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Zealots Scheme to Derail North Korea Accord

by CHINA HAND

Regime change elements in the United States have not given up on trying to derail the Six-Party Agreement-and they may succeed.

Using the principle Trust-Then Verify, North Korea has refused to participate in meetings and talks until the $25 million of funds frozen in Banco Delta Asia are returned to them.

Treasury delayed its report disposing of the BDA investigation until the last possible date, shaving 30 days off the sixty day period in which North Korea promised to shut down its reactor.

Now, with Christopher Hill and the other negotiators gathered in Beijing, the North Koreans left the meetings and flew home because another glitch had occurred in the hegira of the $25 million, probably courtesy of the Treasury Department.

Although the U.S. Treasury Department had ended its investigation and agreed to let the Macanese banking authorities dispose of the funds-in which case the funds would be remitted to North Korea’s Bank of China account-the transfer hadn’t happened yet.

At least one-third of the money is apparently above-board and legit, involved in transactions with the likes of British-American Tobacco and Hyundai.

Some of the other accounts … well, it looks a bit murky.

One account-holder is reportedly dead, and another in Pyongyang. Probably some hanky-panky involved. Anyway, a headache, a headache that might involve a bit of eye-averting and nose-holding to resolve if the BDA issue is going to be finalized, North Korea shuts down the Yongbon reactor, the fuel oil arrives, so on and so forth.

But bank-related greasiness works a lot better if everybody’s on the same page and nobody raises a fuss about things like back-dated paperwork, dodgy affidavits, and a lack of interest by banks and banking authorities in performing due diligence concerning same.

That’s hard to do when the US Treasury Department has announced in letters of fire ten feet high THIS MONEY IS DIRTY and is unambiguously hostile to the entire proceeding.

Treasury is definitely not happy and I suspect that some working-level goblins in the Treasury Department are threatening to turn the TD’s Sauron-like fiery eye on the Bank of China if it receives and passes on funds whose origin and ownership-and disposition and destination–haven’t been accounted for to their satisfaction.

“As far as I know, the Bank of China refuses to accept the transfer of the frozen funds” from BDA, Xinhua’s news agency quoted Russian envoy Alexander Losyukov as saying.

A diplomatic source said: “China, in fact, does not want to play a role in getting the ‘dirty money’ back to North Korea. The Americans are smart enough to toss the ball in the Chinese court over the questionable funds.”

The easiest way to solve this would be for the Chinese simply to front the suspect $8 million, heck, the whole $25 million just so the show can get on the road.

But, as a matter of principle, the Chinese are not going to put up with veiled threats against BOC by elements in the Treasury Department seeking to derail an important diplomatic arrangement involving the US and the PRC, not when said BOC is holding $350 billion in Treasury Department T-Bills.

So I will wager that Christopher Hill has been put on notice it’s his job to battle with the hardliners once again to try to keep the deal going.

The Financial Times has an interesting and important article, Rice Helped unfreeze N. Korean funds, on the recent battles between the State and Treasury Departments:

Current and former officials say Christopher Hill, the chief US negotiator on North Korea, convinced Ms Rice that the US should sacrifice the issue of the frozen funds to push forward the broader goal of implementing last month’s six-party accord on denuclearising the Korean peninsula.

Several people familiar with the debate said Hank Paulson, Treasury secretary, agreed to overrule officials responsible for terrorism financing [a.k.a. Stuart Levey, an insistent advocate for exerting maximum financial pressure on Kim Jung Il’s regime–ed.], who objected to the move, after Beijing warned that a failure to return the North Korean funds would hurt the Sino-US strategic economic dialogue.

Many experts, and some White House officials, were dismayed when Daniel Glaser, the Treasury deputy assistant secretary for terrorist financing and financial crimes, said in Beijing on Monday that the US and North Korea had agreed on a mechanism to refund all the money…

Until the intervention by Mr Paulson, Treasury had been prepared to tell the Macao government that it would not object to returning about a third of the $25m for which there was less-than-conclusive evidence of illicit activity. Treasury on Wednesday dismissed suggestions that it had succumbed to political pressure.

One US official who broadly supports the nuclear deal said the administration was scrambling to find a way to return the $25m, which had been complicated by the fact that some banks were reluctant to help move the money because the US Treasury had previously insisted it was “contaminated”.

The Treasury people are probably sitting on their hands, saying, We’re not going to soil our fingers with dirty money from a dirty bank…and neither should you!

More provocatively, it seems elements in Treasury are basically daring Rice to tell President Bush that the U.S. government has to ignore evidence of illegal funds, turn a blind eye to whatever funny business is needed to finish the paperwork and get the money out of BDA’s door, accept its repatriation to another bogus bagman in North Korea no questions asked, and reduce the proud men and women of the United States to colluding with drug dealers and counterfeiters, sullying the honor of this great nation…well, you get the picture…just so State can have its denuclearization agreement.

In the end, I think that, as usual, the elements opposed to the deal have been too clever by half in their virtuous conspiracy to sabotage the Six Party Agreement.

The intransigent tone of Treasury’s BDA decision does keep North Korea’s status as a financial pariah alive…but by limiting Pyongyang’s gains in the initial stage to a paltry $25 million and keeping de facto financial sanctions in place (making it impossible for Pyongyang to walk away from the Agreement with the BDA money and its international financial standing rehabilitated), it increases North Korea’s incentives to stick with the process.

President Bush will be forced into the awkward position of intervening on behalf of North Korean money launderers and counterfeiters by instructing his Treasury Secretary to turn a blind eye to whatever legerdemain is needed to get the BDA funds out the door…but he will resent the unwelcome demands being put on him by the hardliners who at present provide not a scrap of meaningful political cover and instead beset his administration with fresh difficulties as it fights for its political life.

And the Chinese will certainly be impressed by the bureaucratic hostility–whose indefatigable malice will appear quite familiar to the veterans of decades of bloody battles within the committees and bureaus of the PRC–to the Six Party Agreement…which will encourage them to redouble their efforts to preserve and advance it, so its enemies cannot force a repudiation of the agreement in the US Congress.

In a perverse way, you can say that the hardliners, through their conspiratorial obstructionism, offer the best assurance that the highly flawed Six-Party Agreement will achieve some permanent and significant successes.

As long a the signatories to the Six Party Agreement (excluding Japan) focus on the pressing need to keep the neocons at bay-instead of regarding the profound unsavoriness and duplicity that is Kim Jung Il-they will share a common desire to keep the process alive.

Onefreekorea.com is, as usual, the go-to source for the back story on regime-change machinations.

Its recent efforts have been hampered by the fact greater-than-usual amounts of willful ignorance and self-deception are required to blame the North Koreans for duplicity and perfidy in executing the Agreement so far, when elements in the U.S. Treasury Department have been working so energetically and unambiguously to sabotage the deal.

It has issued its marching orders in the next but certainly not final battle against the Agreement:

If this agreement is not to degenerate into a protracted farce ­ and no deal at all would be a far better thing ­ this is our last chance to stop it. Here is what we should do now:

1. Stop the delivery of the fuel oil until North Korea shows up to “discuss” its full nuclear disclosure, as it agreed.

2. Clarify that North Korea must “shut down and seal” Yongbyon as agreed by April 13th.

3. Declare our Banco Delta obligations fully resolved and reaffirm that North Korea is bound by UNSCR 1718 in its disposition of the $25 million, and that we make no promises about what Treasury will do if the funds are unlawfully diverted to non-humanitarian purposes.

Item 3 strikes me as pretty weak beer, another effort to ensnare North Korea in the punitive sanctions regime.

I think Pyongyang’s interest in the $25 million is symbolic, as a necessary demonstration of US good faith (or failing that, the ability of pro-deal elements in the US government to deliver on their stated commitments), and Kim Jung Il would be able to sequester these funds for conspicuous good works if the need arose and still sate his sinister desire for French cognac and Rolex watches.

As for 1 & 2, extrapolating on the point I made above, missing key deadlines might be a disaster for the Agreement…but also both for President Bush and the regime changers, if informed opinion in Washington and world capitals held them–and not Kim Jung Il–responsible for America’s inability to deliver on the deal it had agreed to.

CHINA HAND edits the very interesting website China Matters.

 

 

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