Thursday, March 01, 2007

Adrift in Macau


As American intelligence officials back away from key charges about North Korea's nuclear program, there also new questions about whether the Bush administration may have made unverified or exaggerated claims to force a bank in tiny Macau to freeze North Korean financial assets.

Ernst & Young, a global accounting firm, found no evidence that the family-owned Macau bank had facilitated North Korean money-laundering, either by circulating counterfeit U.S. banknotes or by knowingly sheltering illicit earnings of the North Korean government, according to a filing by the bank's American lawyers.


The Treasury Department imposed the financial restrictions in September 2005 by charging that the small family-owned bank in the Chinese island enclave had helped North Korea distribute counterfeit U.S. currency and launder other illicit income of the communist state. The Treasury used a little-known provision in the Patriot Act that's intended to combat money laundering by terrorist groups to pressure the bank.

The 2005 action, threatening to exclude the bank from international finance, led to a run on the bank and plunged it into government receivership. The North Korean regime's leaders responded by walking out of multilateral negotiations about their nuclear weapons program and refusing to return unless the U.S. government agreed to lift the restrictions.

The allegations against the bank weren't levied in court, but under an unusual provision of the Patriot Act that provides for an administrative procedure. The tiny bank wasn't permitted to see the evidence of the accusations or defend itself in court, lawyers who've worked on similar cases said. The provisions allow the United States to freeze a foreign bank out of the U.S. financial system, which virtually prohibits it from doing business in the world financial network.