BDA Final Rule 2007.3.14

재무부가 현지시간 2007.3.14 발표한 Final Rule.
원 형식은 PDF파일인데, TXT파일로 변환한 문서
관련 웹사이트는 http://www.treas.gov/press/releases/hp315.htm

▲ 글레이저 차관보
 ** 워싱턴시간 3.14 낮
- 다른 금융기관의 북한 계좌도 조사를 확대할 계획이 있나.
= 우리(재무부)는 늘 국제금융권에서의 불법활동을 확인하려고 하며 그것은  일반적인 일이다. 북한에 국한된 것은 아니다.
- `돈세탁우려기관'으로 지정된 뒤 BDA는 `어니스트 앤 영'이라는 회사를 통해 내부감사를 벌였으나 재무부가 제기한 불법활동 증거를 찾아내지 못했다고 주장했는데.
= (대니얼 글레이저 재무부 차관보) 마카오 당국이 `어니스트 앤 영'사를  고용해서 내부감사를 벌였다. 그 감사에선 지난 2005년 9월 주지시켰고, 오늘 다시 발표한 정보를 확인했을 뿐이라고 알고 있다. 회계회사는 범죄수사를 한 게 아니다. 그 회사는 BDA의 내부통제를 조사했으며 우리가 표명해온 우려를 더 심화시키고 입증하는 많은 규정위반을 확인했다.
- 이번 조치가 동결된 북한자금 2천500만달러에는 어떤 영향을 미치게 되나.
= 우리가 행한 조사는 지난 2005년 9월 우리가 제기한 정보를 확인하는  것이었다. 궁극적으로 그 자금을 어떻게 처리할 지는 마카오가 결정할 것이다.
- 마카오 당국에게 북한 자금을 얼마나 돌려주라고 권고할 것인가. 2천500만달러 가운데 합법자금은 얼마인가.
= 우리는 마카오 당국이 다음 조치를 취할 것이라는 생각을 갖고 이번 조사 결과를 마카오 당국에게 제공할 것이다. 마카오 당국은 이번 조사결과에 대해 책임있게 조치할 것으로 생각한다.
- 북한 계좌 동결 해제와 관련, 국무부와 입장차는 없나.
= BDA조치와 관련해 우리는 국무부와 긴밀히 협조해왔다. 국무부와 이견은 없다.
- 이번 결과 발표로 BDA 자금에 대한 조사는 종결되는가. 법무부에서 수사할 계획은 없나.
= (글레이저 차관보) 법무부의 조치나 법무부의 수사에 대해선 법무부에 문의해 달라.
- 만약 BDA가 30일 이내에 장기적으로 책임있는 경영체제나 오너에게 넘어가면 이번 조치는 취소되나.
= (글레이저 차관보) 애국법 311조의 목적은 돈세탁 위험 등 국제금융권의 위기요인을 확인하고 그것들로부터 국제금융권을 보호하는 것이지 처벌에 관한 게 아니다. 그런 조치들이 취해지면 우리는 (이번 조치를) 기꺼이 재검토할 것이다.
- 이번 조치로 북한 자금 가운데 800만~1천200만달러가 동결에서 풀릴 것이란 전망이 있는데.
= 나는 어떤 추정도 할 수 없다. 마카오 당국이 지금까지 해온 것처럼 책임있는 조치를 취할 것으로 믿는다.
- BDA문제 이외에 북미간에 다른 잠정 합의가 있다는 주장도 있는데.
= 북한이 국제금융권에 편입할 것이냐 등의 질문은 북한에 물어볼 문제다. 북한은 미국의 조치가 아니라 불법활동에 관여하기를 원치 않는 금융기관들의 결정에 의해 국제적으로 고립되고 있는 것이다.
북한이 국제금융권에 재편입하는 데 필요한 조치를 취할 지 여부는 지켜볼 일이다. 그들이 불법활동을 중단하느냐 아니냐에 달린 문제다.

- BDA 조사에서 대량살상무기와 관련된 것 등 추가로 적발한 불법행위가 있다고 하는데.
= 우리는 이번 조사에서 북한의 대량살상무기(WMD) 확산에 관련된 기관이 BDA에서 거래를 했고, 기만적인 금융관행에 개입됐다는 것을 적발해냈다.
이번 조사에선 또 전 영역에 걸친 통제시스템의 결여, 기만적인 금융관행 편의제공 등을 찾아냈다.
- 북한의 달러화 위조에 대한 대책은.
= 북한 정부와 연관된 `수퍼노트' 등 미 달러화 위조 문제에 대한 수사는 계속 진행되는 노력이다. 우리는 미 달러화를 위조하려는 사람들에게 책임을 물어 수사하고 사법처리하는 것을 멈추지 않을 것이다.
(글레이저 차관보) 우리는 북한과 양자 금융실무회담을 진행하고 있다. 그 실무 그룹의 목적은 BDA문제만이 아니라 북한의 불법행동과 관련된 광범위한 범위의 우려에 대해 논의하는 것이다.
- 이번 조치가 국제금융권에 던지는 메시지는 뭔가.
= (글레이저 차관보) 금융기관들은 그들의 고객에 대해 알 필요가 있다. 그들은 그들의 고객들이 관여하는 사업이 합법적인 사업목적인지 묻고 검증할 필요가 있다.
고위험 고객과 거래할 때는 그런 불법활동으로부터 스스로를 보호할 수 있는 조치를 취할 필요가 있다는 것이다. 이번 BDA 조치는 진지하게 자신들의 책임을 다하지 못한 금융기권에 대한 본보기다.
- 2005년 9월 이후 BDA에 여전히 계좌를 두고 거래하는 미국은행이 있나.
= BDA에 아직 상호 계좌를 갖고 있는 미국 은행은 없다. 그러나 이번 조치가 발효되면 미국은행들은 BDA가 그들과 간접적으로 거래하는 것도 허용하지 않아야 하는 의무를 갖게 된다.

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BILLING CODE: 4810-02

DEPARTMENT OF THE TREASURY


31 CFR Part 103


RIN 1506-AA83


FinancialCrimes Enforcement Network; Amendment totheBank SecrecyAct
Regulations-Imposition ofSpecialMeasure AgainstBanco DeltaAsia,Including
itssubsidiariesDeltaAsiaCreditLimited and DeltaAsiaInsurance Limited, asa
FinancialInstitutionofPrimary Money Laundering Concern


AGENCY: Financial Crimes Enforcement Network, Department of the Treasury.

ACTION: Final rule.

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 [INSERT DATE 30 DAYS AFTER THE DATE
OF PUBLICATION OF THIS DOCUMENT IN THE FEDERAL REGISTER].
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 Intercept and Obstruct Terrorism
Act of2001, 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 US.C. 1829b, 12 US.C. 1951-1959, and 31 US.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
administertheBank SecrecyAct andits implementingregulationshas been delegatedto
the Director of FinCEN ("the Director").! 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

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 agenci~sto consult before we may find that reasonable grounds exist for
concluding that ajurisdiction, institution, class of transactions, or type of account is of

1Therefore, 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 ofFinCEN 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.

2


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 ttom 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:"

. The extent to which such financial institution is used to facilitate or promote

money laundering in or through the jurisdiction;

3


. Theextenttowhichsuchfinancialinstitutionisusedforlegitimatebusiness
purposes in the jurisdiction; and
. 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.
Ifwe 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 parties4 and to consider the following specific factors:
. Whether similar action has been or is being taken by other nations or multilateral
groups;

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).

4


. 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;

. 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 U.S. national security and foreign policy.5

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 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 commercialbanking arm
of its parent company, Delta Asia Group (Holdings) Ltd. ("Delta Asia Group,,).6 In

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)).
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

5


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,7and 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

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

branches, offices, and subsidiaries, and not to Delta Asia Group (Holdings) Ltd., or any of its other
subsidiaries.
7Banco 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.
s 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.

6


laundering concern. This finding was published in conjunction with a Notice of Proposed
Rulemaking,1Owhich 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.

The Notice of Proposed Rulemaking outlined the various factors supporting the
finding and proposed prohibition. II 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
appearedtobe significantlyoutweighedby itsuse topromoteor facilitatemoney
laundering and other financial crimes.

9 The Bankers' Almanac (2006).
]0See 70 FR 55214 (Finding) (Sept. 20, 2005); 70 FR 55217 (Notice of Proposed Rulemaking) (Sept. 20,
2005).


II Id.

7


Treasury detennined that a finding that Banco Delta Asia was of primary money
laundering concern and prohibiting covered financial institutions fTomopening or
maintaining correspondent accounts for that institution would prevent suspect
accountholders at Banco Delta Asia fTomaccessing 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 AdministrativeRegion 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.

While Macau has worked to develop its anti-money laundering and counterterrorist
financing fTameworksince 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

12See, e.g.: http://www.fas.org/irp/threat/pub45270index.htmI(International Crime Threat Assessment,
2000)
http://archives.cnn.com! 1999/ASIANOW /east/macaulstories/rnacau.north.korea/index.htrnl (1999);
http://www.asiapacificms.conv.articles/north korea banking/ (2003);
http://www .gluckman. com!MacauHo .htrnl (1997); http://www.asiaweek.com!asiaweek/98/1030/nat7.htmI
(1999); http://archives.cnn.com!1999/ASIANOW/east/macaulprofi1es/edmond.ho/ (1999);
http://www.asianpacificpost.com!porta12/page View.htrnl?id=40288191 067 4ebabO 10674f4ca74141 f; etc.


8



Notice of Proposed Rulemaking on Banco Delta Asia to address the reported money
laundering risks and systemic vulnerabilities.13In 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 6/97IM against organized
crime, and makes comprehensive and stand-alonethe crime of money laundering.
Further, it broadens the scope of predicate offences to all serious crimes,14including
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."

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 patacas15for a natural person

13Macao, 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 defmed as crimes carrying a punishment of two to eight years imprisonment.
15The domestic currency of Macau. As of February 2007, the exchange rate for patacas to U.S. dollars was
approximately 8: 1.


9


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: Macao16Monetary Authonty, 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.
The Office of Financial Intelligence ("GIF") was established by Order of the
Chief Executive no.22712006in August 2006 and began operations on November 12,
2006. As provided in the order, this office will function as Macau's financial intelligence
unit ("FlU"), collecting, analyzing and disseminating information on suspicious and large
cash transactions and cooperating as necessary with international FlUs. 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.

16The 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,

10



A separate law governing international mutual legal assistance in criminal matters, Law
no. 6/2006 on Judicial Cooperationin CriminalMatters, was approvedby the Legislative
Assembly ("LA") in July 2006 and became effective November I, 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 c:tfterthe 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 ofthe 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

Macao.

17The administrative committee consists of the Chief Executive Officer of a note-issuing bank in Macau,
the Deputy Director ofthe 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.

11


structure of the bank, notwithstanding the egregious historical practices detailed below.I8
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.

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 retained20to investigate the allegations in the Notice of Proposed Rulemaking, to
assess the weaknesses in the bank's internal anti-money laundering procedures, and to
assistinthe developmentofarevisedanti-moneylaunderingprogram (aprocess 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 officerl
and that all North Korean-related accounts previously maintained by the bank have been

closed.

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,

18Even 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.


19The 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.
20According 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.
21We have recently been informed that Banco Delta Asia has hired a compliance officer.


12


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 concems.22 For example, we are
aware of multiple North Korean-related accounts that the bank did not identify to the
accounting firm and, hence, the accounting firm did not review.

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
otherillicitactivity.23Priortothegovernment's appointmentoftheadministrative
committee, there was a systemic lack of due diligence, including:

. 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;

. Failure to obtain or maintain sufficient information regarding identity
verification and the nature of business activities in customer files;
. Failure to adequately control and retain documents relating to the bank's
largest wholesale bulk cash customers;

. Failure to consistently follow its own policies and procedures with respect
to multiple business offerings, including screening for counterfeit
currency;

22These 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.
23See supra footnote 22.

13


. 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;

. Failure to update or use sufficient information technology systems when
manual systems proved inadequate;
. Failure to regularly update its anti-money laundering policies with new
information or best practices; and
. Failure to internally audit the adequacy of the compliance department at
the bank.

In a review of this same data,24we 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:
Suppressing the identity and location of originators of transactions and
arranging for funds transfers via third parties.
Repeated bank transfers oflarge, 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.
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

24See supra footnote 22.

14


.
equivalent of over U.S. $50 million, accounting for more than half of
Banco Delta Asia's bulk cash deposits that year.
Internal book transfers involving the movement of funds among

accounts and accountholdersvia 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

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

. 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.

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 oflarge 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.
26See supra footnote 22.
27This 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.


15


. 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

Banco Delta Asia provided North Korean-related entities with tailored services
that allowed those entities to engage in extraordinarily deceptive financial activity. For
example,tworelatedbusiness accountholders,which accountedformorethan30percent
of the bank's bulk cash turnover over a multipleyear 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.

28See supra footnote 22.

16


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 ofthe Treasury, a senior bank official 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

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


29See http://www.forbes.comlfinance/feeds/afx/2005/09/18/afx2230247.html "Macau Banco Delta Asia
halts NKorea business, denies money laundering-report." (19 September 2005)

17


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.3l 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

suchpractices. Infact,historicalattemptsbybankemployeestofollowthelimited

procedures or best practices that were in place at that time were quashed at the highest

levels of the bank.

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

30The bank has indicated that it has not yet fully implemented new policies, procedures, and controls for
money laundering prevention. .


18


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
specialmeasureauthorizedby31U.S.c. §5318A(b)(5)withregardtoBancoDelta
Asia.32 That special measure authorizes the prohibition of, or the imposition of
conditions upon, the opening or maintaining of correspondent or payable-through
accounts33by 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.

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.

31Additional comments submitted on behalf of the bank are discussed in Section IV of this Final Rule.
32See supra footnote 3. .
33For 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 USC § 5318A(e)(1)(B), as implemented in 31 CFR§

19



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 expectedtoimposeasignificantadditionalburdenuponcoveredfinancial

institutions.

C. The Action or Timing of the Action Will Not Have a Significant Adverse
Systemic Impact on the International Payment, Clearance, and Settlement
103.175(d)(1)(ii≫.

20


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 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. TheAction Enhances US. National Security and Complements Us. Foreign
Policy
The exclusion fTomthe 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 ofthe 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

contro1s.34

34 As previously mentioned, although Macau's legislative and regulatory developments regarding its overall

21



IV. Notice of Proposed Rulemaking and Comments
We received two comment letters on the Notice of Proposed Rulemaking within
the timeframeestablishedintheNotice.35Additionalcommentswere submittedon
behalf ofBancoDeltaAsia subsequentto thattimeframebutwere consideredatthe
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

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

anti-money laundering and counter-financing of terrorism regime are encouraging, Macau will need to
more fully demonstrate implementation to continue improving its weaknesses.
35Comments were to be submitted by October 20, 2005. See 70 FR 55217 (September 20, 2005).
36See 70 FR 55214 (September 20, 2005) at 55215.


22


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.

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

37See 70 FR 55218, FN 5.
23


Banco Delta Asia involving North Korean-related entities, the Government of Macau was
concerned enough to freeze some of the funds in the 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 ofthe bank. Despite our

comments about the jurisdictional developments in section ILB., 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 significantmoneylaunderingvulnerabilities,maybeviewedas supportingour 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 legitimatebusiness 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.

24


Finally, the bank suggested in its comments that imposing the fifth special
measurewouldbeinconsistentwithU.S.foreignpolicyconsiderations. Wedisagree.

Accordingly, the statutory criteria for finding Banco Delta Asia to be a financial
institution of primary money laundering concern and for imposing 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.

25



A. 103. 193(a) -Definitions
1. BancoDelta Asia
Section lO3.l93(a)(1) ofthis 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, loa 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 lO3.175(d)(1)(ii). Section lO3.175(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.

26


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

3. Covered Financial Institution
Section 103.193(a)(3)of therule definescoveredfinancialinstitutionto include
the following:
. an insured bank (as defined in section 3(h) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(h));

. a commercial bank;

. an agency or branch of a foreign bank in the United States;

. a federally insured credit union;

. a savings association;

. a corporation acting under section 25A of the Federal Reserve Act (12

US.c. 611 et seq.);

.

a trust bank or trust company that is federally regulated and is subject

to an anti-money launderingprogram requirement;

. a broker or dealer in securities registered, or required to be registered,

with the US. Securities and Exchange Commission under the Securities

Exchange Act of 1934 (15 US.C. 78a et seq.), except persons who register

pursuant to section 15(b)(11) ofthe Securities Exchange Act of 1934;

38See 31 CFR 1O3.175(d)(2)(ii)-(iv).

27


. a futures commission merchant or an introducing broker registered, or
required to be registered, with the Commodity Futures Trading
Commission under the CommodityExchange Act (7 US.C. 1 et seq.),
except persons who register pursuant to section 4(f)(a)(2) ofthe
Commodity Exchange Act; and
. a mutual fund, which means an investment company (as defined in
section 3(a)(I) of the Investment Company Act of 1940 ("Investment
Company Act") (15 US.c. 80a-3(a)(I))) that is an open-end company (as
defined in section 5(a)(I) of the Investment Company Act (15 US.C. 80a5(
a)(1))) and that is registered, or is required to register, with the US.
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 ofthat'term for purposes of
the rules implementing sections 313 and 319 ofthe 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

28



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 accounts39that is
reasonably designed to guard against their indirect use by Banco Delta Asia. At a
minimum, that due diligence must include notifying correspondent accountho1dersthat
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

accountho1ders:

Notice: Pursuant to U.S. regulations issued under section 311 ofthe USA
PATRIOTAct, 31CFR 103.193,we areprohibited fromestablishing,
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

39Again, for purposes of the final rule, a correspondent account is defmed 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 defmition, the tenn account means any fonnal banking or business relationship
established to provide regular services, dealings, and other financial transactions. See 31 CFR
103.175{d)(2).

29


subsidiaries with access to the correspondent account you hold at our financial
institution. Ifwe 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, tenninating 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 onetime
notice by mail, fax, or e-mail to a covered financial institution's correspondent
accountholders, infonning those accountholders that their correspondent accounts may
not be :usedto provide Banco Delta Asia with indirect access to the covered financial
institution, or including such infonnation 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 detennined from transactional records maintained by
the covered financial institution in the nonnal 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 nonnal business screening

30



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 ifthe covered financial institution cannot obtain

31



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 lO3.l93(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.4o It therefore
appears that Banco Delta Asia no longer holds correspondent accounts in the United

40Despite 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

32



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 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.

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 15060045.
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

accounts with the bank.

33


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
Regu1atoryAffairs, Office of Management and Budget, Washington, DC 20503 (or by
theInternettoAlexander T. Hunt@omb.eop.gov),withacopytoFinCENbypapermail
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
regcomments@fincen.treas.gov 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

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

34


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

1. The authority citation for part 103 continues to read as follows:
Authority: 12U.S.C.1829band 1951-1959;31U.S.C.5311-5314and5316-5332;
title III, sec. 314 Pub. L. 107-56, 115 Stat. 307.

2. Subpart I of Part 103 is amended by adding new § 103.193 as follows:
§ 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 operatingin anyjurisdiction, includingits subsidiariesDeltaAsia Credit Limited
and Delta Asia Insurance Limited.

(2) Correspondent account has the same meaning as provided in
§103.175( d)(1 )(ii).
(3) Coveredfinancial 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.);
35



(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 US. Securities and Exchange Commission under the Securities Exchange Act of
1934 (15 US.C. 78a et seq.), except persons who register pursuant to section
l5(b)(11)oftheSecuritiesExchangeActof 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 US.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)ofthe InvestmentCompanyActof1940("InvestmentCompanyAct")(15
US.C. 80a-3(a)(1))) that is an open-end company (as defined in section 5(a)(1) of the
Investment Company Act (15 US.C. 80a-5(a)(I))) and that is registered, or is required to
register, with the US. Securities and Exchange Commission pursuant to the Investment
Company Act.
(4) Subsidiary means a company of which more than 50 percent ofthe voting
stock or analogous equity interest is owned by another company.
(b) Requirements for covered financial institutions-(J) 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.
36


(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.
(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

37



(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: / '7' J?1~ ,;I. vU 7

~~~

Acting Director
Financial Crimes Enforcement Network

38 'L...c.