ICAS Special Contribution


Treasury Finalizes Rule Against Banco Delta Asia:
BDA Cut Off From U.S. Financial System

Stuart A. Levey

Institute for Corean-American Studies, Inc.

965 Clover Court, Blue Bell, PA 19422

Email: icas@icasinc.org

Biographic Sketch & Links: Stuart A. Levey

[Editor's note: We gratefully acknowledge the special contribution of this paper
with written permission to ICAS of Stuart A. Levey . sjk]

Treasury Finalizes Rule Against Banco Delta Asia:
BDA Cut Off From U.S. Financial System

Stuart A. Levey
Under Secretary for Terrorism and Financial Intelligence

March 14, 2007 12:33 PM

The Treasury Department today is finalizing the rule under Section 311 of the Patriot Act against Banco Delta Asia SARL (BDA). When it takes effect in 30 days, this action will prohibit all U.S. financial institutions from maintaining correspondent accounts for BDA and prevents BDA from accessing the U.S. financial system, either directly or indirectly. Today's regulatory action is targeted at BDA as an institution, not Macau as a jurisdiction. The Treasury Department is charged with safeguarding the U.S. and international financial systems from abuse, and today's action is an important step in the discharge of that responsibility.

In September 2005, we found Banco Delta Asia to be of `primary money laundering concern.' We outlined the reasons BDA posed such a concern and proposed a rule that, if finalized, would require U.S. financial institutions to terminate all correspondent accounts with BDA. With today's announcement, we are finalizing this rule. We are taking this step because of the systemic failures by Banco Delta Asia to apply appropriate standards and due diligence, as well as the gamut of illicit activities the bank has facilitated on behalf of North Korean-related entities.

Over the past year and a half, under Deputy Assistant Secretary Danny Glaser's capable leadership, we have been engaged in an in-depth, rigorous investigation of Banco Delta Asia with the cooperation of Macanese authorities. The purpose of that investigation was to validate our concerns and determine whether to finalize the rule. The information gleaned from that investigation did in fact confirm the findings we put forth in September 2005. It also revealed additional illicit financial conduct at BDA beyond that spelled out in our designation including activity related to entities facilitating weapons of mass destruction proliferation. Many North Korean account holders at BDA had connections to entities involved in North Korea's 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. As described in the final rule, BDA did not conduct due diligence to attempt to verify the source of these unusually large currency deposits. BDA allowed its North Korean clients to use the bank to facilitate illicit conduct and engage in deceptive financial practices. Indeed, in exchange for a fee, the bank provided those clients access to the banking system with little oversight or control.

The deceptive financial practices and grossly-inadequate controls within BDA have run too deep for us to ignore. BDA's business practices pose a real threat to banks worldwide, and BDA has no business accessing the U.S. financial system. Though the Macanese authorities have made significant strides in strengthening Macau's anti-money laundering regime and managed the bank responsibly since September 2005, the bank will not remain in receivership indefinitely, and BDA's historical deficiencies were therefore central to our decision-making.

Additionally, after we designated BDA, the Macanese authorities moved to freeze upwards of $25 million held in the bank by clients associated with North Korea. We have worked closely with the Macanese on our investigation into BDA, and this week we are transmitting our findings to the Macanese authorities.

The Treasury Department notes with appreciation the strong cooperation of the relevant Macanese authorities with respect to BDA. Macau's positive developments are not limited to actions relating specifically to BDA, such as freezing suspect accounts and responsibly managing the bank. Over the past year, Macau has taken significant steps to reform its anti-money laundering regime, consistent with international standards. Macau has enacted new laws and promulgated new regulations to safeguard itself from financial crime. Moreover, Macau has created its first-ever Financial Intelligence Unit allowing it to share information with counterpart institutions around the world and developed a specialized money laundering unit within its police force. While these systemic developments will need to be tested through rigorous and effective implementation across Macau's entire financial system, they certainly represent important progress and a sign of commitment.

Deputy Assistant Secretary Glaser has met with the North Koreans three times over the past year twice in a forum known as the Bilateral Financial Working Group to discuss the broad and fundamental concerns of the international financial community. Indeed, financial institutions around the world have made independent determinations that doing business with North Korean-related entities presents an unacceptably high risk of being tainted by illicit conduct. North Korea is responsible for its own isolation from the international financial community. Only by halting its illicit conduct can North Korea reverse that isolation and persuade financial institutions and others to reestablish relationships with it. We are prepared to continue the Bilateral Financial Working Group in order to discuss with North Korea the steps it could take if it truly wishes to alleviate its isolation from the international financial community.

This page last updated 3/16/2007 jdb

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