Exclusive: Sanctions delay North Korea's atom bomb work, U.N. report says

By Louis Charbonneau and Michelle Nichols

UNITED NATIONS (Reuters) - Increasingly tough financial sanctions, an arms embargo and other international restrictions on trade with North Korea have significantly delayed expansion of Pyongyang's illicit nuclear arms program, according to a confidential report by a U.N. panel of experts seen by Reuters on Tuesday.

"While the imposition of sanctions has not halted the development of nuclear and ballistic missile programs, it has in all likelihood considerably delayed (North Korea's) timetable and, through the imposition of financial sanctions and the bans on the trade in weapons, has choked off significant funding which would have been channeled into its prohibited activities," the 52-page report said.

In the report to the U.N. Security Council's North Korea sanctions committee, the panel also recommended sanctioning three North Korean entities and 12 individuals. It will be up to the 15-nation council whether or not it follows the recommendations.

The three entities the panel said should be blacklisted are the newly created Ministry of Atomic Energy Industry, the Munitions Industry Department of the Central Committee of the Korean Workers Party (KWP), and the State Space Development Bureau.

The individuals the panel wants sanctioned include the atomic energy industry minister, once he is nominated, and four senior officials at the KWP Munitions Industry Department.

It also recommends the blacklisting of one national from Kazakhstan, Aleksandr Viktorovich Zykov, and two from Ukraine, Iurii Lunov and Igor Karev-Popov, for their involvement in North Korea-related arms deals.

"The DPRK (North Korea) has continued to defy the international community in a series of actions which have heightened concern about its intentions," it said.

The panel listed North Korea's February nuclear test and its rocket launches as examples of violations that have increased international concerns about Pyongyang. It was North Korea's third nuclear test since 2006.

Pyongyang is under U.N., U.S., European Union and other sanctions, including a U.N. ban on all arms exports, due to its nuclear weapons program.

IMPORT-EXPORT

Among potential violations the panel listed were the seizure by a U.N. member state of aluminum alloys suspected to be nuclear-related in August 2012 and the seizure of missile-related items bound for Syria in May 2012.

Previous breaches included shipments of arms-related material to Syria in November 2010 and rocket fuses for Iran in 2008, the panel report said.

"The DPRK has continued its efforts to import and export items relevant to missile and nuclear programs and arms," it said. "There was no major change in either the number or nature of the incidents investigated by the panel over the reporting period."

The panel said countries should be on the lookout for North Korean attempts to procure the following key items for Pyongyang's nuclear program - maraging steel, frequency changers, high-strength aluminum alloy, fibrous or filiamentary materials, filament winding machines, ring magnets, semi-hard magnetic alloys in thin strip form and other items.

U.N. diplomats said that China, North Korea's principal ally and trading partner, continues to play a key role in enabling Pyongyang to skirt sanctions, though this is not discussed explicitly in the panel's report.

Beijing has vowed to push for full implementation of the latest round of U.N. sanctions adopted by the council in March, though it remains unclear how much China was keeping that promise.

Recently Bank of China Ltd shut the account of North Korea's main foreign exchange bank, the state-run Foreign Trade Bank, which was hit with U.S. sanctions in March after Washington accused it of helping finance Pyongyang's nuclear weapons program.

That closure was the first significant, publicly announced step taken by a Chinese firm to curb dealings with North Korea.

TARGETING BANKS

The U.N. financial restrictions are working, the panel said.

"The panel is highly confident that financial measures of the resolutions in general are being effectively implemented by major banks," the experts wrote.

"It has concerns, however, about the ability of banks in states with less effective regulators and those unable to afford effective compliance to detect and prevent illicit DPRK transfers," said the report, citing a case involving the Bank of Congo in the Republic of Congo.

It said the Bank of Congo processed a wire transfer linked with an attempted arms shipment in 2009 to an account in the name of a diplomat at North Korea's embassy in Beijing, but Banque de France refused to accept the transfer.

"This case illustrates how the DPRK makes use of its diplomatic officials in the conduct of prohibited activities ... and in the using bank accounts to shield illicit fund transfers from bank's due diligence procedures," the experts said.

The report also said a diplomat at the North Korean embassy in the Republic of Congo has been actively involved in negotiating the contracts for the arms shipments.

The panel said that since May 2012 Japan has reported nine cases of suspected violations of the ban involving luxury goods including alcohol, tobacco, electronic items, automobiles and cosmetics.

The Security Council sanctions resolution adopted in March drew attention to North Korean bulk cash deliveries, an issue the expert panel also touched on in its report. [ID:nL1N0BZ6V1] U.N. envoys say such transfers are often carried out by North Korean diplomatic personnel.

The panel report referred to North Korea's "trade-based money-laundering via front companies and agents to pay for illicit procurements and to transfer proceeds of sales of weapons and WMD-related items."

"It (North Korea) uses company formation agents to establish firms off-shore in locales where laws make it difficult or impossible to determine beneficial ownership," the panel said. "It may often conduct its banking under a similar name in a different country."

The panel also said North Korea continues to violate the Security Council ban on luxury goods.

"The DPRK circumvented sanctions using ... false shipping and customs declarations and the use of intermediaries to make payments either through hand carrying or wire transfers. In at least two instances the end users were falsely declared as a diplomatic mission in Pyongyang," it said.

It said the panel had also requested information from China on six earlier luxury goods cases. "China's customs officials told the panel that goods covered by the panel's 2012 report were not considered luxury goods," the experts wrote.

(Reporting by Louis Charbonneau and Michelle Nichols. Editing by Christopher Wilson and Xavier Briand)

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Exclusive: Boston bomb suspects' parents retreat to village, cancel U.S. trip

UNDISCLOSED LOCATION IN NORTH CAUCASUS, Russia (Reuters) - The father of the Boston Marathon bombing suspects has abandoned plans to travel to the United States to bury one son and help in the defense of the other, he told Reuters on Sunday in an interview in southern Russia.

Anzor Tsarnaev said he believed he would not be allowed to see his surviving son Dzohkhar, who was captured and has been charged in connection with the April 15 bomb blasts that killed three people and wounded 264.

"I am not going back to the United States. For now I am here. I am ill," Tsarnaev said. He agreed to the face-to-face interview on condition that his location in the North Caucasus, a string of mainly Muslim provinces in southern Russia, not be disclosed.

"Unfortunately I can't help my child in any way. I am in touch with Dzhokhar's and my own lawyers. They told me they would let me know (what to do)," he said.

Tsarnaev had said in the North Caucasus province of Dagestan on Thursday that he planned to travel to the United States to see Dzkhokhar and bury his elder son, Tamerlan, who was shot dead by police in a firefight four days after the bombings.

(Reporting by Maria Golovnina; Writing by Steve Gutterman; Editing by Peter Graff)

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Exclusive: Lion Air crash pilot felt jet "dragged" from sky

By Tim Hepher

PARIS (Reuters) - The pilot whose Indonesian jet slumped into the sea while trying to land in Bali has described how he felt it "dragged" down by wind while he struggled to regain control, a person familiar with the matter said.

All 108 passengers and crew miraculously survived when the Boeing 737 passenger jet, operated by Indonesian budget carrier Lion Air, undershot the tourist island's main airport runway and belly-flopped in water on Saturday.

Officials stress it is too early to say what caused the incident, which is being investigated by Indonesian authorities with the assistance of U.S. crash investigators and Boeing.

But initial debriefings, witness comments and weather reports have focused attention on the possibility of "wind shear" or a downdraft from storm clouds known as a "microburst".

Although rare, experts say such violent and unpredictable gusts can leave even the most modern jet helpless if they are stronger than the plane's ability to fly out of trouble - with the critical moments before landing among the most vulnerable.

"If you have a downdraft which exceeds the performance of the plane, then even if you put on full thrust you will go downhill and you can't climb out," said Hugh Dibley, a former British Airways captain and expert on loss-of-control events.

The cause of the crash has potential implications for the reputation of one of the world's fastest-growing airlines, which is fighting to be removed from a European Union safety black list even as it buys record volumes of Airbus and Boeing jets.

According to initial pilot debriefings, details of which have been described to Reuters, flight JT-904 was on an eastwards approach to Bali's Ngurah Rai Airport at mid-afternoon on Saturday following a normal flight from Bandung, West Java.

The co-pilot, an Indian national with 2,000 hours of relevant flying experience, was in charge for the domestic trip, which was scheduled to last one hour and 40 minutes.

HEAVY RAIN

As the Lion Air plane was coming in to land, with an aircraft of national carrier Garuda following behind and another about to take off on the runway just ahead, the co-pilot lost sight of the runway as heavy rain drove across the windshield.

The captain, an Indonesian citizen with about 15,000 hours experience and an instructor's license, took the controls.

Between 400 and 200 feet, pilots described flying through a wall of water, according to the source. Bursts of heavy rainfall and lost visibility are not uncommon in the tropics but the aircraft's low height meant the crew had little time to react.

With no sight of the runway lights or markings, the captain decided to abort the landing and perform a "go around", a routine maneuver for which all pilots are well trained.

But the captain told officials afterwards that instead of climbing, the brand-new 737 started to sink uncontrollably.

From 200 feet, well-practiced routines unraveled quickly.

"The captain says he intended to go around but that he felt the aircraft dragged down by the wind; that is why he hit the sea," said the source, who was briefed on the crew's testimony.

"There was rain coming east to west; very heavy," the source said, asking not to be named because no one is authorized to speak publicly about the investigation while it is under way.

A passenger on board the jet painted a similar picture of an aircraft getting into difficulty only at the last minute.

"There was no sign at all it would fall but then suddenly it dropped into the water," Tantri Widiastuti, 60, told Metro TV.

Lion Air declined to comment on the cause of the crash.

WRITE-OFF

According to the Flight Safety Foundation, bulletins for pilots at around that time indicated a few storm clouds at 1,700 feet. A moderate wind blew from the south-southeast but flicked in a wide arc from east-southeast all the way to the west.

The source said there was no immediately obvious evidence of pilot or technical error but investigators will pore over the speed and other settings, as well as interactions between the pilots, to establish whether the crash could have been avoided.

Both pilots were given urine tests by the Indonesian police and were cleared for drugs and alcohol, the source said.

Neither pilot has been named.

According to Indonesian media reports, five Lion Air pilots have been arrested for drugs in the past two years, raising questions over whether drug abuse or overwork are widespread.

The airline's co-founder has denied this and told Reuters last year he was working closely with authorities to ensure Indonesia's tough drugs laws are obeyed.

Delivered in February, the aircraft itself had only had one technical problem: a landing light that had to be replaced.

Now lying broken-backed beneath a 15-foot (4.6-meter) sea-wall yards (meters) short of its destination, the $89-million Boeing has been written off. It was on lease from Dublin-based firm Avolon.

Pictures of the stricken jet lying in water and the fact that all on board survived brought back images of the "Miracle on the Hudson," in which an Airbus A320 ditched safely in New York after dramatically losing power due to a bird strike.

But industry experts say the suspected involvement of wind shear draws far more chilling parallels with the crash of a Delta Air Lines Lockheed Tristar while on approach to Dallas airport in 1985 that killed 134 passengers and crew.

Delta Flight 191 led to the creation of new warning systems and better procedures for dealing with low-level wind shear, or sudden changes of wind direction or speed.

According to Boeing, the 737-800, its most popular current model, is equipped with a "Predictive Windshear System". On approach, an aural warning says, "Go around, windshear ahead".

Nowadays, pilots agree the best strategy for dealing with possible wind shear is to avoid it entirely, said Dibley, who is a senior official at the UK's Royal Aeronautical Society.

But if the "wind shear" warning blares out, the automatic response is to cancel the landing and go around again, he said.

DELICATE BALANCE

Pilots can sometimes prepare for risks, such as a possible loss of the right sort of wind on landing, by keeping a buffer of extra speed to help them get out of trouble, he said. It is a delicate balance as too much speed could make the jet overrun, which in the case of Bali means hitting a road or yet more sea.

"If your speed is too slow and you hit a downdraft you will just sink. So one question is how much extra air speed the aircraft was carrying," Dibley said.

There was no immediate information on what cockpit signals were available to the crew, how fast the Lion Air jet was flying or what sort of scheduling roster the crew had been flying.

Founded by two brothers and travel entrepreneurs, Lion Air has been growing at a record pace to keep up with one of the region's star economies. Last month, it signed a deal with Europe's Airbus for 234 passenger jets worth $24 billion. Two years ago, it signed a deal with Boeing for 230 planes.

At the same time, however, Indonesia has been struggling to improve its civil air safety after a string of deadly accidents.

In 2007, Lion Air was among a number of Indonesian airlines banned by the EU for lax safety standards.

The ban was progressively lifted, starting in 2009, but although it has had one fatal accident, Lion Air remains on the EU's banned list - a predicament it has dismissed as unfair.

(Additional reporting by Neil Chatterjee, Andjarsari Paramaditha and Chris Nusatya; Editing by Eric Walsh)

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Exclusive: Aid groups to suffer if EU sanctions North Korean bank

By Megha Rajagopalan

BEIJING (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 program. Japan followed suit last week while Australia is expected to do the same. [ID:nL3N0CH0VZ] The U.S. measures prohibit any transactions between U.S. entities or individuals and the Foreign Trade Bank.

Embassies, non-governmental organizations 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 EU PLAN ... YET

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.

NGOS TAKE CONCERNS TO EU DIPLOMATS

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 organizations 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 organizations 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 organizations, 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.

OBSCURE BANK

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 February 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. organizations 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 organization would have to freeze its programs.

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)

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AP EXCLUSIVE: Police blamed in Egypt revolt deaths

CAIRO (AP) — The highest-level inquiry to date into the deaths of nearly 900 protesters during Egypt's 2011 uprising has concluded police were behind nearly all the killings and used snipers on rooftops overlooking Cairo's central Tahrir Square to shoot into the huge crowds.

The report, parts of which were obtained by The Associated Press, is the most authoritative and sweeping account of the killings and determines the deadly force used could only have been authorized by ousted President Hosni Mubarak's security chief, with the president's full knowledge.

The report's findings could weigh heavily in the upcoming retrial of Mubarak, his security chief — former Interior Minister Habib el-Adly — and six top police commanders. It is likely to also fuel calls for reforming the security forces and lead to prosecutions of policemen.

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Exclusive: Obama to name O'Connor new Secret Service chief - source

WASHINGTON (Reuters) - President Barack Obama has chosen a veteran Secret Service official who oversaw criminal investigations to head the agency, which last year became embroiled in a prostitution scandal in Colombia, a government source said.

In the next few days, Obama will appoint David O'Connor, a former assistant director of investigations who retired last year, as director of the agency that protects the president and other top officials.

The White House had no comment and the Department of Homeland Security would not confirm that he was to be appointed.

O'Connor will replace Mark Sullivan, who retired last month after almost three decades with the agency. The post of Secret Service director does not require Senate confirmation.

Sullivan was in charge of the Secret Service when it became embroiled in a scandal involving agents taking prostitutes back to their hotel rooms in Colombia ahead of a visit by Obama to Cartagena in April 2012. Sullivan was generally credited with acting aggressively in response to one of the biggest scandals to hit the agency.

O'Connor, who was with the Secret Service for more than 25 years, oversaw all criminal investigations and was in charge of agents in the field.

Previously he was in charge of dignitary protection, which included the 2008 Democratic National Convention where Obama was selected as the party's presidential candidate.

According to a blog post on MassLive.com during the Denver convention, O'Connor spoke to a group about his experiences when he was assigned to presidential candidate Al Gore, Pat Buchanan's campaign, first daughter Chelsea Clinton, and a U.S. visit by Pope Benedict, who stepped down last month.

Earlier in his Secret Service career O'Connor was special agent in charge of the Newark, N.J., office.

(Reporting By Tabassum Zakaria and Deborah Charles; Editing by Vicki Allen)

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