Michael Richardson: China may bridge impasse

South Korean officials are optimistic that Chinese diplomacy will revive the stalled negotiations to get North Korea to abandon its nuclear programme.

They hope that the six-party talks, hosted by Beijing, may resume later this month after being in recess since November.

One hitch is that the United States is continuing to press charges that North Korea is involved in large-scale counterfeiting and distribution of US currency and that this, with drug smuggling and other illicit activity, is helping to pay for weapons of mass destruction.

Pyongyang has said that it will not return to the talks unless the US lifts financial sanctions.

The US ambassador to Seoul, Alexander Vershbow, has said the penalties are a matter of law enforcement against "a criminal regime" and that "we can't somehow remove our sanctions as a political gesture when this regime is engaging in dangerous activities such as weapons exports to rogue states, narcotics trafficking as a state activity, and counterfeiting of our money on a large scale".

The US insists that it is enforcing the law and that this issue is separate from the six-party talks which involve Japan, Russia and North and South Korea as well as China, which chairs the negotiations.

Last month, Chinese officials arranged for the top North Korean and US negotiators to meet in Beijing, following a secretive visit in January by North Korean leader Kim Jong-il.

During his visit, Kim assured Chinese president Hu Jintao that he would "push forward" with the multilateral talks.

However, since then Pyongyang has reaffirmed that the US financial sanctions must first be lifted.

A team from the US Treasury - led by Daniel Glaser, the official responsible for combating terrorist financing - was in Seoul two weeks ago to brief South Korean officials on the evidence Washington has gathered on Pyongyang's involvement in producing and circulating large amounts of fake $100 bills, known as supernotes because of their high quality forgery.

US officials in Seoul said South Korea had been urged to join a crackdown on illicit North Korean financial activities, and that money-laundering, currency counterfeiting and weapons of mass destruction constitute a grave threat to global security.

South Korea has denied it is soft on North Korean counterfeiting.

South Korean officials say the evidence offered by the US is "pretty convincing" and that a separate investigation by the Chinese government confirmed that North Korea was "engaged in wrongdoings".

China has not commented publicly on the issue but the renewed US pressure comes at a particularly sensitive time and has prompted speculation that some hardliners in the Bush Administration want to scuttle the talks and instead try to undermine the North Korean Government by imposing a blockade and starving it of funds.

However, Washington has said that it is ready to resume the negotiations and that this should be done without any preconditions.

If Pyongyang agrees it will be a measure of Chinese influence, because the counterfeiting charges are a frontal assault on Kim's Government.

In September, the US Treasury Department accused Banco Delta Asia - which has its headquarters in the Chinese territory of Macao - of being a front for more than 20 years for North Korean counterfeiting, money-laundering and other illicit financial activities.

Although Banco Delta Asia and Pyongyang denied the charges, the Treasury halted all dealings between the bank and US financial institutions.

The following month, the department blacklisted eight state-owned North Korean firms for alleged involvement in spreading weapons of mass destruction and their delivery systems and froze assets they had in the United States.

At the same time, the US Justice Department indicted a leading member of an Irish Republican Army splinter group on charges of conspiring with Pyongyang to put millions of dollars of counterfeit US currency into circulation in Asia and Europe.

The arrest of Sean Garland and six alleged accomplices marked the first time the US has formally cited North Korea in a US court on counterfeiting charges.

US officials said at the time that the court case was part of an intensifying effort to halt Pyongyang's wide range of criminal activities.

* Michael Richardson, a former Asia editor of the International Herald Tribune, is a visiting senior research fellow at the Institute of Southeast Asian Studies in Singapore.