Wednesday, 13 June 2007

The BDA devil is in the banking details

The U.S. Treasury Department has confirmed that Washington is working with Moscow to resolve the long running North Korean banking dispute. The inability of North Korean based account holders to freely transfer their cash out of the beleaguered Banco Delta Asia in Macau prompted Pyongyang to put the brakes on the first stage implementation of the February denuclearization accord.
Over the past several months there have been just as many optimistic claims that a resolution, or a pathway, had been discovered to overcome what was originally described as technical difficulties preventing the transfer of the $25 million that had been frozen since September 2005.
On Monday a new deal emerged involving a Russian bank, and there is widespread optimism that the issue could see closure as early as the end of this week.
Treasury spokeswoman Molly Millerwise said the United States was cooperating with Russian and Macanese officials to facilitate the transfer of the funds.
The State Department, meanwhile, was tight lipped. Spokesman Mike McCormack cryptically told his daily press briefing, "Until it's done, that will be the sign of progress."
Is State less optimistic than Treasury? These two departments have been criticized for sometimes appearing to be at odds on how to best resolve the broader issue of North Korea's nuclear ambitions. It has been suggested several times that there is some sort of power struggle going on behind the scenes, with hard-line neocons over at Treasury actually working to undermine the more liberal diplomats in State.
A final resolution that is acceptable to all sides, and obviously that will have to include the private account holders of those funds, will allow the stalled February accord to move forward. South Korea's top nuclear negotiator, Chun Yung-woo, has been in Washington this week meeting with his U.S. counterpart, Christopher Hill, to discuss ways of moving the process forward, post-resolution of the funds issue. In the words of their press release, "to catch up for lost time."
The basis of the deal will involve a transfer of funds from Macau through the Federal Reserve Bank of New York to Russia's central bank and then to a commercial Russian bank from where withdrawals can be made.
According to unconfirmed reports citing anonymous sources, Moscow will get a guarantee from Washington that it will not be subject to any sanctions for handling the funds - something that has been a sticking point in the past.
Washington was apparently unable to offer those guarantees - or at least unable to convince correspondent banks that no action would be taken against them. This is widely believed to be the reason why the Bank of China originally refused to accept the fund transfer in March.
According to South Korea's foreign minister, Song Min-soon, using the U.S. Federal Reserve Bank is something of a masterstroke. He said it sidesteps the need for a private U.S. financial institution to get waivers to protect it from clause 311 of the Patriot Act - which bans American banks from dealing with institutions the Treasury has determined are guilty of financing terrorism, money laundering and other financial crimes.
Throughout the week there have been several unconfirmed reports citing those omnipresent anonymous sources as saying Treasury has been working with the Justice Department to arrange a temporary lifting of the ban on dealing with the BDA. Expressions such as a "short window of opportunity" or "bending the rules" have been used, saying this transfer will be a one off event. It all sounds very cloak and dagger, and not in keeping with transparent international banking procedures.
The reports also use the expression "from where the funds can be withdrawn" when referring to the Russian commercial bank.
Withdrawal has never been the issue, the account holders can freely withdraw their money from the BDA. They could do that today if they so wished.
The North Koreans have been insisting on the ability to move funds through the international banking system. They have accepted that their transfers will be subject to intense scrutiny, but the actual ability to conduct electronic transfers, rather than withdrawals with bags of cash, has always been their bottom line. And Washington is very much aware of this.
This latest deal, with its temporary lifting of bans and short windows of opportunity, hardly seems to meet the North's minimum requirements.
If the only thing that changes is that account holders have to visit Russia rather than Macau to physically pick up their cash, then as far as they are concerned, the money might just as well stay in the Banco Delta Asia. At least there they can have a decent lunch after making their withdrawal.

Korea Herald link:

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1 comment:

Jon Allen said...

I hate to think what the banking charges will be for this transaction :)