Transfer of N. Korea Money Sought

By Glenn Kessler
Washington Post Staff Writer
Thursday, May 17, 2007

Wachovia Corp. said yesterday that it is considering a request from the State Department to transfer tainted money tied to North Korea from an overseas bank blacklisted earlier this year by the Treasury Department.

The State Department has scrambled to persuade banks around the world -- including U.S. banks -- to transfer the money, but financial institutions have been unwilling to shoulder the risk, because they do not want to run afoul of the Treasury Department. The failure to find a willing bank has left in limbo a deal inked in February that the Bush administration had called a breakthrough in the impasse over North Korea's nuclear ambitions.

Pyongyang was supposed to shut down its reactor at Yongbyon by April 14, but has refused to do so until $25 million it holds in the blacklisted bank, Banco Delta Asia, is released. The bank is located in the Chinese special administrative region of Macao.

In response to an inquiry, spokeswoman Christy Phillips-Brown of Wachovia said that the Charlotte-based bank had "been asked, on a nonprofit basis, by the U.S. State Department to help them process an interbank transfer of funds held at other banks, which are the subject of negotiations with North Korea," adding: "We have agreed to consider this request, and our discussions with various government officials are continuing."

Phillips-Brown said that Wachovia, which had been a U.S. correspondent bank for the Macao bank, is "fully compliant" with sanctions involving North Korea but that "we take any request for assistance from our government seriously and endeavor to cooperate whenever possible." She added that the bank "would not agree to any request without appropriate approvals from our regulators."

The United States agreed in February to end a banking investigation that had frozen about $25 million in North Korean money, but in March the Treasury Department cut off the Macao bank from the U.S. financial system. Treasury officials said that nearly half of the money was obtained through illicit activities, such as money laundering and counterfeiting. But in an effort to win North Korea's cooperation, U.S. officials agreed to return all of the money to Pyongyang. Yet the transfer has proved impossible to arrange.

U.S. government officials first disclosed the request made to Wachovia. Treasury officials declined to comment, but sources said that many officials are dismayed that the administration is now asking a major U.S. bank to work around an order issued two months ago. Some White House officials have also objected to using a U.S. bank, but Secretary of State Condoleezza Rice supports the possible deal with Wachovia.

"I can assure you . . . we are not going to allow $25 million or even $26 million to get between us and a deal that will finally do something about nuclear weapons on the Korean peninsula," Assistant Secretary of State Christopher R. Hill told the Korea Society on Tuesday. "We are going after this problem until we solve this problem."

The Treasury Department has not been involved in the effort to find a financial institution to handle the money, leaving the search to the State Department. But Treasury would need to grant significant waivers, such as special permission for a U.S. bank to deal with Banco Delta Asia. One senior U.S. official said that it is not clear "what universe of waivers" would be needed to ease the bank's concerns that it would not be putting its reputation at risk.

Deputy Russian Foreign Minister Alexander Losyukov told the RIA Novosti news agency yesterday that Russian banks had refused to handle the transfer. "Until the U.S. Treasury lifts restrictions on operations with Banco Delta Asia, no sensible banks will deal with transfers of North Korean funds," he said.

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