Monday, March 26, 2007

Is Daniel Glaser Eating Crow in Beijing? The Latest Permutation in the Treasury Department/Banco Delta Asia Saga

What’s Daniel Glaser up to?

Eating crow, it looks like:

U.S. Secretary of State Condoleezza Rice has reportedly discussed the issue [of transferring funds in North Korea-related accounts from Banco Delta Asia to Bank of China--ed] over the phone with Chinese Foreign Minister Li Zhaoxing. The two are said to have agreed that since the delay was due to a simple technical issue, it should not hinder implementation of last month's six-party agreement and the joint statement of September 2005.

Meanwhile, U.S. Deputy Assistant Treasury Secretary Daniel Glaser is meeting Chinese and Macao authorities in Beijing to discuss procedures for transferring the 25 million dollars from the BDA accounts to the North.

Sources said Glaser is expected to provide the Bank of China with written assurances that it would not be negatively affected by accepting funds from the blacklisted Macao bank.

For “negatively affected” read “fanatically pursued by the U.S. Treasury Department as part of its vendetta against North Korea, the Six-Party Agreement, and the State Department”.

Daniel Glaser, Deputy Assistant Secretary for Terrorist Financing and Financial Crimes, is the money laundering guy under Stuart Levey in the Treasury Department Office of Terrorism and Financial Intelligence. He's been bouncing around Asia for the last couple weeks on mystifying monetary missions.

As previously described in Treasury's Not So Secret War Against the Six Party Agreement, the OTFI is a bastion of foreign policy hardliners which is less than thrilled with the concessions on Banco Delta Asia concerning frozen North Korean accounts.

Last week, after Treasury issued its final decision cutting off BDA from correspondent relations with American banks and grudgingly agreed not to object to the repatriation of $25 million in deposits belonging to various North Korean corporations and fronts, Glaser came to Macau to hold discussions around March 17 with the local government and monetary authority concerning BDA.

Details of what he discussed weren’t clear, but it’s clear that he pitched flies into the ointment instead of facilitating the Six Party Agreement.

The talks in Beijing broke down when the BDA money did not reach North Korea’s account in Bank of China.

The Treasury Department had adopted the line that effecting the transfer was strictly between the Macau authorities and China and Treasury had washed its hands of the matter.

However, within one week of his return from Macau, Glaser was back on a plane, this time to Beijing, to provide Treasury Department "expertise" to facilitate the transfer.

The Macanese and Chinese have made clear that they want to ensure implementation of the agreement is consistent with their own laws and with their international obligations. We are bringing Treasury expertise to help the Macanese and Chinese wade through some of these implementation issues," said Glaser.

He didn’t go to Beijing to teach the North Koreans how to fill out a deposit slip.

Glaser’s job is to stop money laundering, not coddle Asian bankers.

Presumably, he said or did something in Macau that raised a new obstacle to the negotiations.

And then he had to go to Beijing and publicly disown his handiwork.

As previously discussed, Treasury is not happy with the concessions it made under the Six Party Agreement, since they demonstrated that Treasury’s enforcement actions could be influenced, diluted, and superseded by diplomatic negotiations. Since the original objective of OTFI was to set up an independent intelligence and enforcement capability targeting foreign money laundering operations—and shielded from UN and State Department interference by the veil of the Patriot Act—the override on the North Korean sanctions was a major blow to Treasury’s prestige and credibility as scourge of international moneylaunderers.

Did Daniel Glaser go to Macau to try to block the transfer of some of the North Korean funds behind the scenes by pressuring the Macau authorities?

And did his plan backfire?

I think the answer to both questions is yes.

The Bloomberg version of Glaser’s March 17 meetings in Macau pushed the initial spin, contradicted by the fact of Glaser’s hasty return to Asia, that Treasury was bowing gracefully out of the BDA mess, and added one nugget of information:

`I think it's important to emphasize that this was a Macanese action to freeze the funds, and it would be a Macanese process to make a determination as to the release of the funds.''

The U.S. investigation does have information that would help Macanese authorities to make an informed decision, said Glaser...

An informed decision?

Why on earth would anybody need “an informed decision” when the needs of the Six Party Agreement and the intentions of the US government—at least State—the Chinese, and by extension the Macanese, seem to dictate that Macau pitchfork the $25 million out the door asap, no questions asked, so execution of the deal can continue?

Same tune, different words from the South Korean media, which added the tidbit that the “information” was apparently “investigative documents”:

U.S. Treasury officials also visited the Chinese territory's financial authorities, offering investigative documents on the bank's accounts.

Glazer told reporters that the meeting was friendly and productive, saying it is the decision of Macau authorities whether to unfreeze North Korean funds at the bank.

Friendly and productive? Color the Macau authorities unthrilled.

According to Xinhua:

The MSAR government reiterated its concern and regret over the decision made by the US Department of the Treasury in regards to the BDA.

Prior to Glaser’s visit, the version that circulated in the local media was that Treasury had information on BDA’s money laundering activities, and speculated that a) BDA would be downgraded from “a bank of primary money laundering concern” to “a money laundering bank”, and that b) BDA’s directors would face indictment, presumably for being knowing participants in and owners of a money laundering operation (and not just sloppy managers).

I don’t think it’s going out too far on a limb to say that neither the Macanese or the Chinese are interested in seeing the BDA’s financial Calvary continue and, if there’s some complication involved in processing the remittance of funds, it is very likely that it can be laid at Daniel Glaser’s doorstep.

The implacable pursuit of BDA doesn’t sit well with the Macanese or the Chinese, who apparently view BDA as a scapegoat and collateral damage in America’s vendetta against North Korea.

Amazingly, BDA managed to turn a profit last year, despite the fact that it had lost virtually all of its correspondent relationships.

The bank is due to come out of receivership shortly. Stanley Au, the majority shareholder, wants his bank back and he wishes to appeal the Treasury decision instituting the ban on U.S. financial institutions doing business with BDA.

In short, the local attitude appears to be that the U.S. Treasury Department used BDA as a club to beat the North Koreans with for two years, the bank managed to stay afloat thanks to the pains taken by the owners and the government receivers, now it’s time for Treasury to bug out and let people get on with their lives.

Summing up what we know: Glaser went to Macau to present evidence concerning BDA activities that he wanted the Macau authorities to consider when processing the repatriation of the funds.

Presumably his intention was obstructionist, either for reasons of Treasury pride or Boltonian petulance.

Otherwise, why add further complications to a situation that was already unusual and fraught with difficulties?

And there are no signs that anybody welcomed his intervention

Now, for speculation:

Maybe Treasury decided that working a Macanese back-channel to put obstacles in the way of the transfer even after it agreed that the money could go back to the North Koreans was a valuable face-saving exercise and a justified slap at the State Department for trespassing onto its turf.

Glaser might have wished to persuade the Macanese authorities, when confronted with evidence that the United States considered incontrovertible, to refuse to repatriate certain funds related to accountholders tainted by moneylaundering.

In a less than subtle form of persuasion, he might have threatened to formally downgrade BDA to a “moneylaundering bank” and start legal proceedings in U.S. courts against Stanley Au and other BDA directors, with the ultimate goal of convicting them and demanding their extradition, if Macau was too cavalier in remitting funds to questionable North Korean accounts (bear in mind, before Secretary Rice steamrolled Secretary Paulson, the Treasury Department stated that it could only accept repatriation of about one-third of the funds in the various North Korean accounts).

After all, despite the fact that the Treasury investigation of BDA under Patriot Act Section 311 has been closed, the Treasury Department has other tools, also courtesy of the Patriot Act, such as Section 317.

Section 317 provides something called “long-arm jurisdiction” for U.S. courts against money launderers overseas who use U.S. based banks—maybe against directors of little Macau banks that sent trunkfuls of U.S. currency deposits from North Korea to New York for vetting by HSBC, as BDA did.

As the AP reported:

U.S. officials, who have not released any evidence publicly, stuck to their view that the bank knowingly helped North Korea launder money. (emphasis added)

If Glaser thought he could pressure the Macau authorities, it was a bad idea.

The first response of the Macau authorities, in response to any Glaserian brow-beating, would be to pick up the phone and talk to Beijing.

The primary issue being, if the U.S. Treasury Department was determined to pursue money-laundering charges against BDA in retaliation for Macau transferring allegedly dirty components of the $25 million against its wishes, then both Macau and Beijing would conceivably be subjected to U.S. demands--backed up with the threat of coercive measures under the Treasury Department's Patriot Act powers--to monitor, investigate, and account for the deposition of the dirty funds sent to Bank of China to U.S. satisfaction.

This, I would imagine, is a responsibility that the Chinese government has absolutely no interest in assuming.

Beyond the immediate, major issue of having to battle a Patriot Act enforcement process—one that Treasury can pursue unilaterally, secretly, and with limited recourse to the U.S. legal system for the target institutions--the Chinese and Macau authorities would definitely have a problem with Treasury’s perfunctory dismissal of Macau’s regulatory and enforcement integrity.

BDA has been in government receivership—including an audit--for 18 months, and the Macau authorities have instituted a passel of new anti-money laundering regulations as demanded by the United States.

Before the final decision was announced, there was even some speculation that Treasury might even consider that Macau’s monetary authority was capable of exercising oversight over BDA, and let the bank back in business with a slap on the wrist.

But no. Treasury justified its decision to cut off BDA by the statement that the chance of recidivism by BDA was too great, and the Macau administration wasn’t up to keeping tabs on this tiny bank:

While these efforts are important and welcome signs of Macau’s overall progress in strengthening its anti-money laundering and combating the financing of terrorism regime, full and comprehensive implementation of these measures in all the covered sectors will need to follow.

If, after all that Macau had done, the Treasury Department conducts an adversarial investigation against Macanese institutions and individuals as retaliation for disregarding its demands concerning the tainted accounts, it's a public assertion that Macau can't regulate its banking industry and that, in effect, Macau is not a legitimate financial center.

This is the kind of American high-handedness that drives the Chinese crazy.

And that’s before we get to Stanley Au. There was an interesting but somewhat suspect quote in the Financial Times indicating a willingness to throw Stanley Au under the bus:

“Stanley Au is not part of the Macao establishment per se,” said one person close to the Macao government. “I think the perception is that this is an isolated problem associated with a small bank. Treasury picked a low-hanging fruit when it picked on BDA.”

Leaving aside the question of what people close to the Macau government sprinkle their conversation with “per se” and “low hanging fruit”, the trouble with this observation is that Stanley Au is 1) the guy who contested the chief executive job against Edmond Ho in 1999 and subsequently served two terms in the local legislator; therefore a local political figure of note 2) a guy whose family has run banks and other operations in Macau for over a century and 3) a delegate to the China People’s Political Consultative Congress, the rubber stamp of China’s rubber stamp NPC if you will, but a guy with a certain profile within China.

In other words, he doesn’t look to me like some bum twisting alone in the wind, and that quote looks more like a piece of pre-emptive conceptual framing meant to promote Au's premature political demise.

In fact, the government might have been getting ready to hand his bank back to Mr. Au until Daniel Glaser showed up:

Mr Au said the Macao government, which took control of BDA in September 2005, had planned to return management control to the bank two days before the Treasury's latest move. He said he did not know how the ban would affect the handover but that he had no intention to give up control of the bank.

And Mr. Au might be able to bring some significant political support to bear :

"I firmly believe my country and the Macao government will find a way out to help me to solve this problem," Au said Friday, a day after returning from a meeting in Beijing, where he is a member of the Chinese People's Political Consultative Committee.

By refusing to give up on pursuing moneylaundering charges against BDA, it may have been Daniel Glaser and the Treasury Department who picked a fight that they couldn’t win.

I’m not surprised that the Chinese Ministry of Foreign Affairs made this extremely strong statement on March 21:

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

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

...or that Daniel Glaser was ordered on the next plane to China to explain himself... the Macanese, the Chinese, and the US State Department...

...and very possibly make a formal undertaking on behalf of the Treasury Department not to pursue any further investigations of any kind against Banco Delta Asia or its directors and officers or, at the very least, exclude Bank of China from any obligation to participate in them.


Asad said...

wow, I am amazed by how far Treasury has gone. In effect they are wielding a veto on foreign policy. As the 6 party talks seem to be falling apart we can see Iran is not backing down one bit.

They announced that there would be even less cooperation with IEAE, I am surprised there is a lower level for them to go to.

Unknown said...

It seems that they are involved in a machination. Winstrol