US optimistic about Chinese action on North Korea

BEIJING (REUTERS) - The United States is optimistic that China will take action against North Korea by increasing scrutiny of financial transactions to Pyongyang that could contravene fresh UN sanctions, a senior US envoy said on Friday.

Stopping illicit money flows are a key part of the sanctions imposed on North Korea in response to its Feb 12 nuclear test.

China is Pyongyang's sole diplomatic and economic ally, although it negotiated the latest sanctions with Washington and has said it wanted them implemented.

"We asked the Chinese for enhanced scrutiny of financial institutions in North Korea. It's no secret that there is a fair amount of financial relationship between China and North Korea and Chinese financial institutions in North Korea," Mr David Cohen, the US Treasury undersecretary for terrorism and financial intelligence, told reporters in Beijing.

"We encourage the Chinese regulatory authorities to inform the Chinese banking sector about Security Council Resolution 2094 to the provisions that call for preventing financial services to North Korea if they could contribute to nuclear/ballistic missile programmes or North Korea's conventional arms sales," he added.

"We are hopeful that Chinese banks and Chinese regulators will take heed of the Security Council resolution. I have every confidence that they will."

Beijing has become increasingly frustrated with North Korea's actions, Chinese experts have said. Besides the Feb 12 nuclear test, North Korea tested a long-range missile in December and has stepped up its rhetoric against the United States and South Korea.

Mr Dan Fried, the US State Department's new coordinator of sanctions policy, also said Washington hoped ultimately to reach a diplomatic solution with North Korea.

Chinese regulators appear to have issued a warning shot to North Korean banks, telling them to stay within the remit of their permitted operations in China or risk penalties.

A report from South Korea's Yonhap news agency on Tuesday cited a Beijing-based source as saying the warning had been given to four North Korean financial institutions, some of whom have been named in United Nations and United States sanctions for aiding Pyongyang in its nuclear and missile programmes.

The report said the banks may have been able to save on fees and get access to preferred exchange rates through their short-term lending and remittance operations.

Clamping down on such practices would not amount to anything close to what the new UN sanctions call for.

The March 7 sanctions tighten financial curbs on North Korea and also order mandatory checks of suspicious cargo.

Yonhap said Tanchon Commercial Bank, Korea Kwangson Banking Corp (KKBC), Korea Daesong Bank and Golden Triangle Bank had received notices from the banking regulator ordering them to conduct business according to their permits.

Beijing has joined every round of UN sanctions against North Korea although questions remain over how closely it imposes restraints on its neighbour.