The Two Koreas: A Contemporary History (83 page)

Part of Ambassador Hill’s closing statement had noted “for the record that the United States will take concrete actions necessary to protect ourselves and our allies against any illicit and proliferation activities on the part of the DPRK.” This pointed directly to a time bomb that had already been announced by Washington, but one that so far had been overshadowed by the six-party talks and was still waiting to explode—a US Treasury Department notification on September 15 signaling that Washington had set in motion steps that would amount to international banking sanctions against North Korea.

The same day as the North’s statement, the
Federal Register
published a notice that the secretary of the Treasury “finds that reasonable grounds exist for concluding that Banco Delta Asia SARL (Banco Delta Asia) is a financial institution of primary money laundering concern.” This small Macau bank was not really the issue. The real target of the Treasury action was North Korea. Underlining that point, the notice stated that “government agencies and front companies of the Democratic People’s Republic of Korea (DPRK or North Korea) that are engaged in illicit activities use Macau as a base of operations for money laundering and other illegal activities. The involvement of North Korean government agencies and front companies in a wide variety of illegal activities, including drug trafficking and counterfeiting of goods and currency, has been widely reported. Earnings from criminal activity, by their clandestine nature, are difficult to quantify, but studies estimate that proceeds from these activities amount to roughly $500 million annually.”

The finding meant that any bank dealing with Banco Delta Asia, or in fact with North Korea itself, was now possibly subject to Section 311 of the USA PATRIOT Act, which had been passed by Congress within weeks after the attacks on 9/11. Under this section of the act, US financial institutions were required to take steps that would, in effect, stop their dealing with any foreign institution that itself had links with an entity named in the relevant Treasury finding. The Treasury Department’s press release on section 311 says simply that “taken as a whole, Section 311 of the USA PATRIOT Act provides the Secretary with a range of options that can be adapted to target specific money laundering and terrorist financing risks. These options provide the Treasury Department with a powerful and flexible regulatory tool to take actions to protect the U.S. financial system from specific threats.”

It turned out to be a classic case of a tool meant for one purpose being used for something entirely different, with correspondingly unforeseen results. Washington tried to pass off this blow to the six-party talks as a simple legal action by the Treasury, divorced from the diplomacy and, most especially, not linked to the September 19 statement. The full explanation for the Treasury Department’s decision to institute the financial sanctions at this very moment—as nearly as can be determined—is tangled, even as the results were painfully clear. The two policies—new financial measures against the North and the six-party agreement—put on the same track at the same time and heading toward each other could have only one result: a train wreck.

For more than a year, US law enforcement agencies had been working on leads about various North Korean illegal activities, of which there were many. President Bush made it clear that measures to protect the United States against these activities were not to be compromised or diluted in order to make way for diplomatic progress. The issue of what to do, and when, came to a head in the summer of 2005, around the same time as the wrangling in Beijing over the statement of principles for the six-party talks. US officials from several law enforcement and foreign-policy agencies had to decide whether to approve the Treasury action before or after the diplomatic efforts in Beijing moved off dead center (and at that point, it was not clear they would actually succeed). The decision was made—one participant says it was unanimous—to keep strictly with the president’s orders and push ahead on what was conceived as the defensive-legal front. No one at that point thought the Treasury action would end up being the tsunami in the international financial community it turned out to be.

The explanation that the Treasury action was necessary to protect the United States was hardly credible to the other countries involved in the six-party talks. The South Koreans were distressed; the Chinese could hardly believe what Washington had done. To them, it was as clear as
could be that at a minimum, the US action put at serious risk the progress made only a few days before. In their darkest moments, many even wondered if the Treasury action was a deliberate US attempt to make sure that the September 19 joint statement never got off the ground. In fact, the move made it hard to convince either Beijing or Pyongyang that the United States was serious about the joint statement or that the principles set out in that statement had any meaning. Another six-party meeting was held in Beijing in November, but it could not possibly put Humpty-Dumpty together again. The joint statement, though it continued to exist on paper, had been shattered. The talks were blown completely off track for fifteen months, and inter-Korean relations fell onto a path from which, as of this writing, they have still not recovered.

As valid as the accusations of North Korean criminal activity that sparked the Treasury action might have been, the central question was whether
this
action at
this
time made sense in terms of broader US goals. It clearly did to those in Washington who thought that the exercise of leverage in the international financial system would be an effective way of finally “punishing” the North. There was no serious thinking in the Treasury Department, and little elsewhere in the administration either, about how this move might fit with the overall diplomacy. Worse, no consideration was given to how Washington might turn off the effects of the Treasury action when that became necessary. After the fact, it became obvious that there were no plans to handle the possibility that the North might eventually come back to six-party talks and agree to concrete steps to implement the September 19 joint statement. Clearly, the North would insist the US financial measures be rolled back as part of such a deal, but no one understood how Treasury would do that. Asked about an “exit ramp,” a Treasury official directly involved admitted there wasn’t one.

In Seoul President Roh received the news of the Treasury action with consternation. In November 2005, several weeks after the measure had been announced, the South Korean leader met President Bush in Kyongju, the capital of one of Korea’s ancient kingdoms, where he pressed Bush over and over on the issue, insinuating numerous times that the “coincidence” of the Banco Delta Asia action and the September 19 joint statement was actually something darker. Each time the president explained his views on the need for this legal action to protect the United States, and each time Roh went back to his barely disguised accusations. It was one of the worst meetings the two ever had.

To the North Koreans, the Treasury action—coming right on the heels of the September joint statement—may have been reconfirmation that Washington was not really interested in anything but bringing the
regime to its knees. Those in the DPRK Foreign Ministry who had been arguing in favor of diplomacy with the United States might at that point have regretted their choice of profession.

Given the way US officials and others focused for so many years afterward on the September 19 joint statement, it is a fair question as to whether the document represented a moment when the North Korean nuclear problem and all of the attendant issues might have started to move in a positive direction. Unfortunately, there is no way to tell, because if there was such a moment, it disappeared immediately and the path led elsewhere. The statement turned out to be too vague to cope with the lack of trust on all sides. As one keen observer describes it, the statement was “sitting on air,” with no bilateral US-DPRK diplomacy to support it and no political will in Washington, either. The United States had immediately distanced itself from a key formulation of the declaration, while Tokyo quickly ducked its obligations by refusing to take part in the supply of “energy assistance” to North Korea promised by the other five parties. Determined, as they always are, never to allow themselves to be seen as weak or yielding to pressure, the North Koreans seized the opening presented by what became known in shorthand as “BDA” (Banco Delta Asia) to advance their nuclear weapons program to a new and more dangerous phase.

THE END OF KEDO

On September 19, 2005, when the United States announced that it supported a decision to disband the organization by the end of the year, KEDO was already on its last legs. In practical terms, the announcement made little difference, apart from the burden it suddenly put on the organization to work out the final extrication of its workers and the settlement of claims by its contractors under less than ideal circumstances.

On another level, however, both the fate of KEDO and the way it was dispatched reflected Washington’s determined effort to purge itself of the remnants of the Clinton administration’s approach to North Korea. Since its formation in 1995, KEDO had functioned as a multilateral organization able to maintain relations with North Korea, whatever the state of bilateral ties between any of the individual governments and the DPRK. KEDO was not autonomous but under the control of the governments involved; its separate organizational persona was obviously a fiction, yet all sides, including the North Koreans, found it a useful one. Most important, the extended commitment by the United States to KEDO demonstrated to Pyongyang that whatever temporary problems might arise—and there were many—Washington was sticking with the process of engagement.
Whether Washington had deluded itself into thinking the North would collapse before the United States had to go through with all of its obligations under the Agreed Framework was, for Pyongyang, beside the point.

Washington’s commitment to KEDO had also helped convince Seoul and Tokyo that the United States was serious about a long-term diplomatic settlement of the North Korean nuclear problem. However, neither of them fully grasped the extent to which the American contingent in KEDO was separated from the US government, very different from the organization’s South Korean or Japanese employees, most of whom were closely tied to their respective government bureaucracies. In some respects, it turned out KEDO was more effective than the six-party talks in dealing with the North on a multilateral basis. The KEDO office at the LWR construction site was in constant contact with its North Korean counterparts, allowing the two sides to develop working relations that often proved invaluable when problems arose. And in the days before North-South industrial or commercial projects got under way, through its use of numerous South Korean subcontractors, KEDO gave South Korean companies their first experience working in the North.

The organization had faced numerous challenges along the way. In 1996 when a North Korean submarine ran aground off the coast of South Korea, and in 1998 when the North launched a rocket that passed over Japan, first Seoul and then Tokyo balked at continuing to fully participate in KEDO, but in both cases the governments worked to overcome the challenges. What could not be overcome was when the United States essentially pulled the plug on its participation in KEDO in 2002, continuing to fund its portion of the administrative expenses but otherwise backing away from the organization’s major purpose, building two light-water reactors in the North. At that point, the organization began to fall apart. For reasons of personal pique and policy exhaustion, the possibilities for utilizing KEDO in the broader diplomacy sphere were not seriously considered by the Bush administration, even though KEDO managed to sustain working relations and access to the North when communications largely broke down between Washington and Pyongyang in late 2002 and 2003. In different political circumstances in Washington, it might have been possible to keep the organization intact, or at least build on it to devise a new diplomatic tool for dealing with North Korea. But no one in the Bush administration had the time or inclination to suggest such a course against what was certain to be bitter opposition.

Besides, there was the not-so-minor matter of funding. In a nonpartisan way, the US Congress had never been happy providing money for KEDO, and after the uranium enrichment issued surfaced lawmakers would not have given a dime. Even if it had wanted to (which it clearly did not), the administration could not have certified, as required by Congress
as a prerequisite for funding, that the North was in compliance with the Agreed Framework. At that point, had the president used the provision of a waiver to get around the need for certification, it would have provoked a fight with Congress no White House would want.
*

What finally stripped away the last vestiges of the leading American role in the organization turned out to be not serious policy considerations but petty animosities between the State Department and the KEDO front office, leaving the organization leaderless. And without American leadership in the organization, old tensions between Seoul and Tokyo reemerged, eventually showing up in bad blood between individual KEDO employees.

When on a freezing morning in early-January 2006 the last ship carrying the remaining KEDO workers and officials slipped away from the dock at the LWR construction site and headed out to sea, the folly of the pullout was obvious to everyone who stood on the stern of the MSS
Hangyore
and watched as nearly a decade of effort and more than a billion dollars spent disappeared from view. Subsequent meetings of the KEDO Executive Board, where the representatives discussed how to divide up the organization’s remaining assets and debts, were bitter and often ugly. It was hard to imagine that either Seoul or Tokyo would again trust an American commitment to a negotiated settlement with North Korea, especially one that called on governments in South Korea or Japan to spend their own taxpayers’ money.