WASHINGTON -- The Obama administration is preparing to wield broad financial pressure to try to force North Korea to dial back its weapons program, building on strategies former President George W. Bush employed, but then unwound.
The Treasury Department is taking a leading role and will work through international banking channels to try to restrict funds to 17 North Korean banks and companies that U.S. officials say are central players in Pyongyang's nuclear and weapons trade. These firms serve as a financial lifeline to leader Kim Jong Il, his family and ruling circle.
United Nations sanctions call for the banning of the shipment of all luxury goods to Pyongyang's leadership. American diplomats are also negotiating through the U.N. Security Council to sanction by July 12 as many as a dozen North Korean individuals or companies active in Pyongyang's weapons trade. There is likely to be overlap with the U.S. Treasury's list of 17 sanction targets.
U.S. officials said they're targeting key nodes in the North Korean financial system. The language of the new Security Council resolution also provides Washington with leeway to go after a much wider range of targets, said these officials.
"There are some very powerful provisions" in the new resolution, said a senior U.S. official working on the effort. "It calls for the prevention of all financial services that could contribute to North Korea's...weapons of mass destruction-related programs."
The Bush administration pioneered the use of the global banking system as a weapon against nations involved in arms proliferation and terrorism, such as North Korea, Iran and Syria.
The Treasury Department's 2005 blacklisting of Macau's Banco Delta Asia, which held a large number of North Korea accounts, is viewed today as a model for how the private sector can punish rogue states. The Treasury didn't initially ban U.S. firms from engaging the bank, but simply warned that such transactions risked skirting U.S. law. The result was a run on the bank's accounts and a contagion effect that nearly froze North Korea out of the international banking system in 2006, said current and former U.S. officials.
Mr. Bush eventually eased the clampdown as an incentive for North Korea pushing ahead with disarmament talks.
Senior Obama administration officials say this decision was a mistake that eased pressure on Pyongyang before it took irreversible steps to dismantle its nuclear program. They also said it reaffirmed Pyongyang's belief that it could use international diplomacy to win economic concessions from the U.S.
U.S. officials said Treasury's targeting of a wider number of North Korean banks could potentially have a much more punishing effect on Kim Jong Il than the lone BDA action. These officials also said Pyongyang's recent second nuclear test and a string of missile tests have hardened the resolve of the international community to punish Pyongyang.
"We want to get out of the mindset where the North Koreans are conditioned that these are somehow temporary measures that we'll renegotiate with them at various occasions," said a senior Obama administration official involved in the diplomacy.
Two of the architects of Mr. Bush's action against Banco Delta Asia, the Treasury Department's Stuart Levey and Daniel Glaser, are overseeing President Barack Obama's financial clampdown on North Korea, said U.S. officials.
Last week, the White House named Ambassador Philip Goldberg, who served in Bolivia before his expulsion by the government there last year, to head an interagency body focused on implementing the North Korea sanctions. Messrs. Goldberg and Glaser are scheduled to travel to China and Southeast Asia in the coming week to seek consensus on targeting Pyongyang's finances.
China will be the key to any successful action against North Korea, said current and former U.S. officials. Beijing has proven wary of participating in U.S. actions aimed at interdicting North Korean ships believed to be ferrying weapons or contraband. But China has been willing in the past to constrict Pyongyang's banking activities, particularly when they risked infecting Beijing's own financial system. U.S. officials said China cooperated in blacklisting Banco Delta Asia, in part, because they feared any scrutiny of Macau's financial system could hurt Beijing and the operations of Chinese firms. Macau is a special administrative region of China.
"China looks out for itself and is worried about reputational risk," said Michael Green, who advised Mr. Bush on North Korea.
Countries including Myanmar, Thailand and Singapore could also be key targets in efforts to punish North Korea. Myanmar, in particular, has become a trans-shipment point for North Korean arms and contraband in recent years, said U.S. and Asian diplomats. North Korea in the past has conducted significant financial transactions through Bangkok and Singapore.
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