Plan B Watch: Treasury Requires “Enhanced Due Diligence” for N. Korean Banks

The Treasury Department has announced that the governments of Sao Tome and North Korea will henceforth be subject to the “enhanced due diligence” requirements of Section 312 of the USA PATRIOT Act. The measures apply to U.S. financial institutions maintaining correspondent accounts for “foreign banks operating under a banking license issued by” North Korea.

By itself, this action is likely to have little effect, because it’s doubtful that any North Korean-licensed banks have U.S. correspondent accounts. The better question, however, is what effect this may have on banks in Europe and Asia, because the Treasury action was ordered in concert with the Financial Action Task Force. The FATF is the rarest of species in this world — an effective international institution. When the FATF speaks, it means that most of the world’s major finance ministries have promulgated guidance similar to Treasury’s, or soon will.

It will be weeks, and probably months, before we know whether this action will encumber the flow of laundered North Korean assets through European and Asian banks, but Treasury’s message should send a clear warning that non-complaint institutions will be targeted for the same treatment that Banco Delta Asia received in 2005 — the dreaded “fifth special measure,” which denies the offending institution access to its correspondent accounts in American banks and effectively cuts it out of the global financial system.

This is a hopeful sign, though by itself, it doesn’t necessary mean this administration has decided to turn Treasury and Justice loose to pursue the flow of illicit cash that sustains North Korea’s palace economy. But to do so now, just as the regime is purging old comrades and preparing for the succession of a new emperor, would be the most opportune timing imaginable.