Appeasement China & Korea Counterfeiting Money Laundering

Law Enforcement Will Be Compromised

Correction:   I subsequently found the transcript for the February 27, 2007 hearing, and Chris Hill did not say, quote, “Law enforcement will not be compromised.”  On reading the full quote, you’ll probably agree that Hill found another way of saying the same thing; however, I regret the error, which was no doubt due to me scribbling notes of the hearing by hand, and transposing Rep. Royce’s question with Hill’s answer.  Here’s the correct quote from Hill:

Ambassador HILL. Mr. Congressman, I want to assure you that I have repeatedly raised with the North Korean side that it is completely unacceptable to be engaged in this type of activity, especially the counterfeiting of this $100 bill.  Our vigilance on this matter does not end with our resolving the matter of this bank in Macau. We will continue to monitor this very closely, and as we see signs that the North Koreans are somehow persisting in this activity I can assure you we will react accordingly.

Mr. ROYCE. Well, here is what gives me pause.

Ambassador HILL. We have no intention of trading nuclear deals for counterfeiting our currency.  [Transcript, House Cmte. on Int’l Relations, Feb. 22, 2007]

Original Post follows:

Law enforcement will not be compromised.

Chris Hill, Feb. 27, 2007

OK, we probably compromise law enforcement all the time.  Cops give criminals breaks in exchange for information and testimony.  As a prosecutor, I did; as a defense lawyer, I made those arrangements, too.  And I suppose a degree of compromise for the sake of the greater national security good is inevitable, and often justifiable.  Each deal has to be judged on its own merits.  You may not  approve of  the recent return of $25 million to North Korea, much of it  in criminal proceeds, and all of it  in violation of a U.N. resolution.  Although the sum itself is modest, I think the diplomatic cost will prove to be  higher than it’s worth.  But what if the sum weren’t so modest?

Today,  a new New York Times report tells just how much we really did compromise law enforcement for political expediency.  Flash back to 2005, when I first  told you about Operations Royal Charm and Smoking Dragon.  The Times tells us that those operations, and their implications for other Chinese banks, were much wider than we thought at the time:

The Treasury Department said that the information collected in the course of the Royal Charm and Smoking Dragon investigations, in addition to providing grounds for designating Banco Delta Asia as a “primary money laundering concern” under the Patriot Act, also prompted it to consider applying that designation to other, much larger banks operating in Macao, including the local branch of the Bank of China.

But the Bush administration decided to stick to sanctioning Banco Delta Asia and not take that step against the larger banks to avoid excessive damage to the financial system of Macao and a resultant clash with China, officials say. [….]

A  few  mysteries are now solved.  First, we know why the Bank of China was so nervous about handling the recent transfer of the $25 million.  This story should make for some lively Board of Directors meetings.  Second, we know why it was possible to secure the Bank of China’s cooperation for a brief period in cutting off the regime’s funds, back before the February Surrender.   Third, we have the most specific report yet to link the BOC to this scandal; previous reports I’d read had conflicted.

But American officials made no mention of the two racketeering investigations that had ended a month earlier. Both these investigations had significance for Macao banks, including Banco Delta Asia, because they produced evidence of illicit financial transactions through the Chinese territory that was strong enough to be presented in court and to meet the test for designating banks as money laundering concerns, according to American officials who reviewed the results of the investigations.

There are circumstances under which I would support this.  If making an example of BDA would have been sufficient to cause other banks to cut off the North Koreans summarily — and by most accounts, it was — then our most important task is done without collapsing the entire Macanese economy.  On the other hand, I would certainly have withheld a credible threat to do just that if China’s cooperation was dilatory (it has been).

“Banco Delta was one place they put their money,” he said. But he added: “Smoking Dragon and Royal Charm point to almost every bank in Macao.

Another former State Department official, Matthew Daley, agreed with Mr. Asher’s account of the evidence produced by the investigations against the banks.

“I am personally convinced it is a really solid case,” said Mr. Daley, who was deputy assistant secretary of state for East Asian and Pacific Affairs until January 2005.

The haul from that investigation:  59 arrests, $4.5 million in supernotes,  and millions of dollars of counterfeit cigarettes, ecstasy pills and fake Viagra.

Yet for the officials who tracked North Korea’s illicit financial dealings and the progress of the law enforcement investigations in the United States, Banco Delta Asia had never been the main offender in Macao.

“The fact is that Banco Delta was an easy target in the sense that it was not so large that its failure would bring down the financial system,” said Mr. Asher, who now a senior associate fellow with the Asian Studies Center of the Heritage Foundation.

In comparison to Banco Delta Asia, the information that had been collected on evidence of money laundering by the Macao branch of the Bank of China was “voluminous,” Mr. Asher said.

The one person who probably knows more about this subject than any other thinks  that authorities in China and Macau knew  all about these illegal activities and simply let them go on.

“Royal Charm and Smoking Dragon were just incontrovertible proof of the role of Macao banks, Macao gangsters, North Koreans in Macao,” said David Asher, an outspoken critic of North Korea who at the time of the investigation was one of the most senior State Department officials dealing with the country.

“In effect, they also demonstrated the awareness of the Macao authorities to these things,” Mr. Asher said. “This stuff was going on on such a large scale, going through several different banks.   [….]

“Banco Delta may be a sacrificial lamb in some people’s minds, but it is not about Banco Delta,” he said. “It’s about Macao, Macao’s government, China, the Chinese government and their complicity and their accommodative behavior towards North Korea’s illegal activities, proliferation activities and leadership financial activities.

The real question now is whether all of this evidence and pressure, having been marshaled and then withdrawn, can be brought to bear again when North Korea reneges.  Say, this Saturday.

See also:   Tong Kim, writing in the Korea Times, makes a point I’d made earlier — the agreement to return North Korea’s dirty money was spectacularly bungled because we were obviously not prepared for it.  What’s pretty clear to any observer is that Treasury’s investigation wasn’t finished, and we still didn’t know who owned what funds.  In which case, since returning this money wasn’t even part of the deal, you have to question why we even agreed to do this at all.


  1. That was a great article by the NY Times. No political posturing in the article just simply explaining what happened. I to am not sold on giving them back the $25 million either. If they want to give the $25 million back to them for humanitarian purposes buy them $25 million worth of food to send to them not cash.



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