Finding That Banco Delta Asia SARL Is a Financial Institution of Primary Money Laundering Concern, 55214-55216 [05-18660]

Agencies

• DEPARTMENT OF THE TREASURY
• Department of Treasury

[Federal Register Volume 70, Number 181 (Tuesday, September 20, 2005)]
[Notices]
[Pages 55214-55216]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-18660]



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Part II





Department of the Treasury





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31 CFR Part 103



Finding That Banco Delta Asia SARL Is a Financial Institution of 
Primary Money Laundering Concern; Notice



Financial Crimes Enforcement Network; Amendment to the Bank Secrecy Act 
Regulations--Imposition of Special Measure Against Banco Delta Asia 
SARL; Proposed Rule

Federal Register / Vol. 70, No. 181 / Tuesday, September 20, 2005 / 
Notices

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DEPARTMENT OF THE TREASURY


Finding That Banco Delta Asia SARL Is a Financial Institution of 
Primary Money Laundering Concern

AGENCY: The Financial Crimes Enforcement Network, Treasury.

ACTION: Notice of finding.

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SUMMARY: Pursuant to the authority contained in 31 U.S.C. 5318A, the 
Secretary of the Treasury, through his delegate, the Director of the 
Financial Crimes Enforcement Network, finds that reasonable grounds 
exist for concluding that Banco Delta Asia SARL (Banco Delta Asia) is a 
financial institution of primary money laundering concern.

DATES: The finding made in this notice is effective as of September 20, 
2005.

FOR FUTHER INFORMATION CONTACT: Regulatory Policy and Programs 
Division, the Financial Crimes Enforcement Network, (800) 949-2732.

SUPPLEMENTARY INFORMATION: 

I. Background

A. Statutory Provisions

    On October 26, 2001, the President signed into law the Uniting and 
Strengthening America by Providing Appropriate Tools Required to 
Intercept and Obstruct Terrorism Act of 2001 (the USA PATRIOT Act), 
Public Law 107-56. Title III of the USA PATRIOT Act amends the anti-
money laundering provisions of the Bank Secrecy Act (BSA), codified at 
12 U.S.C. 1829b, 12 U.S.C 1951-1959, and 31 U.S.C. 5311-5314, 5316-
5332, to promote the prevention, detection, and prosecution of 
international money laundering and the financing of terrorism. 
Regulations implementing the BSA appear at 31 CFR part 103.
    Section 311 of the USA PATRIOT Act (``section 311'') added section 
5318A to the BSA, granting the Secretary of the Treasury (the 
``Secretary'') the authority, upon finding that reasonable grounds 
exist for concluding that a foreign jurisdiction, institution, class of 
transactions, or type of account is of ``primary money laundering 
concern,'' to require domestic financial institutions and financial 
agencies to take certain ``special measures'' against the primary money 
laundering concern. Section 311 identifies factors for the Secretary to 
consider and Federal agencies to consult before the Secretary may 
conclude that a jurisdiction, institution, class of transaction, or 
type of account is of primary money laundering concern. The statute 
also provides similar procedures, i.e., factors and consultation 
requirements, for selecting the specific special measures to be imposed 
against the primary money laundering concern. For purposes of the 
finding contained in this notice, the Secretary has delegated his 
authority under section 311 to the Director of the Financial Crimes 
Enforcement Network.\1\
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    \1\ Therefore, references to the authority and findings of the 
Secretary in this document apply equally to the Director of the 
Financial Crimes Enforcement Network.
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    Taken as a whole, section 311 provides the Secretary with a range 
of options that can be adapted to target specific money laundering and 
terrorist financing concerns most effectively. These options give the 
Secretary the authority to bring additional pressure on those 
jurisdictions and institutions that pose money laundering threats. 
Through the imposition of various special measures, the Secretary can 
gain more information about the jurisdictions, institutions, 
transactions, or accounts of concern; can more effectively monitor the 
respective jurisdictions, institutions, transactions, or accounts; or 
can protect U.S. financial institutions from involvement with 
jurisdictions, institutions, transactions, or accounts that pose a 
money laundering concern.
    Before making a finding that reasonable grounds exist for 
concluding that a foreign financial institution is of primary money 
laundering concern, the Secretary is required to consult with the both 
the Secretary of State and the Attorney General. The Secretary is also 
required by section 311 to consider ``such information as the Secretary 
determines to be relevant, including the following potentially relevant 
factors'':
     The extent to which such financial institution is used to 
facilitate or promote money laundering in or through the jurisdiction;
     The extent to which such financial institution is used for 
legitimate business purposes in the jurisdiction; and
     The extent to which the finding that the institution is of 
primary money laundering concern is sufficient to ensure, with respect 
to transactions involving the institution operating in the 
jurisdiction, that the purposes of the BSA continue to be fulfilled, 
and to guard against international money laundering and other financial 
crimes.
    If the Secretary determines that reasonable grounds exist for 
concluding that a foreign financial institution is of primary money 
laundering concern, the Secretary must determine the appropriate 
special measure(s) to address the specific money laundering risks. 
Section 311 provides a range of special measures that can be imposed 
individually, jointly, in any combination, and in any sequence.\2\ The 
Secretary's imposition of special measures requires additional 
consultations to be made and factors to be considered. The statute 
requires the Secretary to consult with appropriate federal agencies and 
other interested parties \3\ and to consider the following specific 
factors:
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    \2\ Available special measures include requiring: (1) 
Recordkeeping and reporting of certain financial transactions; (2) 
collection of information relating to beneficial ownership; (3) 
collection of information relating to certain payable-through 
accounts; (4) collection of information relating to certain 
correspondent accounts; and (5) prohibition or conditions on the 
opening or maintaining of correspondent or payable-through accounts. 
31 U.S.C. 5318A(b)(1)-(5). For a complete discussion of the range of 
possible countermeasures, see 68 FR 18917 (April 17, 2003) 
(proposing special measures against Nauru).
    \3\ Section 5318A(a)(4)(A) requires the Secretary to consult 
with the Chairman of the Board of Governors of the Federal Reserve 
System, any other appropriate Federal banking agency, the Secretary 
of State, the Securities and Exchange Commission (SEC), the 
Commodity Futures Trading Commission (CFTC), the National Credit 
Union Administration (NCUA), and, in the sole discretion of the 
Secretary, ``such other agencies and interested parties as the 
Secretary may find to be appropriate.'' The consultation process 
must also include the Attorney General, if the Secretary is 
considering prohibiting or imposing conditions on domestic financial 
institutions opening or maintaining correspondent account 
relationships with the designated entity.
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     Whether similar action has been or is being taken by other 
nations or multilateral groups;
     Whether the imposition of any particular special measures 
would create a significant competitive disadvantage, including any 
undue cost or burden associated with compliance, for financial 
institutions organized or licensed in the United States;
     The extent to which the action or the timing of the action 
would have a significant adverse systemic impact on the international 
payment, clearance, and settlement system, or on legitimate business 
activities involving the particular institution; and
     The effect of the action on the United States national 
security and foreign policy.\4\
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    \4\ Classified information used in support of a section 311 
finding and measure(s) may be submitted by Treasury to a reviewing 
court ex parte and in camera. See section 376 of the Intelligence 
Authorization Act for fiscal year 2004, Pub. L. 108-177 (amending 31 
U.S.C. 5318A by adding new paragraph (f)).
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B. Banco Delta Asia

    Banco Delta Asia, located and licensed in the Macau Special 
Administrative Region, China, is the commercial banking arm of its 
parent company, Delta Asia Group (Holdings)

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Ltd. (Delta Asia Group).\5\ In addition to commercial banking, Delta 
Asia Group engages in investment banking and insurance activities. 
Banco Delta Asia was originally established in 1935 as Banco Hang 
Sang,\6\ and its name changed to Banco Delta Asia in December 1993. 
With approximately 340 employees and a total equity of approximately 
$35 million at the close of 2003, Banco Delta Asia is the fourth 
smallest commercial bank in Macau. Banco Delta Asia operates eight 
branches in Macau (including a branch at a casino) and is served by a 
representative office in Japan. In addition, Banco Delta Asia maintains 
correspondent accounts in Europe, Asia, Australia, Canada, and the 
United States, and has two wholly owned subsidiaries: Delta Asia Credit 
Ltd., and Delta Asia Insurance Limited.\7\
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    \5\ The Bankers Almanac (2004). This finding of primary money 
laundering concern shall apply exclusively to Banco Delta Asia and 
its branches, offices, and subsidiaries, and not to Delta Asia Group 
(Holdings) Ltd., or any of its other subsidiaries.
    \6\ Banco Delta Asia's historical name, Banco Hang Sang, is not 
to be confused with Hang Seng Bank, a Hong Kong bank, nor the Hang 
Seng Index, an index of certain shares traded on the Hong Kong Stock 
Exchange.
    \7\ The Banker's Almanac (2004).
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C. Macau

    Money laundering has been identified as a significant problem in 
the Macau Special Administrative Region, China.\8\ According to the 
International Narcotics Strategy Control Report (INSCR) published in 
March 2005 by the U.S. Department of State, Macau's lack of adequate 
controls and regulatory oversight of the banking and gaming industries 
(many of which are associated with organized criminal activity) has led 
to an environment that can be exploited by money launderers. Moreover, 
the March 2005 INCSR designates Macau as a ``jurisdiction of primary 
concern.'' \9\ The International Monetary Fund (IMF) conducted a study 
in 2002 concluding that, despite its anti-money laundering legal 
framework, Macau was ``materially non-compliant'' in terms of 
monitoring and reporting of suspicious financial transactions.\10\ Of 
special concern is Macau's lack of cross-border currency reporting 
requirements. In 2003, Macau prepared money laundering legislation that 
sought to incorporate the Financial Action Task Force's revised Forty 
Recommendations on Money Laundering, and to establish a Financial 
Intelligence Unit. Such legislation has not been adopted and the 
Financial Intelligence Unit has not been established. As noted in a 
2004 IMF study, significant vulnerabilities remain in Macau, although 
it has made progress in its anti-money laundering regime in the past 
several years, including the establishment of a Fraud Investigation 
Section to examine suspicious transactions reports filed by financial 
institutions.
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    \8\ References in this rule to the money laundering risks in 
Macau are limited to that jurisdiction, and not applicable to the 
entire jurisdiction of China.
    \9\ ``Jurisdictions of primary concern'' are jurisdictions that 
are identified as ``major money laundering countries,'' that is, 
countries ``whose financial institutions engage in currency 
transactions involving significant amounts of proceeds from 
international narcotics-trafficking.'' See, https://www.state.gov/g/
inl/rls/nrcrpt/2005/vol2/html/42388.htm.
    \10\ See International Monetary Fund, Monetary and Exchange 
Affairs Department, Macau SAR 2002 https://www.amcm.gov.mo/Press--
Release/IMF/IMF--Macao--Review.pdf.
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    Government agencies and front companies of the Democratic People's 
Republic of Korea (DPRK or North Korea) that are engaged in illicit 
activities use Macau as a base of operations for money laundering and 
other illegal activities. For example, banks in Macau have allowed 
these organizations to launder counterfeit currency and the proceeds 
from government-sponsored illegal drug transactions.

D. North Korea

    The involvement of North Korean government agencies and front 
companies in a wide variety of illegal activities, including drug 
trafficking and counterfeiting of goods and currency, has been widely 
reported.\11\ Earnings from criminal activity, by their clandestine 
nature, are difficult to quantify, but studies estimate that proceeds 
from these activities amount to roughly $500 million annually.\12\
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    \11\ Emergency Response and Research Institute: ``North Korea 
Government Deeply Involved With Organized Crime?'' June 30, 1998; 
BBC News: ``What is a Superdollar?'', June 20, 2004; Washington 
Post: ``North Korea's Conduit for Crime'', April 25, 1999; Pacific 
Forum CSIS: ``End North Korea's Drug Trade'', June 16, 2003.
    \12\ Congressional Research Service Report for Congress: ``Drug 
Trafficking and North Korea: Issues for U.S. Policy'', Updated March 
4, 2005.
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    Customs and police officials of many countries have regularly 
apprehended North Korean diplomats or quasi-official representatives of 
state trading companies trying to smuggle narcotics. For example, in 
December 2004, Turkish officials arrested two North Korean diplomats in 
Turkey in possession of illegal drugs valued at $7 million. Earlier 
that year, Egyptian authorities expelled two other North Korean 
diplomats who attempted to deliver a shipment of controlled substances 
valued at $150,000 in Egypt.\13\ In fact, since 1990, North Korea has 
been positively linked to nearly 50 drug seizures in 20 different 
countries, a significant number of which involved the arrest or 
detention of North Korean diplomats or officials.\14\ Proceeds from 
narcotics trafficking may amount to between $100 million and $200 
million annually.\15\
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    \13\ See INCSR 2005 [pg. 335].
    \14\ Congressional Research Service Report for Congress: ``Drug 
Trafficking and North Korea: Issues for U.S. Policy,'' Updated March 
4, 2005.
    \15\ Id.
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    During the past three decades, there also have been many incidents 
and arrests involving North Korean officials for distributing 
supernotes. Since first detected, the United States has taken 
possession of more than $45 million of these highly deceptive 
counterfeit notes.
    Substantial evidence exists that North Korean governmental entities 
and officials launder the proceeds of narcotics trafficking, 
counterfeit activities, and other illegal activities through a network 
of front companies that use financial institutions in Macau for their 
operations.

II. Analysis of Factors

    Based upon a review and analysis of relevant information, 
consultations with relevant Federal agencies and departments, and after 
consideration of the factors enumerated in section 311, the Secretary 
has determined that reasonable grounds exist for concluding that Banco 
Delta Asia is a financial institution of primary money laundering 
concern. A discussion of the section 311 factors relevant to this 
finding follows:

1. The Extent to Which Banco Delta Asia Has Been Used To Facilitate or 
Promote Money Laundering in or Through the Jurisdiction

    The Secretary has determined, based upon a variety of sources, that 
Banco Delta Asia is used to facilitate or promote money laundering and 
other financial crimes. Banco Delta Asia has provided financial 
services for over 20 years to multiple North Korean government agencies 
and front companies that are engaged in illicit activities, and 
continues to develop these relationships. In fact, such account holders 
comprise a significant amount of Banco Delta Asia's business. Banco 
Delta Asia has tailored its services to the DPRK's demands. For 
example, sources show that the DPRK pays a fee to Banco Delta Asia for 
financial access to the banking system with little oversight or 
control. The bank also handles the bulk of the DPRK's precious metal 
sales, and helps North Korean agents conduct surreptitious, multi-
million dollar cash deposits and

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withdrawals. Banco Delta Asia's questionable relationship with the DPRK 
is further demonstrated by its maintenance of an uninterrupted banking 
relationship with one North Korean front company despite the fact that 
the head of the company was charged with attempting to deposit large 
sums of counterfeit currency into Banco Delta Asia and was expelled 
from Macau. Although this same person later returned to his previous 
leadership position at the front company, services provided by Banco 
Delta Asia were not discontinued.
    Banco Delta Asia's special relationship with the DPRK has 
specifically facilitated the criminal activities of North Korean 
government agencies and front companies. For example, sources show that 
senior officials in Banco Delta Asia are working with DPRK officials to 
accept large deposits of cash, including counterfeit U.S. currency, and 
agreeing to place that currency into circulation. Additionally, it has 
been widely reported that one well-known North Korean front company 
that has been a client of Banco Delta Asia for over a decade has 
conducted numerous illegal activities, including distributing 
counterfeit currency and smuggling counterfeit tobacco products. In 
addition, the front company has also long been suspected of being 
involved in international drug trafficking.
    Moreover, Banco Delta Asia facilitated several multi-million dollar 
wire transfers connected with alleged criminal activity on behalf of 
another North Korean front company.
    In addition to facilitating illicit activities of the DPRK, 
investigations have revealed that Banco Delta Asia serviced a multi-
million dollar account on behalf of a known international drug 
trafficker.

2. The Extent to Which Banco Delta Asia Is Used for Legitimate Business 
Purposes in the Jurisdiction

    It is difficult to determine the extent to which Banco Delta Asia 
is used for legitimate purposes. Most banking transactions within Macau 
are conducted by the jurisdiction's largest banks, while Banco Delta 
Asia ranks as one of the smallest in Macau. Although Banco Delta Asia 
likely engages in some legitimate activity, the Secretary believes that 
any legitimate use of Banco Delta Asia is significantly outweighed by 
its use to promote or facilitate money laundering and other financial 
crimes.

3. The Extent to Which Such Action Is Sufficient To Ensure, With 
Respect to Transactions Involving Banco Delta Asia, That the Purposes 
of the BSA Continue To Be Fulfilled, and To Guard Against International 
Money Laundering and Other Financial Crimes

    As detailed above, the Secretary has reasonable grounds to conclude 
that Banco Delta Asia is being used to promote or facilitate 
international money laundering, and is therefore an institution of 
primary money laundering concern. Currently, there are no protective 
measures that specifically target Banco Delta Asia. Thus, finding Banco 
Delta Asia to be a financial institution of primary money laundering 
concern, which would allow consideration by the Secretary of special 
measures to be imposed on the institution under section 311, is a 
necessary first step to prevent Banco Delta Asia from facilitating 
money laundering or other financial crime through the U.S. financial 
system. The finding of primary money laundering concern will bring 
criminal conduct occurring at or through Banco Delta Asia to the 
attention of the international financial community and, it is hoped, 
further limit the bank's ability to be used for money laundering or for 
other criminal purposes.

III. Finding

    Based on the foregoing factors, the Secretary, acting through the 
Director of the Financial Crimes Enforcement Network, hereby finds that 
Banco Delta Asia is a financial institution of primary money laundering 
concern.

    Dated: September 12, 2005.
William F. Baity,
Deputy Director, Financial Crimes Enforcement Network.
[FR Doc. 05-18660 Filed 9-19-05; 8:45 am]
BILLING CODE 4810-02-P