N. Korea exits talks over funds issue

Negotiations aimed at dismantling North Korea’s nuclear weapons program broke off temporarily Thursday over a mystery concerning the $25 million in Pyongyang funds that have been held in a Macao bank over charges of money laundering and counterfeiting.

North Korean chief negotiator Kim Kye Gwan left Beijing with a wave to reporters after boycotting the talks because the money had not yet been returned to his government. The meetings are at a key juncture as negotiators attempt to push forward a Feb. 13 agreement designed to denuclearize the Korean peninsula in return for providing North Korea with 1 million tons of fuel oil, other aid and diplomatic recognition.

The setback casts doubt on the next deadline in the process, the shutdown by international inspectors of North Korea’s Yongbyon nuclear reactor and reprocessing facility by April 14. Pyongyang is then supposed to give a full accounting of its other nuclear weapons activities en route to a full dismantling.

The top U.S. negotiator expressed optimism that the tight deadline could still be met once the bank fund issue was resolved. “It is our strong view that we are still on schedule,” Assistant Secretary of State Christopher Hill told news media.

China issued a statement saying talks would recess but did not give a restart date, while State Department spokesman Sean McCormack told reporters in Washington that another meeting could take place within the next week or two. The six-party talks involve North and South Korea, the United States, China, Japan and Russia.

North Korea’s often mercurial negotiating style over the years has led to frequent interruptions, delays and threats, which experts say are at times tactical, at other times a reflection of the isolated nation’s mind-set.

Even by those standards, this week’s proceedings were unusual, as teams of negotiators cooled their heels while awaiting word that the $25 million had been transferred from Macao into North Korea’s China account. The word never came, nor was the source of the snag immediately clear.

“Absurd and preposterous things are happening, but no one really knows why these things are happening,” South Korean envoy Chun Yung-woo said Wednesday.

The root of the problem dates to fall 2005, when the U.S. Treasury Department launched an investigation of a then-obscure Macao bank named Banco Delta Asia, or BDA, which held several North Korean accounts.

A Treasury warning to U.S. banks not to deal with the institution given suspicions of complicity with North Korean money laundering and counterfeiting sparked a run by depositors. This prompted Macao’s bank regulators to freeze Pyongyang’s $25 million, to the North’s extreme displeasure. The Treasury Department ended its investigation this week, a move that was supposed to get talks back on track.

But North Korean negotiators, operating on a “show me the money” principle, apparently on Pyongyang’s orders, refused to talk before the deposit landed in national bank accounts.

Reporters sought the cause of the holdup. Some pointed to authorities in Macao, a specially administered Chinese territory, who reportedly couldn’t verify ownership of some of North Korea’s 50 accounts. Others blamed the Bank of China for balking at receiving the funds, reportedly wary it could come under suspicion, even as one of the bank’s vice presidents told reporters the institution had never been asked to accept the money.

As the mystery intensified, Russian media quoted Moscow envoy Alexander Losyukov as saying the whole problem came from the American side, even as White House spokesman Tony Snow attributed the delay to “technical difficulties,” denying U.S. responsibility.

Hill termed the fiasco a “Chinese-North Korean paperwork exercise.”

“The day I’m able to explain to you North Korean thinking is probably the day I’ve been in this process too long,” he said Thursday.

Analysts expressed hope the delay was just a technical glitch. “It’s a pause, not the end,” said Li Dunqiu, a North Korea analyst with the Development Research Center of the State Council in Beijing.

The importance North Korea has attached to these funds is no secret, prompting Li and other analysts to point a gentle finger at the U.S. for waiting until just hours before the Monday start of talks to announce the end of its investigation.

“Maybe someone in the Bush administration believes they can’t give in too easily,” said Joseph Cheng, professor at the City University of Hong Kong. “But they already made the concession. Allowing enough time for the transfer to proceed smoothly would have been wiser.”

mark.magnier@latimes.com

Gu Bo in The Times’ Beijing Bureau contributed to this report.