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Report Claims U.S. Readying Financial Sanctions On Pyongyang

A North Korean soldier looks on at the Joint Security Area at the truce village of Panmunjom separating the two Koreas.
SEOUL (Reuters) -- The United States has told South Korea it is preparing financial measures to punish North Korea for illicit weapons trade and counterfeiting activities after its nuclear test last week, a newspaper report said.

Plans to hit the North's finances were discussed during a four-day visit to Seoul by U.S. Deputy Secretary of State James Steinberg, the South Korean daily newspaper Chosun Ilbo said.

"The U.S. delegation...explained when visiting President Lee Myung-bak and others Washington's own sanctions against the North centered around financial sanctions," the paper quoted a presidential Blue House official as saying.

North Korea has raised regional tensions since it fired a long-range rocket over Japan in April, and on June 4 the hermit state put two female U.S. journalists on trial for illegally entering its territory with "hostile intent."

Analysts say the pair, who were working for the Current TV network co-founded by former U.S. Vice President Al Gore, have become bargaining chips in negotiations with the United States, which has long sought to end the North's nuclear ambitions.

The Chosun quoted a diplomatic source as saying Gore may visit Pyongyang as early as this weekend in an effort to secure the release of the two journalists once a widely expected guilty verdict has been delivered.

U.S. Secretary of State Hillary Clinton said she hoped the trial would result in their speedy release and confirmed the United States had explored sending a special representative to Pyongyang to negotiate for the journalists' freedom.

"The trial which is going on right now we consider to be a step toward the release and the return home of these two young women," she told reporters in Washington.

Clinton did not discuss any bilateral sanctions the United States was considering but made clear Washington wanted the "strongest possible" resolution to emerge from negotiations at the United Nations to punish the North for its recent actions.

"If there are effective sanctions that we believe can be imposed -- an arms embargo, and other steps that need to be taken -- we need to see real results," she added.

'Moderate' Toughening

UN diplomats said negotiations among the five permanent Security Council members and Japan had yet to produce a deal on a sanctions resolution. One diplomat said the latest draft resolution called for a "moderate" tightening of sanctions imposed on Pyongyang in 2006 after its first nuclear test.

Diplomats said China was unhappy about language calling for inspections of vessels carrying North Korean cargo to and from the communist state that might constitute a violation of a partial trade and arms embargo against Pyongyang.

In a separate move on June 5, North Korea proposed talks with the South over a joint factory enclave that is the only major link between the rival states, more than a month after the last attempt at dialogue broke down in acrimony.

South Korea accepted the proposal for a meeting on June 11 over the Kaesong Park just inside the communist state, where about 100 South Korean firms use cheap North Korean labor and land to make goods, a Unification Ministry official said.

North Korea in May declared all contracts there invalid in what analysts said was a ploy to squeeze more money from the South. It has also been holding a South Korean worker there for about three months on suspicion of insulting its leaders.

In 2005, the Bush administration imposed financial sanctions on the North over counterfeiting and drug-running. The move focused on a Macau bank and effectively shut off the North's access to the international financial system.

The 2005 crackdown on Banco Delta Asia in Macau froze about $25 million in funds of Pyongyang's leadership. Most banks around the world steered clear of North Korean funds as a result, fearful of being snared themselves by U.S. financial authorities.

Bankers at the time said that as a result North Korea was forced to move its money around in suitcases of cash.

The North boycotted six-party nuclear disarmament talks, involving the two Koreas, the United States, Russia, Japan, and China, until Washington executed an elaborate scheme to transfer its money in BDA to the North in 2007.

"The steps we've taken in the the banking sector, you know, certainly did get North Korea's attention previously and if we find ways to do that, we will do so," U.S. State Department spokesman P.J. Crowley told reporters.