WASHINGTON—An independent audit of a tiny bank in Macau found that the U.S. Treasury Department may have tried to blacklist Banco Delta Asia in an attempt to prevent North Korea from selling gold on the world market.
The audit by international accountant Ernst & Young, obtained by McClatchy Newspapers, found that one of the bank's most important acts for the communist dictatorship was shepherding gold into the international marketplace.
There's never been a prohibition on purchasing gold from North Korea despite its unsavory rulers. But by threatening to blacklist the family-owned bank, the country's chief facilitator in Macau, the Treasury appears to have choked off a vital source of foreign exchange earnings for North Korea.
Gold became an economic lifeline for North Korean leader Kim Jong Il after President Bush sought to isolate the country's economy in 2001 as part of the so-called axis of evil, according to experts on North Korea.
"As a result of that, North Korea had to start selling its gold," said Chuck Downs, a former Pentagon expert on North Korea and the author of a book on the country's negotiating tactics. "I think he (Kim) was looking for ways to tide them over by selling gold bullion."
Banco Delta Asia—which on Thursday comes under formal Treasury Department sanctions that will shut it out of the global financial system—helped North Korea do that.
The details in the audit may help explain why North Korea reacted so strongly when the Treasury first announced its proposed blacklisting of the North Korean regime's preferred bank in Macau. North Korea abandoned talks on dismantling its nuclear program shortly after the Treasury's announcement on Sept. 20, 2005.
The Treasury didn't mention the gold sales but charged that the bank had laundered illicitly gained North Korean money that included counterfeit U.S. currency.
According to the audit, however, those charges either had no basis or were overstated.
The Treasury says its target is the bank, not North Korea. "The action we took was against BDA—not North Korea—to address a threat to the international financial system," said spokeswoman Molly Millerwise, referring to Banco Delta Asia.
Ernst & Young auditors reviewed the activities of 50 North Korea-related entities that did business through the Macau bank and found that six of them were involved in trading gold bullion. Banco Delta Asia purchased gold bullion from North Korean companies at a discount from what it would fetch in Hong Kong. The North Koreans accepted the lower payment because they could travel to Macau without strict visa requirements, the audit said.
The gold later would be transferred to Hong Kong, where Banco Delta and its Hong Kong subsidiary, Delta Asia Credit, would sell it on the global market or to local jewelers.
The audit said the only gold that Banco Delta dealt in was North Korean. During the period under review—January 2002 to September 2005—these companies sold almost 10 short tons of gold, worth almost $110 million, through the Macau bank.
The transactions provided an important source of foreign exchange for an isolated country whose international commerce is done mostly through barter. North Korean trading companies and banks also sold $10 million in silver.
Banco Delta Asia officials maintain that the U.S. Treasury is targeting the bank to starve North Korea of sources of external finance, irrespective of facts.
"This is clearly directed at North Korea, and BDA was a useful way to do this," said an official close to the bank, who demanded anonymity because of the ongoing legal matter.
The Treasury issued a final ruling against Banco Delta on March 14, saying it lacked internal controls against money laundering and that it had laundered the proceeds of North Korean criminal activities.
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(c) 2007, McClatchy-Tribune Information Services.
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