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China Freezes N. Korean Accounts

Prepared by: Esther Pan
July 26, 2006

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Following a U.S.-led crackdown on North Korea’s money laundering, the Bank of China has frozen millions of dollars of North Korean assets (FT) held in its Macau branch. The newly revealed move is surprising, since China had been reluctant to support U.S. and Japanese efforts (McClatchy) to impose UN Security Council sanctions on North Korea after Pyongyang’s July 4 missile tests.

The U.S. efforts have focused on Macau, where the Banco Delta Asia was accused by Washington of laundering counterfeit dollars for North Korea and blacklisted in September 2005 (CNN).  

North Korea is reported to have perfected a highly sophisticated counterfeit $100 bill, known as the “supernote,” which is nearly impossible to tell from its legitimate counterpart (NYT Magazine). In addition to U.S. banknotes, Washington says Pyongyang also peddles counterfeit cigarettes and pharmaceuticals and runs an international drug trafficking operation, all of which bring in between $500 million and $1 billion per year in hard currency—money that goes straight to North Korean leader Kim Jong-Il. North Korea’s illegal financial activities are detailed in this Congressional Research Service report (PDF).

The sanctions are causing a bleak picture for Pyongyang on the money front. Japan is considering cutting cash remittances (CNSNews.com) to North Korea from ethnic Koreans in Japan, a move that follows Tokyo’s leadership in pushing through UN Security Council resolution 1695 condemning the July 4 missile tests. Japan’s Yomiuri Shimbun calls for international unity on sanctions, saying the measures must have enough bite to prevent Pyongyang from launching further missile tests. But such unity may be difficult to muster. South Korea has refused to condemn the missile tests, instead criticizing Japan and the United States for “overreacting” (Korea Times). Seoul has been diverging from U.S. interests on North Korea for a while; its attempts to take a more assertive regional role are explained in this Backgrounder. South Korea’s historically combative relationship with Japan has complicated attempts to confront the North.

Nuclear nonproliferation expert Paul Kerr writes in Arms Control Today that the United States, for its part, is extending sanctions to include international firms that do business with or support North Korea. This has led foreign banks and firms to limit their involvement with the Pyongyang regime even further; after the U.S. action against Banco Delta Asia in September 2005, there was a run on the bank as investors rushed to reclaim their deposits.

Pyongyang, reportedly seriously hurting from the U.S. measures, has said it will not return to six-party talks until the financial restrictions are lifted. James Hackett writes in the Washington Times that North Korea’s recent missile tests show U.S. pressure on the regime is working, and calls for that pressure to continue until the regime changes or collapses. But others say the pressure is having the opposite effect, and pushing North Korea to increasingly risky behavior. As this New York Times analysis points out, every time Kim Jong-Il feels his demands are not getting enough attention, he provokes a crisis.

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