U.S. and Macau (2006)

U.S. Department of State

Recent Developments in U.S.-Democratic People's Republic of Korea (D.P.R.K.) Relations

Christopher R. Hill, Assistant Secretary for East Asian and Pacific Affairs
Statement before the Senate Foreign Relations Committee, Subcommittee on East Asian and Pacific Affairs
Washington, DC
July 20, 2006

Thank you, Mr. Chairman, for this timely opportunity to update the Committee on recent developments on U.S. policy with respect to the Democratic People's Republic of Korea (D.P.R.K.). My prepared remarks today will focus on the strong and unanimous response of the United Nations Security Council on July 15 to North Korea's missile launches and to the North's ongoing nuclear weapons programs, U.S. enforcement action against North Korea's illicit activities, and what we are doing to ease the plight of North Koreans in and out of North Korea.

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The Resolution stressed the importance of implementation of the Joint Statement adopted September 19, 2005, by all six parties. Resolution 1695 welcomed efforts by Council members and other states to facilitate a peaceful and comprehensive solution through dialogue, which the U.S., Japan, South Korea, China and Russia are pursuing through the Six-party Talks. It strongly urged the D.P.R.K. to return immediately to the Six-party Talks without precondition.

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Illicit Activities

North Korea has engaged in illicit activities for decades. The D.P.R.K. calls U.S. law enforcement and financial regulatory measures "sanctions" and asserts they are blocking progress in the Six-party Talks. The United States will continue to take law enforcement actions to protect our currency and our citizens from illicit activities. The measures we have taken are targeted at specific behavior. Contrary to North Korean assertions, these actions are not related to the Six-party Talks.

We had offered at the last round of Talks in November 2005 to explain to the D.P.R.K. about the regulatory actions to protect the U.S. financial system from abuse, but it did not respond to our offer until February 2006. On March 7 in New York, a Treasury-led interagency team met with D.P.R.K. officials.

The team described the reasons for the September 2005 designation by the United States of a bank in Macau, Banco Delta Asia (BDA), under Section 311 of the Patriot Act as a financial institution of "primary money laundering concern." The team discussed our ongoing efforts with authorities in Macau to resolve the issues that led to that designation.

As stated in the Notice of Finding published in the Federal Register on September 20, 2005, BDA had been providing financial services for many years, with little oversight or control, to a number of North Korean entities engaged in illicit activities, including drug trafficking, smuggling counterfeit tobacco products and distributing counterfeit U.S. currency.

Our designation of BDA -- which warns our financial institutions about doing business with the bank -- is producing encouraging results. Macau has adopted new anti-money laundering legislation and compelled the bank to institute more effective internal controls. U.S. law enforcement and regulatory agencies are working with Macanese authorities to resolve the concerns that led to the designation.

U.S. regulatory and law enforcement measures to protect our financial system from abuse are not subject to negotiation. We will continue to guard our financial system in accordance with U.S. law.

The September 19, 2005, Joint Statement of the six parties contemplates, in the context of D.P.R.K. denuclearization, discussions on a broad range of issues, including trade and investment cooperation and steps toward normalization.

The North Korean accounts frozen by the Macao Monetary Authority total roughly $24 million. The D.P.R.K.'s use of the Macanese action as a pretext not to return to the Talks -- where benefits would dwarf what we're talking about with BDA -- raises questions about how serious the D.P.R.K. is at this point about its commitment to implement the September 19 Joint Statement and its willingness to denuclearize.

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