US bankers propose solution to NKorea impasse

WASHINGTON, May 11 (Reuters) US investment bankers in Hong Kong have proposed a private sector solution to an impasse over 25 million dollars in tainted funds that is delaying a shutdown of North Korea's nuclear complex, a participant in the talks said.

John Park told Reuters yesterday that repeated attempts to resolve the complex issue by having the North Korean money transferred from Macau's Banco Delta Asia to a bank in Russia, Italy, South Korea, China or elsewhere have proven unworkable so new ideas are required.

North Korea has demanded the transfer of the funds as a condition for shutting down its nuclear facilities under a February 13, six-country disarmament deal.

Although Washington has agreed to unfreeze the funds, foreign banks have refused to accept the tainted funds, fearing they too would be tainted and cut off from the US system.

Banco Delta Asia, which holds the funds, has been designated by Washington as a ''prime money laundering concern'' and as such is barred from the US banking system.

Pyongyang wants the money transferred to a reliable bank and so it can gain access to the international financial system.

After recent talks with the US bankers in Hong Kong, Park, a former investment banker who heads the Korea Working Group at the US Institute of Peace, an independent institution funded by the US Congress, has gone public with the new proposal.

It would treat Banco Delta Asia or BDA as a ''distressed bank'', enable Pyongyang to obtain its money, and make it possible for the U.S. investment bankers to purchase the BDA license, giving them a foothold in Macau's fast-growing market, he said.

POLICY REVERSAL Separately, the State Department -- in what would amount to nother dramatic change on North Korea -- signaled it would consider allowing North Korea to transfer the 25 million dollars to an account in a US bank.

''They're still working with their bankers and if there's any requirement for an opinion from the Treasury Department as to whether or not this is a transaction that the financial institutions involved would feel comfortable doing, then the Treasury Department will take a look at that and see what it is that they can do,'' spokesman Sean McCormack told a news briefing on Wednesday.

Treasury Department spokeswoman Molly Millerwise said the agency had not received such a request. She declined to comment on the investment bankers' proposal.

North Korea's accounts were frozen by Macanese authorities in 2005 after US charges that they are the related to counterfeiting and drug-smuggling operations.

But in a dramatic policy reversal, Washington agreed the funds could be released in connection with the February 13 agreement, negotiated by North and South Korea, Japan, Russia and China, as well as the United States.

Park said the Hong Kong bankers' proposal would have Macau authorities segregate the disputed 25 million dollars in a ''special purpose vehicle'' as was used during the 1998-199 Asian financial crisis to restructure the Korea Assets Management Corp.

Macau authorities would then inject fresh capital into BDA and invite banks to bid on the newly-capitalized bank, he said.

Meanwhile, a bridge loan would be made to North Korea for a sum equivalent to their BDA funds.

Park said the bridge loan would be a one-time payment which Macau authorities would recoup from proceeds of the BDA license sale.

''As the new funds have no legacy related to the US Treasury rulings, they can be wire transferred to a bank of North Korea's choosing,'' Park said.

Reuters AGL DB0920