[Federal Register: September 20, 2005 (Volume 70, Number 181)]
[Notices]
[Page 55213-55216]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20se05-139]
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Part II
Department of the Treasury
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31 CFR Part 103
Finding That Banco Delta Asia SARL Is a Financial Institution of
Primary Money Laundering Concern; Notice
Financial Crimes Enforcement Network; Amendment to the Bank Secrecy Act
Regulations--Imposition of Special Measure Against Banco Delta Asia
SARL; Proposed Rule
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DEPARTMENT OF THE TREASURY
Finding That Banco Delta Asia SARL Is a Financial Institution of
Primary Money Laundering Concern
AGENCY: The Financial Crimes Enforcement Network, Treasury.
ACTION: Notice of finding.
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SUMMARY: Pursuant to the authority contained in 31 U.S.C. 5318A, the
Secretary of the Treasury, through his delegate, the Director of the
Financial Crimes Enforcement Network, finds that reasonable grounds
exist for concluding that Banco Delta Asia SARL (Banco Delta Asia) is a
financial institution of primary money laundering concern.
DATES: The finding made in this notice is effective as of September 20,
2005.
FOR FUTHER INFORMATION CONTACT: Regulatory Policy and Programs
Division, the Financial Crimes Enforcement Network, (800) 949-2732.
SUPPLEMENTARY INFORMATION:
I. Background
A. Statutory Provisions
On October 26, 2001, the President signed into law the Uniting and
Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001 (the USA PATRIOT Act),
Public Law 107-56. Title III of the USA PATRIOT Act amends the anti-
money laundering provisions of the Bank Secrecy Act (BSA), codified at
12 U.S.C. 1829b, 12 U.S.C 1951-1959, and 31 U.S.C. 5311-5314, 5316-
5332, to promote the prevention, detection, and prosecution of
international money laundering and the financing of terrorism.
Regulations implementing the BSA appear at 31 CFR part 103.
Section 311 of the USA PATRIOT Act (``section 311'') added section
5318A to the BSA, granting the Secretary of the Treasury (the
``Secretary'') the authority, upon finding that reasonable grounds
exist for concluding that a foreign jurisdiction, institution, class of
transactions, or type of account is of ``primary money laundering
concern,'' to require domestic financial institutions and financial
agencies to take certain ``special measures'' against the primary money
laundering concern. Section 311 identifies factors for the Secretary to
consider and Federal agencies to consult before the Secretary may
conclude that a jurisdiction, institution, class of transaction, or
type of account is of primary money laundering concern. The statute
also provides similar procedures, i.e., factors and consultation
requirements, for selecting the specific special measures to be imposed
against the primary money laundering concern. For purposes of the
finding contained in this notice, the Secretary has delegated his
authority under section 311 to the Director of the Financial Crimes
Enforcement Network.\1\
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\1\ Therefore, references to the authority and findings of the
Secretary in this document apply equally to the Director of the
Financial Crimes Enforcement Network.
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Taken as a whole, section 311 provides the Secretary with a range
of options that can be adapted to target specific money laundering and
terrorist financing concerns most effectively. These options give the
Secretary the authority to bring additional pressure on those
jurisdictions and institutions that pose money laundering threats.
Through the imposition of various special measures, the Secretary can
gain more information about the jurisdictions, institutions,
transactions, or accounts of concern; can more effectively monitor the
respective jurisdictions, institutions, transactions, or accounts; or
can protect U.S. financial institutions from involvement with
jurisdictions, institutions, transactions, or accounts that pose a
money laundering concern.
Before making a finding that reasonable grounds exist for
concluding that a foreign financial institution is of primary money
laundering concern, the Secretary is required to consult with the both
the Secretary of State and the Attorney General. The Secretary is also
required by section 311 to consider ``such information as the Secretary
determines to be relevant, including the following potentially relevant
factors'':
The extent to which such financial institution is used to
facilitate or promote money laundering in or through the jurisdiction;
The extent to which such financial institution is used for
legitimate business purposes in the jurisdiction; and
The extent to which the finding that the institution is of
primary money laundering concern is sufficient to ensure, with respect
to transactions involving the institution operating in the
jurisdiction, that the purposes of the BSA continue to be fulfilled,
and to guard against international money laundering and other financial
crimes.
If the Secretary determines that reasonable grounds exist for
concluding that a foreign financial institution is of primary money
laundering concern, the Secretary must determine the appropriate
special measure(s) to address the specific money laundering risks.
Section 311 provides a range of special measures that can be imposed
individually, jointly, in any combination, and in any sequence.\2\ The
Secretary's imposition of special measures requires additional
consultations to be made and factors to be considered. The statute
requires the Secretary to consult with appropriate federal agencies and
other interested parties \3\ and to consider the following specific
factors:
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\2\ Available special measures include requiring: (1)
Recordkeeping and reporting of certain financial transactions; (2)
collection of information relating to beneficial ownership; (3)
collection of information relating to certain payable-through
accounts; (4) collection of information relating to certain
correspondent accounts; and (5) prohibition or conditions on the
opening or maintaining of correspondent or payable-through accounts.
31 U.S.C. 5318A(b)(1)-(5). For a complete discussion of the range of
possible countermeasures, see 68 FR 18917 (April 17, 2003)
(proposing special measures against Nauru).
\3\ Section 5318A(a)(4)(A) requires the Secretary to consult
with the Chairman of the Board of Governors of the Federal Reserve
System, any other appropriate Federal banking agency, the Secretary
of State, the Securities and Exchange Commission (SEC), the
Commodity Futures Trading Commission (CFTC), the National Credit
Union Administration (NCUA), and, in the sole discretion of the
Secretary, ``such other agencies and interested parties as the
Secretary may find to be appropriate.'' The consultation process
must also include the Attorney General, if the Secretary is
considering prohibiting or imposing conditions on domestic financial
institutions opening or maintaining correspondent account
relationships with the designated entity.
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Whether similar action has been or is being taken by other
nations or multilateral groups;
Whether the imposition of any particular special measures
would create a significant competitive disadvantage, including any
undue cost or burden associated with compliance, for financial
institutions organized or licensed in the United States;
The extent to which the action or the timing of the action
would have a significant adverse systemic impact on the international
payment, clearance, and settlement system, or on legitimate business
activities involving the particular institution; and
The effect of the action on the United States national
security and foreign policy.\4\
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\4\ Classified information used in support of a section 311
finding and measure(s) may be submitted by Treasury to a reviewing
court ex parte and in camera. See section 376 of the Intelligence
Authorization Act for fiscal year 2004, Pub. L. 108-177 (amending 31
U.S.C. 5318A by adding new paragraph (f)).
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B. Banco Delta Asia
Banco Delta Asia, located and licensed in the Macau Special
Administrative Region, China, is the commercial banking arm of its
parent company, Delta Asia Group (Holdings)
[[Page 55215]]
Ltd. (Delta Asia Group).\5\ In addition to commercial banking, Delta
Asia Group engages in investment banking and insurance activities.
Banco Delta Asia was originally established in 1935 as Banco Hang
Sang,\6\ and its name changed to Banco Delta Asia in December 1993.
With approximately 340 employees and a total equity of approximately
$35 million at the close of 2003, Banco Delta Asia is the fourth
smallest commercial bank in Macau. Banco Delta Asia operates eight
branches in Macau (including a branch at a casino) and is served by a
representative office in Japan. In addition, Banco Delta Asia maintains
correspondent accounts in Europe, Asia, Australia, Canada, and the
United States, and has two wholly owned subsidiaries: Delta Asia Credit
Ltd., and Delta Asia Insurance Limited.\7\
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\5\ The Bankers Almanac (2004). This finding of primary money
laundering concern shall apply exclusively to Banco Delta Asia and
its branches, offices, and subsidiaries, and not to Delta Asia Group
(Holdings) Ltd., or any of its other subsidiaries.
\6\ Banco Delta Asia's historical name, Banco Hang Sang, is not
to be confused with Hang Seng Bank, a Hong Kong bank, nor the Hang
Seng Index, an index of certain shares traded on the Hong Kong Stock
Exchange.
\7\ The Banker's Almanac (2004).
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C. Macau
Money laundering has been identified as a significant problem in
the Macau Special Administrative Region, China.\8\ According to the
International Narcotics Strategy Control Report (INSCR) published in
March 2005 by the U.S. Department of State, Macau's lack of adequate
controls and regulatory oversight of the banking and gaming industries
(many of which are associated with organized criminal activity) has led
to an environment that can be exploited by money launderers. Moreover,
the March 2005 INCSR designates Macau as a ``jurisdiction of primary
concern.'' \9\ The International Monetary Fund (IMF) conducted a study
in 2002 concluding that, despite its anti-money laundering legal
framework, Macau was ``materially non-compliant'' in terms of
monitoring and reporting of suspicious financial transactions.\10\ Of
special concern is Macau's lack of cross-border currency reporting
requirements. In 2003, Macau prepared money laundering legislation that
sought to incorporate the Financial Action Task Force's revised Forty
Recommendations on Money Laundering, and to establish a Financial
Intelligence Unit. Such legislation has not been adopted and the
Financial Intelligence Unit has not been established. As noted in a
2004 IMF study, significant vulnerabilities remain in Macau, although
it has made progress in its anti-money laundering regime in the past
several years, including the establishment of a Fraud Investigation
Section to examine suspicious transactions reports filed by financial
institutions.
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\8\ References in this rule to the money laundering risks in
Macau are limited to that jurisdiction, and not applicable to the
entire jurisdiction of China.
\9\ ``Jurisdictions of primary concern'' are jurisdictions that
are identified as ``major money laundering countries,'' that is,
countries ``whose financial institutions engage in currency
transactions involving significant amounts of proceeds from
international narcotics-trafficking.'' See, 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
.
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Government agencies and front companies of the Democratic People's
Republic of Korea (DPRK or North Korea) that are engaged in illicit
activities use Macau as a base of operations for money laundering and
other illegal activities. For example, banks in Macau have allowed
these organizations to launder counterfeit currency and the proceeds
from government-sponsored illegal drug transactions.
D. North Korea
The involvement of North Korean government agencies and front
companies in a wide variety of illegal activities, including drug
trafficking and counterfeiting of goods and currency, has been widely
reported.\11\ Earnings from criminal activity, by their clandestine
nature, are difficult to quantify, but studies estimate that proceeds
from these activities amount to roughly $500 million annually.\12\
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\11\ Emergency Response and Research Institute: ``North Korea
Government Deeply Involved With Organized Crime?'' June 30, 1998;
BBC News: ``What is a Superdollar?'', June 20, 2004; Washington
Post: ``North Korea's Conduit for Crime'', April 25, 1999; Pacific
Forum CSIS: ``End North Korea's Drug Trade'', June 16, 2003.
\12\ Congressional Research Service Report for Congress: ``Drug
Trafficking and North Korea: Issues for U.S. Policy'', Updated March
4, 2005.
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Customs and police officials of many countries have regularly
apprehended North Korean diplomats or quasi-official representatives of
state trading companies trying to smuggle narcotics. For example, in
December 2004, Turkish officials arrested two North Korean diplomats in
Turkey in possession of illegal drugs valued at $7 million. Earlier
that year, Egyptian authorities expelled two other North Korean
diplomats who attempted to deliver a shipment of controlled substances
valued at $150,000 in Egypt.\13\ In fact, since 1990, North Korea has
been positively linked to nearly 50 drug seizures in 20 different
countries, a significant number of which involved the arrest or
detention of North Korean diplomats or officials.\14\ Proceeds from
narcotics trafficking may amount to between $100 million and $200
million annually.\15\
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\13\ See INCSR 2005 [pg. 335].
\14\ Congressional Research Service Report for Congress: ``Drug
Trafficking and North Korea: Issues for U.S. Policy,'' Updated March
4, 2005.
\15\ Id.
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During the past three decades, there also have been many incidents
and arrests involving North Korean officials for distributing
supernotes. Since first detected, the United States has taken
possession of more than $45 million of these highly deceptive
counterfeit notes.
Substantial evidence exists that North Korean governmental entities
and officials launder the proceeds of narcotics trafficking,
counterfeit activities, and other illegal activities through a network
of front companies that use financial institutions in Macau for their
operations.
II. Analysis of Factors
Based upon a review and analysis of relevant information,
consultations with relevant Federal agencies and departments, and after
consideration of the factors enumerated in section 311, the Secretary
has determined that reasonable grounds exist for concluding that Banco
Delta Asia is a financial institution of primary money laundering
concern. A discussion of the section 311 factors relevant to this
finding follows:
1. The Extent to Which Banco Delta Asia Has Been Used To Facilitate or
Promote Money Laundering in or Through the Jurisdiction
The Secretary has determined, based upon a variety of sources, that
Banco Delta Asia is used to facilitate or promote money laundering and
other financial crimes. Banco Delta Asia has provided financial
services for over 20 years to multiple North Korean government agencies
and front companies that are engaged in illicit activities, and
continues to develop these relationships. In fact, such account holders
comprise a significant amount of Banco Delta Asia's business. Banco
Delta Asia has tailored its services to the DPRK's demands. For
example, sources show that the DPRK pays a fee to Banco Delta Asia for
financial access to the banking system with little oversight or
control. The bank also handles the bulk of the DPRK's precious metal
sales, and helps North Korean agents conduct surreptitious, multi-
million dollar cash deposits and
[[Page 55216]]
withdrawals. Banco Delta Asia's questionable relationship with the DPRK
is further demonstrated by its maintenance of an uninterrupted banking
relationship with one North Korean front company despite the fact that
the head of the company was charged with attempting to deposit large
sums of counterfeit currency into Banco Delta Asia and was expelled
from Macau. Although this same person later returned to his previous
leadership position at the front company, services provided by Banco
Delta Asia were not discontinued.
Banco Delta Asia's special relationship with the DPRK has
specifically facilitated the criminal activities of North Korean
government agencies and front companies. For example, sources show that
senior officials in Banco Delta Asia are working with DPRK officials to
accept large deposits of cash, including counterfeit U.S. currency, and
agreeing to place that currency into circulation. Additionally, it has
been widely reported that one well-known North Korean front company
that has been a client of Banco Delta Asia for over a decade has
conducted numerous illegal activities, including distributing
counterfeit currency and smuggling counterfeit tobacco products. In
addition, the front company has also long been suspected of being
involved in international drug trafficking.
Moreover, Banco Delta Asia facilitated several multi-million dollar
wire transfers connected with alleged criminal activity on behalf of
another North Korean front company.
In addition to facilitating illicit activities of the DPRK,
investigations have revealed that Banco Delta Asia serviced a multi-
million dollar account on behalf of a known international drug
trafficker.
2. The Extent to Which Banco Delta Asia Is Used for Legitimate Business
Purposes in the Jurisdiction
It is difficult to determine the extent to which Banco Delta Asia
is used for legitimate purposes. Most banking transactions within Macau
are conducted by the jurisdiction's largest banks, while Banco Delta
Asia ranks as one of the smallest in Macau. Although Banco Delta Asia
likely engages in some legitimate activity, the Secretary believes that
any legitimate use of Banco Delta Asia is significantly outweighed by
its use to promote or facilitate money laundering and other financial
crimes.
3. The Extent to Which Such Action Is Sufficient To Ensure, With
Respect to Transactions Involving Banco Delta Asia, That the Purposes
of the BSA Continue To Be Fulfilled, and To Guard Against International
Money Laundering and Other Financial Crimes
As detailed above, the Secretary has reasonable grounds to conclude
that Banco Delta Asia is being used to promote or facilitate
international money laundering, and is therefore an institution of
primary money laundering concern. Currently, there are no protective
measures that specifically target Banco Delta Asia. Thus, finding Banco
Delta Asia to be a financial institution of primary money laundering
concern, which would allow consideration by the Secretary of special
measures to be imposed on the institution under section 311, is a
necessary first step to prevent Banco Delta Asia from facilitating
money laundering or other financial crime through the U.S. financial
system. The finding of primary money laundering concern will bring
criminal conduct occurring at or through Banco Delta Asia to the
attention of the international financial community and, it is hoped,
further limit the bank's ability to be used for money laundering or for
other criminal purposes.
III. Finding
Based on the foregoing factors, the Secretary, acting through the
Director of the Financial Crimes Enforcement Network, hereby finds that
Banco Delta Asia is a financial institution of primary money laundering
concern.
Dated: September 12, 2005.
William F. Baity,
Deputy Director, Financial Crimes Enforcement Network.
[FR Doc. 05-18660 Filed 9-19-05; 8:45 am]
BILLING CODE 4810-02-P