Macau getting image makeover

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.

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 U.S. currency.

A North Korean company, Jokwang Trading, 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 few. "They gave the Macau government too much of a headache."

Businesspeople here say the North Korean presence here 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 U.S.-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 (he has passed many of his casino interests to his daughter, Pansy) 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."

There is still a cloak-and-dagger feeling to Macau, an hour from Hong Kong by high-speed ferry. 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.

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.

"Under this continuing U.S. pressure, we can't go back to the negotiation table," Li said.

For their part, U.S. officials protest loudly that the crackdown in Macau is unrelated to the prolonged struggle over nuclear weapons. In a news release issued in response to the North Koreans' accusations, the Treasury Department said that it wished to clarify that its actions against Banco Delta Asia were "intended to protect American institutions and not serve as sanctions against North Korea."

Denials notwithstanding, the Bush administration has been angling for ways to apply pressure without seeking full-fledged U.N. sanctions since North Korea pulled out of the Nuclear Non-Proliferation Treaty in 2002. Sanctions almost certainly would be opposed by its old Communist allies in China and Russia. Until now, China has staunchly refused to apply any pressure whatsoever to North Korea.

What's happening in Macau has been the result of a delicate diplomatic dance among the United States, China and the government of Macau, designated, like Hong Kong, a special autonomous region.

U.S. officials had been complaining to local authorities about North Korean activities in Macau and getting little response, according to people involved with the case. Then last year, the Treasury Department decided to unleash the USA Patriot Act.

In September, the Treasury Department published a notice designating the Macau-based Banco Delta Asia as a "primary money-laundering concern" under a section of the post-Sept. 11 law that is designed to cut off money to groups that present a security risk.

Panicky banking customers lined up in front of the silver-facade headquarters in downtown Macau. In a matter of six days, they had withdrawn $133 million out of $390 million in deposits. The Macau government intervened and took control of the bank.

However, Macau's financial authorities have reacted very aggressively since. They have drawn up new money-laundering laws. They have frozen without interest 50 accounts belonging to North Korean banks, trading companies and individuals.

According to a letter sent this year by their lawyers to the Treasury Department, there is likely to be a criminal investigation into the bank and the money will be confiscated if Macau courts determine the accounts were involved in illegal activities.