[Federal Register Volume 72, Number 52 (Monday, March 19, 2007)]
[Rules and Regulations]
[Pages 12730-12740]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-1313]


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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.

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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\
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    \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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    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:''
    <bullet> The extent to which such financial institution is used to 
facilitate or promote money laundering in or through the jurisdiction;
    <bullet> The extent to which such financial institution is used for 
legitimate business purposes in the jurisdiction; and
    <bullet> 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:
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    \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).
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    <bullet> Whether similar action has been or is being taken by other 
nations or multilateral groups;
    <bullet> 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;
    <bullet> 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
    <bullet> The effect of the action on U.S. national security and 
foreign policy.\5\
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    \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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    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.
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    \10\ See 70 FR 55214 (Finding) (Sept. 20, 2005); 70 FR 55217 
(Notice of Proposed Rulemaking) (Sept. 20, 2005).
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    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.
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    \11\ Id.
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    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.
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    \12\ See, e.g.: http://www.fas.org/irp/threat/pub45270index.html 
(International Crime Threat Assessment, 2000) http://archives.cnn.com/1999/ASIANOW/east/macau/stories/macau.north.korea/index.html (1999); http://www.asiapacificms.com/articles/north_korea_banking/ (2003); http://www.gluckman.com/MacauHo.html (1997); 
http://www.asiaweek.com/asiaweek/98/1030/nat7.html (1999); http://archives.cnn.com/1999/ASIANOW/east/macau/profiles/edmond.ho/ (1999); 
http://www.asianpacificpost.com/portal2/pageView.html?id=402881910674ebab010674f4ca74141f; etc.
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    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.''
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    \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.
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    \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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    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.
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    \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.
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    \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.
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    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.
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    \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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    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:
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    \23\ See supra footnote 22.
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    <bullet> 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;
    <bullet> Failure to obtain or maintain sufficient information 
regarding identity verification and the nature of business activities 
in customer files;
    <bullet> Failure to adequately control and retain documents 
relating to the bank's largest wholesale bulk cash customers;
    <bullet> Failure to consistently follow its own policies and 
procedures with respect to multiple business offerings, including 
screening for counterfeit currency;
    <bullet> 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;
    <bullet> Failure to update or use sufficient information technology 
systems when manual systems proved inadequate;
    <bullet> Failure to regularly update its anti-money laundering 
policies with new information or best practices; and
    <bullet> 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:
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    \24\ See supra footnote 22.
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    <bullet> Suppressing the identity and location of originators of 
transactions and arranging for funds transfers via third parties.
    <bullet> 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.
    <bullet> 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.
    <bullet> 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\
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    \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.
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    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\
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    \26\ See supra footnote 22.
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    <bullet> 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.
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    \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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    <bullet> 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\
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    \28\ See supra footnote 22.
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    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\
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    \29\ See http://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)
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    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)).
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \38\ See 31 CFR 103.175(d)(2)(ii)-(iv).
---------------------------------------------------------------------------

3. Covered Financial Institution
    Section 103.193(a)(3) of the rule defines covered financial 
institution to include the following:
    <bullet> An insured bank (as defined in section 3(h) of the Federal 
Deposit Insurance Act (12 U.S.C. 1813(h));
    <bullet> A commercial bank;
    <bullet> An agency or branch of a foreign bank in the United 
States;
    <bullet> A federally insured credit union;
    <bullet> A savings association;
    <bullet> A corporation acting under section 25A of the Federal 
Reserve Act (12 U.S.C. 611 et seq.);
    <bullet> A trust bank or trust company that is federally regulated 
and is subject to an anti-money laundering program requirement;
    <bullet> 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;
    <bullet> 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
    <bullet> 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:
---------------------------------------------------------------------------

    \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, 
---------------------------------------------------------------------------
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 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 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

[[Page 12739]]

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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 <a href="/cdn-cgi/l/email-protection#a9e8c5ccd1c8c7cdccdbf6fd87f6e1dcc7dde9c6c4cb87ccc6d987cec6df"><span class="__cf_email__" data-cfemail="1b5a777e637a757f7e69444f3544536e756f5b747679357e746b357c746d">[email protected]</span></a>), 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 <a href="/cdn-cgi/l/email-protection#cfbdaaa8aca0a2a2aaa1bbbc8fa9a6a1acaaa1e1bbbdaaaebce1a8a0b9"><span class="__cf_email__" data-cfemail="6b190e0c080406060e051f182b0d0205080e05451f190e0a18450c041d">[email protected]</span></a> 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 
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, Counter-terrorism, and Foreign banking.

Authority and Issuance

0
For the reasons set forth in the preamble, Part 103 of title 31 of the 
Code of Federal Regulations is amended as follows:

PART 103--FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND 
FINANCIAL TRANSACTIONS

0
1. The authority citation for part 103 continues to read as follows:

    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.


0
2. Subpart I of Part 103 is amended by adding new Sec.  103.193 as 
follows:


Sec.  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 Sec.  
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 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.

[[Page 12740]]

    (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.

    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


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