Bank Secrecy Act Banco Delta Asia SARL – Subject of Primary Money Laundering Concern

Tuesday,

September 20, 2005

Part II

Department of the

Treasury

31 CFR Part 103

Finding That Banco Delta Asia SARL Is a

Financial Institution of Primary Money

Laundering Concern; Notice

Financial Crimes Enforcement Network;

Amendment to the Bank Secrecy Act

Regulations—Imposition of Special

Measure Against Banco Delta Asia SARL;

Proposed Rule

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

1 Therefore, references to the authority and

findings of the Secretary in this document apply

equally to the Director of the Financial Crimes

Enforcement Network.

2 Available special measures include requiring:

(1) Recordkeeping and reporting of certain financial

transactions; (2) collection of information relating to

beneficial ownership; (3) collection of information

relating to certain payable-through accounts; (4)

collection of information relating to certain

correspondent accounts; and (5) prohibition or

conditions on the opening or maintaining of

correspondent or payable-through accounts. 31

U.S.C. 5318A(b)(1)–(5). For a complete discussion

of the range of possible countermeasures, see 68 FR

18917 (April 17, 2003) (proposing special measures

against Nauru).

3 Section 5318A(a)(4)(A) requires the Secretary to

consult with the Chairman of the Board of

Governors of the Federal Reserve System, any other

appropriate Federal banking agency, the Secretary

of State, the Securities and Exchange Commission

(SEC), the Commodity Futures Trading Commission

(CFTC), the National Credit Union Administration

(NCUA), and, in the sole discretion of the Secretary,

‘‘such other agencies and interested parties as the

Secretary may find to be appropriate.’’ The

consultation process must also include the Attorney

General, if the Secretary is considering prohibiting

or imposing conditions on domestic financial

institutions opening or maintaining correspon

CFTC), the National Credit Union Administration

(NCUA), and, in the sole discretion of the Secretary,

‘‘such other agencies and interested parties as the

Secretary may find to be appropriate.’’ The

consultation process must also include the Attorney

General, if the Secretary is considering prohibiting

or imposing conditions on domestic financial

institutions opening or maintaining correspondent

account relationships with the designated entity.

4 Classified information used in support of a

section 311 finding and measure(s) may be

submitted by Treasury to a reviewing court ex parte

and in camera. See section 376 of the Intelligence

Authorization Act for fiscal year 2004, Pub. L. 108–

177 (amending 31 U.S.C. 5318A by adding new

paragraph (f)).

DEPARTMENT OF THE TREASURY

Finding That Banco Delta Asia SARL Is

a Financial Institution of Primary

Money Laundering Concern

AGENCY: The Financial Crimes

Enforcement Network, Treasury.

ACTION: Notice of finding.

SUMMARY: Pursuant to the authority

contained in 31 U.S.C. 5318A, the

Secretary of the Treasury, through his

delegate, the Director of the Financial

Crimes Enforcement Network, finds that

reasonable grounds exist for concluding

that Banco Delta Asia SARL (Banco

Delta Asia) is a financial institution of

primary money laundering concern.

DATES: The finding made in this notice

is effective as of September 20, 2005.

FOR FUTHER INFORMATION CONTACT:

Regulatory Policy and Programs

Division, the Financial Crimes

Enforcement Network, (800) 949–2732.

SUPPLEMENTARY INFORMATION:

I. Background

A. Statutory Provisions

On October 26, 2001, the President

signed into law the Uniting and

Strengthening America by Providing

Appropriate Tools Required to Intercept

and Obstruct Terrorism Act of 2001 (the

USA PATRIOT Act), Public Law 107–

56. Title III of the USA PATRIOT Act

amends the anti-money laundering

provisions of the Bank Secrecy Act

(BSA), codified at 12 U.S.C. 1829b, 12

U.S.C 1951–1959, and 31 U.S.C

On October 26, 2001, the President

signed into law the Uniting and

Strengthening America by Providing

Appropriate Tools Required to Intercept

and Obstruct Terrorism Act of 2001 (the

USA PATRIOT Act), Public Law 107–

56. Title III of the USA PATRIOT Act

amends the anti-money laundering

provisions of the Bank Secrecy Act

(BSA), codified at 12 U.S.C. 1829b, 12

U.S.C 1951–1959, and 31 U.S.C. 5311–

5314, 5316–5332, to promote the

prevention, detection, and prosecution

of international money laundering and

the financing of terrorism. Regulations

implementing the BSA appear at 31 CFR

part 103.

Section 311 of the USA PATRIOT Act

(‘‘section 311’’) added section 5318A to

the BSA, granting the Secretary of the

Treasury (the ‘‘Secretary’’) the authority,

upon finding that reasonable grounds

exist for concluding that a foreign

jurisdiction, institution, class of

transactions, or type of account is of

‘‘primary money laundering concern,’’

to require domestic financial

institutions and financial agencies to

take certain ‘‘special measures’’ against

the primary money laundering concern.

Section 311 identifies factors for the

Secretary to consider and Federal

agencies to consult before the Secretary

may conclude that a jurisdiction,

institution, class of transaction, or type

of account is of primary money

laundering concern. The statute also

provides similar procedures, i.e., factors

and consultation requirements, for

selecting the specific special measures

to be imposed against the primary

money laundering concern. For

purposes of the finding contained in

this notice, the Secretary has delegated

his authority under section 311 to the

Director of the Financial Crimes

Enforcement Network.1

Taken as a whole, section 311

provides the Secretary with a range of

options that can be adapted to target

specific money laundering and terrorist

financing concerns most effectively

mary

money laundering concern. For

purposes of the finding contained in

this notice, the Secretary has delegated

his authority under section 311 to the

Director of the Financial Crimes

Enforcement Network.1

Taken as a whole, section 311

provides the Secretary with a range of

options that can be adapted to target

specific money laundering and terrorist

financing concerns most effectively.

These options give the Secretary the

authority to bring additional pressure on

those jurisdictions and institutions that

pose money laundering threats. Through

the imposition of various special

measures, the Secretary can gain more

information about the jurisdictions,

institutions, transactions, or accounts of

concern; can more effectively monitor

the respective jurisdictions, institutions,

transactions, or accounts; or can protect

U.S. financial institutions from

involvement with jurisdictions,

institutions, transactions, or accounts

that pose a money laundering concern.

Before making a finding that

reasonable grounds exist for concluding

that a foreign financial institution is of

primary money laundering concern, the

Secretary is required to consult with the

both the Secretary of State and the

Attorney General. The Secretary is also

required by section 311 to consider

‘‘such information as the Secretary

determines to be relevant, including the

following potentially relevant factors’’:

• The extent to which such financial

institution is used to facilitate or

promote money laundering in or

through the jurisdiction;

• The extent to which such financial

institution is used for legitimate

business purposes in the jurisdiction;

and

• The extent to which the finding that

the institution is of primary money

laundering concern is sufficient to

ensure, with respect to transactions

involving the institution operating in

the jurisdiction, that the purposes of the

BSA continue to be fulfilled, and to

guard against international money

laundering and other financial crimes

itimate

business purposes in the jurisdiction;

and

• The extent to which the finding that

the institution is of primary money

laundering concern is sufficient to

ensure, with respect to transactions

involving the institution operating in

the jurisdiction, that the purposes of the

BSA continue to be fulfilled, and to

guard against international money

laundering and other financial crimes.

If the Secretary determines that

reasonable grounds exist for concluding

that a foreign financial institution is of

primary money laundering concern, the

Secretary must determine the

appropriate special measure(s) to

address the specific money laundering

risks. Section 311 provides a range of

special measures that can be imposed

individually, jointly, in any

combination, and in any sequence.2 The

Secretary’s imposition of special

measures requires additional

consultations to be made and factors to

be considered. The statute requires the

Secretary to consult with appropriate

federal agencies and other interested

parties 3 and to consider the following

specific factors:

• Whether similar action has been or

is being taken by other nations or

multilateral groups;

• Whether the imposition of any

particular special measures would

create a significant competitive

disadvantage, including any undue cost

or burden associated with compliance,

for financial institutions organized or

licensed in the United States;

• The extent to which the action or

the timing of the action would have a

significant adverse systemic impact on

the international payment, clearance,

and settlement system, or on legitimate

business activities involving the

particular institution; and

• The effect of the action on the

United States national security and

foreign policy.4

B

ns organized or

licensed in the United States;

• The extent to which the action or

the timing of the action would have a

significant adverse systemic impact on

the international payment, clearance,

and settlement system, or on legitimate

business activities involving the

particular institution; and

• The effect of the action on the

United States national security and

foreign policy.4

B. Banco Delta Asia

Banco Delta Asia, located and

licensed in the Macau Special

Administrative Region, China, is the

commercial banking arm of its parent

company, Delta Asia Group (Holdings)

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

5 The Bankers Almanac (2004). This finding of

primary money laundering concern shall apply

exclusively to Banco Delta Asia and its branches,

offices, and subsidiaries, and not to Delta Asia

Group (Holdings) Ltd., or any of its other

subsidiaries.

6 Banco Delta Asia’s historical name, Banco Hang

Sang, is not to be confused with Hang Seng Bank,

a Hong Kong bank, nor the Hang Seng Index, an

index of certain shares traded on the Hong Kong

Stock Exchange.

7 The Banker’s Almanac (2004).

8 References in this rule to the money laundering

risks in Macau are limited to that jurisdiction, and

not applicable to the entire jurisdiction of China.

9 ‘‘Jurisdictions of primary concern’’ are

jurisdictions that are identified as ‘‘major money

laundering countries,’’ that is, countries ‘‘whose

financial institutions engage in currency

transactions involving significant amounts of

proceeds from international narcotics-trafficking.’’

See, http://www.state.gov/g/inl/rls/nrcrpt/2005/

vol2/html/42388.htm.

10 See International Monetary Fund, Monetary

and Exchange Affairs Department, Macau SAR 2002

http://www.amcm.gov.mo/Press_Release/IMF/

IMF_Macao_Review.pdf

at is, countries ‘‘whose

financial institutions engage in currency

transactions involving significant amounts of

proceeds from international narcotics-trafficking.’’

See, http://www.state.gov/g/inl/rls/nrcrpt/2005/

vol2/html/42388.htm.

10 See International Monetary Fund, Monetary

and Exchange Affairs Department, Macau SAR 2002

http://www.amcm.gov.mo/Press_Release/IMF/

IMF_Macao_Review.pdf.

11 Emergency Response and Research Institute:

‘‘North Korea Government Deeply Involved With

Organized Crime?’’ June 30, 1998; BBC News:

‘‘What is a Superdollar?’’, June 20, 2004;

Washington Post: ‘‘North Korea’s Conduit for

Crime’’, April 25, 1999; Pacific Forum CSIS: ‘‘End

North Korea’s Drug Trade’’, June 16, 2003.

12 Congressional Research Service Report for

Congress: ‘‘Drug Trafficking and North Korea: Issues

for U.S. Policy’’, Updated March 4, 2005.

13 See INCSR 2005 [pg. 335].

14 Congressional Research Service Report for

Congress: ‘‘Drug Trafficking and North Korea: Issues

for U.S. Policy,’’ Updated March 4, 2005.

15 Id.

Ltd. (Delta Asia Group).5 In addition to

commercial banking, Delta Asia Group

engages in investment banking and

insurance activities. Banco Delta Asia

was originally established in 1935 as

Banco Hang Sang,6 and its name

changed to Banco Delta Asia in

December 1993. With approximately

340 employees and a total equity of

approximately $35 million at the close

of 2003, Banco Delta Asia is the fourth

smallest commercial bank in Macau.

Banco Delta Asia operates eight

branches in Macau (including a branch

at a casino) and is served by a

representative office in Japan. In

addition, Banco Delta Asia maintains

correspondent accounts in Europe, Asia,

Australia, Canada, and the United

States, and has two wholly owned

subsidiaries: Delta Asia Credit Ltd., and

Delta Asia Insurance Limited.7

C

mallest commercial bank in Macau.

Banco Delta Asia operates eight

branches in Macau (including a branch

at a casino) and is served by a

representative office in Japan. In

addition, Banco Delta Asia maintains

correspondent accounts in Europe, Asia,

Australia, Canada, and the United

States, and has two wholly owned

subsidiaries: Delta Asia Credit Ltd., and

Delta Asia Insurance Limited.7

C. Macau

Money laundering has been identified

as a significant problem in the Macau

Special Administrative Region, China.8

According to the International Narcotics

Strategy Control Report (INSCR)

published in March 2005 by the U.S.

Department of State, Macau’s lack of

adequate controls and regulatory

oversight of the banking and gaming

industries (many of which are

associated with organized criminal

activity) has led to an environment that

can be exploited by money launderers.

Moreover, the March 2005 INCSR

designates Macau as a ‘‘jurisdiction of

primary concern.’’ 9 The International

Monetary Fund (IMF) conducted a study

in 2002 concluding that, despite its anti-

money laundering legal framework,

Macau was ‘‘materially non-compliant’’

in terms of monitoring and reporting of

suspicious financial transactions.10 Of

special concern is Macau’s lack of cross-

border currency reporting requirements.

In 2003, Macau prepared money

laundering legislation that sought to

incorporate the Financial Action Task

Force’s revised Forty Recommendations

on Money Laundering, and to establish

a Financial Intelligence Unit. Such

legislation has not been adopted and the

Financial Intelligence Unit has not been

established. As noted in a 2004 IMF

study, significant vulnerabilities remain

in Macau, although it has made progress

in its anti-money laundering regime in

the past several years, including the

establishment of a Fraud Investigation

Section to examine suspicious

transactions reports filed by financial

institutions

ion has not been adopted and the

Financial Intelligence Unit has not been

established. As noted in a 2004 IMF

study, significant vulnerabilities remain

in Macau, although it has made progress

in its anti-money laundering regime in

the past several years, including the

establishment of a Fraud Investigation

Section to examine suspicious

transactions reports filed by financial

institutions.

Government agencies and front

companies of the Democratic People’s

Republic of Korea (DPRK or North

Korea) that are engaged in illicit

activities use Macau as a base of

operations for money laundering and

other illegal activities. For example,

banks in Macau have allowed these

organizations to launder counterfeit

currency and the proceeds from

government-sponsored illegal drug

transactions.

D. North Korea

The involvement of North Korean

government agencies and front

companies in a wide variety of illegal

activities, including drug trafficking and

counterfeiting of goods and currency,

has been widely reported.11 Earnings

from criminal activity, by their

clandestine nature, are difficult to

quantify, but studies estimate that

proceeds from these activities amount to

roughly $500 million annually.12

Customs and police officials of many

countries have regularly apprehended

North Korean diplomats or quasi-official

representatives of state trading

companies trying to smuggle narcotics.

For example, in December 2004,

Turkish officials arrested two North

Korean diplomats in Turkey in

possession of illegal drugs valued at $7

million

e activities amount to

roughly $500 million annually.12

Customs and police officials of many

countries have regularly apprehended

North Korean diplomats or quasi-official

representatives of state trading

companies trying to smuggle narcotics.

For example, in December 2004,

Turkish officials arrested two North

Korean diplomats in Turkey in

possession of illegal drugs valued at $7

million. Earlier that year, Egyptian

authorities expelled two other North

Korean diplomats who attempted to

deliver a shipment of controlled

substances valued at $150,000 in

Egypt.13 In fact, since 1990, North Korea

has been positively linked to nearly 50

drug seizures in 20 different countries,

a significant number of which involved

the arrest or detention of North Korean

diplomats or officials.14 Proceeds from

narcotics trafficking may amount to

between $100 million and $200 million

annually.15

During the past three decades, there

also have been many incidents and

arrests involving North Korean officials

for distributing supernotes. Since first

detected, the United States has taken

possession of more than $45 million of

these highly deceptive counterfeit notes.

Substantial evidence exists that North

Korean governmental entities and

officials launder the proceeds of

narcotics trafficking, counterfeit

activities, and other illegal activities

through a network of front companies

that use financial institutions in Macau

for their operations.

II. Analysis of Factors

Based upon a review and analysis of

relevant information, consultations with

relevant Federal agencies and

departments, and after consideration of

the factors enumerated in section 311,

the Secretary has determined that

reasonable grounds exist for concluding

that Banco Delta Asia is a financial

institution of primary money laundering

concern. A discussion of the section 311

factors relevant to this finding follows:

1

of

relevant information, consultations with

relevant Federal agencies and

departments, and after consideration of

the factors enumerated in section 311,

the Secretary has determined that

reasonable grounds exist for concluding

that Banco Delta Asia is a financial

institution of primary money laundering

concern. A discussion of the section 311

factors relevant to this finding follows:

1. The Extent to Which Banco Delta

Asia Has Been Used To Facilitate or

Promote Money Laundering in or

Through the Jurisdiction

The Secretary has determined, based

upon a variety of sources, that Banco

Delta Asia is used to facilitate or

promote money laundering and other

financial crimes. Banco Delta Asia has

provided financial services for over 20

years to multiple North Korean

government agencies and front

companies that are engaged in illicit

activities, and continues to develop

these relationships. In fact, such

account holders comprise a significant

amount of Banco Delta Asia’s business.

Banco Delta Asia has tailored its

services to the DPRK’s demands. For

example, sources show that the DPRK

pays a fee to Banco Delta Asia for

financial access to the banking system

with little oversight or control. The bank

also handles the bulk of the DPRK’s

precious metal sales, and helps North

Korean agents conduct surreptitious,

multi-million dollar cash deposits and

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the DPRK

pays a fee to Banco Delta Asia for

financial access to the banking system

with little oversight or control. The bank

also handles the bulk of the DPRK’s

precious metal sales, and helps North

Korean agents conduct surreptitious,

multi-million dollar cash deposits and

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

withdrawals. Banco Delta Asia’s

questionable relationship with the

DPRK is further demonstrated by its

maintenance of an uninterrupted

banking relationship with one North

Korean front company despite the fact

that the head of the company was

charged with attempting to deposit large

sums of counterfeit currency into Banco

Delta Asia and was expelled from

Macau. Although this same person later

returned to his previous leadership

position at the front company, services

provided by Banco Delta Asia were not

discontinued.

Banco Delta Asia’s special

relationship with the DPRK has

specifically facilitated the criminal

activities of North Korean government

agencies and front companies. For

example, sources show that senior

officials in Banco Delta Asia are

working with DPRK officials to accept

large deposits of cash, including

counterfeit U.S. currency, and agreeing

to place that currency into circulation.

Additionally, it has been widely

reported that one well-known North

Korean front company that has been a

client of Banco Delta Asia for over a

decade has conducted numerous illegal

activities, including distributing

counterfeit currency and smuggling

counterfeit tobacco products. In

addition, the front company has also

long been suspected of being involved

in international drug trafficking.

Moreover, Banco Delta Asia facilitated

several multi-million dollar wire

transfers connected with alleged

criminal activity on behalf of another

North Korean front company

egal

activities, including distributing

counterfeit currency and smuggling

counterfeit tobacco products. In

addition, the front company has also

long been suspected of being involved

in international drug trafficking.

Moreover, Banco Delta Asia facilitated

several multi-million dollar wire

transfers connected with alleged

criminal activity on behalf of another

North Korean front company.

In addition to facilitating illicit

activities of the DPRK, investigations

have revealed that Banco Delta Asia

serviced a multi-million dollar account

on behalf of a known international drug

trafficker.

2. The Extent to Which Banco Delta

Asia Is Used for Legitimate Business

Purposes in the Jurisdiction

It is difficult to determine the extent

to which Banco Delta Asia is used for

legitimate purposes. Most banking

transactions within Macau are

conducted by the jurisdiction’s largest

banks, while Banco Delta Asia ranks as

one of the smallest in Macau. Although

Banco Delta Asia likely engages in some

legitimate activity, the Secretary

believes that any legitimate use of Banco

Delta Asia is significantly outweighed

by its use to promote or facilitate money

laundering and other financial crimes.

3. The Extent to Which Such Action Is

Sufficient To Ensure, With Respect to

Transactions Involving Banco Delta

Asia, That the Purposes of the BSA

Continue To Be Fulfilled, and To Guard

Against International Money

Laundering and Other Financial Crimes

As detailed above, the Secretary has

reasonable grounds to conclude that

Banco Delta Asia is being used to

promote or facilitate international

money laundering, and is therefore an

institution of primary money laundering

concern. Currently, there are no

protective measures that specifically

target Banco Delta Asia

o Guard

Against International Money

Laundering and Other Financial Crimes

As detailed above, the Secretary has

reasonable grounds to conclude that

Banco Delta Asia is being used to

promote or facilitate international

money laundering, and is therefore an

institution of primary money laundering

concern. Currently, there are no

protective measures that specifically

target Banco Delta Asia. Thus, finding

Banco Delta Asia to be a financial

institution of primary money laundering

concern, which would allow

consideration by the Secretary of special

measures to be imposed on the

institution under section 311, is a

necessary first step to prevent Banco

Delta Asia from facilitating money

laundering or other financial crime

through the U.S. financial system. The

finding of primary money laundering

concern will bring criminal conduct

occurring at or through Banco Delta

Asia to the attention of the international

financial community and, it is hoped,

further limit the bank’s ability to be

used for money laundering or for other

criminal purposes.

III. Finding

Based on the foregoing factors, the

Secretary, acting through the Director of

the Financial Crimes Enforcement

Network, hereby finds that Banco Delta

Asia is a financial institution of primary

money laundering concern.

Dated: September 12, 2005.

William F. Baity,

Deputy Director, Financial Crimes

Enforcement Network.

[FR Doc. 05–18660 Filed 9–19–05; 8:45 am]

BILLING CODE 4810–02–P

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