Thursday, January 26, 2017
Squeeze on Banco Delta Asia hit North Korea where it hurt - Asia - Pacific - International Herald Tribune
BEIJING — Since the end of the Korean War, the United States has been inventive in applying pressure on North Korea.
It has imposed an arms embargo, economic sanctions, restrictions on trade and travel, bans on dealing with North Korean companies and even a bar on U.S. citizens owning or operating ships flying North Korean flags.
Most of these measures have led to some pain, but nothing seems to have stung as much as a Treasury Department attack in September 2005 on Banco Delta Asia, an obscure, family- owned bank in the Chinese gambling enclave of Macao.
At almost every meeting aimed at getting the North Koreans to halt their nuclear weapons program, Pyongyang has demanded that the United States lift its penalties against Banco Delta Asia. This week the Russian government asked the United States to remove the sanctions against the bank, too.
For more than two decades the bank, which now operates under Macao government control, had handled trade and financial transactions, including sales of gold bullion, for a range of North Korean government companies and entities.
The U.S. accusation, so far not proven publicly, that the bank was a "willing pawn" in North Korean money laundering and counterfeit-currency trafficking was the catalyst for an informal financial embargo that has gradually tightened around the North, according to international bankers and North Korea experts.
Lawyers for the bank in New York referred questions about the matter to a Hong Kong public relations company, which said, "It is not our policy to comment on ongoing matters."
The allegations, and a warning that Washington was considering a ruling that would exclude the bank from any dealings with the U.S. financial system, caused a run on the bank's deposits and had an impact far beyond the former Portuguese territory.
"Not only did North Korea lose access to this particular financial institution," said Marcus Noland, an authority on the North Korean economy at the Washington-based Peterson Institute of International Economics, "other financial institutions began severing their ties with North Korea, not wanting to risk entanglement in North Korean illicit activities and possible expulsion from U.S. financial markets."
"As a consequence of both these direct and indirect effects," he said, "North Korea has encountered increasing difficulty executing international financial transactions."
These financial restrictions have since become a sticking point at six-nation talks aimed at dismantling North Korea's nuclear weapons. Christopher Hill, a U.S. assistant secretary of state and the chief U.S. negotiator at the talks, and his North Korean counterpart, Kim Kye Gwan, met in Berlin for two days of discussions this week.
U.S. officials later described the Berlin meeting as preparation for future six-party talks. No date has been set for the next round.
The move against Banco Delta Asia demonstrates the power of financial tools that the United States can use to exert pressure on regimes it accuses of weapons proliferation or of sponsoring terror. The bank promptly cut its ties with North Korea, and, with encouragement from senior U.S. officials, other leading international lenders have also opted to shun the North rather than risk Washington's anger.
In contrast to difficulties the United States has faced in securing international backing for tough sanctions against North Korea, foreign banks have proved to be far more cooperative when faced with the prospect of losing access to the world's most important economy.
To target Banco Delta Asia, Washington has relied on Section 311 of the USA Patriot Act. This allows the secretary of the treasury, in consultation with other government agencies, to rule that foreign banks, jurisdictions, transactions or accounts are of "primary money laundering concern" and require American financial institutions to take protective measures, including cutting ties with these entities.
In financial terms, North Korea has proved to be a soft target. The United States has tried to apply similar pressure on Iran in recent years without as much success. The size of Iranian oil exports and the country's deeper integration into the international financial system make it much more difficult to isolate.
"It is not so easy with Iran, but it has shown great effect on North Korea," said Benita Ferrero-Waldner, the European commissioner for external relations, during a visit to Beijing on Wednesday.
It is difficult to verify which individual banks have spurned the North, but traders and businessmen with links to the country have no doubt that the United States has further isolated one of the world's most insular economies.
"It has intimidated the international banking system," said Roger Barrett, Beijing-based managing director of Korea Business Consultants, an adviser to companies doing business with the North. "I think they have been bullied and coerced away," said Barrett, who complained that legitimate business has also been damaged in the campaign.
Soon after the United States moved against Banco Delta Asia, North Korea angrily boycotted the six-nation disarmament talks and only consented to return after more than a year's hiatus, when the United States agreed to hold separate discussions on the bank.
The first round of these financial negotiations took place alongside the resumed six-nation disarmament talks in Beijing last month, but both discussions ended in deadlock after North Korea refused to discuss weapons until the United States revoked its threat against the bank.
U.S. officials suggest that it could be a "long process" before the dispute is resolved.
After Washington's attack on Banco Delta Asia, senior U.S. Treasury Department officials said they visited China, Hong Kong, Macao, Singapore, South Korea and Vietnam to convince other banks to cut ties with the North.
In what they described as "outreach efforts" in remarks delivered in congressional testimony, they warned that it was almost impossible to distinguish between the North's legitimate and illegitimate dealings and urged banks to consider the risks of conducting any business with North Korea.
On Capitol Hill, in presentations at international money-laundering conferences and in speeches over the past 12 months, some of these Treasury officials have boasted about the impact of this strategy on the finances of the Pyongyang regime.
"As a result of these actions and public revelations about North Korea's criminal conduct," said Stuart Levey, the Treasury's undersecretary for terrorism and financial intelligence, in a Sept. 8 speech in Washington, "responsible foreign jurisdictions and institutions have taken steps to ensure that North Korean entities engaged in illicit conduct are not receiving financial services."
He added that press reports indicated that some two dozen financial institutions across the globe had voluntarily cut back or terminated their business with North Korea.
The United States has not released any evidence to support its accusations against Banco Delta Asia and has yet to make a final ruling, but the bank's fate serves as a warning that a threat from Washington alone can wreak financial havoc.
Within six days of the allegations, a run on the bank's eight branches saw panicked customers withdraw about $133 million, or 34 percent of total deposits, according to correspondence from Banco Delta Asia's lawyers posted on the Treasury Department's Web site.
The Macao government was forced to take control of the bank and started an investigation into its dealings. That investigation continues while the bank operates. It also froze about $25 million in accounts related to North Korea and moved quickly to end the bank's ties with that country.
The bank's lawyers wrote that accounts with about 50 entities had been closed, including 20 North Korean banks, 11 North Korean trading companies, 9 North Korean citizens, 8 Macao- based companies that conducted business with North Korean entities and 2 Macao residents.
The correspondence also revealed that within six months, the bank had become a financial pariah.
All of Banco Delta Asia's correspondent banks in the United States, which handle the bank's international business, had closed their accounts along with other banks in Europe and Asia, the lawyers wrote.
Despite its small size, experts on the North Korean economy say the loss of Banco Delta Asia's services alone was a serious blow to Pyongyang.
"Because the North Korean leadership placed so many of their foreign exchange eggs in the BDA basket, the sanctions on BDA that prompted the closure of these accounts have had an unusually effective impact," said Brad Babson, a retired World Bank expert on East Asia and now a Brunswick, Maine- based consultant on economic affairs in northeast Asia and Korea.
"It is not just the amount of funds tied up that matters, it is the disruption of their system for transferring foreign exchange for meeting critical needs of the regime," Babson said.