You Say That Like It’s a Bad Thing: “China Hand” Fears Treasury Sanctions

I’m apparently not the only one who cocked an eyebrow at the refusal of a State Department spokesman recently to rule out applying new sanctions to be directed at North Korea to third-country entities.

The United States Wednesday did not preclude the possibility of freezing North Korean assets in foreign banks to effectively cut off resources for the North’s development and proliferation of weapons of mass destruction.

“I’m not going to predict any particular step that we’re contemplating, but these are steps that are available to us under existing U.S. international law,” State Department spokesman Philip Crowley told reporters at a daily news briefing.

He was responding to the question if Washington was considering freezing North Korean assets at foreign banks just like it froze more than US$25 million in North Korean accounts in Banco Delta Asia in Macau in 2005. [Yonhap]

Whether we actually set about doing this or not, the response itself is significant. One only hopes that investors in Kim Jong Il’s regime will take enough heed to proceed in an orderly manner to the rooftops of their embassies in Pyongyang with semaphore flags and briefcases stuffed with all the dollars — and yuan — they can carry. One hopes that the most recent G-8 summit also took up this topic in detail, and went beyond gauzy statements about “consequences” for North Korea’s “irresponsible behavior.” Not all power, it seems, comes from the barrel of a gun these days. You’d think this would be cause for rejoicing, but not for Beijing and its tools.

If you’ve deduced that most of the third-country entities that would be affected by U.S. sanctions on North Korea are Chinese, you and I are not alone in this. Peter Lee, whom I gather is the very same “China Hand” from whom I waterboarded this retraction of a completely groundless statement about the topic of sanctions (and me) a while back, now says that a worried China “will be observing [the Treasury Department’s potential sanctions] actions on Iran and North Korea with a good deal of wary curiosity.”

Well, good! If China were not abetting mass murder, proliferation, and now acts of war by Kim Jong Il, if China were not cynically undermining the same U.N. resolutions for which it voted, it wouldn’t have to worry about its banks and mining companies being sanctioned for their role in propping up Kim Jong Il. It seems to me that Treasury is supplying the leverage we’ve been missing all along. Consequently, Lee seems to have reserved particular degree of enmity for OFK favorite Stuart Levey, whose inconvenience is that his record disproves the narrative that America has no options but to tolerate and even subsidize Kim Jong Il’s ongoing nuclear buildup. After all of the finger-wagging we’ve had to endure from assorted “China Hands” that America mustn’t do anything to harm about its relations with China, maybe it’s about time the converse was finally true, too.

The main theme of Lee’s argument against sanctioning North Korea and Iran through their Chinese sponsors is that it’s somehow immoral or unfair of the United States and Treasury in particular to use the power of the dollar to influence China toward a foreign policy that’s less malignant toward America’s national security. He calls the threat of sanctions “an abuse of America’s privileged position at the center of the financial world.” Lee’s have-you-no-decency-sir tone makes for an amusing contrast to his giddy harrumphing about America’s debt to China, a subject I previously discussed here. As Lee eventually acknowledges in part, America’s currency gives it this power, in part, because of China’s (artificial) depression of the yuan exchange rate against the dollar to generate more export revenue, but then, what else is China supposed to do with its dollars? I don’t think any Chinese banker is really thinking much about Lee’s suggestion that it buy more Euro these days.

The curious shift in Lee’s tone is a curious thing to observe, but when it comes to the relationship between U.S. sanctions and North Korea policy, Lee is in way over his head and doing his best to cast economic pressure as the moral enemy of effective diplomacy. Now, either the flaw in this argument is obvious to you or it isn’t, but regardless of how you see that question, this flawed argument is built on some real howlers I couldn’t let myself pass up:

Hopefully, the results for the US this time will not be as dire as North Korea’s rush to the atomic bomb occasioned by the sanctions campaign of the Bush administration.

So in addition to The Bomb, Lee must think Kim Jong Il somehow acquired a De Lorean and a flux capacitor. That’s right — Lee is suggesting that President Bush’s financial sanctions caused North Korea to go nuclear, or to dispel any doubts that it has. Perhaps China would be better off if Americans were still arguing over op-eds by Selig Harrison and Mike Chinoy insisting to this day that North Korea’s nuclear program was all some figment of Dick Cheney’s imagination. The truth, however, is that Kim Jong Il’s “rush to the atomic bomb” actually began in earnest during the Reagan Administration. How could he have known that George W. Bush would eventually give it all a perfectly good (for Lee, anyway) post-hoc justification?

I suppose anyone can characterize coincidence as causation, but I see a far greater chance of a causal connection between North Korea’s nuclear test and the open encouragement of people believed to speak for the Chinese government, such as the influential Chinese academic Shen Dingli. Shen’s articles are well worth reading for just to see the malice he expresses toward the United States and its basic security interests, but they’re also important documentary evidence of China’s insincerity when its flacks insist that they, too, want a nuclear-free North Korea. In 2005, Shen wrote the development of nuclear weapons was Kim Jong Il’s “sovereign right,” and he was again showing a green light to the North Koreans as recently as three days before the October 2006 nuclear test Lee now calls a dread “consequence” of sanctions Treasury had announced against a Chinese bank, Banco Delta Asia, on September 15, 2005:

First, and most importantly, North Korea withdrew from the six-party talks in fury, abandoned its nuclear haggling with the United States, and detonated its first atomic bomb on October 9, 2006. Despite revisionist attempts to decouple BDA from the bomb, Levey’s paternity of the Nork nuke is pretty much indisputable.

You can either enforce the law or negotiate with North Korea, but never both. Here is the proof!

sept-19.jpg

That’s right. North Korea was not only still at the six-party talks on September 19, 2005, four days after Treasury took action against BDA, it signed a statement agreeing in principle to give up its nukes. This all happened while depositors were lined up outside of BDA trying to withdraw their money. Now, far be for me to suggest that a North Korean promise, much less merely showing up to talk, represents progress. I’ll leave it to Lee to explain just how much the six-party talks have accomplished, the likelihood that they’d ever accomplish anything, and how China has been helpful in this whole endlessly receding process. You can believe that if you choose, but just know that there are some important facts Lee isn’t telling you.

Secondly, America’s image as an honest broker impartially protecting the integrity of the dollar-based international financial system was seriously tarnished.

Now here is some odd logic. Lee is actually suggesting that Treasury harmed the integrity of the dollar-based international financial system by taking an enforcement action against a willing accomplice of a syndicate that distributed remarkably high-quality counterfeit U.S. dollars, requiring multiple redesigns of U.S. currency. Are we supposed to take this seriously? Lee says that turning Treasury loose on a government with which the U.S. government has differences “weaponizes” law enforcement. But what’s unprecedented here isn’t that Treasury follows crime to its source; it’s that a state is engaging in counterfeiting, and doing so backed by the full faith and credit of the Chinese government, which has the unmitigated chutzpah to suggest that for the sake of a failed diplomatic track, we’re obligated to exempt both China and North Korea from the enforcement of the laws that protect our currency.

Feebly, Lee also questions the evidence that North Korea is counterfeiting dollars:

US laziness in making its case – though largely unchallenged by the media with the exception of McClatchy’s Kevin Hall – did not enhance international confidence in OTFI’s ability to wield this considerable power responsibly.

What Lee mischaracterizes as laziness is in fact the secrecy in which all law enforcement and intelligence services need to pursue their investigations to completion; after all, the lead agency in this investigation is called the Secret Service. This is a principle recognized under law by exceptions to our Freedom of Information Act. Perhaps Lee would like to submit his own FOIA request to the Chinese authorities to see what documents they’d be willing to disclose on this topic. This is an odd argument indeed, coming as it does from a supporter of an opaque and unaccountable dictatorship.

Now if you want to see laziness, it’s Kevin Hall’s failure to so much as pull and read the Treasury Department’s final rule explaining why it took action against BDA. I’ve debunked Hall’s sloppy reporting extensively here. Before and since then, multiple detailed accounts reports by real journalists and researchers, not hacks — have explained the detailed history of the supernote operation, who in the North Korean government is behind the counterfeiting, where the notes are printed, where the North Koreans got their presses and ink, and how North Korea distributes the counterfeit currency right here in the United States, largely through Chinese intermediaries. There’s more here, plus reports from the Congressional Research Service here and here. For those who are willing to examine the open-source evidence, it’s overwhelming.

By the way, Lee helpfully informs us that the president of BDA was “Stanley Au, a local businessman with close ties to Beijing” and “a delegate to the China People’s Consultative Congress.” Just in case you think this was a matter over which the Chinese government had no influence. And BDA was only a small player in Chinese banks’ abetting of the counterfeiting scam:

“Banco Delta was a symbolic target. We were trying to kill the chicken to scare the monkeys. And the monkeys were big Chinese banks doing business in North Korea… and we’re not talking about tens of millions [of dollars], we’re talking hundreds of millions.

Lee is horrified that anyone in the U.S. government attempted to intimidate big Chinese banks away from handling counterfeit dollars, or from keeping Kim Jong Il on his throne. It won’t surprise you that I differ on this. I believe that it’s possible to have biases about a topic, as both Lee and I undoubtedly do, and still follow the known facts to objectively defensible conclusions. Instead, Lee shoehorns them into his conclusions, conclusions that have never seemed more driven by emotion and nationalism, and which, consequently, he simply cannot support.

5 Responses

  1. I never knew the china matters guy and Peter Lee were one and the same, but it makes sense. He stakes out some very odd positions in the Asia Times.

  2. I can’t say anything about the above that you’ve not already thought of, so here’s some thoughts what you wrote reminded me of….

    I think it’s time to stop calling China the Middle Kingdom (中國, lit. “center country”) in Chinese. Korean and Japanese do that in regular speech, and the US and the rest of the world calls it this name of China’s sinocentric making in Chinese language documents as well. It’s like me making up a name that means “your royal highness” and you readily agreeing to refer to me that way without realizing what you’re doing. We need to call China but a Chinese name name that doesn’t let Beijing listen to us calling it the Center of the Civilized World. You know, since it isn’t.

  3. We need to call China but a Chinese name name that doesn’t let Beijing listen to us calling it the Center of the Civilized World. You know, since it isn’t.

    Did the real Oranckay really write that? That suggestion belongs in the same dogpile as hackneyed complaints about the US hogging the name of two continents. 中国就是中国.