A Bungled Deal With North Korea

Negotiators pose for press photographers before the closing ceremony of the six-party talks on North Korea's nuclear program in Beijing's Diaoyutai State Guesthouse, Tuesday, Feb. 13, 2007.
AP Photo/Michael Reynolds POOL
This column was written by Claudia Rosett.

When does President Bush wake up and smell the debacle cooking at his own State Department under the name of a "denuclearization" deal with North Korea?

Thanks to U.S. backflips linked to this February 13 agreement, North Korean tyrant Kim Jong Il, while still clinging to his nukes, has now regained access to some $25 million in funds frozen until this week at Banco Delta Asia in Macau. There is plenty of reason to worry that along with the money, Kim has effectively secured from the U.S. a free pass for some of North Korea's global crime and weapons rackets.

Cut through the diplo-speak, and the stark message to rogue regimes everywhere — notably Iran — is not only that nuclear blackmail pays, but America will help deliver the cash. In one of the most astounding, foolhardy, and humiliating episodes of U.S. foreign policy in recent years, the entire world has just witnessed Washington — at the urging of State Department envoy Christopher Hill — dispatching some of its ace terrorist-money trackers to Beijing, not to shut down the bad guys, but to hustle frozen funds as fast as possible back into the hands of Kim Jong Il.

This was all done in the name of saving Hill's unwieldy North Korean deal, which has many parts, working groups, and rewards for Pyongyang, all spun out of the Six-Party talks in Beijing, and described by Hill, State's envoy to the talks, as "an excellent plan." This Saturday marks the deadline for the initial 60-day phase in which Kim was supposed to have spent the time shutting down his Yongbyon reactor, providing a map of his entire nuclear program and opening wide for inspections. As of today none of this has happened. Most eyes are now on the reactor, and the debate is now shifting to whether Kim will miss the deadline.

But let us focus first on what was clearly the most urgent issue for Kim Jong Il, which was his abrupt and dogged demand for the return of that $25 million or so frozen in accounts in Macau, before he would budge on any of the items he'd already agreed to. Clearly, Kim saw this money matter as so important that it was worth jeopardizing the entire agreement. U.S. envoy Christopher Hill, on the other hand, treated Kim's demand for the funds as simply an eccentric glitch to be resolved without further debate, the idea being that it was not worth wrecking Hill's grand deal over a dispute involving a mere $25 million or so stuck in Macau. Having promised the money to Kim, Hill in his press briefings relegated the issue to the level of a headache for financial geeks, a strictly "technical" matter.

Actually, it was far from merely technical. The Macanese freeze on those funds was the result of U.S. investigations of North Korean criminal rackets — with which Pyongyang earns an estimated $500 million to $1 billion or more per year via illicit deals in narcotics, counterfeit cigarettes, counterfeit U.S. currency and other scams, as well as weapons deals. Some of the players and money trails overlapped and intertwined with targets of two major inter-agency sting operations carried out in the U.S. in 2005, dubbed "Royal Charm" and "Smoking Dragon," aimed at cleaning up alleged North-Korean-related criminal networks with tentacles reaching into the U.S.

In September 2005, in connection with these massive financial investigations, Treasury designated one of Kim's favorite banks, Macau's Banco Delta Asia, or BDA, as a "primary money laundering concern." Macau's banking authorities cooperated by freezing the money in dozens of BDA North-Korea-related accounts. At least some of this was the $25 million that Kim Jong Il demanded Hill arrange to have turned over to Pyongyang.

Of course, bank accounts as a rule do not simply operate by themselves. There are holders of these accounts. Even more important than simply the cash caught in the freeze was the network of North Korean loyalists and account holders doing business via this hub. Macau is where Kim Jong Il's eldest son, Kim Jong Nam, keeps a villa and reportedly likes to gamble in the casinos. It has also been home for many years to a roster of North Korean companies that effectively provide Kim's regime with an entry point into world markets. While some of the BDA account holders are known, and some have said they are innocent of any wrong-doing, many have never been publicly named. Among those we do know something about, as noted in today's Wall Street Journal, are account holders such as North Korea's state-owned Zokwang Trading Co (accused by the U.S. in the 1990s, according to Asia expert Bertil Lintner, of dealing in counterfeit U.S. currency, arms smuggling and terrorist training) and North Korea's Tanchon Bank (alleged by Treasury to be involved in North Korean weapons programs).

For Treasury to have homed in on this North Korean hub in Macau was not merely a matter of providing a negotiator like Chris Hill with a stick to match his carrots. It was an important move in trying to cut off Kim from some of his loyal bagmen, warn off banks and businesses worldwide from doing dirty deals with Kim, and undermine the rotten edifice of clandestine money flows, and weapons deals that have helped North Korea's regime to survive and build its nuclear bombs. The crackdown in Macau was one of the successes of Bush's foreign policy.

But not any more. Under the arrangement bulldozed through by Hill, and approved all the way up to the President, via Secretary of State Condoleezza Rice, Kim's Macau network appears to have been granted a reprieve.