Senior Fellow John R. Bolton

Over a month has passed since sweetness and light were due to break out on the Korean Peninsula. On Feb. 13, the Six-Party Talks in Beijing ratified a bilateral agreement between the U.S. and North Korea, providing for Pyongyang to give up its nuclear programs. The first step, 60 days after ratification, was to be that North Korea "will shut down and seal for the purpose of eventual abandonment" the Yongbyon nuclear facility, and readmit inspectors from the International Atomic Energy Agency (IAEA).

Other steps were to follow, but the first move was unequivocally to be made by Pyongyang. The 60 days came and went, and indeed, another 35 days have come and gone. No IAEA inspectors have been readmitted, and not even Pyongyang claims that it has "shut down" Yongbyon.

Instead, observers--especially Iran and other nuclear weapons aspirants--have witnessed embarrassing U.S. weakness on a supposedly unrelated issue, unmentioned in the Feb. 13 agreement. That issue involves North Korea's widely publicized demand that approximately $25 million frozen in Macau-based Banco Delta Asia (BDA) accounts be released and transferred to Pyongyang. The funds came from North Korean counterfeiting of U.S. currency, money laundering and other fraudulent activities uncovered by a U.S. Treasury investigation begun in 2003. The accounts were frozen in 2005 and the BDA was promptly put on Treasury's blacklist for illicit activity.

While the Bush administration denies a direct link, the North Koreans have said publicly that they will not comply with the bilateral agreement until the BDA funds are safely under their control. This obvious quid pro quo is not only embarrassing, it sets a dangerous precedent for other regimes that would blackmail the U.S. What are the consequences of the BDA meltdown?

First, the timetable of the Feb. 13 agreement is already shredded. President Bush said at the time of the deal: "Those who say that the North Koreans have got to prove themselves by actually following through on the deal are right, and I'm one." Assistant Secretary of State Chris Hill, the deal's U.S. architect and chief negotiator, said: "We need to avoid above all missing deadlines. It's like a broken-window theory: one window is unrepaired, and before you know it you'll have a lot of broken windows and nobody cares."

Those statements were correct when made, and they are correct today. Sadly, however, they no longer seem to be "operative."

Second, by making secret side deals with North Korea, the State Department has left itself vulnerable to future renegotiation efforts. This is the North's classic style: Negotiate hard to reach an agreement, sign it, and then start renegotiating, not to mention violating the deal at will. America's serial concessions on BDA simply confirm to Pyongyang that State is well into the "save the deal" mode, which bodes well for future North Korean efforts to recast it. Consider the sequence of administration positions on BDA: Initially, the criminal investigation and the nuclear issue were not supposed to be connected, but the North insisted and the U.S. gave in.

Then, North Korea moved the renegotiation into high gear, demanding the return of the funds as a precondition to complying with its own commitments. Unwilling to "just say no," the Bush administration tried to distinguish between "licit" and "illicit" funds, returning only those that were legitimate. (This, of course begs the question whether anything that the criminal conspiracy running North Korea does is "licit.") Even the "licit" funds returned, however, were to be used only for "humanitarian" projects in North Korea rather than returned to Kim Jong Il's grasp--although how in an age of the U.N.'s "Cash for Kim" program the State Department thought this was to be verified remains a mystery.

Nevertheless, North Korea was not satisfied, insisting that all the funds had to be returned to the actual account holders, with no restrictions on their use, even though all agree that at least some were acting illicitly. This, too, State accepted.

Third, we now face the nagging question whether there are other secret side deals beyond BDA. Of course, the BDA agreement was not so secret that Kim Jong Il was barred from knowing about it, by definition. Most troubling, however, is that State apparently thought it too sensitive to share with the American people until the February deal broke down in an unavoidably public way. But even this was not enough for North Korea, which, sensing U.S. weakness, continues to press for more. Although conflicting stories abound, North Korea may be seeking not just the return of the BDA funds, but something much more significant: guaranteed access to international financial markets, even through an American bank. Indeed, this week Wachovia Corp. confirmed that it had been approached by the State Department to assist in the transfer of funds.

Here, the issue is inescapably related to North Korea's nuclear program. The North's access to international financial markets to launder its ill-gotten revenues is critical both to continued financing of its nuclear regime and to keeping Kim Jong Il in power. If this is even close to what the State Department is prepared to do, who will ever again take us seriously when we threaten financial strangulation of rogue states and terrorist groups? Granting this North Korean demand would make U.S. concessions on BDA look paltry by comparison.

Fourth, the BDA affair calls the remainder of the Feb. 13 agreement into question. Just to remind, 2007 is the 13th anniversary of the Agreed Framework, a predecessor U.S.-North Korean agreement, and the 15th anniversary of the Joint North-South Declaration on the Denuclearization of the Korean Peninsula. In all likelihood, it is also the 13th and 15th anniversaries, respectively, of North Korea's first violations of those agreements. No serious observer contends there is any sign of a strategic decision by North Korea to give up its nuclear program, which means, therefore, there is no more reason to believe the North will comply with the Feb. 13 deal than it has complied with its predecessors.

It is not even clear if North Korea actually gave up anything significant in the Feb. 13 deal. It is entirely possible, for example, that Yongbyon is now a hulk, well past its useful life span, and that the North agreed, in effect, to shut down a wreck. Even if Yongbyon is not in such parlous condition, it may be that the North has extracted all the plutonium possible from the fuel rods it has, and that Yongbyon therefore offers it nothing more. Here, the omissions in the Feb. 13 agreement become significant. The deal says nothing about the plutonium, perhaps weaponized perhaps not, that North Korea has already reprocessed.

How these issues play out will have ramifications far beyond North Korea, particularly for Iran. Some say the Bush administration entered the Feb. 13 deal because it desperately needed a success. One thing is for certain: It does not need a failure. The president can easily extricate himself from the deal, just based on North Korea's actions to date. He should take the first opportunity to do so.

John R. Bolton is a senior fellow at AEI.