European Business Association, Pyongyang Information Event US Financial Allegations – What They Mean Presentation by Nigel Cowie, General Manager, Daedong Credit Bank

Daedong Credit Bank Nigel Cowie Daedong Credit Bank (Pyongyang DPRK) General Manager and Director (1998- ) Hana Electronics JVC (DPRK) Chairman (2003- ) Phoenix Commercial Ventures Ltd (International) Director (2005- ) European Business Association (Pyongyang DPRK) Founder Member (2005- )

Daedong Credit Bank Daedong Credit Bank A majority foreign-owned, foreign-managed joint venture commercial bank. Providing high street banking services in foreign currency to foreign-owned/invested commercial business customers. Most customers import goods, eg consumer goods on sale in the hard currency shops, or larger scale commodities, mainly food related; also, in the case of the joint venture companies, raw materials. Not allowed to operate accounts for state-owned companies, most of DCB remittance business consists of outward remittances to pay for imports. DCB is proudly celebrating 10 years of successful operations.

Daedong Credit Bank DCB Attributes Proven track record of service over its 10 years of operation, and complies with full international audit standards Local staff speak English - fully trained in banking operations DCB first bank operating the DPRK to announce that it has a detailed set of written anti money laundering procedures

Daedong Credit Bank US Treasury Measures 15 September 2005 US Treasury announced the designation of Banco Delta Asia, Macau, as a "primary money laundering concern" in connection with transactions for DPRK customers. Proposed steps to deny the bank access to the US financial system. BDA suspended all transactions with its DPRK customers, handed over management to the Macau Monetary Authority. Balances of these customers were transferred into special suspense accounts pending the outcome of investigation. Investigation now completed. Not clear if/when the balances will be released.

Daedong Credit Bank US Treasury Measures (2) Other overseas banks closed the accounts of their DPRK bank customers, after receiving warnings from the US Treasury. One of our correspondent banks explained that ‘This was an across-the-board policy decision due to external developments/factors, as you may be aware of, where present or future requirements may preclude us from our ability to service the accounts in an efficient manner’. US Treasury Department Under Secretary Stuart Levey: As more business people and governments learn about the risks of dealing with the DPRK, the campaign will have a ‘snowballing … avalanche effect’. Foreign customers conducting legitimate business, told by their bankers overseas to stop receiving remittances from the DPRK, otherwise their accounts will be closed.

Daedong Credit Bank Cash Transactions Most customers get paid by local buyers in cash. DCB checks the cash for counterfeits and credits it to their accounts. Funds remitted to their suppliers overseas Cash accumulated in PY because they are mainly importing, cash has to be physically delivered to banks overseas. Cash is not counterfeit, it represents funds from legitimate business activities by legitimate customers. Other banks in the DPRK have the same problem, whereby they have to make cash deposits overseas.

Daedong Credit Bank Banco Delta Asia DPRK banks have been using Banco Delta Asia for decades. They were prepared to provide banking services to DPRK customers, and they accepted cash transactions.

Daedong Credit Bank Mongolia 2005 DCB opened new accounts with Golomt Bank of Mongolia. Procedures for handling cash transactions and our anti-money laundering procedure manual were discussed in detail. 21 February designated couriers transported a cash deposit to Mongolia, consisting of USD1M and JPY20M; the couriers were met, as previously agreed, by Golomt Bank officials with local police at the airport. The couriers were then detained by Mongolian intelligence agents who took them/the cash to the Bank of Mongolia (central bank); the couriers were accused of importing counterfeit currency. 22 February alleged that USD61,700 was suspected counterfeit; alleged fakes were sent, together with two additional notes randomly taken from each remaining USD10K bundle of cash, for further examination at an unspecified location.

Daedong Credit Bank Mongolia 22 February Mongolian press carried leaked false reports to the effect that “North Korean diplomats had been intercepted smuggling USD1M and JPY200M (not JPY20M) into Mongolia”. These reports were subsequently carried by international news agencies. DCB Treasurer despatched to Mongolia, where he was subsequently joined by NC, to protest and demand the return of its funds. 7 March intelligence officials conceded that all the notes were genuine; the cash was released. The money was deposited with the Golomt Bank on 9 March, as had originally been intended.

Daedong Credit Bank Effects on DCB Large amount of DCB money seized, no indication as to when it will be returned Management of DCB working capital impaired 50% fall in turnover Severe damage to confidence in the banking system Significant efforts to find new correspondent accounts for DCB Cost and complexity of operations increased Legitimate business being driven away, illegal business will find route around the block.

Daedong Credit Bank Solution DCB wish to create an infrastructure for normalising relations with the outside world Current sanctions negate that process DCB will happily report full details of all transactions to relevant authorities

Daedong Credit Bank Why Rely on Cash Most transactions have to be done in cash, because: – No means for cashless transactions – No reciprocal correspondent banking arrangements – Little confidence in the banking system, people trust cash more Transactions must be in foreign currency, because: – Local currency not convertible – Overseas sellers want payment in hard currency We cannot use inward remittances received for exports to offset outward remittances for imports, because not enough exports

Daedong Credit Bank Counterfeit Notes DCB has detected counterfeit notes as part of its rigorous checking and anti money laundering procedures. Counterfeit notes, contrary to the media spin, are possible to detect.

Daedong Credit Bank For details see