Under surveillance
A new book claims that the National Security Agency, one of the most secret intelligence-gathering entities in the US, spied on Banco Delta Asia for an unspecified period of time. The bank's owner, Stanley Au, refuses to comment on this allegation – but he acknowledges that CIA agents paid him a number of visits over the years.
Three years after the US Treasury Department fingered Macau’s Delta Asia Bank (BDA) for sanctions, over alleged money laundering and counterfeiting activities conducted on behalf of North Korea, it’s still uncertain whether the Bush administration in fact had hard evidence to back up such a move and – equally important – whether their sources were reliable.
But if former CNN correspondent Mike Chinoy gets it right in his latest book, Meltdown: the inside story of the North Korean nuclear crisis, it’s quite possible the main reason US officials kept their cards close to their chest regarding the amount of evidence they had was the kind of process they had used to gather vital intelligence on the bank’s activities: simply put, spying.
According to the book, “a variety of means were used to collect information on BDA, including enlisting the National Security Agency (NSA) to monitor the bank’s internal communications.”
The National Security Agency is a cryptological intelligence agency within the United States Department of Defence responsible for the collection and analysis of foreign communications and signals.
“We’ve had a very sophisticated operation in NSA for a long time for monitoring financial transactions around the world,” the book quoted one former senior State Department official as saying. “And if it wants to focus like a laser on a particular national entity, or a particular bank or a particular consortium, it could really turn out more information than you can even analyse. It just flows in. They can get everything. It’s that sophisticated.”
So sophisticated that the Bush administration was unwilling to share its results with foreign entities? Maybe. But apparently follow-up efforts through more conventional means of intelligence-gathering were not very successful, as the US Government failed to provide clear evidence against BDA in spite of spending the better part of the last three years blaming its owner, Stanley Au, for all sorts of illegal activities and wrongdoings.
“It was just like the weapons in Iraq,” one critic told the book’s author. “They weren’t there.”
Washington had earlier accused Delta Asia Bank of providing “a tolerant environment” for illegal activities conducted by North Korea, which had become a “Soprano state” according to the famous characterisation used by David Asher, then co-ordinator of the State Department’s North Korea Working Group. But international consultants Ernest & Young, who stepped in to produce an independent audit of the bank at the invitation of the local government, came to the conclusion that for the Bush administration’s major charges – money laundering and counterfeiting – “the evidence was just not there.”
After reading Mike Chinoy’s book, courtesy of Macau CLOSER, Stanley Au had no comment on the alleged involvement of the National Security Agency in securing intelligence on his bank’s transactions, and he again refused to be interviewed about the roots of the whole process. But he did reveal that “CIA agents” visited him several times in recent years and were kept informed on BDA’s dealings with North Korea. “We were very open with them, because we had nothing to hide,” Mr. Au said.
Most likely some of those “CIA agents” were, at least, people from the Secret Service, the US Treasury Department agency in charge of investigations related to currency counterfeiting at home and abroad. Secret Service operatives, who also serve as bodyguards to the President of the United States, started to pay regular visits to Macau in 1994 when a large amount of counterfeit dollars was detected in the local banking system. Interestingly enough, BDA officials were among those who informed the police that such bills were found in their branches.
The results of their investigation were later used at trial in a local court, helping convict a North Korean citizen on charges of trafficking forged money. The man was working for Zokwang Co., a North Korean
trade company based in Macau, and was ultimately tried in absentia after eluding arrest.
Eager to obtain a detailed picture of the counterfeiting operation and to produce evidence against other North Korean suspects, US Secret Service officials requested the use of a polygraph (lie-detector) during interrogations. Local authorities rejected the request, however, on the grounds that its results were not accurate, and the case was put to rest.
Not for long. Counterfeited dollars resurfaced sporadically in Macau on the eve of the Handover, in 1999, prompting new, fresh investigations into the issue. And according to Stanley Au, US secret agents remained focused on the case throughout the first years of the new millennium, questioning him regularly about North Korean activities in Macau.
When the US Treasury announced in September 2005 that BDA was a primary money laundering concern, one of the most damaging allegations thrown at the bank remained the fact that it had conducted business with people involved in a very serious crime back in 1994 and yet was keeping officials from that same company on its list of favourite customers ten years later.
Why Mr. Au failed to distance himself from North Korean customers with bad reputations, especially after the US Government started intensifying diplomatic pressure against Pyongyang, is anyone’s guess. But the most plausible explanation is that BDA was far too dependent on business with North Korean companies to call a halt to it. And Washington didn’t hesitate to take full advantage of that.
North Korea’s Achilles’ heel
The author of Meltdown: the inside story of the North Korean nuclear crisis explains that the idea of imposing financial sanctions on North Korea, through Delta Asia Bank, was first discussed during intelligence meetings held in Washington in the spring of 2005, at a time when George W. Bush was beginning his second term in office and a major government reshuffle was underway.
Just promoted from a National Security Council advisory role to the job of Secretary of State, Condoleezza Rice “was fascinated by the idea of the potential to hurt North Korea.” Her aides, and many other government officials, were delighted to have found “North Korea’s Achilles’ heel.”
“The impact that BDA had on North Korea as a whole,” said one US senior official involved with the issue, “exceeded our expectations. It opened our eyes to the power financial sanctions can have.”
The book also claims, however, that a number of US officials opposed the sanctions at earlier stages, believing a hardline attitude could easily end up in a deadlock situation.
“This is not law enforcement,” a close aid to Assistant Secretary of State for East Asian and Pacific Affairs, Christopher Hill, said. ‘This is pure and simple blackmail. It’s going to backfire on us. These guys are going to walk away from the talks.”
And they did. Angry at being targeted by the financial sanctions, the North Korean regime restarted its nuclear programme and demanded the return of the money frozen in their accounts at BDA as a pre-requisite to going back to the six-party negotiations in Beijing.
At that point, the US Treasury Department “had no idea how to undo what it had done,” complained one senior State Department official.
Criticism became widespread among United States allies in the region and even inside the ranks of the Republican Party and the Bush administration. Philip Zelikov, a close aide to Condoleezza Rice, told her that “the destruction of BDA has achieved its objective,” and it was time to solve the problem, forcing North Korea back to the negotiating table. Former Secretary of State James Baker, who served under George Bush’s father, stressed time and again “it’s not appeasement to talk to your enemies.” His predecessor during the Nixon years, Henry Kissinger, urged both sides to stop fixating on lateral issues like the BDA sanctions and to begin talks on how to resolve the nuclear issue as a part of a wider set of new security arrangements in the region. And the Chinese and South Korean governments made it clear more than once that “the BDA business was ridiculous.”
When Christopher Hill tried to push the dialogue forward, he earned the nickname “Kim Jong Hill” from neo-conservative hardliners. Tension grew to surprising levels, and the two sides ended up trading insults at the St. Regis Hotel, in Beijing, prior to a round of diplomatic contacts.
In the meantime, Seoul did its best to convince Pyongyang to drop the release of the money kept at BDA as a pre-requisite for returning to the talks. After all, in terms of fuel, electricity and other aid programmes, the North Korean regime was about to receive a much larger amount of money. In one of those exchanges, South Korean Chief Negotiator Chun Yung-woo told his North Korean counterpart, Kim Gye Gwan: “You’ll be getting over a billion dollars, and you’re wasting all that to get $25 million back from BDA. That is nonsense to me.”
Kim acknowledged Chun’s point, the book recalls. But he replied, “The owners of the BDA accounts were very powerful in Pyongyang, and the North Korean Foreign Ministry could not defy that power. And these powerful forces had decreed: Don’t go back to the six-party talks until you get the money back. That was an order.”
Kim did not mention any names, the book adds, but there had been much speculation that “at least some of the BDA accounts were for the personal use of Kim Jong-il and his family” – an allegation that Mr. Stanley Au told Macau CLOSER “was impossible to verify.”
The deadlock was finally broken when Russia came to the rescue of the US Treasury Department. In June 2007, “President Bush reportedly discussed the broad outlines (of a breakthrough) with Russian President Vladimir Putin at the G8 meeting in Germany, and the long-running drama moved toward resolution,” wrote the author. The money was released back to North Korea through the US Federal Reserve first, and a small Russian bank based in Khabarovsk at a later stage.
“In the end, we laundered the money for them, by washing it through the Federal Reserve,” one senior official who supported the move was quoted as saying. Even more ironic, Mr. Au is presumably still trying to come to terms with the odyssey of his small bank: once the subject of discussions between two of the most powerful leaders in the world, it was left in total and permanent isolation from the international financial system, with little chance for survival.
Mike Chinoy describes his book as “the story of an American foreign policy failure,” which led to North Korea becoming a nuclear power and to the erosion of the US position in Asia. “Above all, it is the story of an administration whose North Korea policy making was marked by infighting, incoherence and diplomatic incompetence.” He explains why in the interview that follows.