55214 Federal Register / Vol. 70, No. 181 / Tuesday, September 20, 2005 / Notices 

1Therefore, references to the authority and 

findings of the Secretary in this document apply 

equally to the Director of the Financial Crimes 

Enforcement Network. 

2Available 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). 

3Section 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. 

4Classified information used in support of a 

section 311 finding and measure(s) may be 

submitted by Treasury to a reviewing court ex parte 

and in camera. See section 376 of the Intelligence 

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

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

paragraph (f)). 

DEPARTMENT OF THE TREASURY 

Finding That Banco Delta Asia SARL Is 

a Financial Institution of Primary 

Money Laundering Concern 

AGENCY: The Financial Crimes 

Enforcement Network, Treasury. 

ACTION: Notice of finding. 

SUMMARY: Pursuant to the authority 

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

Secretary of the Treasury, through his 

delegate, the Director of the Financial 

Crimes Enforcement Network, finds that 

reasonable grounds exist for concluding 

that Banco Delta Asia SARL (Banco 

Delta Asia) is a financial institution of 

primary money laundering concern. 

DATES: The finding made in this notice 

is effective as of September 20, 2005. 

FOR FUTHER INFORMATION CONTACT: 

Regulatory Policy and Programs 

Division, the Financial Crimes 

Enforcement Network, (800) 949–2732. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Statutory Provisions 

On October 26, 2001, the President 

signed into law the Uniting and 

Strengthening America by Providing 

Appropriate Tools Required to Intercept 

and Obstruct Terrorism Act of 2001 (the 

USA PATRIOT Act), Public Law 107– 

56. Title III of the USA PATRIOT Act 

amends the anti-money laundering 

provisions of the Bank Secrecy Act 

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

U.S.C 1951–1959, and 31 U.S.C. 5311– 

5314, 5316–5332, to promote the 

prevention, detection, and prosecution 

of international money laundering and 

the financing of terrorism. Regulations 

implementing the BSA appear at 31 CFR 

part 103. 

Section 311 of the USA PATRIOT Act 

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

the BSA, granting the Secretary of the 

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

upon finding that reasonable grounds 

exist for concluding that a foreign 

jurisdiction, institution, class of 

transactions, or type of account is of 

‘‘primary money laundering concern,’’ 

to require domestic financial 

institutions and financial agencies to 

take certain ‘‘special measures’’ against 

the primary money laundering concern. 

Section 311 identifies factors for the 

Secretary to consider and Federal 

agencies to consult before the Secretary 

may conclude that a jurisdiction, 

institution, class of transaction, or type 

of account is of primary money 

laundering concern. The statute also 

provides similar procedures, i.e., factors 

and consultation requirements, for 

selecting the specific special measures 

to be imposed against the primary 

money laundering concern. For 

purposes of the finding contained in 

this notice, the Secretary has delegated 

his authority under section 311 to the 

Director of the Financial Crimes 

Enforcement Network.1

Taken as a whole, section 311 

provides the Secretary with a range of 

options that can be adapted to target 

specific money laundering and terrorist 

financing concerns most effectively. 

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: 

• Whether similar action has been or 

is being taken by other nations or 

multilateral groups; 

• Whether the imposition of any 

particular special measures would 

create a significant competitive 

disadvantage, including any undue cost 

or burden associated with compliance, 

for financial institutions organized or 

licensed in the United States; 

• The extent to which the action or 

the timing of the action would have a 

significant adverse systemic impact on 

the international payment, clearance, 

and settlement system, or on legitimate 

business activities involving the 

particular institution; and 

• The effect of the action on the 

United States national security and 

foreign policy.4

B. 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) 

Federal Register / Vol. 70, No. 181 / Tuesday, September 20, 2005 / Notices 55215 

5The 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. 6Banco 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. 7The Banker’s Almanac (2004). 8References 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. 

10See International Monetary Fund, Monetary 

and Exchange Affairs Department, Macau SAR 2002 

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

IMF_Macao_Review.pdf. 

11Emergency 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. 

12Congressional Research Service Report for 

Congress: ‘‘Drug Trafficking and North Korea: Issues 

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

13See INCSR 2005 [pg. 335]. 

14Congressional Research Service Report for 

Congress: ‘‘Drug Trafficking and North Korea: Issues 

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

15 Id. 

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

commercial banking, Delta Asia Group 

engages in investment banking and 

insurance activities. Banco Delta Asia 

was originally established in 1935 as 

Banco Hang Sang,6 and its name 

changed to Banco Delta Asia in 

December 1993. With approximately 

340 employees and a total equity of 

approximately $35 million at the close 

of 2003, Banco Delta Asia is the fourth 

smallest commercial bank in Macau. 

Banco Delta Asia operates eight 

branches in Macau (including a branch 

at a casino) and is served by a 

representative office in Japan. In 

addition, Banco Delta Asia maintains 

correspondent accounts in Europe, Asia, 

Australia, Canada, and the United 

States, and has two wholly owned 

subsidiaries: Delta Asia Credit Ltd., and 

Delta Asia Insurance Limited.7

C. 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 antimoney 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 crossborder 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. 

Government agencies and front 

companies of the Democratic People’s 

Republic of Korea (DPRK or North 

Korea) that are engaged in illicit 

activities use Macau as a base of 

operations for money laundering and 

other illegal activities. For example, 

banks in Macau have allowed these 

organizations to launder counterfeit 

currency and the proceeds from 

government-sponsored illegal drug 

transactions. 

D. North Korea 

The involvement of North Korean 

government agencies and front 

companies in a wide variety of illegal 

activities, including drug trafficking and 

counterfeiting of goods and currency, 

has been widely reported.11 Earnings 

from criminal activity, by their 

clandestine nature, are difficult to 

quantify, but studies estimate that 

proceeds from these activities amount to 

roughly $500 million annually.12

Customs and police officials of many 

countries have regularly apprehended 

North Korean diplomats or quasi-official 

representatives of state trading 

companies trying to smuggle narcotics. 

For example, in December 2004, 

Turkish officials arrested two North 

Korean diplomats in Turkey in 

possession of illegal drugs valued at $7 

million. Earlier that year, Egyptian 

authorities expelled two other North 

Korean diplomats who attempted to 

deliver a shipment of controlled 

substances valued at $150,000 in 

Egypt.13 In fact, since 1990, North Korea 

has been positively linked to nearly 50 

drug seizures in 20 different countries, 

a significant number of which involved 

the arrest or detention of North Korean 

diplomats or officials.14 Proceeds from 

narcotics trafficking may amount to 

between $100 million and $200 million 

annually.15

During the past three decades, there 

also have been many incidents and 

arrests involving North Korean officials 

for distributing supernotes. Since first 

detected, the United States has taken 

possession of more than $45 million of 

these highly deceptive counterfeit notes. 

Substantial evidence exists that North 

Korean governmental entities and 

officials launder the proceeds of 

narcotics trafficking, counterfeit 

activities, and other illegal activities 

through a network of front companies 

that use financial institutions in Macau 

for their operations. 

II. Analysis of Factors 

Based upon a review and analysis of 

relevant information, consultations with 

relevant Federal agencies and 

departments, and after consideration of 

the factors enumerated in section 311, 

the Secretary has determined that 

reasonable grounds exist for concluding 

that Banco Delta Asia is a financial 

institution of primary money laundering 

concern. A discussion of the section 311 

factors relevant to this finding follows: 

1. 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 

55216 Federal Register / Vol. 70, No. 181 / Tuesday, September 20, 2005 / Notices 

withdrawals. Banco Delta Asia’s 

questionable relationship with the 

DPRK is further demonstrated by its 

maintenance of an uninterrupted 

banking relationship with one North 

Korean front company despite the fact 

that the head of the company was 

charged with attempting to deposit large 

sums of counterfeit currency into Banco 

Delta Asia and was expelled from 

Macau. Although this same person later 

returned to his previous leadership 

position at the front company, services 

provided by Banco Delta Asia were not 

discontinued. 

Banco Delta Asia’s special 

relationship with the DPRK has 

specifically facilitated the criminal 

activities of North Korean government 

agencies and front companies. For 

example, sources show that senior 

officials in Banco Delta Asia are 

working with DPRK officials to accept 

large deposits of cash, including 

counterfeit U.S. currency, and agreeing 

to place that currency into circulation. 

Additionally, it has been widely 

reported that one well-known North 

Korean front company that has been a 

client of Banco Delta Asia for over a 

decade has conducted numerous illegal 

activities, including distributing 

counterfeit currency and smuggling 

counterfeit tobacco products. In 

addition, the front company has also 

long been suspected of being involved 

in international drug trafficking. 

Moreover, Banco Delta Asia facilitated 

several multi-million dollar wire 

transfers connected with alleged 

criminal activity on behalf of another 

North Korean front company. 

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