Banco Delta Asia: Whiskey, Tango, Foxtrot?

MIKE CLARKE/AFP As part of its recent agreement with the United States, North Korea demanded the release of U.S. $25 million in funds linked to North Korea at Banco Delta Asia (BDA) in Macao, which were frozen by Macanese authorities in 2005 following U.S. accusations of money laundering. The U.S. Treasury Department’s response has been ...

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601185_070321_bda_05.jpg

MIKE CLARKE/AFP

As part of its recent agreement with the United States, North Korea demanded the release of U.S. $25 million in funds linked to North Korea at Banco Delta Asia (BDA) in Macao, which were frozen by Macanese authorities in 2005 following U.S. accusations of money laundering. The U.S. Treasury Department's response has been confusing; Treasury green-lighted the release of all of North Korea's funds even as it confirmed that BDA was of "primary money laundering concern" and barred all American financial institutions from trading with it.

North Korea, in a face-saving gesture for the United States, agreed to use the funds only for "the betterment of the North Korean people." The DPRK will have access to the $25 million after it is transferred to a North Korean account at the presumably more trustworthy Bank of China in Beijing.

MIKE CLARKE/AFP

As part of its recent agreement with the United States, North Korea demanded the release of U.S. $25 million in funds linked to North Korea at Banco Delta Asia (BDA) in Macao, which were frozen by Macanese authorities in 2005 following U.S. accusations of money laundering. The U.S. Treasury Department’s response has been confusing; Treasury green-lighted the release of all of North Korea’s funds even as it confirmed that BDA was of “primary money laundering concern” and barred all American financial institutions from trading with it.

North Korea, in a face-saving gesture for the United States, agreed to use the funds only for “the betterment of the North Korean people.” The DPRK will have access to the $25 million after it is transferred to a North Korean account at the presumably more trustworthy Bank of China in Beijing.

It’s not clear, though, why the Macanese authorities agreed to cooperate with the United States at all (technically, the decision to release the funds was Macao’s), given that the U.S. Treasury’s decision “essentially crippled [BDA], paving the way for liquidation of its assets.” Macao’s acquiescence to a deal that has damaged its reputation and torpedoed a Macanese bank—even after an independent Macanese audit failed to find evidence of illegal activity—is hard to explain coming from a supposedly independent territory. (Read the rest after the jump)

The most likely explanation? Pressure from Beijing, which stands to gain from the implied compliment paid its own banks as well as from the continued success of nuclear talks with North Korea. As for Macao—a “Special Administrative Region” of China, like Hong Kong—it may simply have been promised quiet damage control by authorities in Beijing. 

But why is North Korea satisfied with this deal, since it includes no retraction of Treasury’s accusations against the country? It seems unlikely that the $25 million in frozen funds was enough. The Economist puts it aptly: “[W]e are talking here about the price of a New York townhouse, or a good bonus on Wall Street.” 

Analysts at the Congressional Research Service, in a report (pdf) last month, suspected that the actual funds weren’t North Korea’s main concern. Instead, they assumed the issue was the “wider ripple effect” that could hamper North Korea’s financial transactions as other banks contemplate BDA’s downfall. Without a retraction of U.S. accusations about money laundering, though, the ripple effect will persist even after North Korea gets its $25 million back.

So is North Korea really pressed enough for cash that this glaring shortcoming isn’t enough to kill the deal? Or is there something else going on entirely?

Depressingly, North Korea’s acquiescence looks like just another delaying tactic: Russia’s TASS press agency has reported that North Korea is refusing to attend talks until the money is actually transferred. This could take a while, since the details have yet to be worked out—one report today even says the Bank of China is refusing to accept the funds. Only time will tell whether the North Koreans will try to find other reasons to derail talks during the delay.

Eric Hundman is a science fellow at the Center for Defense Information. His research focuses on emerging technology, terrorism and nuclear policy, including the conventionalization of nuclear forces. He contributes a series of posts for Passport on nuclear technology called “Nuke Notes.”

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