the gist:
The Bush administration reversed the Clinton administration’s ostracization of Khartoum and went to enormous lengths to close a deal between Khartoum and rebels in the south that includes provisions for power sharing, revenue-sharing—and also for a referendum in 2011 that virtually guarantees the partition of Sudan between the Islamicist north and the pro-U.S. south.
In order to maintain its post-2011 viability, the Sudanese regime, with the help of China, is desperately and duplicitously creating “facts on the ground”: hogging the oil revenues, encroaching on oil fields on the southern side of the future border zone, destabilizing the area through the use of supposedly arms-length militias, and amassing a war chest, weapons, and dual-use infrastructure that will deter the south from contesting Khartoum’s aggression.
On one level, the catastrophe in Darfur can be seen as unexpected blowback from the North-South deal, with some forces in the west of Sudan playing the civil war card to place a me-too claim to oil revenue sharing—a ploy that backfired as Khartoum pushed back hard and tipped the whole country into failed-state status with a brutal anti-insurgency campaign conducted through its janjaweed militia proxies.
The Bush administration’s Sudan diplomacy, though in many ways the antithesis of the militarized coercion displayed in Iraq, shares in its execution much of the “hope is not a plan” fecklessness that doomed our adventure in Mesopotamia.
Washington has consistently appeased the Khartoum regime, citing its supposed contributions in the war on terror but probably anxious to forestall its repudiation of the CPA, the one clear-cut success in six unhappy years of Bush administration diplomacy.
If DEBKAfile is to be believed, in 2004 the Bush administration entertained Sudan-fueled fantasies almost too puerile and embarrassing to credit:
For the first time ever, American diplomacy will have succeeded in converting a country dominated by radical Muslims – in Sudan’s case since the 17th century - into a secular democracy... On the agenda too is a highly evocative ritual at the White House at which Sudan’s president will solemnly forswear his country’s dark past as recruiter of slaves for America and the Arab caravans carrying African slaves around the world.
If the US president has his way, the White House lawn will be fully booked this year with ceremonies centering on the Sudanese reconciliation...National security adviser Condoleezza Rice has set up a committee with heads of the African American community. Working out of an undisclosed location in Los Angeles, they are assess [sic] the next moves on Sudan and their impact on voting patterns in November...the president’s senior political adviser Karl Rove is taking charge of strategy on Sudan and its exploitation as campaign fodder.
Once the agreement was in place, the State Department apparently gave little thought to preserving and enhancing the leverage needed to ensure its proper implementation, let alone achieve dramatic displays of Arab penance for the slave trade on the White House lawn--or Rove-orchestrated gains among the African-American electorate.
The State Department’s anxiety to protect the CPA has apparently translated into an anxiety to do nothing vis a vis the South—such as meaningful economic and infrastructure support—that might antagonize Khartoum.
With the CPA as its hostage, no wonder Khartoum feels free to flout us and the world on Darfur.
If execution of the CPA is meant to be a demonstration project for the advantages of soft-power diplomacy by the career professionals at the State Department, it almost makes one wish the middle-finger hardliners with their brutal zeal were running the Sudan show.
Preoccupied with America's staggering problems in the Middle East, the State Department has been unable to focus its attention and resources on Africa. But even within this context, U.S. neglect of South Sudan is striking.
Our special envoy for Sudan, Andrew Natsios fills the position part-time while teaching at Georgetown. The U.S. presence in the South has actually been reduced while our staffing in Sudan’s capital has been boosted. USAID's chief resides in Khartoum, not the southern capital of Juba. Little has been done to help reorganize the South's chief rebel force, the Sudan People’s Liberation Army or SPLA, into a regular army and viable counterweight to Khartoum's military.
According to Sudan analyst Eric Reeves, turning our back on the South and giving Khartoum a free hand to undermine the CPA could have devastating consequences:
[The SPLA] is the key guarantor of the security arrangements (and hence all terms) of the CPA--and yet the SPLA is probably weaker today than a year ago, and Khartoum continues an aggressive policy of purchasing advanced weapons systems. The oil roads in southern Sudan would allow for all-weather projection of mechanized military power in the event of resumed war---something without precedent. When in 2003 I was talking with SPLA commanders on the ground in southern Sudan, and with John Garang personally, all made the same statement: if war resumes (a shaky ceasefire was in place while I traveled to various locations), then it will be the most destructive phase of a civil war that had at that point killed over 2 million and displaced as many as 5 million. [e-mail to China Matters, 6/30/07]
Contra the hopeless muddle in Darfur, we’ve got real assets and opportunities in the South: a functioning state, viable, pro-American government authority with battle-hardened leaders, legitimacy, and, thanks to its Christian element, a reservoir of potent political clout among the evangelical base in the United States.
And the South has got oil, of course.
South Sudan’s leaders came to the United States in January to testify before Congress and sound the alarm concerning Khartoum’s duplicity in implementing the CPA.
In supporting testimony , Roger Winter, the former special envoy to Sudan, also called for strengthening South Sudan’s army and drew, I believe, a proper distinction in between bolstering the SPLA as a genuine nascent national army versus the generally irresponsible and/or malicious U.S. practice of arming of useful factions around the world:
It is in the U.S. interest to invest significantly in the conversion of the SPLM’s military force, the SPLA, into a modern, well-trained and well- managed military. Unlike many situations in the developing world, the SPLM is a positive rebel political force that, despite many limitations and liabilities, was recognized by the U.S. as the key to creating a new, democratic Sudan. Similarly, with the SPLA, all the forces of Khartoum, formal and informal, collectively could not defeat the SPLA. In a very real sense, the very existence of a strong SPLA is the best guarantor of CPA implantation. Policy realism would, I believe, indicate that, of all the military forces in Sudan, only the SPLA has both the vested interest in seeing the CPA scrupulously implemented(i.e. so the Referendum is actually held) and, having fought off the NIF forces already, the capacity to protect the CPA without foreign military intervention. U.S. efforts in this regard are too limited and moving too slowly.
He concluded his testimony with a message to President Bush that our preoccupied lame-duck supremo will probably be unable to heed:
A note to President Bush: Achieving peace in Sudan was a goal you set for your Administration at the very beginning of your tenure. Your initiative succeeded beyond expectations in the South. The CPA, your legacy to all of Sudan, was a solid win, but is now at risk. It needs your personal attention.
Given the major investment of American prestige in the Sudanese powersharing arrangement and Khartoum’s serial malfeasance in the matters of the South and Darfur, one might think that the United States would muster the will and resources to maximize our leverage in Sudan and buttress the Comprehensive Peace Agreement.
Instead, we get impotent jawboning from the Bush administration and griping that China is not doing enough to save our bacon in Sudan—the nation that was supposed to be America’s foreign policy beachhead in Africa but has turned into another one of our geopolitical headaches instead.
If the Bush administration had expended half the effort it committed to the lost cause of coercive diplomacy against North Korea and China—an effort doomed to failure in North Asia, where China is the 800 pound gorilla with vital interests and every conceivable military, economic, and diplomatic lever—and bolstered the South instead, we might be looking at a different situation in Sudan.
For all the blather about China’s soft power in Africa, China lacks the ability to force its way in Sudan.
It can only expand its influence when American neglect and incompetence leave a vacuum.
We might have seen a situation in which China—a long way from home, with zero military power projection and linked to an unsavory and unpredictable ally—would back away from backing Sudan in a proxy war against a U.S. client, and think twice about opportunistically enabling Khartoum’s encroachment upon the military, political, and economic security of the South...
...and Darfur.
Instead we are passive, deluded, and despairing spectators at the Darfur sideshow--while the decisive tragedy of Sudan unfolds elsewhere.
The Christian Science Monitor does the usual handwringing over Darfur and fingerpointing at China in Danna Harman’s article How China’s Support Shields a Regime Called Genocidal.
But before she can move on to Darfur and provide a hook for the genocide tag in the article, Ms. Harman does the public a service by devoting a few paragraphs to the true driving force in Sudanese security affairs—and China’s involvement: Sudan’s conflict with the oil rich south, an old fashioned, brutal, and desperate but non-genocidal incipient once-and-future civil war.
When it comes to what makes Sudan tick, Darfur is simply a tragic, terrible sideshow.
It’s a sideshow that the Western media has fixated on, perhaps because the Bush administration is unwilling to draw attention to the fatal rot at the heart of the Comprehensive Peace Agreement (CPA) it brokered between the South and Khartoum in January 2005.
I blogged in detail on the Bush administration’s remarkable, even bizarre engagement with Sudan’s Islamicist, bin-Laden-friendly regime in the service of its African objectives last year, but here’s the gist:
The Bush administration reversed the Clinton administration’s ostracization of Khartoum and went to enormous lengths to close a deal between Khartoum and rebels in the south that includes provisions for power sharing, revenue-sharing—and also for a referendum in 2011 that virtually guarantees the partition of Sudan between the Islamicist north and the pro-U.S. south.
In order to maintain its post-2011 viability, the Sudanese regime, with the help of China, is desperately and duplicitously creating “facts on the ground”: hogging the oil revenues, encroaching on oil fields on the southern side of the future border zone, destabilizing the area through the use of supposedly arms-length militias, and amassing a war chest, weapons, and dual-use infrastructure that will deter the south from contesting Khartoum’s aggression.
On one level, the catastrophe in Darfur can be seen as unexpected blowback from the North-South deal, with some forces in the west of Sudan playing the civil war card to place a me-too claim to oil revenue sharing—a ploy that backfired as Khartoum pushed back hard and tipped the whole country into failed-state status with a brutal anti-insurgency campaign conducted through its janjaweed militia proxies.
The Bush administration’s Sudan diplomacy, though in many ways the antithesis of the militarized coercion displayed in Iraq, shares in its execution much of the “hope is not a plan” fecklessness that doomed our adventure in Mesopotamia.
Washington has consistently appeased the Khartoum regime, citing its supposed contributions in the war on terror but probably anxious to forestall its repudiation of the CPA, the one clear-cut success in six unhappy years of Bush administration diplomacy.
If DEBKAfile is to be believed, in 2004 the Bush administration entertained Sudan-fueled fantasies almost too puerile and embarrassing to credit:
For the first time ever, American diplomacy will have succeeded in converting a country dominated by radical Muslims – in Sudan’s case since the 17th century - into a secular democracy... On the agenda too is a highly evocative ritual at the White House at which Sudan’s president will solemnly forswear his country’s dark past as recruiter of slaves for America and the Arab caravans carrying African slaves around the world.
If the US president has his way, the White House lawn will be fully booked this year with ceremonies centering on the Sudanese reconciliation...National security adviser Condoleezza Rice has set up a committee with heads of the African American community. Working out of an undisclosed location in Los Angeles, they are assess [sic] the next moves on Sudan and their impact on voting patterns in November...the president’s senior political adviser Karl Rove is taking charge of strategy on Sudan and its exploitation as campaign fodder.
Once the agreement was in place, the State Department apparently gave little thought to preserving and enhancing the leverage needed to ensure its proper implementation, let alone achieve dramatic displays of Arab penance for the slave trade on the White House lawn--or Rove-orchestrated gains among the African-American electorate.
The State Department’s anxiety to protect the CPA has apparently translated into an anxiety to do nothing vis a vis the South—such as meaningful economic and infrastructure support—that might antagonize Khartoum.
With the CPA as its hostage, no wonder Khartoum feels free to flout us and the world on Darfur.
If execution of the CPA is meant to be a demonstration project for the advantages of soft-power diplomacy by the career professionals at the State Department, it almost makes one wish the middle-finger hardliners with their brutal zeal were running the Sudan show.
Preoccupied with America's staggering problems in the Middle East, the State Department has been unable to focus its attention and resources on Africa. But even within this context, U.S. neglect of South Sudan is striking.
Our special envoy for Sudan, Andrew Natsios fills the position part-time while teaching at Georgetown. The U.S. presence in the South has actually been reduced while our staffing in Sudan’s capital has been boosted. USAID's chief resides in Khartoum, not the southern capital of Juba. Little has been done to help reorganize the South's chief rebel force, the Sudan People’s Liberation Army or SPLA, into a regular army and viable counterweight to Khartoum's military.
According to Sudan analyst Eric Reeves, turning our back on the South and giving Khartoum a free hand to undermine the CPA could have devastating consequences:
[The SPLA] is the key guarantor of the security arrangements (and hence all terms) of the CPA--and yet the SPLA is probably weaker today than a year ago, and Khartoum continues an aggressive policy of purchasing advanced weapons systems. The oil roads in southern Sudan would allow for all-weather projection of mechanized military power in the event of resumed war---something without precedent. When in 2003 I was talking with SPLA commanders on the ground in southern Sudan, and with John Garang personally, all made the same statement: if war resumes (a shaky ceasefire was in place while I traveled to various locations), then it will be the most destructive phase of a civil war that had at that point killed over 2 million and displaced as many as 5 million. [e-mail to China Matters, 6/30/07]
Contra the hopeless muddle in Darfur, we’ve got real assets and opportunities in the South: a functioning state, viable, pro-American government authority with battle-hardened leaders, legitimacy, and, thanks to its Christian element, a reservoir of potent political clout among the evangelical base in the United States.
And the South has got oil, of course.
South Sudan’s leaders came to the United States in January to testify before Congress and sound the alarm concerning Khartoum’s duplicity in implementing the CPA.
In supporting testimony , Roger Winter, the former special envoy to Sudan, also called for strengthening South Sudan’s army and drew, I believe, a proper distinction in between bolstering the SPLA as a genuine nascent national army versus the generally irresponsible and/or malicious U.S. practice of arming of useful factions around the world:
It is in the U.S. interest to invest significantly in the conversion of the SPLM’s military force, the SPLA, into a modern, well-trained and well- managed military. Unlike many situations in the developing world, the SPLM is a positive rebel political force that, despite many limitations and liabilities, was recognized by the U.S. as the key to creating a new, democratic Sudan. Similarly, with the SPLA, all the forces of Khartoum, formal and informal, collectively could not defeat the SPLA. In a very real sense, the very existence of a strong SPLA is the best guarantor of CPA implantation. Policy realism would, I believe, indicate that, of all the military forces in Sudan, only the SPLA has both the vested interest in seeing the CPA scrupulously implemented(i.e. so the Referendum is actually held) and, having fought off the NIF forces already, the capacity to protect the CPA without foreign military intervention. U.S. efforts in this regard are too limited and moving too slowly.
He concluded his testimony with a message to President Bush that our preoccupied lame-duck supremo will probably be unable to heed:
A note to President Bush: Achieving peace in Sudan was a goal you set for your Administration at the very beginning of your tenure. Your initiative succeeded beyond expectations in the South. The CPA, your legacy to all of Sudan, was a solid win, but is now at risk. It needs your personal attention.
Given the major investment of American prestige in the Sudanese powersharing arrangement and Khartoum’s serial malfeasance in the matters of the South and Darfur, one might think that the United States would muster the will and resources to maximize our leverage in Sudan and buttress the Comprehensive Peace Agreement.
Instead, we get impotent jawboning from the Bush administration and griping that China is not doing enough to save our bacon in Sudan—the nation that was supposed to be America’s foreign policy beachhead in Africa but has turned into another one of our geopolitical headaches instead.
If the Bush administration had expended half the effort it committed to the lost cause of coercive diplomacy against North Korea and China—an effort doomed to failure in North Asia, where China is the 800 pound gorilla with vital interests and every conceivable military, economic, and diplomatic lever—and bolstered the South instead, we might be looking at a different situation in Sudan.
For all the blather about China’s soft power in Africa, China lacks the ability to force its way in Sudan.
It can only expand its influence when American neglect and incompetence leave a vacuum.
We might have seen a situation in which China—a long way from home, with zero military power projection and linked to an unsavory and unpredictable ally—would back away from backing Sudan in a proxy war against a U.S. client, and think twice about opportunistically enabling Khartoum’s encroachment upon the military, political, and economic security of the South...
...and Darfur.
Instead we are passive, deluded, and despairing spectators at the Darfur sideshow--while the decisive tragedy of Sudan unfolds elsewhere.
Tuesday, June 19, 2007
Did Misapplication of Patriot Act Section 311 Investigations Lead America into a North Korean Cul de Sac?
A relatively obscure advisory on the Department of the Treasury website offers evidence of the hardliners’ determination to implement a financial blockade of North Korea in 2005-2006.
On December 13,2005, two months after the Patriot Act Section 311 investigation against BDA was announced, Treasury issued an advisory entitled Guidance to Financial Institutions on the Provision of Banking Services to North Korean Government Agencies and Associated Front Companies Engaged in Illicit Activities.
It stated :
This advisory warns U.S .financial institutions that the U.S. Department of the Treasury has concerns that the Democratic People’s Republic of Korea (“North Korea”), acting through government agencies and associated front companies, is engaged in illicit activities and may be seeking banking services elsewhere following the finding of Banco Delta Asia SARL to be a financial institution of “primary money laundering concern”.
Accordingly, U.S. financial institutions should take reasonable steps to guard against the abuse of their financial services by North Korea, which may be seeking to establish new or exploit existing account relationships for the purpose of conducting illicit activities...We encourage financial institutions worldwide to take similar precautions.
An international financial newsletter summarized the advisory for its subscribers with the comment:
We encourage financial institutions worldwide to take similar precautions as those contained in the Advisory. The Department of the Treasury is actively monitoring this situation and will take any further action to protect the U.S. financial system as appropriate.
This advisory would seem to be the missing link between an enforcement action targeting one ostensibly misbehaving institution in Macau and a broad based effort to cut North Korea off from the world financial system in the service of diplomacy, regime change, or something in-between.
The advisory is explicitly linked to the action against BDA, with the clear implication that banks that allow transactions through existing North Korean accounts, or allow the opening of new North Korean accounts will find their heads on the chopping block next.
Connecting the dots from the Banco Delta Asia precedent, it is apparent that the threat to other banks would be a Patriot Act Section 311 investigation like the one announced against BDA, which had sparked a run on the bank, its takeover by Macau regulators, the freezing of 51 accounts linked to North Korea at Treasury’s request, and what turned out to be 18 months of legal limbo.
Examining how that advisory was put into effect illustrates the legal and diplomatic pitfalls of exploiting Patriot Act Section 311 investigations as a tool of de facto economic sanctions, and provides a perspective on the embarrassing three month fiasco of Banco Delta Asia’s “tainted” funds.
The Treasury Department has always taken pains to indicate that the Patriot Act Section 311 investigation against BDA was “not a sanction”.
That’s probably because a PA 311 investigation, as was later revealed to the Bush administration’s chagrin, is not a particularly applicable or appropriate tool for applying economic sanctions against a country or even against a targeted account holder.
Patriot Act Section 311 is meant to be applied selectively by the United States in response to conditions at specific financial institutions and legal jurisdictions in order to perfect and maintain the integrity of the US financial system.
It isn’t a sanction, and it is not a viable substitute for explicit, enforceable, and rescindable global U.N. sanctions—legitimized by transparency, negotiation, and international buy-in--against an outlaw regime.
The target of a PA 311 investigation is a bank or jurisdiction whose anti-money laundering (AML) laws, processes, or controls are deemed inadequate by the Treasury Department.
At the heart of anti-money laundering is the demand that financial institutions “Know Your Customer” (KYC) and use due diligence concerning the identity of its accountholders and the sources and destination of their monies in deciding whether to open and maintain accounts or handle transactions.
Understandably, Patriot Act Section 311 says nothing about freezing accounts in foreign banks overseas, or prohibiting them from handling funds outside U.S. territory. The U.S. government can’t do that, for reasons of jurisdiction, sovereignty, and due process.
However, it’s easy—perhaps too easy—for the U.S. government to use the threat of a Patriot Act Section 311 investigation to exploit the risk averse character of overseas banks and discourage them from doing business with certain customers.
Banks around the world are guided by U.N. and national sanctions lists, their own law enforcement agencies, and private sector firms like World Check to decide which crooks, kleptos, terrorists, and proliferators should be barred from their institutions.
They also rely on the United States, which considers itself the lawgiver in international finance, is very much the moving spirit behind efforts to create a seamless worldwide information web to snare money launderers, and maintains a aggressive, high profile intelligence operations—FinCEN and OTFI--to support its AML activities.
But it looks like the PA 311 process got hijacked by OTFI (Office of Terrorism and Financial Intelligence, run by Stuart Levey and Daniel Glaser with the stated intention of using these tools aggressively against America’s enemies) for some serious Nork bashing.
And it also looks like OTFI put Treasury’s credibility—and the legitimacy of the Patriot Act Section 311 process—at risk for a dubious cause, threatening overseas banks with destruction in the service of a unilateral U.S. North Korea policy that had not even been clearly articulated within the administration, let alone announced and explained to the world.
In this situation—a policy muddle and a secretive effort to misapply an existing regulatory capability to a secret and perhaps unrealistic objective—it is understandable that OTFI had to drive the point home in person to foreign banks too obtuse or bewildered to get the message.
Subsequent to the issuance of the December 2005 advisory, Stuart Levey and Daniel Glaser roamed the earth putting the fear of the U.S. Treasury into banks that otherwise might have been willing to give North Korea the benefit of the doubt and do some business.
As reader LR kindly pointed out to me, Congressional Quarterly reported that one Boiko Borissov, a leather-jacketed oaf who is positioning himself to become our treasured asset in Bulgaria, found out that America’s appreciation does not encompass letting his girlfriend’s bank play footsie with Pyongyang:
During a private meeting in Washington last February [2006—ed.], Deputy Treasury Secretary Robert M. Kimmitt warned Bulgaria’s Finance Minister that the Economic and Investment Bank (EI), chaired by the girlfriend of powerful Sofia mayor and presidential aspirant Boiko Borissov, was a target of a North Korean money-laundering effort.
And let’s not forget Mongolia:
Mongolian cabinet ministers, senior officials, and representatives of the banking and financial sectors met with Daniel Glaser, U.S. Treasury Deputy Assistant Secretary for Terrorist Financing and Financial Crimes, during his recent visit to Ulaanbaatar to discuss how possible money-laundering, counterfeiting, and smuggling activities in the country could be stopped.
...
It is believed that he also met with representatives of local commercial banks and non-banking financial institutions. Onoodor daily reported on Tuesday that some Mongolian commercial banks were under suspicion of involvement in North Korean money-laundering, smuggling and counterfeiting activities.
...
“Mr. Glaser discussed U.S. actions to protect the international financial system from abuse by North Korean or other entities engaged in illicit activities. He commended Mongolia for its commitment to ensure its financial system is not abused by North Korea to facilitate such activity. He also discussed the importance for Mongolia to implement an effective anti-money laundering/counter-terrorist financing regime that included a strong legal framework as well as financial supervision and regulatory systems that meet international standards,” the statement said.
Following the Onoodor report that North Korea may have deposited large amounts of money in a Mongolian commercial bank after the USA had frozen certain accounts in Banco Delta Asia, an official from the Golomt Bank told the daily that “no investigation in relation with illegal smuggling of cash deposit has been made at the Golomt Bank. Such misleading media reports against Golomt Bank are being made on purpose to mislead both our local and foreign customers so that they might lose confidence in us.”
Daniel Glaser’s boss, Stuart Levey, rang the changes on Vietnam.
Hanoi, about to host the APEC summit that signaled its new eminence in Asian and world affairs, apparently obliged with alacrity.
From the August 23, 2006 Financial Times :
Vietnamese authorities on Wednesday said only that they were investigating US allegations that North Korean funds had been parked in accounts in the country.
But Peter Beck, a North Korea expert with the International Crisis Group, said he was told by the expatriate general manager of North Korea’s Daedong Credit Bank, Nigel Cowie, that Vietnamese banks shut the North Korean accounts several weeks ago.
The step followed a visit to Hanoi by Stuart Levey, the US Treasury official overseeing Washington’s crackdown on international banks working for North Korea.
And for good measure, Singapore felt some heat:
Since the North Korean regime lost the window on the world's financial institutions that it maintained through banks in China's Special Adminstrative region in Macau, the DPRK has accessed Western banks through a bank in Singapore. This information was made public this week in South Korea, and was reputedly obtained from a reliable United States source.
The name of the Singaporean bank has not been disclosed to the public, but it was stated that it is on an American "watch list." In the recent past. American authorities have chosen to leak important information about North Korean banking activities through South Korean media.
So there's a "watch list". Maybe getting put on the "watch list" is a warning to shape up or else the Section 311 hammer gets dropped.
Indeed, in response to OTFI’s AML crusade, even the North Koreans got into the act, passing their own anti-money laundering law.
Laughable perhaps, it represents another ignored attempt by North Korea to engage Washington on this issue, which was probably at the core of Treasury’s strategy for most of 2005 and 2006:
The legislation, adopted by the standing committee of the North's Supreme People's Assembly in October last year[2006—ed.], bans financial transactions involving illegal earnings, NIS [South Korea’s National Intelligence Service—ed.] said.
The law pertains to earnings from illegal trade in drugs, counterfeit currencies, weaponry, real estate and precious metals, it said.
It also obliges North Korean financial institutions to stop allowing bank accounts under any alias; to verify suspicious funds, and to report money laundering cases, NIS said.
"The North Korean enactment seems aimed at settling the BDA (Banco Delta Asia) issue by introducing a transparent institution to meet the international standards in its financial transactions," it said.
A general picture emerges.
The December 2005 Advisory appears to represent an overt politicization of Patriot Act Section 311 actions.
Instead of targeting individual banks or jurisdictions for derelictions in their anti-money laundering controls, Treasury appeared to overstep its Patriot Act Section 311 mandate by telling banks overseas—in the absence of international or national sanctions or local enforcement actions—not to do business with any North Korean account holders or else suffer under the U.S. assumption that they are money laundering.
I’m speculating—and I don’t think I’m out of line here—that there were sticks brandished (i.e. threats of Patriot Act Section 311 actions).
To make sure life becomes very difficult for North Korea, OFTI dispatched Stuart Levey and Daniel Glaser to the obscure corners of the world to tell little banks that might welcome some Nork business to back off (and it is perhaps significant that we never heard much about successful moves against China and Russia, North Korea’s main banking partners).
This high-powered whack-a-mole strategy was clearly in the service of a diplomatic (or undiplomatic) strategy of financially isolating North Korea, as opposed to efforts to perfect the web of international AML laws, procedures, and alliances.
I’ll also speculate that, since this was a foreign policy power play against North Korea and not a straight, above-board enforcement action against non-complying banks, that the documentary support for U.S. demands may sometimes have been a farrago of allegations, expedient assumptions, and selectively edited data that the Brits would characterize as a “dodgy dossier”.
In the Bulgarian case, the head of the bank called out the U.S. Treasury Department, which apparently did not back up its allegations of North Korean activity with any hard evidence.
EI Bank board Chairwoman Tsvetelina Borislavova... said the tip was based on “false information” concocted by political enemies of her boyfriend Borissov...
Borislavova said the bank had thoroughly investigated the allegation and found that “there has never been any account opened by a North Korean company or a joint venture company” in the bank.
...
Borislavova added angrily that she was “disappointed that high U.S. officials had passed along false “rumors” and ”gossip” about North Korean involvement with the EI bank, Bulgaria’s second largest.
She singled out [Treasury Deputy Secretary] Kimmitt for criticism, saying “the next time” U.S. officials repeated such allegations she would “make a statement to the U.S. ambassador” in Sofia.
A Treasury official at first declined to discuss the particulars of Kimmitt’s meeting with the finance minister, saying such details were “classified.”
But informed of Borislavova’s remarks, the official e-mailed a statement on condition of anonymity. “Deputy Secretary Kimmitt and Minister Orescharski discussed our mutual obligations to protect the global financial system from the illicit conduct of North Korea and Iran, pursuant to U.N. Security Council Resolutions,” it said.
“Both officials reiterated the need to remain vigilant in making the financial system inhospitable to illicit money flows.”
Not much of a rebuttal. The article continues:
Whether Bulgaria’s own financial investigators had uncovered evidence of North Korea’s alleged interest in the EI bank could not be learned.
Not much so far. Well, what juicy tidbits did get leaked to the Congressional Quarterly to explain the case against EI?
Apparently a third-party private report for a Swiss concern:
The 3-inch-thick report, compiled by a team headed by a former top U.S. law enforcement official, also said Sofia Mayor Borissov had “a documented history of business affiliations with persons who are alleged to be the top leaders of organized crime in Bulgaria.”
The dossier included details on suspected criminal associates of Borissov, who years ago was chief bodyguard for Bulgaria’s last communist dictator. It also lists 28 underworld-connected “assassinations” that remained unsolved during his four-year stint as chief of staff of the Interior Ministry.
In other words, plenty of tittle-tattle about what a dirtbag Borissov seems to be, but apparently nothing about North Korea.
In the Mongolian case, if we were providing intel to the local regulators, it was apparently not of the best:
A member of the U.S. Treasury Department delegation, who had been a Peace Corps volunteer in Mongolia in 1998-2000, told Onoodor in a telephone interview that they “met the President of Bank of Mongolia and representatives of 13 commercial banks of Mongolia, to talk about money laundering.”
Some Mongolian commercial banks have correspondent links with North Korean financial institutions. Some officials of the North Korean Daedong Credit Bank (DCB) were arrested by police and intelligence agents at the Chinggis Khaan International Airport in Ulaanbaatar on February 21, 2006, and charged with importing counterfeit currency to the country. The North Koreans, who all held diplomatic passports, said the US$1 million and JP¥20 million that they were carrying was meant to be deposited at the Golomt Bank. The entire amount was taken to the Bank of Mongolia, where the authenticity of the currency notes was checked.
The bank later claimed that the accusation of counterfeit notes had been proved false. In a press release, it said, “On March 7, after holding the cash for 14 days claiming they were still checking it, Mongolian intelligence officials in a meeting with DCB representatives finally conceded that all the notes were genuine; the cash was released. The money was deposited with the Golomt Bank of Mongolia on March 9, as had originally been intended.”
Nigel Cowie, general manager of Daedong Credit Bank, wrote on an Internet web site that the “funds were the proceeds of legitimate business activities by DCB’s known foreign customers, and Daedong Credit Bank followed all the laws and procedures required by Mongolian authorities for such cash deposits. The seizure of the funds, and the subsequent leaking of false information to the media, damaged the reputation of both Daedong Credit Bank and the Golomt Bank of Mongolia.
“We discussed in detail with them [Golomt Bank officials] procedures for handling cash transactions in a legally correct manner. We also provided them with a copy of our anti-money laundering procedure manual, a manual that, incidentally, had been accepted by our other correspondent banks.”
The DCB opened accounts with Golomt Bank at the end of last year, after its accounts with Banco Delta Asia in Monaco were frozen. Daedong Credit Bank, established in 1995, is a majority foreign-owned joint venture retail bank based in Pyongyang.
Daedong Credit Bank, of course, is the enterprise owned by Colin McAskill’s group, and also had $6 to $7 million frozen in Banco Delta Asia. It’s intended to be a flagship for foreign investment in North Korea’s economy, and a sign that it’s OK to do business with Pyongyang.
Yes and that’s the same Nigel Cowie who was the source for the FT article on Vietnam.
You’d have to think that the U.S. government wanted to make it impossible for Daedong to transact its (legitimate) business internationally, and American efforts to get the Macau account of a foreign-owned retail bank frozen, and its cash deposit in a Mongolian bank confiscated, and quite possibly to get its account closed in Vietnam, were not simply coincidental examples of U.S. AML zeal.
Indeed, this serial harassment of a legitimate enterprise—moreover one that was in the vanguard of North Korean economic reform and opening to the outside—makes the U.S. campaign look like a cynical, dishonest, and rather shoddy effort to abuse the significant—and important--powers of Patriot Act Section 311 for unacknowledged foreign policy ends.
It will be interesting to see if Colin McAskill ever decides to tell his side of the story.
The revelation that Daedong was trying to make a cash deposit brings me to another interesting implication of the Treasury Advisory against North Korea:
It takes the “fun” out of “fungible”.
Under normal circumstances, cash is king.
But when anti-money laundering is involved, cash is at a disadvantage.
Cash has no provenance, no transaction history, and it can’t be proven not to be illicit.
Any bank that is under the American anti-money laundering microscope vis a vis North Korea is not going to let some North Korean guy with an ill-fitting grey suit and a bad haircut deposit a suitcase of cash in an account.
So that makes me think that America’s generous offer to let the North Koreans withdraw the BDA funds in cash was really...not so generous.
The intent was that North Korea would have to take the money back to Pyongyang and sit on it, because no foreign bank would dare to handle it.
Which brings me to the real significance of the Federal Reserve transaction channel for the BDA funds:
It restored order and normalcy to the international banking system.
Patriot Act Section 311, which was designed to reform banking procedures, turned out to be a crude and unresponsive tool for cutting North Korea off from the world banking system.
When the BDA issue was stalemated, international banks were in a quandary.
They had North Korean funds but were afraid to move them. And the North Koreans were unwilling to withdraw them.
The Know Your Customer procedure, with its implicit blacklist, that OTFI had found so useful in getting risk-averse banks to back off from North Korean business, offered no recourse.
Given the year of relentless jawboning that Mr. Levey and Mr. Glaser had devoted to intimidating overseas banks considering North Korean business, perhaps even the withdrawal of the December 13 advisory, as inconceivable as that would be, might not have persuaded the banks that it was safe to do business with North Korea.
OTFI might have considered that a feature, not a bug, but with North Asian diplomacy dead in the water, it finally became an embarrassment and the Bush administration and Treasury finally acted to break the impasse.
North Korean money isn’t necessarily "tainted".
Arguably, the world financial system was tainted by America’s opportunistic and perhaps abusive application of its intimidatory power under Patriot Act Section 311 to harass North Korea.
And the U.S., through three months of defiant recalcitrance on BDA, had demonstrated to the world’s satisfaction that the Treasury Department had no intention of revising or withdrawing its advisory and was determined to reserve its right to target any commercial bank that had the temerity to do business with North Korea.
Now, however, the Fed route used for the BDA funds demonstrates to international banks and to North Korea that there is a process—albeit an awkward one requiring government intervention--to permit conventional licit financial transactions between North Korea and the international banking community.
When there’s business to be done, not only the North Koreans but the Chinese and the Europeans can lobby the United States to make the Fed route available again.
I doubt anybody really cares about North Korean finances too much, but North Korea has always been a stalking horse for Iran.
I don’t think European banks or governments were at all comfortable with the idea that de facto global economic sanctions against Iran could be imposed unilaterally on overseas banks by the Treasury Department using the club of a Patriot Act Section 311 investigation--perhaps based on unproven and perhaps unprovable allegations.
Now, however, it’s not just a matter of Treasuring imposing unanswerable sanctions on helpless foreign commercial banks; instead, there is now a mechanism available for foreign governments who can, through direct negotiations with the U.S. government, contest Treasury actions they consider an affront to their national sovereignty or policy.
It’s another welcome sign that incrementalism and negotiation—as opposed to an artificial sense of manufactured crisis—is guiding U.S. foreign affairs.
Stuart Levey and Daniel Glaser at OTFI may not be happy that their campaign has failed, their strategy has been repudiated, and the weapon they treasured—the power to threaten a Patriot Act Section 311 sanction—has been stripped of some of its aura of inexorable, implacable menace.
The North Koreans are certainly pleased.
The Chinese and Russians are probably pleased.
Maybe the Europeans are pleased, too.
Maybe even the rest of Treasury is pleased.
And maybe we should be pleased, too.
On December 13,2005, two months after the Patriot Act Section 311 investigation against BDA was announced, Treasury issued an advisory entitled Guidance to Financial Institutions on the Provision of Banking Services to North Korean Government Agencies and Associated Front Companies Engaged in Illicit Activities.
It stated :
This advisory warns U.S .financial institutions that the U.S. Department of the Treasury has concerns that the Democratic People’s Republic of Korea (“North Korea”), acting through government agencies and associated front companies, is engaged in illicit activities and may be seeking banking services elsewhere following the finding of Banco Delta Asia SARL to be a financial institution of “primary money laundering concern”.
Accordingly, U.S. financial institutions should take reasonable steps to guard against the abuse of their financial services by North Korea, which may be seeking to establish new or exploit existing account relationships for the purpose of conducting illicit activities...We encourage financial institutions worldwide to take similar precautions.
An international financial newsletter summarized the advisory for its subscribers with the comment:
We encourage financial institutions worldwide to take similar precautions as those contained in the Advisory. The Department of the Treasury is actively monitoring this situation and will take any further action to protect the U.S. financial system as appropriate.
This advisory would seem to be the missing link between an enforcement action targeting one ostensibly misbehaving institution in Macau and a broad based effort to cut North Korea off from the world financial system in the service of diplomacy, regime change, or something in-between.
The advisory is explicitly linked to the action against BDA, with the clear implication that banks that allow transactions through existing North Korean accounts, or allow the opening of new North Korean accounts will find their heads on the chopping block next.
Connecting the dots from the Banco Delta Asia precedent, it is apparent that the threat to other banks would be a Patriot Act Section 311 investigation like the one announced against BDA, which had sparked a run on the bank, its takeover by Macau regulators, the freezing of 51 accounts linked to North Korea at Treasury’s request, and what turned out to be 18 months of legal limbo.
Examining how that advisory was put into effect illustrates the legal and diplomatic pitfalls of exploiting Patriot Act Section 311 investigations as a tool of de facto economic sanctions, and provides a perspective on the embarrassing three month fiasco of Banco Delta Asia’s “tainted” funds.
The Treasury Department has always taken pains to indicate that the Patriot Act Section 311 investigation against BDA was “not a sanction”.
That’s probably because a PA 311 investigation, as was later revealed to the Bush administration’s chagrin, is not a particularly applicable or appropriate tool for applying economic sanctions against a country or even against a targeted account holder.
Patriot Act Section 311 is meant to be applied selectively by the United States in response to conditions at specific financial institutions and legal jurisdictions in order to perfect and maintain the integrity of the US financial system.
It isn’t a sanction, and it is not a viable substitute for explicit, enforceable, and rescindable global U.N. sanctions—legitimized by transparency, negotiation, and international buy-in--against an outlaw regime.
The target of a PA 311 investigation is a bank or jurisdiction whose anti-money laundering (AML) laws, processes, or controls are deemed inadequate by the Treasury Department.
At the heart of anti-money laundering is the demand that financial institutions “Know Your Customer” (KYC) and use due diligence concerning the identity of its accountholders and the sources and destination of their monies in deciding whether to open and maintain accounts or handle transactions.
Understandably, Patriot Act Section 311 says nothing about freezing accounts in foreign banks overseas, or prohibiting them from handling funds outside U.S. territory. The U.S. government can’t do that, for reasons of jurisdiction, sovereignty, and due process.
However, it’s easy—perhaps too easy—for the U.S. government to use the threat of a Patriot Act Section 311 investigation to exploit the risk averse character of overseas banks and discourage them from doing business with certain customers.
Banks around the world are guided by U.N. and national sanctions lists, their own law enforcement agencies, and private sector firms like World Check to decide which crooks, kleptos, terrorists, and proliferators should be barred from their institutions.
They also rely on the United States, which considers itself the lawgiver in international finance, is very much the moving spirit behind efforts to create a seamless worldwide information web to snare money launderers, and maintains a aggressive, high profile intelligence operations—FinCEN and OTFI--to support its AML activities.
But it looks like the PA 311 process got hijacked by OTFI (Office of Terrorism and Financial Intelligence, run by Stuart Levey and Daniel Glaser with the stated intention of using these tools aggressively against America’s enemies) for some serious Nork bashing.
And it also looks like OTFI put Treasury’s credibility—and the legitimacy of the Patriot Act Section 311 process—at risk for a dubious cause, threatening overseas banks with destruction in the service of a unilateral U.S. North Korea policy that had not even been clearly articulated within the administration, let alone announced and explained to the world.
In this situation—a policy muddle and a secretive effort to misapply an existing regulatory capability to a secret and perhaps unrealistic objective—it is understandable that OTFI had to drive the point home in person to foreign banks too obtuse or bewildered to get the message.
Subsequent to the issuance of the December 2005 advisory, Stuart Levey and Daniel Glaser roamed the earth putting the fear of the U.S. Treasury into banks that otherwise might have been willing to give North Korea the benefit of the doubt and do some business.
As reader LR kindly pointed out to me, Congressional Quarterly reported that one Boiko Borissov, a leather-jacketed oaf who is positioning himself to become our treasured asset in Bulgaria, found out that America’s appreciation does not encompass letting his girlfriend’s bank play footsie with Pyongyang:
During a private meeting in Washington last February [2006—ed.], Deputy Treasury Secretary Robert M. Kimmitt warned Bulgaria’s Finance Minister that the Economic and Investment Bank (EI), chaired by the girlfriend of powerful Sofia mayor and presidential aspirant Boiko Borissov, was a target of a North Korean money-laundering effort.
And let’s not forget Mongolia:
Mongolian cabinet ministers, senior officials, and representatives of the banking and financial sectors met with Daniel Glaser, U.S. Treasury Deputy Assistant Secretary for Terrorist Financing and Financial Crimes, during his recent visit to Ulaanbaatar to discuss how possible money-laundering, counterfeiting, and smuggling activities in the country could be stopped.
...
It is believed that he also met with representatives of local commercial banks and non-banking financial institutions. Onoodor daily reported on Tuesday that some Mongolian commercial banks were under suspicion of involvement in North Korean money-laundering, smuggling and counterfeiting activities.
...
“Mr. Glaser discussed U.S. actions to protect the international financial system from abuse by North Korean or other entities engaged in illicit activities. He commended Mongolia for its commitment to ensure its financial system is not abused by North Korea to facilitate such activity. He also discussed the importance for Mongolia to implement an effective anti-money laundering/counter-terrorist financing regime that included a strong legal framework as well as financial supervision and regulatory systems that meet international standards,” the statement said.
Following the Onoodor report that North Korea may have deposited large amounts of money in a Mongolian commercial bank after the USA had frozen certain accounts in Banco Delta Asia, an official from the Golomt Bank told the daily that “no investigation in relation with illegal smuggling of cash deposit has been made at the Golomt Bank. Such misleading media reports against Golomt Bank are being made on purpose to mislead both our local and foreign customers so that they might lose confidence in us.”
Daniel Glaser’s boss, Stuart Levey, rang the changes on Vietnam.
Hanoi, about to host the APEC summit that signaled its new eminence in Asian and world affairs, apparently obliged with alacrity.
From the August 23, 2006 Financial Times :
Vietnamese authorities on Wednesday said only that they were investigating US allegations that North Korean funds had been parked in accounts in the country.
But Peter Beck, a North Korea expert with the International Crisis Group, said he was told by the expatriate general manager of North Korea’s Daedong Credit Bank, Nigel Cowie, that Vietnamese banks shut the North Korean accounts several weeks ago.
The step followed a visit to Hanoi by Stuart Levey, the US Treasury official overseeing Washington’s crackdown on international banks working for North Korea.
And for good measure, Singapore felt some heat:
Since the North Korean regime lost the window on the world's financial institutions that it maintained through banks in China's Special Adminstrative region in Macau, the DPRK has accessed Western banks through a bank in Singapore. This information was made public this week in South Korea, and was reputedly obtained from a reliable United States source.
The name of the Singaporean bank has not been disclosed to the public, but it was stated that it is on an American "watch list." In the recent past. American authorities have chosen to leak important information about North Korean banking activities through South Korean media.
So there's a "watch list". Maybe getting put on the "watch list" is a warning to shape up or else the Section 311 hammer gets dropped.
Indeed, in response to OTFI’s AML crusade, even the North Koreans got into the act, passing their own anti-money laundering law.
Laughable perhaps, it represents another ignored attempt by North Korea to engage Washington on this issue, which was probably at the core of Treasury’s strategy for most of 2005 and 2006:
The legislation, adopted by the standing committee of the North's Supreme People's Assembly in October last year[2006—ed.], bans financial transactions involving illegal earnings, NIS [South Korea’s National Intelligence Service—ed.] said.
The law pertains to earnings from illegal trade in drugs, counterfeit currencies, weaponry, real estate and precious metals, it said.
It also obliges North Korean financial institutions to stop allowing bank accounts under any alias; to verify suspicious funds, and to report money laundering cases, NIS said.
"The North Korean enactment seems aimed at settling the BDA (Banco Delta Asia) issue by introducing a transparent institution to meet the international standards in its financial transactions," it said.
A general picture emerges.
The December 2005 Advisory appears to represent an overt politicization of Patriot Act Section 311 actions.
Instead of targeting individual banks or jurisdictions for derelictions in their anti-money laundering controls, Treasury appeared to overstep its Patriot Act Section 311 mandate by telling banks overseas—in the absence of international or national sanctions or local enforcement actions—not to do business with any North Korean account holders or else suffer under the U.S. assumption that they are money laundering.
I’m speculating—and I don’t think I’m out of line here—that there were sticks brandished (i.e. threats of Patriot Act Section 311 actions).
To make sure life becomes very difficult for North Korea, OFTI dispatched Stuart Levey and Daniel Glaser to the obscure corners of the world to tell little banks that might welcome some Nork business to back off (and it is perhaps significant that we never heard much about successful moves against China and Russia, North Korea’s main banking partners).
This high-powered whack-a-mole strategy was clearly in the service of a diplomatic (or undiplomatic) strategy of financially isolating North Korea, as opposed to efforts to perfect the web of international AML laws, procedures, and alliances.
I’ll also speculate that, since this was a foreign policy power play against North Korea and not a straight, above-board enforcement action against non-complying banks, that the documentary support for U.S. demands may sometimes have been a farrago of allegations, expedient assumptions, and selectively edited data that the Brits would characterize as a “dodgy dossier”.
In the Bulgarian case, the head of the bank called out the U.S. Treasury Department, which apparently did not back up its allegations of North Korean activity with any hard evidence.
EI Bank board Chairwoman Tsvetelina Borislavova... said the tip was based on “false information” concocted by political enemies of her boyfriend Borissov...
Borislavova said the bank had thoroughly investigated the allegation and found that “there has never been any account opened by a North Korean company or a joint venture company” in the bank.
...
Borislavova added angrily that she was “disappointed that high U.S. officials had passed along false “rumors” and ”gossip” about North Korean involvement with the EI bank, Bulgaria’s second largest.
She singled out [Treasury Deputy Secretary] Kimmitt for criticism, saying “the next time” U.S. officials repeated such allegations she would “make a statement to the U.S. ambassador” in Sofia.
A Treasury official at first declined to discuss the particulars of Kimmitt’s meeting with the finance minister, saying such details were “classified.”
But informed of Borislavova’s remarks, the official e-mailed a statement on condition of anonymity. “Deputy Secretary Kimmitt and Minister Orescharski discussed our mutual obligations to protect the global financial system from the illicit conduct of North Korea and Iran, pursuant to U.N. Security Council Resolutions,” it said.
“Both officials reiterated the need to remain vigilant in making the financial system inhospitable to illicit money flows.”
Not much of a rebuttal. The article continues:
Whether Bulgaria’s own financial investigators had uncovered evidence of North Korea’s alleged interest in the EI bank could not be learned.
Not much so far. Well, what juicy tidbits did get leaked to the Congressional Quarterly to explain the case against EI?
Apparently a third-party private report for a Swiss concern:
The 3-inch-thick report, compiled by a team headed by a former top U.S. law enforcement official, also said Sofia Mayor Borissov had “a documented history of business affiliations with persons who are alleged to be the top leaders of organized crime in Bulgaria.”
The dossier included details on suspected criminal associates of Borissov, who years ago was chief bodyguard for Bulgaria’s last communist dictator. It also lists 28 underworld-connected “assassinations” that remained unsolved during his four-year stint as chief of staff of the Interior Ministry.
In other words, plenty of tittle-tattle about what a dirtbag Borissov seems to be, but apparently nothing about North Korea.
In the Mongolian case, if we were providing intel to the local regulators, it was apparently not of the best:
A member of the U.S. Treasury Department delegation, who had been a Peace Corps volunteer in Mongolia in 1998-2000, told Onoodor in a telephone interview that they “met the President of Bank of Mongolia and representatives of 13 commercial banks of Mongolia, to talk about money laundering.”
Some Mongolian commercial banks have correspondent links with North Korean financial institutions. Some officials of the North Korean Daedong Credit Bank (DCB) were arrested by police and intelligence agents at the Chinggis Khaan International Airport in Ulaanbaatar on February 21, 2006, and charged with importing counterfeit currency to the country. The North Koreans, who all held diplomatic passports, said the US$1 million and JP¥20 million that they were carrying was meant to be deposited at the Golomt Bank. The entire amount was taken to the Bank of Mongolia, where the authenticity of the currency notes was checked.
The bank later claimed that the accusation of counterfeit notes had been proved false. In a press release, it said, “On March 7, after holding the cash for 14 days claiming they were still checking it, Mongolian intelligence officials in a meeting with DCB representatives finally conceded that all the notes were genuine; the cash was released. The money was deposited with the Golomt Bank of Mongolia on March 9, as had originally been intended.”
Nigel Cowie, general manager of Daedong Credit Bank, wrote on an Internet web site that the “funds were the proceeds of legitimate business activities by DCB’s known foreign customers, and Daedong Credit Bank followed all the laws and procedures required by Mongolian authorities for such cash deposits. The seizure of the funds, and the subsequent leaking of false information to the media, damaged the reputation of both Daedong Credit Bank and the Golomt Bank of Mongolia.
“We discussed in detail with them [Golomt Bank officials] procedures for handling cash transactions in a legally correct manner. We also provided them with a copy of our anti-money laundering procedure manual, a manual that, incidentally, had been accepted by our other correspondent banks.”
The DCB opened accounts with Golomt Bank at the end of last year, after its accounts with Banco Delta Asia in Monaco were frozen. Daedong Credit Bank, established in 1995, is a majority foreign-owned joint venture retail bank based in Pyongyang.
Daedong Credit Bank, of course, is the enterprise owned by Colin McAskill’s group, and also had $6 to $7 million frozen in Banco Delta Asia. It’s intended to be a flagship for foreign investment in North Korea’s economy, and a sign that it’s OK to do business with Pyongyang.
Yes and that’s the same Nigel Cowie who was the source for the FT article on Vietnam.
You’d have to think that the U.S. government wanted to make it impossible for Daedong to transact its (legitimate) business internationally, and American efforts to get the Macau account of a foreign-owned retail bank frozen, and its cash deposit in a Mongolian bank confiscated, and quite possibly to get its account closed in Vietnam, were not simply coincidental examples of U.S. AML zeal.
Indeed, this serial harassment of a legitimate enterprise—moreover one that was in the vanguard of North Korean economic reform and opening to the outside—makes the U.S. campaign look like a cynical, dishonest, and rather shoddy effort to abuse the significant—and important--powers of Patriot Act Section 311 for unacknowledged foreign policy ends.
It will be interesting to see if Colin McAskill ever decides to tell his side of the story.
The revelation that Daedong was trying to make a cash deposit brings me to another interesting implication of the Treasury Advisory against North Korea:
It takes the “fun” out of “fungible”.
Under normal circumstances, cash is king.
But when anti-money laundering is involved, cash is at a disadvantage.
Cash has no provenance, no transaction history, and it can’t be proven not to be illicit.
Any bank that is under the American anti-money laundering microscope vis a vis North Korea is not going to let some North Korean guy with an ill-fitting grey suit and a bad haircut deposit a suitcase of cash in an account.
So that makes me think that America’s generous offer to let the North Koreans withdraw the BDA funds in cash was really...not so generous.
The intent was that North Korea would have to take the money back to Pyongyang and sit on it, because no foreign bank would dare to handle it.
Which brings me to the real significance of the Federal Reserve transaction channel for the BDA funds:
It restored order and normalcy to the international banking system.
Patriot Act Section 311, which was designed to reform banking procedures, turned out to be a crude and unresponsive tool for cutting North Korea off from the world banking system.
When the BDA issue was stalemated, international banks were in a quandary.
They had North Korean funds but were afraid to move them. And the North Koreans were unwilling to withdraw them.
The Know Your Customer procedure, with its implicit blacklist, that OTFI had found so useful in getting risk-averse banks to back off from North Korean business, offered no recourse.
Given the year of relentless jawboning that Mr. Levey and Mr. Glaser had devoted to intimidating overseas banks considering North Korean business, perhaps even the withdrawal of the December 13 advisory, as inconceivable as that would be, might not have persuaded the banks that it was safe to do business with North Korea.
OTFI might have considered that a feature, not a bug, but with North Asian diplomacy dead in the water, it finally became an embarrassment and the Bush administration and Treasury finally acted to break the impasse.
North Korean money isn’t necessarily "tainted".
Arguably, the world financial system was tainted by America’s opportunistic and perhaps abusive application of its intimidatory power under Patriot Act Section 311 to harass North Korea.
And the U.S., through three months of defiant recalcitrance on BDA, had demonstrated to the world’s satisfaction that the Treasury Department had no intention of revising or withdrawing its advisory and was determined to reserve its right to target any commercial bank that had the temerity to do business with North Korea.
Now, however, the Fed route used for the BDA funds demonstrates to international banks and to North Korea that there is a process—albeit an awkward one requiring government intervention--to permit conventional licit financial transactions between North Korea and the international banking community.
When there’s business to be done, not only the North Koreans but the Chinese and the Europeans can lobby the United States to make the Fed route available again.
I doubt anybody really cares about North Korean finances too much, but North Korea has always been a stalking horse for Iran.
I don’t think European banks or governments were at all comfortable with the idea that de facto global economic sanctions against Iran could be imposed unilaterally on overseas banks by the Treasury Department using the club of a Patriot Act Section 311 investigation--perhaps based on unproven and perhaps unprovable allegations.
Now, however, it’s not just a matter of Treasuring imposing unanswerable sanctions on helpless foreign commercial banks; instead, there is now a mechanism available for foreign governments who can, through direct negotiations with the U.S. government, contest Treasury actions they consider an affront to their national sovereignty or policy.
It’s another welcome sign that incrementalism and negotiation—as opposed to an artificial sense of manufactured crisis—is guiding U.S. foreign affairs.
Stuart Levey and Daniel Glaser at OTFI may not be happy that their campaign has failed, their strategy has been repudiated, and the weapon they treasured—the power to threaten a Patriot Act Section 311 sanction—has been stripped of some of its aura of inexorable, implacable menace.
The North Koreans are certainly pleased.
The Chinese and Russians are probably pleased.
Maybe the Europeans are pleased, too.
Maybe even the rest of Treasury is pleased.
And maybe we should be pleased, too.
Thursday, June 14, 2007
BDA Endgame
Via AP:
Macau's secretary of economy and finance said Thursday the money has been transferred, but it remained unclear if it was the entire amount or whether it had reached its destination.
"Banco Delta Asia transferred more than $20 million out of the bank this afternoon in accordance with the client's instruction," Francis Tam told reporters on the sidelines of a business gathering, without saying where the money was sent.
"We have heard reports in foreign media that the money can be wired via the U.S. or Russia, for example. I think these routings are possible," Tam said.
North Korea had $25 million at the bank in the Chinese territory, but Tam would not say exactly how much was transferred.
"Most of the money in this account has already transferred out. There will probably not be another transfer," he said.
From Reuters:
Japan's Kyodo news agency quoted Macau authorities as saying the funds would move along a highly unusual route first to the U.S. Federal Reserve New York branch, then to Russia's central bank and finally to a Russian bank.
"It was a one-time, technical solution and did not quite allow North Korea's integration into the international financial system," said North Korea expert Paik Hak-soon at Seoul's Sejong Institute.
Macau's secretary of economy and finance said Thursday the money has been transferred, but it remained unclear if it was the entire amount or whether it had reached its destination.
"Banco Delta Asia transferred more than $20 million out of the bank this afternoon in accordance with the client's instruction," Francis Tam told reporters on the sidelines of a business gathering, without saying where the money was sent.
"We have heard reports in foreign media that the money can be wired via the U.S. or Russia, for example. I think these routings are possible," Tam said.
North Korea had $25 million at the bank in the Chinese territory, but Tam would not say exactly how much was transferred.
"Most of the money in this account has already transferred out. There will probably not be another transfer," he said.
From Reuters:
Japan's Kyodo news agency quoted Macau authorities as saying the funds would move along a highly unusual route first to the U.S. Federal Reserve New York branch, then to Russia's central bank and finally to a Russian bank.
"It was a one-time, technical solution and did not quite allow North Korea's integration into the international financial system," said North Korea expert Paik Hak-soon at Seoul's Sejong Institute.
Wednesday, June 13, 2007
The Hardliners Strike Back, Kinda
North Korea hardliners are attempting some pushback on the reported deal that will utilize the Federal Reserve and a Russian bank to electronically remit $25 million in funds frozen at Banco Delta Asia to a North Korean bank account.
As Reuters reports, a group of GOP congresspeople have written the General Accountability Office to request an investigation as to whether U.S. bureaucrats violated any money laundering laws by working to expedite the transaction.
Onefreekorea is the go-to blog for this kind of thing and sure enough, he has the full text of the letter .
He also states, with blushing modesty:
I suggested that our own State Deparment’s attempts to return $25 million to the North Korean regime — much or most of it proceeds of crime — could violate U.S. money laundering laws, as well as two U.N. resolutions the United States successfully lobbied for less than a year ago. As it turns out, great minds think alike.
Now, with Russia about to step up to facilitate this faustian transaction, six House GOP foreign policy heavyweights have signed a letter asking the General Accountability Office to determine whether it’s legal. The letter cites the very same sections of the criminal code I’d cited in the pieces linked above (cool!).
Quite a coincidence. How ‘bout that.
Some background on what looks like an ongoing attempt to intimidate Chris Hill et. al. with accusations of involvement in money laundering can be found here.
Reuters lists the foreign policy heavyweights on this particular card:
In addition to Ros-Lehtinen [ranking minority member of the House Foreign Affairs Committee-ed.], the letter was signed by Reps. Christopher Smith of New Jersey, Dan Burton of Indiana, Edward Royce of California, Mike Pence of Indiana and Joseph Pitts of Pennsylvania.
Ros-Lehtinen represents a Florida district and advocated the assassination of Fidel Castro.
Mike Pence notoriously compared Baghdad street markets to their placid counterparts in his state of Indiana during a recent visit to Iraq.
Dan Burton’s Wikipedia page provides enough amusement and jawdropping revelations about his allegedly golf, graft, and fornication-fueled career that he should assign a staffer to edit it full time. His proposal that an aircraft carrier be stationed “off the coast of Bolivia” is priceless.
Mr. Burton could learn from Ed Royce , a strong proponent of a hard line on North Korea and previous chair of the House subcommittee on International Terrorism and Nonproliferation, about how to keep his Wikipedia page tidy and boring.
Christopher Smith and Joseph Pitts keep a relatively low profile.
Heavyweights all.
In an indication that Treasury is on board for the deal and well pleased to be rid of this mess, Molly Millerwise, provided no aid and comfort to the hardline position:
"We appreciate Congress' interest in safeguarding the U.S. financial system from abuse. The transaction the U.S. government is helping to facilitate would be fully consistent with all applicable laws and regulations," added Treasury spokeswoman Molly Millerwise.
I don’t know how far the hardliners will get with this. It would appear their best shot is Article 18 Section 1956 of the criminal code:
(2) Whoever transports, transmits, or transfers, or attempts to transport, transmit, or transfer a monetary instrument or funds from a place in the United States to or through a place outside the United States or to a place in the United States from or through a place outside the United States—
(A) with the intent to promote the carrying on of specified unlawful activity; or
(B) knowing that the monetary instrument or funds involved in the transportation, transmission, or transfer represent the proceeds of some form of unlawful activity and knowing that such transportation, transmission, or transfer is designed in whole or in part—
(i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or
(ii) to avoid a transaction reporting requirement under State or Federal law,
shall be sentenced to a fine of not more than $500,000 or twice the value of the monetary instrument or funds involved in the transportation, transmission, or transfer, whichever is greater, or imprisonment for not more than twenty years, or both. For the purpose of the offense described in subparagraph (B), the defendant’s knowledge may be established by proof that a law enforcement officer represented the matter specified in subparagraph (B) as true, and the defendant’s subsequent statements or actions indicate that the defendant believed such representations to be true.
Trouble is, there are a lot of allegations of North Korean criminal behavior but as far as I know nobody’s gotten around to convicting a North Korean entity or individual for an underlying crime that would establish the legal basis for classifying the handling of the BDA funds as “money laundering”.
So I think the GAO investigation can take a low place on the list of things that keep Chris Hill awake at night.
As Reuters reports, a group of GOP congresspeople have written the General Accountability Office to request an investigation as to whether U.S. bureaucrats violated any money laundering laws by working to expedite the transaction.
Onefreekorea is the go-to blog for this kind of thing and sure enough, he has the full text of the letter .
He also states, with blushing modesty:
I suggested that our own State Deparment’s attempts to return $25 million to the North Korean regime — much or most of it proceeds of crime — could violate U.S. money laundering laws, as well as two U.N. resolutions the United States successfully lobbied for less than a year ago. As it turns out, great minds think alike.
Now, with Russia about to step up to facilitate this faustian transaction, six House GOP foreign policy heavyweights have signed a letter asking the General Accountability Office to determine whether it’s legal. The letter cites the very same sections of the criminal code I’d cited in the pieces linked above (cool!).
Quite a coincidence. How ‘bout that.
Some background on what looks like an ongoing attempt to intimidate Chris Hill et. al. with accusations of involvement in money laundering can be found here.
Reuters lists the foreign policy heavyweights on this particular card:
In addition to Ros-Lehtinen [ranking minority member of the House Foreign Affairs Committee-ed.], the letter was signed by Reps. Christopher Smith of New Jersey, Dan Burton of Indiana, Edward Royce of California, Mike Pence of Indiana and Joseph Pitts of Pennsylvania.
Ros-Lehtinen represents a Florida district and advocated the assassination of Fidel Castro.
Mike Pence notoriously compared Baghdad street markets to their placid counterparts in his state of Indiana during a recent visit to Iraq.
Dan Burton’s Wikipedia page provides enough amusement and jawdropping revelations about his allegedly golf, graft, and fornication-fueled career that he should assign a staffer to edit it full time. His proposal that an aircraft carrier be stationed “off the coast of Bolivia” is priceless.
Mr. Burton could learn from Ed Royce , a strong proponent of a hard line on North Korea and previous chair of the House subcommittee on International Terrorism and Nonproliferation, about how to keep his Wikipedia page tidy and boring.
Christopher Smith and Joseph Pitts keep a relatively low profile.
Heavyweights all.
In an indication that Treasury is on board for the deal and well pleased to be rid of this mess, Molly Millerwise, provided no aid and comfort to the hardline position:
"We appreciate Congress' interest in safeguarding the U.S. financial system from abuse. The transaction the U.S. government is helping to facilitate would be fully consistent with all applicable laws and regulations," added Treasury spokeswoman Molly Millerwise.
I don’t know how far the hardliners will get with this. It would appear their best shot is Article 18 Section 1956 of the criminal code:
(2) Whoever transports, transmits, or transfers, or attempts to transport, transmit, or transfer a monetary instrument or funds from a place in the United States to or through a place outside the United States or to a place in the United States from or through a place outside the United States—
(A) with the intent to promote the carrying on of specified unlawful activity; or
(B) knowing that the monetary instrument or funds involved in the transportation, transmission, or transfer represent the proceeds of some form of unlawful activity and knowing that such transportation, transmission, or transfer is designed in whole or in part—
(i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or
(ii) to avoid a transaction reporting requirement under State or Federal law,
shall be sentenced to a fine of not more than $500,000 or twice the value of the monetary instrument or funds involved in the transportation, transmission, or transfer, whichever is greater, or imprisonment for not more than twenty years, or both. For the purpose of the offense described in subparagraph (B), the defendant’s knowledge may be established by proof that a law enforcement officer represented the matter specified in subparagraph (B) as true, and the defendant’s subsequent statements or actions indicate that the defendant believed such representations to be true.
Trouble is, there are a lot of allegations of North Korean criminal behavior but as far as I know nobody’s gotten around to convicting a North Korean entity or individual for an underlying crime that would establish the legal basis for classifying the handling of the BDA funds as “money laundering”.
So I think the GAO investigation can take a low place on the list of things that keep Chris Hill awake at night.
Tuesday, June 12, 2007
BDA: Now the Fed Gets Involved
With respect to the reports in the Wall Street Journal and the New York Times concerning the Russian bank/Federal Reserve Bank route to remitting the Banco Delta Asia funds to a North Korean account, my initial, jaundiced view was to take it as merely a piece of negative confirmation: that the efforts to obtain a Treasury waiver for a conventional transaction mediated by a commercial bank had failed.
From the Times :
Recently, a Russian bank agreed to be the vehicle for the transaction, American officials said, provided that it could obtain dollars to carry it out.
With American laws barring American commercial banks from supplying the dollars, officials turned to the Federal Reserve Bank of New York to facilitate the deal with North Korea.
“The United States is working with Russian and Macanese authorities to facilitate the transfer” of North Korean funds that were previously frozen at Banco Delta Asia, said Molly Millerwise, a Treasury Department spokeswoman. “We appreciate the willingness of the Russian government to facilitate this transaction and the good cooperation of the Macanese authorities.”
...
American officials said because the Federal Reserve Bank of New York was not a private bank, but part of the Federal Reserve system, it was not subject to American laws barring commercial transactions involving illicit funds. The system is independent of the government but run by presidential appointees.
But from the June 11 State Department press briefing , we get:
QUESTION: Can you tell us what the deal is with the BDA and the -- and this Treasury has come out and said that yeah, you are in fact working with the Russians on this. So can you give us a --
MR. MCCORMACK: Can't get ahead of my friends over at Treasury. I know that they've talked a little bit about it, but I can't really offer any more details at this point other than to say and to repeat what I have said before, that we'd all like to see this behind us so we can get back down to the real business of the six-party talks, denuclearization of the Korean Peninsula. We have not yet received word from the North Korean Government to any of the six parties that they have received their money in a new bank account. So when and if that happens and they acknowledge it, then maybe -- perhaps be able to talk a little bit more about this and certainly in the sense that it is behind us at that point.
QUESTION: Right, but -- I mean, in terms of where you have been over the past couple months on this --
MR. MCCORMACK: Right.
QUESTION: -- in the stalemate, is there some -- any sense of hope that it could finally really now be on the brink of being solved?
MR. MCCORMACK: You know, this is one of those issues where until it is done, I'm not going to be laying down any bets. Certainly, we would like to see it done. I know that Treasury has talked a little bit about a possible mechanism to get this done. We'll see.
Emphasis, as they say, added.
This is apparently not just another desperate State Department Hail Mary.
This is apparently something that Treasury—presumably because it has been ordered to find a way out of the impasse—has come up with.
We can assume Banco Delta Asia still has an account with the Federal Reserve—as do the Russians—and the FRB will agree to debit and credit the various accounts directly so that the Russian bank can deposit $25 million in a North Korean account without going through a correspondent bank.
If Treasury supports it, it will probably work.
As a sidebar, I note Mr. McCormack’s comment about the money going into a “new account”.
Maybe it was necessary to find a bank that had no previous North Korean accounts, so there would be no issue of commingling the $25 million in funds released as a Six Party deal concession with other tainted North Korean lucre, so it can be received and remitted with enmeshing the bank in accusations of handling illicit North Korean funds.
From the Times :
Recently, a Russian bank agreed to be the vehicle for the transaction, American officials said, provided that it could obtain dollars to carry it out.
With American laws barring American commercial banks from supplying the dollars, officials turned to the Federal Reserve Bank of New York to facilitate the deal with North Korea.
“The United States is working with Russian and Macanese authorities to facilitate the transfer” of North Korean funds that were previously frozen at Banco Delta Asia, said Molly Millerwise, a Treasury Department spokeswoman. “We appreciate the willingness of the Russian government to facilitate this transaction and the good cooperation of the Macanese authorities.”
...
American officials said because the Federal Reserve Bank of New York was not a private bank, but part of the Federal Reserve system, it was not subject to American laws barring commercial transactions involving illicit funds. The system is independent of the government but run by presidential appointees.
But from the June 11 State Department press briefing , we get:
QUESTION: Can you tell us what the deal is with the BDA and the -- and this Treasury has come out and said that yeah, you are in fact working with the Russians on this. So can you give us a --
MR. MCCORMACK: Can't get ahead of my friends over at Treasury. I know that they've talked a little bit about it, but I can't really offer any more details at this point other than to say and to repeat what I have said before, that we'd all like to see this behind us so we can get back down to the real business of the six-party talks, denuclearization of the Korean Peninsula. We have not yet received word from the North Korean Government to any of the six parties that they have received their money in a new bank account. So when and if that happens and they acknowledge it, then maybe -- perhaps be able to talk a little bit more about this and certainly in the sense that it is behind us at that point.
QUESTION: Right, but -- I mean, in terms of where you have been over the past couple months on this --
MR. MCCORMACK: Right.
QUESTION: -- in the stalemate, is there some -- any sense of hope that it could finally really now be on the brink of being solved?
MR. MCCORMACK: You know, this is one of those issues where until it is done, I'm not going to be laying down any bets. Certainly, we would like to see it done. I know that Treasury has talked a little bit about a possible mechanism to get this done. We'll see.
Emphasis, as they say, added.
This is apparently not just another desperate State Department Hail Mary.
This is apparently something that Treasury—presumably because it has been ordered to find a way out of the impasse—has come up with.
We can assume Banco Delta Asia still has an account with the Federal Reserve—as do the Russians—and the FRB will agree to debit and credit the various accounts directly so that the Russian bank can deposit $25 million in a North Korean account without going through a correspondent bank.
If Treasury supports it, it will probably work.
As a sidebar, I note Mr. McCormack’s comment about the money going into a “new account”.
Maybe it was necessary to find a bank that had no previous North Korean accounts, so there would be no issue of commingling the $25 million in funds released as a Six Party deal concession with other tainted North Korean lucre, so it can be received and remitted with enmeshing the bank in accusations of handling illicit North Korean funds.
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