영국 런던의 데일리 텔레그라프紙는 최근, 한국 정보기관 직원의 말을 인용, 김정일이 스위스 은행에 약 40억 달러의 비자금을 숨겨놓았다가 정부당국에서 감시를 강화하자 룩셈부르그의 은행으로 옮겼다고 보도하였다.

일본의 북한人權(인권)운동가 켄 카토씨는 룩셈부르크 은행이 불법자금을 은닉하는 데 이용당하고 있다면서 만약 국제사회가 40억 달러를 동결한다면 역사를 바꿀 것이라고 논평했다. 룩셈부르그 정부 대변인은 "북한정권과 관련된 돈은 조사를 하게 되어 있는데, 문제는 돈 위엔 아무 것도 쓰여져 있지 않아 그런 돈인지 여부를 알 수 없다는 점이다"고 했다.

김정일의 비자금이 룩셈부르그를 거쳐 알프스 산맥 속의 小國(소국)인 리히텐슈타인(Liechtenstein) 公國의 은행으로 들어갔다는 소문도 있다. 리히텐슈타인 은행들도 스위스처럼 불법자금을 은닉, 세탁하는 데 이용되어 왔다. 리히텐슈타인을 다스리는 공작 집안에서 운영해온 LGT 은행의 한 직원이 수년 전 여러 나라의 계좌 주인 명단이 적힌 CD를 독일 및 영국정부에 팔아넘겼다. 이 정보를 거액에 사들인 독일정보기관은 국세청에 인계하였고 2008년에 독일정부는 대대적인 탈세 조사를 하였다. 미국정부에도 리히텐슈타인 은행에 숨겨진 미국인들의 돈에 관련된 자료가 넘어갔다고 한다.

이 과정에서 미국은 북한정권이나 김정일 一家와 관련된 LGT 은행의 비밀계좌 정보를 확보하였는데, 천안함 爆沈(폭침) 사건에 대한 對北(대북)제재의 하나로 이 돈을 凍結(동결)할 것이란 관측이 있다. 이 정도의 巨金을 묶어버린다면 김정일 정권에 큰 타격이 될 것이고 불안정한 정권 내부에서 복잡한 사건이 생길 가능성도 있다.

북한의 駐 스위스 대사 이철은 1980년에 부임한 이후 스위스에 은닉된 김정일의 비자금을 관리해왔다. 그는 리히텐슈타인 대사를 겸임하다가 올해 초 북한으로 돌아갔다. 그의 퇴장은 스위스와 리히텐슈타인 정부가 미국 등 국제사회의 압박으로 김정일 자금을 더 이상 보호해주기 어려워진 사정과 관계가 있는 듯하다.

김정일의 해외 비자금은 核 및 미사일 무기개발, 지배층 관리, 對南공작에 쓰여졌다. 정권유지에 필요한 이 자금이 막혀버리면 김정일은 急所를 맞은 짐승처럼 행동하고 나올 가능성이 높다.

Can North Korea Be Stopped?
by John Bolton and James A. Kelly

05.26.2009


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A nuclear North Korea is more than a foreign-policy irritant. Sharing radioactive knowledge with other malcontents would be a disaster. With current negotiations facing hard times, two former statesmen go head-to-head on how to handle the DPRK. John Bolton argues it is time for a harsh crackdown on a misbehaving North, while James Kelly thinks we need to give talks a chance.


One Korea

John Bolton

NORTH KOREA is and will remain a threat to the United States and our friends and allies as long as it retains nuclear weapons, which likely means as long as it exists. The Democratic People’s Republic of Korea (DPRK) has an unequalled record of breaking its commitments and proliferating dangerous technologies to other rogue states. Recent events simply confirm a sixty-year-long reality in Pyongyang.

Unhindered by press reports of Kim Jong Il suffering a stroke, or speculation about regime crisis, the DPRK’s efforts to sustain its nuclear-weapons and ballistic-missile programs continue in plain view. First, North Korea suspended “disabling” the Yongbyon nuclear facility and threatened to reverse the process entirely to protest not being removed from the United States’ list of state sponsors of terrorism. This ploy is yet another example of the North’s consistently successful negotiating tactic of selling the same concessions again and again for higher and higher prices. Even advocates of the vaunted six-party talks now worry that the State Department’s shamelessly submissive approach is harming U.S. interests.

Then, Jane’s Defence Weekly and other sources revealed the existence of a ballistic-missile test facility, under construction for the last eight years, and capable of launching North Korea’s long-range Taepodong-2 missiles. Jane’s noted, among other things, how similar the facility’s rocket-engine test stand was to the Shahid Hemat test stand near Tehran. This was a stunning parallel to the North’s cloning of the Yongbyon reactor, on the banks of the Euphrates River in Syria, also undertaken entirely during the pendency of the talks. Given extensive ballistic-missile sales and research-and-development relationships between North Korea and Middle Eastern regimes like Iran and Syria over the years, the nuclear cooperation was powerful evidence that the North was actually expanding its weapons programs under the cover of the six-party talks.

State’s negotiators dismissed the Syrian reactor as ancient history—not evidence of a current, ongoing nuclear program—and stressed that the newly discovered missile test facility was not operational. That last explanation lasted only a few days before press reports emerged that North Korea had conducted a static-firing test at its newly constructed facility. This testing, if confirmed, is a plain violation of UN Security Council Resolution 1718, which should have brought a strong reaction from Washington and other Security Council members. Instead—silence.

This sad story could go on at length.1 What will it take, finally, to get a realistic policy for dealing with North Korea? Let’s start with the basics. Negotiation is like all other human activity: it has costs as well as benefits. Our State Department’s central cultural problem is that it appears institutionally incapable of weighing the costs accurately. Even in those few instances where a cost-benefit assessment actually occurs, the costs are rarely judged to be greater than the benefits, and that tends to occur when congressional or other domestic-political factors constrain the department’s bureaucracy from doing what it really wants to do. State disdains these “outside” pressures as unfortunate (if inevitable) interferences with its “real” work, to be overcome or ignored at the earliest opportunity.

Moreover, State’s negotiation superhighway never seems to have any exit ramps. Repeated failures to reach acceptable agreements, growing evidence of a problem’s severity, and countless examples of falsehoods or cheating by the other side are all dismissed as if nonexistent. I learned this lesson to my dismay in the cases of both North Korea and Iran, thinking that demonstrating the futility of negotiating with these regimes would allow us to move on to other measures. I found that too many in the State Department simply could not process the concept of failed negotiations. Switching travel metaphors, negotiations for State are like the famous Eagles song “Hotel California”: you can check out of negotiations anytime you want, but you can never leave.

Applying cost-benefit analysis to negotiations is neither new nor reflective of a general hostility to diplomacy. During his tenure as secretary of state, Dean Acheson resisted efforts to conduct early negotiations with the Soviets, preferring to do so only from a position of real strength in Europe, a clear demonstration of cost-benefit analysis in fact if not in name. Indeed, this debate is not between those who never favor negotiations and those who see their wisdom. The debate is actually between those who favor negotiations to resolve 99.44 percent of international disputes (as in the Ivory Snow ad), and those who believe in negotiations 100 percent of the time. Understanding that North Korea falls in the 0.56 percent category is thus the key.

More specifically, the basic flaw of the six-party talks is the foundational assumption that North Korea could be talked out of its nuclear weapons. There has never been a shred of evidence, over nearly two decades of nuclear negotiations, that the North is truly prepared to make such a dramatic shift in its strategic thinking. There have only been statements by the North’s diplomats and propagandists that too-willing U.S. negotiators have seized upon to cobble together “nuances” and “hints” of negotiating flexibility. Of course, if I were in charge of the DPRK’s nuclear program, the last people to whom I would explain our capabilities and objectives would be the North’s diplomats. They may be among the least informed in Pyongyang’s elite concerning their country’s nuclear program.

The United States made tactical mistakes from the outset of the six-party talks, notably in their sole focus on the DPRK’s nuclear program. By agreeing to exclude chemical and biological weapons, and ballistic-missile and conventional-forces issues, we left the North in undisputed possession of its greatest in terrorem threats against South Korea. This is a common fallacy of arms-control negotiations, namely their tendency to focus on only limited aspects of a broader problem, thus providing false promises of progress and stability. The main political consequence, especially given two successive weak and appeasement-minded South Korean governments, was a hopelessly weak U.S. bargaining position.

Moreover, even in the narrow nuclear field, successive waves of U.S. negotiators limited their scope to the plutonium route to nuclear weapons, and then constricted it even further to an obsession with Yongbyon. This flaw was evident from the first negotiations over the 1994 Agreed Framework, and continues right on to the Bush administration’s last gasp. The smaller the soda straw though which the negotiations were conducted, the easier it was for North Korea to continue or expand other aspects of its threatening nuclear and missile activities, and the less likely there would be any fundamental shift by the North.

So, if negotiations don’t work, what is left? Some argue that President Bush 43 followed a “hard line” in his first term, but that the policy failed. In fact, internal conflict marked Bush’s first term, which the National Security Council mechanism failed to resolve, leaving an incoherent and contradictory policy. In the second term, policy coherence emerged, unfortunately all in the wrong direction, embracing a diplomacy doomed to failure. The ideal of a correct and coherent North Korea policy will sadly, therefore, never emerge in the Bush presidency.

The only long-term acceptable outcome is the reunification of the Korean Peninsula, or, as American Enterprise Institute–scholar Nick Eberstadt once titled his book, “the end of North Korea.” The North will not be negotiated out of its nuclear weapons: they are its ultimate trump card against those with “hostile intent” on the outside like the United States and Japan, and in fact, they are also the ultimate trump card inside the North’s bizarre political system. Accordingly, the only realistic way to deal with the nuclear problem is to eliminate the regime itself.

To accomplish this objective, the United States needs to raise the pressure on the DPRK, to utilize fully the capabilities we already have to choke off the North’s import and export trade in weapons and materials of mass destruction, and to cut off once again its access to international financial markets. The Proliferation Security Initiative has already had a significant impact, as did the Treasury Department’s forceful pursuit of North Korea’s financial assets until the State Department’s shameful capitulation on Banco Delta Asia, thus allowing the North renewed international access and legitimacy. North Korea’s systemic weaknesses make it vulnerable to such pressure. By negotiating with the North and providing it with tangible economic and political benefits for negligible concessions on the nuclear front, we are propping up a regime so susceptible to collapse that even small increments of pressure threaten it.

And the means for pressure are at hand. The real key is China, and here we face the reality that China has to date preferred a divided Korean Peninsula. We need to change Beijing’s mind. By making China’s continued support for the odious Pyongyang regime more costly in terms of the U.S.-China bilateral relationship, we should push for Beijing to recognize that Korean reunification is inevitable. Beijing was outraged by North Korea’s October 2006 nuclear test and its tolerance for Kim’s regime is likely much lower than generally appreciated. I do not underestimate the difficulty of persuading China on this point, but there is little doubt that China has the economic leverage to collapse the DPRK superstructure. We should assure China that we will work to minimize the possibility of refugee flows across the Yalu River, with their attendant humanitarian problems, and will bear a major part of the costs associated in the short term with North Korea’s collapse. The United States and South Korea can also make it plain that a reunited Korea will not be a military threat to China. Quite the opposite: a peaceful Korean Peninsula will reduce security costs for everyone in northeast Asia.

Close to fifteen years of failure from negotiating over North Korea’s nuclear weapons should tell us something. Will the next U.S. administration listen?



1Those interested are invited to see the two chapters devoted to North Korea’s nuclear-weapons and ballistic-missile programs in my Surrender Is Not an Option (Threshold Editions, 2007).



Two For Now

James A. Kelly

IT IS A most unattractive task to prescribe any approach to North Korea (DPRK). And at the moment, defending the six-party talks as useful is a special challenge. The agreed-upon measures to stop North Korean plutonium production are being reversed in successive, well-publicized steps. Leader Kim Jong Il may be ill, perhaps seriously, and there are worries of instability within North Korea. But I believe that the current North Korean escalation is separate from the leader’s health and probably was planned months ago. It is related instead to the United States’ elections—a ploy to start afresh with the next president, and perhaps a hope to resell the plutonium shutdown to a new group of Americans.

Despite all this, I believe the six-party talks remain useful to U.S. interests, and should be part of a new administration’s policies. Although a negotiated denuclearization of the DPRK is unlikely without some internal shift within the state, the six-party process can be a valuable tool for a mix of U.S. goals.

In January, the United States will inaugurate its twelfth-consecutive president to have to face the challenge of North Korean behavior. How can the new president deal with the DPRK? Should he even try? Why bother if negotiations only lead to American frustration and the subsidizing of the North Korean regime? Can pressure be brought to bear? If it can, will it bring down the Kim rule without killing huge numbers of Koreans, both northern and southern?

Diplomacy to denuclearize North Korea has been centered since 2003 on the off-and-on six-party talks, hosted by Beijing with China, Japan, South Korea, North Korea, Russia and the United States participating. After years of delays, a “Joint Statement” of October 2007 prescribed a series of actions to be taken by North Korea and by the United States and others of the six parties. After new delays, North Korea had begun in 2008 initial disablement of its facilities for producing plutonium. Having “agreed to provide a complete and correct declaration of all its nuclear programs,” Pyongyang did make a partial declaration intended to identify nuclear facilities and material that they have produced in earlier years in return for rewards. Now, progress and steps toward denuclearization seem to have fallen apart. Details about the nature and sequence of steps that the United States and the DPRK are supposed to take are foggy. But regardless of the specifics, the recent reversals proclaim North Korea’s displeasure with the talks and the United States. Pyongyang may be starting to rebuild its reactor/reprocessing site for obtaining plutonium.

Yet, even if the current impasse ends, essential further steps to fulfill the other agreed-upon (and necessary) measures in the October 2007 six-party Joint Statement will still need to be taken: to deal with North Korea’s existing plutonium and the weapons containing it, to address DPRK cooperation with Syria and Iran, and to sort out whatever has become of the large and shadowy effort to enrich uranium as a hidden alternative to plutonium in nuclear weapons. But not surprisingly, a new administration in the United States will be skeptical about the six-party talks—and properly so.

The reasons for this near paralysis are simple. North Korea wants to be accepted as a nuclear-weapons power and has sought this for decades. It wants nuclear weapons for varied reasons, though probably not including combat use, as it knows that retaliation would be terminal. But certainly international status is one aim, and there are surely internal reasons as well. The principal strategy, however, is to help assure regime survival, which Pyongyang believes to be threatened if the country is ignored by the international community. Nuclear weapons bring attention, and with that, a state the DPRK can point to as an enemy—usually the United States—to justify internal hardship, generate notoriety and reap tangible sustenance from its neighbors.

But though North Korea needs economic carrots because of the desperate situation inside the country, they have almost no effect on the regime’s behavior both within and outside its borders. The DPRK leaders—at least some of them—are well aware of how burgeoning Asian economies have left them behind. Indeed, the once-poorer South Korea has become the world’s tenth-largest economy with an annual per capita income now reaching US$20,000. DPRK leaders believe that any open comparison with the South’s accomplishments would be an internal disaster. But even still they cannot bear the weight of change necessary to reform an economy, fearing—probably correctly—that the result would be a loss of the leadership’s control.

The upshot is that diplomacy has been unsuccessful and the six-party process has not worked. But neither have attempts at pressure been fruitful. The truth is that any new diplomatic negotiation, absent some kind of internal change in North Korea, is unlikely to be successful in disarming Pyongyang of its nuclear weapons.

So some would suggest that the six-party process and other negotiations with North Korea be abandoned and other methods—presumably harsher—begun.

But such a choice is not the best course for U.S. interests because tougher tactics are even less likely to work. First, the United States cannot do this alone. A harsher course will not work without cooperation from key countries such as South Korea or China, whose leaders currently balk at the risk of war or instability. Their essential help on a hard line is not available under present conditions. Second, pressing against this reluctance will damage American relationships in a part of the world that is vital to the United States for many reasons that go far beyond North Korea and its nuclear threat.

Persistence, quiet resolve and calmly working with allies and partners will serve U.S. interests better than loud speeches, threats or ineffective sanctions attempts.

The problem is that although North Korea’s nuclear-weapons activities are a threat to the United States—probably much more from possible leakage to terrorists than from direct attack—and a serious setback to global nonproliferation, the problem is even more a northeast-Asian regional issue.

South Korea has a greater stake in North Korea’s future than we do. Seoul is highly vulnerable to nuclear and conventional DPRK weapons. It is an important U.S. ally and increasingly important to long-term U.S. interests given China’s rise as a great power in the region.

The irony is that South Korea’s great success—an enormous tribute to Koreans, helped by U.S. development efforts and democratic example—has made South Korea comfortable enough to live at least with the status quo. There are now strong feelings of sorrow and sympathy toward the North in place of many years of alertness and dread. South Koreans are rightly horrified at any prospect of a war with North Korea. And, at the same time, while favoring unification in the abstract, they dread the potential cost of absorbing the North—its economic weakness and its people. North Korea is far poorer than East Germany was in 1989 and is all-but-without infrastructure.

The result is great apathy and a tendency of South Korean governments across the political spectrum to seek to avoid tensions—and even to pay North Korea what amounts to “protection” money.

Japan, also a key regional player and America’s vital ally in Asia, shares much frustration with the six-party talks, particularly given the unresolved issue of returning Japanese citizens abducted in the 1970s by North Korea. After Kim Jong Il took responsibility for some of the abductions in 2002, public attention to the issue has been intense. Japan also feels a strong sense of threat from North Korean missiles, especially if they are armed with nuclear warheads. America’s “nuclear umbrella” over Japan has never been more valuable.

Tokyo is an essential partner in negotiations and only the six-party talks provide a venue that includes Japan. And, if money were to be part of any solution, Tokyo would be a key contributor.

China’s relations with the United States are more complicated. Its size, its government system, its rise and new wealth, not to mention a trillion and a half dollars of foreign exchange—much of it invested in the United States—make for a very broad and also a very challenging relationship. Yet, cooperation on North Korea and Beijing’s role as convener of the six-party talks make Pyongyang’s denuclearization one of the key areas of potential collaboration between the United States and China.

The two states seem to want the same thing—a nonnuclear North Korea. But the difference is, Beijing is not willing to risk instability to get it. Though China saved North Korea from defeat in 1950, and some government and military contacts between the two countries persist, close observers agree that China does not want or support a nuclear North Korea. The 2006 missile and nuclear-weapons tests were seen as a direct affront to Beijing. However, stability is, as usual, the overriding Chinese goal and there is fear among Chinese leaders that upheaval in North Korea would result in millions of unwanted refugees crossing the border rivers. Politically, China is content to have a buffer state between it and South Korea. But if China is to be a responsible global stakeholder, it needs to be more active with its ungrateful ally.

But whether Sino-U.S. cooperation is close or strained, China’s position is critical in dealing with North Korea. As a United Nations Permanent Five Security Council member, any UN effort to do more than exhort North Korea to behave must include China. UN Security Council Resolution 1718 is a positive example, enacted with U.S. leadership and reflecting intense Chinese unhappiness about the nuclear tests. The resolution includes serious sanctions, but it has not been effectively enforced.

China is the key to any kind of sanctions regime on North Korea—geographically with its long border as well as politically. Without active Chinese support no such efforts will work.

So North Korea and its nuclear weapons are a broadly shared regional and nonproliferation concern, yet our partners implicitly constrain what the United States can do. Military action—if only given the damage likely to our South Korean ally—is a poor choice. Our past practice of always repeating that “all options remain on the table” never frightened the North Koreans, but it gave them something they could claim was “hostility.” And it did alarm and frighten our allies.

Diplomacy is not the same as accommodation. The very process assures that acceptance of North Korea as a nuclear-weapons state is not a fait accompli, nor is it seen as such. The United States can take note of North Korean weapons and it can also make clear that it will not rest until the situation is corrected. Washington now has much experience with Pyongyang. A false, partial solution being portrayed as a breakthrough is not in the cards and is very unlikely. In Congress, specifically, neither party will accept a “make believe” solution. “CVID”—complete, verifiable, irreversible dismantlement—remains American policy and is unlikely to be changed.

Alternatives to the patient and painstaking work in the six-party talks and its working groups remain few and unattractive. It is a nonproliferation problem that must be solved in a regional context. In doing so, the six-party talks:

•Keep ongoing pressure on the DPRK, if only in its relations with China and South Korea, its principal sources of food, fuel and money.

•Have generated useful commitments, even if not decisive ones. The September 2005 agreement—which sets a goal of nuclear disarmament accepted by the North and all five others—does put pressure on Pyongyang.

•Resonate as U.S.-China cooperation in a useful way. China has come to enjoy the benefits it sees as the talks’ host.

•Ensure steadfastness and help coordination in the U.S. alliances with Japan and South Korea.

•Provide a useful mechanism if and when internal tectonic shifts in the DPRK make it newly amenable to a serious settlement. North Korea—beyond any transition—is now exposed to information and economic contacts from outside, as it has never experienced before. It will change—probably fracture—someday sooner than many expect. We cannot count on that, but it argues for having the key players continually engaged.



Bolton responds:

JIM KELLY says straightforwardly, after summarizing the history of the six-party talks, that “the upshot is that diplomacy has been unsuccessful and the six-party process has not worked.” He says the reason is “simple. North Korea wants to be accepted as a nuclear-weapons power and has sought this for decades.”

I agree on both points. This is precisely why the talks have failed, are failing and will fail to achieve the “complete, verifiable, irreversible dismantlement” of the North’s nuclear program that Jim agrees should be the American goal. Nonetheless, on go the talks, and Jim supports their continuation because he dislikes the alternatives (as he describes them) and because, who knows, something may happen.

This is not a matter of reason or realism, but a matter of quasi-religious faith. Like most matters of faith, it is not susceptible to empirical rebuttal for those who adhere to it. Indeed, contrary empirical evidence only strengthens the heart of the True Believers, who see such evidence as more tribulations for the faithful to suffer. So it is with the six-party talks. Participants in the talks have not yet wandered the desert for forty years like Moses and his flock, but they are working on year six, with no promised land in sight.

Of the many forms of parochialism that abound at State, the “clientitis” of its regional bureaus is perhaps the most acute. Clientitis has had the issue of North Korea’s nuclear weapons in its iron grip in both the Clinton and Bush administrations. Jim reflects the clientitis when he says the problem “must be solved in a regional context.”

But North Korea is a global problem for America, not a regional one. The North’s missile proliferation to Iran and other rogues, and nuclear-reactor construction in Syria, are not, in northeast Asia, high-priority problems. For us, however, they are of the very highest priority. Endless patience with a North Korea apparently willing to sell anything to anyone with enough hard currency is a prescription for trouble. A. Q. Khan may be out of business, but his wares are still available at the Pyongyang souk. And the lengthening impact of a nuclear-weapons-capable North Korea on national-security deliberations in Japan and elsewhere cannot be underestimated.

Among the six parties, the plain fact is that even China and Russia do not have the same global interests as the United States. Although China has progressed in strengthening its nonproliferation controls, its hunger for oil and natural gas today clearly has the upper hand, for example, in its Iran policy. Russia is worse: retrogressing to czarist impulses (the invasion of Georgia), bullying its European neighbors (using oil and natural-gas supplies as leverage) and prowling America’s neighborhood (naval maneuvers with Venezuela).

Regional diplomacy has been tried—at length—and failed. Global diplomacy, which will inevitably include the participants in the failed six-party talks, won’t work any better. We must face up to evident failure and adjust our policies accordingly, as I suggested earlier. Otherwise, we will have a continuing nuclear threat from Pyongyang that could result in some unfortunate city, country or region becoming a real wilderness.



Kelly responds:

THERE IS agreement between Ambassador Bolton and me on some important things. But our differences lie in whether wishful rhetoric will be preferable to a set of poor alternatives. Mr. Bolton mostly criticizes recent and past diplomacy. My focus is on approaches that the new president’s team might consider.

Confronting the DPRK’s version of military-led totalitarian dictatorship has been a long story of frustration. “Eliminating the regime,” as Mr. Bolton calls for, is a hope, but the quick ways to effect that elimination can be risky, dangerous and costly.

Ambassador Bolton wants to rule out negotiations with the DPRK, which, as he puts it, “would allow us to move on to other measures.” But the “other measures” are thin. The most specific is to persuade China to increase pressure. This is nonproliferation policy that ignores regional realities.

Ambassador Bolton sees China as a critical player (as do I). He calls for more persuasion so that China will put at least some greater degree of pressure on the DPRK. But absent U.S. participation in the six-party talks, our ability to persuade China will be far less. Remember, North Korea wants to deal only with the United States, not the neighbors on which it is ungratefully dependent. The six-party process—which China values and enjoys—is a better way to hold allied support and work for real concessions. It complicates the DPRK’s diplomatic strategy, which is to seek compensation, delay and offer little in return.

Ambassador Bolton ignores a role for South Korea, an indispensable ally and player, which is most endangered by Pyongyang. Even Seoul’s previous left-leaning government was often supportive, at least when it was not reacting to careless rhetoric by American unilateralists. It now has a new president, interested more in reciprocity than just giving away the store to the DPRK. Seoul’s sensibilities—even contradictions—need to be handled with diplomatic tact.

Mr. Bolton’s undisguised contempt for the State Department is merely unhelpful rhetoric. He equates persistence with failure—a recipe for stasis. The department has many fine professionals and is able and willing to respond to strong leadership that clearly directs what is to be done.

Talks and negotiations are not an inherent concession of defeat, and should not be lightly pushed aside. Contrary to Mr. Bolton’s view, the costs of talks among working-level contacts are low. If high costs emerge from later negotiations, the costs are not from talking but from the attendant agreements.

There is not enough public information for me to join Mr. Bolton in criticizing the present state of six-party talks and negotiations. Of course, right now, the news is bad. But if there is any lesson in Asia, it is that patient persistence is essential. There is no reason for the United States to forego the diplomatic process. Moreover, there is no inherent risk in addressing North Korea’s various failings one after another, starting with nuclear weapons and moving on from there. If there ever is progress, an advance in one area is likely to presage progress in another.

The most important part of the six-party negotiations is not to lose sight of the United States’ goal—complete, verifiable, irreversible dismantlement of North Korea’s nuclear weapons and facilities. And step-by-step measures—such as shutting down DPRK capacity to produce more and more plutonium—is a valid tactic, so long as just one step on the path does not become the limit of North Korea’s nuclear disarmament.

Internal and more intense pressures—both economic and political—will force serious change on North Korea someday. To speed this shift, and foster cooperation with regional players, the United States should use both dialogue and pressure. Probing talks can be preliminary. Later, if results warrant, responsible negotiations can test sincerity. Verification is a key part of any action. False negotiating victories must be forsworn.

We cannot solve this alone. Talks need to be a part of a multilateral process, patiently pursued and carefully coordinated. Doing it this way reassures allies. There are no guarantees of success with an approach that uses both dialogue and pressure, but neither does slow, halting progress require us to quit.





James A. Kelly was the assistant secretary of state for East Asian and Pacific affairs (2001?). During his tenure he led the U.S. delegation in talks with North Korea.

John Bolton is a senior fellow at the American Enterprise Institute and former United States Permanent Representative to the United Nations. He is the author of Surrender Is Not an Option (Threshold Editions, 2007).
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Greater China
Jun 24, 2010



Page 1 of 2
China in America's sanctions crosshairs
By Peter Lee

Stuart Levey, "father" of the North Korean atomic bomb, is back, and with him is the threat that the United States will deploy the most feared and dangerous weapon in its diplomatic arsenal - sanctions against foreign corporations and foreign banks - to advance its Iran and North Korea policies.

Levey, director of the US Treasury Department's Office of Terrorism and Financial Intelligence (OTFI), returned to the spotlight with the announcement of US add-on Iran sanctions in the wake of United Nations Security Council (UNSC) Resolution 1929. China has a considerable amount of experience with Levey, mostly negative, and will be observing his actions on Iran and North Korea with a good deal of wary curiosity.

With the exception of Secretary of Defense Robert Gates, Levey



is the highest-ranking George W Bush administration holdover in the Barack Obama administration. The retention of the architect of financial sanctions against North Korea was a signal that Obama was much enamored of them as the "smart power" alternative to military force as a coercive instrument of American policy. Hopefully, the results for the US this time will not be as dire as North Korea's rush to the atomic bomb occasioned by the sanctions campaign of the Bush administration.

Certainly, the US dollar is still king and the threat of ostracization from the US financial system is a real and significant worry ... but not necessarily for America's enemies. North Korea and Iran have already been cut off from the US financial system. The real threat is to America's allies and "strategic competitors", such as China, who do not toe the line in a satisfactory fashion.

Sanctioning of third-country financial corporations has a dismal history under the Bush administration. The Obama administration appears to be taking steps to avoid duplicating the mistakes of its predecessor but, given the inherent contradictions of sanctions, may nevertheless be doomed to repeat them.

OTFI first emerged after 9/11 as an extension of the Treasury Department's money-laundering investigative activities, traditionally concentrated on drug trafficking, to terrorism.

Its terrorism-related efforts were largely ineffective. In contrast to the gigantic transnational rivers of cash needed to sustain the booming drug trade, the tiny amounts of money needed to finance conspiratorial terrorist activity such as al-Qaeda's were a drop in the international ocean of financial transfers, virtually impossible to detect except in hindsight.

Nevertheless, OTFI exploited the anti-terrorism powers given to it and evolved into an important instrument of American foreign policy under the Bush administration.

OTFI received new powers under Section 311 of the Patriot Act - penned by Democrat John Kerry - which gave the Treasury Department the power to sanction foreign financial institutions that were insufficiently transparent and cooperative in matters of tracking terrorist financing by cutting them off from the US financial system.

The Bush administration welcomed OTFI's expanded mandate and powers, since it gave the executive branch a powerful and arbitrary instrument of unilateral power beyond international challenge or congressional oversight. On the basis of its internal investigations and with the justification of protecting the US financial system from terrorist infiltration, the Treasury Department could ban designated foreign banks from transacting business with US financial institutions.

Wielding - and abusing - this power proved an irresistible temptation to the Bush administration in its campaign against the two members of the "axis of evil" - Iran and North Korea - that survived after the military overthrow of Saddam Hussein's regime in Iraq.

OTFI, under Levey, enthusiastically and unapologetically deployed the threat of financial sanctions.

Significantly, its targets were not Iranian and North Korean banks - which were already barred from dealings with US corporations under US law. Instead, the genuine object of OTFI's threats were the financial institutions of American allies - allies that, for reasons of principle, greed or strategic necessity, had not seen fit to impose the same national sanctions on Tehran and Pyongyang that had been imposed by the United States.

During the second Bush administration, the peripatetic Levey roamed the globe, chivvying the huge European financial institutions but also venturing into backwaters like Mongolia and Bulgaria to threaten local banks that dared take Iranian and North Korean deposits and offer the two pariahs access to the international financial system.

In one significant instance, the Treasury Department moved beyond threats to actually institute sanctions against a targeted bank. This was the case of Banco Delta Asia - BDA - a small bank in Macau that accepted North Korean deposits.

In September 2005, alleging that BDA was laundering North Korean counterfeit money, the department announced it was investigating BDA as a "bank of money laundering concern".

There was a prompt run on the bank, the Macau authorities took BDA over, and $24 million or so in North Korea-related funds in 51 accounts were frozen at American insistence. That represented the highwater mark of America's success in quarantining BDA.

There were several worrying consequences.

First, and most importantly, North Korea withdrew from the six-party talks in fury, abandoned its nuclear haggling with the United States, and detonated its first atomic bomb on October 9, 2006. Despite revisionist attempts to decouple BDA from the bomb, Levey's paternity of the Nork nuke is pretty much indisputable.

Secondly, America's image as an honest broker impartially protecting the integrity of the dollar-based international financial system was seriously tarnished.

In the past, the Treasury Department's efforts to combat counterfeiting and stem the oceans of cash sloshing through the world's drug economy were universally respected. However, by unleashing OTFI on Iran and North Korea, the Bush administration had made the fateful decision to "weaponize" financial enforcement, using it to advance nontransparent, unilateral geostrategic goals far removed from the department's genuine mission.

In order to justify a unilateral financial assault on North Korea, the Bush administration hitched its star to the "Supernote" counterfeiting allegation to redefine the North Korea problem as an attack on the US dollar rather than a multilateral security issue in North Asia. As far as US allies and interlocutors - especially China - were concerned, the OTFI initiative signified Washington's effort to seize control of the North Korea dossier and pre-empt their input.

In the realm of international law, it was also a worrying case of de facto extra-territoriality - applying US jurisdiction to foreign corporations operating in foreign countries. The fact that OTFI money-laundering sanctions were completely non-transparent applications of US executive branch rules, by which the accused party could not even appear, let alone mount a defense, certainly contributed to the OTFI's intimidating aura, but also fueled international fear and resentment.

US laziness in making its case - though largely unchallenged by the media with the exception of McClatchy's Kevin Hall - did not enhance international confidence in OTFI's ability to wield this considerable power responsibly.

A convincing explanation was never offered for how the tottering North Korean state was able to import the only press capable of printing US banknotes, develop the highly specialized papermaking technology, either duplicate or acquire from Switzerland the necessary optically variable inks, or track the US currency through 19 design changes, in order to produce a mere $45 million worth of Supernotes over 10 years. [1]

The United States accused BDA of laundering Supernotes, ignoring the inconvenient fact that BDA sent all of its cash deposits for independent inspection by Hong Kong & Shanghai Bank (HSBC) before sending them off the Federal Reserve for credit - and no counterfeits had been detected since 1994.

So OTFI became associated with American unilateralism, the back-door assertion of extra-territorial jurisdiction, and shoddy procedures: essentially, an abuse of America's privileged position at the center of the financial world.

Third, even after the North Korean test had sidelined American advocates of confrontation and the six-party talks were set to resume, the Treasury Department blocked the remittance of the North Korean funds at BDA - the key confidence-building measure negotiated by Christopher Hill - by issuing a scorched-earth ruling formalizing the complete cutoff of BDA from the US banking system. On the dubious pretext that its unilateral administrative ruling against BDA could not be undone without violating US laws, the Treasury Department blocked the remittance for another excruciating eight weeks. Finally, the State Department, after futile and humiliating public contacts with several US and international banks that refused to handle the funds because of the threat of Treasury sanctions, arranged the remittance via the US Federal Reserve and a Russian bank.

The realization that Levey, whether or not he was acting in collusion with diehards of the Dick Cheney stripe to sabotage the resumption of the six-party talks, could defy the executive branch virtually openly, was undoubtedly a sobering reminder to the Bush administration that unilateral, unchecked power can cut both ways.

The final, and strategically most significant, fallout of the BDA affair was that it showed China's leadership how far the United States was prepared to go to attack core Chinese interests in pursuit of its foreign policy goals. The BDA sanction was, openly and avowedly, designed to intimidate China with the threat of being cut off from the US financial system.

The China aspect extended beyond the fact that BDA was in Macau - a Chinese jurisdiction - and was run by Stanley Au, a local businessman with close ties to Beijing who was a delegate to the China People's Consultative Congress.

David Asher, the brash architect of the hardline North Korea policy, testified before Congress in 2007 that BDA was a case of "killing the chicken to scare the monkeys".

“Banco Delta was a symbolic target. We were trying to kill the chicken to scare the monkeys. And the monkeys were big Chinese banks doing business in North Korea... and we’re not talking about tens of millions [of dollars], we’re talking hundreds of millions.” [2]

To a certain extent, Asher's public testimony may have been vainglorious. Certainly, one objective of the attacks on North Korea's bank dealings was to harass South Korea. Under the conciliatory regime of Kim Dae-jung, Seoul was funneling billions of dollars in Sunshine Policy payments to Pyongyang through Hong Kong or Macau banks. With proper timing and selection of target, the Treasury Department could have frozen billions of dollars of South-to-North cash and put a serious crimp in Kim Dae-jung's dollar diplomacy as well as Kim Jung-il's bank account.

However, China treated the BDA matters as a matter of its core interests, angrily summoning Treasury functionaries to Beijing for protracted negotiations during the convoluted remittance crisis. It learned, to its dismay, that the Treasury Department was unwilling to grant the People's Bank of China a waiver to allow it to handle the BDA funds and get the six-party Talks - the crown jewel in Beijing's efforts to claim recognition for its central role in regional diplomacy - restarted.

Given this baggage, and OTFI's rather dismal record of failure and insubordination on BDA, it is interesting that the Obama administration kept Levey in his post after it took office.

The administration's infatuation with smart power applied through multi-lateral initiatives is well-known, and financial sanctions are viewed as a critical force multiplier allowing America to recruit and lead a global coalition by virtue of its central role in the international financial system.