U.S. and North Korean negotiators are back in Beijing this week, trying to resolve a financial dispute that halted talks on Pyongyang's nuclear weapons for more than a year. The immediate focus of the dispute is a small bank in Macau. But as VOA's Kurt Achin reports from Seoul, the dispute has been decades in the making, and has ripple effects far beyond the one institution.
When U.S. nuclear negotiator Christopher Hill wrapped up December's round of six-nation talks aimed at ending North Korea's nuclear weapons programs, he blamed the round's lack of progress on Pyongyang's fixation with a single topic.
"They have had strict instructions from their capital that they cannot engage officially on the subject of six-party talks until they have the BDA issue resolved, and I have made very clear I am not a BDA negotiator," said Hill.
Those initials, BDA, stand for Banco Delta Asia, and have overshadowed the nuclear discussions since September 2005. That is when North Korea pledged in principle to China, Russia, Japan, South Korea and the United States that it would begin dismantling its nuclear programs, in return for aid and security guarantees.
Within days of Pyongyang's pledge, however, the United States Treasury Department blacklisted Banco Delta Asia, a bank in Macau, the former Portuguese enclave that is now a part of China.
Washington called the bank a "willing partner" to North Korean money laundering, counterfeiting and other illegal activities. The Macau government then took over BDA operations, freezing $24 million in North Korean accounts.
But experts like Dong Yong-seung, an expert on the North Korean economy from the Samsung Economic Research Institute, say the consequences of the U.S. Treasury action went far beyond the $24 million.
He says banks and other entities voluntarily cut off business with North Korea to avoid U.S. legal scrutiny. He says North Korean business interests rapidly discovered they had little or no means of clearing international transactions, legitimate or illegitimate.
In response to the U.S. action, Pyongyang boycotted the nuclear talks for more than a year, demanding that Washington lift the sanctions.
In October, North Korea tested its first nuclear explosive device.
North Korea has always denied sponsoring counterfeiting, narcotics trafficking, money laundering and other illegal activity. U.S. officials say evidence of North Korean illicit activity reaches back decades, and they maintain that the blacklisting of BDA was purely a law enforcement matter, separate from the six-party nuclear negotiations.
U.S. officials say the sanctions can only be lifted on credible assurances from the North that its illegal activities have ceased. The U.S. says North Korea has the chance to provide those assurances at talks with Treasury officials that began in December and resumed this week.
U.S. insistence on separating the sanctions and the nuclear talks has drawn widespread criticism here in South Korea, most notably from President Roh Moo-hyun.
In comments made last month, Mr. Roh questioned the timing of the financial sanctions, saying they buried the progress made at the September 2005 nuclear talks. He said the moves could possibly be seen as a conspiracy between the U.S. State and Treasury departments.
Peter Beck, northeast Asia director for the policy organization the International Crisis Group, says the reality probably has nothing to do with conspiracy - but with an untimely lack of coordination.
"Certainly the people that I know at the Treasury Department are very happy that the crackdown has hurt the North as much as it has, because that's precisely what it was designed to do," he said. "But, there are many at the State Department that feel that this has created an unnecessary obstacle."
Tong Kim is a former high-level interpreter who dealt with North Korea for the U.S. State Department. He says the financial and the nuclear talks are linked no matter what Washington's intention was, because without progress in the financial area, Pyongyang is expected to keep digging in its heels on the nuclear issue. However, he suspects the North would respond favorably to a U.S. show of flexibility.
"I think the North Koreans will be forthcoming even if there would be some partial lifting of the sanctions - for example, releasing $8 million or $12 million out of the $24 million," he said. "North Koreans would take it as a sign of the lessening of hostile action."
Kim says it is virtually unthinkable that North Korea would admit to any wrongdoing. But he says it is possible Pyongyang could come up with some acceptable but face-saving formulation, such as pledging "heightened vigilance" in the future to apprehend and punish any North Koreans who engage in illicit activities.
Regional experts say that no resolution to the matter is likely unless both sides compromise. And until that happens, there will likely be little progress in the six-party nuclear talks.