A Gathering Cloud—of Nuclear Allegations on North Korea and Syria

Certainly devotees of the “nothing to see here” school of purported North Korea—Syrian nuclear cooperation, of which I am a member, are being tested by the stream of reports and leaks coming out of Israel and Washington concerning the notorious September 6 bombing raid on Syria.

On September 22, The Sunday Times weighed in with a categorical assertion concerning the nuclear character of the Syrian facility, including the explosive allegation that Israeli commandos had seized nuclear material from the facility prior to the raid.

Washington...demanded clear evidence of nuclear-related activities before giving the operation its blessing. The task of the commandos was to provide it.

Today the site near Dayr az-Zawr lies in ruins after it was pounded by Israeli F15Is on September 6. Before the Israelis issued the order to strike, the commandos had secretly seized samples of nuclear material and taken them back into Israel for examination by scientists, the sources say. A laboratory confirmed that the unspecified material was North Korean in origin. America approved an attack.

Hmmm.

That, to me, is one of the more questionable pieces of reportage about the raid.

Seems to me that nuclear material—if we are actually talking about “significant quantities of weapons-grade nuclear material” and not a lab sample or a nuclear gauge—is not left lying around high-security Syrian atomic bomb facilities for Israeli commandos to pick up, even if they are disguised in Syrian army uniforms.

As to whether North Korean nuclear material possesses a unique fingerprint distinguishable by Israeli intelligence, I’ll defer to the experts.

Direct evidence that North Koreans died during the raid is pretty thin:

The growing assumption that North Korea suffered direct casualties in the raid appears to be based largely on the regime’s unusually strident propaganda on an issue far from home. But there were also indications of conversations between Chinese and North Korean officials and intelligence reports reaching Asian governments that supported the same conclusion, diplomats said.

On closer examination, the other assertions of fact intended to give an aura of insider accuracy to the report—concerning spectacular WMD-related accidents involving Syrians and/or North Koreans—look more like the result of a dossier dump meant to enhance the credibility of a report still lacking first-hand corroboration:

Jane’s Defence Weekly reported last week that dozens of Iranian engineers and Syrians were killed in July attempting to load a chemical warhead containing mustard gas onto a Scud missile. The Scuds and warheads are of North Korean design and possibly manufacture, and there are recent reports that North Koreans were helping the Syrians to attach airburst chemical weapons to warheads.

And

The outlines of a long-term arms relationship between the North Koreans and the Syrians are now being reexamined by intelligence experts in several capitals. Diplomats in Pyongyang have said they believe reports that about a dozen Syrian technicians were killed in a massive explosion and railway crash in North Korea on April 22, 2004.

Teams of military personnel wearing protective suits were seen removing debris from the section of the train in which the Syrians were travelling, according to a report quoting military sources that appeared in a Japanese newspaper. Their bodies were flown home by a Syrian military cargo plane that was spotted shortly after the explosion at Pyongyang airport.

Other leaked assertions in the western media, by adding detail, undercut the story instead of bolstering it.

Like that freighter that arrived at a Syrian port three days before the raid, maybe carrying some nuclear stuff as the Washington Post's sources speculated .

Well, if it arrived three days before the raid, not much time for months of anxious back and forth between Tel Aviv and Washington, and a commando raid.

Which gives me the idea that the various sources for the raid are throwing everything at the wall to see what sticks.

Anyway, the net is spread to North Korea—and China:

China abruptly postponed a session of the nuclear disarmament talks last week because it feared America might confront the North Koreans over their weapons deals with Syria, according to sources close to the Chinese foreign ministry. Negotiations have been rescheduled for this Thursday in Beijing after assurances were given that all sides wished them to be “constructive”.

Christopher Hill, the US State Department negotiator, is said to have persuaded the White House that the talks offered a realistic chance to accomplish a peace treaty formally ending the 1950-1953 Korean war, in which more than 50,000 Americans died. A peace deal of that magnitude would be a coup for Bush – but only if the North Koreans genuinely abandon their nuclear programmes.

From my perspective, the Chinese might ask for a postponement, whether or not they think the report is true, to make sure the U.S. wasn’t planning to drop a Boltonian bomb on the talks and terminally disrupt them.

Once you subtract the immaterial and unconfirmed elements from the story, we’re basically looking at a commercial for the Sayeret Matkal commandos and Israel’s most recent military savior, Ehud Barak:

The operation was personally directed by Ehud Barak, the Israeli defence minister, who is said to have been largely preoccupied with it since taking up his post on June 18.

It was the ideal mission for Barak, Israel’s most decorated soldier and legendary former commander of the Sayeret Matkal, which shares the motto “Who Dares Wins” with Britain’s SAS and specialises in intelligence-gathering deep behind enemy lines.
...
Barak’s return to government after making a fortune in private business was critical to the Israeli operation. Military experts believe it could not have taken place under Amir Peretz, the defence minister who was forced from the post after last year’s ill-fated war in Lebanon. “Barak gave Olmert the confidence needed for such a dangerous operation,” said one insider.

If I was going to come up with a plausible contrarian scenario for this whole enigma, I would say:

There are North Koreans in Syria and possibly a bunch of them got killed when Israel bombed a facility where they were working.

The facility could have been some Syrian nuclear facility or a hidey-hole for undeclared North Korean nuclear equipment (unlikely); a factory assembling illegally imported North Korean SCUDs (maybe); or a facility where the Norks were providing unsavory but possibly legal assistance to the Syrians in upgrading their home-made SCUDs (more likely).

The Israelis flatten it to show the world that the IDF is back, baby! after the Lebanon humiliation, and that any attempt by the Syrian government to alleviate its military difficulties with foreign assistance will be met with overwhelming force.

The Bush administration backs the idea in order to teach the Syrians and the North Koreans a lesson.

The raid is scheduled to occur after the North Koreans are hooked on the Six Party Agreement and unlikely to withdraw in outrage even though some of their technicians got blown to smithereens.

The nuclear allegations are chaff, sending a message to the North Koreans that the U.S. and Israel can cook up a story of North Korean nuclear misbehavior on demand if Kim Jung Il gets too uppity.

This last point may appear too cynical and Machiavellian, but I think it’s difficult to underestimate the Bush administration’s single-minded pursuit of leverage and its fundamental discomfort with being simply one of equals in the Six-Party process.

What better way to regain the whip hand in the Six-Party process than to threaten Russia and China with the collapse of the Six Party talks with an out-of-left-field (or Syria) allegation of North Korean malfeasance if things don’t go our way?

In any case, the leak-based reporting is becoming too detailed and categorical to ignore.

And that’s dangerous.

It’s not credible that the U.S. government would sit on a genuine case of North Korean nuclear trafficking with Syria and let the story dribble out through anonymous sources just to keep the Six Party talks lurching along and give Chris Hill something to do.

Maybe there’s a hardliner plan to leak their story in so much detail that Washington and Tel Aviv’s credibility are put on the line, and the Bush administration will see no alternative except to succumb to the temptation to give this story some official legs—spurious or otherwise.

Maybe the remarkable official silence on the attack reflects a struggle in Washington as to whether to move on—or exploit the circumstances and ambiguity surrounding the raid in the most inflammatory way possible.

If the North Korean nuke meme spreads to the U.S. media from the alarmist U.K. press, I guess we’ll have our answer.

Certainly, hardliners are feeding the anticipation that other shoes will drop.

According to Netanyahu’s top aide:

Mossad veteran Uzi Arad, told NEWSWEEK: "I do know what happened, and when it comes out it will stun everyone."

Well, that’s enough Fisking for now.

We’ll all have to wait and see.

Nuclear Red Herring

Update, September 16, 2007

I was hoping the North Korean nukes in Syria story was an opportunistic bit of Boltonian nonsense that would be put to rest with a bit of State Department pushback.

I found the subsequent statement from the State Department’s Andrew Semmel—who is apparently a non-doctrinaire arms control professional— to be reassuring unremarkable and the epitome of mush-mouthed Foggy Bottom ambiguity:

Andrew Semmel, acting deputy assistant secretary of state for nuclear nonproliferation policy, did not identify the suppliers, but said North Koreans were in the country and that he could not exclude that the network run by the disgraced Pakistan nuclear scientist A.Q. Khan may have been involved.

He said it was not known if the contacts had produced any results. "Whether anything transpired remains to be seen," he said.

Semmel, who is in Italy for a meeting Saturday on the Nuclear Nonproliferation Treaty, said Syria was certainly on the U.S. "watch list."

"There are indicators that they do have something going on there," he said. "We do know that there are a number of foreign technicians that have been in Syria. We do know that there may have been contact between Syria and some secret suppliers for nuclear equipment. Whether anything transpired remains to be seen."

"So good foreign policy, good national security policy, would suggest that we pay very close attention to that," he said. "We're watching very closely. Obviously, the Israelis were watching very closely."

Asked if the suppliers could have been North Koreans, he said: "There are North Korean people there. There's no question about that. Just as there are a lot of North Koreans in Iraq and Iran."

Asked if the so-called Khan network, which supplied nuclear technology to Iran, Libya and North Korea, could have been involved, he said he "wouldn't exclude" it.

I was rather nonplussed and somewhat disturbed at the alacrity with which major media outlets were willing to run with this apparently low-key waffling as confirmation of dramatically heightened U.S. concern about Syrian nuclear programs.

And don’t ask me what he was communicating about Iraq.

I still think the story’s nonsense, but I wonder if State has lost the ability or desire to push back and instead is anxiously coasting along on the anti-Syrian wave, hoping against hope it will have an opportunity to jump off before the crash.

Especially if the State Department has given up on trying to defend diplomacy and multi-lateralism in the Middle East.

This account from the Telegraph gave me pause.

I also found it eerily reminiscent of the run-up to the Iraq war, where the earliest full-throated expression of neo-con intentions for the Middle East was found in the Telegraph and the London Times, and became a template for domestic U.S. coverage:

Now it has emerged that Condoleezza Rice, the secretary of state, who has been pushing for a diplomatic solution, is prepared to settle her differences with Vice-President Dick Cheney and sanction military action [against Iran].
...

Miss Rice's bottom line is that if the administration is to go to war again it must build the case over a period of months and win sufficient support on Capitol Hill.

The Sunday Telegraph has been told that Mr Bush has privately promised her that he would consult "meaningfully" with Congressional leaders of both parties before any military action against Iran on the understanding that Miss Rice would resign if this did not happen.

The nugget that long-suffering Condoleezza Rice will put up with another catastrophic war with the Middle East only if President Bush is able to “meaningfully” logroll the sheep in Congress is so snarkworthy, I don’t know whether to take it as a telling detail or a ludicrous joke.

So maybe the Syria nuke story is somehow part of the Iran war product that’s being rolled out, and State is going along.

Maybe it’s because Iran’s own nuclear program isn’t going to achieve weaponization for at least two years, and it would be rather peculiar for the U.S. to mount an attack against Iran before President Bush leaves office “because he doesn’t trust the incoming administration to do the right thing”.

So if there’s going to be an existential threat/casus belli/nuclear thing that justifies a high risk attack against Iran in the next 12 months, the nukes have to come from somewhere.

And that only leaves the North Koreans and A.Q. Khan, maybe via Syria...to kill three birds (Kim, Assad, and Ahmadinejad) with one stone.

Heck, maybe four. If John Bolton feels emboldened to run the table, he’ll probably allege that North Korea gave the nukes to Iraq, which hid them in Syria, who tried to sneak them to Iran.

Halleleujah!

We’ll soon see if American media and politics is ready to follow the implausible nuclear script again, and acquiesce to another Middle East war.
CH

Below is the original post from Sept. 13:

Middle East security is far off the China Matters beat, but we have delved into Boltonian rhetoric on North Korea in some detail, as well as documenting the continued unwillingness of foreign policy hardliners to acquiesce to moderate control over North Korea policy and denuclearization process under the Six Party Agreement.

So I feel I can add a comment on the accusations made by John Bolton of North Korean—Syrian cooperation in some kind of nuclear program in the Wall Street Journal, and an article by Glenn Kessler in the Washington Post linking these allegations to a highly provocative attack by Israeli jets against an as-yet unidentified target in Syria.

Josh Landis’s excellent expert blog, Syria Comment, was the first to link the attack on Syria with John Bolton’s WSJ op-ed, and is the first resource for this story, providing exhaustive coverage of the regional press and informed commentators on the issue.

The Washington Post North Korea—Syria article, although obviously a product of the sympathetic leaker-leakee relationship that pervades foreign policy coverage, by itself raises enough red flags that objective observers will detect the strong smell of fish .

The new information, particularly images received in the past 30 days, has been restricted to a few senior officials under the instructions of national security adviser Stephen J. Hadley, leaving many in the intelligence community unaware of it or uncertain of its significance, said the sources, who spoke on the condition of anonymity. Some cautioned that initial reports of suspicious activity are frequently reevaluated over time and were skeptical that North Korea and Syria, which have cooperated on missile technology, would have a joint venture in the nuclear arena.

Hmmm.

Objectively, I think the North Korea—Syria nuke story is buncombe. Both Damascus and Pyongyang are energetically trying to normalize relations with the United States, and not provide the U.S. with a casus belli to destroy their countries.

I think it’s more likely that the story represents a cynical attempt by Bolton and the hardliners to foment a new crisis in a new part of the world in order to justify their policies and expand their power.

This new initiative is necessary, I believe, because the previous boogeyman—nuke-wielding North Korea—has disappeared from the mainstream Washington radar since the denuclearization agreement is basically chugging along as planned, despite hardline efforts to sabotage it through the BDA fiasco.

It’s time to change the terms of debate or, if you would, move the battle to more favorable ground.

Dragging Syria into the North Korea equation replaces a venue in which the United State currently displays no appetite for risky confrontation—North Asia—with an arena much more hospitable to the hardliners—the Middle East--in which the United States is desperately pursuing unilateral high risk policies targeting Iran and Syria in an attempt to gain traction in Iraq.

So the Boltonian hardliners can wrongfoot the State Department moderates by hinting that Foggy Bottom is being snookered by the perfidious North Koreans. At the same time, welcome grist is provided for the anti-Syria mill as the Bush administration is trying to forestall French-led rapprochement with Damascus.

If you want to drill down and get totally Machiavellian, you might say Bolton & Co. are offering the Bush administration a Faustian bargain:

We’ll whip up an anti-Syria nuke scare for you, dragging in the North Koreans. The cost: collapse of the Six Party Agreement...and disgrace of the State Department moderates.

As to parsing the nature and significance of the Israeli airstrike and possible collusion between hardliners in Israel and the U.S., thankfully, as an Asian affairs blog, China Matters doesn’t have to march through that minefield.

For that, there’s Syria Comment, whom I’ve added to the blogroll for our readers’ convenience...

Two Lost Years

History Gets Whacked by Lazy Time Magazine Stenography on North Korean “Soprano State”...

...But Lawrence Wilkerson Provides a Much Needed Corrective

With the shutdown of the reactor at Yongbyon, the Six Party agreement to denuclearize North Korea has lumbered into its next stage.

That means it’s time for all the hardliners who eagerly predicted the collapse of the agreement (and, indeed, may have worked actively to sabotage it by hindering the unfreezing of the North Korean accounts at Banco Delta Asia in Macau) to avoid unwelcome comparisons between their own counterproductive measures and the current success of the engagement policy.

Facts must be spun, failure must be obfuscated, reputations must be burnished and, I suppose, think tank sinecures must be defended until indifference and fading memory permit these indefatigable and unchastened screwups to return to positions of power within the U.S. foreign policy bureaucracy.

So it looks like it’s time once again for a complacent press will provide political cover to anxious Beltway apparatchiks in return for access to a selective slice of the inside story...

...one that glosses over a crucial two year period of failure—2005 and 2006—during which North Korea policy was under the undisputed control of the hardliners.

Case in point: Time Magazine’s expose of Kim Jung Il, “The Tony Soprano of North Korea.”

The article draws on assertions by David Asher, currently at the Heritage Foundation, who worked as a senior advisor in the State Department until mid-2005.

Mr. Asher was the driving force behind the hardliners’ aggressive implementation of the Illegal Activities Initiative (IAI). The IAI focused the enforcement actions of various U.S. departments on alleged illegal activities by North Korea, including cigarette counterfeiting, the meth trade, Supernote counterfeiting, money laundering and trade in protected species.

Mr. Asher’s twin legacies will probably be 1) using the IAI to instigate the Patriot Act Section 311 investigation of Banco Delta Asia in Macau that turned into an embarrassing fiasco and 2) his notorious but publicly unsupported statement that the investigation was a part of a planned effort to intimidate China by “killing the chicken to scare the monkeys”.

Time’s authors, Bill Powell and Adam Zagorin, could have grilled Mr. Asher about his role in the Bush administration’s hardline North Korean diplomacy in 2005/2006, which ended in North Korea’s detonation of its first atomic bomb, the failure to create an effective regional coalition to support Washington’s policy of confrontation against Pyongyang, the departure of the key hardline architects, Bolton, Joseph, et. al., and the laborious dismantling (and discrediting) of the ineffectual U.S.-led financial blockade that failed to bring Kim Jung Il to his knees.

Too bad they didn’t.

The story of how the hardliners drove America’s North Korea policy into a ditch is an interesting and important one, and it isn’t too hard to dig out.

Recently, I had the pleasure of corresponding with Lawrence Wilkerson, Secretary of State Colin Powell’s Chief of Staff during the first George W. Bush administration.

My attention had been drawn to Mr. Wilkerson by the contrast between his perspective on the IAI and a recent claim of Mr. Asher’s.

Lawrence Wilkerson, as reported in the Wall Street Journal in 2005, had this to say about the IAI:


Larry Wilkerson, who was former Secretary of State Colin Powell's chief of staff, said in an interview that the effort -- which officials named the Illicit Activities Initiative -- was launched to augment, rather than undercut, diplomacy.

In Congressional testimony in 2007, David Asher spoke of his resistance to the U.S. concession on Banco Delta Asia that ended the standoff concerning the frozen North Korean funds, and provided his characterization of the IAI::

“We designed this initiative with the goal of countering these [illicit] activities themselves...not necessarily supporting the Six Party talks.”

Well, which was it? Was the IAI designed for diplomacy...or something else?

Mr. Wilkerson, who, one might say, was present at the creation, commented to China Matters:

[The North Korea Working Group] was the most successful interagency group of the first Bush administration. It had members from every element of the federal bureaucracy. We forged a consensus, a way ahead, a plan of attack...

The primary reason of the Illicit Activities Initiative was to give us a tool for negotiating the Six Party agreement. That tool would be the "stick" with which we would attempt to make the DPRK negotiators more receptive to our desires with regard to their nuclear and missile programs, as well as their illicit activities. ...

David Asher liked to assume there was a real crimefighter I’m going to get you [component to the IAI]. [But it was always meant to be] orchestrated with astute diplomacy.

... I believe that once we had gone, John Bolton and others put the IAI to use as a stand-alone policy to attempt to force regime change in Pyongyang by drying up the money with which Kim Jong-il essentially kept his generals happy.

As to whether getting the North Koreans to walk out of the Six Party talks was part of the original, devilishly clever scheme for the Illicit Activities Initiative, I had this exchange with Mr. Wilkerson:

Was the BDA investigation part of the plan? Was the North Korean walkout in 2005 a contingency you had planned for?

No. [In President Bush’s second term] other people, John Bolton, Bob Joseph took away the dual track. They lusted after it, got ahold of it [the IAI], went whole hog [to use it to destabilize North Korea ].

That wasn’t so hard, was it?

In contrast to Mr. Asher’s assertion, Mr. Wilkerson states that the Illicit Activities Initiative was designed to complement American diplomacy in the Six Party talks.

So it might be enlightening for Mr. Asher to explain how the Illicit Activities Initiative was repurposed at the beginning of President Bush’s second term as an acceptable substitute for Six Party diplomacy...

...so that North Korea walked out of the Six Party talks, detonated a bomb, and demanded a humiliating retreat by the United States on the signature action of the Illicit Activities Initiative—the action against BDA...

...so that the talks could resume in early 2007 under China’s aegis at essentially the same point we were at in early 2005...

...or during the Clinton administration for that matter...

...except of course that North Korea now has the atomic bomb...

...and enough plutonium stockpiled to make several more.

Hardly a glowing endorsement for the decision to pursue the Illicit Activities Initiative independently of (and seemingly at the expense of) Six Party diplomacy

I did request a comment from Mr. Asher, but he didn’t respond.

Maybe Time had the same problem.

Of course, now that the hardliner policy failed with a thud (or the crump of an underground nuclear test), it seems to be in Mr. Asher’s interest to downplay the marked discontinuity in North Korea policy during the first two years of President Bush’s second term, as well as the role Mr. Asher played in that redirection.

Instead, Time got another retelling of Mr. Asher’s increasingly shopworn tales concerning Royal Charm and Smoking Dragon stings against alleged illicit North Korean activity, albeit with some of that patented Time factchecking.

That would seem to be the point, as far as Mr. Asher is concerned: keeping the focus on continued North Korean perfidy instead of the spasm of hardliner ineptitude that gave North Korea the bomb and left America playing second fiddle to China in North Asia.

There is some news, albeit of a negative sort, buried deep in the end of the article--the relative softpedaling of North Korean counterfeiting allegations.

Time writes:

According to U.S. and South Korean intelligence reports, the North has been producing the counterfeit bills at least since 1994. The South Korean intelligence service two years ago said it could confirm production only until 1998, but at least twice in recent years, claim U.S. and South Korean sources, the U.S. has presented the South Korean government with supernotes said to have been produced in 2001 and 2003.

A 2006 State Department estimate puts the amount of counterfeit currency in circulation at $45 million to $48 million. Estimate is the key word. Of all the illicit businesses from which North Korea profits, counterfeiting is the one about which outsiders know the least. U.S. officials say they don't believe the North Koreans produced the equipment to print such high-quality counterfeit bills. If that's the case, where did they get it from? No U.S. agency interviewed for this story, including Treasury, State and the Secret Service, could say. U.S. sources also say they do not know where in North Korea the notes are produced.

It does seem likely, however, that Kim's government is running the scam. [emphasis added]

Pretty weak beer, especially when compared to the prior allegations of extensive Supernote counterfeiting by North Korea that formed the central justification for the global financial campaign orchestrated against North Korea in 2005 and 2006 by the hardliners.

Heritage Foundation researcher Balbina Hwang—who currently occupies Mr. Asher’s advisor slot at the State Department—asserted that North Korea annually produced hundreds of millions of dollars worth of Supernotes.

Supernote counterfeiting was deemed an act of economic warfare, an act that Ed Royce (Rep., California, and the voice of the hardliners on the House Foreign Affairs Committee) darkly opined would justify the financial implosion of the Pyongyong regime by the United States.

In 2006, David Asher characterized North Korea’s Supernote involvement as follows :

The US Secret Service has been investigating the circulation of the “supernote” counterfeit dollars since 1989. Last year it charged that the counterfeit US notes were “manufactured in, and under auspices of the government of, the Democratic People’s Republic of Korea (“North Korea”). Individuals, including North Korean nationals acting as ostensible government officials, engaged in the worldwide transportation, delivery, and sale of quantities of Supernotes.” As the Secret Service has now revealed, the Federal Reserve Bank has come into the possession of roughly $48 million of these notes in the last fifteen years. Some argue that this shows that counterfeiting is just a drop in the bucket. Let me argue against this view.


To be fair, it wasn’t just David Asher.

According to Mr. Wilkerson, when he was at State before 2005 the briefings were pretty categorical:

I sat in meetings with the Treasury and Secret Service and they essentially convinced me [that North Korea was producing Supernotes inside North Korea and trafficking in them].

Now he adds a self-deprecating verbal shrug:

But I thought there were WMDs inside Iraq too.

Maybe the reporting of McClatchy and the investigations of Karl Bender concerning the immense technical and logistical hurdles Pyongyang would have had to overcome—and the paucity of evidence for any significant operation--are persuading the administration to back away from the North Korean Supernote allegations.

Or maybe, with the North Korean crisis cooling off, the government decided simply to stop yanking our chain about Kim Jung Il’s private Supernote factory, and allow the location of the purported facility to continue its hegira to our next designated boogie man (prior to North Korea, the United States had cited Lebanon’s Bekaa Valley a.k.a. Hezbollah, and then Iran as sources for the insidious notes).

In any event, the shift from a casus belli involving hundreds of millions of dollars in Supernotes produced inside North Korea to Time’s “we don’t know where or how much or how they do it or if they’re still even making them” is quite a step back.

While Mr. Powell and Mr. Zagorin missed the significance of the apparent retreat on the Supernote story, they also managed to add a few errors to their reporting about this hot-button issue:

a) Contra their statement quoted above, “estimate” is not the “key word” in describing the $45-$48 million number for circulating counterfeit currency; the key word is “confidence”.

Mr. Asher has energetically hyped the possibility of an enormous undetected North Korean Supernote menace by dismissing Treasury’s data on counterfeits as a mere “estimate”.

However, the Treasury Department has studied the international traffic in counterfeit U.S. currency exhaustively in a multi-year effort by the Federal Reserve Board involving visits to dozens of countries and is confident—with considerably more authority than Mr. Asher can muster-- that there is no significant reservoir of undetected counterfeit notes of any kind, including Supernotes.

b) The total of $45--$48 million in circulation is all counterfeit currency, not just Supernotes.

c) Only $45 million in Supernotes has been seized in the last fifteen years, as Asher himself says in his other statement. That’s an average of $3 million a year (for perspective, about $500 billion in US currency is in circulation worldwide).

Humph. I’ll bet Mr. Luce only needed one reporter to get it all wrong, back in the day.

Extensive Supernote counterfeiting was an important allegation not only because of the provocative and symbolic character of the outrage against America’s currency.

It was the only case in which the United States could claim to be the primary injured party and assert the right to lead a global action against North Korea outside the frustratingly incremental, multi-lateral Six Party and UN processes reserved for the nuclear, WMD, and missile issues.

The other major examples of alleged North Korean illicit activities did not have the United States as their primary target—they were concerns for China and Japan.

In both these cases, even with Japan’s highly confrontational stance toward North Korea, the injured parties did not see fit to characterize the North Korean activity as a casus belli that could not be handled by local and international law enforcement.

If the North Koreans are churning out huge quantities of counterfeit cigarettes, the main destination would be China, where an astounding percentage--over 90%--of imported cigarettes on the market are illicit—either smuggled or counterfeit.

If North Korean factories were making meth, the primary market would be Japan.

According to reports I’ve seen, meth is tolerated in Japan, presumably because it encourages the get-up-and-go-and-go-and-go-go-go ethos that is supposed to make Japanese society tick, and the yakuza’s drug trafficking is tolerated as long as it sticks to meth and stays away from cocaine and opiates. As a result, the market is served by immense illegal factories in the Philippines, Taiwan, and/or whatever locale offers the best combination of access to ephedrine, lax enforcement, and corruption.

The business is run by sophisticated, flexible, and internationalized criminal cartels whose entrepreneurial acumen is one of the true faces of 21st century globalism.

Which brings me to a gripe about the soundbite du jour on North Korea, “the Soprano State.”

David Asher et. al. probably found this formulation very useful, as the concept of a North Korean state fundamentally criminal in its nature justified an attack against any and all North Korean activities without the need to build a persuasive case in each and every instance.

I wouldn’t be surprised if the North Korean government, at a high level, countenances some dirty dealing. But I don’t think they’re the Sopranos; I think they’re the Gang Who Couldn’t Shoot Straight, relatively ineffectual amateur criminals stuck in the low-profit links of the Asian criminal supply chain.

Does anybody think the North Korean bureaucrats and generals can outhustle and outmuscle the fearsome Chinese triads who, if one might recall, were the designated Asian menace back in the 1990s?

I believe North Korea’s fundamental identity is that of a sclerotic dictatorship trying to cling to power and revive its moribund economy in an environment of overt US and Japanese hostility and Chinese malign indifference. Its willingness to engage in criminal activity is moderated by the requirements of its diplomacy and the need to achieve some sort of modus vivendi with the West that will allow Pyongyang to share in the immense river of trade and investment cash flowing through North Asia via South Korea, Europe, and China today.

Which means I believe this piece of analysis in the Time article is just plain wrong:

But even if Pyongyang agrees to disarm, there's little reason to believe that the regime will abandon its nefarious business dealings. By keeping Kim's top military and security officials happy, such lucrative enterprises help the dictator maintain his grip on power and resist pressure to open up the North's broken, Stalinist economy. [emphasis added]

Fact is, Kim Jung Il is trying to strengthen his regime by a controlled opening to the West—as the Chinese did in the 1980s—through special economic development zones and preferential policies to attract foreign investment.

Kim would love to preside over a one-party post-socialist business-friendly state that could claim US appreciation and support for acting as a counterweight to China in Asia.

Prospects for a Nixon-goes-to-China rapprochement have, of course, been pretty dim during the Bush administration.

The US campaign to block North Korea’s foreign trade and investment-related initiatives—and prevent Kim from prolonging his rule by presiding over a more prosperous and globalized North Korean economy—would make for an interesting story by itself.

The story would include items like our serial harassment of the Daedong Credit Bank—the foreign-owned North Korea bank meant to promote foreign investment in the Hermit Kingdom, that happened to account for 25% of the money tied up in Banco Delta Asia—and efforts to discourage participation in the Kaesong Industrial Park, North Korea’s flagship export processing zone catering to foreign manufacturers.

But I guess it’s too complicated.

The simple narrative of North Korea as a “Soprano State” is comforting, because it allows us to ignore or disdain the forces acting against American diplomacy in the region.

That, of course, is the problem.

It’s reckless and dangerous to simplify the North Korean issue to that of a repulsive toad king that the world would gladly spit out of its mouth, if only it got a strong enough slap on the back from the United States.

That kind of mindset makes it too easy for lazy and cynical bureaucrats to promote badly-conceived policies and then excuse and obscure their own failures by exploiting the genuine but also carefully cultivated abhorrence that America feels for Kim Jung Il.

Looking at the current state of play on the Korean peninsula, we should be asking:

Was it worth it to abandon nuclear diplomacy for two years to pursue provocative but relatively insignificant allegations of North Korean wrongdoing in a futile effort to get Kim Jung Il to dance to our tune?

In other words, was pursuing the Illicit Activities Initiative more important than supporting the Six Party talks, as Mr. Asher seems to think?

Now, with North Korea possessing the bomb, and lined up with China, Russia, and South Korea in a position of advantage in North Asia, the answer seems obvious.

I just wish Time had asked the question.

BDA Endgame

Via AP:

Macau's secretary of economy and finance said Thursday the money has been transferred, but it remained unclear if it was the entire amount or whether it had reached its destination.

"Banco Delta Asia transferred more than $20 million out of the bank this afternoon in accordance with the client's instruction," Francis Tam told reporters on the sidelines of a business gathering, without saying where the money was sent.

"We have heard reports in foreign media that the money can be wired via the U.S. or Russia, for example. I think these routings are possible," Tam said.

North Korea had $25 million at the bank in the Chinese territory, but Tam would not say exactly how much was transferred.

"Most of the money in this account has already transferred out. There will probably not be another transfer," he said.

From Reuters:

Japan's Kyodo news agency quoted Macau authorities as saying the funds would move along a highly unusual route first to the U.S. Federal Reserve New York branch, then to Russia's central bank and finally to a Russian bank.

"It was a one-time, technical solution and did not quite allow North Korea's integration into the international financial system," said North Korea expert Paik Hak-soon at Seoul's Sejong Institute.

The Hardliners Strike Back, Kinda

North Korea hardliners are attempting some pushback on the reported deal that will utilize the Federal Reserve and a Russian bank to electronically remit $25 million in funds frozen at Banco Delta Asia to a North Korean bank account.

As Reuters reports, a group of GOP congresspeople have written the General Accountability Office to request an investigation as to whether U.S. bureaucrats violated any money laundering laws by working to expedite the transaction.

Onefreekorea is the go-to blog for this kind of thing and sure enough, he has the full text of the letter .

He also states, with blushing modesty:

I suggested that our own State Deparment’s attempts to return $25 million to the North Korean regime — much or most of it proceeds of crime — could violate U.S. money laundering laws, as well as two U.N. resolutions the United States successfully lobbied for less than a year ago. As it turns out, great minds think alike.

Now, with Russia about to step up to facilitate this faustian transaction, six House GOP foreign policy heavyweights have signed a letter asking the General Accountability Office to determine whether it’s legal. The letter cites the very same sections of the criminal code I’d cited in the pieces linked above (cool!).

Quite a coincidence. How ‘bout that.

Some background on what looks like an ongoing attempt to intimidate Chris Hill et. al. with accusations of involvement in money laundering can be found here.

Reuters lists the foreign policy heavyweights on this particular card:

In addition to Ros-Lehtinen [ranking minority member of the House Foreign Affairs Committee-ed.], the letter was signed by Reps. Christopher Smith of New Jersey, Dan Burton of Indiana, Edward Royce of California, Mike Pence of Indiana and Joseph Pitts of Pennsylvania.

Ros-Lehtinen represents a Florida district and advocated the assassination of Fidel Castro.

Mike Pence notoriously compared Baghdad street markets to their placid counterparts in his state of Indiana during a recent visit to Iraq.

Dan Burton’s Wikipedia page provides enough amusement and jawdropping revelations about his allegedly golf, graft, and fornication-fueled career that he should assign a staffer to edit it full time. His proposal that an aircraft carrier be stationed “off the coast of Bolivia” is priceless.

Mr. Burton could learn from Ed Royce , a strong proponent of a hard line on North Korea and previous chair of the House subcommittee on International Terrorism and Nonproliferation, about how to keep his Wikipedia page tidy and boring.

Christopher Smith and Joseph Pitts keep a relatively low profile.

Heavyweights all.

In an indication that Treasury is on board for the deal and well pleased to be rid of this mess, Molly Millerwise, provided no aid and comfort to the hardline position:

"We appreciate Congress' interest in safeguarding the U.S. financial system from abuse. The transaction the U.S. government is helping to facilitate would be fully consistent with all applicable laws and regulations," added Treasury spokeswoman Molly Millerwise.

I don’t know how far the hardliners will get with this. It would appear their best shot is Article 18 Section 1956 of the criminal code:

(2) Whoever transports, transmits, or transfers, or attempts to transport, transmit, or transfer a monetary instrument or funds from a place in the United States to or through a place outside the United States or to a place in the United States from or through a place outside the United States—
(A) with the intent to promote the carrying on of specified unlawful activity; or
(B) knowing that the monetary instrument or funds involved in the transportation, transmission, or transfer represent the proceeds of some form of unlawful activity and knowing that such transportation, transmission, or transfer is designed in whole or in part—
(i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or
(ii) to avoid a transaction reporting requirement under State or Federal law,
shall be sentenced to a fine of not more than $500,000 or twice the value of the monetary instrument or funds involved in the transportation, transmission, or transfer, whichever is greater, or imprisonment for not more than twenty years, or both. For the purpose of the offense described in subparagraph (B), the defendant’s knowledge may be established by proof that a law enforcement officer represented the matter specified in subparagraph (B) as true, and the defendant’s subsequent statements or actions indicate that the defendant believed such representations to be true.

Trouble is, there are a lot of allegations of North Korean criminal behavior but as far as I know nobody’s gotten around to convicting a North Korean entity or individual for an underlying crime that would establish the legal basis for classifying the handling of the BDA funds as “money laundering”.

So I think the GAO investigation can take a low place on the list of things that keep Chris Hill awake at night.

BDA: Now the Fed Gets Involved

With respect to the reports in the Wall Street Journal and the New York Times concerning the Russian bank/Federal Reserve Bank route to remitting the Banco Delta Asia funds to a North Korean account, my initial, jaundiced view was to take it as merely a piece of negative confirmation: that the efforts to obtain a Treasury waiver for a conventional transaction mediated by a commercial bank had failed.

From the Times :

Recently, a Russian bank agreed to be the vehicle for the transaction, American officials said, provided that it could obtain dollars to carry it out.

With American laws barring American commercial banks from supplying the dollars, officials turned to the Federal Reserve Bank of New York to facilitate the deal with North Korea.
“The United States is working with Russian and Macanese authorities to facilitate the transfer” of North Korean funds that were previously frozen at Banco Delta Asia, said Molly Millerwise, a Treasury Department spokeswoman. “We appreciate the willingness of the Russian government to facilitate this transaction and the good cooperation of the Macanese authorities.”
...

American officials said because the Federal Reserve Bank of New York was not a private bank, but part of the Federal Reserve system, it was not subject to American laws barring commercial transactions involving illicit funds. The system is independent of the government but run by presidential appointees.

But from the June 11 State Department press briefing , we get:

QUESTION: Can you tell us what the deal is with the BDA and the -- and this Treasury has come out and said that yeah, you are in fact working with the Russians on this. So can you give us a --

MR. MCCORMACK: Can't get ahead of my friends over at Treasury. I know that they've talked a little bit about it, but I can't really offer any more details at this point other than to say and to repeat what I have said before, that we'd all like to see this behind us so we can get back down to the real business of the six-party talks, denuclearization of the Korean Peninsula. We have not yet received word from the North Korean Government to any of the six parties that they have received their money in a new bank account. So when and if that happens and they acknowledge it, then maybe -- perhaps be able to talk a little bit more about this and certainly in the sense that it is behind us at that point.

QUESTION: Right, but -- I mean, in terms of where you have been over the past couple months on this --

MR. MCCORMACK: Right.

QUESTION: -- in the stalemate, is there some -- any sense of hope that it could finally really now be on the brink of being solved?

MR. MCCORMACK: You know, this is one of those issues where until it is done, I'm not going to be laying down any bets. Certainly, we would like to see it done. I know that Treasury has talked a little bit about a possible mechanism to get this done. We'll see.


Emphasis, as they say, added.

This is apparently not just another desperate State Department Hail Mary.

This is apparently something that Treasury—presumably because it has been ordered to find a way out of the impasse—has come up with.

We can assume Banco Delta Asia still has an account with the Federal Reserve—as do the Russians—and the FRB will agree to debit and credit the various accounts directly so that the Russian bank can deposit $25 million in a North Korean account without going through a correspondent bank.

If Treasury supports it, it will probably work.

As a sidebar, I note Mr. McCormack’s comment about the money going into a “new account”.

Maybe it was necessary to find a bank that had no previous North Korean accounts, so there would be no issue of commingling the $25 million in funds released as a Six Party deal concession with other tainted North Korean lucre, so it can be received and remitted with enmeshing the bank in accusations of handling illicit North Korean funds.

It’s Official: Somebody Screwed Up on BDA

As sharp-eyed read DJ pointed out, Bush admits that somebody “screwed up” on the North Korea funds transfer.

Full text of the Kyodo News report :

U.S. President George W. Bush admitted during his talks in April with Japanese Prime Minister Shinzo Abe that the U.S. government failed to fully read North Korean actions over the recent banking impasse, saying Washington ''screwed it up,'' sources close to the Japan-U.S. relation said Thursday.

The remark may be seen as a rare acknowledgment by Bush that the United States erred in handling the stalemate over the transfer of North Korean funds that effectively has held up the six-nation nuclear talks since March, the sources told Kyodo News.

Presumably the people that “screwed it up” were in the State Department by being creatively vague in February about what “resolving” the BDA matter actually meant—so they could get the Six Party Agreement first and fight the bureaucratic battles later.

But the fact that Bush is blaming his own State Department instead of North Korea might be an indication that, since the U.S. made the mistake, it will do something to fix it.

Maybe Treasury gets to savor the sweet spectacle of State being taken to the woodshed—in consolation for swallowing the bitter pill of granting a waiver to Wachovia or another bank so the BDA funds can be remitted to North Korea electronically.

The AP version adds tidbits about how angry Bush is with the North Koreans and how much he mistrusts Kim Jung Il.

It’s reassuring to see that President Bush can still claim the moral high ground despite suffering from a self-inflicted wound courtesy of his own Treasury Department—the ridiculous three month charade over the $25 million dollars.

The report also passes on this inspiring piece of lip service to Abe on the abductee issue:

Meanwhile, in his talks with Bush, Abe, mindful of the North Korean abductions of Japanese nationals in the past, cited "voices of concern within Japan" about a shift in U.S. policy toward dialogue in handling North Korean affairs, expressing hope that Bush would not readily give in to North Korea, the sources said.

Bush encouraged Abe to express such a view to U.S. foreign affairs officials, according to the sources.

Yeah. Talk to my people. Whatever.

As an interesting footnote (h/t to the Marmot’s Hole), South Korea’s president Roh Moo-hyun confirmed Seoul was ready to provide a channel for the BDA funds, but North Korea and the U.S. weren’t interested.

Roh said his government had hoped to help to resolve the dispute. He did not elaborate on the offer, but local news media have said Seoul was considering asking a South Korean bank to be the middleman for getting the money to a North Korean account."We have offered to help in resolving the issue to both sides, but after our offer there has not been an answer from either side," Roh said, referring to Washington and Pyongyang.

I suspect the State Department wanted to control resolution of the BDA matter so it wouldn’t look like Seoul was breaking the ostensible world united front against Pyongyang and running an overtly independent North Korea policy.

I have in my hand a list of names...

Nothing like a good conspiracy theory to liven up a dusty diplomatic and banking dispute.

Via Onefreekorea , the March 19 Washington Times informs us that Congressman Ed Royce (whose positions closely follow those of the hardline crowd on North Korea) wrote a letter to Condoleezza Rice accusing the State Department of trying to “unravel” the Treasury sanctions against North Korea by approaching Wachovia Bank to handle the BDA money:

By asking Wachovia to deposit the money in an effort to clear the way for the closure of the North's main nuclear reactor, the State Department is trying to "unravel" the Treasury Department's decision to ban U.S. banks from dealing with Macao's Banco Delta Asia, wrote Mr. Royce, who is a member of the House Financial Services and Foreign Affairs Committees.

This supports my take on the underlying dynamic: that the State Department took the initiative in approaching Wachovia and announced the deal in order to put Treasury in the difficult position of either giving a thumb’s up—or refusing to cooperate and thereby openly admitting that Treasury recalcitrance (and not North Korean scheming or finicky attitudes of international bankers) is holding up the remittance.

Royce’s letter and Bolton’s op-ed both seem to be weak efforts to divert the focus from Treasury obstruction to alleged State Department perfidy.

Onefreekorea tries to connect the dots on Royce and Bolton’s behalf by accusing Christopher Hill of criminal conspiracy to engage in moneylaundering.

So here’s something I though I’d never see: U.S. government officials more-or-less openly engaging in a conspiracy that would land anyone else in a federal prison for international money laundering.

The underlying rationale is that US law is preventing the release of the BDA funds, and, by actively seeking to involve an intermediary bank to handle the money, Hill is seeking to evade those laws.

Big problem with this argument is that, although the Treasury Department asserted that some of the funds were illicit, it didn’t prove it—which is why BDA was stigmatized as “a bank of money laundering concern” and not “a money laundering bank”.

The only action taken against those funds was a request to the Macau Monetary Authority to freeze them.

Considering the fact that Macau has not seen fit to initiate any criminal proceedings with respect to BDA and there is no apparent legal basis for characterizing the funds as illicit, Onefreekorea’s effort at intimidation of Christopher Hill looks rather ineffectual as well as ignoble.

So, count the criminal money laundering charge against Christopher Hill as another example of misleading rhetorical chaff thrown by the hardliners in an attempt (I know I’m mixing metaphors here) to muddy the waters and whip up a firestorm of allegations against the State Department in order to derail the Six Party Agreement.

I see this a last ditch effort to assert that the Six Party Agreement is not only flawed, but also tainted by improper State Department activity, so it should be ditched in favor of that one shining beacon of consistency and legality, the Patriot Act sanctions against BDA.

However, I think that a narrative requiring war on enemies in the State Department as well as North Korea will be too much for anybody beyond the hard core of the hardliners to swallow.

Also, since President Bush has endorsed the deal, pushing this line would also require a Hirohito defense for the Commander in Chief—that he was a dupe of evil forces exploiting his ignorance and gullibility to promote their sinister designs.

That’s just too much political baggage for one lousy agreement with North Korea to bear.

So I think the hardliners will be placed in an uncomfortable position in which burden of proof is on the Treasury Department to demonstrate that its resistance—and not the State Department’s persistence—is justified.

That is, of course, if anyone pays attention—which nobody seems to be doing. There’s been no sign of that Wachovia trial balloon reappearing this week.

Maybe the whole matter will finally be resolved by Treasury Secretary Paulson in the context of the give and take between the US and China at the Strategic Economic Dialogue.

If so, we might have to wait a few more weeks.

The Moustachio'd One Phones It In

Thanks to readers David and BB, I had a chance to read John Bolton’s Wall Street Journal op-ed.

I had anticipated a laborious and tedious fisking might be required, but there’s not a whole lot of there there.

Owing to frustration, despair, or an emotion familiar to many people covering the Banco Delta Asia saga—boredom—the moustachio’d one seems to be phoning this one in.

The rhetorical reed he leans on is that resolving BDA was not part of the original agreement, the North Koreans are renegotiating, the State Department is caving, (I’m paraphrasing here) Chamberlain, rolled umbrella, appeasement, blah, blah, blah.

Bolton writes:

... we now face the nagging question whether there are other secret side deals beyond BDA. Of course, the BDA agreement was not so secret that Kim Jong Il was barred from knowing about it, by definition. Most troubling, however, is that State apparently thought it too sensitive to share with the American people until the February deal broke down in an unavoidably public way. (John R. Bolton, Pyongyang’s Perfidy, Wall Street Journal, May 18,2007)

The first, surprising point, is the incoherent statement “the BDA agreement was not so secret that Kim Jong Il was barred from knowing about it...”

“...by definition...”

Huh?

This apparent non-sequitur (which reads like the remnant of some biting apercu that, though perhaps fully formed in Mr.Bolton’s mind, did not quite make it to the printed page), is a poor set-up for his accusation that the promise to resolve BDA was “too sensitive to share with the American people until the February deal broke down”.

Let’s go to the transcripts—from February 13, the day the deal was announced (not, of course, the day it "broke down"):

Secretary Rice, February 13 briefing:

QUESTION: Madame Secretary...we've been told that the North Koreans expect that the issue of the Macao bank will be resolved shortly and that within 30 days they will see some of their funds released. Is that true?

SECRETARY RICE: Let me speak to the second of those first, Barbara. We have agreed that we will, in the separate working group that has been working on this issue that the Treasury Department heads, seek to resolve the issues concerning Banco Delta Asia. Now, remember that the case is against the bank for activities and so we do need to resolve that. Treasury is working to do that. We've been having good discussions with all of the parties involved in that and we'll look to what kind of remediation needs to take place to resolve our concerns. But that's a legal channel. We've been very clear that it has to be resolved within that channel. But we've said that in 30 days we would seek to resolve it. I think the Treasury will be speaking to these issues at another time.


From Christopher Hill’s February 13 television interview with AP :

QUESTION: You mentioned the thirty days to resolve BDA. I mean, can you give more specifics on that? Is that all the accounts?

ASSISTANT SECRETARY HILL: I can’t at this point, but we said we would resolve them in thirty days. We have had senior level discussions about that. I think we will get that done.

QUESTION: And that was at the Berlin meeting that you discussed that?

ASSISTANT SECRETARY HILL: I discussed their offer in the Berlin meeting, but we’ve been working very hard to make sure it can be wrapped up.

QUESTION: People say you are caving in -- this was a line that you guys took, and you gave up on these sanctions, and --

ASSISTANT SECRETARY HILL: Well, I think you will always have people that think any concession you make is a cave-in, but I think one must understand that in any negotiations both sides have to give. So I think we’ll just have to see what we can do to move the denuclearization process forward.

QUESTION: Is that part of the whole strategy to use that pressure? I mean, you have leverage on one side?

ASSISTANT SECRETARY HILL: Well, the North Koreans have been involved in some illicit activities which are, very frankly, unacceptable. You know, you can get away with having a bad human rights record, you can get away with having a bad human rights record and being engaged in illicit activities. But I think it’s tough to get away with having a bad human rights record, having illicit activities, and making nuclear weapons. So I think the North Koreans have found that, increasingly, there was a sense they needed to be scrutinized. It’s no surprise that when you are involved in making weapons of mass destruction, people have a tendency to look at your finances.

QUESTION: And the Treasury issue is being resolved?

ASSISTANT SECRETARY HILL: Well, I mean with respect to the BDA, the Banco Delta Asia, we’re prepared to resolve that within thirty days. But with respect to the overall issues, overall financial issues, I think the North Koreans seem to understand that they need to get out of this money laundering business and ultimately start getting out of this nuclear business.

Hopefully this will put paid to the hardliner talking point that the BDA demands were not part of the deal and came out of left field--or that the State Department was secretly canoodling with Kim Jung Il and treacherously keeping their greasy transactions secret from President Bush.

I do not think, however, it will mark an end to efforts to distract attention from actual hardline attempts to derail the Six Party Agreement by sounding misleading alarms about “Pyongyang’s Perfidy” and State Department betrayal.

Things are getting more desperate for the hardliners on North Korea...

There are encouraging signs that the bizarre inability of the world’s only hyperpower to enable the remittance of $25 million to North Korea is attracting more and more skeptical interest.

And there are signs that the hardliners are getting desperate. John Bolton has been summoned to muddy the waters with a conspiracy theory op-ed.

Arms Control Wonk posts critically on a John Bolton op-ed in the Wall Street Journal attempting to create a narrative involving “secret agreements” to explain why the Banco Delta Asia issue is still holding up the Six Party Agreement.

Now, the Wachovia bit. Bolton is obsessed that the North Korea deal has some secrety side arrangement including US bankers (code word!), the Trilateral commission and the Illuminati. Well, at least one bank, Wachovia:

Third, we now face the nagging question whether there are other secret side deals beyond BDA. Of course, the BDA agreement was not so secret that Kim Jong Il was barred from knowing about it, by definition. Most troubling, however, is that State apparently thought it too sensitive to share with the American people until the February deal broke down in an unavoidably public way. (blockquote from Bolton’s op-ed)

I haven’t got my hands on the full op-ed yet, but it appears that Bolton is pushing the idea that there is a conspiracy between the State Department and Wachovia to appease the North Koreans by using the BDA remittance to provide North Korea with a permanent conduit to the world financial system.

For that premise to work, you’d have to believe that a U.S. bank would be willing to defy the Treasury Department for the sake of North Korean business and whatever goodies the appeasement-happy State Department can push its way.

Not too likely. There’s a more logical explanation.

I added my two cents in the comments:

Bolton’s argument makes no sense. He’s trying to substitute an implausible narrative (the North Koreans are scheming not to get their money back) for a more plausible one: that hardliners in the Treasury Department allied with Bolton are scheming to block the BDA resolution so the Six Party Agreement will fall apart. His gyrations have to be even more difficult and contrived because the State Department is seeking to force the issue by identifying a bank (Wachovia) that is willing to take the money if Treasury agrees.

So here come Bolton’s bizarre conspiracy theories about “secret side agreements”.

It’s all rhetorical chaff, thrown with increasing desperation because, if there’s another Condi talks to Hank moment, Treasury grants the approval and the money goes to North Korea and the Six Party Agreement proceeds, journalists and Congresscritters are going to start thinking: it looks like some people in Treasury held up this agreement for three months. What was all that about?

I’m glad ACW is paying attention to this issue. Maybe other outlets will follow.

BDA Funds: Free At Last?

There’s been a flurry of rumor and activity on the BDA front, with indications that the fat lady, if not ready to sing, is at least clearing her throat.

Rumors are circulating that the $25 million in unfrozen but heretofore unremittable funds in Banco Delta Asia will be remitted to Russia...Italy...Singapore...Vietnam...and/or Mongolia.

I also read a rumor that a South Korea’s Asset Management Corporation (whose normal brief is buyouts/bailouts of busted South Korean enterprises) would take over BDA, with the assumption, I suppose, that the North Korean funds would be reborn on a higher, purer plane together with a reorganized and resurrected BDA.

There are rumors that the funds from the 52 accounts released separately according to account-holder.

The report I found most interesting (NHK via Phoenix TV), is that the funds will be remitted in a lump sum to the (North) Korean Foreign Trade Bank.

The element that interests me is not the proposition that the Norks are possibly getting their dirty money back.

What I find interesting is the idea of “lump sum”.

I’m sure Colin McAskill finds the idea interesting—and appalling—as well.

After all, McAskill bought a controlling interest in Daedong Credit Bank, which apparently had $8 million of rather licit funds frozen in BDA. He hoped his accounts would receive a clean bill of health and be returned directly to his bank. If the NHK report is true, he’ll just have to talk to Kim Jung Il about his money.

I found the “lump sum” report interesting and plausible because it dovetails with one of David Asher’s preoccupations.

David Asher is the hardliner, now at the Heritage Foundation, who claims to have conceived and designed the BDA Patriot Act Section 311 investigation as part of his operation at the U.S. State Department to financially isolate North Korea.

In his testimony before a House subcommittee on April 18 (which I blogged about here), Asher played up a particular consequence of the Patriot Act sanction against BDA and his much wider effort to ostracize North Korea from the international financial community.

Asher talked about how he had labored to get banks throughout the world to freeze accounts and transactions and refuse to remit moneys on behalf of North Korean account holders.

Asher demurely gloated concerning how discomfited the North Koreans would be to have to present themselves personally in order to claim their funds.

And that got me to thinking about America’s baffling obsession with tying up the North Korean money in BDA even after we had promised they could get it back—and we had a denuclearization deal hanging in the balance.

And it occurs to me that perhaps the U.S. Treasury Department was insisting to Macau and anybody else that received money from the North Korean accounts inside BDA would have to require that the account holders claim the money from the bank in person—thereby getting beyond the nominees, aliases, and shell companies to find out whose money it really was.

The big fish would be Kim Jung Il, who undoubtedly had some of his private coin tied up in BDA.

Perhaps the hardliners were looking forward to Dear Leader shuffling into BDA’s ornate headquarters to furtively empty his personal accounts...

...only to be told he couldn’t have the money until he came back with a certificate of permission from the U.S. Treasury Department and two forms of picture ID!

BWWWWWWWWAAAAAAAAAAHAHAHAHA!

Just kidding.

But I think the U.S. might have been hoping to score some points with the international financial community by zeroing in on what unsavory characters showed up to claim their funds—and how much money was left behind by miscreants unwilling or unable to show their faces.

Just a thought.

But, if the money is going back to North Korea in a lump sum, the glorious prospect of a serial perp walk through the doors of BDA by the North Korea’s shadowy elite will have to be abandoned.

I had also speculated that America’s campaign against Macau was to deny that territory to Kim Jung Il and his government and companies as a venue for foreign exchange transactions that were a priori illicit according to America’s reading of North Korea as a criminal state.

However, these same transactions would be considered licit—if not especially commendable—if North Korea was granted the benefit of the doubt as a legitimate sovereign state, as South Korea is apparently ready to do.

Significant elements of South Korea’s checkbook diplomacy with the North were conducted through Macau, most notably the colossal US $500 million payoff that paved the way for the 2000 North-South peace summit.

But if the United States was determined to deny the Koreas the use of Macau as a facilitator of checkbook diplomacy, it looks as though the South Koreans came up with a creative alternative: suitcase diplomacy.

From Joong Ang Daily via NKeconwatch:

South Korea hand-delivered $400,000 in cash to North Korea yesterday [April 7, 2007] for Pyongyang’s purchase of video communication equipment. The North will spend the money to buy computers and display screens to reunite families separated for more than a half century by the demilitarized zones through video conference calls.

Two South Korean Red Cross officials boarded a cargo ship in Incheon for Nampo of North Korea Thursday morning. They carried a suitcase containing 40 bundles of one hundred, $100-dollar bills. The ship arrived in North Korea yesterday morning.
...

“It is sad that the North Koreans do not have a proper bank account that we can wire money to,” a Roh administration official said. “It shows the unfortunate reality of North Korea as an outsider of the international community.” (Lee Young-jong and Ser Myo-ja, Cash delivered to North Korea for video reunions, Joong Ang Daily, April 7, 2007)

Maybe the world lost its appetite for vigilante financial justice American style and decided it wanted to let North Korea get the $25 million and give diplomacy a chance.

In order to see where the international united front against North Korea crumbled, it may not be necessary to look much further than South Korea.

David Asher’s Dead End

"Presumed guilty until proven guilty" makes for a quick and easy North Korea policy...but it's no substitute for global diplomacy

“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.” David Asher, oral testimony, April 18, 2007

We gave them back the chicken...is the monkey still scared? Brad Sherman (D-CA), Chairman, House Foreign Affairs Subcommittee on Terrorism, Nonproliferation, and Trade, April 18, 2007

David Asher’s testimony before a joint House subcommittee on April 18 provided considerable entertainment—inadvertent as well as intentional.

It also revealed some things about North Korea, a lot about the Bush administration and David Asher--and gave little reason to be optimistic about U.S. policy in Northeast Asia.

Certainly, the Chinese are wondering if there are any tangible rewards for engaging with the United States on North Korea—beyond serving as a target of U.S. financial coercion—and as result are probably less than enthusiastic about helping us out on Iran.

Asher—who served the coordinator of North Korea Activities Group at State Department from 2001 to 2005 and takes credit for a raft of activities harassing Pyongyang, including the Patriot Act Section 311 action against Banco Delta Asia-- was brought to the hearing by California Republican Ed Royce to provide conservative talking points on North Korea (Asher’s opening statement and subsequent responses can be found after the 1:58 mark in the webcast).

Asher articulated the hard-line view that using Treasury sanctions to force North Korea to abandon its alleged counterfeiting and proliferation-related activities was more important than the Six Party process, stating explicitly that, in his personal opinion,

“I don’t think the North Koreans are going to give us any more than a freeze for compensation”.

And

“We designed this initiative with the goal of countering these [illicit] activities themselves...not necessarily supporting the Six Party talks.”

And

“We did not design the initiative to give it away.”

And

“Even as a diplomatic act of expediency [returning the BDA funds] strains one’s litmus test of what’s reasonable..."

And

[Returning the funds] is “not a constructive effort”.

Nothing like designing failure into the Six Party process at the start, David.

To help Asher get his point across, Royce framed his questions around Asher’s published statements, making assertions that Asher, naturally, was only too eager to endorse.

As in:

Royce, April 18, 2007:

Referring to allegation of North Korean counterfeiting:

"What would happen if we just decided to implode that regime by responding to an act of economic warfare in a way that embargoed that system?...This is the first time since the second world war that one country has copied another country’s currency..."

David Asher, November 2005:

Under International Law, counterfeiting another nation's currency is an act of causus belli, an act of economic war. No other government has engaged in this act against another government since the Nazis under Hitler.

Royce also had a ready made laugh line to contribute to the tag team entertainment, having mocked the North Korean request for two counterfeit bill detecting machines during the morning testimony.

Asher (who, I’d be willing to bet a jar of kimchi fed Royce the story in the first place), didn’t even wait for a prompt and jumped in himself:

"[North Korea is] interested in obtaining bill detectors so they can improve the quality of their counterfeit...I think it’s likely they’ll be making efforts to counterfeit our new bills which would mean that we’d have redesigned our dollars twice now because of North Korea and we’d have to do it a third time..."

Given the growing doubts swirling around the North Korean counterfeit story (Asher himself twice remarked agitatedly, “some people think we’re making this stuff up...”), I would personally give some credence to the idea that the North Koreans need the machines so they can vet their cash locally, now that having it checked by money center banks like HSBC New York (as BDA did) is apparently no longer possible.

However, the revolting mental image of a leering Kim Jung Il salaciously violating our greenbacks (causus belli, baby!) is central to the conception of North Korea as a rogue actor on the world stage .

Therefore, I expect the Supernote story to be defended to the last ditch.

Asher, a conservative-leaning Japan expert whose career arc has included stints at the American Enterprise Institute and Heritage Foundation as well as the State Department, has built his public career on hyping the criminality of the North Korean regime.

The title of his November 2005 paper, "The North Korean Criminal State, its Ties to Organized Crime, and the Possibility of WMD Proliferation", pretty much says it all in terms of Asher’s conceptual framing of the North Korea issue.

By his formulation, North Korea (or the “Soprano state”, as he refers to it) is, in its essence, criminal and, in any and all conduct of its international activities, is assumed guilty... until proven guilty.

In his oral testimony on April 18, Asher took the argument to the dingbat quadrant.

North Korea is being accused of inflating or manufacturing insurance claims (using “suspiciously” complete and timely documentation) to defraud Lloyd’s names in cases involving $150 million in coverage.

Asher, who was quoted in the article that presumably inspired his remarks, got a little carried away in his testimony, characterizing the proceeds as “pure profit”, disregarding the fact that actual losses such as sinking ferryboats and burning warehouses had occurred, and that the North Korean insurance company had to pay for the reinsurance it acquired on the London market.

Then he grabbed the ball and took it to a new level:

"...[the North Koreans] even scuttled, apparently, one of their ships. They collided deliberately with a Hyundai merchant ship in the middle of the Indian Ocean. It carried $70 (?) million dollars in insurance. The ship...their ship...collided with the Hyundai ship—this is right in the middle of the run-up to the 2000 summit and the ship, even though it had basically a dent in its bow, it just merely [sic] sank which implies it was exploded. They blew it up and sank it...a great way to collect insurance."

Ah, Google. This powerful, little known tool tells us:

Hyundai pays for tragedy

A compensation payment of US$6m has been made by Hyundai Group for the sinking of the North Korean bulker Manpok in March last year. A collision between the 4,411 teu Hyundai Duke and the 15,193 dwt Manpok, carrying a cargo of cement at the time, resulted in the loss of 37 lives aboard the bulk carrier, which sank within moments after the incident 500 miles from Colombo, Sri Lanka. Only two crew were found and rescued by the 1992-built box ship. In a statement, Hyundai said that insurance firms representing both the company and the North Korean government, who owned the Manpok, had reached an agreement on the amount of compensation to be paid. The circumstances of the collision have been surrounded by controversy since it happened, with reports from the Hyundai Duke stating that the Manpok cut across its bow denied by the North Korean government, who claim that the container ship had been shadowing the bulker.

The Hyundai Duke, by the way, is a 52,000 ton behemoth. It, not the Manpok, sustained minor damage to its bow. The Manpok, as befits a little bulk carrier struck either on the side or stern by a vessel at least 3 times larger steaming at 25 knots, sank like a rock, with all but two of its crew perishing.

As to the insurance settlement, the Korea Times reported:

Amid rescue operations for the missing North Korean seamen, two insurance experts have been dispatched to Colombo, Sri Lanka to investigate the cause of Wednesday's boat collision, said a spokesman for Hyundai Merchant Marine Co. (HMM) yesterday.The spokesman said that one of the two is a Korean marine surveyor appointed by Hyundai Maritime and Fire Insurance Co. and the other is a British surveyor dispatched by the London-based Britannia P&I (Protection and Indemnity) Club. The Hyundai Duke, which collided with a North Korean freighter in the Indian Ocean, is insured by Britannia P&I Club and Hyundai Maritime and Fire Co.

...

Yoo said that in the case of HMM, Britannia will cover the human losses from the collision, with Hyundai Maritime and Fire Insurance taking full responsible for all damages to the vessels."When the final report comes out, then we will decide on whether we will compensate for the physical and human losses of North Korean seamen purely from the humanitarian point of view," Yoo said. (Kang Seok-jae, Insurance experts sent to Sri Lanka to investigate cause of boat collision, THE KOREA HERALD, April 3, 1999)

Did the captain of the Manpok steer his boat in front of a South Korean container vessel and then go the extra mile and blow up his ship (with its high value declared cargo of cement, for Chrissakes) and his crew after the crash just to be sure to slake his master’s kleptocratic lust for insurance company gold?

Or is David Asher a dingbat?

I guess this is why these guys prefer not to testify under oath.

There are a few conclusions that can be drawn, beyond the observation that David Asher is sloppy and irresponsible in his testimony before Congress.

First, Mr. Asher is still partying like it’s 2002, when the U.S. (or at least Colin Powell) had the credibility to accuse Saddam Hussein of anything and everything under the sun and when Saddam tried to clear himself, Donald Rumsfeld could harrumph “absence of evidence is not evidence of absence.”

That *ahem* ship has sailed, David. Or sunk.

The hardliners will have to do better than Asher’s junior G-man tales of running stings with fake weddings against Chinese triads to interdict small quantities of NORK counterfeit currency, cigarettes, Viagra, and meth...or easily debunked stories about extravagant suicidal insurance frauds...to make their case about the dangerously criminal character of North Korean regime.

Otherwise, the North Korean effort will be tainted by the same perception of cherrypicking, mendacity, and special pleading that is the enduring legacy of America’s Iraq intelligence.

Asher’s testimony makes one wonder about the quality of our dossiers, the honesty of our representations, and the validity and effectiveness of our tactics.

In this context, I found it most interesting that Asher brought up the issue of the 2000 summit “cash for peace” bribe.

South Korea’s prime minister at the time, Kim Dae Jung, has admitted to passing US$100 million to North Korea to facilitate the historic North-South summit (and Kim’s Nobel Prize).

Hyundai Asan, the intermediary, also passed on another US$400 million, either to smooth the way for its own business plans for North Korea or on behalf of the government in an additional unacknowledged payoff.

The financing is made rather murky by the fact that Kim Dae Jung was apparently joined at the hip with the particular chaebol faction running Hyundai Asan, and unleashed a torrent of $3 billion in government and private loans—to prop Hyundai up in the liquidity crunch following the Asian financial crisis, to smooth the way for his summit, and allegedly, to create a campaign slush fund for certain politicians and provide graft for some well-compensated political fixers.

All one can say is, the 2000 summit was very good for Kim Jung Il.

And if Kim spent the $500 million to develop his nuclear deterrent instead of blowing it on cars, cognac, and Swiss bank accounts, he probably considers it the best $500 million he ever spent.

It looks like that money made it to North Korea via Macau and it looks like that really annoys David Asher:

"...this may sound a little bit exaggerated but the South Korean government alone poured something on the order of $500 million dollars in bribes in order to obtain the 2000 summit and they investigated this...it’s been prosecuted in their courts...in the banks in Macau...in banks accounts which were--we would assume were—controlled by Kim Jung Il, that’s certainly what they assessed."

Grousing about purported income from illicit activities is one thing.

But Asher’s annoyance over Macau’s role in the summit payoff—a piece of checkbook diplomacy that violated plenty of South Korean laws but involved no illicit activity by North Korea—must be traced to the fact that Kim Jung Il got half a billion legal dollars out of it.

The summit bribe must hang like a dark cloud over hardline efforts to isolate, destabilize, and perhaps topple the North Korean regime through financial pressure.

What’s the point of all this time, work, and vexation of trying to financially isolate Pyongyang if South Korean business and government can just write North Korea some big checks any time Kim Jung Il feels backed into a corner and decides to trade some concessions for cash?

Perhaps one objective of the whole Macau brouhaha was to have a chilling effect on checkbook diplomacy, by making the Pyongyang and Seoul anxious that America might drop the hammer on some Macau bank just when it’s got a huge payoff from Hyundai sitting in a North Korean account.

An unexamined by-product of this initiative might be resentment by South Korean government of unilateral and coercive US efforts to pre-empt checkbook diplomacy, a prudent measure that I imagine is closer to Seoul’s diplomatic strategy than trying to kick Pyongyang’s financial can all over Asia.

Asher seems intent upon poisoning the well for State Department’s diplomatic initiatives, not only for North Korea, but also for Macau, China, and, by extension, Iran, with his relentless boasting about the Patriot Act Section 311 sanctions.

In his oral testimony (1:57), Asher stated:

"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."

Trouble is, that makes this March 2006 press release from the State Department look kinda like a lie...

Treasury Briefs North Korea on U.S. Financial System Protections

Regulatory action against Macau bank not meant as sanction on North Korea

...
The Treasury Department stressed that the Section 311 action against BDA was not intended as a sanction against North Korea and should be considered matter completely separate from the Six-Party Talks, the ongoing negotiations on nuclear programs on the Korean Peninsula that involve the United States, North Korea, South Korea, China, Japan and Russia.

Asher’s statement raises a raft of questions, such as, if the BDA action was truly directed against North Korea (which, I think, most people believed at the time, despite Treasury’s protestations), why wasn’t it better coordinated with the Six Party talks?

In other words, why did we announce this sanction at the same time that North Koreans had announced a return to the Six Party Talks, thereby giving them a reason to walk out and, apparently...

...convince them that they would get a lot further in their negotiations with the United States if they came back to the talks armed with an atomic bomb, instead of simply enveloped in warm feelings about American good faith and reasonableness?

Awkward...

I’m sure David Asher doesn’t want to go down in history as one of the fathers of Kim Jung Il’s atomic bomb...

...or, perhaps, Iran’s.

Which is the way it might go down, if Asher’s efforts to tangle Macau and the PRC in the Patriot Act web succeed.

Growing out of the premise that North Korea was essentially a criminal state, since Macau was handling North Korean money—and had the presumption to assert that the transactions were legal--well then, Macau had a problem, too:

"DPRK had for decades enjoyed a protected relationship with Macau’s government and many of the business leaders and political leaders that reached far beyond Banco Delta Asia. Not only was Macau a global center for North Korean proliferation, and for illicit activities, it was also a central node for managing the...kleptocratic finances of Kim Jung Il."

Strong words. And there is, of course, more.

Such as Asher’s statement quoted at the top of the article:

“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.”

The implication being, if China refused to share the US assumption that North Korean funds were illicit and act and investigate accordingly, Chinese banks would become subject to US sanctions.

So the action against Banco Delta Asia wasn’t just a legal action against a dirty bank, or a targeted sanction against illicit and WMD-complicit sectors of the North Korean economy.

It was a broad embargo, orchestrated globally, with threats of financial sanctions against the entire North Korean economy and regime, and also against North Korea’s enablers in Macau...and North Korea’s patron, the People’s Republic of China.

That’s a pretty big deal.

Most people have such an ingrained revulsion for Kim Jung Il’s regime that any action that sticks a thumb in Dear Leader’s eye is welcomed, no matter what the implications for US credibility as an ally, a negotiating partner, enforcer of international good-guy norms, or even the superpower that cares about keeping its facts or just its stories straight.

But China is a different matter, and I wouldn’t be surprised if concern over Asher’s reckless enthusiasm for strongarming Macau and China as part of his anti-North Korea campaign contributed to his departure from the State Department in 2005.

It would be easily to dismiss Asher’s anti-DPRK initiative as Axis of Evil nostalgia and hardliner overreach run amok, now that the realists are supposedly running North Korea policy and Asher is free to babble about his dubious achievements and undeniable ambitions while ensconced at a right-wing think tank.

Except for one thing...

...the State Department realists supposedly running our North Korea policy have been unable to get beyond the BDA cul de sac, even after the general exodus of Asher and other hardliners from State.

As far as can be seen, the problem is not with the Section 311 decision that has cut BDA off from the US financial system.

The problem seems to be that the US government is still threatening additional sanctions against non-US banks if they handle the $25 million.

It doesn’t seem plausible, given the mare’s nest that l’affaire BDA has become, that Treasury needs to preserve the credibility of its campaign against Iran by taking further unannounced action to tie up the North Korean funds and make a bad situation even more embarrassing.

Instead, the ongoing imbroglio implies that the Bush administration cannot move beyond its predilection for secretive, deceptive, and coercive unilateralism and dreams of regime change.

It also indicates that Washington’s willingness to engage China as a global security partner is subject to so many unspoken caveats (like “we’ll cut Bank of China off from the US financial system if you don’t go along with us on North Korea”) that it is virtually meaningless.

Taken together, that’s not good news for a successful, global united front against Iran.

Let’s hope that the last two years of Bush administration diplomacy isn’t remembered as David Asher’s dead end.

Gold Digging

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As the Christian Science Monitor reported in January:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

China’s morals are probably not the issue here.

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

That probably means Bank of China Macau.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The story is one of American shortsightedness.

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

But that’s not what it wants.

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

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

Quite the opposite.

Returning from North Korea, Bill Richardson noted:

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

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

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

And what do we do?

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

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

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

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