Treasury's War: The Unleashing of a New Era of Financial Warfare by Juan Zarate

Author:Juan Zarate
Language: eng
Format: mobi, epub
ISBN: 9781610391160
Publisher: PublicAffairs
Published: 0101-01-01T00:00:00+00:00

Chris Hill spent weeks trying to find a bank that would help in the transfer of the assets. At the end of the day, it would need to involve an American institution. Involving an American institution to assist in the transfer of money back to North Korea was the only way institutions would agree to touch North Korean assets. It was also ideal for North Korea, since the United States would be directly validating a banking transaction with Pyongyang. At one point, Wachovia seemed to be a willing participant, but without assurances against future sanctions or regulatory actions, the bank declined to get involved. It wasn’t worth it.

At last, in the late spring of 2007, the New York Federal Reserve Bank, accustomed to handling sensitive transactions and dealing with foreign sovereign counterparties, agreed to help. The New York Fed was the last and most important resort for an international transaction of this nature—and could transfer assets between central banks. Tom Baxter, the legendary general counsel who had started his career at the Fed by helping with the return of Iranian assets after the hostage crisis in 1979, was enlisted by Tim Geithner to fashion a mechanism for the transfer of the assets. The mechanics were crucial to this act of high-end technical financial diplomacy.

The United States had found a Russian bank in Vladivostok, Far Eastern Bank, that held an account for the North Korean Foreign Trade Bank and was willing to help with the transfer of assets—but only if it was assured that it would not be sanctioned or targeted as a result. The Russians also needed a mechanism to receive the assets from Banco Delta Asia, since they did not have an established banking relationship with BDA. This meant that Russia’s central bank would need to be involved. American Ambassador William Burns—who would later become Secretary of State Hillary Clinton’s deputy—provided assurances to Russian government officials that the United States would not act against the private Russian bank or the central bank. President Bush and Russian President Vladimir Putin discussed the issue at the G8 summit in Germany and agreed to make this work. Baxter began designing a multistaged global transfer of toxic assets, with the Federal Reserve serving as the ultimate financial middleman.

In June 2007, Banco Delta Asia transferred the $25 million to Macau’s central bank, the Macau Monetary Authority. Once these assets were transferred, the Macanese authorities sent the money to the Federal Reserve Bank of New York. Then the Fed sent the assets to the Russian central bank, which then transferred the assets to the Far Eastern Bank. Finally, the Far Eastern Bank transferred the $25 million into the account of the North Korean Foreign Trade Bank. The money was back in the North Korean regime’s hands. The transaction was done—unwinding one of the most significant asset freezes in modern history. The price for North Korea’s return to the six-party talks had been paid in full.

The unwinding had been a hard-fought endeavor. But if the State Department’s hope had been to secure a deal with North Korea, there was a problem.

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