Audit: U.S. wrong about money laundering

WASHINGTON – The U.S. Treasury Department’s charges that a small bank in Macau knowingly laundered counterfeit U.S. currency for North Korea have no basis in fact, according to a confidential audit ordered by the government of the Chinese enclave.

The audit, obtained by McClatchy Newspapers, also suggests that the Treasury overstated claims that North Korea laundered “hundreds of millions” of dollars in ill-gotten gains through Banco Delta Asia.

On the basis of its allegations, the Treasury Department in September 2005 blacklisted the family-controlled bank, which went into government receivership, and effectively froze $25 million in accounts linked to North Korea. Last month, Treasury issued a final ruling that prevented the bank from having any transactions with the U.S. banking system and, in effect, the global financial system.

The ruling, which the bank is appealing, takes effect Thursday.

The dispute over the Macau bank accounts led the Pyongyang government to walk out of six-nation talks on dismantling its nuclear weapons program. North Korea agreed on Feb. 13 to dismantle its nuclear weapons program if the funds were unfrozen. The Bush administration agreed, but regime leaders apparently haven’t received all of the funds, and North Korea failed to begin dismantling its nuclear reactor this past weekend as promised.

Now the release of the bank audit by the giant Ernst & Young accounting firm raises broader questions, among them the credibility of the Bush administration’s charges against North Korea and the Macau bank.

The allegation that North Korea was counterfeiting U.S. currency was at the center of the U.S. Treasury’s concerns when it first threatened to blacklist the bank in 2005. It said then that “sources show that senior officials at Banco Delta Asia are working with (North Korea) officials to accept large deposits of cash, including counterfeit currency, and agreeing to place that currency in circulation.”

Last August, President Bush made a similar allegation. Asked why he continued to focus on alleged money laundering instead of nuclear arms reduction, he told reporters: “Well, counterfeiting U.S. dollars is an issue that every president ought to be concerned about. And when you catch people counterfeiting your money, you need to do something about it.”

But the audit showed that the bank, a primary conduit for North Korea’s financial dealings, played no obvious role in laundering counterfeit U.S. currency.

“From our investigations it is apparent that … the Bank did not introduce counterfeit U.S. currency notes into circulation,” the Ernst & Young audit said, noting that large cash deposits from North Korea were routinely screened for counterfeits by the Hong Kong branch of an unidentified bank with U.S. operations.

Moreover, the audit confirmed that the only time Banco Delta knowingly handled counterfeit U.S. notes was in 1994 when its inspectors discovered 100 counterfeit $100 bills and turned them over to local authorities. The $10,000 was far from the $15 million that the Bush administration said North Korea was manufacturing annually.

The Treasury said front companies for North Korea were suspected of laundering “hundreds of millions of dollars in cash” through the bank, the proceeds of illicit trade in counterfeit U.S. currency, smuggled cigarettes and narcotics.

But the audit found no evidence that this was true.

The Treasury Department is sticking to its guns. “We have complete confidence in the strength of our case, as demonstrated by the final rule” blacklisting Banco Delta Asia, spokeswoman Molly Millerwise said.