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By Megha Rajagopalan
BEIJING, April 10 (Reuters) - European aid groups operating in North Korea might have to hand-carry cash into Pyongyang or stop work altogether if Washington convinces the European Union to sanction the reclusive country's main foreign exchange bank, aid workers said.
Germany and France had already expressed concern about the possible impact on aid groups as well as European embassies in Pyongyang should the EU sanction the Foreign Trade Bank, separate sources said. Many foreign entities with offices in North Korea use the bank.
Washington announced sanctions in March, saying the bank helped fund Pyongyang's banned nuclear programme. Japan followed suit last week while Australia is expected to do the same. The U.S. measures prohibit any transactions between U.S. entities or individuals and the Foreign Trade Bank.
Embassies, non-governmental organisations and U.N. agencies such as the World Food Programme use the Foreign Trade Bank. It is the last major institution in North Korea for legal international transactions and Pyongyang specifically required NGOs to use it, aid workers said.
"You can't operate without the bank," said Katharina Zellweger, who headed the Swiss Agency for Development and Cooperation in Pyongyang from 2006-2011. "Except if you carry in suitcases of cash. But I don't think that is the right way to go."
No firm EU proposal to sanction the bank has so far been put forward, diplomats in Brussels said, although they did not rule out that it could be added to the EU sanctions list against North Korea at some point.
A U.S. State Department official told reporters in Brussels on March 26 that Washington hoped the EU looked "hard" at imposing sanctions. The intention was not to hurt NGOs that did legitimate work, the official added.
"We will work through any concerns that arise related to purchases of humanitarian goods, but it is critically important that we isolate FTB for its facilitation of proliferation activities," an official from the U.S. Treasury Department told Reuters last week.
About six European NGOs have offices in North Korea. Their work focuses largely on humanitarian aid and agricultural development projects. American NGOs work in North Korea but none have a permanent office in the country.
Countries with embassies in Pyongyang include Britain, Germany, Sweden, Poland, the Czech Republic, Romania and Bulgaria. France has a cultural affairs office in Pyongyang but it is not a diplomatic mission. Washington has no diplomatic ties with North Korea.
European NGOs in North Korea said they had told EU diplomats the Foreign Trade Bank was vital to their work. Two sources with knowledge of those talks said France and Germany expressed concern during meetings in Brussels about the impact of sanctions on aid groups and embassies should the EU adopt them. French and German aid organisations have offices in Pyongyang.
Romania's Foreign Ministry said its embassy in Pyongyang depended on the bank to pay for utilities and other services and would struggle to operate if it was sanctioned. Bulgaria said its mission would not be affected. Other European countries declined to make on-the-record comments.
An EU official in Brussels said the adverse impact on NGOs, embassies and other organisations would need to be considered if measures were taken against the Foreign Trade Bank.
Emilia Casella, a spokeswoman for the World Food Programme in Rome, said the agency used the bank to receive and make payments and expected it would continue to do so. The United Nations Development Programme (UNDP), which has an office in Pyongyang, declined to comment.
Even if the EU took no action or gave an exemption to certain organisations, non-U.S. banks sending money to the Foreign Trade Bank will have noted Washington's sanctions.
Indeed, experts have said the U.S. move against the bank was designed to make foreign banks that do business in the United States think twice about dealing with the bank, much the same way banks have become wary about having ties with financial institutions in sanctions-hit Iran.
If entities in Pyongyang had to use the Foreign Trade Bank, they would end up spending a lot of time seeking clarity or an exemption to avoid hassle from the U.S. Treasury and their homebase bank, said George Lopez, a former U.N. North Korea sanctions monitor, now at the University of Notre Dame.
"Usually the latter (the homebase bank) is the group most nervous and difficult because its own reputational status is on the line," Lopez said.
Little is known about the Foreign Trade Bank, whose assets and investments are a state secret. It is also unclear where it has branches. Visitors to North Korea said its headquarters is a stately Soviet-style building near Kim Il Sung Square in central Pyongyang.
Washington announced sanctions on the bank just days after fresh U.N. sanctions were imposed on North Korea for its Feb. 12 nuclear test, the country's third. The U.N. sanctions tighten financial curbs on North Korea, including the illicit transfer of bulk cash, and crack down on its attempts to ship and receive banned cargo.
"If the EU extends sanctions to the Foreign Trade Bank, as the U.S. has done, then like all other embassies, U.N. organisations and NGOs in North Korea we too will have problems to implement our humanitarian projects here," said Bettina Beuttner, spokeswoman for the German NGO Welthungerhilfe, which has a base in Pyongyang. "If this happens, we do not yet know how we will be able to work."
A representative from another NGO in Pyongyang, who declined to be identified because of the sensitivity of the matter, said if it became impossible to send money to North Korea the organisation would have to freeze its programmes.
Washington has targeted North Korea's limited financial links to the global community before. In 2005, some $25 million in North Korean money was frozen in a U.S. Treasury-inspired raid on Macau-based Banco Delta Asia (BDA), which Washington alleged handled illicit funds for Pyongyang.
Besides the EU, Washington has also spoken to China about the Foreign Trade Bank. David Cohen, the U.S. Treasury undersecretary for terrorism and financial intelligence, told reporters he raised the issue with Chinese officials in Beijing last month, although he did not say what their response was.
It is unclear how much of the $6 billion in annual trade between China and North Korea goes through the bank. China is by far the North's biggest trade partner.
Felix Abt, a Swiss entrepreneur who has worked in Pyongyang and helped run a financial training programme for Foreign Trade Bank officials, said sanctions would be a "huge setback for economic development" in North Korea. "In the worst case scenario ... it would drive the economy underground. They would have to use cash couriers or other funny methods," he said.
Zellweger, who has studied small North Korean businesses and the country's economy, said local firms trying to do legitimate business would be pushed into what she called a "grey zone" if foreign companies stopped using the bank.
"It makes it so no one wants to do business with North Korea, even legal business," said Zellweger. (Additional reporting by Adrian Croft and Justyna Pawlak in Brussels, Ioana Patran in Bucharest, Tsvetelia Tsolova in Sofia, Stephanie Ulmer-Nebehay in Geneva, Louis Charbonneau at the United Nations and Anna Yukhananov in Washington; Editing by Dean Yates)