Viewing cable 06SEOUL2010
Title: DPRK ECONOMY: EXPERT SAYS THAT BDA FREEZE POSES

IdentifierCreatedReleasedClassificationOrigin
06SEOUL20102006-06-16 08:02:00 2011-08-30 01:44:00 CONFIDENTIAL Embassy Seoul
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DE RUEHUL #2010/01 1670802
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P 160802Z JUN 06
FM AMEMBASSY SEOUL
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RUEHUM/AMEMBASSY ULAANBAATAR PRIORITY 1260
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RUEHSH/AMCONSUL SHENYANG PRIORITY 2979
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C O N F I D E N T I A L SEOUL 002010 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EAP/K, EAP/CM AND EB/ESC 
HONG KONG FOR USSS 
NSC FOR CHA 
TREASURY FOR FINCEN 
 
E.O. 12958: DECL: UPON KOREAN REUNIFICATION 
TAGS: EFIN ECON PREL KS KN
SUBJECT: DPRK ECONOMY: EXPERT SAYS THAT BDA FREEZE POSES 
BANKING DIFFICULTIES 
 
REF: A. ULAAN BAATAR 139 
     ¶B. ULAAN BAATAR 155 
 
Classified By: EconMinCouns Kurt Tong for reasons 1.5 (b,d) 
 
SUMMARY 
------- 
 
¶1. (C) The General Manager of North Korea's Daedong Credit 
Bank, a British national, complained to the Embassy that 
actions taken by financial authorities in Mongolia and 
elsewhere in the aftermath of U.S. defensive measures against 
Banco Delta Asia are complicating the conduct of legitimate 
financial tranactions on behalf of North Korean businesses. 
The bank executive offered to "open his books" for inspection 
by the United States.  He also said that even though Golomt 
Bank eventually certified that there was no counterfeit 
currency among cash seized at the bank earlier this year by 
Mongolian officials, his DPRK partners will not permit him to 
conduct any more business with Golomt.  Having spent some ten 
years doing business in the DPRK, the executive said that 
life in North Korea is much changed from a decade ago.  End 
Summary. 
 
LEFT IN THE COLD IN MONGOLIA 
---------------------------- 
 
¶2. (C) EconOff met with Daedong Credit Bank (DCB) General 
Manager Nigel Cowie and discussed the recent seizure of his 
bank's cash in Mongolia (ref A).  We also discussed the 
effect of the Banco Delta Asia (BDA) asset freeze on his 
bank, and the changing situation in the DPRK. 
 
¶3. (C) Cowie's version of the February 21 seizure of USD 1 
million and JPY 20 million tracked with reftels.  According 
to Cowie, although the couriers were carrying DPRK diplomatic 
passports, they were DCB employees, seconded from the DPRK 
Daesong Bank, as are all five of his North Korean employees. 
The custom of couriers carrying cash while using diplomatic 
travel documents is one common to North Korean banking 
concerns, according to Cowie.  Where things went wrong in 
Ulaan Baatar is that the couriers -- one of them on his first 
trip outside the DPRK -- allowed themselves to be separated 
from the cash.  Following that misstep, Cowie told us, the 
two couriers remained overnight on the front steps of the 
building where the cash was initially inspected (in the 
middle of a Mongolian winter) in order to remain close to the 
cash. 
 
¶4. (C) The Mongolian government eventually cleared the cash 
in question (ref B), and the money was indeed deposited into 
the Golomt Bank.  DCB and Golomt maintain their correspondent 
relationship, but as a result of the incident Cowie's DPRK 
partner will not allow DCB to conduct transactions with the 
Mongolian bank again.  Cowie suspects that this decision to 
shun Golomt is partly due to the embarrassment caused by the 
seizure of the cash, and partly due to DPRK fears that 
Mongolian officials might seize a subsequent shipment of cash. 
 
DAEDONG CREDIT BANK FEELS PINCH FROM BDA SQUEEZE 
--------------------------------------------- --- 
 
¶5. (C) According to Cowie, USD 6 million of the USD 24 
million frozen in Banco Delta Asia's accounts belongs to DCB 
customers.  The largest DCB customer affected by the freeze 
is the North Korean branch of British American Tobacco.  He 
speculated that most of the remaining frozen funds also 
belong to a handful of BDA's correspondent banks -- all 
legitimate in his opinion.  Cowie asserted that a deposit of 
more than one million (in cash), made by DCB just before 
Treasury's September 15 announcement, had not yet been 
credited to DCB's accounts.  His sources reportedly told 
Cowie that the deposit was still segregated from the general 
cash holdings of BDA.  Cowie told us that he would check 
whether DCB made a list of serial numbers for the currency 
shipped to BDA. 
 
¶6. (C) The BDA freeze has severely constrained his bank's 
operating capital, according to Cowie.  DCB notified its 
 
Pyongyang-based customers affected by the BDA freeze 
immediately and they have "all been very understanding." 
 
"CHECK MY BOOKS, PLEASE..." 
--------------------------- 
 
¶7. (C) Cowie and a group of investors jointly own DCB with 
North Korea's Daesong Bank, in a 70-30 split favoring Cowie's 
group.  The DPRK authorities permit DCB to maintain accounts 
only for foreign customers; no state-owned companies or 
government offices may bank with DCB.  Most of the hard 
currency deposits made at DCB come from cash sales of 
commodities by foreign firms or individuals based in North 
Korea.  Cowie expressed consternation at the bind his bank is 
in due to the BDA action.  He expressed confidence that DCB 
is doing nothing wrong, and offered to "open his books" for 
inspection by the United States.  Post has electronic 
versions of a speech and a presentation Cowie has delivered. 
Please advise if we should forward these e-documents. 
 
¶8. (C) The banker confirmed that despite the DPRK's official 
use of Euros, there is always a shortage of Euros in North 
Korea; the more pervasive currency is the U.S. dollar. 
Contrary to reports of the superior nature of "Supernotes" 
and the common view that the counterfeits are difficult to 
detect, Cowie claimed that his tellers could spot bogus notes 
with little difficulty.  When a counterfeited note is 
discovered, DCB simply rejects the note and does not notify 
any DPRK authority, he told us.  Cowie also complained that 
he was having difficulty in obtaining updated sensing devices 
for the bank's cash-counting machines.  Because of the bank's 
Pyongyang address, Cowie implied that he was obtaining 
updated counterfeit-detecting technology though a circuitous 
route. 
 
"LIFE IS GOOD..." 
----------------- 
 
¶9. (SBU) Formerly an employee of Honk Kong and Shanghai 
Banking Corporation, Cowie has lived and worked in South and 
North Korea for more than fifteen years.  Having spent more 
than ten years doing business in the DPRK, the executive said 
that life in North Korea is much changed from a decade ago. 
Even so, Cowie said he can only handle the stresses of living 
and working in the DPRK -- even though he lives in the 
diplomatic compound and DCB is located in a major Pyongyang 
hotel -- for a few months at a time.  Following each stint in 
the DPRK, he returns to his family in Seoul for an extended 
rest, up to six weeks at a time. 
 
¶10. (SBU) Although he told us that life in the DPRK was more 
relaxed than when he first started working there, he still 
stole furtive glances over his shoulder and hesitated to say 
Kim Jong-il's name directly -- all this despite our meeting 
in a crowded restaurant in downtown Seoul. 
 
THE BROADER CONTEXT OF BDA 
-------------------------- 
 
¶11. (C) Cowie said that he is speaking to journalists and 
government officials at every opportunity out of his belief 
that clearing up BDA's name will also improve the situation 
for his own bank.  In his opinion, the money tied up by the 
BDA freeze has no direct impact on any of North Korea's 
senior officials.  In fact, he claimed (without offering any 
specifics) that their money is in European banks.  The reason 
North Korean officials are using the unfreezing of BDA 
assests as a precondition to returning to the Six Party 
Talks, according to Cowie, is that they believe once the 
review of BDA accounts has been completed by the U.S. 
government, banks around the world will once again open their 
services to North Korean banks and individuals. 
VERSHBOW