Bank clampdown deals blow to N. Korea

MACAU -- For decades, this former Portuguese colony was renowned as the favorite haunt of counterfeiters, drug runners, and spies, a kind of real-life ''Casablanca" whose cobblestone sidewalks and smoke-filled baccarat parlors probably hatched more intrigues than any script.

By the time financial authorities cracked down on North Korea's dealings here, it was like the classic moment of feigned ignorance in the film ''Casablanca" when Captain Louis Renault declares, ''I'm shocked, shocked to find that gambling is going on in here."

Banks here handled millions of dollars on behalf of North Korea's isolated communist government, which long has been accused by the United States of selling illegal drugs to raise hard currency. The nation's founder, Kim Il Sung, and his son, current leader Kim Jong Il, allegedly kept their ill-gotten gains in Macau. And a North Korean terrorist confessed to plotting the 1987 bombing of a South Korean airliner from a hotel here overlooking the sparkling waters of the South China Sea.

But now the welcome mat has been rolled up, and the North Koreans, who didn't have many friends to begin with, find themselves distinctly unwelcome in this autonomously governed Chinese territory.

In February, Macau's banking regulators froze $25 million worth of North Korean accounts in the Banco Delta Asia, a bank the Treasury Department had accused in September of helping the North Korean regime launder money and distribute counterfeit US currency.

A North Korean company, Jokwang Trading Co., long believed to be a front for illicit activities, closed its headquarters on the fifth floor of an office building near the bank. Most of its personnel have relocated to Zhuhai, just across the border into the Chinese mainland, according to business sources here.

''You used to see the North Koreans around here all the time with their Kim Il Sung badges, but suddenly they're gone," said Seok Yeong Chong, a South Korean businessman living here. He says their numbers have dropped from more than 100, to only a handful. ''They gave the Macau government too much of a headache."

Businesses here say the North Korean presence became a liability at a sensitive time. The Pyongyang regime is more unpopular than ever internationally because of its pursuit of nuclear weapons. At the same time, China is trying to develop Macau into a gambling destination to rival Las Vegas.

After Macau reverted to Chinese control in 1999, the Chinese government busted the casino monopoly that had been controlled by billionaire Stanley Ho, a long-standing friend of the North Korean regime and the owner of a casino in Pyongyang.

The first US-owned casino, the Sands Macau, opened in 2004, and a $1.2 billion casino operated by Steve Wynn is scheduled for a September opening. Even Stanley Ho's family has struck a deal with MGM Mirage for another new casino.

''Today people here want to do business with the Americans, not the North Koreans," said Jose Rocha Dinis, director of the Jornal Tribunal de Macau, a Portuguese-language newspaper. ''When they are seeking investment from the outside, they can't let the North Koreans get in the way."

But Americans are bringing with them not only Las Vegas glitz but more modern notions about transparency and accounting.

''Macau had to clean up its act," says David Asher, a former State Department official, who was one of the architects of the action against the Macau bank. ''There are $5 billion in annual gaming revenues at stake. They have to work with the United States."

The freezing of the $25 million in the Banco Delta Asia has been a particularly big blow for a regime scraping by for lack of hard currency. North Korean banks kept large sums of money in the Macau bank.

Now, with those accounts suspended and other banks frightened off by the Treasury Department action, North Korea has been largely cut off from international trade.

''The impact is severe," said Nigel Cowie, a British banker based in Pyongyang who is general manager of the Daedong Credit Bank, serving mostly the tiny foreign community in the North Korean capital.

In a telephone interview from Pyongyang, Cowie said that North Korea, because it has no credit and a weak banking system, deals almost exclusively in cash -- which might have created the appearance of money laundering when it was not. ''I can't speak for what everybody was doing, but I can say that in our case, a lot of legitimate business has been hurt," Cowie said.

The North Koreans blame the United States for their woes in Macau. A senior North Korean diplomat, Li Gun, visited Washington last month on what appears to have been a futile attempt to get the Macau freeze lifted. He left angry, declaring that North Korea would boycott negotiations on its nuclear program until the banking situation was resolved.