The ICAS Lectures


Protecting the United States Currency:
The Case of North Korea:
An Update

Daniel L. Glaser

ICAS Winter Symposium
Humanity, Peace and Security
February 13, 2007 1:00 PM -- 5:00 PM
National Press Club,
Washington D.C. 20510

Institute for Corean-American Studies, Inc.

965 Clover Court, Blue Bell, PA 19422


Biographic Sketch & Links: Daniel L. Glaser

Protecting the United States Currency:
The Case of North Korea:
An Update

Daniel L. Glaser

This has been a newsworthy day with respect to activities relating to North Korea. Let me just say as an initial matter, I'll try to manage some expectations from among my colleagues here. This is a meeting this is a presentation we had scheduled some time ago. It certainly wasn't intended to be timed with all the very, very important announcements and discussions that have been happening over the last 24 hours. So just to let you guys know what I'm going to be saying today is going to sound very familiar to many of you, those of you who've heard me speak before those of you who heard me speak to the Korean Club a couple weeks ago. A lot of what I have to say is going to sound very, very familiar, and I think it's important. My goal here is to help educate people who are interested in the U.S. Treasury Department, in the actions that we've taken relating to North Korea, particularly the actions we've taken relating to Banco Delta Asia, and then I would be happy to try to answer some questions. But again, my remarks are going to sound familiar.

So let me just get started with again, when I talk about the actions that the U.S. has taken with respect to Banco Delta Asia, with respect to North Korea, as I say a lot, most of the people who are following this, follow it from the perspective of being Korea experts or being people who watch developments in Asia, and that's certainly an important perspective to have, and certainly an important thing to keep in mind. We are fully aware that when we take the measures we take, there are implications that it has with respect to a whole range of issues.

That said, I think it's also important to consider the actions that we take from the perspective of those of us in finance ministry, at the U.S. Treasury Department whose job is to monitor and to protect and safeguard the U.S. and the international financial system from abuse. And I think we've done a pretty good job at that. I think this has been an ongoing effort for us and when you look at the actions that we've taken with respect to the Macanese and with respect to Banco Delta Asia, I think it's also important to keep that thread in mind and look at it as a logical development in the history of Treasury Department's increased efforts to ensure that the international financial system is safeguarded from abuse.

With that, let me talk a little bit about my office at the Treasury Department, what we try to do, how we approach these issues, and then I'll talk a little bit about the actions that we took last year, September 2005, and some of the ways that we've been following up on that. And then again, as I said, I'd be happy to take some questions.

With respect to our office, we do have a unique office in the U.S. Treasury Department. It is the Office of Terrorism and Financial Intelligence. I am the head of the policy office within that framework, the Office of Terrorist Financing and Financial Crimes, and it's our job to do two things: to look for vulnerabilities in the U.S. international financial systems, and take action both by ourselves and along with our international counterparts to close those vulnerabilities. And then it is also our role to identify, disrupt and dismantle illicit financial networks that support a wide range of activities that are harmful to the international community, be it terrorism, organized crime, rogue regimes and the like.

We take this responsibility quite seriously and we have a range of tools at our disposal to address those concerns. We have presidential executive orders that implement U.S. sanctions. Some of those are Executive Order 13224 which relates to terrorism, and 13882 as it relates to WMD proliferation. We've been quite active in implementing these presidential executive orders and we think that it's very important to do so, as I said, going to the second responsibility that we have which is to identify, disrupt and dismantle illicit financial networks.

I could go on with respect to many tools that we have, but I think one that people are quite interested in in this room is Section 311 of the U.S.A. Patriot Act. Section 311 was enacted into law in October 2001, and it gives the Secretary of the Treasury the authority to do two things: to identify foreign financial institutions or foreign jurisdictions as and this is the statutory line primary money-laundering concerns. And the ones who are designated as primary money-laundering concerns, it gives the Treasury Department the authority to issue regulations to require U.S. financial institutions to take preventive measures or defensive measures to protect themselves from the designated entity. It is not a sanction. It is a defensive measure, it's a defensive tool that we have that really relates more to the first area that I was talking about that is, identifying vulnerabilities in the international financial system.

We have used this authority in a number of instances based on a number of fact patterns. We have used the designation authority with respect to several jurisdictions: Burma, Ukraine, and NARU (?) in the past. Each of those was a U.S. response to a multi-lateral call for counter measures by the financial action task force. We've also used it in the case of a number of financial institutions, foreign financial institutions. There have been two institutions in Latvia, an institution in the Turkish Republish of Northern Cyprus, a financial institution in Belarus, one in Syria, one in Lebanon, two in Burma. I think that's the list. But most recently, a financial institution in Macao called Banco Delta Asia. And each of those designations is based on its own fact pattern. There have been times where we've designated and then lifted the designation when the deficiencies that we identified were addressed. There have been times when we have designated and gone final on our designation when we became convinced that that was not in the cards and we had to move forward. So that's what Section 311 is, and again, when we get to the question-answer part, I'd be happy to take further questions on it, but I do think it's important that we use our terms very precisely when we talk about important issues like this. So that's why I always bore you all with my little explanation of Section 311 because a lot of times when it's talked about in the public space, it's not really talked about in the precise way that I think it needs to be.

Which gets us to the designation of Banco Delta Asia. As you all know, in September 2005, the Treasury Department designated Banco Delta Asia as a primary money laundering concern. That designation was announced on September 15, 2005. The designation of Banco Delta Asia, along with that the Treasury Department issued a proposed rule to U.S. financial institutions that, if made final, would require U.S. financial institutions to terminate correspondent relationships with Banco Delta Asia, essentially cutting Banco Delta Asia off from the U.S. financial system.

In the wake of that designation, there was a lot of activity both within Macao and within the international financial system as a whole. With respect to Macao, shortly after the designation, the Macanese authorities took control of Banco Delta Asia and to this day are managing Banco Delta Asia. In addition, the Macanese authorities, in conjunction with that action of taking control of the management of Banco Delta Asia, the Macanese authorities froze approximately $24 million of North Korean-related assets that were on deposit at the bank. I shouldn't say "on deposit at the bank" but that were within the bank. And since that time we've been working with the Macanese very closely on Banco Delta Asia, and I think the Macanese have been taking a lot of very, very constructive steps, both to improve the situation with respect to the bank itself, and also to improve the situation in Macao. When we designated Banco Delta Asia, if you've had a chance to read the rule if you haven't had a chance to read the rule, I do recommend you take a look at it. It's up on Treasury Department's website. And it goes through in great detail all the reasons why we designated the bank. They were basically organized in two general areas one, concerns that we had about the jurisdiction in Macao broadly. Macao didn't have an adequate anti-money-laundering, counter-terrorist financing regime. It's very important for Macao to have such a regime in the context of its growing importance as a retail financial center. I'm pleased to say that Macao again has responded very positively to that, and has enacted some very important anti-money-laundering laws that I think are going to serve that jurisdiction very well as it grows in the years to come.

Additionally, as we noted, we expressed concerns about activity going on at Banco Delta Asia regarding its tolerant environment for illicit activities, including illicit activities relating to North Korea. Again, as I said, the Macanese authorities responded very positively to that and took over control of the bank and froze accounts that they suspected being involved in this type of activity. Since that time we've been working very closely with the Macanese. U.S. authorities have reviewed over 300,000 documents and that have given us important insight into the activity that was ongoing at Banco Delta Asia, and as I said before, that review of those documents I think validated a lot of the concerns that we had expressed back in September of 2005. We are quite confident that we made the right decision back in September 2005 and everything that we've seen has done nothing but reinforce those concerns that we had expressed.

In addition to our close work with the Macanese, we have always been willing and have in fact been discussing this matter with the North Koreans. I had the opportunity to first meet with the North Koreans on this matter and on other matters back in March in New York. I met with them again in December in Beijing, and I met with them just last month again in Beijing. I think it's important to emphasize that the purpose of that working group we've been called the "financial working group" is that while Banco Delta Asia is an important part of that discussion, the mandate of that group is considerably broader than simply Banco Delta Asia. Banco Delta Asia is one issue that we are discussing within that group, but from our perspective the purpose of the group is to more broadly discuss the international financial community's concerns about North Korean illicit financial activity, and to work with the North Koreans to try to help resolve those concerns. We think that this working group could provide us with a forum to do just that. Of course, Banco Delta Asia is a part of that, but the concerns go considerably more broad than just that one issue.

But we did discuss Banco Delta Asia with them, and it's clearly something that they are anxious that they are eager to discuss with us. And we had, I thought, some very productive conversations with them. Certainly back just last month in Beijing we met with them for two days and the lion's share of that discussion was focused on Banco Delta Asia. We had the opportunity to go account-holder by account-holder with our North Korean counterparts. There are over 50 relevant account holders. We went through almost all of them, and had the opportunity to try to exchange some information so we could see get a better idea of what was going on at the bank, help answer some of the questions that we had from our as I said extensive document review of over 300,000 documents, and hopefully put ourselves in a position where we could take steps to resolve the Banco Delta Asia matter because the goal has always been to collect enough information and to have enough discussion that we would be in a position to resolve it in a timely manner. And I think that we're at the point now where we do have enough information and we have had enough discussions that we can begin taking steps to resolve the Banco Delta Asia matter.

And that really is where we are on this right now. I think that's where we are on this right. I'd be happy to take some questions if folks have questions.

MODERATOR: For those who'd like to raise a question, ..

QUESTION: (inaudible)

GLASER: As I just said, we've been doing a lot of work on this and I do think that we're in a position to move forward in the near future, and that's what our intention is, and we are going to be taking steps to do just that. With respect to what the definition of "resolve" means, I think that there's a number of components to that, and certainly any definition of "resolve" would involve coming to a final determination with respect to the regulatory matter that's pending with respect to Banco Delta Asia. And we also intend to have discussions with the Macanese authorities on how to resolve other related issues. I'm sorry the second part of your question was oh, the licit vs. the illicit. I think it's important, again, as I said before, to use terms precisely. What our focus has been on and remains on is the illicit and deceptive financial conduct by the account holders, by the relevant account holders at BDA. And we have concerns four of those concerns have been reinforced and we will be discussing those concerns with the Macanese authorities. But so I think the important thing is to focus on which account holders were conducting themselves in such a way at Banco Delta Asia that would give us concern that they were engaging in illicit or deceptive financial practices.

QUESTION: (inaudible)

GLASER: No, I can't confirm that.

MIKE ______: From Executive Intelligence Review. It was pretty well known that there was significant disagreement in the Administration at the time agreement . North Korea. And I don't a lot of people subsequently, not just the North Koreans, think that the Treasury's action undermined that deal, including people at the State Department I don't expect you to tell me that Dick Cheney told you to do it, but I'm sure the Treasury Department wasn't acting independently and I'd like you to address what were your relations with State while all that was going on? How did the timing decision get made? What were your relations with the White House at that time? I know it's very complex but I think extremely

GLASER: I have no intention of passing it over and I appreciate the question because it gives me the opportunity to dispel a lot of misconceptions that are out there. I've been in the United States Government for 11 years, and I have never been involved in an action that's been so well coordinated throughout the administration as the action that we've taken in this case. As with all Treasury Department actions, we are always in close coordination with all relevant agencies and officials within the administration, and this is certainly no exception to that. The decision to move forward and the manner in which we moved forward was dictated by both regulatory concerns, by the programs that we had in place at the Treasury Department and was well-thought through and discussed throughout all relevant agencies in the government. We have always been very pleased with the support that we've gotten from the State Department on this. I think the State Department has been doing a fantastic job with respect to all aspects of our policy regarding North Korea, and I think we work together really well, and while I agree with you, I've heard speculation of other things, I don't think that it's very easy to point to an instance where such things have been manifest. And we've worked very well with the State Department and I think that the action that we've taken has been a very successful one and I think the State Department's very pleased with the results as well.

MODERATOR: Mike, do you have a follow-up question?

MIKE ____: Not right now.

MODERATOR: Okay thank you.

QUESTION: (inaudible)

GLASER: The issue of counterfeiting and the issue of Banco Delta Asia are separate issues. We've actually discussed counterfeiting of U.S. currency directly with the North Koreans as a separate issue from BDA. Now, there is there are some links in that we have been if you read the notice that .. "Rule (??) Making" you'll see that there were concerns about attempts to launder counterfeit currency through Banco Delta Asia, but that was only one of a whole series of concerns we had about conduct at Banco Delta Asia. And as I said, we worked through those by looking at the documents, by discussions with the Macanese, by discussion with North Koreans. Now, as a separate matter we do take the counterfeiting of U.S. currency very seriously. It's not just a matter for the Treasury Department. Of course, it's a matter for the United States Secret Service and it's a matter for the Justice Department. I mean, we will continue to pursue that matter because it is a very important one.

QUESTION: You said you had three meetings with the North Korean officials. In those meetings, once they got down to doing business, what were their leading concerns? What were the issues they wanted to get resolved most quickly and how did they frame them?

GLASER: Well, again, the group, from our perspective, the group this mechanism that we have for dialogue with the North Koreans is an important one. They really should be focusing on the full range of concerns that the international financial community has with respect to North Korea because I think it's important to understand that until those concerns are addressed, North Korea is going to continue to be having difficulties in the international financial system. Now, that said, with respect to items that were very high on our agenda to address as a first matter, Banco Delta Asia is certainly one of them. And we very quickly got down to business discussing account holders at Banco Delta Asia, and the conduct that was of concern to us with respect to how those account holders were conducting themselves.

QUESTION: (inaudible)

GLASER: I'm sorry. I don't understand your question.

QUESTION: I want to know about your and your Treasury Department position about lifting (?)

GLASER: Okay. I'm glad that we and Chris are on the same page on this. We are working very hard to resolve the Banco Delta Asia matter, and we think that we have the information that we need to do so. We will be doing so in the near future. We're discussing a number of elements that go along with resolving Banco Delta Asia and we are going to be making sure that we address all of those in a timely fashion.

QUESTION: (inaudible)

GLASER: Well, it's never been our position that accounts in which there's no relationship to illicit activity should be held indefinitely. So that's certainly one of the things that we're going to be working through as we bring this matter to a conclusion.

QUESTION: (inaudible)

GLASER: That's a State Department designation. So that would be a more perfect question to put to the State Department.

QUESTION: (inaudible)

GLASER: The U.S. is committed to living up to our obligations under all relevant U.N. Security Council resolutions.

QUESTION: (inaudible)

GLASER: Thank you for the question. The U.S. Treasury Department or the United States Government did not cut North Korea off from the international financial system. The difficulties that North Korea has been having in the international financial system reflect the independent decisions, the independent risk decisions that financial institutions around the world are making because of their own concerns about illicit financial conduct related to North Korea. That is one of the reasons why we agreed to enter into this mechanism, this working group that we have with North Korea, to explain those concerns to the North Koreans and to help work through those concerns. I think that's something that we remain ready, willing and eager to do because we think it's important, but that is going to be a process that's going to take time, and we're happy to walk down that road with the North Koreans on that matter. But the issue with respect to Banco Delta Asia will be resolved based on relevant U.S. law and regulations and the information we have with respect to Banco Delta Asia.

QUESTION: (inaudible)

GLASER: International financial institutions as always need to come to their risk-based determination.

QUESTION: (inaudible)

GLASER: No, I have no updates for you on that.

QUESTION: (inaudible)

GLASER: The counterfeiting issue is in some ways related to, but in most ways separate from the BDA issue. We have had ongoing concerns about North Korean counterfeiting of U.S. currency for a very long time now, and those concerns continue. We raised those concerns with our North Korean counterparts in the working group, and we will continue to do so. Counterfeiting is a very serious issue and we'll continue to pursue those matters. As I said before, this is an issue that goes well beyond Banco Delta Asia, it goes well beyond the U.S. Treasury Department. It goes to ongoing investigations relating to the Justice Department, relating to the U.S. Secret Service, and I'm sure they'll follow the evidence wherever it leads them. With respect to BDA, we will resolve BDA based on the information that we have received through the 300,000 documents we've gone through, through our discussions with the Macanese, through our discussions with the North Koreans. And it will be based on those facts.

QUESTION: (inaudible)

GLASER: Well, we in fact do have continuing concerns about North Korean counterfeiting of U.S. currency and that is an issue we will continue to engage with the North Koreans on.

QUESTION: (inaudible)

GLASER: I don't think it would be appropriate for me to get into the details of private discussions we had with them, but suffice it to say that we made our concerns quite apparent. They responded, and we are going to continue discussing the matter.

QUESTION: (inaudible)

GLASER: I think I've answered that question.

MODERATOR: Any further questions? Okay Daniel, thank you very much. The floor is clear.

GLASER: Thank you.


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