U.S. Ends Bank Probe; Possible Step Toward N. Korean Reactor Closure

By Glenn Kessler and Edward Cody
Washington Post Staff Writers
Thursday, March 15, 2007

The Treasury Department said yesterday that it has ended its investigation of a Macau bank that it accused of facilitating money laundering and counterfeiting by North Korea, removing a possible roadblock to a six-nation agreement to shut down the reclusive nation's nuclear reactor.

The Bush administration had pledged to end the case against Banco Delta Asia -- a case that complicated negotiations on North Korea's nuclear programs -- within 30 days of the Feb. 13 agreement on the nuclear program. But it is unclear whether the Treasury action, which formally ordered U.S. banks to stop doing business with Banco Delta Asia because of its dealings with North Korean entities, will satisfy North Korean demands for a halt to what Pyongyang has labeled "financial sanctions."

The Treasury announcement came hours after the head of the International Atomic Energy Agency made his first visit to Pyongyang since the crisis over North Korea's nuclear ambitions began in 2002. Mohamed ElBaradei, speaking in Beijing after his visit, said that North Korean officials told him they will begin shutting down their main nuclear reactor only after the United States lifts financial restrictions against North Korea.

He said officials there made it clear they were still willing to carry out the commitment to close the facility, a plutonium-based reactor at Yongbyon, near Pyongyang. But he said they also stressed that the United States must first fulfill its promise to cancel measures that froze about $25 million in North Korean-linked accounts at Banco Delta Asia.

The Treasury action clears the way for Macau banking authorities to release money that was not traced to illicit activities, which U.S. officials said could be as much as half of the frozen funds. But Treasury officials used tough language to describe the bank, saying that what they had discovered fully justified their concerns about its dealings with North Korea.

Stuart Levey, undersecretary for terrorism and financial intelligence, told reporters that Treasury had uncovered "systemic failures by Banco Delta Asia to apply appropriate standards and due diligence" and a "gamut of illicit activities that the bank facilitated on behalf of North Korean-related clients."

The Banco Delta Asia case, while involving a relatively small amount of money, has loomed large in the long-stalled nuclear negotiations. Treasury first warned U.S. banks about dealing with the bank four days before negotiations were concluded on Sept. 19, 2005, on a broad agreement to end North Korea's nuclear programs. The announcement nearly toppled the Macau bank, persuading banks around the world to limit financial transactions with North Korea. Pyongyang, in turn, walked away from the talks and escalated tensions across Asia by conducting its first nuclear test five months ago.

Now U.S. officials and Asian diplomats are bracing for North Korea's reaction. The mercurial government could declare victory and accept the Treasury decision or could say the move is inadequate. But analysts said it is more likely Pyongyang will bide its time, waiting to see whether the U.S. action continues to affect North Korea's banking relationships around the world.

"The North Koreans have the upper hand, and they know that," said Charles L. "Jack" Pritchard, a former State Department negotiator with North Korea who is now president of the Korean Economic Institute in Washington. "They can ride this as long as they want to," he said, adding that if the "chilling effect" of the Banco Delta Asia decision continues, "the North Koreans are not going to be pleased."

Levey said Treasury could end the prohibition on U.S. banks dealing with BDA one day if the bank is "brought under the long-term control of responsible management and ownership."

In the Feb. 13 accord -- a milestone in the long-stalled six-nation negotiations -- North Korea agreed to shut down and "seal" the Yongbyon reactor within 60 days as a first step toward dismantling the nuclear weapons program and disclosing the range of its nuclear research activities. Under the agreement, the IAEA, a U.N. branch based in Vienna, was assigned to inspect North Korea's nuclear facilities.

In return, North Korea was to receive a first shipment of fuel oil, part of a package of economic aid linked to further steps in doing away with the nuclear weapons program and submitting to inspection.

ElBaradei, seeking to renew contacts cut off by North Korea in 2002, said his one day of talks with senior North Korean officials allowed him to "clear the air" and open the door for cooperation in policing the agreement and for North Korea's eventual return to the nuclear Non-Proliferation Treaty.

At a news conference, ElBaradei said he met with the head of North Korea's atomic energy agency, Ri Je Son, and other senior officials. The chief North Korean nuclear negotiator, Vice Foreign Minister Kim Kye Gwan, was said to be sick and unable to see him, ElBaradei said. The talks were preliminary, ElBaradei stressed, and part of what he outlined as a long process of renewed cooperation that would be "better for North Korea, better for the world."

Cody reported from Beijing.

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