BEIJING—No one seems to want North Korea's money. Three days after the Bush administration announced a breakthrough plan for freeing $25 million in North Korean funds, talks over the country's nuclear program collapsed Thursday when several banks balked at accepting the frozen assets.
Banks in South Korea and China turned down requests that they accept the money and disburse it on behalf of North Korea, apparently fearing it may entangle them with U.S. bank regulators. A Russian diplomat warned Russia's banks not to take the money either.
Without the cash in hand, North Korean envoy Kim Kye-gwan bolted multilateral nuclear talks and returned to Pyongyang, expressing anger at the delay.
The breakdown threw the talks into recess at a crucial moment, before delegates from the six nations could hash out a mid-April deadline for North Korea to accept international monitors and seal off five key nuclear facilities, including the Yongbyon reactor.
A little-noticed provision of the 2001 Patriot Act has given foreign banks reason to be wary of U.S. regulators. It allows the U.S. Treasury, without producing any evidence, to isolate foreign banks that cross the Bush administration on a range of issues that aren't always related to terrorism.
Russian Deputy Foreign Minister Alexander Losyukov said Washington had contributed to the breakdown by failing to guarantee that banks wouldn't face reprisals for taking North Korea's assets. He warned Russian banks away from the money.
"The U.S. administration should submit . . . written warrants that transactions with North Korean assets will not have consequences for anyone," Losyukov said, according to Novosti, the Russian news agency.
Envoys seemed exasperated at the surprise roadblock, although several voiced certainty that the delay would be temporary.
"The problem lies in finding a party (bank) that is willing to do the transfer," said Wu Dawei, China's deputy foreign minister and the chief delegate to the talks. "Even if you give people money, you have to make sure that they are willing to accept it."
Eighteen months after branding Macau's Banco Delta Asia a conduit for illicit and counterfeit money from North Korea, U.S. officials said Monday that they'd reached agreement with North Korea to release its frozen bank funds to a Beijing branch of the Bank of China. They said the money would be used "for the betterment of the North Korean people, including for humanitarian and education purposes."
The U.S. Treasury said its own investigation had confirmed that the Macau bank was laundering illicit funds as well as counterfeit U.S. currency on behalf of North Korea. It ordered permanent restrictions cutting off the bank from transactions with U.S. banks. The Macau bank is currently in government receivership.
Releasing North Korean funds at the bank was a key part of a Feb. 13 nuclear agreement that set out a 60-day period for North Korea to begin disabling its nuclear program in exchange for heavy fuel oil and steps toward normal relations with Japan and the United States. By the end of a second phase, perhaps concluding at the end of this year, North Korea would receive a total of 1 million tons of fuel oil.
The matter had seemed resolved, but the assets never arrived in North Korea's hands. By late Tuesday, Kim refused to discuss substantive matters until the money was in hand.
Wu declined to say why the Bank of China didn't want the money, saying only that it had concerns. He said China suggested that a South Korean bank with a branch in Kaesong, a free-trade zone across the border in North Korea, accept the transfer.
"The bank seemed cautious at doing this, too," Wu said.
By Thursday evening, Wu called a recess over the "unexpected problem."
Chief U.S. nuclear negotiator Christopher Hill downplayed the delay.
"My sense is that we are not talking weeks, we are talking days," he said.
Hill suggested that the incident was a salutary lesson for North Korea, also known as the Democratic People's Republic of Korea, on its seclusion from the world.
"It highlights the degree of the DPRK's isolation that it's sometimes difficult to return money to them even when everyone wants to see money returned to them," Hill said.
Still unexplained, though, is why Chinese authorities didn't intervene further with the Bank of China, one of four major state-owned banks, to assuage concerns.
The Bank of China declined to answer questions about the matter.
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(McClatchy Newspapers special correspondent Fan Linjun contributed to this report.)
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(c) 2007, McClatchy-Tribune Information Services.
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