Tuesday, March 13, 2007

U.S. to bar banks from business with Macau's BDA

Source: CNN. Also an earlier CNN report.

WASHINGTON (Reuters) -- The U.S. Treasury Department will bar U.S. banks from doing business with a Macau bank holding frozen North Korean assets believed connected to illegal activities, a U.S. official said on Tuesday.

The move would clear the way for Macau authorities to decide whether to release some of the frozen accounts -- an estimated $8 million to $12 million -- Pyongyang has demanded as a condition of negotiations on its nuclear program, other U.S. officials said.

Releasing the funds could take weeks and Washington's prohibition on U.S. banks will continue to complicate the North's access to the international financial system. This is expected to irritate Pyongyang and could shake efforts to denuclearize the Korean peninsula, officials and experts said.

For the past 18 months the Treasury Department has been investigating the Banco Delta Asia bank, known as BDA, over charges the institution for years accepted proceeds from North Korea's counterfeiting, drug-smuggling and money-laundering operations.

As a result, Macau authorities who oversee the bank froze $24 million in North Korean accounts, causing Pyongyang to boycott six-country talks on its nuclear program for more than a year.

The figure is a fraction of the $500 million to $1 billion Pyongyang earns annually from criminal activity, according to the Library of Congress' Congressional Research Service.

Some $15 million to $25 million is from high-quality counterfeiting U.S. currency, according to a report by the office of Republican Rep. Ed Royce of California.

Under a limited nuclear agreement reached with North Korea on February 13, the United States promised to resolve the BDA issue and the decision will be announced this week.

Announcement soon

"We plan to finalize the rule on BDA this week, most likely Wednesday or Thursday," a U.S. official told Reuters on condition on anonymity. "Finalizing the rule means that U.S. banks can no longer open or maintain correspondent accounts for or on behalf of BDA."

The decision to release any funds rests with the China-administered enclave of Macau. U.S. officials have said they expect between one-third and one-half of the $24 million to be released, reflecting accounts determined not to be connected to illicit activity.

The United States is expected to transmit results of its investigation, highlighting high-risk North Korea-related clients, to Macau authorities, who could take several weeks or longer to decide what funds to release.

China is concerned about the cloud of suspicion the U.S. decision will leave over BDA. Some U.S. officials say North Korea likely will reject the way Washington has chosen to interpret its promise to resolve the case.

The officials acknowledge Macau has taken steps to clean up its jurisdiction by tightening banking requirements and promoting transparency but say BDA's shortcomings were systemic largely involving U.S. concerns about the bank's ownership.

"Our concerns about the bank's ownership have not been resolved," another U.S. official said.

In 2005, the Treasury Department designated BDA as a "primary money-laundering concern [because it was a] willing pawn for the North Korean government to engage in corrupt financial activities."

Some U.S. officials and experts have long wanted to resolve the dispute so Pyongyang would come back to six-party negotiations and the focus could be on persuading the North to abandon its nuclear program, rather than counterfeiting.

A shutdown of North Korea's Yongbyon nuclear plant by mid-April is the centerpiece of the February 13 accord reached in six-party talks grouping North and South Korea, Japan, Russia, the United States and host China.

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