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North Korea Gets $25 Million Frozen by U.S. Probe

By Glenn Kessler
Washington Post Staff Writer
Friday, June 15, 2007

North Korea took possession yesterday of about $25 million in funds previously frozen by a Treasury Department investigation, potentially clearing the way for Pyongyang to fulfill its commitment to shut down an aging nuclear reactor.

An impasse over transferring the money had stalled an agreement announced in February that the Bush administration had hailed as a first step toward ending North Korea's nuclear activities.

Under that agreement, which angered President Bush's conservative supporters, the United States was supposed to end the Treasury investigation within a month and North Korea was to shutter its reactor at Yongbyon by April 14. But North Korea refused to take that step until it received money caught up in the investigation.

The reactor had been frozen under a 1994 deal with the Clinton administration, but in 2002 Pyongyang restarted it after a dispute with the Bush administration. Experts estimate that North Korea -- which conducted its first nuclear test in October 2006 -- has obtained enough plutonium from the reactor for as many as 12 nuclear weapons.

Late this year or in early 2008, North Korea would need to produce fresh fuel to keep the reactor going, says a recent report by the Institute for Science and International Security.

The Treasury Department had targeted Banco Delta Asia, in the Chinese special administrative region Macau, alleging it was involved in money-laundering for North Korea. But the Treasury's action had wider repercussions, essentially convincing banks around the world not to do business with North Korean firms.

Though the Treasury Department agreed to allow the return of money tainted by illicit activities, no bank was willing to transfer the money without explicit assurances that the Treasury would take no regulatory action. North Korea could have withdrawn the money in cash, but many experts suspected Pyongyang demanded a wire transfer to signal to financial institutions that it was once again part of the financial system.

U.S. officials trying to save the deal desperately searched for a willing bank, but each time an arrangement seemed possible, complications arose. Finally, after Russia indicated that one of its banks could help, the Treasury arranged for the Federal Reserve Bank of New York to transfer the money to a dormant North Korea account at a Russian bank that operates in the Far East, near the border with North Korea.

"Basically all of it has been transferred," the Macau government said in a statement yesterday. "For Macao, this incident has come to a conclusion."

When the Treasury ended the Banco Delta Asia investigation in March, it formally ordered a broad range of U.S. financial institutions to stop doing business with BDA. But that order did not include the banks' regulator -- the Federal Reserve system -- which allowed the New York Fed to handle yesterday's transaction without requiring an exemption from the Treasury.

Still, a group of Republican lawmakers this week asked the Government Accountability Office to examine whether the transaction complies with money-laundering and counterfeiting laws.

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