Financial Crimes Enforcement Network; Amendment to the Bank Secrecy Act Regulations-Imposition of Special Measure Against Banco Delta Asia, Including Its Subsidiaries Delta Asia Credit Limited and Delta Asia Insurance Limited, as a Financial Institution of Primary Money Laundering Concern, 12730-12740 [07-1313]
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Federal Register / Vol. 72, No. 52 / Monday, March 19, 2007 / Rules and Regulations
automatically take effect at the end of 45
days of continuous session of Congress
beginning on October 12, 2006. The 45day review period ended on February
16, 2007. This document confirms the
effective date as February 16, 2007.
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Effective Date: The final rule
published on October 12, 2006 (71 FR
60055) took effect on February 16, 2007.
[Docket No. 1976N–0052G] (formerly Docket
No. 76N–052G)
DATES:
FOR FURTHER INFORMATION CONTACT:
Becky Shortland, Gray’s Reef National
Marine Sanctuary, 10 Ocean Science
Circle, Savannah, Georgia 31411; 912–
598–2381; Becky.Shortland@noaa.gov.
(Federal Domestic Assistance Catalog
Number 11.429 Marine Sanctuary Program)
Dated: March 13, 2007.
John H. Dunnigan,
Assistant Administrator for Ocean Services
and Coastal Zone Management.
[FR Doc. 07–1303 Filed 3–16–07; 8:45 am]
Food and Drug Administration
21 CFR Part 341
Cold, Cough, Allergy, Bronchodilator,
and Antiasthmatic Drug Products for
Over-the-Counter Human Use;
Technical Amendment
AGENCY:
Food and Drug Administration,
HHS.
Final rule; technical
amendment.
ACTION:
Revised Medical Criteria for
Determination of Disability,
Musculoskeletal System and Related
Criteria
CFR Correction
SUPPLEMENTARY INFORMATION:
SOCIAL SECURITY ADMINISTRATION
20 CFR Part 416
In Title 20 of the Code of Federal
Regulations, Parts 400 to 499, revised as
of April 1, 2006, on page 948, § 416.933
is corrected by adding a sentence after
the second sentence to read as follows:
§ 416.933 How we make a finding of
presumptive disability or presumptive
blindness.
* * * For other impairments, a
finding of disability or blindness must
be based on medical evidence or other
information that, though not sufficient
for a formal determination of disability
or blindness, is sufficient for us to find
that there is a high degree of probability
that you are disabled or blind. * * *
[FR Doc. 07–55503 Filed 3–16–07; 8:45 am]
BILLING CODE 1505–01–D
SUMMARY:
FDA
published the final monograph (FM) for
cold, cough, allergy, bronchodilator, and
antiasthmatic combination drug
products for OTC human use in the
Federal Register of December 23, 2002
(67 FR 78158). In that FM, FDA
inadvertently added § 341.40 (21 CFR
341.40) to subpart C of the monograph,
when that section should have been
added to subpart B of the monograph.
Accordingly, FDA is now moving
§ 341.40 from subpart C to subpart B of
the monograph.
Publication of this document
constitutes final action on this change
under the Administrative Procedure Act
(5 U.S.C. 553). Notice and public
procedures are unnecessary because
FDA is merely implementing a change
in the location of a section in an OTC
drug monograph. No other changes are
being made to that section of the
monograph.
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List of Subjects in 21 CFR Part 341
Labeling, Over-the-counter drugs.
I Therefore, under the Federal Food,
Drug, and Cosmetic Act and under
authority delegated to the Commissioner
of Food and Drugs, 21 CFR part 341 is
amended as follows:
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1. The authority citation for 21 CFR
part 341 continues to read as follows:
I
The Food and Drug
Administration (FDA) is amending its
regulations to change the location of a
section in an over-the-counter (OTC)
drug monograph. This action is editorial
in nature and is intended to improve the
accuracy of the agency’s regulations.
DATES: This rule is effective March 19,
2007.
FOR FURTHER INFORMATION CONTACT:
Gerald M. Rachanow, Center for Drug
Evaluation and Research, Food and
Drug Administration, 10903 New
Hampshire Ave., Bldg. 22, rm. 5496,
Silver Spring, MD 20993, 301–796–
2090.
BILLING CODE 3510–08–M
PART 341—COLD, COUGH, ALLERGY,
BRONCHODILATOR, AND
ANTIASTHMATIC DRUG PRODUCTS
FOR OVER-THE-COUNTER HUMAN
USE
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Authority: 21 U.S.C. 321, 351, 352, 353,
355, 360, 371.
Subpart B—Active Ingredients
[Amended]
2. Remove § 341.40 Permitted
combinations of active ingredients from
subpart C and add it to subpart B of part
341.
I
Dated: March 12, 2007.
Jeffrey Shuren,
Assistant Commissioner for Policy.
[FR Doc. E7–4957 Filed 3–16–07; 8:45 am]
BILLING CODE 4160–01–S
DEPARTMENT OF THE TREASURY
31 CFR Part 103
RIN 1506–AA83
Financial Crimes Enforcement
Network; Amendment to the Bank
Secrecy Act Regulations—Imposition
of Special Measure Against Banco
Delta Asia, Including Its Subsidiaries
Delta Asia Credit Limited and Delta
Asia Insurance Limited, as a Financial
Institution of Primary Money
Laundering Concern
Financial Crimes Enforcement
Network, Department of the Treasury.
ACTION: Final rule.
AGENCY:
SUMMARY: The Financial Crimes
Enforcement Network (‘‘FinCEN’’) is
issuing a final rule imposing a special
measure against Banco Delta Asia SARL
(‘‘Banco Delta Asia’’ or ‘‘the bank’’) as
a financial institution of primary money
laundering concern, pursuant to the
authority contained in 31 U.S.C. 5318A
of the Bank Secrecy Act.
DATES: This final rule is effective on
April 18, 2007.
FOR FURTHER INFORMATION CONTACT:
Regulatory Policy and Programs
Division, 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
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Intercept and Obstruct Terrorism Act of
2001, Public Law 107–56 (‘‘USA
PATRIOT Act’’). Title III of the USA
PATRIOT Act amends the anti-moneylaundering provisions of the Bank
Secrecy Act, codified at 12 U.S.C.
1829b, 12 U.S.C. 1951–1959, and 31
U.S.C. 5311–5314 and 5316–5332, to
promote the prevention, detection, and
prosecution of money laundering and
the financing of terrorism. Regulations
implementing the Bank Secrecy Act
appear at 31 CFR part 103. The
authority of the Secretary of the
Treasury (‘‘the Secretary’’) to administer
the Bank Secrecy Act and its
implementing regulations has been
delegated to the Director of FinCEN
(‘‘the Director’’).1 The Bank Secrecy Act
authorizes the Director to issue
regulations to require all financial
institutions defined as such in the Act
to maintain or file certain reports or
records that have been determined to
have a high degree of usefulness in
criminal, tax, or regulatory
investigations or proceedings, or in the
conduct of intelligence or counterintelligence activities, including
analysis, to protect against international
terrorism, and to implement anti-money
laundering programs and compliance
procedures.2
Section 311 of the USA PATRIOT Act
added section 5318A to the Bank
Secrecy Act, granting the Director the
authority, after 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 domestic financial
agencies to take certain ‘‘special
measures’’ against the primary money
laundering concern. Section 311
identifies factors for the Director to
consider and Federal agencies to consult
before we may find that reasonable
grounds exist for concluding that a
jurisdiction, institution, class of
transactions, or type of account is of
primary money laundering concern. The
statute also provides similar procedures,
including factors and consultation
requirements, for selecting the specific
special measures to be imposed against
the primary money laundering concern.
1 Therefore, references to the authority of the
Secretary of the Treasury under section 311 of the
USA PATRIOT Act apply equally to the Director of
the Financial Crimes Enforcement Network.
Accordingly, authorities granted to the Secretary are
attributed to the Director of FinCEN in this
rulemaking.
2 Language expanding the scope of the Bank
Secrecy Act to intelligence or counter-intelligence
activities to protect against international terrorism
was added by section 358 of the USA PATRIOT
Act.
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Taken as a whole, section 311
provides the Director with a range of
options that can be adapted to target
specific money laundering and terrorist
financing concerns most effectively.
These options provide the authority to
bring additional and useful pressure on
those jurisdictions and institutions that
pose money laundering threats and the
ability to take steps to protect the U.S.
financial system. Through the
imposition of various special measures,
we can gain more information about the
concerned jurisdictions, institutions,
transactions, and accounts; monitor
more effectively the respective
jurisdictions, institutions, transactions,
and accounts; and ultimately 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
Director is required by the Bank Secrecy
Act to consult with both the Secretary
of State and the Attorney General.
In addition to these consultations,
when finding that a foreign financial
institution is of primary money
laundering concern, the Director is
required by section 311 to consider
‘‘such information as [we] determine[ ]
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 such action is
sufficient to ensure, with respect to
transactions involving the institution
operating in the jurisdiction, that the
purposes of the Bank Secrecy Act
continue to be fulfilled, and to guard
against international money laundering
and other financial crimes.
If we determine that reasonable
grounds exist for concluding that a
foreign financial institution is of
primary money laundering concern, we
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 or
jointly, in any combination, and in any
sequence.3 In the imposition of special
3 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
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measures, we follow procedures similar
to those for finding a foreign financial
institution to be of primary money
laundering concern, but we also engage
in additional consultations and consider
additional factors. Section 311 requires
us to consult with other appropriate
Federal agencies and parties 4 and to
consider the following specific factors:
• Whether similar action has been or
is being taken by other nations or
multilateral groups;
• Whether the imposition of any
particular special measure 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 U.S.
national security and foreign policy.5
In this final rule, we are imposing the
fifth special measure (31 U.S.C.
5318A(b)(5)) against Banco Delta Asia, a
commercial bank in Macau, Special
Administrative Region, China
(‘‘Macau’’). The fifth special measure
allows for the imposition of conditions
upon, or the prohibition of, the opening
or maintaining of correspondent or
payable-through accounts in the United
States for or on behalf of a foreign
financial institution of primary money
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 to impose special
measures against Nauru).
4 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,
the Commodity Futures Trading Commission, the
National Credit Union Administration, and, in our
sole discretion, ‘‘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 upon the
opening or maintaining of a correspondent account
by any domestic financial institution or domestic
financial agency for the foreign financial institution
of primary money laundering concern. 31 U.S.C.
5318(c)(1).
5 Classified information used in support of a
section 311 finding of primary money laundering
concern and imposition of special 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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Federal Register / Vol. 72, No. 52 / Monday, March 19, 2007 / Rules and Regulations
laundering concern. Unlike the other
special measures, this special measure
may be imposed only through the
issuance of a regulation.
B. Banco Delta Asia
Banco Delta Asia, located and
licensed in Macau, is the commercial
banking arm of its parent company,
Delta Asia Group (Holdings) Ltd. (‘‘Delta
Asia Group’’).6 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,7 and its name
changed to Banco Delta Asia in
December 1993. According to Banco
Delta Asia’s representations to us, the
bank had roughly $205 million (U.S.
dollars) in assets as of July 2006. Banco
Delta Asia operates eight branches in
Macau (including a branch at a casino)
and is served by a representative office
in Japan. According to statements made
by Banco Delta Asia, many of its foreign
correspondent relationships in North
America, Europe, and Asia were
terminated after the publication of our
finding of primary money laundering
concern, and the bank no longer
maintains a foreign correspondent
account in the United States.8 Banco
Delta Asia may still have indirect access
to the U.S. financial system, however,
via nested correspondent accounts at
other foreign financial institutions that
have correspondent accounts at covered
financial institutions. Banco Delta Asia
has two wholly owned subsidiaries:
Delta Asia Credit Limited and Delta
Asia Insurance Limited.9
II. The 2005 Finding and Subsequent
Developments
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A. The 2005 Finding
Based upon review and analysis of
pertinent information, consultations
with relevant Federal agencies and
parties, and consideration of the factors
enumerated in section 311, in
September 2005 the Director found that
reasonable grounds existed for
6 The Bankers’ Almanac (2006). For purposes of
this rulemaking, our finding of primary money
laundering concern and imposition of special
measures 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.
7 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.
8 As of November 2006, Bankers’ Almanac
indicated that the bank maintained one U.S.
correspondent relationship, although it is possible
that the self-reported data had not been updated.
9 The Bankers’ Almanac (2006).
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concluding that Banco Delta Asia was a
financial institution of primary money
laundering concern. This finding was
published in conjunction with a Notice
of Proposed Rulemaking,10 which
proposed prohibiting covered financial
institutions from, directly or indirectly,
opening or maintaining correspondent
accounts in the United States for Banco
Delta Asia or any of its branches, offices,
or subsidiaries, pursuant to the
authority under 31 U.S.C. 5318A.
The Notice of Proposed Rulemaking
outlined the various factors supporting
the finding and proposed prohibition.11
Specifically, we stated that Banco Delta
Asia had provided financial services for
more than 20 years to multiple North
Korean-related individuals and entities
that were engaged in illicit activities.
Sources showed that certain of such
entities had paid a fee to Banco Delta
Asia for financial access to the banking
system with little oversight or control,
and that the bank helped conduct
surreptitious, multi-million dollar cash
deposits and withdrawals on their
behalf. In fact, the bank facilitated
several multi-million dollar wire
transfers connected to alleged criminal
activity on behalf of one such company.
Banco Delta Asia maintained 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, for
which he was expelled from Macau.
Banco Delta Asia also serviced the
account of a known international drug
trafficker. Treasury’s September 2005
Notice also noted that any legitimate
business use of Banco Delta Asia
appeared to be significantly outweighed
by its use to promote or facilitate money
laundering and other financial crimes.
Treasury determined that a finding
that Banco Delta Asia was of primary
money laundering concern and
prohibiting covered financial
institutions from opening or
maintaining correspondent accounts for
that institution would prevent suspect
accountholders at Banco Delta Asia
from accessing the U.S. financial system
to facilitate money laundering. It would
also bring criminal conduct occurring at
or through Banco Delta Asia to the
attention of the international financial
community and thus serve the purposes
of the Bank Secrecy Act as well as guard
against international money laundering
and other financial crime.
10 See 70 FR 55214 (Finding) (Sept. 20, 2005); 70
FR 55217 (Notice of Proposed Rulemaking) (Sept.
20, 2005).
11 Id.
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B. Jurisdictional Developments
As Special Administrative Region to
the People’s Republic of China, Macau
retains substantial autonomy in all areas
related to the regulation and oversight of
its financial services sector and
domestic economic affairs. Macau’s
financial system, including its robust
casino and gaming sector, has
historically been known to be
vulnerable to financial crime,12 due in
large part to an under-developed antimoney laundering regime. As discussed
below, however, Macau has begun to
take important steps to address those
systemic concerns.
While Macau has worked to develop
its anti-money laundering and counterterrorist financing framework since the
1990s, and has joined regional groups
such as the Asia Pacific Group on
Money Laundering (APG) to aid these
efforts, Macanese authorities have taken
a number of additional important steps
since the September 2005 Notice of
Proposed Rulemaking on Banco Delta
Asia to address the reported money
laundering risks and systemic
vulnerabilities.13 In April 2006, Macau
enacted Law no. 2/2006 on Prevention
and Repression of the Crime of Money
Laundering and Law no. 3/2006 on
Prevention and Repression of the Crime
of Terrorism. The new law on money
laundering replaces and supersedes
existing money laundering legislation,
Decree-Law 24/98/M, and the
provisions on money laundering in Law
6/97/M against organized crime, and
makes comprehensive and stand-alone
the crime of money laundering. Further,
it broadens the scope of predicate
offences to all serious crimes,14
including terrorism, and is extended to
conduct occurring outside of Macau.
Violations of the anti-money laundering
law are punishable with a penalty of
imprisonment of not less than three
years, ‘‘as well as [forfeiture of] any
assets obtained therefrom.’’
12 See, e.g.: https://www.fas.org/irp/threat/
pub45270index.html (International Crime Threat
Assessment, 2000) https://archives.cnn.com/1999/
ASIANOW/east/macau/stories/macau.north.korea/
index.html (1999); https://www.asiapacificms.com/
articles/north_korea_banking/ (2003); https://
www.gluckman.com/MacauHo.html (1997); https://
www.asiaweek.com/asiaweek/98/1030/nat7.html
(1999); https://archives.cnn.com/1999/ASIANOW/
east/macau/profiles/edmond.ho/ (1999); https://
www.asianpacificpost.com/portal2/
pageView.html?id
=402881910674ebab010674f4ca74141f; etc.
13 Macao, China, Jurisdiction Report (to Asia
Pacific Group Annual Meeting), 2006. PROGRESS
REPORT ON THE IMPLEMENTATION OF THE
RECOMMENDATIONS OF THE APG
EVALUATION REPORT, 2006.
14 ‘‘Serious crimes’’ are defined as crimes carrying
a punishment of two to eight years imprisonment.
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In addition, in May 2006, Macau
enacted Administrative Regulation no.
7/2006—Preventive Measures Against
Money Laundering and Financing
Terrorism—a set of implementing
measures related to the new laws which
statutorily went into full legal effect on
November 12, 2006. The regulation
broadens and clarifies the obligations of
covered institutions regarding
identification of customers and contract
parties as well as the nature, purpose,
and source of funds and transactions
performed; requires recordkeeping and
reporting of suspicious and large cash
transactions; and obligates institutions
to refuse transactions absent adequate
information. Further, the regulation
provides for fines (between 10,000 and
500,000 patacas 15 for a natural person
and between 100,000 and 5,000,000
patacas for a legal person) against those
found to be in violation of the antimoney laundering laws. The regulation,
applicable to multiple sectors (financial
and designated non-financial businesses
and professions) now covered under the
new provisions, is aimed at combating
the financing of terrorism and money
laundering and stipulates that the duties
established under the new provisions
will be applied by the following
supervisory and regulatory agencies in
relation to the entities subject to their
respective supervision: Macao 16
Monetary Authority, Gaming Inspection
and Coordination Bureau, Macao Trade
and Investment Bureau, Finance
Department, Macao Lawyers
Association, Independent Commission
for the Exercise of the Disciplinary
Power over Solicitors, Legal Affairs
Bureau, and Macau Economic
Department. The new regulation has
also specified penalties for noncompliance by covered institutions.
The Office of Financial Intelligence
(‘‘GIF’’) was established by Order of the
Chief Executive no. 227/2006 in August
2006 and began operations on
November 12, 2006. As provided in the
order, this office will function as
Macau’s financial intelligence unit
(‘‘FIU’’), collecting, analyzing and
disseminating information on
suspicious and large cash transactions
and cooperating as necessary with
international FIUs. GIF also has the
responsibility for reporting suspected
money laundering activities to the
Public Prosecutions Office and, to the
15 The domestic currency of Macau. As of
February 2007, the exchange rate for patacas to U.S.
dollars was approximately 8:1.
16 The Macanese government recognizes both
‘‘Macau’’ and ‘‘Macao’’ as the correct spelling of the
jurisdiction. Certain government agencies and
publications use the more traditional Portuguese
spelling, Macao.
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15:36 Mar 16, 2007
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extent capable and necessary, for
providing technical assistance to
covered institutions and all regulatory
bodies subject to the new legislation.
Macanese authorities have created a
Money Laundering Related Crime
Division (a special investigative agency
dedicated to financial crimes) within
the Judiciary Police. A separate law
governing international mutual legal
assistance in criminal matters, Law no.
6/2006 on Judicial Cooperation in
Criminal Matters, was approved by the
Legislative Assembly (‘‘LA’’) in July
2006 and became effective November 1,
2006.
Finally, while Customs authorities in
Macau require declaration of crossborder trade movements in goods and
valuables, there are currently no
provisions to monitor or declare crossborder currency movements in and out
of Macau. Macanese authorities have
stated they are undertaking a study on
this issue that will help inform
authorities on the development of a
potential strategy to effectively address
cross-border currency movements.
However, no specific strategy has been
formulated to date.
While these efforts are important and
welcome signs of Macau’s overall
progress in strengthening its anti-money
laundering and combating the financing
of terrorism regime, full and
comprehensive implementation of these
measures in all the covered sectors will
need to follow.
C. Banco Delta Asia’s Subsequent
Developments
Shortly after the issuance of our
finding and Notice of Proposed
Rulemaking, the Macau Monetary
Authority appointed a three person
‘‘administrative committee’’ that
temporarily replaced the senior
management of the bank to oversee the
daily operations of the bank and address
the concerns we raised.17 Although the
executive order appointing the
committee and establishing their sixmonth term has twice been extended, no
plan has been proffered to change
permanently the management or
ownership structure of the bank,
notwithstanding the egregious historical
practices detailed below.18 Given the
17 The administrative committee consists of the
Chief Executive Officer of a note-issuing bank in
Macau, the Deputy Director of the Macau Monetary
Authority Internal Audit Department, and an
attorney from a prominent Macanese law firm. No
employees or former employees of the bank were
appointed to the administrative committee. The
present term is scheduled to continue through
March 2007.
18 Even to the extent that the bank’s former
management is permanently replaced, we note that
the former chief executive officer and chairman of
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12733
possibility that the bank will be
returned to the control of its former
management and primary shareholder
in the future, our ongoing concerns
about their historical practices and their
potential for recidivism detailed below
remain a reasonable basis both for our
conclusion that Banco Delta Asia is of
primary money laundering concern and
for our imposition of a special measure
to safeguard the U.S. financial system.
Representatives of the bank informed
us that the government-appointed
administrative committee has taken
steps to address many of the money
laundering concerns that we previously
identified.19 For example, two
independent accounting firms were
retained 20 to investigate the allegations
in the Notice of Proposed Rulemaking,
to assess the weaknesses in the bank’s
internal anti-money laundering
procedures, and to assist in the
development of a revised anti-money
laundering program (a process that
reportedly is still ongoing more than a
year later). These representatives also
reported that the administrative
committee has begun to recruit a
permanent compliance officer 21 and
that all North Korean-related accounts
previously maintained by the bank have
been closed.
Despite these representations, we
continue to have serious concerns
regarding the bank’s potential to be
used, wittingly or unwittingly, for illicit
purposes. In fact, questions regarding
the completeness and accuracy of the
information and records provided by the
bank to the accounting firm retained to
help address the bank’s weaknesses
resulted in the firm’s disclaimer that its
reported findings did not constitute a
reliable audit. Our investigation has
corroborated these concerns.22 For
example, we are aware of multiple
North Korean-related accounts that the
bank did not identify to the accounting
the board is also the controlling owner of the bank
and would still possess significant influence over
the operations of the bank.
19 The bank met with representatives from the
U.S. Government in November 2005, and February
and July 2006. The bank also provided information
in writing through the comment process described
in the Notice of Proposed Rulemaking.
20 According to the bank’s representations to us,
one firm was retained by the Macau Monetary
Authority and one was retained by the bank under
the oversight of the administrative committee.
21 We have recently been informed that Banco
Delta Asia has hired a compliance officer.
22 These conclusions were derived in part from
classified sources, but primarily from an
independent review by a large international
accounting firm of Banco Delta Asia’s activity with
North Korean-related clients and a separate U.S.
Government review of Banco Delta Asia
documentation, including that used to conduct the
independent review.
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firm and, hence, the accounting firm did
not review.
In a review of recently obtained data
pertaining to Banco Delta Asia, we
verified the bank had grossly inadequate
controls in place to deter or detect
money laundering or other illicit
activity.23 Prior to the government’s
appointment of the administrative
committee, there was a systemic lack of
due diligence, including:
• Failure to take reasonable measures
to identify suspicious activity,
suspicious entities, and bulk cash
activity inconsistent with the stated
business of the bank’s clients;
• Failure to obtain or maintain
sufficient information regarding identity
verification and the nature of business
activities in customer files;
• Failure to adequately control and
retain documents relating to the bank’s
largest wholesale bulk cash customers;
• Failure to consistently follow its
own policies and procedures with
respect to multiple business offerings,
including screening for counterfeit
currency;
• Failure to effectively rate the risk of
its customer base; to monitor, on an
ongoing basis, accounts that should
have been designated as high risk; to
take corrective action against entities in
which illicit activity was detected;
• Failure to update or use sufficient
information technology systems when
manual systems proved inadequate;
• Failure to regularly update its antimoney laundering policies with new
information or best practices; and
• Failure to internally audit the
adequacy of the compliance department
at the bank.
In a review of this same data,24 we
have also verified that the bank’s grossly
inadequate due diligence facilitated
unusual or deceptive financial practices
by North Korean-related clients. These
practices have included:
• Suppressing the identity and
location of originators of transactions
and arranging for funds transfers via
third parties.
• Repeated bank transfers of large,
round-figure sums both to and from
accounts held at other banks that appear
to have no licit purpose and may be
indicative of layering activity.
• The routine use of cash couriers to
move large amounts of currency, usually
U.S. dollars, in the absence of any
credible explanation of the origin or
purpose for the cash transactions. For
example, records from 2002 show that
one North Korean-linked entity
deposited the equivalent of over U.S.
23 See
24 See
supra footnote 22.
supra footnote 22.
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15:36 Mar 16, 2007
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$50 million, accounting for more than
half of Banco Delta Asia’s bulk cash
deposits that year.
• Internal book transfers involving
the movement of funds among accounts
and accountholders via intra-bank
transfers occurring repeatedly and in
large, round-figure sums. This
sometimes involved shifting currencies
and significant round-figure transfers
between business and personal
accounts.25
Moreover, in our review of this same
data, we became aware that the extent
to which the bank was historically used
for illicit activity exceeds our original
findings and reveals a deliberate effort
to attract and maintain high-risk
accounts regardless of their nexus to
illicit activities. A review of recently
obtained data pertaining to Banco Delta
Asia’s historical activity has established
the following: 26
• Many North Korean-related
individuals and companies banking at
Banco Delta Asia had connections to
entities involved in trade in counterfeit
U.S. currency, counterfeit cigarettes,
and narcotics, including several front
companies suspected of laundering
hundreds of millions of dollars in cash
through Banco Delta Asia.27 The bank
did not conduct due diligence to
attempt to verify the source of the
unusually large currency deposits made
involving these clients.
• Despite widely reported currency
counterfeiting concerns, the bank
provided a discount as an incentive to
a high-risk North Korean-related bulk
currency depositor to encourage its
continued use of the bank, and
continued to accept deposits from that
customer even after it had knowledge
that another institution had rejected
those transactions.
These activities, in aggregate, should
have raised significant concerns at the
bank. Internal bank documents reveal
that in the few cases where bank
employees documented their concerns
over the potential for money laundering
activity by entities making
commercially unjustifiable large cash
deposits or engaged in other suspicious
behavior, senior management of the
25 Inasmuch as Banco Delta Asia was the sole
institution involved in the processing of these
transactions, and considering our concerns
regarding the bank’s potential complicity involving
illicit activity, the commingling of funds and the
rapid movement of large round-figure amounts via
such intra-bank transfers is particularly suspicious
as a means of obscuring the true nature and source
of the funds involved.
26 See supra footnote 22.
27 This level of activity is significant considering
the bank reported the equivalent of only $390
million in total customer deposits immediately
prior to our Notice of Proposed Rulemaking.
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bank consistently failed to take any
action when appropriate explanations
for the activity were not provided. In
fact, senior management in certain cases
would verbally vouch for the customers
in question without any documentary
evidence and indicate that the
transactions should continue to be
processed.28
Banco Delta Asia provided North
Korean-related entities with tailored
services that allowed those entities to
engage in extraordinarily deceptive
financial activity. For example, two
related business accountholders, which
accounted for more than 30 percent of
the bank’s bulk cash turnover over a
multiple year period, provided
intermediary financial services on
behalf of North Korean banks at least in
part to disguise the origins of the
transactions. Bank documents reveal
that Banco Delta Asia had knowledge of
the relationships between the banks and
these entities, willingly obscured the
identity of the transacting institutions,
and agreed to continue treating the
accounts as business accounts, not
banking accounts, despite activity
consistent with banking.
Even after our finding of primary
money laundering concern, the bank’s
management dismissed concerns
presented by independent reviewers of
the bank’s shortcomings involving
customer identification and ongoing due
diligence obligations. For example, bank
managers asserted that Banco Delta
Asia’s North Korean client banks were
low-risk based on the effective
supervision by the Central Bank of
North Korea and the unlikelihood that
North Korean government-owned
entities would be used for illicit
purposes. As publicly available
information clearly contradicted these
assumptions, the bank management’s
claims seem overly permissive and fail
to meet even the most basic due
diligence standards. In fact, the Macau
Monetary Authority informed the bank
in 2004 in writing that North Korea
lacked transparency in supervisory
standards. It recommended that the
bank either strengthen its due diligence
procedures and establish a detailed
procedure manual for dealing with
North Korean banks, or scale down or
terminate this type of risky business.
Nevertheless, the management of the
bank continued to provide
uninterrupted financial services to such
customers with minimal or no due
diligence. In fact, in the face of concerns
expressed by the Macau Monetary
Authority and the U.S. Department of
the Treasury, a senior bank official
28 See
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supra footnote 22.
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assured the public that Banco Delta
Asia’s cessation of business with North
Korean accountholders was only a
temporary measure to resolve the bank’s
dispute with FinCEN.29
Representatives of the bank maintain
that the administrative committee has
taken or is in the process of taking some
measures to address the concerns raised
in our finding and Notice of Proposed
Rulemaking, including terminating all
North Korean-related accounts,
conducting a risk assessment of all
accountholders, drafting a revised antimoney laundering program, and
upgrading its information technology
systems.30 In one of its comments
submitted in response to the Notice of
Proposed Rulemaking, the bank stated
that these remedial measures and
Macau’s new regulatory controls would
prevent the bank from returning to its
former business practices.31 However,
the totality of the information presented
above casts significant doubt upon the
commitment of the bank, apart from the
administrative committee, to resolve
effectively the ongoing money
laundering vulnerabilities at the bank.
The administrative committee’s
termination of North Korean-related
customer relationships does not address
effectively the bank’s historical
proclivity to seek out such customers or
the potential of the bank to return to
such practices. In fact, historical
attempts by bank employees to follow
the limited procedures or best practices
that were in place at that time were
quashed at the highest levels of the
bank.
Despite any remedial measures and
regulatory changes, this historical
pattern of disregard by the bank’s
management and primary shareholder
regarding both the systemic due
diligence failures at the bank and the
potential use of the bank for illicit
purposes, and the resultant likelihood of
recidivism upon the dissolution of the
administrative committee, leave us
concerned about the potential for the
bank to continue to be used for money
laundering and other illicit purposes.
Accordingly, we find that Banco Delta
Asia continues to be a financial
institution of primary money laundering
concern.
29 See https://www.forbes.com/finance/feeds/afx/
2005/09/18/afx2230247.html ‘‘Macau Banco Delta
Asia halts NKorea business, denies money
laundering-report.’’ (19 September 2005)
30 The bank has indicated that it has not yet fully
implemented new policies, procedures, and
controls for money laundering prevention.
31 Additional comments submitted on behalf of
the bank are discussed in Section IV of this Final
Rule.
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III. Imposition of the Fifth Special
Measure
12735
B. The Imposition of the Fifth Special
Measure Would Not Create a Significant
Competitive Disadvantage, Including
Consistent with the finding that
Any Undue Cost or Burden Associated
Banco Delta Asia is a financial
With Compliance for Financial
institution of primary money laundering Institutions Organized or Licensed in
concern, and based upon additional
the United States
consultations with required Federal
The fifth special measure imposed by
agencies and parties, as well as
this rule prohibits covered financial
consideration of additional relevant
institutions from opening or
factors, including the comments
maintaining correspondent accounts in
received on the proposed rule, we are
the United States for, or on behalf of,
imposing the fifth special measure
Banco Delta Asia. As a corollary to this
authorized by 31 U.S.C. 5318A(b)(5)
measure, covered financial institutions
with regard to Banco Delta Asia.32 That
also are required to take reasonable
special measure authorizes the
steps to apply due diligence to all of
prohibition of, or the imposition of
their correspondent accounts to ensure
conditions upon, the opening or
that no such account is being used
indirectly to provide services to Banco
maintaining of correspondent or
Delta Asia. The burden associated with
payable-through accounts 33 by any
these requirements is not expected to be
domestic financial institution or
significant, given that we are not aware
domestic financial agency for, or on
of any covered financial institution that
behalf of, a foreign financial institution
maintains a correspondent account
found to be of primary money
laundering concern. A discussion of the directly for Banco Delta Asia. Moreover,
there is a minimal burden involved in
additional section 311 factors relevant
transmitting a one-time notice to all
to the imposition of this particular
correspondent accountholders
special measure follows.
concerning the prohibition on indirectly
A. Similar Actions Have Not Been or
providing services to Banco Delta Asia.
May Not Be Taken by Other Nations or
In addition, covered financial
Multilateral Groups Against Banco Delta institutions generally apply some degree
of due diligence in screening their
Asia
transactions and accounts, often through
At this time, other countries and
the use of commercially available
multilateral groups have not taken any
software, such as that used for
action against Banco Delta Asia similar
compliance with the economic
to the imposition of the fifth special
sanctions programs administered by the
measure pursuant to section 311, which Department of the Treasury’s Office of
prohibits U.S. financial institutions and Foreign Assets Control. As explained in
more detail in the section-by-section
financial agencies from opening or
maintaining a correspondent account in analysis below, financial institutions
should be able to adapt their existing
the United States for or on behalf of
screening procedures to comply with
Banco Delta Asia and requires those
this special measure. Thus, the due
institutions and agencies to guard
against indirect use by Banco Delta Asia diligence that is required by this rule is
not expected to impose a significant
of the foreign correspondent accounts
additional burden upon covered
they maintain. After the issuance of the
financial institutions.
Notice of Proposed Rulemaking,
however, the government of Macau did
C. The Action or Timing of the Action
indicate its concern with illicit money
Will Not Have a Significant Adverse
flows into Banco Delta Asia by freezing
Systemic Impact on the International
Payment, Clearance, and Settlement
accounts believed to be associated with
System, or on Legitimate Business
illicit North Korean-related activity.
Activities Involving Banco Delta Asia
Banco Delta Asia is not a major
participant in the international payment
system and is not relied upon by the
international banking community for
clearance or settlement services. Thus,
32 See supra footnote 3.
the imposition of the fifth special
33 For purposes of the rule, a correspondent
measure against Banco Delta Asia will
account is defined as an account established to
not have a significant adverse systemic
receive deposits from, or make payments or other
impact on the international payment,
disbursements on behalf of, a foreign bank, or
clearance, and settlement system. In
handle other financial transactions related to the
addition, as the bank historically sought
foreign bank (see 31 U.S.C. 5318A(e)(1)(B), as
implemented in 31 CFR 103.175(d)(1)(ii)).
out high-risk customers that represented
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Federal Register / Vol. 72, No. 52 / Monday, March 19, 2007 / Rules and Regulations
entire business lines and a material
amount of its overall business, we
believe that any legitimate use of Banco
Delta Asia is significantly outweighed
by its potential and reported use to
promote or facilitate money laundering.
Moreover, in light of the existence of
multiple alternative banks in Macau, we
believe that imposition of the fifth
special measure against Banco Delta
Asia will not impose an undue burden
on legitimate business activities in
Macau.
D. The Action Enhances U.S. National
Security and Complements U.S. Foreign
Policy
The exclusion from the U.S. financial
system of banks such as Banco Delta
Asia that serve as conduits for
significant money laundering activity
and that participate in other financial
crime enhances U.S. national security
by making it more difficult for criminals
to access the substantial resources and
services of the U.S. financial system. In
addition, the imposition of the fifth
special measure against Banco Delta
Asia complements the U.S.
government’s overall foreign policy
strategy of making entry into the U.S.
financial system more difficult for highrisk financial institutions located in
jurisdictions with weak or poorly
implemented and enforced anti-money
laundering controls.34
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IV. Notice of Proposed Rulemaking and
Comments
We received two comment letters on
the Notice of Proposed Rulemaking
within the timeframe established in the
Notice.35 Additional comments were
submitted on behalf of Banco Delta Asia
subsequent to that timeframe but were
considered at the bank’s request for
purposes of this rulemaking.
Additionally, we met with
representatives of Banco Delta Asia on
three separate occasions after the close
of the comment period. We did not
receive any comments addressing our
description in the Notice of Proposed
Rulemaking of the illicit activities of
North Korea.36
One comment letter was from an
individual at a U.S. university. This
comment suggested that the potential
for indirect access by an entity of
34 As previously mentioned, although Macau’s
legislative and regulatory developments regarding
its overall anti-money laundering and counterfinancing of terrorism regime are encouraging,
Macau will need to more fully demonstrate
implementation to continue improving its
weaknesses.
35 Comments were to be submitted by October 20,
2005. See 70 FR 55217 (September 20, 2005).
36 See 70 FR 55214 (September 20, 2005) at
55215.
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primary money laundering concern was
not adequately addressed by the
notification provision and requirement
to monitor for indirect access. The
commenter did not suggest a viable
alternative, and we believe that the
combination of notification and
screening provides the appropriate
balance between effectiveness and
burden in preventing Banco Delta Asia
from accessing correspondent accounts
at covered financial institutions. This
commenter also expressed concern over
the potential difficulty for detecting
indirect access by Banco Delta Asia,
considering its multiple branches and
subsidiaries and its relationship to its
parent company and its other
subsidiaries. The commenter provided a
description of what she considered best
practices for institutions to identify
indirect access in light of this perceived
difficulty. As we indicated in the Notice
of Proposed Rulemaking, the scope of
the finding of primary money
laundering concern, and therefore the
target of the imposition of special
measure, is limited only to Banco Delta
Asia and its subsidiaries, not to its
parent company or any of the parent
company’s other subsidiaries.37
Additionally, although this final rule
requires covered financial institutions to
take certain minimum due diligence
measures, the methodology or best
practices for implementing those
requirements falls outside the scope of
this rulemaking.
All of the remaining comments, both
within and outside of the timeframe
designated in the Notice of Proposed
Rulemaking, were submitted on behalf
of Banco Delta Asia. The bank requested
that FinCEN revoke the finding of
primary money laundering concern and
the Notice of Proposed Rulemaking in
light of remedial steps the bank claims
that it, and the government of Macau,
had taken or are in the process of taking
to address the concerns we raised. As
indicated above, however, our primary
concern regards a pattern of activity by
the former and presumed future senior
management and owners of the bank to
ignore, facilitate, or even encourage
illicit activity. Consequently, despite
any preliminary steps taken under the
oversight of the administrative
committee, we remain concerned about
the extent to which the bank still could
be used for illicit purposes.
In its comments, the bank also
addressed the statutory criteria we are
required to consider when imposing the
special measure to prohibit covered
financial institutions from opening or
maintaining correspondent accounts for
37 See
PO 00000
70 FR 55218, FN 5.
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Fmt 4700
Sfmt 4700
Banco Delta Asia. The bank cited the
fact, and we acknowledged in the
proposed rule, that no other countries or
jurisdictions had taken similar action to
the one we were proposing. However,
after the issuance of the Notice of
Proposed Rulemaking asserting illicit
flows of money into Banco Delta Asia
involving North Korean-related entities,
the Government of Macau was
concerned enough to freeze some of the
funds in those accounts. The bank
further indicated that the jurisdiction of
Macau, immediately following the
issuance of the Notice of Proposed
Rulemaking, had assumed operational
control of the bank and provided
liquidity after roughly one-third of the
bank’s total deposits were withdrawn by
the bank’s depositors. The bank cited
these measures as indicia of Macau’s
faith in the bank and suggested that any
concerns we may have had about the
bank should be satisfied in light of
Macau’s oversight of and investment in
the future of the bank. Despite our
comments about the jurisdictional
developments in section II.B., above,
Macau’s imposed oversight of the bank
not only does not negate our original
findings but, to the extent such action
indicates a lack of faith in the bank’s
ability to autonomously address its
significant money laundering
vulnerabilities, may be viewed as
supporting our finding of primary
money laundering concern.
The bank also cited the lack of
confidence in the bank by the bank’s
depositors as evidence of a ‘‘significant
adverse impact * * * on legitimate
business activities involving [the
bank],’’ another statutory criteria we
must consider. Although we recognize
that certain customers of Banco Delta
Asia will be affected by this rulemaking,
the availability of alternative banking
services in Macau will alleviate the
burden on legitimate business activities
within that jurisdiction. Moreover, to
the extent that the bank has not
sufficiently implemented remedial
measures that address the deficiencies
outlined above, we continue to believe
that the impact of the rule upon any
legitimate activities of the bank is
significantly outweighed by the
potential for the bank to be used for
money laundering or other illicit
financial activity.
Finally, the bank suggested in its
comments that imposing the fifth
special measure would be inconsistent
with U.S. foreign policy considerations.
We disagree.
Accordingly, the statutory criteria for
finding Banco Delta Asia to be a
financial institution of primary money
laundering concern and for imposing
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the fifth special measure have been fully
addressed.
V. Section-by-Section Analysis
The final rule prohibits covered
financial institutions from opening or
maintaining any correspondent account
for, or on behalf of, Banco Delta Asia.
Covered financial institutions are
required to apply due diligence to their
correspondent accounts to guard against
their indirect use by Banco Delta Asia.
At a minimum, that due diligence must
include two elements. First, a covered
financial institution must notify its
correspondent accountholders that the
account may not be used to provide
Banco Delta Asia with access to the
covered financial institution. Second, a
covered financial institution must take
reasonable steps to identify any indirect
use of its correspondent accounts by
Banco Delta Asia, to the extent that such
indirect use can be determined from
transactional records maintained by the
covered financial institution in the
normal course of business. A covered
financial institution must take a riskbased approach when deciding what, if
any, additional due diligence measures
it should adopt to guard against the
indirect use of correspondent accounts
by Banco Delta Asia, based on risk
factors such as the type of services
offered by, and geographic locations of,
its correspondents.
A. 103.193(a)—Definitions
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1. Banco Delta Asia
Section 103.193(a)(1) of this rule
defines Banco Delta Asia to include all
branches, offices, and subsidiaries of
Banco Delta Asia operating in Macau or
in any jurisdiction. These branches and
offices include, but are not necessarily
limited to, the Amaral, Antonio, Barca,
Campo, Ioa Hon, Lisboa, Outubro, and
Tap Sac branches in Macau, the Airport
Service Centre, Financial Services
Centre, Macao Administrative Centre,
The Bank Centre, and the Tokyo
Representative Office. Banco Delta
Asia’s subsidiaries include, but are not
necessarily limited to, Delta Asia Credit
Ltd. and Delta Asia Insurance Limited.
FinCEN will provide updated
information, as it is available; however,
covered financial institutions should
take commercially reasonable measures
to determine whether a customer is a
branch, office, or subsidiary of Banco
Delta Asia.
2. Correspondent Account
Section 103.193(a)(2) defines the term
‘‘correspondent account’’ by reference to
the definition contained in 31 CFR
103.175(d)(1)(ii). Section
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103.175(d)(1)(ii) defines a
correspondent account to mean an
account established for a foreign bank to
receive deposits from, or make
payments or other disbursements on
behalf of the foreign bank, or to handle
other financial transactions related to
the foreign bank.
In the case of a depository institution
in the United States, this broad
definition of account includes most
types of banking relationships between
the depository institution and a foreign
bank that are established to provide
regular services, dealings, and other
financial transactions including a
demand deposit, savings deposit, or
other transaction or asset account, and
a credit account or other extension of
credit.
In the case of securities brokerdealers, futures commission merchants,
introducing brokers in commodities,
and investment companies that are
open-end companies (‘‘mutual funds’’),
we are using the same definition of
‘‘account’’ for purposes of this rule that
was established in the final rule
implementing section 312 of the USA
PATRIOT Act.38
3. Covered Financial Institution
Section 103.193(a)(3) of the rule
defines covered financial institution to
include the following:
• An insured bank (as defined in
section 3(h) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(h));
• A commercial bank;
• An agency or branch of a foreign
bank in the United States;
• A federally insured credit union;
• A savings association;
• A corporation acting under section
25A of the Federal Reserve Act (12
U.S.C. 611 et seq.);
• A trust bank or trust company that
is federally regulated and is subject to
an anti-money laundering program
requirement;
• A broker or dealer in securities
registered, or required to be registered,
with the U.S. Securities and Exchange
Commission under the Securities
Exchange Act of 1934 (15 U.S.C. 78a et
seq.), except persons who register
pursuant to section 15(b)(11) of the
Securities Exchange Act of 1934;
• A futures commission merchant or
an introducing broker registered, or
required to be registered, with the
Commodity Futures Trading
Commission under the Commodity
Exchange Act (7 U.S.C. 1 et seq.), except
persons who register pursuant to section
4(f)(a)(2) of the Commodity Exchange
Act; and
38 See
PO 00000
• A mutual fund, which means an
investment company (as defined in
section 3(a)(1) of the Investment
Company Act of 1940 (‘‘Investment
Company Act’’) (15 U.S.C. 80a-3(a)(1)))
that is an open-end company (as defined
in section 5(a)(1) of the Investment
Company Act (15 U.S.C. 80a-5(a)(1)))
and that is registered, or is required to
register, with the U.S. Securities and
Exchange Commission pursuant to the
Investment Company Act.
In the Notice of Proposed Rulemaking,
we defined ‘‘covered financial
institution’’ by reference to 31 CFR
103.175(f)(2), the operative definition of
that term for purposes of the rules
implementing sections 313 and 319 of
the USA PATRIOT Act, and we also
included in the definition futures
commission merchants, introducing
brokers, and mutual funds. The
definition of ‘‘covered financial
institution’’ we are adopting for
purposes of this final rule is
substantially the same as originally
proposed.
B. 103.193(b)—Requirements for
Covered Financial Institutions
For purposes of complying with the
final rule’s prohibition on the opening
or maintaining in the United States of
correspondent accounts for, or on behalf
of, Banco Delta Asia, we expect a
covered financial institution to take
such steps that a reasonable and
prudent financial institution would take
to protect itself from loan or other fraud
or loss based on misidentification of a
person’s status.
1. Prohibition of Direct Use of
Correspondent Accounts
Section 103.193(b)(1) of the rule
prohibits all covered financial
institutions from opening or
maintaining a correspondent account in
the United States for, or on behalf of,
Banco Delta Asia. The prohibition
requires all covered financial
institutions to review their account
records to ensure that they maintain no
accounts directly for, or on behalf of,
Banco Delta Asia.
2. Due Diligence Upon Correspondent
Accounts To Prohibit Indirect Use
As a corollary to the prohibition on
the opening or maintaining of
correspondent accounts directly for
Banco Delta Asia, section 103.193(b)(2)
requires a covered financial institution
to apply due diligence to its
correspondent accounts 39 that is
39 Again, for purposes of the final rule, a
correspondent account is defined as an account
31 CFR 103.175(d)(2)(ii)-(iv).
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reasonably designed to guard against
their indirect use by Banco Delta Asia.
At a minimum, that due diligence must
include notifying correspondent
accountholders that correspondent
accounts may not be used to provide
Banco Delta Asia with access to the
covered financial institution. For
example, a covered financial institution
may satisfy this requirement by
transmitting the following notice to all
of its correspondent accountholders:
Notice: Pursuant to U.S. regulations issued
under section 311 of the USA PATRIOT Act,
31 CFR 103.193, we are prohibited from
establishing, maintaining, administering or
managing a correspondent account for, or on
behalf of, Banco Delta Asia or any of its
subsidiaries (including, but not limited to,
Delta Asia Credit Limited, and Delta Asia
Insurance Limited). The regulations also
require us to notify you that you may not
provide Banco Delta Asia or any of its
subsidiaries with access to the correspondent
account you hold at our financial institution.
If we become aware that Banco Delta Asia or
any of its subsidiaries is indirectly using the
correspondent account you hold at our
financial institution, we will be required to
take appropriate steps to prevent such access,
including, where necessary, terminating your
account.
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The purpose of the notice requirement
is to help ensure that Banco Delta Asia
is denied access to the U.S. financial
system, as well as to increase awareness
within the international financial
community of the risks and deficiencies
of Banco Delta Asia. However, we do
not require or expect a covered financial
institution to obtain a certification from
its correspondent accountholders that
indirect access will not be provided in
order to comply with this notice
requirement. Instead, methods of
compliance with the notice requirement
could include, for example, transmitting
a one-time notice by mail, fax, or e-mail
to a covered financial institution’s
correspondent accountholders,
informing those accountholders that
their correspondent accounts may not
be used to provide Banco Delta Asia
with indirect access to the covered
financial institution, or including such
information in the next regularly
occurring transmittal from the covered
financial institution to its correspondent
accountholders.
This final rule also requires a covered
financial institution to take reasonable
established by a covered financial institution for a
foreign bank to receive deposits from, or to make
payments or other disbursements on behalf of, a
foreign bank, or to handle other financial
transactions related to the foreign bank. For
purposes of this definition, the term account means
any formal banking or business relationship
established to provide regular services, dealings,
and other financial transactions. See 31 CFR
103.175(d)(2).
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steps to identify any indirect use of its
correspondent accounts by Banco Delta
Asia, to the extent that such indirect use
can be determined from transactional
records maintained by the covered
financial institution in the normal
course of business. For example, a
covered financial institution is expected
to apply an appropriate screening
mechanism to be able to identify a funds
transfer order that, on its face, lists
Banco Delta Asia as the originator’s or
beneficiary’s financial institution, or
otherwise references Banco Delta Asia
in a manner detectable under the
financial institution’s normal business
screening procedures. We acknowledge
that not all institutions are capable of
screening every field in a funds transfer
message and that the risk-based controls
of some institutions may not necessitate
such comprehensive screening.
Alternatively, other institutions may
perform more thorough screening as
part of their risk-based determination to
perform ‘‘additional due diligence,’’ as
described below. An appropriate
screening mechanism could be the
mechanism currently used by a covered
financial institution to comply with
various legal requirements, such as the
commercially available software used to
comply with the sanctions programs
administered by the Office of Foreign
Assets Control.
Notifying correspondent
accountholders and taking reasonable
steps to identify any indirect use of
correspondent accounts by Banco Delta
Asia in the manner discussed above are
the minimum due diligence
requirements under this final rule.
Beyond these minimum steps, a covered
financial institution should adopt a riskbased approach for determining what, if
any, additional due diligence measures
it should implement to guard against the
indirect use of its correspondent
accounts by Banco Delta Asia, based on
risk factors such as the type of services
it offers and the geographic locations of
its correspondent accountholders.
A covered financial institution that
obtains knowledge that a correspondent
account is being used by a foreign bank
to provide indirect access to Banco
Delta Asia must take all appropriate
steps to prevent such indirect access,
including, when necessary, terminating
the correspondent account. A covered
financial institution may afford such
foreign bank a reasonable opportunity to
take corrective action prior to
terminating the correspondent account.
We have added language in the final
rule clarifying that, should the foreign
bank refuse to comply, or if the covered
financial institution cannot obtain
adequate assurances that the account
PO 00000
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Fmt 4700
Sfmt 4700
will not be available to Banco Delta
Asia, the covered financial institution
must terminate the account within a
commercially reasonable time. This
means that the covered financial
institution should not permit the foreign
bank to establish any new positions or
execute any transactions through the
account, other than those necessary to
close the account. A covered financial
institution may reestablish an account
closed under this rule if it determines
that the account will not be used to
provide banking services indirectly to
Banco Delta Asia.
3. Reporting Not Required
Section 103.193(b)(3) of the rule
clarifies that the rule does not impose
any reporting requirement upon any
covered financial institution that is not
otherwise required by applicable law or
regulation. However, a covered financial
institution must document its
compliance with the requirement that it
notify its correspondent accountholders
that the accounts may not be used to
provide Banco Delta Asia with access to
the covered financial institution.
VI. Regulatory Flexibility Act
It is hereby certified that this rule will
not have a significant economic impact
on a substantial number of small
entities. The correspondent accounts
that the bank previously held in the
United States were closed, and we have
no knowledge of any small covered
financial institutions maintaining
correspondent accounts for other foreign
banks that presently maintain a
correspondent relationship with Banco
Delta Asia.40 It therefore appears that
Banco Delta Asia no longer holds
correspondent accounts in the United
States and that most if not all of the
nested correspondent accounts to which
Banco Delta Asia has indirect access
would be with large covered financial
institutions. Thus, the prohibition on
establishing or maintaining such
correspondent accounts will not have a
significant impact on a substantial
number of small entities. In addition, all
covered financial institutions currently
must exercise some degree of due
diligence in order to comply with
various legal requirements. The tools
used for such purposes, including
commercially available software used to
comply with the economic sanctions
40 Despite Banco Delta Asia’s representation that
the majority of its correspondent accounts at foreign
financial institutions were terminated after our
finding of primary money laundering concern, the
self-reported list of the bank’s correspondent
accounts in the Banker’s Almanac was identical
before and after our finding, making it difficult to
know with certainty what institutions actually
maintain correspondent accounts with the bank.
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Federal Register / Vol. 72, No. 52 / Monday, March 19, 2007 / Rules and Regulations
programs administered by the Office of
Foreign Assets Control, can be modified
to monitor for the use of correspondent
accounts by Banco Delta Asia. Thus, the
due diligence that is required by this
rule—i.e., the one-time transmittal of
notice to correspondent accountholders
and screening of transactions to identify
any indirect use of a correspondent
account—is not expected to impose a
significant additional economic burden
on small covered financial institutions.
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VII. Paperwork Reduction Act of 1995
The collection of information
contained in the final rule has been
approved by the Office of Management
and Budget (OMB) in accordance with
the Paperwork Reduction Act of 1995
(44 U.S.C. 3507(d)), and has been
assigned OMB Control Number 1506–
0045. An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a valid control
number assigned by OMB.
The only requirements in the final
rule that are subject to the Paperwork
Reduction Act are the requirements that
a covered financial institution notify its
correspondent accountholders that the
correspondent accounts maintained on
their behalf may not be used to provide
Banco Delta Asia with access to the
covered financial institution and the
requirement that a covered financial
institution document its compliance
with this obligation to notify its
correspondents. The estimated annual
average burden associated with this
collection of information is one hour per
affected financial institution. We
received no comments on this
information collection burden estimate.
Comments concerning the accuracy of
this information collection estimate and
suggestions for reducing this burden
should be sent (preferably by fax (202–
395–6974)) to the Desk Officer for the
Department of the Treasury, Office of
Information and Regulatory Affairs,
Office of Management and Budget,
Washington, DC 20503 (or by the
Internet to
Alexander_T._Hunt@omb.eop.gov), with
a copy to FinCEN by paper mail to
FinCEN, P.O. Box 39, Vienna, VA
22183, ‘‘Attn: Section 311—Imposition
of Special Measure Against Banco Delta
Asia’’ or by electronic mail to
regcomments@fincen.treas.gov with the
caption ‘‘Attn: Section 311—Imposition
of Special Measure Against Banco Delta
Asia’’ in the body of the text.
VIII. Executive Order 12866
This rule is not a significant
regulatory action for purposes of
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15:36 Mar 16, 2007
Jkt 211001
Executive Order 12866, ‘‘Regulatory
Planning and Review.’’
List of Subjects in 31 CFR Part 103
Administrative practice and
procedure, Banks and banking, Brokers,
Counter-money laundering, Counterterrorism, and Foreign banking.
Authority and Issuance
For the reasons set forth in the
preamble, Part 103 of title 31 of the
Code of Federal Regulations is amended
as follows:
I
PART 103—FINANCIAL
RECORDKEEPING AND REPORTING
OF CURRENCY AND FINANCIAL
TRANSACTIONS
1. The authority citation for part 103
continues to read as follows:
I
Authority: 12 U.S.C. 1829b and 1951–1959;
31 U.S.C. 5311–5314 and 5316–5332; title III,
sec. 314 Pub. L. 107–56, 115 Stat. 307.
2. Subpart I of Part 103 is amended by
adding new § 103.193 as follows:
I
§ 103.193 Special measures against Banco
Delta Asia.
(a) Definitions. For purposes of this
section:
(1) Banco Delta Asia means all
branches, offices, and subsidiaries of
Banco Delta Asia operating in any
jurisdiction, including its subsidiaries
Delta Asia Credit Limited and Delta
Asia Insurance Limited.
(2) Correspondent account has the
same meaning as provided in
§ 103.175(d)(1)(ii).
(3) Covered financial institution
includes:
(i) An insured bank (as defined in
section 3(h) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(h)));
(ii) A commercial bank;
(iii) An agency or branch of a foreign
bank in the United States;
(iv) A federally insured credit union;
(v) A savings association;
(vi) A corporation acting under
section 25A of the Federal Reserve Act
(12 U.S.C. 611 et seq.);
(vii) A trust bank or trust company
that is federally regulated and is subject
to an anti-money laundering program
requirement;
(viii) A broker or dealer in securities
registered, or required to be registered,
with the U.S. Securities and Exchange
Commission under the Securities
Exchange Act of 1934 (15 U.S.C. 78a et
seq.), except persons who register
pursuant to section 15(b)(11) of the
Securities Exchange Act of 1934;
(ix) A futures commission merchant
or an introducing broker registered, or
required to register, with the
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Fmt 4700
Sfmt 4700
12739
Commodity Futures Trading
Commission under the Commodity
Exchange Act (7 U.S.C. 1 et seq.), except
persons who register pursuant to section
4(f)(a)(2) of the Commodity Exchange
Act; and
(x) A mutual fund, which means an
investment company (as defined in
section 3(a)(1) of the Investment
Company Act of 1940 (‘‘Investment
Company Act’’) (15 U.S.C. 80a-3(a)(1)))
that is an open-end company (as defined
in section 5(a)(1) of the Investment
Company Act (15 U.S.C. 80a–5(a)(1)))
and that is registered, or is required to
register, with the U.S. Securities and
Exchange Commission pursuant to the
Investment Company Act.
(4) Subsidiary means a company of
which more than 50 percent of the
voting stock or analogous equity interest
is owned by another company.
(b) Requirements for covered financial
institutions—(1) Prohibition on direct
use of correspondent accounts. A
covered financial institution shall
terminate any correspondent account
that is established, maintained,
administered, or managed in the United
States for, or on behalf of, Banco Delta
Asia.
(2) Due diligence of correspondent
accounts to prohibit indirect use.
(i) A covered financial institution
shall apply due diligence to its
correspondent accounts that is
reasonably designed to guard against
their indirect use by Banco Delta Asia.
At a minimum, that due diligence must
include:
(A) Notifying correspondent
accountholders the correspondent
account may not be used to provide
Banco Delta Asia with access to the
covered financial institution; and
(B) Taking reasonable steps to identify
any indirect use of its correspondent
accounts by Banco Delta Asia, to the
extent that such indirect use can be
determined from transactional records
maintained in the covered financial
institution’s normal course of business.
(ii) A covered financial institution
shall take a risk-based approach when
deciding what, if any, additional due
diligence measures it should adopt to
guard against the indirect use of its
correspondent accounts by Banco Delta
Asia.
(iii) A covered financial institution
that obtains knowledge that a
correspondent account is being used by
the foreign bank to provide indirect
access to Banco Delta Asia shall take all
appropriate steps to prevent such
indirect access, including, where
necessary, terminating the
correspondent account.
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Federal Register / Vol. 72, No. 52 / Monday, March 19, 2007 / Rules and Regulations
(iv) A covered financial institution
required to terminate a correspondent
account pursuant to paragraph (b)(2)(iii)
of this section:
(A) Should do so within a
commercially reasonable time, and
should not permit the foreign bank to
establish any new positions or execute
any transaction through such
correspondent account, other than those
necessary to close the correspondent
account; and
(B) May reestablish a correspondent
account closed pursuant to this
paragraph if it determines that the
correspondent account will not be used
to provide banking services indirectly to
Banco Delta Asia.
(3) Recordkeeping and reporting. (i) A
covered financial institution is required
to document its compliance with the
notice requirement set forth in
paragraph (b)(2)(i)(A) of this section.
(ii) Nothing in this section shall
require a covered financial institution to
report any information not otherwise
required to be reported by law or
regulation.
DATES:
This rule is effective March 24,
2007.
Documents indicated in this
preamble as being available in the
docket, are part of docket (CGD05–07–
001) and are available for inspection or
copying at Commander (dpi), Fifth
Coast Guard District, 431 Crawford
Street, Portsmouth, Virginia 23704–
5004, between 9 a.m. and 2 p.m.,
Monday through Friday, except Federal
holidays.
FOR FURTHER INFORMATION CONTACT:
Dennis M. Sens, Project Manager,
Inspections and Compliance Branch, at
(757) 398–6204.
SUPPLEMENTARY INFORMATION:
ADDRESSES:
Regulatory Information
33 CFR Part 100
On February 1, 2007, we published a
Notice of proposed rulemaking (NPRM)
entitled Special Local Regulations for
Marine Events; College Creek, Weems
Creek and Carr Creek, Annapolis, MD in
the Federal Register (72 FR 4669). We
received no letters commenting on the
proposed rule. No public meeting was
requested, and none was held.
Under 5 U.S.C. 553(d)(3), the Coast
Guard finds that good cause exists for
making this rule effective less than 30
days after publication in the Federal
Register. Delaying the effective date
would be contrary to the public interest,
since immediate action is needed to
ensure the safety of the event
participants, support craft and other
vessels transiting the event area.
However, advance notifications will be
made to affected waterway users via
marine information broadcasts, area
newspapers and local radio stations.
[CGD05–07–001]
Background and Purpose
RIN 1625–AA08
We are amending 33 CFR 100.518 to
accommodate changes to the
enforcement period for U.S. Naval
Academy sponsored marine events.
Each year the U.S. Naval Academy hosts
various marine events on the Severn
River adjacent to the academy.
Organized collegiate crew races are
typically held annually during
weekends in March, April and May. The
Blue Angels air show is normally
scheduled during graduation week at
the U.S. Naval Academy. Maritime
traffic is prohibited from using the
regulated area of the Severn River
during air show performances in
accordance with Federal Aviation
Administration requirements. The dates
for marine events for 2007 will be;
Safety at Sea Seminar on March 24,
2007; U.S. Naval Academy crew races
on May 6 and May 27, 2007; and the
Blue Angels air show on May 23 and
May 24, 2007. The special regulation
Dated: March 14, 2007.
William F. Baity,
Acting Director, Financial Crimes
Enforcement Network.
[FR Doc. 07–1313 Filed 3–14–07; 11:41 am]
BILLING CODE 4810–02–P
DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
Special Local Regulations for Marine
Events; Severn River, College Creek,
Weems Creek and Carr Creek,
Annapolis, MD
Coast Guard, DHS.
Final rule.
AGENCY:
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ACTION:
SUMMARY: The Coast Guard is amending
the special local regulations at 33 CFR
100.518. This rulemaking is intended to
accommodate changes in event dates for
recurring marine events specified in this
regulation. The marine events included
in this special local regulation include
the Safety at Sea Seminar, U.S. Naval
Academy Crew Races and the Blue
Angels Air Show. This rule is intended
to restrict vessel traffic in portions of the
Severn River during the period of these
marine events and is necessary to
provide for the safety of life on
navigable waters during the event.
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15:36 Mar 16, 2007
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Fmt 4700
Sfmt 4700
will be enforced from 5 a.m. to 6 p.m.
on those days and if the event’s daily
activities should conclude prior to 6
p.m., enforcement of this regulation may
be terminated for that day at the
discretion of the Patrol Commander.
The U.S. Naval Academy is the sponsor
for all of these events and intends to
hold them annually on the dates
provided in 33 CFR 100.518.
Discussion of Comments and Changes
The Coast Guard did not receive
comments in response to the Notice of
proposed rulemaking (NPRM) published
in the Federal Register. Accordingly,
the Coast Guard is establishing
temporary special local regulations on
specified waters of the Severn River,
College Creek, Weems Creek and Carr
Creek, Annapolis, Maryland.
Regulatory Evaluation
This rule is not a ‘‘significant
regulatory action’’ under section 3(f) of
Executive Order 12866, Regulatory
Planning and Review, and does not
require an assessment of potential costs
and benefits under section 6(a)(3) of that
Order. The Office of Management and
Budget has not reviewed it under that
Order. It is not ‘‘significant’’ under the
regulatory policies and procedures of
the Department of Homeland Security
(DHS).
We expect the economic impact of
this rule to be so minimal that a full
Regulatory Evaluation under the
regulatory policies and procedures of
DHS is unnecessary. The effect of this
action merely establishes the dates on
which the existing regulations would be
enforced. It would not impose any
additional restrictions on vessel traffic.
Small Entities
Under the Regulatory Flexibility Act
(5 U.S.C. 601–612), we have considered
whether this rule would have a
significant economic impact on a
substantial number of small entities.
The term ‘‘small entities’’ comprises
small businesses, not-for-profit
organizations that are independently
owned and operated and are not
dominant in their fields, and
governmental jurisdictions with
populations of less than 50,000.
The Coast Guard certifies under 5
U.S.C. 605(b) that this rule would not
have a significant economic impact on
a substantial number of small entities.
This rule would affect the following
entities, some of which might be small
entities: the owners or operators of
vessels intending to transit or anchor in
a portion of the Severn River during the
event.
E:\FR\FM\19MRR1.SGM
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]]>Agencies
[Federal Register Volume 72, Number 52 (Monday, March 19, 2007)]
[Rules and Regulations]
[Pages 12730-12740]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 07-1313]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
31 CFR Part 103
RIN 1506-AA83
Financial Crimes Enforcement Network; Amendment to the Bank
Secrecy Act Regulations--Imposition of Special Measure Against Banco
Delta Asia, Including Its Subsidiaries Delta Asia Credit Limited and
Delta Asia Insurance Limited, as a Financial Institution of Primary
Money Laundering Concern
AGENCY: Financial Crimes Enforcement Network, Department of the
Treasury.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Financial Crimes Enforcement Network (``FinCEN'') is
issuing a final rule imposing a special measure against Banco Delta
Asia SARL (``Banco Delta Asia'' or ``the bank'') as a financial
institution of primary money laundering concern, pursuant to the
authority contained in 31 U.S.C. 5318A of the Bank Secrecy Act.
DATES: This final rule is effective on April 18, 2007.
FOR FURTHER INFORMATION CONTACT: Regulatory Policy and Programs
Division, 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
[[Page 12731]]
Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56 (``USA
PATRIOT Act''). Title III of the USA PATRIOT Act amends the anti-money-
laundering provisions of the Bank Secrecy Act, codified at 12 U.S.C.
1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5314 and 5316-5332, to
promote the prevention, detection, and prosecution of money laundering
and the financing of terrorism. Regulations implementing the Bank
Secrecy Act appear at 31 CFR part 103. The authority of the Secretary
of the Treasury (``the Secretary'') to administer the Bank Secrecy Act
and its implementing regulations has been delegated to the Director of
FinCEN (``the Director'').\1\ The Bank Secrecy Act authorizes the
Director to issue regulations to require all financial institutions
defined as such in the Act to maintain or file certain reports or
records that have been determined to have a high degree of usefulness
in criminal, tax, or regulatory investigations or proceedings, or in
the conduct of intelligence or counter-intelligence activities,
including analysis, to protect against international terrorism, and to
implement anti-money laundering programs and compliance procedures.\2\
---------------------------------------------------------------------------
\1\ Therefore, references to the authority of the Secretary of
the Treasury under section 311 of the USA PATRIOT Act apply equally
to the Director of the Financial Crimes Enforcement Network.
Accordingly, authorities granted to the Secretary are attributed to
the Director of FinCEN in this rulemaking.
\2\ Language expanding the scope of the Bank Secrecy Act to
intelligence or counter-intelligence activities to protect against
international terrorism was added by section 358 of the USA PATRIOT
Act.
---------------------------------------------------------------------------
Section 311 of the USA PATRIOT Act added section 5318A to the Bank
Secrecy Act, granting the Director the authority, after 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 domestic financial agencies to take certain ``special measures''
against the primary money laundering concern. Section 311 identifies
factors for the Director to consider and Federal agencies to consult
before we may find that reasonable grounds exist for concluding that a
jurisdiction, institution, class of transactions, or type of account is
of primary money laundering concern. The statute also provides similar
procedures, including factors and consultation requirements, for
selecting the specific special measures to be imposed against the
primary money laundering concern.
Taken as a whole, section 311 provides the Director with a range of
options that can be adapted to target specific money laundering and
terrorist financing concerns most effectively. These options provide
the authority to bring additional and useful pressure on those
jurisdictions and institutions that pose money laundering threats and
the ability to take steps to protect the U.S. financial system. Through
the imposition of various special measures, we can gain more
information about the concerned jurisdictions, institutions,
transactions, and accounts; monitor more effectively the respective
jurisdictions, institutions, transactions, and accounts; and ultimately
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 Director is required by the Bank Secrecy Act to
consult with both the Secretary of State and the Attorney General.
In addition to these consultations, when finding that a foreign
financial institution is of primary money laundering concern, the
Director is required by section 311 to consider ``such information as
[we] determine[ ] 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 such action is sufficient to ensure,
with respect to transactions involving the institution operating in the
jurisdiction, that the purposes of the Bank Secrecy Act continue to be
fulfilled, and to guard against international money laundering and
other financial crimes.
If we determine that reasonable grounds exist for concluding that a
foreign financial institution is of primary money laundering concern,
we 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 or jointly, in any
combination, and in any sequence.\3\ In the imposition of special
measures, we follow procedures similar to those for finding a foreign
financial institution to be of primary money laundering concern, but we
also engage in additional consultations and consider additional
factors. Section 311 requires us to consult with other appropriate
Federal agencies and parties \4\ and to consider the following specific
factors:
---------------------------------------------------------------------------
\3\ 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 to impose special measures against Nauru).
\4\ 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, the Commodity
Futures Trading Commission, the National Credit Union
Administration, and, in our sole discretion, ``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 upon the opening or maintaining of a
correspondent account by any domestic financial institution or
domestic financial agency for the foreign financial institution of
primary money laundering concern. 31 U.S.C. 5318(c)(1).
---------------------------------------------------------------------------
Whether similar action has been or is being taken by other
nations or multilateral groups;
Whether the imposition of any particular special measure
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 U.S. national security and
foreign policy.\5\
---------------------------------------------------------------------------
\5\ Classified information used in support of a section 311
finding of primary money laundering concern and imposition of
special 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)).
---------------------------------------------------------------------------
In this final rule, we are imposing the fifth special measure (31
U.S.C. 5318A(b)(5)) against Banco Delta Asia, a commercial bank in
Macau, Special Administrative Region, China (``Macau''). The fifth
special measure allows for the imposition of conditions upon, or the
prohibition of, the opening or maintaining of correspondent or payable-
through accounts in the United States for or on behalf of a foreign
financial institution of primary money
[[Page 12732]]
laundering concern. Unlike the other special measures, this special
measure may be imposed only through the issuance of a regulation.
B. Banco Delta Asia
Banco Delta Asia, located and licensed in Macau, is the commercial
banking arm of its parent company, Delta Asia Group (Holdings) Ltd.
(``Delta Asia Group'').\6\ 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,\7\ and its name changed to Banco Delta Asia in December 1993.
According to Banco Delta Asia's representations to us, the bank had
roughly $205 million (U.S. dollars) in assets as of July 2006. Banco
Delta Asia operates eight branches in Macau (including a branch at a
casino) and is served by a representative office in Japan. According to
statements made by Banco Delta Asia, many of its foreign correspondent
relationships in North America, Europe, and Asia were terminated after
the publication of our finding of primary money laundering concern, and
the bank no longer maintains a foreign correspondent account in the
United States.\8\ Banco Delta Asia may still have indirect access to
the U.S. financial system, however, via nested correspondent accounts
at other foreign financial institutions that have correspondent
accounts at covered financial institutions. Banco Delta Asia has two
wholly owned subsidiaries: Delta Asia Credit Limited and Delta Asia
Insurance Limited.\9\
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\6\ The Bankers' Almanac (2006). For purposes of this
rulemaking, our finding of primary money laundering concern and
imposition of special measures 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.
\7\ 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.
\8\ As of November 2006, Bankers' Almanac indicated that the
bank maintained one U.S. correspondent relationship, although it is
possible that the self-reported data had not been updated.
\9\ The Bankers' Almanac (2006).
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II. The 2005 Finding and Subsequent Developments
A. The 2005 Finding
Based upon review and analysis of pertinent information,
consultations with relevant Federal agencies and parties, and
consideration of the factors enumerated in section 311, in September
2005 the Director found that reasonable grounds existed for concluding
that Banco Delta Asia was a financial institution of primary money
laundering concern. This finding was published in conjunction with a
Notice of Proposed Rulemaking,\10\ which proposed prohibiting covered
financial institutions from, directly or indirectly, opening or
maintaining correspondent accounts in the United States for Banco Delta
Asia or any of its branches, offices, or subsidiaries, pursuant to the
authority under 31 U.S.C. 5318A.
---------------------------------------------------------------------------
\10\ See 70 FR 55214 (Finding) (Sept. 20, 2005); 70 FR 55217
(Notice of Proposed Rulemaking) (Sept. 20, 2005).
---------------------------------------------------------------------------
The Notice of Proposed Rulemaking outlined the various factors
supporting the finding and proposed prohibition.\11\ Specifically, we
stated that Banco Delta Asia had provided financial services for more
than 20 years to multiple North Korean-related individuals and entities
that were engaged in illicit activities. Sources showed that certain of
such entities had paid a fee to Banco Delta Asia for financial access
to the banking system with little oversight or control, and that the
bank helped conduct surreptitious, multi-million dollar cash deposits
and withdrawals on their behalf. In fact, the bank facilitated several
multi-million dollar wire transfers connected to alleged criminal
activity on behalf of one such company. Banco Delta Asia maintained 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, for which he was expelled from Macau. Banco Delta Asia also
serviced the account of a known international drug trafficker.
Treasury's September 2005 Notice also noted that any legitimate
business use of Banco Delta Asia appeared to be significantly
outweighed by its use to promote or facilitate money laundering and
other financial crimes.
---------------------------------------------------------------------------
\11\ Id.
---------------------------------------------------------------------------
Treasury determined that a finding that Banco Delta Asia was of
primary money laundering concern and prohibiting covered financial
institutions from opening or maintaining correspondent accounts for
that institution would prevent suspect accountholders at Banco Delta
Asia from accessing the U.S. financial system to facilitate money
laundering. It would also bring criminal conduct occurring at or
through Banco Delta Asia to the attention of the international
financial community and thus serve the purposes of the Bank Secrecy Act
as well as guard against international money laundering and other
financial crime.
B. Jurisdictional Developments
As Special Administrative Region to the People's Republic of China,
Macau retains substantial autonomy in all areas related to the
regulation and oversight of its financial services sector and domestic
economic affairs. Macau's financial system, including its robust casino
and gaming sector, has historically been known to be vulnerable to
financial crime,\12\ due in large part to an under-developed anti-money
laundering regime. As discussed below, however, Macau has begun to take
important steps to address those systemic concerns.
---------------------------------------------------------------------------
\12\ See, e.g.: https://www.fas.org/irp/threat/pub45270index.html
(International Crime Threat Assessment, 2000) https://
archives.cnn.com/1999/ASIANOW/east/macau/stories/macau.north.korea/
index.html (1999); https://www.asiapacificms.com/articles/north_
korea_banking/ (2003); https://www.gluckman.com/MacauHo.html (1997);
https://www.asiaweek.com/asiaweek/98/1030/nat7.html (1999); https://
archives.cnn.com/1999/ASIANOW/east/macau/profiles/edmond.ho/ (1999);
https://www.asianpacificpost.com/portal2/
pageView.html?id=402881910674ebab010674f4ca74141f; etc.
---------------------------------------------------------------------------
While Macau has worked to develop its anti-money laundering and
counter-terrorist financing framework since the 1990s, and has joined
regional groups such as the Asia Pacific Group on Money Laundering
(APG) to aid these efforts, Macanese authorities have taken a number of
additional important steps since the September 2005 Notice of Proposed
Rulemaking on Banco Delta Asia to address the reported money laundering
risks and systemic vulnerabilities.\13\ In April 2006, Macau enacted
Law no. 2/2006 on Prevention and Repression of the Crime of Money
Laundering and Law no. 3/2006 on Prevention and Repression of the Crime
of Terrorism. The new law on money laundering replaces and supersedes
existing money laundering legislation, Decree-Law 24/98/M, and the
provisions on money laundering in Law 6/97/M against organized crime,
and makes comprehensive and stand-alone the crime of money laundering.
Further, it broadens the scope of predicate offences to all serious
crimes,\14\ including terrorism, and is extended to conduct occurring
outside of Macau. Violations of the anti-money laundering law are
punishable with a penalty of imprisonment of not less than three years,
``as well as [forfeiture of] any assets obtained therefrom.''
---------------------------------------------------------------------------
\13\ Macao, China, Jurisdiction Report (to Asia Pacific Group
Annual Meeting), 2006. PROGRESS REPORT ON THE IMPLEMENTATION OF THE
RECOMMENDATIONS OF THE APG EVALUATION REPORT, 2006.
\14\ ``Serious crimes'' are defined as crimes carrying a
punishment of two to eight years imprisonment.
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[[Page 12733]]
In addition, in May 2006, Macau enacted Administrative Regulation
no. 7/2006--Preventive Measures Against Money Laundering and Financing
Terrorism--a set of implementing measures related to the new laws which
statutorily went into full legal effect on November 12, 2006. The
regulation broadens and clarifies the obligations of covered
institutions regarding identification of customers and contract parties
as well as the nature, purpose, and source of funds and transactions
performed; requires recordkeeping and reporting of suspicious and large
cash transactions; and obligates institutions to refuse transactions
absent adequate information. Further, the regulation provides for fines
(between 10,000 and 500,000 patacas \15\ for a natural person and
between 100,000 and 5,000,000 patacas for a legal person) against those
found to be in violation of the anti-money laundering laws. The
regulation, applicable to multiple sectors (financial and designated
non-financial businesses and professions) now covered under the new
provisions, is aimed at combating the financing of terrorism and money
laundering and stipulates that the duties established under the new
provisions will be applied by the following supervisory and regulatory
agencies in relation to the entities subject to their respective
supervision: Macao \16\ Monetary Authority, Gaming Inspection and
Coordination Bureau, Macao Trade and Investment Bureau, Finance
Department, Macao Lawyers Association, Independent Commission for the
Exercise of the Disciplinary Power over Solicitors, Legal Affairs
Bureau, and Macau Economic Department. The new regulation has also
specified penalties for non-compliance by covered institutions.
---------------------------------------------------------------------------
\15\ The domestic currency of Macau. As of February 2007, the
exchange rate for patacas to U.S. dollars was approximately 8:1.
\16\ The Macanese government recognizes both ``Macau'' and
``Macao'' as the correct spelling of the jurisdiction. Certain
government agencies and publications use the more traditional
Portuguese spelling, Macao.
---------------------------------------------------------------------------
The Office of Financial Intelligence (``GIF'') was established by
Order of the Chief Executive no. 227/2006 in August 2006 and began
operations on November 12, 2006. As provided in the order, this office
will function as Macau's financial intelligence unit (``FIU''),
collecting, analyzing and disseminating information on suspicious and
large cash transactions and cooperating as necessary with international
FIUs. GIF also has the responsibility for reporting suspected money
laundering activities to the Public Prosecutions Office and, to the
extent capable and necessary, for providing technical assistance to
covered institutions and all regulatory bodies subject to the new
legislation.
Macanese authorities have created a Money Laundering Related Crime
Division (a special investigative agency dedicated to financial crimes)
within the Judiciary Police. A separate law governing international
mutual legal assistance in criminal matters, Law no. 6/2006 on Judicial
Cooperation in Criminal Matters, was approved by the Legislative
Assembly (``LA'') in July 2006 and became effective November 1, 2006.
Finally, while Customs authorities in Macau require declaration of
cross-border trade movements in goods and valuables, there are
currently no provisions to monitor or declare cross-border currency
movements in and out of Macau. Macanese authorities have stated they
are undertaking a study on this issue that will help inform authorities
on the development of a potential strategy to effectively address
cross-border currency movements. However, no specific strategy has been
formulated to date.
While these efforts are important and welcome signs of Macau's
overall progress in strengthening its anti-money laundering and
combating the financing of terrorism regime, full and comprehensive
implementation of these measures in all the covered sectors will need
to follow.
C. Banco Delta Asia's Subsequent Developments
Shortly after the issuance of our finding and Notice of Proposed
Rulemaking, the Macau Monetary Authority appointed a three person
``administrative committee'' that temporarily replaced the senior
management of the bank to oversee the daily operations of the bank and
address the concerns we raised.\17\ Although the executive order
appointing the committee and establishing their six-month term has
twice been extended, no plan has been proffered to change permanently
the management or ownership structure of the bank, notwithstanding the
egregious historical practices detailed below.\18\ Given the
possibility that the bank will be returned to the control of its former
management and primary shareholder in the future, our ongoing concerns
about their historical practices and their potential for recidivism
detailed below remain a reasonable basis both for our conclusion that
Banco Delta Asia is of primary money laundering concern and for our
imposition of a special measure to safeguard the U.S. financial system.
---------------------------------------------------------------------------
\17\ The administrative committee consists of the Chief
Executive Officer of a note-issuing bank in Macau, the Deputy
Director of the Macau Monetary Authority Internal Audit Department,
and an attorney from a prominent Macanese law firm. No employees or
former employees of the bank were appointed to the administrative
committee. The present term is scheduled to continue through March
2007.
\18\ Even to the extent that the bank's former management is
permanently replaced, we note that the former chief executive
officer and chairman of the board is also the controlling owner of
the bank and would still possess significant influence over the
operations of the bank.
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Representatives of the bank informed us that the government-
appointed administrative committee has taken steps to address many of
the money laundering concerns that we previously identified.\19\ For
example, two independent accounting firms were retained \20\ to
investigate the allegations in the Notice of Proposed Rulemaking, to
assess the weaknesses in the bank's internal anti-money laundering
procedures, and to assist in the development of a revised anti-money
laundering program (a process that reportedly is still ongoing more
than a year later). These representatives also reported that the
administrative committee has begun to recruit a permanent compliance
officer \21\ and that all North Korean-related accounts previously
maintained by the bank have been closed.
---------------------------------------------------------------------------
\19\ The bank met with representatives from the U.S. Government
in November 2005, and February and July 2006. The bank also provided
information in writing through the comment process described in the
Notice of Proposed Rulemaking.
\20\ According to the bank's representations to us, one firm was
retained by the Macau Monetary Authority and one was retained by the
bank under the oversight of the administrative committee.
\21\ We have recently been informed that Banco Delta Asia has
hired a compliance officer.
---------------------------------------------------------------------------
Despite these representations, we continue to have serious concerns
regarding the bank's potential to be used, wittingly or unwittingly,
for illicit purposes. In fact, questions regarding the completeness and
accuracy of the information and records provided by the bank to the
accounting firm retained to help address the bank's weaknesses resulted
in the firm's disclaimer that its reported findings did not constitute
a reliable audit. Our investigation has corroborated these
concerns.\22\ For example, we are aware of multiple North Korean-
related accounts that the bank did not identify to the accounting
[[Page 12734]]
firm and, hence, the accounting firm did not review.
---------------------------------------------------------------------------
\22\ These conclusions were derived in part from classified
sources, but primarily from an independent review by a large
international accounting firm of Banco Delta Asia's activity with
North Korean-related clients and a separate U.S. Government review
of Banco Delta Asia documentation, including that used to conduct
the independent review.
---------------------------------------------------------------------------
In a review of recently obtained data pertaining to Banco Delta
Asia, we verified the bank had grossly inadequate controls in place to
deter or detect money laundering or other illicit activity.\23\ Prior
to the government's appointment of the administrative committee, there
was a systemic lack of due diligence, including:
---------------------------------------------------------------------------
\23\ See supra footnote 22.
---------------------------------------------------------------------------
Failure to take reasonable measures to identify suspicious
activity, suspicious entities, and bulk cash activity inconsistent with
the stated business of the bank's clients;
Failure to obtain or maintain sufficient information
regarding identity verification and the nature of business activities
in customer files;
Failure to adequately control and retain documents
relating to the bank's largest wholesale bulk cash customers;
Failure to consistently follow its own policies and
procedures with respect to multiple business offerings, including
screening for counterfeit currency;
Failure to effectively rate the risk of its customer base;
to monitor, on an ongoing basis, accounts that should have been
designated as high risk; to take corrective action against entities in
which illicit activity was detected;
Failure to update or use sufficient information technology
systems when manual systems proved inadequate;
Failure to regularly update its anti-money laundering
policies with new information or best practices; and
Failure to internally audit the adequacy of the compliance
department at the bank.
In a review of this same data,\24\ we have also verified that the
bank's grossly inadequate due diligence facilitated unusual or
deceptive financial practices by North Korean-related clients. These
practices have included:
---------------------------------------------------------------------------
\24\ See supra footnote 22.
---------------------------------------------------------------------------
Suppressing the identity and location of originators of
transactions and arranging for funds transfers via third parties.
Repeated bank transfers of large, round-figure sums both
to and from accounts held at other banks that appear to have no licit
purpose and may be indicative of layering activity.
The routine use of cash couriers to move large amounts of
currency, usually U.S. dollars, in the absence of any credible
explanation of the origin or purpose for the cash transactions. For
example, records from 2002 show that one North Korean-linked entity
deposited the equivalent of over U.S. $50 million, accounting for more
than half of Banco Delta Asia's bulk cash deposits that year.
Internal book transfers involving the movement of funds
among accounts and accountholders via intra-bank transfers occurring
repeatedly and in large, round-figure sums. This sometimes involved
shifting currencies and significant round-figure transfers between
business and personal accounts.\25\
---------------------------------------------------------------------------
\25\ Inasmuch as Banco Delta Asia was the sole institution
involved in the processing of these transactions, and considering
our concerns regarding the bank's potential complicity involving
illicit activity, the commingling of funds and the rapid movement of
large round-figure amounts via such intra-bank transfers is
particularly suspicious as a means of obscuring the true nature and
source of the funds involved.
---------------------------------------------------------------------------
Moreover, in our review of this same data, we became aware that the
extent to which the bank was historically used for illicit activity
exceeds our original findings and reveals a deliberate effort to
attract and maintain high-risk accounts regardless of their nexus to
illicit activities. A review of recently obtained data pertaining to
Banco Delta Asia's historical activity has established the following:
\26\
---------------------------------------------------------------------------
\26\ See supra footnote 22.
---------------------------------------------------------------------------
Many North Korean-related individuals and companies
banking at Banco Delta Asia had connections to entities involved in
trade in counterfeit U.S. currency, counterfeit cigarettes, and
narcotics, including several front companies suspected of laundering
hundreds of millions of dollars in cash through Banco Delta Asia.\27\
The bank did not conduct due diligence to attempt to verify the source
of the unusually large currency deposits made involving these clients.
---------------------------------------------------------------------------
\27\ This level of activity is significant considering the bank
reported the equivalent of only $390 million in total customer
deposits immediately prior to our Notice of Proposed Rulemaking.
---------------------------------------------------------------------------
Despite widely reported currency counterfeiting concerns,
the bank provided a discount as an incentive to a high-risk North
Korean-related bulk currency depositor to encourage its continued use
of the bank, and continued to accept deposits from that customer even
after it had knowledge that another institution had rejected those
transactions.
These activities, in aggregate, should have raised significant
concerns at the bank. Internal bank documents reveal that in the few
cases where bank employees documented their concerns over the potential
for money laundering activity by entities making commercially
unjustifiable large cash deposits or engaged in other suspicious
behavior, senior management of the bank consistently failed to take any
action when appropriate explanations for the activity were not
provided. In fact, senior management in certain cases would verbally
vouch for the customers in question without any documentary evidence
and indicate that the transactions should continue to be processed.\28\
---------------------------------------------------------------------------
\28\ See supra footnote 22.
---------------------------------------------------------------------------
Banco Delta Asia provided North Korean-related entities with
tailored services that allowed those entities to engage in
extraordinarily deceptive financial activity. For example, two related
business accountholders, which accounted for more than 30 percent of
the bank's bulk cash turnover over a multiple year period, provided
intermediary financial services on behalf of North Korean banks at
least in part to disguise the origins of the transactions. Bank
documents reveal that Banco Delta Asia had knowledge of the
relationships between the banks and these entities, willingly obscured
the identity of the transacting institutions, and agreed to continue
treating the accounts as business accounts, not banking accounts,
despite activity consistent with banking.
Even after our finding of primary money laundering concern, the
bank's management dismissed concerns presented by independent reviewers
of the bank's shortcomings involving customer identification and
ongoing due diligence obligations. For example, bank managers asserted
that Banco Delta Asia's North Korean client banks were low-risk based
on the effective supervision by the Central Bank of North Korea and the
unlikelihood that North Korean government-owned entities would be used
for illicit purposes. As publicly available information clearly
contradicted these assumptions, the bank management's claims seem
overly permissive and fail to meet even the most basic due diligence
standards. In fact, the Macau Monetary Authority informed the bank in
2004 in writing that North Korea lacked transparency in supervisory
standards. It recommended that the bank either strengthen its due
diligence procedures and establish a detailed procedure manual for
dealing with North Korean banks, or scale down or terminate this type
of risky business. Nevertheless, the management of the bank continued
to provide uninterrupted financial services to such customers with
minimal or no due diligence. In fact, in the face of concerns expressed
by the Macau Monetary Authority and the U.S. Department of the
Treasury, a senior bank official
[[Page 12735]]
assured the public that Banco Delta Asia's cessation of business with
North Korean accountholders was only a temporary measure to resolve the
bank's dispute with FinCEN.\29\
---------------------------------------------------------------------------
\29\ See https://www.forbes.com/finance/feeds/afx/2005/09/18/
afx2230247.html ``Macau Banco Delta Asia halts NKorea business,
denies money laundering-report.'' (19 September 2005)
---------------------------------------------------------------------------
Representatives of the bank maintain that the administrative
committee has taken or is in the process of taking some measures to
address the concerns raised in our finding and Notice of Proposed
Rulemaking, including terminating all North Korean-related accounts,
conducting a risk assessment of all accountholders, drafting a revised
anti-money laundering program, and upgrading its information technology
systems.\30\ In one of its comments submitted in response to the Notice
of Proposed Rulemaking, the bank stated that these remedial measures
and Macau's new regulatory controls would prevent the bank from
returning to its former business practices.\31\ However, the totality
of the information presented above casts significant doubt upon the
commitment of the bank, apart from the administrative committee, to
resolve effectively the ongoing money laundering vulnerabilities at the
bank. The administrative committee's termination of North Korean-
related customer relationships does not address effectively the bank's
historical proclivity to seek out such customers or the potential of
the bank to return to such practices. In fact, historical attempts by
bank employees to follow the limited procedures or best practices that
were in place at that time were quashed at the highest levels of the
bank.
---------------------------------------------------------------------------
\30\ The bank has indicated that it has not yet fully
implemented new policies, procedures, and controls for money
laundering prevention.
\31\ Additional comments submitted on behalf of the bank are
discussed in Section IV of this Final Rule.
---------------------------------------------------------------------------
Despite any remedial measures and regulatory changes, this
historical pattern of disregard by the bank's management and primary
shareholder regarding both the systemic due diligence failures at the
bank and the potential use of the bank for illicit purposes, and the
resultant likelihood of recidivism upon the dissolution of the
administrative committee, leave us concerned about the potential for
the bank to continue to be used for money laundering and other illicit
purposes. Accordingly, we find that Banco Delta Asia continues to be a
financial institution of primary money laundering concern.
III. Imposition of the Fifth Special Measure
Consistent with the finding that Banco Delta Asia is a financial
institution of primary money laundering concern, and based upon
additional consultations with required Federal agencies and parties, as
well as consideration of additional relevant factors, including the
comments received on the proposed rule, we are imposing the fifth
special measure authorized by 31 U.S.C. 5318A(b)(5) with regard to
Banco Delta Asia.\32\ That special measure authorizes the prohibition
of, or the imposition of conditions upon, the opening or maintaining of
correspondent or payable-through accounts \33\ by any domestic
financial institution or domestic financial agency for, or on behalf
of, a foreign financial institution found to be of primary money
laundering concern. A discussion of the additional section 311 factors
relevant to the imposition of this particular special measure follows.
---------------------------------------------------------------------------
\32\ See supra footnote 3.
\33\ For purposes of the rule, a correspondent account is
defined as an account established to receive deposits from, or make
payments or other disbursements on behalf of, a foreign bank, or
handle other financial transactions related to the foreign bank (see
31 U.S.C. 5318A(e)(1)(B), as implemented in 31 CFR
103.175(d)(1)(ii)).
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A. Similar Actions Have Not Been or May Not Be Taken by Other Nations
or Multilateral Groups Against Banco Delta Asia
At this time, other countries and multilateral groups have not
taken any action against Banco Delta Asia similar to the imposition of
the fifth special measure pursuant to section 311, which prohibits U.S.
financial institutions and financial agencies from opening or
maintaining a correspondent account in the United States for or on
behalf of Banco Delta Asia and requires those institutions and agencies
to guard against indirect use by Banco Delta Asia of the foreign
correspondent accounts they maintain. After the issuance of the Notice
of Proposed Rulemaking, however, the government of Macau did indicate
its concern with illicit money flows into Banco Delta Asia by freezing
accounts believed to be associated with illicit North Korean-related
activity.
B. The Imposition of the Fifth Special Measure Would Not 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 fifth special measure imposed by this rule prohibits covered
financial institutions from opening or maintaining correspondent
accounts in the United States for, or on behalf of, Banco Delta Asia.
As a corollary to this measure, covered financial institutions also are
required to take reasonable steps to apply due diligence to all of
their correspondent accounts to ensure that no such account is being
used indirectly to provide services to Banco Delta Asia. The burden
associated with these requirements is not expected to be significant,
given that we are not aware of any covered financial institution that
maintains a correspondent account directly for Banco Delta Asia.
Moreover, there is a minimal burden involved in transmitting a one-time
notice to all correspondent accountholders concerning the prohibition
on indirectly providing services to Banco Delta Asia. In addition,
covered financial institutions generally apply some degree of due
diligence in screening their transactions and accounts, often through
the use of commercially available software, such as that used for
compliance with the economic sanctions programs administered by the
Department of the Treasury's Office of Foreign Assets Control. As
explained in more detail in the section-by-section analysis below,
financial institutions should be able to adapt their existing screening
procedures to comply with this special measure. Thus, the due diligence
that is required by this rule is not expected to impose a significant
additional burden upon covered financial institutions.
C. The Action or Timing of the Action Will Not Have a Significant
Adverse Systemic Impact on the International Payment, Clearance, and
Settlement System, or on Legitimate Business Activities Involving Banco
Delta Asia
Banco Delta Asia is not a major participant in the international
payment system and is not relied upon by the international banking
community for clearance or settlement services. Thus, the imposition of
the fifth special measure against Banco Delta Asia will not have a
significant adverse systemic impact on the international payment,
clearance, and settlement system. In addition, as the bank historically
sought out high-risk customers that represented
[[Page 12736]]
entire business lines and a material amount of its overall business, we
believe that any legitimate use of Banco Delta Asia is significantly
outweighed by its potential and reported use to promote or facilitate
money laundering. Moreover, in light of the existence of multiple
alternative banks in Macau, we believe that imposition of the fifth
special measure against Banco Delta Asia will not impose an undue
burden on legitimate business activities in Macau.
D. The Action Enhances U.S. National Security and Complements U.S.
Foreign Policy
The exclusion from the U.S. financial system of banks such as Banco
Delta Asia that serve as conduits for significant money laundering
activity and that participate in other financial crime enhances U.S.
national security by making it more difficult for criminals to access
the substantial resources and services of the U.S. financial system. In
addition, the imposition of the fifth special measure against Banco
Delta Asia complements the U.S. government's overall foreign policy
strategy of making entry into the U.S. financial system more difficult
for high-risk financial institutions located in jurisdictions with weak
or poorly implemented and enforced anti-money laundering controls.\34\
---------------------------------------------------------------------------
\34\ As previously mentioned, although Macau's legislative and
regulatory developments regarding its overall anti-money laundering
and counter-financing of terrorism regime are encouraging, Macau
will need to more fully demonstrate implementation to continue
improving its weaknesses.
---------------------------------------------------------------------------
IV. Notice of Proposed Rulemaking and Comments
We received two comment letters on the Notice of Proposed
Rulemaking within the timeframe established in the Notice.\35\
Additional comments were submitted on behalf of Banco Delta Asia
subsequent to that timeframe but were considered at the bank's request
for purposes of this rulemaking. Additionally, we met with
representatives of Banco Delta Asia on three separate occasions after
the close of the comment period. We did not receive any comments
addressing our description in the Notice of Proposed Rulemaking of the
illicit activities of North Korea.\36\
---------------------------------------------------------------------------
\35\ Comments were to be submitted by October 20, 2005. See 70
FR 55217 (September 20, 2005).
\36\ See 70 FR 55214 (September 20, 2005) at 55215.
---------------------------------------------------------------------------
One comment letter was from an individual at a U.S. university.
This comment suggested that the potential for indirect access by an
entity of primary money laundering concern was not adequately addressed
by the notification provision and requirement to monitor for indirect
access. The commenter did not suggest a viable alternative, and we
believe that the combination of notification and screening provides the
appropriate balance between effectiveness and burden in preventing
Banco Delta Asia from accessing correspondent accounts at covered
financial institutions. This commenter also expressed concern over the
potential difficulty for detecting indirect access by Banco Delta Asia,
considering its multiple branches and subsidiaries and its relationship
to its parent company and its other subsidiaries. The commenter
provided a description of what she considered best practices for
institutions to identify indirect access in light of this perceived
difficulty. As we indicated in the Notice of Proposed Rulemaking, the
scope of the finding of primary money laundering concern, and therefore
the target of the imposition of special measure, is limited only to
Banco Delta Asia and its subsidiaries, not to its parent company or any
of the parent company's other subsidiaries.\37\ Additionally, although
this final rule requires covered financial institutions to take certain
minimum due diligence measures, the methodology or best practices for
implementing those requirements falls outside the scope of this
rulemaking.
---------------------------------------------------------------------------
\37\ See 70 FR 55218, FN 5.
---------------------------------------------------------------------------
All of the remaining comments, both within and outside of the
timeframe designated in the Notice of Proposed Rulemaking, were
submitted on behalf of Banco Delta Asia. The bank requested that FinCEN
revoke the finding of primary money laundering concern and the Notice
of Proposed Rulemaking in light of remedial steps the bank claims that
it, and the government of Macau, had taken or are in the process of
taking to address the concerns we raised. As indicated above, however,
our primary concern regards a pattern of activity by the former and
presumed future senior management and owners of the bank to ignore,
facilitate, or even encourage illicit activity. Consequently, despite
any preliminary steps taken under the oversight of the administrative
committee, we remain concerned about the extent to which the bank still
could be used for illicit purposes.
In its comments, the bank also addressed the statutory criteria we
are required to consider when imposing the special measure to prohibit
covered financial institutions from opening or maintaining
correspondent accounts for Banco Delta Asia. The bank cited the fact,
and we acknowledged in the proposed rule, that no other countries or
jurisdictions had taken similar action to the one we were proposing.
However, after the issuance of the Notice of Proposed Rulemaking
asserting illicit flows of money into Banco Delta Asia involving North
Korean-related entities, the Government of Macau was concerned enough
to freeze some of the funds in those accounts. The bank further
indicated that the jurisdiction of Macau, immediately following the
issuance of the Notice of Proposed Rulemaking, had assumed operational
control of the bank and provided liquidity after roughly one-third of
the bank's total deposits were withdrawn by the bank's depositors. The
bank cited these measures as indicia of Macau's faith in the bank and
suggested that any concerns we may have had about the bank should be
satisfied in light of Macau's oversight of and investment in the future
of the bank. Despite our comments about the jurisdictional developments
in section II.B., above, Macau's imposed oversight of the bank not only
does not negate our original findings but, to the extent such action
indicates a lack of faith in the bank's ability to autonomously address
its significant money laundering vulnerabilities, may be viewed as
supporting our finding of primary money laundering concern.
The bank also cited the lack of confidence in the bank by the
bank's depositors as evidence of a ``significant adverse impact * * *
on legitimate business activities involving [the bank],'' another
statutory criteria we must consider. Although we recognize that certain
customers of Banco Delta Asia will be affected by this rulemaking, the
availability of alternative banking services in Macau will alleviate
the burden on legitimate business activities within that jurisdiction.
Moreover, to the extent that the bank has not sufficiently implemented
remedial measures that address the deficiencies outlined above, we
continue to believe that the impact of the rule upon any legitimate
activities of the bank is significantly outweighed by the potential for
the bank to be used for money laundering or other illicit financial
activity.
Finally, the bank suggested in its comments that imposing the fifth
special measure would be inconsistent with U.S. foreign policy
considerations. We disagree.
Accordingly, the statutory criteria for finding Banco Delta Asia to
be a financial institution of primary money laundering concern and for
imposing
[[Page 12737]]
the fifth special measure have been fully addressed.
V. Section-by-Section Analysis
The final rule prohibits covered financial institutions from
opening or maintaining any correspondent account for, or on behalf of,
Banco Delta Asia. Covered financial institutions are required to apply
due diligence to their correspondent accounts to guard against their
indirect use by Banco Delta Asia. At a minimum, that due diligence must
include two elements. First, a covered financial institution must
notify its correspondent accountholders that the account may not be
used to provide Banco Delta Asia with access to the covered financial
institution. Second, a covered financial institution must take
reasonable steps to identify any indirect use of its correspondent
accounts by Banco Delta Asia, to the extent that such indirect use can
be determined from transactional records maintained by the covered
financial institution in the normal course of business. A covered
financial institution must take a risk-based approach when deciding
what, if any, additional due diligence measures it should adopt to
guard against the indirect use of correspondent accounts by Banco Delta
Asia, based on risk factors such as the type of services offered by,
and geographic locations of, its correspondents.
A. 103.193(a)--Definitions
1. Banco Delta Asia
Section 103.193(a)(1) of this rule defines Banco Delta Asia to
include all branches, offices, and subsidiaries of Banco Delta Asia
operating in Macau or in any jurisdiction. These branches and offices
include, but are not necessarily limited to, the Amaral, Antonio,
Barca, Campo, Ioa Hon, Lisboa, Outubro, and Tap Sac branches in Macau,
the Airport Service Centre, Financial Services Centre, Macao
Administrative Centre, The Bank Centre, and the Tokyo Representative
Office. Banco Delta Asia's subsidiaries include, but are not
necessarily limited to, Delta Asia Credit Ltd. and Delta Asia Insurance
Limited. FinCEN will provide updated information, as it is available;
however, covered financial institutions should take commercially
reasonable measures to determine whether a customer is a branch,
office, or subsidiary of Banco Delta Asia.
2. Correspondent Account
Section 103.193(a)(2) defines the term ``correspondent account'' by
reference to the definition contained in 31 CFR 103.175(d)(1)(ii).
Section 103.175(d)(1)(ii) defines a correspondent account to mean an
account established for a foreign bank to receive deposits from, or
make payments or other disbursements on behalf of the foreign bank, or
to handle other financial transactions related to the foreign bank.
In the case of a depository institution in the United States, this
broad definition of account includes most types of banking
relationships between the depository institution and a foreign bank
that are established to provide regular services, dealings, and other
financial transactions including a demand deposit, savings deposit, or
other transaction or asset account, and a credit account or other
extension of credit.
In the case of securities broker-dealers, futures commission
merchants, introducing brokers in commodities, and investment companies
that are open-end companies (``mutual funds''), we are using the same
definition of ``account'' for purposes of this rule that was
established in the final rule implementing section 312 of the USA
PATRIOT Act.\38\
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\38\ See 31 CFR 103.175(d)(2)(ii)-(iv).
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3. Covered Financial Institution
Section 103.193(a)(3) of the rule defines covered financial
institution to include the following:
An insured bank (as defined in section 3(h) of the Federal
Deposit Insurance Act (12 U.S.C. 1813(h));
A commercial bank;
An agency or branch of a foreign bank in the United
States;
A federally insured credit union;
A savings association;
A corporation acting under section 25A of the Federal
Reserve Act (12 U.S.C. 611 et seq.);
A trust bank or trust company that is federally regulated
and is subject to an anti-money laundering program requirement;
A broker or dealer in securities registered, or required
to be registered, with the U.S. Securities and Exchange Commission
under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.),
except persons who register pursuant to section 15(b)(11) of the
Securities Exchange Act of 1934;
A futures commission merchant or an introducing broker
registered, or required to be registered, with the Commodity Futures
Trading Commission under the Commodity Exchange Act (7 U.S.C. 1 et
seq.), except persons who register pursuant to section 4(f)(a)(2) of
the Commodity Exchange Act; and
A mutual fund, which means an investment company (as
defined in section 3(a)(1) of the Investment Company Act of 1940
(``Investment Company Act'') (15 U.S.C. 80a-3(a)(1))) that is an open-
end company (as defined in section 5(a)(1) of the Investment Company
Act (15 U.S.C. 80a-5(a)(1))) and that is registered, or is required to
register, with the U.S. Securities and Exchange Commission pursuant to
the Investment Company Act.
In the Notice of Proposed Rulemaking, we defined ``covered financial
institution'' by reference to 31 CFR 103.175(f)(2), the operative
definition of that term for purposes of the rules implementing sections
313 and 319 of the USA PATRIOT Act, and we also included in the
definition futures commission merchants, introducing brokers, and
mutual funds. The definition of ``covered financial institution'' we
are adopting for purposes of this final rule is substantially the same
as originally proposed.
B. 103.193(b)--Requirements for Covered Financial Institutions
For purposes of complying with the final rule's prohibition on the
opening or maintaining in the United States of correspondent accounts
for, or on behalf of, Banco Delta Asia, we expect a covered financial
institution to take such steps that a reasonable and prudent financial
institution would take to protect itself from loan or other fraud or
loss based on misidentification of a person's status.
1. Prohibition of Direct Use of Correspondent Accounts
Section 103.193(b)(1) of the rule prohibits all covered financial
institutions from opening or maintaining a correspondent account in the
United States for, or on behalf of, Banco Delta Asia. The prohibition
requires all covered financial institutions to review their account
records to ensure that they maintain no accounts directly for, or on
behalf of, Banco Delta Asia.
2. Due Diligence Upon Correspondent Accounts To Prohibit Indirect Use
As a corollary to the prohibition on the opening or maintaining of
correspondent accounts directly for Banco Delta Asia, section
103.193(b)(2) requires a covered financial institution to apply due
diligence to its correspondent accounts \39\ that is
[[Page 12738]]
reasonably designed to guard against their indirect use by Banco Delta
Asia. At a minimum, that due diligence must include notifying
correspondent accountholders that correspondent accounts may not be
used to provide Banco Delta Asia with access to the covered financial
institution. For example, a covered financial institution may satisfy
this requirement by transmitting the following notice to all of its
correspondent accountholders:
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\39\ Again, for purposes of the final rule, a correspondent
account is defined as an account established by a covered financial
institution for a foreign bank to receive deposits from, or to make
payments or other disbursements on behalf of, a foreign bank, or to
handle other financial transactions related to the foreign bank. For
purposes of this definition, the term account means any formal
banking or business relationship established to provide regular
services, dealings, and other financial transactions. See 31 CFR
103.175(d)(2).
Notice: Pursuant to U.S. regulations issued under section 311 of
the USA PATRIOT Act, 31 CFR 103.193, we are prohibited from
establishing, maintaining, administering or managing a correspondent
account for, or on behalf of, Banco Delta Asia or any of its
subsidiaries (including, but not limited to, Delta Asia Credit
Limited, and Delta Asia Insurance Limited). The regulations also
require us to notify you that you may not provide Banco Delta Asia
or any of its subsidiaries with access to the correspondent account
you hold at our financial institution. If we become aware that Banco
Delta Asia or any of its subsidiaries is indirectly using the
correspondent account you hold at our financial institution, we will
be required to take appropriate steps to prevent such access,
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including, where necessary, terminating your account.
The purpose of the notice requirement is to help ensure that Banco
Delta Asia is denied access to the U.S. financial system, as well as to
increase awareness within the international financial community of the
risks and deficiencies of Banco Delta Asia. However, we do not require
or expect a covered financial institution to obtain a certification
from its correspondent accountholders that indirect access will not be
provided in order to comply with this notice requirement. Instead,
methods of compliance with the notice requirement could include, for
example, transmitting a one-time notice by mail, fax, or e-mail to a
covered financial institution's correspondent accountholders, informing
those accountholders that their correspondent accounts may not be used
to provide Banco Delta Asia with indirect access to the covered
financial institution, or including such information in the next
regularly occurring transmittal from the covered financial institution
to its correspondent accountholders.
This final rule also requires a covered financial institution to
take reasonable steps to identify any indirect use of its correspondent
accounts by Banco Delta Asia, to the extent that such indirect use can
be determined from transactional records maintained by the covered
financial institution in the normal course of business. For example, a
covered financial institution is expected to apply an appropriate
screening mechanism to be able to identify a funds transfer order that,
on its face, lists Banco Delta Asia as the originator's or
beneficiary's financial institution, or otherwise references Banco
Delta Asia in a manner detectable under the financial institution's
normal business screening procedures. We acknowledge that not all
institutions are capable of screening every field in a funds transfer
message and that the risk-based controls of some institutions may not
necessitate such comprehensive screening. Alternatively, other
institutions may perform more thorough screening as part of their risk-
based determination to perform ``additional due diligence,'' as
described below. An appropriate screening mechanism could be the
mechanism currently used by a covered financial institution to comply
with various legal requirements, such as the commercially available
software used to comply with the sanctions programs administered by the
Office of Foreign Assets Control.
Notifying correspondent accountholders and taking reasonable steps
to identify any indirect use of correspondent accounts by Banco Delta
Asia in the manner discussed above are the minimum due diligence
requirements under this final rule. Beyond these minimum steps, a
covered financial institution should adopt a risk-based approach for
determining what, if any, additional due diligence measures it should
implement to guard against the indirect use of its correspondent
accounts by Banco Delta Asia, based on risk factors such as the type of
services it offers and the geographic locations of its correspondent
accountholders.
A covered financial institution that obtains knowledge that a
correspondent account is being used by a foreig
