Yesterday, the Macau-based Banco Delta Asia (BDA) released $25
million that had been parked in frozen North Korean accounts. BDA
had been a major conduit for North Korean cash, from both legal and
illegal activities, and Pyongyang had refused to abide to its
nuclear commitments under the February 13 Six Party Talks agreement
until the funds were released. The Bush Administration's agreement
to link the BDA matter to the Six Party Talks needlessly undermined
U.S. diplomatic efforts and set a dangerous precedent for future
nuclear negotiations with North Korea, as well as with Iran. Still,
now that this issue has seemingly been resolved, the U.S. must
press North Korea to provide a complete data declaration that
includes details on its highly enriched uranium-based nuclear
weapons program and to agree to stringent verification measures to
ensure the destruction of its nuclear weapons facilities and
nuclear weapons.
An Impediment to Denuclearization
In March 2007, the U.S. Treasury Department concluded its
18-month investigation into BDA by affirming its initial September
2005 identification of the bank as a "prime money-laundering
concern" under Section 311 of the Patriot Act, which precluded any
U.S. bank from interacting with it. U.S. citizens are bound by the
Money Laundering Control Act of 1986, which makes it a federal
criminal offense to conduct a financial transaction involving
proceeds of another crime. Violators face significant prison time
and financial penalties as well as potential forfeiture of all
property involved in the money-laundering offense or in a
conspiracy to commit a money-laundering offense.
The U.S. government's characterization of the delay in releasing
the funds as a "technical difficulty" caused by North Korea's
unfamiliarity with the international banking system was
disingenuous. In truth, Washington could not find any bank or
country willing to risk engaging in money laundering, which could
carry great consequences.
Although details remain sketchy, most of the North Korean funds
have now been released, according to Francis Tam, Macau's secretary
of economy and finance. Rumors suggest the transfer involved the
U.S. Federal Reserve Bank of New York and the Russian central bank.
Whether the Bush Administration chose the Federal Reserve, an
independent government entity, because it is exempt from some U.S.
laws is uncertain.
Ramifications of BDA Resolution
The successful transfer of the BDA money via a third-country
bank should fulfill the North Korean demand for the U.S. to
"resolve" the BDA issue, allowing progress in the Six Party Talks.
But it will not lead foreign banks to reach out to Pyongyang for
new business or lead to North Korea's reintegration into the
international financial system. It is all but certain that North
Korea will eventually seek additional U.S. steps, such as a
rescission of the Treasury Department ruling against BDA.
In the near term, however, resolution of the BDA issue should
allow for the rapid completion of the first phase of the February
multilateral agreement. North Korea is now likely to freeze
operations at the Yongbyon nuclear reactor and re-admit
International Atomic Energy Agency (IAEA) inspectors at that
facility. This will trigger the release of an initial tranche of
50,000 tons of heavy fuel oil by the other Six Party Talks
participants.
These steps should result in the resumption of nuclear
negotiations. The complicated and contentious issues of this second
phase of talks will provide a greater test of North Korea's
commitment to denuclearization. Issues such as North Korea's
parallel uranium-based nuclear weapons program, requirements for
destruction of nuclear facilities and weapons, and the parameters
of a stringent verification regime are likely to slow future
progress.
South Korean Engagement
Resumed progress in the Six Party Talks will also have effects
in South Korea. Seoul will begin shipment of 400,000 tons of rice
to North Korea, which it had conditioned on Pyongyang fulfilling
its initial nuclear obligations. While Seoul has already gone back
on its pledge not to provide aid following North Korea's 2006
missile and nuclear tests by sending 300,000 tons of fertilizer
earlier this year, it kept the conditionality on its rice
pledge.
More significantly, progress in nuclear negotiations will
increase the likelihood that South Korean President Roh Moo-hyun
will seek an inter-Korean summit with North Korean leader Kim
Jong-il. On June 15, President Roh said, "If North Korea ceased
operations at the Yongbyon reactor, I will most certainly meet [Kim
Jong-il], even if there is only three to four months left in my
term to discuss how we could help accelerate the process." The two
sides would likely conduct a summit in Kaesong on August 15 (the
anniversary of Korea's liberation from Japanese occupation) for
maximum symbolic value. Roh is eager to conduct a summit to show
for the success of his engagement policy, which has come under
increasing criticism domestically for providing significant aid
with few conditions.
Conservatives in the opposition Grand National Party fear that a
summit will give an unfair advantage to progressive candidates in
the December 2007 South Korean presidential election. The GNP had
considered softening its stance toward North Korea following
initial progress in the Six Party Talks but subsequently affirmed
its position. The South Korean electorate's perceptions of progress
in the Six Party Talks and inter-Korean relations at the time of
the election would hurt former GNP chairwoman Park Geun-hye, who
has advocated a firmer North Korean policy than her rival, former
Seoul Mayor Lee Myung-bak.
Recommendations for the Bush
Administration
With the likely resumption of the Six Party Talks, the Bush
Administration must:
- Resist any North Korean demands to reverse the Treasury
Department ruling against BDA and any North Korean efforts to
reintegrate into the international financial network before
Pyongyang addresses international concerns over its illegal
activities;
- Call on other participants in the Six Party Talks to fully
enforce the economic restrictions called for in U.N. Resolution
1718 and in international laws against counterfeiting, money
laundering, and drug smuggling;
- Undertake multilateral diplomatic, law enforcement, and
intelligence efforts to identify and target North Korean illicit
activity;
- Insist that specific reference be made to North Korea's
uranium-based nuclear weapons programs in subsequent treaty text
and other agreements;
- Insist on a verification regime that can prevent North Korea
from cheating on its denuclearization commitments, such as by
including short-notice challenge inspections at suspect sites.
Conclusion
The transfer of BDA money to North Korea raises serious
questions under both U.S. and international law. Representative
Ileana Ros-Lehtinen (R-FL), the Ranking Member of the House Foreign
Affairs Committee, requested on June 12 that the Government
Accountability Office evaluate whether this action is consistent
with anti-money laundering and counterfeit laws. Other signers of
the letter include Representatives Christopher H. Smith (R-NJ), Dan
Burton (R-IN), Edward R. Royce (R-CA), Mike Pence (R-IN), and
Joseph R. Pitts (R-PA).
The Administration should resolve not to repeat the errors of
the BDA imbroglio. To this end, it must call on North Korea to
prove its commitment to divesting itself of its nuclear weapons
programs. The other Six Party Talks participants must insist on
detailed treaty text rather than still more vaguely worded joint
statements which lend themselves to misinterpretation and
malfeasance. Finally, the United States must make clear that its
patience is not limitless and that North Korea will not be allowed
to continue to drag out the negotiations.
Bruce Klingner is Senior
Research Fellow for Northeast Asia in the Asian Studies Center at
The Heritage Foundation.