WASHINGTON — Two months before North Korea tested its
first nuclear weapon, President Bush was asked about a Treasury
Department investigation of North Korean counterfeiting of $100 bills, which had ruptured talks on ending Pyongyang's nuclear programs.
"Counterfeiting U.S. dollars is an issue that every president
ought to be concerned about," he replied bluntly during an August news
conference. "And when you catch people counterfeiting your money, you
need to do something about it."
Tuesday, the
Bush administration agreed to allow those suspected counterfeiters,
along with other North Koreans suspected of money-laundering and other
fraud, to get their money back — with no strings attached —
in the hopes it would ensure that North Korea shut down its nuclear
reactor by the end of the week. Some $25 million had been frozen by
Macau authorities, with about half clearly derived from criminal
enterprises, U.S. officials said.
North Korea failed to shut down and seal its sole operating
nuclear reactor by Saturday as it pledged to do in February at
six-nation talks. Pyongyang insisted Friday it would honor the
commitment after confirming that the frozen funds have been released
— its main condition for disarmament since late 2005.
The result is the kind of messy, unsatisfactory deal-making that
Bush has always disdained. Even as U.S. officials were publicly
portraying the final arrangement as necessary to salvage the nuclear
deal, it sparked controversy within the administration and led some to
question whether the result sets a bad precedent.
The story of how a tiny bank in Macau named Banco Delta Asia
became the center of a diplomatic battle over nuclear weapons is in
many ways a tale of unintended consequences.
"The United States started on this path not understanding what
the impact would be," said Alan Romberg, senior associate at the Henry
L. Stimson Center and an expert on Asia. "This should be an object
lesson: Be careful what you do, and play through how you would undo it."
The counterfeiting investigation started years ago, during
Bush's first term. By coincidence, it came to fruition just as
diplomats were set finally to strike a deal on ending North Korea's
nuclear programs. At the time, U.S. officials said, Bush decided not to
let diplomacy derail a criminal investigation. But the effect of the
resulting crackdown turned out to be much greater than even
administration officials expected, painfully damaging North Korean
international business ties.
When Bush earlier this year reversed himself, agreeing to end
the investigation in order to strike an accord with North Korea,
unraveling the probe became much more difficult than expected. North
Korean officials dug in their heels, insisting that no progress would
be made on the nuclear accord until the money was in their hands. Ultimately, the administration blinked.
John Bolton, the former U.N. ambassador who has emerged as a
critic of the nuclear deal, warned that returning the money to entities
that committed fraud "will have a debilitating effect on bringing
sanctions against Iran and other rogue states."
The investigation started in 2003, when Colin Powell's State
Department was under attack from conservatives for not being tough
enough on North Korea. Officials there latched onto the idea of
targeting North Korea's illicit activities.
In July 2005, Treasury informed an interagency task force that
it was ready to target Banco Delta Asia, which it had identified as the
main conduit for bringing North Korean counterfeit currency into the
international system.
The U.S.
government had seized more than $45 million in highly deceptive
counterfeit $100 bills, known as super notes, that were produced in
North Korea with the approval of top officials.
But officials delayed taking action in July, fearing it might
conflict with a separate Justice Department sting against North Korean
counterfeiters that was planned for August. The Macau announcement was
set for September — just when negotiators were set to reach a
landmark accord on ending Pyongyang's nuclear programs.
Virtually unnoticed at first, Treasury's designation that Banco
Delta Asia was a potential money-laundering concern appeared in the
Federal Register on Sept. 15, 2005, four days before the nuclear
negotiators from six nations announced they had struck a deal.
The Treasury announcement nearly toppled Banco Delta Asia, as
banks around the world cut their ties for fear of being tainted by the
North Korean connection. To the delight of Treasury officials, many
banks stopped handling any North Korean transactions for fear of
Washington's wrath.
But another result was that North Korean officials refused for months to return to the nuclear negotiations. Finally,
after the country's nuclear test in October, North Korea agreed to
renew talks but would not discuss substantive issues until the banking
case was resolved. In January, Assistant Secretary of State
Christopher Hill met privately in Berlin with his North Korean
counterpart to work out an agreement that the banking investigation
would end before North Korea froze its nuclear reactor.
Treasury
announced the investigation was finished on March 14, with Treasury
Undersecretary Stuart Levey citing a "gamut of illicit activities." But
that was not enough for North Korea. Speaking Tuesday to reporters in
Seoul, Hill said the United States thought it had fulfilled its pledge,
but North Korea "had a concept that was far more literal, which was
they wanted to see the money."
A high-level Treasury team was dispatched to Beijing, including
Chief of Staff Jim Wilkinson, Deputy Assistant Secretary Daniel Glaser
and deputy assistant general counsel James Fries.
Yet the team encountered a series of roadblocks on a nearly
two-week trip, as they searched unsuccessfully for a way to ensure the
money was used for humanitarian purposes. Glaser at one point had
issued a statement saying the Bank of China would be a repository for
$25 million in North Korean funds, but when the team arrived, Chinese
authorities made it clear that no mainland bank would be involved in
holding the money.
The North Korean diplomats,
meanwhile, resisted the U.S. proposal of setting up a humanitarian fund
with the money. They would not fill out forms, provide bank-account
numbers or sign waivers that would allow the money to be released to
such a fund. They stuck to a simple message: "We want our money."
The Treasury officials left China thinking no deal was possible,
but over the weekend the administration agreed to let the Macau
Monetary Authority, which had frozen the money because of the U.S.
probe, simply release it to account holders. There were 52 Banco Delta
Asia account holders whose money had been frozen; $12 million,
belonging to 17 account holders, is considered tainted.
Some of the money, however, is held by third parties, such as $7
million associated with Daedong Credit Bank, which is being bought by a
British investor. Thus, not all of the money will go to the North
Korean government, leaving some U.S. officials wondering whether the
deal Tuesday will still keep the nuclear agreement on track.
Information from The Associated Press is included in this report.
Copyright © 2007 The Seattle Times Company