The US Treasury Department has finalized a rule against Macau-based Banco Delta Asia SARL (BDA) which bars the bank from entering the US financial system either directly or indirectly.
The Treasury invoked the rule under Section 311 of the USA PATRIOT Act, prohibiting US financial institutions from opening or maintaining correspondent accounts for or on behalf of BDA.
The Treasury's move comes after an investigation which found that BDA "turned a blind eye" to illicit activity, notably by its North Korean-related clients.
"In fact, in exchange for a fee, the bank provided its North Korean clients access to the banking system with little oversight or control," stated Stuart Levey, Treasury's Under Secretary for Terrorism and Financial Intelligence (TFI).
In September 2005, the Treasury's Financial Crimes Enforcement Network (FinCEN) found BDA to be of "primary money laundering concern" under Section 311 and issued its proposed rule, citing the bank's systemic failures to safeguard against money laundering and other financial crimes.
The US Treasury has since been engaged in an ongoing investigation of BDA with the cooperation of Macau's authorities. The information derived from that investigation and the failure of the bank to address adequately the full scope of concerns described in the proposed rule laid the groundwork for Wednesday's action.
The Treasury said that over the past 18 months, the Macanese authorities have taken substantial steps to strengthen Macau's anti-money laundering and counter-terrorist financing regime, notably by passing a new law to strengthen these controls, and by creating the jurisdiction's first-ever Financial Intelligence Unit (FIU). It also emphasized that the regulatory action is targeted at BDA as an institution, not Macau as a jurisdiction.
"We are pleased that Macau has made important progress in strengthening its anti-money laundering controls and safeguarding the Macanese financial system. However, Banco Delta Asia's grossly inadequate due diligence and systematic facilitation of deceptive financial practices have run too deep for the bank to be allowed access to the US financial system," added Levey.
The Treasury said that it would review and if appropriate rescind the rule if the concerns laid out in it are adequately addressed, including if BDA were to be brought under the long-term control of responsible management and ownership.
According to the Treasury, abuses at the bank included the facilitation of financial transactions related to illicit activities, including North Korea's trade in counterfeit US currency, counterfeit cigarettes, and narcotics. In addition, several front companies may have laundered hundreds of millions of dollars in cash through the bank.
The Treasury stated that the final rule highlights the bank's "grossly inadequate due diligence", which facilitated deceptive financial practices by these clients including: 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 have no apparent licit purpose; and routine use of cash couriers to move large amounts of currency, usually US dollars, in the absence of any credible explanation of the origin or purpose for the cash transactions.
Title III of the USA PATRIOT Act amended the anti-money laundering provisions of the Bank Secrecy Act (BSA) to promote the prevention, detection and prosecution of international money laundering and the financing of terrorism. The US Treasury Department has previously issued final rules against a number of foreign financial institutions, including VEF Banka (Latvia), Commercial Bank of Syria (Syria) and Syrian Lebanese Commercial Bank (Lebanon), Myanmar Mayflower Bank (Burma) and Asia Wealth Bank (Burma).
To protect the interests of DAC's depositors, the Hong Kong Monetary Authority (HKMA), after consultation with government Financial Secretary Henry Tang, appointed on 16 September 2005 a Manager to manage the affairs, business and property of DAC. Following the US Treasury’s announcement, the HKMA issued new directions to require the Manager to take steps "commensurate with the latest development", including maintaining adequate liquidity and making other necessary arrangements to protect the interests of DAC's depositors and customers including securities customers. The HKMA said that the appointment of the Manager will be maintained for as long as necessary to protect the interests of the institution’s depositors.
"The HKMA will monitor closely the developments related to BDA and the situation of DAC," said an HKMA spokesperson. “The HKMA will take such supervisory measures as appear necessary from time to time to ensure that the interests of the depositors of DAC remain protected,” he added.
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