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even more in-depth information about pres. bush's successful effort to tighten the noose around the north korean regime;
Pocketbook Policing
Washington has finally found a strategy that is
putting real pressure on the regimegoing after its
sources of cash, all across the world.
By Christian Caryl
Newsweek International
Updated: 3:20 a.m. ET April 2, 2006
April 10-17, 2006 issue - Swiss businessman and
Asian-art collector Jakob Steiger never figured in
headlines before last month. But his low profile ended
with a bang when the U.S. Treasury announced that it
was imposing sanctions against his firm, Kohas AG, for
acting as a "technology broker" for the North Korean
military. The Bush administration claims that the
company, based in the university town of Fribourg, is
half-owned by a North Korean firm that was named on a
previous U.S. blacklist of entities suspected of
involvement in "the proliferation of goods with
weapons-related applications."
On its own the action against Kohas might seem like a
sideshow in the much larger U.S. effort to eliminate
Kim Jong Il's nuclear-weapons program. But in fact,
the move is just the latest twist in an intense
American offensive against North Koreaone that
experts believe is finally beginning to squeeze the
regime. Numerous U.S. government agencies, including
the FBI, Treasury, State Department and CIA, have been
working for three years to curtail Pyongyang's vast
network of black-market activitiesfrom the sale of
missile technology to heroin trafficking to the
manufacture of fake cigarettes and bogus Viagraand to
cut off the financial conduits by which the proceeds
are laundered. David Asher, who ran the Bush
administration's interagency effort, says that
criminal North Korean businesses were targeted as part
of "the largest undercover investigation against Asian
organized crime in a decade." Washington has raised
the possibility of sanctions against financial
institutions that deal with Pyongyang, and has
arrested or indicted dozens of figures linked to
Chinese triads and the Irish Republican Army, among
other groups.
Whether this effort to squeeze Kim will persuade him
to abandon his nuclear arsenal remains to be seen. But
Washington officials believe that this campaign of
"targeted sanctions" is proving very effective. "From
what we've seen, this has been affecting the North
Korean elite in particular," says Peter Beck, a
Seoul-based analyst with the International Crisis
Group (ICG). Indeed, according to an unclassified U.S.
government document obtained by NEWSWEEK, during Kim
Jong Il's January trip to China, he reportedly told
Chinese President Hu Jintao that "his regime might
collapse under the weight of the U.S. crackdown on his
financial dealings."
If nothing else, the latest U.S. actions have given
Washington a powerful card to play in the negotiations
with Pyongyang, known as the Six-Party Talks. In
recent years North Korea's two neighbors, China and
South Korea, have held most of the leverage in the
on-again, off-again negotiations. They insist on
engaging the Pyongyang regime (meaning, primarily,
propping it up with political favors, aid and
investment) rather than confronting it. But the
engagement policy has had mixed results, at best.
The U.S. decision to ratchet up the pressure on North
Korea's illicit activities was taken shortly after
George W. Bush was first elected. Asher, a former
banker and State Department official, started leading
what became known as the North Korea Illicit
Activities Initiative in late 2001, and it immediately
conducted a study of the North Korean economy.
Investigators found that the country's official
revenues couldn't cover a "black hole" of about $500
millionequivalent to half the country's annual
exports. Pyongyang was plugging that shortfall in its
balance sheet, the experts concluded, through a broad
network of criminal business dealings.
In particular, Washington confirmed what had long been
suspected in many quarters: Pyongyang was printing and
distributing large quantities of high-quality
counterfeit U.S. $100 bills, known as supernotes,
which are almost impossible to detect without
sophisticated equipment. Sources say that the number
of fake supernotes in circulation has spiked in recent
years. Many have been found in South Korea, China and
Taiwan. In August 2005, customs officials in
Kaohsiung, Taiwan's southern port city, searched a
shipping container of goods in transit from mainland
China to Los Angeles. They discovered $2 million in
fake greenbacks hidden in seven suitcase-size
cardboard boxes. The Taiwanese officials were acting
on a tip from the FBI. Altogether, Treasury officials
say, the U.S. campaign has confiscated some $48
million in fake $100 bills around the world over the
past four years.
But the Americans didn't stop there. On Sept. 15 the
Treasury Department issued a blandly worded
announcement designating a bank in the Chinese
gambling haven of Macau as a "primary money laundering
concern" for North Korea. Strictly speaking, the
measure didn't amount to sanctionsmerely a warning
that the bank in question, known as Banco Delta Asia
SARL (BDA), was under suspicion. U.S. banks can still
do business with BDA, but the threat that they might
yet be ordered to cut off dealings with the Macau bank
has made them wary. In today's interconnected
financial world, an official U.S. move to blacklist a
foreign bank would be the kiss of death, since any
financial institution doing business in dollars needs
to hold accounts in correspondent U.S. banks in order
to complete transactions.
Nervous depositors immediately staged a run on BDA,
withdrawing nearly 40 percent of its deposits within a
week. In a desperate attempt to salvage its
reputation, BDA announced it was cutting all ties with
Pyongyang and froze nearly 50 accounts linked with
North Korean companies and institutionsincluding nine
belonging to presumably high-ranking members of the
Pyongyang government. A U.S. official tells NEWSWEEK
that at least some of the names on the frozen
accounts, both corporate and individual, were not the
real names of the assets' owners. The official says
there was some reason to believe that those nine
accounts handled personal business for Kim Jong Il or
members of his immediate circle. (How much money was
in the accounts has not been disclosed.) In a recent
statement, BDA said that it "will not resume
relationships with North Korean or related entities
going forward. The bank is implementing new, enhanced
anti-money-laundering procedures."
The BDA move clearly stung Pyongyang. Within weeks
after BDA froze the accounts, North Korean emissaries
began arriving in Macau, demanding that the money in
the accounts be released. Macau authorities expelled
them. Then, in February, a North Korean spokesman
complained that the United States had effectively
banned the North "from having normal financial
transactions such as remittance of dollars to banks
and settlement by credit cards." (Not many ordinary
North Koreans, needless to say, use plastic money.)
Following the BDA action, other banks around the world
have begun to cut ties with North Korea for fear that
the United States might retaliate. U.S. Treasury
Department Under Secretary Stuart Levy says the
targeted sanctions, or threat of sanctions, has put
"huge pressure" on the Pyongyang regime. He predicts
that as more business people and governments learn
about the risks of dealing with North Korea, the U.S.
campaign will have a "snowballing ... avalanche
effect."
In another measure of the campaign's effectiveness,
Pyongyang soon declared that lifting the sanctions
would be the precondition for resuming the stalled
Six-Party Talks. The ICG's Beck visited Pyongyang not
long after the original sanctions were imposed, and
says that he immediately noticed a change. "Our minder
complained about the financial clampdown more than
anything else. He mentioned it several times over
several days." Adds Ahn Ye Hong, a North Korea expert
at the Bank of Korea in Seoul: "Usually the North
Koreans don't admit problems, even if they're
starving."
Pyongyang is trying to wriggle its way out of the
crisis. In recent weeks the regime has claimed that
it, too, has been a "victim" of counterfeiting, and
promised to punish any North Korean citizens shown to
have been involved. Citing an anonymous government
intelligence source, Seoul's Chosun Ilbo newspaper
reported recently that Kim Jong Il ordered the
execution of anyone manufacturing counterfeit money.
In response, the U.S. ambassador to Seoul, Alexander
Vershbow, coolly suggested that Washington might be
willing to talk if the North Koreans hand over the
plates from their illicit supernote printing plant.
Some experts say that the real target of America's new
financial crackdown isn't Pyongyang but Beijing, which
is Kim Jong Il's most important patron. The American
sanctions campaign puts the Chinese "in a very
delicate situation," says Lee Dong Bok, a former South
Korean intelligence official who is active in a
human-rights group called the North Korea
Democratization Forum. In February the U.S. targeted a
small Hong Kong subsidiary of the Bank of China, for
holding what was said to be up to $2.7 million in fake
U.S. currency, presumably from North Korea. (A Bank of
China spokeswoman in Hong Kong said: "We have no
knowledge of any investigation. We've always attached
great importance to anti-money-laundering policies.")
What's more, U.S. investigators have suspicions that
Macau casinos have been used for money laundering in
general, and money laundering by North Korea in
particular.
China's thriving trade with America would be
impossible without good relations with the U.S.
financial system. Beijing is desperately trying to
build credibility for its shaky banking sector, and
therefore wants to avoid the taint of dirty dealings
with Pyongyang. Indeed, the Bank of China, for
example, is planning an initial public offering later
this month, likely to be partially underwritten by
U.S. investment bank Goldman Sachs. "This is really
about the Bank of China," says one Western financial
expert in Tokyo. And the Americans show no sign of
letting up. "You can't negotiate on crime," says Levy
of the Treasury Department, adding: "We're just
starting."
Japan, where Pyongyang reaps an estimated $300 million
a year from illicit activities, is starting a
crackdown of its own. One Japanese court has
eliminated a tax exemption once granted to
Pyongyang-related organizations. And financial
regulators have been subjecting money transfers to the
North to closer scrutiny. But like the Chinese, the
Japanese are worried that pushing too hard could
result in North Korea's collapse, with all sorts of
undesirable knock-on effects for the region. For their
part, the Americans say they're just trying to get
North Korea back to the negotiating table, and that
the sanctions are a way of pressuring them to give up
their nukes, rather than to foment regime change.
Finding the right balance will be trickybut in the
meantime, Pyongyang will continue to feel the pinch.
With Mark Hosenball in Washington, George Wehrfritz in
Taipei, B.J. Lee in Seoul, and Akiko Kashiwagi in
Tokyo
© 2006 Newsweek, Inc.
© 2006 MSNBC.com
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