I heard one Colum Lynch, UN correspondent for the Washington Post, pontificating on the current North Korean nuke crisis on PRI (Public Radio International).
Lynch joined the PRI anchor, Lisa Mullins, in lauding the financial sanctions imposed on Banco Delta Asia in 2005 by the Bush administration as an example of " some measures against North Korea that worked" i.e. a model of effective multi-lateral soft-power shenanigans.
I understand that liberals are enamored of soft power as a more desirable alternative to the “bomb ‘em all and let God sort ‘em out” unilateralism of the Bush administration.
But listing the BDA circus as an example of the exercise of multi-lateral, rule o’ law soft power is nonsense.
The BDA sanctions—and the hardliner policy behind them—drove North Korea to build and explode a nuclear bomb.
North Korea only resumed negotiations with the U.S. when the BDA sanctions were abandoned.
It’s an embarrassing chapter in neo-con history; I guess that’s why we don’t hear much about it.
Except here.
Patient readers of this blog know that I posted non-stop on the BDA situation in 2006 and 2007.
The Banco Delta Asia sanctions were a complete failure.
They were instituted by anti-North Korean hardliners within the Bush administration in order to advance a regime change agenda on the cheap.
They were not an exercise in multilateralism. They were an attempt to impose a unilateral American North Korea policy when the Bush administration was unable to persuade China, Russia, and pretty much anyone else to institute an economic blockade against Pyongyang.
We didn’t sanction North Korea; we sanctioned our allies. And we threatened to sanction China, whose sympathy and support is critical to any North Korea policy.
Banco Delta Asia was chosen as a test case, to threaten China with an attack on their banking interests if they didn’t toe the U.S. line on North Korea.
Contrary to Mr. Lynch’s ignorant assertion that North Korea employed BDA as a conduit to launder counterfeit currency, the only confirmed instance of North Korean account holders attempting to deposit counterfeit cash in BDA occurred in 1994, and was detected and reported by BDA. .
The hardline policy epitomized by the BDA sanctions collapsed soon after North Korea exploded its nuclear bomb.
Instead, Secretary of State Rice turned to Christopher Hill to negotiate with North Korea within the framework of the Six-Party talks mediated by China.
After an agreement was reached, the Treasury Department deliberately obstructed a key element—the return of $24 million dollars in North Korea-related accounts at BDA to Pyongyang—for three months in a futile effort to sabotage the deal.
It’s a fascinating story.
When the history of the decline of the U.S. financial system is written, the BDA fiasco will probably be recognized as a tipping point, when the Treasury Department emerged as the Bush administration’s international hatchet man and its traditional image as an honest broker and diligent guardian of the integrity of the international financial system was irrevocably tainted.
Unless, of course, that history is written by Colum Lynch.
Ugh.
One could do worse than to read the reporting of McClatchy’s Kevin Hall, the only journalist, in my opinion, who got the North Korean sanctions story right.
Of course, you could also do worse than read the 58 posts I wrote on North Korea between October 2006 and October 2007.
Here’s one.
Fittingly, it dissects a craptacular piece of mainstream media reporting.
Also, for those looking for an insight into the motives behind the current bomb and missile tests, the article points to an abiding preoccupation of North Korea: the hope that the United States will respond to these provocations by entering into direct negotiations with the North Korea to normalize relations, thereby enabling Pyongyong to reduce its reliance on its overbearing and not-too-friendly ally, the People's Republic of China.
Thursday, July 19, 2007
Two Lost Years
History Gets Whacked by Lazy Time Magazine Stenography on North Korean “Soprano State”...
...But Lawrence Wilkerson Provides a Much Needed Corrective
With the shutdown of the reactor at Yongbyon, the Six Party agreement to denuclearize North Korea has lumbered into its next stage.
That means it’s time for all the hardliners who eagerly predicted the collapse of the agreement (and, indeed, may have worked actively to sabotage it by hindering the unfreezing of the North Korean accounts at Banco Delta Asia in Macau) to avoid unwelcome comparisons between their own counterproductive measures and the current success of the engagement policy.
Facts must be spun, failure must be obfuscated, reputations must be burnished and, I suppose, think tank sinecures must be defended until indifference and fading memory permit these indefatigable and unchastened screwups to return to positions of power within the U.S. foreign policy bureaucracy.
So it looks like it’s time once again for a complacent press will provide political cover to anxious Beltway apparatchiks in return for access to a selective slice of the inside story...
...one that glosses over a crucial two year period of failure—2005 and 2006—during which North Korea policy was under the undisputed control of the hardliners.
Case in point: Time Magazine’s expose of Kim Jung Il, “The Tony Soprano of North Korea.”
The article draws on assertions by David Asher, currently at the Heritage Foundation, who worked as a senior advisor in the State Department until mid-2005.
Mr. Asher was the driving force behind the hardliners’ aggressive implementation of the Illegal Activities Initiative (IAI). The IAI focused the enforcement actions of various U.S. departments on alleged illegal activities by North Korea, including cigarette counterfeiting, the meth trade, Supernote counterfeiting, money laundering and trade in protected species.
Mr. Asher’s twin legacies will probably be 1) using the IAI to instigate the Patriot Act Section 311 investigation of Banco Delta Asia in Macau that turned into an embarrassing fiasco and 2) his notorious but publicly unsupported statement that the investigation was a part of a planned effort to intimidate China by “killing the chicken to scare the monkeys”.
Time’s authors, Bill Powell and Adam Zagorin, could have grilled Mr. Asher about his role in the Bush administration’s hardline North Korean diplomacy in 2005/2006, which ended in North Korea’s detonation of its first atomic bomb, the failure to create an effective regional coalition to support Washington’s policy of confrontation against Pyongyang, the departure of the key hardline architects, Bolton, Joseph, et. al., and the laborious dismantling (and discrediting) of the ineffectual U.S.-led financial blockade that failed to bring Kim Jung Il to his knees.
Too bad they didn’t.
The story of how the hardliners drove America’s North Korea policy into a ditch is an interesting and important one, and it isn’t too hard to dig out.
Recently, I had the pleasure of corresponding with Lawrence Wilkerson, Secretary of State Colin Powell’s Chief of Staff during the first George W. Bush administration.
My attention had been drawn to Mr. Wilkerson by the contrast between his perspective on the IAI and a recent claim of Mr. Asher’s.
Lawrence Wilkerson, as reported in the Wall Street Journal in 2005, had this to say about the IAI:
Larry Wilkerson, who was former Secretary of State Colin Powell's chief of staff, said in an interview that the effort -- which officials named the Illicit Activities Initiative -- was launched to augment, rather than undercut, diplomacy.
In Congressional testimony in 2007, David Asher spoke of his resistance to the U.S. concession on Banco Delta Asia that ended the standoff concerning the frozen North Korean funds, and provided his characterization of the IAI::
“We designed this initiative with the goal of countering these [illicit] activities themselves...not necessarily supporting the Six Party talks.”
Well, which was it? Was the IAI designed for diplomacy...or something else?
Mr. Wilkerson, who, one might say, was present at the creation, commented to China Matters:
[The North Korea Working Group] was the most successful interagency group of the first Bush administration. It had members from every element of the federal bureaucracy. We forged a consensus, a way ahead, a plan of attack...
The primary reason of the Illicit Activities Initiative was to give us a tool for negotiating the Six Party agreement. That tool would be the "stick" with which we would attempt to make the DPRK negotiators more receptive to our desires with regard to their nuclear and missile programs, as well as their illicit activities. ...
David Asher liked to assume there was a real crimefighter I’m going to get you [component to the IAI]. [But it was always meant to be] orchestrated with astute diplomacy.
... I believe that once we had gone, John Bolton and others put the IAI to use as a stand-alone policy to attempt to force regime change in Pyongyang by drying up the money with which Kim Jong-il essentially kept his generals happy.
As to whether getting the North Koreans to walk out of the Six Party talks was part of the original, devilishly clever scheme for the Illicit Activities Initiative, I had this exchange with Mr. Wilkerson:
Was the BDA investigation part of the plan? Was the North Korean walkout in 2005 a contingency you had planned for?
No. [In President Bush’s second term] other people, John Bolton, Bob Joseph took away the dual track. They lusted after it, got ahold of it [the IAI], went whole hog [to use it to destabilize North Korea ].
That wasn’t so hard, was it?
In contrast to Mr. Asher’s assertion, Mr. Wilkerson states that the Illicit Activities Initiative was designed to complement American diplomacy in the Six Party talks.
So it might be enlightening for Mr. Asher to explain how the Illicit Activities Initiative was repurposed at the beginning of President Bush’s second term as an acceptable substitute for Six Party diplomacy...
...so that North Korea walked out of the Six Party talks, detonated a bomb, and demanded a humiliating retreat by the United States on the signature action of the Illicit Activities Initiative—the action against BDA...
...so that the talks could resume in early 2007 under China’s aegis at essentially the same point we were at in early 2005...
...or during the Clinton administration for that matter...
...except of course that North Korea now has the atomic bomb...
...and enough plutonium stockpiled to make several more.
Hardly a glowing endorsement for the decision to pursue the Illicit Activities Initiative independently of (and seemingly at the expense of) Six Party diplomacy
I did request a comment from Mr. Asher, but he didn’t respond.
Maybe Time had the same problem.
Of course, now that the hardliner policy failed with a thud (or the crump of an underground nuclear test), it seems to be in Mr. Asher’s interest to downplay the marked discontinuity in North Korea policy during the first two years of President Bush’s second term, as well as the role Mr. Asher played in that redirection.
Instead, Time got another retelling of Mr. Asher’s increasingly shopworn tales concerning Royal Charm and Smoking Dragon stings against alleged illicit North Korean activity, albeit with some of that patented Time factchecking.
That would seem to be the point, as far as Mr. Asher is concerned: keeping the focus on continued North Korean perfidy instead of the spasm of hardliner ineptitude that gave North Korea the bomb and left America playing second fiddle to China in North Asia.
There is some news, albeit of a negative sort, buried deep in the end of the article--the relative softpedaling of North Korean counterfeiting allegations.
Time writes:
According to U.S. and South Korean intelligence reports, the North has been producing the counterfeit bills at least since 1994. The South Korean intelligence service two years ago said it could confirm production only until 1998, but at least twice in recent years, claim U.S. and South Korean sources, the U.S. has presented the South Korean government with supernotes said to have been produced in 2001 and 2003.
A 2006 State Department estimate puts the amount of counterfeit currency in circulation at $45 million to $48 million. Estimate is the key word. Of all the illicit businesses from which North Korea profits, counterfeiting is the one about which outsiders know the least. U.S. officials say they don't believe the North Koreans produced the equipment to print such high-quality counterfeit bills. If that's the case, where did they get it from? No U.S. agency interviewed for this story, including Treasury, State and the Secret Service, could say. U.S. sources also say they do not know where in North Korea the notes are produced.
It does seem likely, however, that Kim's government is running the scam. [emphasis added]
Pretty weak beer, especially when compared to the prior allegations of extensive Supernote counterfeiting by North Korea that formed the central justification for the global financial campaign orchestrated against North Korea in 2005 and 2006 by the hardliners.
Heritage Foundation researcher Balbina Hwang—who currently occupies Mr. Asher’s advisor slot at the State Department—asserted that North Korea annually produced hundreds of millions of dollars worth of Supernotes.
Supernote counterfeiting was deemed an act of economic warfare, an act that Ed Royce (Rep., California, and the voice of the hardliners on the House Foreign Affairs Committee) darkly opined would justify the financial implosion of the Pyongyong regime by the United States.
In 2006, David Asher characterized North Korea’s Supernote involvement as follows :
The US Secret Service has been investigating the circulation of the “supernote” counterfeit dollars since 1989. Last year it charged that the counterfeit US notes were “manufactured in, and under auspices of the government of, the Democratic People’s Republic of Korea (“North Korea”). Individuals, including North Korean nationals acting as ostensible government officials, engaged in the worldwide transportation, delivery, and sale of quantities of Supernotes.” As the Secret Service has now revealed, the Federal Reserve Bank has come into the possession of roughly $48 million of these notes in the last fifteen years. Some argue that this shows that counterfeiting is just a drop in the bucket. Let me argue against this view.
To be fair, it wasn’t just David Asher.
According to Mr. Wilkerson, when he was at State before 2005 the briefings were pretty categorical:
I sat in meetings with the Treasury and Secret Service and they essentially convinced me [that North Korea was producing Supernotes inside North Korea and trafficking in them].
Now he adds a self-deprecating verbal shrug:
But I thought there were WMDs inside Iraq too.
Maybe the reporting of McClatchy and the investigations of Karl Bender concerning the immense technical and logistical hurdles Pyongyang would have had to overcome—and the paucity of evidence for any significant operation--are persuading the administration to back away from the North Korean Supernote allegations.
Or maybe, with the North Korean crisis cooling off, the government decided simply to stop yanking our chain about Kim Jung Il’s private Supernote factory, and allow the location of the purported facility to continue its hegira to our next designated boogie man (prior to North Korea, the United States had cited Lebanon’s Bekaa Valley a.k.a. Hezbollah, and then Iran as sources for the insidious notes).
In any event, the shift from a casus belli involving hundreds of millions of dollars in Supernotes produced inside North Korea to Time’s “we don’t know where or how much or how they do it or if they’re still even making them” is quite a step back.
While Mr. Powell and Mr. Zagorin missed the significance of the apparent retreat on the Supernote story, they also managed to add a few errors to their reporting about this hot-button issue:
a) Contra their statement quoted above, “estimate” is not the “key word” in describing the $45-$48 million number for circulating counterfeit currency; the key word is “confidence”.
Mr. Asher has energetically hyped the possibility of an enormous undetected North Korean Supernote menace by dismissing Treasury’s data on counterfeits as a mere “estimate”.
However, the Treasury Department has studied the international traffic in counterfeit U.S. currency exhaustively in a multi-year effort by the Federal Reserve Board involving visits to dozens of countries and is confident—with considerably more authority than Mr. Asher can muster-- that there is no significant reservoir of undetected counterfeit notes of any kind, including Supernotes.
b) The total of $45--$48 million in circulation is all counterfeit currency, not just Supernotes.
c) Only $45 million in Supernotes has been seized in the last fifteen years, as Asher himself says in his other statement. That’s an average of $3 million a year (for perspective, about $500 billion in US currency is in circulation worldwide).
Humph. I’ll bet Mr. Luce only needed one reporter to get it all wrong, back in the day.
Extensive Supernote counterfeiting was an important allegation not only because of the provocative and symbolic character of the outrage against America’s currency.
It was the only case in which the United States could claim to be the primary injured party and assert the right to lead a global action against North Korea outside the frustratingly incremental, multi-lateral Six Party and UN processes reserved for the nuclear, WMD, and missile issues.
The other major examples of alleged North Korean illicit activities did not have the United States as their primary target—they were concerns for China and Japan.
In both these cases, even with Japan’s highly confrontational stance toward North Korea, the injured parties did not see fit to characterize the North Korean activity as a casus belli that could not be handled by local and international law enforcement.
If the North Koreans are churning out huge quantities of counterfeit cigarettes, the main destination would be China, where an astounding percentage--over 90%--of imported cigarettes on the market are illicit—either smuggled or counterfeit.
If North Korean factories were making meth, the primary market would be Japan.
According to reports I’ve seen, meth is tolerated in Japan, presumably because it encourages the get-up-and-go-and-go-and-go-go-go ethos that is supposed to make Japanese society tick, and the yakuza’s drug trafficking is tolerated as long as it sticks to meth and stays away from cocaine and opiates. As a result, the market is served by immense illegal factories in the Philippines, Taiwan, and/or whatever locale offers the best combination of access to ephedrine, lax enforcement, and corruption.
The business is run by sophisticated, flexible, and internationalized criminal cartels whose entrepreneurial acumen is one of the true faces of 21st century globalism.
Which brings me to a gripe about the soundbite du jour on North Korea, “the Soprano State.”
David Asher et. al. probably found this formulation very useful, as the concept of a North Korean state fundamentally criminal in its nature justified an attack against any and all North Korean activities without the need to build a persuasive case in each and every instance.
I wouldn’t be surprised if the North Korean government, at a high level, countenances some dirty dealing. But I don’t think they’re the Sopranos; I think they’re the Gang Who Couldn’t Shoot Straight, relatively ineffectual amateur criminals stuck in the low-profit links of the Asian criminal supply chain.
Does anybody think the North Korean bureaucrats and generals can outhustle and outmuscle the fearsome Chinese triads who, if one might recall, were the designated Asian menace back in the 1990s?
I believe North Korea’s fundamental identity is that of a sclerotic dictatorship trying to cling to power and revive its moribund economy in an environment of overt US and Japanese hostility and Chinese malign indifference. Its willingness to engage in criminal activity is moderated by the requirements of its diplomacy and the need to achieve some sort of modus vivendi with the West that will allow Pyongyang to share in the immense river of trade and investment cash flowing through North Asia via South Korea, Europe, and China today.
Which means I believe this piece of analysis in the Time article is just plain wrong:
But even if Pyongyang agrees to disarm, there's little reason to believe that the regime will abandon its nefarious business dealings. By keeping Kim's top military and security officials happy, such lucrative enterprises help the dictator maintain his grip on power and resist pressure to open up the North's broken, Stalinist economy. [emphasis added]
Fact is, Kim Jung Il is trying to strengthen his regime by a controlled opening to the West—as the Chinese did in the 1980s—through special economic development zones and preferential policies to attract foreign investment.
Kim would love to preside over a one-party post-socialist business-friendly state that could claim US appreciation and support for acting as a counterweight to China in Asia.
Prospects for a Nixon-goes-to-China rapprochement have, of course, been pretty dim during the Bush administration.
The US campaign to block North Korea’s foreign trade and investment-related initiatives—and prevent Kim from prolonging his rule by presiding over a more prosperous and globalized North Korean economy—would make for an interesting story by itself.
The story would include items like our serial harassment of the Daedong Credit Bank—the foreign-owned North Korea bank meant to promote foreign investment in the Hermit Kingdom, that happened to account for 25% of the money tied up in Banco Delta Asia—and efforts to discourage participation in the Kaesong Industrial Park, North Korea’s flagship export processing zone catering to foreign manufacturers.
But I guess it’s too complicated.
The simple narrative of North Korea as a “Soprano State” is comforting, because it allows us to ignore or disdain the forces acting against American diplomacy in the region.
That, of course, is the problem.
It’s reckless and dangerous to simplify the North Korean issue to that of a repulsive toad king that the world would gladly spit out of its mouth, if only it got a strong enough slap on the back from the United States.
That kind of mindset makes it too easy for lazy and cynical bureaucrats to promote badly-conceived policies and then excuse and obscure their own failures by exploiting the genuine but also carefully cultivated abhorrence that America feels for Kim Jung Il.
Looking at the current state of play on the Korean peninsula, we should be asking:
Was it worth it to abandon nuclear diplomacy for two years to pursue provocative but relatively insignificant allegations of North Korean wrongdoing in a futile effort to get Kim Jung Il to dance to our tune?
In other words, was pursuing the Illicit Activities Initiative more important than supporting the Six Party talks, as Mr. Asher seems to think?
Now, with North Korea possessing the bomb, and lined up with China, Russia, and South Korea in a position of advantage in North Asia, the answer seems obvious.
I just wish Time had asked the question.
Showing posts with label BDA. Show all posts
Showing posts with label BDA. Show all posts
Tuesday, May 26, 2009
Friday, September 28, 2007
The Last Laugh v1.3444567 and v1.3444568
I inquired to Treasury concerning the fate of the petition to Treasury by Banco Delta Asia’s parent group to rescind the final rule directing U.S. financial institutions not to do business with BDA.
In its final rule, Treasury had advised that it didn’t matter how BDA tweaked its operations as long as Stanley Au remained chairman because Mr. Au, was, in Treasury’s view, too close to North Korea and potentially a recidivist ratbag.
(In May I provided a full rundown of the regulatory and legal rigamarole surrounding the rule, including a link to the text of the petition. It's available here.)
Treasury kindly advised:
FinCEN has responded to the petition and the final rule remains in place.
Gotcha!
Well, maybe not.
Thanks to sharp-eyed commentator David, we learn from AFP:
The Macau bank, which had held millions of dollars in North Korea assets stalling a nuclear disarmament for months, can resume control of its operations, government officials said Friday.
...
Due to the "remarkable improvement" made in the bank’s management by the government, the Macau authorities said it will return control of BDA to chairman, Stanley Au, with effect from Saturday.
Macau's encomium to the managers at BDA can, I think, be taken as a direct rebuke to the U.S. Treasury Department's muddled and/or demeaning justification for keeping the final rule in place even after both the bank and the Macau government had instituted remedial measures to tighten anti-moneylaundering controls in response to 18 months of high-profile bullying by Treasury's Office of Terrorism and Financial Intelligence
After all, Treasury was saying the only reason that BDA couldn't resume normal transactions with U.S. financial institutions was that Stanley Au couldn't be trusted and, more to the point, the Macau Monetary Authority couldn't be trusted to keep an eye on him, either
And Treasury just reconfirmed that position by rejecting the BDA petition.
So Macau goes out of its way to declare what a "remarkable" job BDA and, by implication, the Macau Monetary Authority are doing.
Gotcha back!
I suppose the next step for BDA is to try to get a hearing in the U.S. courts on the grounds that the Treasury rule was capricious and arbitrary. Good luck with that.
I think that the mindless bray of Simpsons troglodyte Nelson Muntz (courtesy of Nancy Cartwright's website) will serve as the suitable epitaph for this fiasco, no matter how long it drags on or who finally gets the last laugh.
In its final rule, Treasury had advised that it didn’t matter how BDA tweaked its operations as long as Stanley Au remained chairman because Mr. Au, was, in Treasury’s view, too close to North Korea and potentially a recidivist ratbag.
(In May I provided a full rundown of the regulatory and legal rigamarole surrounding the rule, including a link to the text of the petition. It's available here.)
Treasury kindly advised:
FinCEN has responded to the petition and the final rule remains in place.
Gotcha!
Well, maybe not.
Thanks to sharp-eyed commentator David, we learn from AFP:
The Macau bank, which had held millions of dollars in North Korea assets stalling a nuclear disarmament for months, can resume control of its operations, government officials said Friday.
...
Due to the "remarkable improvement" made in the bank’s management by the government, the Macau authorities said it will return control of BDA to chairman, Stanley Au, with effect from Saturday.
Macau's encomium to the managers at BDA can, I think, be taken as a direct rebuke to the U.S. Treasury Department's muddled and/or demeaning justification for keeping the final rule in place even after both the bank and the Macau government had instituted remedial measures to tighten anti-moneylaundering controls in response to 18 months of high-profile bullying by Treasury's Office of Terrorism and Financial Intelligence
After all, Treasury was saying the only reason that BDA couldn't resume normal transactions with U.S. financial institutions was that Stanley Au couldn't be trusted and, more to the point, the Macau Monetary Authority couldn't be trusted to keep an eye on him, either
And Treasury just reconfirmed that position by rejecting the BDA petition.
So Macau goes out of its way to declare what a "remarkable" job BDA and, by implication, the Macau Monetary Authority are doing.
Gotcha back!
I suppose the next step for BDA is to try to get a hearing in the U.S. courts on the grounds that the Treasury rule was capricious and arbitrary. Good luck with that.
I think that the mindless bray of Simpsons troglodyte Nelson Muntz (courtesy of Nancy Cartwright's website) will serve as the suitable epitaph for this fiasco, no matter how long it drags on or who finally gets the last laugh.
Thursday, July 19, 2007
Two Lost Years
History Gets Whacked by Lazy Time Magazine Stenography on North Korean “Soprano State”...
...But Lawrence Wilkerson Provides a Much Needed Corrective
With the shutdown of the reactor at Yongbyon, the Six Party agreement to denuclearize North Korea has lumbered into its next stage.
That means it’s time for all the hardliners who eagerly predicted the collapse of the agreement (and, indeed, may have worked actively to sabotage it by hindering the unfreezing of the North Korean accounts at Banco Delta Asia in Macau) to avoid unwelcome comparisons between their own counterproductive measures and the current success of the engagement policy.
Facts must be spun, failure must be obfuscated, reputations must be burnished and, I suppose, think tank sinecures must be defended until indifference and fading memory permit these indefatigable and unchastened screwups to return to positions of power within the U.S. foreign policy bureaucracy.
So it looks like it’s time once again for a complacent press will provide political cover to anxious Beltway apparatchiks in return for access to a selective slice of the inside story...
...one that glosses over a crucial two year period of failure—2005 and 2006—during which North Korea policy was under the undisputed control of the hardliners.
Case in point: Time Magazine’s expose of Kim Jung Il, “The Tony Soprano of North Korea.”
The article draws on assertions by David Asher, currently at the Heritage Foundation, who worked as a senior advisor in the State Department until mid-2005.
Mr. Asher was the driving force behind the hardliners’ aggressive implementation of the Illegal Activities Initiative (IAI). The IAI focused the enforcement actions of various U.S. departments on alleged illegal activities by North Korea, including cigarette counterfeiting, the meth trade, Supernote counterfeiting, money laundering and trade in protected species.
Mr. Asher’s twin legacies will probably be 1) using the IAI to instigate the Patriot Act Section 311 investigation of Banco Delta Asia in Macau that turned into an embarrassing fiasco and 2) his notorious but publicly unsupported statement that the investigation was a part of a planned effort to intimidate China by “killing the chicken to scare the monkeys”.
Time’s authors, Bill Powell and Adam Zagorin, could have grilled Mr. Asher about his role in the Bush administration’s hardline North Korean diplomacy in 2005/2006, which ended in North Korea’s detonation of its first atomic bomb, the failure to create an effective regional coalition to support Washington’s policy of confrontation against Pyongyang, the departure of the key hardline architects, Bolton, Joseph, et. al., and the laborious dismantling (and discrediting) of the ineffectual U.S.-led financial blockade that failed to bring Kim Jung Il to his knees.
Too bad they didn’t.
The story of how the hardliners drove America’s North Korea policy into a ditch is an interesting and important one, and it isn’t too hard to dig out.
Recently, I had the pleasure of corresponding with Lawrence Wilkerson, Secretary of State Colin Powell’s Chief of Staff during the first George W. Bush administration.
My attention had been drawn to Mr. Wilkerson by the contrast between his perspective on the IAI and a recent claim of Mr. Asher’s.
Lawrence Wilkerson, as reported in the Wall Street Journal in 2005, had this to say about the IAI:
Larry Wilkerson, who was former Secretary of State Colin Powell's chief of staff, said in an interview that the effort -- which officials named the Illicit Activities Initiative -- was launched to augment, rather than undercut, diplomacy.
In Congressional testimony in 2007, David Asher spoke of his resistance to the U.S. concession on Banco Delta Asia that ended the standoff concerning the frozen North Korean funds, and provided his characterization of the IAI::
“We designed this initiative with the goal of countering these [illicit] activities themselves...not necessarily supporting the Six Party talks.”
Well, which was it? Was the IAI designed for diplomacy...or something else?
Mr. Wilkerson, who, one might say, was present at the creation, commented to China Matters:
[The North Korea Working Group] was the most successful interagency group of the first Bush administration. It had members from every element of the federal bureaucracy. We forged a consensus, a way ahead, a plan of attack...
The primary reason of the Illicit Activities Initiative was to give us a tool for negotiating the Six Party agreement. That tool would be the "stick" with which we would attempt to make the DPRK negotiators more receptive to our desires with regard to their nuclear and missile programs, as well as their illicit activities. ...
David Asher liked to assume there was a real crimefighter I’m going to get you [component to the IAI]. [But it was always meant to be] orchestrated with astute diplomacy.
... I believe that once we had gone, John Bolton and others put the IAI to use as a stand-alone policy to attempt to force regime change in Pyongyang by drying up the money with which Kim Jong-il essentially kept his generals happy.
As to whether getting the North Koreans to walk out of the Six Party talks was part of the original, devilishly clever scheme for the Illicit Activities Initiative, I had this exchange with Mr. Wilkerson:
Was the BDA investigation part of the plan? Was the North Korean walkout in 2005 a contingency you had planned for?
No. [In President Bush’s second term] other people, John Bolton, Bob Joseph took away the dual track. They lusted after it, got ahold of it [the IAI], went whole hog [to use it to destabilize North Korea ].
That wasn’t so hard, was it?
In contrast to Mr. Asher’s assertion, Mr. Wilkerson states that the Illicit Activities Initiative was designed to complement American diplomacy in the Six Party talks.
So it might be enlightening for Mr. Asher to explain how the Illicit Activities Initiative was repurposed at the beginning of President Bush’s second term as an acceptable substitute for Six Party diplomacy...
...so that North Korea walked out of the Six Party talks, detonated a bomb, and demanded a humiliating retreat by the United States on the signature action of the Illicit Activities Initiative—the action against BDA...
...so that the talks could resume in early 2007 under China’s aegis at essentially the same point we were at in early 2005...
...or during the Clinton administration for that matter...
...except of course that North Korea now has the atomic bomb...
...and enough plutonium stockpiled to make several more.
Hardly a glowing endorsement for the decision to pursue the Illicit Activities Initiative independently of (and seemingly at the expense of) Six Party diplomacy
I did request a comment from Mr. Asher, but he didn’t respond.
Maybe Time had the same problem.
Of course, now that the hardliner policy failed with a thud (or the crump of an underground nuclear test), it seems to be in Mr. Asher’s interest to downplay the marked discontinuity in North Korea policy during the first two years of President Bush’s second term, as well as the role Mr. Asher played in that redirection.
Instead, Time got another retelling of Mr. Asher’s increasingly shopworn tales concerning Royal Charm and Smoking Dragon stings against alleged illicit North Korean activity, albeit with some of that patented Time factchecking.
That would seem to be the point, as far as Mr. Asher is concerned: keeping the focus on continued North Korean perfidy instead of the spasm of hardliner ineptitude that gave North Korea the bomb and left America playing second fiddle to China in North Asia.
There is some news, albeit of a negative sort, buried deep in the end of the article--the relative softpedaling of North Korean counterfeiting allegations.
Time writes:
According to U.S. and South Korean intelligence reports, the North has been producing the counterfeit bills at least since 1994. The South Korean intelligence service two years ago said it could confirm production only until 1998, but at least twice in recent years, claim U.S. and South Korean sources, the U.S. has presented the South Korean government with supernotes said to have been produced in 2001 and 2003.
A 2006 State Department estimate puts the amount of counterfeit currency in circulation at $45 million to $48 million. Estimate is the key word. Of all the illicit businesses from which North Korea profits, counterfeiting is the one about which outsiders know the least. U.S. officials say they don't believe the North Koreans produced the equipment to print such high-quality counterfeit bills. If that's the case, where did they get it from? No U.S. agency interviewed for this story, including Treasury, State and the Secret Service, could say. U.S. sources also say they do not know where in North Korea the notes are produced.
It does seem likely, however, that Kim's government is running the scam. [emphasis added]
Pretty weak beer, especially when compared to the prior allegations of extensive Supernote counterfeiting by North Korea that formed the central justification for the global financial campaign orchestrated against North Korea in 2005 and 2006 by the hardliners.
Heritage Foundation researcher Balbina Hwang—who currently occupies Mr. Asher’s advisor slot at the State Department—asserted that North Korea annually produced hundreds of millions of dollars worth of Supernotes.
Supernote counterfeiting was deemed an act of economic warfare, an act that Ed Royce (Rep., California, and the voice of the hardliners on the House Foreign Affairs Committee) darkly opined would justify the financial implosion of the Pyongyong regime by the United States.
In 2006, David Asher characterized North Korea’s Supernote involvement as follows :
The US Secret Service has been investigating the circulation of the “supernote” counterfeit dollars since 1989. Last year it charged that the counterfeit US notes were “manufactured in, and under auspices of the government of, the Democratic People’s Republic of Korea (“North Korea”). Individuals, including North Korean nationals acting as ostensible government officials, engaged in the worldwide transportation, delivery, and sale of quantities of Supernotes.” As the Secret Service has now revealed, the Federal Reserve Bank has come into the possession of roughly $48 million of these notes in the last fifteen years. Some argue that this shows that counterfeiting is just a drop in the bucket. Let me argue against this view.
To be fair, it wasn’t just David Asher.
According to Mr. Wilkerson, when he was at State before 2005 the briefings were pretty categorical:
I sat in meetings with the Treasury and Secret Service and they essentially convinced me [that North Korea was producing Supernotes inside North Korea and trafficking in them].
Now he adds a self-deprecating verbal shrug:
But I thought there were WMDs inside Iraq too.
Maybe the reporting of McClatchy and the investigations of Karl Bender concerning the immense technical and logistical hurdles Pyongyang would have had to overcome—and the paucity of evidence for any significant operation--are persuading the administration to back away from the North Korean Supernote allegations.
Or maybe, with the North Korean crisis cooling off, the government decided simply to stop yanking our chain about Kim Jung Il’s private Supernote factory, and allow the location of the purported facility to continue its hegira to our next designated boogie man (prior to North Korea, the United States had cited Lebanon’s Bekaa Valley a.k.a. Hezbollah, and then Iran as sources for the insidious notes).
In any event, the shift from a casus belli involving hundreds of millions of dollars in Supernotes produced inside North Korea to Time’s “we don’t know where or how much or how they do it or if they’re still even making them” is quite a step back.
While Mr. Powell and Mr. Zagorin missed the significance of the apparent retreat on the Supernote story, they also managed to add a few errors to their reporting about this hot-button issue:
a) Contra their statement quoted above, “estimate” is not the “key word” in describing the $45-$48 million number for circulating counterfeit currency; the key word is “confidence”.
Mr. Asher has energetically hyped the possibility of an enormous undetected North Korean Supernote menace by dismissing Treasury’s data on counterfeits as a mere “estimate”.
However, the Treasury Department has studied the international traffic in counterfeit U.S. currency exhaustively in a multi-year effort by the Federal Reserve Board involving visits to dozens of countries and is confident—with considerably more authority than Mr. Asher can muster-- that there is no significant reservoir of undetected counterfeit notes of any kind, including Supernotes.
b) The total of $45--$48 million in circulation is all counterfeit currency, not just Supernotes.
c) Only $45 million in Supernotes has been seized in the last fifteen years, as Asher himself says in his other statement. That’s an average of $3 million a year (for perspective, about $500 billion in US currency is in circulation worldwide).
Humph. I’ll bet Mr. Luce only needed one reporter to get it all wrong, back in the day.
Extensive Supernote counterfeiting was an important allegation not only because of the provocative and symbolic character of the outrage against America’s currency.
It was the only case in which the United States could claim to be the primary injured party and assert the right to lead a global action against North Korea outside the frustratingly incremental, multi-lateral Six Party and UN processes reserved for the nuclear, WMD, and missile issues.
The other major examples of alleged North Korean illicit activities did not have the United States as their primary target—they were concerns for China and Japan.
In both these cases, even with Japan’s highly confrontational stance toward North Korea, the injured parties did not see fit to characterize the North Korean activity as a casus belli that could not be handled by local and international law enforcement.
If the North Koreans are churning out huge quantities of counterfeit cigarettes, the main destination would be China, where an astounding percentage--over 90%--of imported cigarettes on the market are illicit—either smuggled or counterfeit.
If North Korean factories were making meth, the primary market would be Japan.
According to reports I’ve seen, meth is tolerated in Japan, presumably because it encourages the get-up-and-go-and-go-and-go-go-go ethos that is supposed to make Japanese society tick, and the yakuza’s drug trafficking is tolerated as long as it sticks to meth and stays away from cocaine and opiates. As a result, the market is served by immense illegal factories in the Philippines, Taiwan, and/or whatever locale offers the best combination of access to ephedrine, lax enforcement, and corruption.
The business is run by sophisticated, flexible, and internationalized criminal cartels whose entrepreneurial acumen is one of the true faces of 21st century globalism.
Which brings me to a gripe about the soundbite du jour on North Korea, “the Soprano State.”
David Asher et. al. probably found this formulation very useful, as the concept of a North Korean state fundamentally criminal in its nature justified an attack against any and all North Korean activities without the need to build a persuasive case in each and every instance.
I wouldn’t be surprised if the North Korean government, at a high level, countenances some dirty dealing. But I don’t think they’re the Sopranos; I think they’re the Gang Who Couldn’t Shoot Straight, relatively ineffectual amateur criminals stuck in the low-profit links of the Asian criminal supply chain.
Does anybody think the North Korean bureaucrats and generals can outhustle and outmuscle the fearsome Chinese triads who, if one might recall, were the designated Asian menace back in the 1990s?
I believe North Korea’s fundamental identity is that of a sclerotic dictatorship trying to cling to power and revive its moribund economy in an environment of overt US and Japanese hostility and Chinese malign indifference. Its willingness to engage in criminal activity is moderated by the requirements of its diplomacy and the need to achieve some sort of modus vivendi with the West that will allow Pyongyang to share in the immense river of trade and investment cash flowing through North Asia via South Korea, Europe, and China today.
Which means I believe this piece of analysis in the Time article is just plain wrong:
But even if Pyongyang agrees to disarm, there's little reason to believe that the regime will abandon its nefarious business dealings. By keeping Kim's top military and security officials happy, such lucrative enterprises help the dictator maintain his grip on power and resist pressure to open up the North's broken, Stalinist economy. [emphasis added]
Fact is, Kim Jung Il is trying to strengthen his regime by a controlled opening to the West—as the Chinese did in the 1980s—through special economic development zones and preferential policies to attract foreign investment.
Kim would love to preside over a one-party post-socialist business-friendly state that could claim US appreciation and support for acting as a counterweight to China in Asia.
Prospects for a Nixon-goes-to-China rapprochement have, of course, been pretty dim during the Bush administration.
The US campaign to block North Korea’s foreign trade and investment-related initiatives—and prevent Kim from prolonging his rule by presiding over a more prosperous and globalized North Korean economy—would make for an interesting story by itself.
The story would include items like our serial harassment of the Daedong Credit Bank—the foreign-owned North Korea bank meant to promote foreign investment in the Hermit Kingdom, that happened to account for 25% of the money tied up in Banco Delta Asia—and efforts to discourage participation in the Kaesong Industrial Park, North Korea’s flagship export processing zone catering to foreign manufacturers.
But I guess it’s too complicated.
The simple narrative of North Korea as a “Soprano State” is comforting, because it allows us to ignore or disdain the forces acting against American diplomacy in the region.
That, of course, is the problem.
It’s reckless and dangerous to simplify the North Korean issue to that of a repulsive toad king that the world would gladly spit out of its mouth, if only it got a strong enough slap on the back from the United States.
That kind of mindset makes it too easy for lazy and cynical bureaucrats to promote badly-conceived policies and then excuse and obscure their own failures by exploiting the genuine but also carefully cultivated abhorrence that America feels for Kim Jung Il.
Looking at the current state of play on the Korean peninsula, we should be asking:
Was it worth it to abandon nuclear diplomacy for two years to pursue provocative but relatively insignificant allegations of North Korean wrongdoing in a futile effort to get Kim Jung Il to dance to our tune?
In other words, was pursuing the Illicit Activities Initiative more important than supporting the Six Party talks, as Mr. Asher seems to think?
Now, with North Korea possessing the bomb, and lined up with China, Russia, and South Korea in a position of advantage in North Asia, the answer seems obvious.
I just wish Time had asked the question.
...But Lawrence Wilkerson Provides a Much Needed Corrective
With the shutdown of the reactor at Yongbyon, the Six Party agreement to denuclearize North Korea has lumbered into its next stage.
That means it’s time for all the hardliners who eagerly predicted the collapse of the agreement (and, indeed, may have worked actively to sabotage it by hindering the unfreezing of the North Korean accounts at Banco Delta Asia in Macau) to avoid unwelcome comparisons between their own counterproductive measures and the current success of the engagement policy.
Facts must be spun, failure must be obfuscated, reputations must be burnished and, I suppose, think tank sinecures must be defended until indifference and fading memory permit these indefatigable and unchastened screwups to return to positions of power within the U.S. foreign policy bureaucracy.
So it looks like it’s time once again for a complacent press will provide political cover to anxious Beltway apparatchiks in return for access to a selective slice of the inside story...
...one that glosses over a crucial two year period of failure—2005 and 2006—during which North Korea policy was under the undisputed control of the hardliners.
Case in point: Time Magazine’s expose of Kim Jung Il, “The Tony Soprano of North Korea.”
The article draws on assertions by David Asher, currently at the Heritage Foundation, who worked as a senior advisor in the State Department until mid-2005.
Mr. Asher was the driving force behind the hardliners’ aggressive implementation of the Illegal Activities Initiative (IAI). The IAI focused the enforcement actions of various U.S. departments on alleged illegal activities by North Korea, including cigarette counterfeiting, the meth trade, Supernote counterfeiting, money laundering and trade in protected species.
Mr. Asher’s twin legacies will probably be 1) using the IAI to instigate the Patriot Act Section 311 investigation of Banco Delta Asia in Macau that turned into an embarrassing fiasco and 2) his notorious but publicly unsupported statement that the investigation was a part of a planned effort to intimidate China by “killing the chicken to scare the monkeys”.
Time’s authors, Bill Powell and Adam Zagorin, could have grilled Mr. Asher about his role in the Bush administration’s hardline North Korean diplomacy in 2005/2006, which ended in North Korea’s detonation of its first atomic bomb, the failure to create an effective regional coalition to support Washington’s policy of confrontation against Pyongyang, the departure of the key hardline architects, Bolton, Joseph, et. al., and the laborious dismantling (and discrediting) of the ineffectual U.S.-led financial blockade that failed to bring Kim Jung Il to his knees.
Too bad they didn’t.
The story of how the hardliners drove America’s North Korea policy into a ditch is an interesting and important one, and it isn’t too hard to dig out.
Recently, I had the pleasure of corresponding with Lawrence Wilkerson, Secretary of State Colin Powell’s Chief of Staff during the first George W. Bush administration.
My attention had been drawn to Mr. Wilkerson by the contrast between his perspective on the IAI and a recent claim of Mr. Asher’s.
Lawrence Wilkerson, as reported in the Wall Street Journal in 2005, had this to say about the IAI:
Larry Wilkerson, who was former Secretary of State Colin Powell's chief of staff, said in an interview that the effort -- which officials named the Illicit Activities Initiative -- was launched to augment, rather than undercut, diplomacy.
In Congressional testimony in 2007, David Asher spoke of his resistance to the U.S. concession on Banco Delta Asia that ended the standoff concerning the frozen North Korean funds, and provided his characterization of the IAI::
“We designed this initiative with the goal of countering these [illicit] activities themselves...not necessarily supporting the Six Party talks.”
Well, which was it? Was the IAI designed for diplomacy...or something else?
Mr. Wilkerson, who, one might say, was present at the creation, commented to China Matters:
[The North Korea Working Group] was the most successful interagency group of the first Bush administration. It had members from every element of the federal bureaucracy. We forged a consensus, a way ahead, a plan of attack...
The primary reason of the Illicit Activities Initiative was to give us a tool for negotiating the Six Party agreement. That tool would be the "stick" with which we would attempt to make the DPRK negotiators more receptive to our desires with regard to their nuclear and missile programs, as well as their illicit activities. ...
David Asher liked to assume there was a real crimefighter I’m going to get you [component to the IAI]. [But it was always meant to be] orchestrated with astute diplomacy.
... I believe that once we had gone, John Bolton and others put the IAI to use as a stand-alone policy to attempt to force regime change in Pyongyang by drying up the money with which Kim Jong-il essentially kept his generals happy.
As to whether getting the North Koreans to walk out of the Six Party talks was part of the original, devilishly clever scheme for the Illicit Activities Initiative, I had this exchange with Mr. Wilkerson:
Was the BDA investigation part of the plan? Was the North Korean walkout in 2005 a contingency you had planned for?
No. [In President Bush’s second term] other people, John Bolton, Bob Joseph took away the dual track. They lusted after it, got ahold of it [the IAI], went whole hog [to use it to destabilize North Korea ].
That wasn’t so hard, was it?
In contrast to Mr. Asher’s assertion, Mr. Wilkerson states that the Illicit Activities Initiative was designed to complement American diplomacy in the Six Party talks.
So it might be enlightening for Mr. Asher to explain how the Illicit Activities Initiative was repurposed at the beginning of President Bush’s second term as an acceptable substitute for Six Party diplomacy...
...so that North Korea walked out of the Six Party talks, detonated a bomb, and demanded a humiliating retreat by the United States on the signature action of the Illicit Activities Initiative—the action against BDA...
...so that the talks could resume in early 2007 under China’s aegis at essentially the same point we were at in early 2005...
...or during the Clinton administration for that matter...
...except of course that North Korea now has the atomic bomb...
...and enough plutonium stockpiled to make several more.
Hardly a glowing endorsement for the decision to pursue the Illicit Activities Initiative independently of (and seemingly at the expense of) Six Party diplomacy
I did request a comment from Mr. Asher, but he didn’t respond.
Maybe Time had the same problem.
Of course, now that the hardliner policy failed with a thud (or the crump of an underground nuclear test), it seems to be in Mr. Asher’s interest to downplay the marked discontinuity in North Korea policy during the first two years of President Bush’s second term, as well as the role Mr. Asher played in that redirection.
Instead, Time got another retelling of Mr. Asher’s increasingly shopworn tales concerning Royal Charm and Smoking Dragon stings against alleged illicit North Korean activity, albeit with some of that patented Time factchecking.
That would seem to be the point, as far as Mr. Asher is concerned: keeping the focus on continued North Korean perfidy instead of the spasm of hardliner ineptitude that gave North Korea the bomb and left America playing second fiddle to China in North Asia.
There is some news, albeit of a negative sort, buried deep in the end of the article--the relative softpedaling of North Korean counterfeiting allegations.
Time writes:
According to U.S. and South Korean intelligence reports, the North has been producing the counterfeit bills at least since 1994. The South Korean intelligence service two years ago said it could confirm production only until 1998, but at least twice in recent years, claim U.S. and South Korean sources, the U.S. has presented the South Korean government with supernotes said to have been produced in 2001 and 2003.
A 2006 State Department estimate puts the amount of counterfeit currency in circulation at $45 million to $48 million. Estimate is the key word. Of all the illicit businesses from which North Korea profits, counterfeiting is the one about which outsiders know the least. U.S. officials say they don't believe the North Koreans produced the equipment to print such high-quality counterfeit bills. If that's the case, where did they get it from? No U.S. agency interviewed for this story, including Treasury, State and the Secret Service, could say. U.S. sources also say they do not know where in North Korea the notes are produced.
It does seem likely, however, that Kim's government is running the scam. [emphasis added]
Pretty weak beer, especially when compared to the prior allegations of extensive Supernote counterfeiting by North Korea that formed the central justification for the global financial campaign orchestrated against North Korea in 2005 and 2006 by the hardliners.
Heritage Foundation researcher Balbina Hwang—who currently occupies Mr. Asher’s advisor slot at the State Department—asserted that North Korea annually produced hundreds of millions of dollars worth of Supernotes.
Supernote counterfeiting was deemed an act of economic warfare, an act that Ed Royce (Rep., California, and the voice of the hardliners on the House Foreign Affairs Committee) darkly opined would justify the financial implosion of the Pyongyong regime by the United States.
In 2006, David Asher characterized North Korea’s Supernote involvement as follows :
The US Secret Service has been investigating the circulation of the “supernote” counterfeit dollars since 1989. Last year it charged that the counterfeit US notes were “manufactured in, and under auspices of the government of, the Democratic People’s Republic of Korea (“North Korea”). Individuals, including North Korean nationals acting as ostensible government officials, engaged in the worldwide transportation, delivery, and sale of quantities of Supernotes.” As the Secret Service has now revealed, the Federal Reserve Bank has come into the possession of roughly $48 million of these notes in the last fifteen years. Some argue that this shows that counterfeiting is just a drop in the bucket. Let me argue against this view.
To be fair, it wasn’t just David Asher.
According to Mr. Wilkerson, when he was at State before 2005 the briefings were pretty categorical:
I sat in meetings with the Treasury and Secret Service and they essentially convinced me [that North Korea was producing Supernotes inside North Korea and trafficking in them].
Now he adds a self-deprecating verbal shrug:
But I thought there were WMDs inside Iraq too.
Maybe the reporting of McClatchy and the investigations of Karl Bender concerning the immense technical and logistical hurdles Pyongyang would have had to overcome—and the paucity of evidence for any significant operation--are persuading the administration to back away from the North Korean Supernote allegations.
Or maybe, with the North Korean crisis cooling off, the government decided simply to stop yanking our chain about Kim Jung Il’s private Supernote factory, and allow the location of the purported facility to continue its hegira to our next designated boogie man (prior to North Korea, the United States had cited Lebanon’s Bekaa Valley a.k.a. Hezbollah, and then Iran as sources for the insidious notes).
In any event, the shift from a casus belli involving hundreds of millions of dollars in Supernotes produced inside North Korea to Time’s “we don’t know where or how much or how they do it or if they’re still even making them” is quite a step back.
While Mr. Powell and Mr. Zagorin missed the significance of the apparent retreat on the Supernote story, they also managed to add a few errors to their reporting about this hot-button issue:
a) Contra their statement quoted above, “estimate” is not the “key word” in describing the $45-$48 million number for circulating counterfeit currency; the key word is “confidence”.
Mr. Asher has energetically hyped the possibility of an enormous undetected North Korean Supernote menace by dismissing Treasury’s data on counterfeits as a mere “estimate”.
However, the Treasury Department has studied the international traffic in counterfeit U.S. currency exhaustively in a multi-year effort by the Federal Reserve Board involving visits to dozens of countries and is confident—with considerably more authority than Mr. Asher can muster-- that there is no significant reservoir of undetected counterfeit notes of any kind, including Supernotes.
b) The total of $45--$48 million in circulation is all counterfeit currency, not just Supernotes.
c) Only $45 million in Supernotes has been seized in the last fifteen years, as Asher himself says in his other statement. That’s an average of $3 million a year (for perspective, about $500 billion in US currency is in circulation worldwide).
Humph. I’ll bet Mr. Luce only needed one reporter to get it all wrong, back in the day.
Extensive Supernote counterfeiting was an important allegation not only because of the provocative and symbolic character of the outrage against America’s currency.
It was the only case in which the United States could claim to be the primary injured party and assert the right to lead a global action against North Korea outside the frustratingly incremental, multi-lateral Six Party and UN processes reserved for the nuclear, WMD, and missile issues.
The other major examples of alleged North Korean illicit activities did not have the United States as their primary target—they were concerns for China and Japan.
In both these cases, even with Japan’s highly confrontational stance toward North Korea, the injured parties did not see fit to characterize the North Korean activity as a casus belli that could not be handled by local and international law enforcement.
If the North Koreans are churning out huge quantities of counterfeit cigarettes, the main destination would be China, where an astounding percentage--over 90%--of imported cigarettes on the market are illicit—either smuggled or counterfeit.
If North Korean factories were making meth, the primary market would be Japan.
According to reports I’ve seen, meth is tolerated in Japan, presumably because it encourages the get-up-and-go-and-go-and-go-go-go ethos that is supposed to make Japanese society tick, and the yakuza’s drug trafficking is tolerated as long as it sticks to meth and stays away from cocaine and opiates. As a result, the market is served by immense illegal factories in the Philippines, Taiwan, and/or whatever locale offers the best combination of access to ephedrine, lax enforcement, and corruption.
The business is run by sophisticated, flexible, and internationalized criminal cartels whose entrepreneurial acumen is one of the true faces of 21st century globalism.
Which brings me to a gripe about the soundbite du jour on North Korea, “the Soprano State.”
David Asher et. al. probably found this formulation very useful, as the concept of a North Korean state fundamentally criminal in its nature justified an attack against any and all North Korean activities without the need to build a persuasive case in each and every instance.
I wouldn’t be surprised if the North Korean government, at a high level, countenances some dirty dealing. But I don’t think they’re the Sopranos; I think they’re the Gang Who Couldn’t Shoot Straight, relatively ineffectual amateur criminals stuck in the low-profit links of the Asian criminal supply chain.
Does anybody think the North Korean bureaucrats and generals can outhustle and outmuscle the fearsome Chinese triads who, if one might recall, were the designated Asian menace back in the 1990s?
I believe North Korea’s fundamental identity is that of a sclerotic dictatorship trying to cling to power and revive its moribund economy in an environment of overt US and Japanese hostility and Chinese malign indifference. Its willingness to engage in criminal activity is moderated by the requirements of its diplomacy and the need to achieve some sort of modus vivendi with the West that will allow Pyongyang to share in the immense river of trade and investment cash flowing through North Asia via South Korea, Europe, and China today.
Which means I believe this piece of analysis in the Time article is just plain wrong:
But even if Pyongyang agrees to disarm, there's little reason to believe that the regime will abandon its nefarious business dealings. By keeping Kim's top military and security officials happy, such lucrative enterprises help the dictator maintain his grip on power and resist pressure to open up the North's broken, Stalinist economy. [emphasis added]
Fact is, Kim Jung Il is trying to strengthen his regime by a controlled opening to the West—as the Chinese did in the 1980s—through special economic development zones and preferential policies to attract foreign investment.
Kim would love to preside over a one-party post-socialist business-friendly state that could claim US appreciation and support for acting as a counterweight to China in Asia.
Prospects for a Nixon-goes-to-China rapprochement have, of course, been pretty dim during the Bush administration.
The US campaign to block North Korea’s foreign trade and investment-related initiatives—and prevent Kim from prolonging his rule by presiding over a more prosperous and globalized North Korean economy—would make for an interesting story by itself.
The story would include items like our serial harassment of the Daedong Credit Bank—the foreign-owned North Korea bank meant to promote foreign investment in the Hermit Kingdom, that happened to account for 25% of the money tied up in Banco Delta Asia—and efforts to discourage participation in the Kaesong Industrial Park, North Korea’s flagship export processing zone catering to foreign manufacturers.
But I guess it’s too complicated.
The simple narrative of North Korea as a “Soprano State” is comforting, because it allows us to ignore or disdain the forces acting against American diplomacy in the region.
That, of course, is the problem.
It’s reckless and dangerous to simplify the North Korean issue to that of a repulsive toad king that the world would gladly spit out of its mouth, if only it got a strong enough slap on the back from the United States.
That kind of mindset makes it too easy for lazy and cynical bureaucrats to promote badly-conceived policies and then excuse and obscure their own failures by exploiting the genuine but also carefully cultivated abhorrence that America feels for Kim Jung Il.
Looking at the current state of play on the Korean peninsula, we should be asking:
Was it worth it to abandon nuclear diplomacy for two years to pursue provocative but relatively insignificant allegations of North Korean wrongdoing in a futile effort to get Kim Jung Il to dance to our tune?
In other words, was pursuing the Illicit Activities Initiative more important than supporting the Six Party talks, as Mr. Asher seems to think?
Now, with North Korea possessing the bomb, and lined up with China, Russia, and South Korea in a position of advantage in North Asia, the answer seems obvious.
I just wish Time had asked the question.
Friday, July 06, 2007
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.
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.
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.
Tuesday, June 05, 2007
Patriot Act Section 311 Moves to the Forefront of the North Korea/BDA Issue
Via Arms Control Wonk , the Russians are also offering to step up and handle North Korea’s $25 million if...
... if the U.S. side provides a written guarantee that they will not introduce any sanctions against our financial institutions, we may be in a position to look at the possible transfer of these funds to a Russian bank where the North Korean government has an account,” Alexander Losyukov said.
To me, this is no more—or less—than the Russians weighing in on the side of the State Department and pushing the Bush administration to override whatever objections raised by the Treasury Department and/or hardliners and resolve this issue.
By my count, China, Russia, and South Korea have all expressed various degrees of impatience with the United States in the last few days, an indication of their frustration and perhaps also a response to some lobbying from the State Department looking for help pushing the Six Party process out of the BDA ditch.
With the deadlock over this piddling sum approaching its third month, it’s starting to look embarrassing for the United States—something that President Bush is probably unhappily aware of.
A reader pointed me toward the June 4 State Department press briefing , in which a questioner stated that Bill Richardson (New Mexico governor, Democratic candidate for president, and recent visitor to North Korea) says the BDA matter will be resolved in a about two weeks.
Governor Richardson might be passing on optimistic State Department spin; I would be surprised if he would have the inside scoop on what President Bush is actually going to do on this issue.
The press briefing also included the amusing spectacle of reporters struggling to get a grip on the very complicated question What’s holding up the remittance of North Korean funds out of Banco Delta Asia (and the Six Party Agreement)?:
QUESTION: Can we then conclude that using this 311 section of the Patriot Act
is like a far more powerful tool than anybody imagined? That it's one that
people just can't turn off once you turn it on?
MR. MCCORMACK: It is a powerful tool.
How powerful is Patriot Act Section 311?
It seems it’s more than an un-turn-offable tool.
Like the Shadow, Patriot Act Section 311 has the power to cloud men’s minds, as I learned to my cost in a futile exchange on the Marmot’s Hole with a poster determined to spread the hardliner canard that executing the remittance is impossible without breaking or bending U.S. law.
I asserted that Patriot Act Section 311 special measures are executive branch administrative rules that can be imposed—and can be revoked or modified—unilaterally at the discretion of the Treasury Department without the need for any legislative or judicial action.
Was I right?
Determined to lay this issue to rest, I contacted the Treasury Department spokesperson Molly Millerwise and asked her what it would take to waive, modify, or rescind a Patriot Act 311 ruling.
She kindly directed me to a Treasury web page that summarizes the status of the various Patriot Act Section 311 special measures, and advised me to read the Federal Register notices for previously lifted rules in order to understand the process.
Sixteen banks and jurisdictions have been targeted by a Patriot Act Section 311 Finding or Notice of Proposed Rulemaking.
Two—Multibanka (a bank in Latvia) and Ukraine—have seen their special measures rescinded.
In the July 12, 2006 notice announcing the rescission of Multibanka’s notice, the Treasury Department acknowledged the efforts of Latvia and the bank itself to crack down on money laundering and stated:
If a financial institution that is the object of a proposed section 311 special measure is determined to no longer be of primary money laundering concern, we have the authority to withdraw the finding and to withdraw any related proposal to impose a special measure.
In the case of the Ukraine, in response to passage of new money laundering legislation that passed Treasury muster, Treasury announced:
In light of the further legislative enhancements, the commitment of Ukraine to further efforts to implement its anti-money laundering legislation, and the FATF [Financial Action Task Force]’s decision to rescind the call for counter-measures, Treasury has decided to revoke the designation of Ukraine as a primary money laundering concern under section 5318A [added to the U.S. Code by Patriot Act Section 311 for the designation of “banks of primary money laundering concern”--ed.].
At the end of the notice is the statement:
Revocation of the Designation of Ukraine as a Primary Money Laundering Concern
For the foregoing reasons, the designation of the country of Ukraine as a primary money laundering concern for purposes of section 5218A of title 31, United States Code, is hereby revoked.
(Signed)
James F. Sloan
Director
Financial Crimes Enforcement Network
That’s pretty cut and dried.
Banks and jurisdictions do bad stuff, Treasury announces a Patriot Act Section 311 designation.
Banks and jurisdictions do good stuff to the satisfaction of the Treasury Department, the designation is rescinded. It’s up to Treasury’s discretion.
There was one final area of uncertainty.
In addition to Banco Delta Asia, five other banks and jurisdiction have been the subject of a Final Rule: Asia Wealth Bank (Burma), Burma (the whole country), Commercial Bank of Syria, Myanmar Mayflower Bank (Burma), and VEF Banka (Latvia).
None of these banks have ever had their Final Rules rescinded.
Could it be that a Final Rule was permanent and could never be rescinded?
Ms. Millerwise obliged with the answer:
Yes, the Treasury’s Financial Crimes Enforcement Network can rescind a final rule.
Doubtless, the Treasury Department has standards to uphold, guidelines to respect, and processes to follow. And they are probably not happy to see the Patriot Act Section 311 designation—which has been apparently been applied conservatively and judiciously in other instances—thrown on the table by the State Department as a bargaining chip in the Six Party talks.
But it would seem there is no legal obstacle to Treasury waiving the Patriot Act Section 311 measures against Banco Delta Asia and allowing the North Korean money to be remitted to another bank.
... if the U.S. side provides a written guarantee that they will not introduce any sanctions against our financial institutions, we may be in a position to look at the possible transfer of these funds to a Russian bank where the North Korean government has an account,” Alexander Losyukov said.
To me, this is no more—or less—than the Russians weighing in on the side of the State Department and pushing the Bush administration to override whatever objections raised by the Treasury Department and/or hardliners and resolve this issue.
By my count, China, Russia, and South Korea have all expressed various degrees of impatience with the United States in the last few days, an indication of their frustration and perhaps also a response to some lobbying from the State Department looking for help pushing the Six Party process out of the BDA ditch.
With the deadlock over this piddling sum approaching its third month, it’s starting to look embarrassing for the United States—something that President Bush is probably unhappily aware of.
A reader pointed me toward the June 4 State Department press briefing , in which a questioner stated that Bill Richardson (New Mexico governor, Democratic candidate for president, and recent visitor to North Korea) says the BDA matter will be resolved in a about two weeks.
Governor Richardson might be passing on optimistic State Department spin; I would be surprised if he would have the inside scoop on what President Bush is actually going to do on this issue.
The press briefing also included the amusing spectacle of reporters struggling to get a grip on the very complicated question What’s holding up the remittance of North Korean funds out of Banco Delta Asia (and the Six Party Agreement)?:
QUESTION: Can we then conclude that using this 311 section of the Patriot Act
is like a far more powerful tool than anybody imagined? That it's one that
people just can't turn off once you turn it on?
MR. MCCORMACK: It is a powerful tool.
How powerful is Patriot Act Section 311?
It seems it’s more than an un-turn-offable tool.
Like the Shadow, Patriot Act Section 311 has the power to cloud men’s minds, as I learned to my cost in a futile exchange on the Marmot’s Hole with a poster determined to spread the hardliner canard that executing the remittance is impossible without breaking or bending U.S. law.
I asserted that Patriot Act Section 311 special measures are executive branch administrative rules that can be imposed—and can be revoked or modified—unilaterally at the discretion of the Treasury Department without the need for any legislative or judicial action.
Was I right?
Determined to lay this issue to rest, I contacted the Treasury Department spokesperson Molly Millerwise and asked her what it would take to waive, modify, or rescind a Patriot Act 311 ruling.
She kindly directed me to a Treasury web page that summarizes the status of the various Patriot Act Section 311 special measures, and advised me to read the Federal Register notices for previously lifted rules in order to understand the process.
Sixteen banks and jurisdictions have been targeted by a Patriot Act Section 311 Finding or Notice of Proposed Rulemaking.
Two—Multibanka (a bank in Latvia) and Ukraine—have seen their special measures rescinded.
In the July 12, 2006 notice announcing the rescission of Multibanka’s notice, the Treasury Department acknowledged the efforts of Latvia and the bank itself to crack down on money laundering and stated:
If a financial institution that is the object of a proposed section 311 special measure is determined to no longer be of primary money laundering concern, we have the authority to withdraw the finding and to withdraw any related proposal to impose a special measure.
In the case of the Ukraine, in response to passage of new money laundering legislation that passed Treasury muster, Treasury announced:
In light of the further legislative enhancements, the commitment of Ukraine to further efforts to implement its anti-money laundering legislation, and the FATF [Financial Action Task Force]’s decision to rescind the call for counter-measures, Treasury has decided to revoke the designation of Ukraine as a primary money laundering concern under section 5318A [added to the U.S. Code by Patriot Act Section 311 for the designation of “banks of primary money laundering concern”--ed.].
At the end of the notice is the statement:
Revocation of the Designation of Ukraine as a Primary Money Laundering Concern
For the foregoing reasons, the designation of the country of Ukraine as a primary money laundering concern for purposes of section 5218A of title 31, United States Code, is hereby revoked.
(Signed)
James F. Sloan
Director
Financial Crimes Enforcement Network
That’s pretty cut and dried.
Banks and jurisdictions do bad stuff, Treasury announces a Patriot Act Section 311 designation.
Banks and jurisdictions do good stuff to the satisfaction of the Treasury Department, the designation is rescinded. It’s up to Treasury’s discretion.
There was one final area of uncertainty.
In addition to Banco Delta Asia, five other banks and jurisdiction have been the subject of a Final Rule: Asia Wealth Bank (Burma), Burma (the whole country), Commercial Bank of Syria, Myanmar Mayflower Bank (Burma), and VEF Banka (Latvia).
None of these banks have ever had their Final Rules rescinded.
Could it be that a Final Rule was permanent and could never be rescinded?
Ms. Millerwise obliged with the answer:
Yes, the Treasury’s Financial Crimes Enforcement Network can rescind a final rule.
Doubtless, the Treasury Department has standards to uphold, guidelines to respect, and processes to follow. And they are probably not happy to see the Patriot Act Section 311 designation—which has been apparently been applied conservatively and judiciously in other instances—thrown on the table by the State Department as a bargaining chip in the Six Party talks.
But it would seem there is no legal obstacle to Treasury waiving the Patriot Act Section 311 measures against Banco Delta Asia and allowing the North Korean money to be remitted to another bank.
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