Return to Failure

Is China the True Target of Financial Sanctions Against Iran?

Those with long memories—that go back, say, three months—will remember the last time the U.S. Treasury Department tried to bend an Axis of Evil member to its will through targeted financial sanctions.

Failure was the outcome.

Now the United States is trying for a do-over with Iran and, though the techniques—particularly for handling China—may be more sophisticated, I’m afraid the result will be the same.

As amply reported in this blog, Stuart Levey’s Office of Terrorism and Financial Intelligence repurposed Patriot Act Section 311 investigations away from their intended goal of perfecting the international anti-money laundering regime to attacks on the quite possibly legitimate assets of geopolitical targets and—something that got surprisingly short shrift from the international press—the assets and businesses of allies and neutrals who did not share the necessary enthusiasm for our strategic goals.

The previous intended victim of ad hoc financial sanctions secretly coordinated by the United States outside of the U.N. sanctions regime was supposed to be North Korea.

The whole effort imploded messily when sanctions endorsed piecemeal by Japan, Australia, and a few other countries—but not China or Russia—failed to do anything except encourage Pyongyang to accelerate its development of a nuclear deterrent.

The flagship enterprise of US financial sanctions—the two-year Patriot Act Section 311 investigation of Banco Delta Asia in Macau—collapsed when the State Department abandoned the BDA allegations, which stood revealed as an embarrassing farrago of cherrypicking, chestthumping, and cynical innuendo.

Even so, it took four agonizing months to get a recalcitrant Treasury Department to acquiesce to an unfreezing of the North Korean funds in BDA, even though the investigation could have been terminated and its measures rescinded overnight by a decision from Treasury.

At the time I speculated that the only reason for all this melodrama was to preserve Patriot Act Section 311 investigations’ aura of unilateral, unstoppable, and irreversible menace for the purpose of maintaining their credibility and intimidating power in the case of Iran.

Judging from the recent spate of articles in McClatchy and the Telegraph touting the purported successes of the somewhat secret financial war against Iran, I think I’m right.

But this time there’s a difference.

In 2005/2006 the North Korea effort was hijacked by regime-change hardliners typified by John Bolton, who sought to destroy Kim Jung Il’s regime by cutting off the flow of foreign exchange that they believed was vital to Kim to purchase the loyalty of his generals.

The only way to achieve a complete financial blockade was to obtain the cooperation of Beijing.

The hardline approach to the China issue was predictable, less than subtle, and completely ineffective.

The State Department’s point man for the anti-Nork effort at that time, David Asher, stated that the purpose of the move against BDA was to intimidate Chinese banks handling North Korean funds with the threat of being cut off from the US financial markets as BDA had been—“to kill the monkey in order to scare the chickens”, in Mr. Asher’s immortal phrase.

Well, the Chinese didn’t capitulate...and it turned out that the Bush administration was not interested in playing chicken with the Chinese over the fate of the world financial system, and did not sanction a further attack on Chinese banks.

So nothing was achieved except alarming and irritating the Chinese—and, oh yes, the North Koreans detonated a nuclear bomb and the sanctions regime fell apart.

However, it appears that U.S. policymakers haven’t drawn the lesson that coerced multilateralism is not only ineffective, it is counterproductive and, actually, a bad idea.

In fact, the Bush administration, that motherlode of bad ideas, apparently believes there are no bad ideas—only bad execution.

So on to Iran.

And this time it’s personal!

No,not Bush vs. Ahmadinejad.

Condi vs. Dick!

I think that this time Condi Rice has taken on the challenge of showing that she can do extra-UN unilaterally directed financial sanctions smarter, better, and more effectively than John Bolton, Vice President Cheney’s bespoke cat’s paw—and, in a high risk maneuver, she has staked the success of the diplomatic track in confronting Iran on showing results from the financial embargo.

Condi probably believes she has the acumen to enmesh China in our financial sanctions regime and persuade Beijing to abandon its support of Iran in the UN Security Council.

People who pay attention to the Iran sanctions regime have noted that pressuring European and Japanese banks to cease transactions with Iranian entities have simply pushed the business into China’s and Russia’s hands.

As Warren Strobel wrote for McClatchy:

Yet in some cases, when Western companies and banks move out of Iran, Chinese or other Asian firms simply move in and take the business.

And if we were dealing with the same reckless enthusiasts who controlled foreign policy in 2005-06, that self-defeating outcome would probably be the end of it.

But I give Condoleezza Rice and Stuart Levey more credit than that.

They’re smarter, and they also have the experience of the North Korea debacle to instruct them.

This time their menace is somewhat silken, in fact inchoate, compared with the full-bore frothing that characterized the anti-North Korea effort. From McClatchy:

The financial war began in earnest a year ago, when Treasury Department teams began briefing foreign governments and banks on intelligence the U.S. government had gathered on Iran. Among the findings was that the Central Bank of Iran was trying to conceal its role in financial transactions in which it was involved, a practice on which banks look askance, said the senior Treasury official.

“That’s just as suspicious as it sounds,” he said.

Huh?

Compare that to the incendiary accusations against Kim Jung Il used to justify the North Korea financial embargo. The Evil Dwarf of Pyongyang was accused of running a Soprano State, raping our currency with his vile Supernotes, peddling fake Viagra and phony smokes, and ruthlessly trafficking in forbidden rhino horn. Efforts were made to shut down any access by any North Korean entity to any bank anywhere, apparently on pretty flimsy pretexts in some cases.

Let’s assume that subtlety, stronger dossiers, and a more incremental approach to chipping away at Iran’s access to the world’s financial system is going on today.

Anyway.

My speculation is this:

The U.S. isn’t threatening China directly this time.

Instead we are seeking to assemble a coalition of willing and coerced European and Asian partners to present China with a united front.

The next step in isolating Iran will be to have the European and Japanese banks go to China and tell Beijing they can’t risk doing business with Chinese banks if there is any fear of Iranian taint—because the US government is threatening to land on them like a ton of bricks.

So the Chinese had better decide whether they want to continue to do business with fine, enormous banks like UBS, HSBC, and Deutsche Bank (who have already severed Iran ties, probably under U.S. pressure)—not to mention all those US banks required under US law not to handle Iranian business—or do they want to risk it for the sake of creepy little Iran?

Better to back off and back the harsher U.N. Security Council sanctions the U.S. is now attempting to orchestrate.

I’m sure that Condi Rice is working the diplomatic channels as well, telling the Chinese as well as a Beltway journalist or two that success of her financial sanctions strategy is the only thing that stands between the world and another Dick Cheney—perpetrated military outrage in the Middle East.

That, I think, would be a futile and dangerous game for Secretary Rice to play.

For the United States, which prior to 9/11 had not witnessed a large scale hostile foreign action on its soil since Pearl Harbor, is used to dishing out violence, not taking it in.

War in the homeland is an existential catastrophe and a terrifying journey into an unknown territory of fear, confusion, self-doubt, and danger.

Countries like China and Iran, on the other hand, have living memories of numerous battles within their boundaries that claimed hundreds of thousands of lives

A brief review of the “Forgotten Gulf War”in the 1980s (Iraqi aggression, 8 years, 500,000+ Iranian casualties, chemical warfare, missile attacks on Teheran) and the Chinese Anti-Japanese War (Japanese aggression, 8 years, 19 million Chinese fatalities, total war against civilians in some areas) might provide some useful perspective for our policymakers.

To countries like Iran and China, war is catastrophic and terrible—but sometimes it is unavoidable and often it is survivable.

That means that the clocks don’t stop and the world doesn’t end when the first bomb falls.

It means victims and bystanders start thinking about the post-battle challenges—and opportunities—before they occur.

Does Beijing want to permanently alienate the Iranians by going along with a US financial embargo and sanctions regime?

Or does it want to be the steadfast ally who extends a helping humanitarian, economic, and diplomatic hand to the enraged Iranians as they dig out of the rubble of the attack?

I wouldn’t bet on the first option, Condi.

Hopefully she has another plan to forestall a military attack if the financial sanctions campaign recapitulates its North Korean failure. Like engagement, maybe?

But it doesn’t look like the debate has been framed that way. McClatchy, again:

More broadly, nations from Cuba to Myanmar have managed to survive under economic assault, manipulating sanctions to blame outside forces and rally support from their people.

Another obstacle is here at home, where Secretary of State Condoleezza Rice faces stiff opposition from hard-liners led by Cheney. The Cheney camp argues that diplomacy and pressure are doomed to fail to stop Iran from going nuclear.

So, in response to a potential weaponization of Iranian nuclear assets that will occur, if ever, years after the Bush administration leaves office, we’ve got a false choice between a sanctions policy that failed against North Korea, and an aggressive military strategy that failed in Iraq.

Remind me, what are we paying these people for?

As a P.S., I realize I haven’t addressed the issue of addressing Russian intransigence on Iran.

“Russia is hiding behind China” is the current administration meme , which I don’t find a particularly persuasive piece of wishful thinking.

It would seem that the U.S. strategy is to peel China away from Iran and hope that Russia has no stomach for standing alone in the Security Council to defend Teheran’s nuclear program.

Good luck with that. I think that the increasingly assertive Russians are less interested than ever in dancing the diplomatic quadrille with the United States.

Maybe there’s a Russian affairs blog out there willing to pitch in on the question of Vladimir Putin feels the need to “hide” behind Hu Jintao.

In Case Any More Proof Was Needed That Patriot Act Section 311 Are Politically-Motivated Nonsense...

...This Article Should Do the Trick

A propos the Patriot Act Section 311 investigation against Banco Delta Asia in Macau that caused so much heartburn for the Six Party Agreement, I described an apparent worldwide campaign of financial warfare against North Korea and wrote :

A general picture emerges.

The December 2005 Advisory [warning banks away from North Korea] 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).

Well, speculate no more. Reuters delivers a crate of smoking guns in its reporting on another hardliner bugbear—Cuba.

International banks shun Cuba under U.S. scrutiny

By Anthony Boadle

HAVANA (Reuters) - Heightened scrutiny of banking transactions by the United States since the September 11 attacks has led European and Canadian banks to curtail dealings with Cuba, bankers and businesses say.

...
The result -- perhaps intended -- is that Western businessmen in Havana are having nightmares moving funds in dollars to and from Cuba because banks are increasingly refusing their business.

HSBC , Barclays , Credit Suisse , Royal Bank of Canada and the Bank of Nova Scotia, also known as Scotiabank , have closed accounts of Cuban companies or reduced business tied to Cuba since last year to comply with U.S. regulations.

...

ING Groep NV , the first big Western bank to set up business in Communist Cuba, doing so in 1994, said two weeks ago that it will close its Havana office.

ING said it was purely a business decision, but it followed the blacklisting last year by the United States of its banking joint venture with Cuba.

"The banks don't want to risk a fine by the Federal Reserve. Banks like ING and HSBC have much bigger fish to fry than Cuba," said Simonato.

Scotiabank last year ended dollar transactions by the Cuban embassy in Jamaica and was criticized for bowing to U.S. rules.
...

The move to comply with U.S. regulations came in the wake of the heaviest penalty in banking history.

In 2004, Switzerland's largest bank, UBS AG , was fined an unprecedented $100 million by the U.S. Federal Reserve for helping Cuba, Iran, Libya and the former Yugoslavia swap old dollar banknotes for new currency.

UBS said it had "substantially completed" its exit from dealings with Cuba, Iran, North Korea, Myanmar, Sudan and Syria by the end of last year.
...

Shunned by Swiss banks, Cuba has had trouble funding its U.N mission in Geneva, a European diplomat in Havana said.

Last month, Cuba complained that UBS and Panama-based Banistmo, owned by HSBC, had refused to process the payment of its annual membership fee in the Latin American parliament.
...

The U.S. Securities and Exchange Commission last month posted a list of companies whose annual reports contain any references to Iran, Sudan, Syria, North Korea and Cuba.

The online tool is meant to allow investors to search for businesses with ties to state sponsors of terrorism. Companies on the list were outraged because it did not make clear what were their exact ties with the five countries.
...

"The Patriot Act gave U.S. authorities a tool to do what they could not do before: chase foreign banks to comply with U.S. sanctions," he said.

A note on that $100 million fine. Apparently it was related to the discovery of $650 million in brand-new US bills in one of Saddam’s stashes after the invasion—which he apparently acquired by dealing through Cuba, Libya, and the former Yugoslavia, who had got the greenbacks through UBS and traded them onward.

Presumably, Saddam was understandably nervous about his foreign bank accounts getting locked up by future UN action. So he cashed out.

Ironically, Saddam un-laundered his money, removing it from the world financial system and piling it in neat stacks in his hidey-hole to be discovered by the U.S. Army. So I’m not sure what laws were violated here.

Therefore, connoisseurs of due process will enjoy this, from the financial site Finextra :

Apparently, it is not a crime for non-US banks to trade US currency with these countries, even thought they were under sanctions, and so UBS employees had been doing this since the mid-1990's. And, just to be absolutely clear, UBS was not charged with any criminal matters as a result of the enquiries, but was given the hefty fine primarily to demonstrate the Federal Reserve's displeasure at its activities.

$100 million fine from Treasury for doing legal business outside U.S. jurisdiction. I’m sure UBS and the Swiss government were just thrilled.

There are two more interesting aspects to this report.

First, it confirms that Patriot Act Section 311—meant to perfect the international anti money-laundering system-- is being misapplied as an instrument of policy against regimes we don’t like.

Second, other governments may finally be getting fed up with their banks being puppets in Washington’s theater of pain and are starting to go public with their objections to a U.S. program of harassment that invades their sovereignty without any transparency, due process, or effective recourse in the pursuit of unilateral American objectives that they haven’t endorsed.

Cuba is a pretty obvious test case.

Nobody likes Kim Jung Il, and Europe may be willing if not eager to go along on Iran, Libya, and Syria to keep the lid on in the Middle East, but Cuba?

Cuba, the land of sugar, sex tourism, great medical care, and the clave?

The only country in the world that maintains an economic sanctions regime against Cuba is the U.S. of A.

And pretty much the only country that is serious about harassing Cuba is the United States, which has enlisted Poland, the Czech Republic, and Britain to block an effort led by Spain and supported by Italy and Germany to normalize relations.

Threatening to cripple European banks in the service of a U.S. policy directed more at Florida’s 27 electoral votes than any legitimate financial, foreign policy, or security goal is not going to be real...popular.

Will European objections make a difference?

These days it seems the riposte to any challenge to the Bush administration is a brisk display of the middle finger by our unpopular, back-against-the-wall prez.

It will be interesting to see if the Europeans go public with objections to the PA Section 311 campaign, or just hunker down for the next year and a half and hope for better days come 2009.

By Order of the President...

Was there a secret executive order targeting North Korea?

Recent news reports concerning the gentle treatment of A. Q. Khan—acknowledged mastermind of the world’s most extensive proliferation network for nuclear weapons technology—bring home the point that U.S. nuclear policy is a tangle of contradictions.

We ignore a proliferator like Pakistan, reward a defiant nuclear program like India’s with a legitimizing treaty, and go hammer-and-tongs after regimes like Iran and North Korea that interfere with our geopolitical objectives.

It’s difficult, if not impossible to conduct such an arbitrary, unilateral, and self-serving foreign policy through international institutions. That’s why the Bush administration has preferred to act through executive orders.


By Presidential Executive Order , we’re living in a state of national emergency.

Because the proliferation of weapons of mass destruction and the means of delivering them continues to pose an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States, the national emergency first declared on November 14, 1994, must continue in effect beyond November 14, 2006. In accordance with section 202(d) of the National Emergencies Act (50 U.S.C. 1622(d)), I am continuing for 1 year the national emergency declared in Executive Order 12938, as amended.
This notice shall be published in the Federal Register and transmitted to the Congress.
GEORGE W. BUSH
THE WHITE HOUSE,
October 27, 2006. [emphasis added]


Betcha didn’t know that.

And in early 2006, the Bush administration considered issuing an Executive Order commanding the world either to be with us or against us in an effort to destroy North Korea through a financial blockade.

Betcha didn’t know that either.

Executive Orders come in various flavors: In addition to the plain vanilla Executive Order, there are National Security Presidential Directives (issued with the advice of the National Security Council), Homeland Security Presidential Directives, and Presidential Decision Directives.

Executive order authority may even be delegated to government departments, it seems.

Maybe even to John Bolton.

Betcha didn’t know that.

For the Bush administration, executive orders appear to be the preferred method for making lemonade from the cornucopia of foreign policy lemons it has on its hands.

Consider this application of executive order power in a nuclear imbroglio involving North Korea in 2003, as demonstrated by this press release from the State Department (released on April Fools’ Day! somebody at State’s got a sense of humor):

North Korea-Pakistan: Missile-Related Sanctions and Executive Order 12938 Penalties

There has been some confusion regarding the penalties that were imposed March 24 on the Pakistani entity Khan Research Laboratories (KRL) under Executive Order 12938, as amended, and the penalties that were imposed March 24 on the North Korean entity, Changgwang Sinyong Corporation under the missile sanctions law. These sanctions were for a specific missile-related transfer.

Changgwang Sinyong Corporation is a North Korean missile marketing entity and has been sanctioned repeatedly in the past for its missile-related exporting behavior. Changgwang Sinyong Corporation transferred missile-related technology to KRL. The United States made a determination to impose penalties on both Changgwang Sinyong Corporation and KRL as a result of this specific missile-related transfer. These sanctions do not pertain to any other activity, including nuclear-related ones. We informed the Congress on March 12 that the Administration had carefully reviewed the facts relating to the possible transfer of nuclear technology from Pakistan to North Korea, and decided that the facts do not warrant the imposition of sanctions under applicable U.S. laws. [emphasis added]
Released on April 1, 2003

Mmmm...the sweet smell of ”confusion”.

That’s bloody chum to a contrarian blogger like myself.

Allow me to explain:

The most egregious nuclear proliferator on the face of this planet is Pakistan, in the person of A.Q. Khan.

Khan’s network provided nuclear technology to Libya, Iran, and North Korea.

Much as President Musharraf would like to claim that Mr. Khan’s efforts were after hours and on his own dime, the North Korean transaction involved not the payment of cash to Mr. Khan’s private bank account but the delivery of North Korean No Dong missiles and technology to the Pakistan government.

Awkward.

Makes it look like the Pakistan government was proliferating nuclear weapons technology—the type of activity that, if Kim Jung Il’s experience was any guide, would provoke the formation of a worldwide alliance to destabilize and if possibly destroy the culprit’s regime, at the very least cut off its supply of cash and cognac, etc. etc. etc.

But since Pakistan is our ally in the war on terror, the nature of the transaction—and the character of the crime—were neatly reversed.

As the Bush administration saw it, the offense was North Korea’s supply of the missiles to Pakistan...and the fact that they got paid for them with nuclear weapons equipment and technology was of secondary importance.

Actually, it was no laughing matter.

The State Department had to step up and pre-emptively define the transaction as a missile purchase and sanction Khan’s laboratories itself. Otherwise, Pakistan would have been vulnerable to much more serious, legislative sanction—a total cutoff of aid under the Solarz Amendment--as a proliferator.

So the State Department made a valiant if “confusing” effort to present the sanctions against Khan’s laboratory as an ad hoc punishment for the Pakistani government’s buying the missiles—because “the end-user of the missile purchase cannot be sanctioned under the Arms Export Controls Act” (according to Nicholas Kralev’s report, Pakistan purchases N. Korean missiles, in the March 31, 2003 Washington Times)...and we’ve got to sanction somebody, after all!

So let’s just sanction this Pakistani nuclear lab over here.

There, that’s all better.

The primary public executive order governing North Korean sanctions is E.O. 12938 –the same one that establishes the state of national emergency, interestingly enough.

If I’m reading the order correctly, Treasury and State are delegated to carry this policy out. The Secretary of State makes the determination, and, when the president decides not to issue a waiver for national interest reasons, State places a sanctions notice in the Federal Register.

Kralev’s report in the Washington Times stated that the sanction against Pakistan in the North Korean missile/nuke boondoggle was enacted through a “State Department Executive Order” signed by none other than John Bolton.

Let us pause a moment to reflect on the appalling vision of John Bolton possessing executive authority to issue sanctions.

I have been unable to find another reference to State Department executive orders, which makes me hope the report was simply a misunderstanding—or a typical piece of Boltonian self-aggrandizement propagated by his eager enablers in the press.

In passing, I should point out that apparently violence was done not only to logic and common sense, but to the careers of people who tried to do their job and investigate and combat Pakistan’s proliferation activities.

Australian journalist Luke Ryland makes a persuasive case for analyst Richard Barlow, who claims he was hounded out of government because he insisted on investigating Pakistan’s proliferation activities while at the CIA and Department of Defense.

Beyond coddling Pakistan, the No Dong boondoggle highlighted another problem with implementing an aggressive strategy against North Korea—North Korea has no business ties with the United States, so any sanctions are strictly symbolic.

For this reason, Executive Order 12938, authorizing sanctions against North Korean missile exporter Changwang Sinyong Corporation from doing business with the United States for two years—when it was already doing no business with the United States at all—would not be satisfying to people of the hardline persuasion.

The Executive Order’s focus is explicitly domestic.

The significance of the E.O. is to enable what I would characterize as drive-by sanctions, broad-brush sanctions against terrorists, proliferators “and their support networks” that can be applied unilaterally and immediately by the executive branch against assets in the United States without the legal and judicial frou frou that has been rendered quaint in our ticking time bomb, mushroom-clouded smoking gun, Jack Bauer world.

But North Korea doesn’t have squat in the United States.

There’s nothing to sanction here.

So Executive Order 12938, even with its intoxicating vision of unilateral executive freedom of action, is pretty much useless.

That’s a problem.

There’s another problem.

Financially speaking, North Korea doesn’t own squat anywhere outside of North Korea.

The last North Korean bank overseas, in Vienna, was closed down under US pressure years ago.

Anything that North Korea has outside its borders that’s worth owning is in a third country bank, in some financial institution that’s not owned by North Korea, in the jurisdiction of some country that’s got its own laws and foreign policy, isn’t under UN sanctions, and—heaven forbid—might not be interested in harassing the Norks as aggressively as we are.

What to do?

How to extend U.S. reach beyond U.S. borders and U.S. corporations to attack North Korean financial activities and assets in non-Nork corporations in other countries...and do it in a way that the lack of any enabling UN resolution, potential infringement of sovereignty, and violence to the rights and protections afforded to law-abiding corporations by their home governments could be conveniently disregarded?

It’s clear that in 2005 and 2006 Section 311 of the Patriot Act emerged as a key instrument in Bush administration North Korean policy a la hardliner.

Patriot Act Section 311 is a provision originally designed to allow the U.S. government to sanction foreign banks and jurisdictions for deficiencies in their anti-money laundering (AML) regulations and practices overseas by threatening a cutoff of their access to the US banking system.

In general, the Treasury Department has been doing the Lord’s work on money laundering, primarily targeting the drug dealers who try to park hundreds of billions of illegal revenues in U.S. banks and, when they can’t do that, hunt for lax, lazy, and greedy banks overseas.

Patriot Act Section 311 gives Treasury a powerful weapon—the ability to deny foreign banks free access to the U.S. banking system if it is worried that terrorists and criminals could exploit their weak controls and indifferent enforcement to gain access to the world financial system and move money with impunity.

The unilateral power to cut off uncooperative foreign banks from the U.S. financial system was apparently irresistibly attractive to the hardliners, who, in my view, misappropriated the process to the application of coercive diplomacy against banks and countries willing to do business with North Korea.

After the first Patriot Act Section 311 investigation against a North Korea-related target—Banco Delta Asia—was announced in September 2005, officials of the Treasury Department’s Office of Terrorism and Financial Intelligence (OTFI) criss-crossed the globe serving notice on banks in places like Mongolia, Vietnam, Singapore, and Bulgaria that their current or potential involvement with North Korea made them vulnerable to US designation as banks of potential money laundering concern.

However, Patriot Act Section 311 investigations and regulations are meant to hassle banks and regulators. They are not a particularly appropriate tool for pursuing depositors—that’s supposed to be a job for local enforcement once the appropriate AML laws and practices are in effect.

Forcing foreign banks to cut off ties with a particular depositor in the absence of UN sanctions and local due process is an infringement of sovereignty and legally dicy for the foreign bank and its government.

The threat of a Patriot Act Section 311 investigation is a drastic—but not particularly efficient or fair--instrument of coercive diplomacy.

To compound these structural problems, judging by the public record, it looks like the anti-Nork dossiers assembled by OTFI were long on assertions, allegations, innuendo, and intimidating chest-thumping...and short on proof.

In other words, I wouldn’t be surprised if the anti-North Korea initiative emerged as an impediment to the trust and close cooperation between Treasury and foreign governments that characterizes the global AML effort against criminals and terrorists.

So I’ve always wondered if another, secret Executive Order would be necessary to authorize this awkward, antagonistic, and risky process—one tasking Treasury to disregard the legal, logical, and diplomatic headaches and selectively apply the threat of Patriot Act Section 311 investigations against banks that were doing any business with North Korea.

After all, if there wasn’t some explicit tasking in an Executive Order, how else can one account for Treasury, a branch of the famed Bush administration unitary executive, openly defying the State Department and stated U.S. policy for four embarrassing months on the repatriation of North Korean funds from Banco Delta Asia?

Another reason I wouldn’t be surprised by the existence of a secret Executive Order targeting foreign financial ties with North Korea is because apparently we came thisclose to getting it issued publicly.

I stumbled across this interesting report in the January 27, 2006 Chosun Ilbo :

The U.S. is readying fresh sanctions against North Korea over the regime’s alleged financial crimes that will be significantly more severe than the ones already in place. Raphael Perl, a congressional researcher in charge of tracking Pyongyang’s drug dealings and counterfeiting, said Friday authorities completed a rough draft of an executive order that would stop any financial firms involved in transactions with North Korea from conducting business in the U.S.

That will mean all banks, brokerage houses and insurance firms and refers not only to illegal transactions but to any financial deals with the North, Perl told the Chosun Ilbo on the phone. Once the regulations are finalized, “the message to financial institutions operating in the U.S. will be that the time has come for them to choose between the U.S. or North Korea,” he added.

...

But under the draft order, almost all finance companies would be effectively prohibited from doing business with North Korea. That would also affect international financial institutions outside the U.S. and thus deal a heavy blow to North Korea’s overseas trade.
In Perl’s reading, financial institutions would have a choice whether they are with or against the U.S., but given the importance of their U.S. interests, it would in effect force most major international firms to stop dealing with the North. (emphasis added)

An executive order of this sort, coming after the announcement of the Banco Delta Asia Section 311 investigation for deficient money laundering controls in September 2006, would represent a significant escalation.

It would be moving beyond regulatory activity initiated ostensibly to protect the US financial system to the overt use of domestic U.S. regulatory power to coerce foreign corporations and governments to modify their activities outside US jurisdiction in order to further US foreign policy goals.

Recently, I had the pleasure of speaking with Mr. Perl, who stated that he recalled the interview but the reporter a) didn’t speak English very well b) didn’t understand the sanctions process c) wanted to get a big story and d) got it all wrong.

Hmmm.

Despite Mr. Perl’s denial, I would have to say that the story sounds credible.

Why?

Because, for the hardliners, something more was needed.

Because direct U.S. sanctions against North Korea weren’t coming close to inducing the systemic crisis in Kim Jung Il’s regime that would place the hardliners crowing triumphantly on top of the North Korean dunghill.

North Korea provides no high value targets for traditional, direct sanctions under U.S. law and Executive Order 12938.

And the U.N. had demonstrated no interest in systemic sanctions beyond the targeting of North Korean entities directly involved in Pyongyang’s nuclear, WMD, and missile programs.

If one assumes that the Bush administration was impatient with global footdragging on the matter of axis of evil charter member North Korea:

...and was frustrated by the fact that any financial attacks on North Korea would have to occur in third-party jurisdictions...

...and the key jurisdictions included China and Russia, who have very little interest in extending North Korea sanctions beyond those carefully and narrowly defined by the U.N. Security Council...

...and the only effective way to compel immediate, concerted action by these countries would be through the threat of crippling their financial institutions...

...I would not be very surprised if somewhere there wasn’t an executive order of some sort authorizing the application of PA Section 311 to create a financial crisis in North Korea...

...and that this order would be secret because it would involve the misuse of the U.S. regulatory apparatus as an instrument of coercion against countries that are, if not our allies, at least according to our laws, not hostiles.

That’s probably why the Treasury Department went through all sorts of contortions to deny the obvious—that its Office of Terrorism of Financial Intelligence was circling the globe trying to force every tiny bank and half-assed country to cut off its banking ties with Pyongyang with the threat of a Patriot Act Section 311 sanction.

Because we were sanctioning our own friends and allies, not the North Koreans.

That looks a lot like economic warfare—ironically, against the very countries we were purporting to defend against North Korean efforts to undermine their financial and criminal laws.

Considering there was talk of citing North Korean economic warfare—those shaky counterfeiting allegations—as a casus belli, I would guess we wouldn’t be keen to announce our own doctrine of economic warfare--against third countries--in order to get at North Korea.

Unfortunately, I don’t think an unpopular campaign of unilateral global covert economic warfare against North Korea worked all that well.

China and Russia apparently defied the U.S., Kim Jung Il cobbled together an atomic bomb despite the partial financial blockade, engagement promptly became the order of the day in North Korean affairs, and the BDA investigation became little more than an embarrassing impediment to America’s North Asian diplomacy.

Of course, the trademark of a genuine Bush administration policy is that when an initiative of dubious effectiveness and legality runs into trouble, the first and easily obeyed impulse is not to backtrack and concede that critics might have a point; it’s to double-down with some middle-finger escalation.

So, in contrast to the appearance of restored normality in North Korean diplomacy, I’d like to put in my two cents’ worth concerning the presidential finding authorizing CIA destabilization campaign against Iran blessed by Elliott Abrams and Steven Hadley and ostentatiously leaked to ABC’s The Blotter:

The sources, who spoke on the condition of anonymity because of the sensitive nature of the subject, say President Bush has signed a "nonlethal presidential finding" that puts into motion a CIA plan that reportedly includes a coordinated campaign of propaganda, disinformation and manipulation of Iran's currency and international financial transactions.

I think the implication of this finding—and its leak—have been misunderstood.

When one recalls that the main U.S. initiative against Iran has been to isolate the regime financially through Treasury’s Office of Terrorism and Financial Intelligence—the same bunch that went after North Korea—and things haven’t been going all that great, the indication here is that hardliners feel they need a better way of winning hearts and minds.

The effective threat here is, I believe, “manipulation of...international financial transactions” e.g. that some Swiss bank is going to wake up one morning and find that the CIA has hacked into its mainframe and erased a few million dollars from an Iranian account.

The Swiss aren’t supposed to like it, and the Swiss government isn’t going to like it either. But it’s supposed to convince them that the risks of handling Iranian money has been upgraded from “reputational” to “operational” and it’s better not to handle any Iranian money at all.

It would also be a sign that a lot of banks and jurisdictions have not been sufficiently responsive to Bush administration jawboning on Iran backed up by Patriot Act Section 311 threats, and the hardliners want them put on notice through a pointed leak that Elliott Abrams will be rummaging through their mainframes and twisting their testicles as punishment.

If our Commander in Chief harbored any moral qualms about extralegal financial sabotage against the financial institutions of our friends and allies, I’m sure the plan’s architects whispered that the threat would be sufficient to peel financial institutions away from Tehran...or maybe just one publicized demonstration of the Death Star would be sufficient to bring the world financial community to heel...

...after all, that’s how it worked with BDA...

...didn’t it?

Well, it didn’t work that way.

Despite hardliner claims, it appears the Patriot Act Section 311 campaign against North Korea sputtered to an ignominious conclusion as Pyongyang’s nuclear capability and Chinese good offices became the driving forces in North Asian diplomacy.

It’s an interesting paradox.

To the hardliners, as the need to compromise with the U.N., our allies, Congress, international practice, and our laws is stripped away by executive order, they can ascend to the pinnacle of objectivity and make the tough calls with absolute clarity, ruthlessness, and will.

But to the rest of us, it looks more like the Bush administration has fallen into an ever-deepening pit of delusion, shielding its deliberations under executive privilege and its actions behind executive orders, not because these policies demand absolute secrecy and freedom of action, but because they are profoundly flawed policies promoted by self-serving and unrealistic bureaucrats...

... and we would be a lot better off if these disastrous tactics could be made to wither away under the light of day and the harsh scrutiny of logic, law, and common sense.

The lazy reliance on Executive Orders to enable the pursuit of policies that were not just unpopular and illegal but fundamentally flawed may very not only define the Bush administration approach to North Korea diplomacy, but its entire legacy.

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.

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.

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.

China Matters cited in McClatchy reporting on Banco Delta Asia

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

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

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

Stanley Au Makes His Case for Banco Delta Asia

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

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

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

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

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

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

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

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

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

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

The background of the petitions is this:

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

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

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

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

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

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

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

BDA has already filed its petition.

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

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

As Treasury put it in the final rule:

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

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

Obviously, Treasury doesn’t like Stanley Au.

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

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

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

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

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

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

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

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

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

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


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

The Delta Asia Group petition observes:

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


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

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

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

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

...

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

BDA: The Beat Goes On...and On...and Onandonandon

From the May 3 Financial Times:

A senior US official said Pyongyang had encountered several problems in consolidating all its accounts at BDA. In addition to not realising how many accounts it held at the bank, the official said North Korea appeared to be having difficulty getting the necessary signatures to release the funds.

Once Pyongyang had consolidated its accounts, officials said it could withdraw the money from BDA. South Korean and US officials confirmed that North Korea wanted to transfer the money to Italian and Russian bank accounts. (Demetri Sevastopulo in Washington and Anna Fifield in Seoul, N Korea still to recover frozen $25m, Financial Times, May 3, 2007)

So it looks like the lump sum approach is going ahead, no doubt to the chagrin of Bush administration hardliners who hoped to force North Korean account holders to present themselves (if they could or dared) to withdraw their funds in person with a suitcase.

And I’m not surprised that North Korea is “having difficulty getting the necessary signatures to release the funds”.

Especially since one of the signatures they will presumably need is Colin McAskill’s, since his group purchased the Daedong Credit Bank. About $8 million in Daedong’s accounts were frozen when Treasury announced its Patriot Act Section 311 action.

Pushing for a logical resolution to the BDA mess, McAskill had wanted the legitimacy of his accounts confirmed, and acknowledgement that he could move the money without restriction or fear of potential sanctions for whatever bank handled the funds.

From the April 15 International Herald Tribune:

Colin McAskill, a British businessman who represents Daedong Credit Bank in negotiations over its frozen funds, said he would insist on using legitimate banking channels to shift money from the newly freed account. "I am not going to stand in a queue behind other North Koreans with a suitcase and try to move it," McAskill said. "We will move it through the banking system."

Good luck with that, Colin.

The point at issue here seems to be that the United States does not want the BDA settlement to signal a breakdown in U.S. efforts to impose an international financial embargo on North Korea.

Reviewing what the international community had agreed to do concerning North Korea, I reviewed UN Resolution 1718, which sanctioned North Korea’s WMD and proliferation-related activities.

In the process, I came across a classic piece of Boltonianism:

The resolution also provides for a regime of inspections to ensure compliance with its provisions, building on the existing work of the Proliferation Security Initiative.


One thing that jumps out is Bolton’s reference to “building on the existing work of the Proliferation Security Initiative”.

In fact, the UN has repeatedly refused to endorse the PSI, the US-led security operation that could be construed as giving Washington and its allies license to conduct unilateral interdiction activities with UN approval.

Bolton, as I’ve written before with enormous corroborating detail, had been indefatigable in asserting UN support for the PSI when no such support existed, a point that mush-minded supporters of PSI—who apparently misconstrue the PSI as a piece of muscular multi-lateral dogooderism—have stubbornly refused to grasp.

Second entry in the John Bolton “I said it loudly and confidently so you must believe it is true” pantheon is:

This resolution also targets other illicit activities of the regime in Pyongyang, and includes a ban on trade in luxury goods. It targets the way Kim Jong Il finances his weapons of mass destruction programs through criminal activities like money laundering, counterfeiting, and selling of narcotics. It imposes a binding requirement on all member states to take action against those activities and freeze the assets of entities and individuals of the DPRK involved.

Actual references in UNSC Resolution 1718 to targeting Kim Jong Il’s criminal activities as part of the anti-WMD sanctions action:

Zero

Nada

Bupkus

Nothing there about moneylaundering, Supernotes, meth, phony cigarettes, or counterfeit Viagra.

For those of us who care, there are about 200 pages of UN-approved documents here describing the nuclear, ballistic missile, and WMD-related trade with North Korea that the international community had agreed to embargo.

The "illicit activities" enjoined by the UN relate to trade in these particular embargoed items.

UNSCR 1718, that celebrated expression of international unanimity was, of course, not enough for John Bolton.

Just as he did with the PSI statement, Bolton took the back door (or “signing statement” approach), declaring a unilateral interpretation that added new elements to an agreement that has already been negotiated and signed.

Here, his purpose was to establish a spurious link between the UN resolution—designed specifically to sanction North Korea’s WMD efforts—to US efforts to ostracize the North Korean government and economy as a whole from the international financial system.

For the United States, the necessary conceptual link—as David Asher, one of the primary architects of Washington’s anti-Pyongyang effort, defined it —was to regard the North Korean government as an essentially criminal enterprise.

Therefore, any and all international financial activities could be construed as buttressing the essential criminal activities of the North Korean “Soprano state”, including its signature racket—acquisition of a nuclear capability.

This conception certainly made dealing with North Korea easier for the heavy thinkers in the Bush administration—there was no North Korean activity that was licit and unrelated to WMDs, so we could go after everything.

However, it was not an idea that was embodied in the UN resolution, nor was it one that the world at large had endorsed.

Now, the United States has gone overboard in imposing the North Korean financial sanctions.

It is not only trying to force the international community to participate in a unilateral sanctions regime that goes beyond the wording and intent of the UN resolution.

It is attempting to maintain that regime even when it conflicts with the agreements made by its own State Department to denuclearize North Korea under the Six Party Agreement.

It’s come to a point where I think that many countries are getting sick of the US preoccupation with the $25 million in BDA.

More dangerously, it threatens to discredit the pretensions of the Patriot Act Section 311 regime to legitimacy and effectiveness in the eyes of the international community—in fact, making it look like another piece of dangerous, stubbornly and incompetently executed idiocy by the Bush administration--just as we wish to use it as the vehicle for our anti-Iran diplomacy.