Macau bank did not deal in fake notes: report

PUBLISHED : Wednesday, 18 April, 2007, 12:00am
UPDATED : Wednesday, 18 April, 2007, 12:00am

Banco Delta cleared of key allegation

An independent study into Banco Delta Asia has cleared it of counterfeiting allegations but exposed a host of management and information shortcomings in its dealings with North Korea.

The Ernst & Young report details business worth tens of millions of dollars with North Korean banks and trading companies, including extensive cash trades, term deposits and gold bullion sales through Hong Kong - a key part of Pyongyang's international commerce.

The report was commissioned by Macau government receivers after US Treasury Department warnings in September 2005 that Banco Delta was a 'willing pawn' in three decades of North Korean state crime, including counterfeiting and drug trafficking. The report, completed in December 2005, has never been made public but a copy has been obtained by the South China Morning Post.

While the Treasury accused the bank of laundering money for North Korea, the Ernst & Young review was unable to draw final conclusions on the money laundering allegation.

Banco Delta cited the 123-page report as evidence in its bid this week to overturn a blacklisting by the Treasury that will ban it from any links to the US financial system.

On the issue of counterfeiting - the core part of the Treasury's allegations and cited by the White House to justify the crackdown - Ernst & Young clears Banco Delta.

'From our investigations it is apparent that ... the bank did not introduce counterfeit US currency notes into circulation,' the report says.

It says bank staff and management repeatedly justified large cash transactions and gold shipments from Pyongyang as a fact of life in dealing with North Korea's primitive cash-based economy.

It notes, however, that large cash transactions were mostly cleared by a Hong Kong branch of an international bank with US operations. Other Banco Delta documents show that bank to be HSBC.

While Banco Delta quotes the document in its petition filed on Monday with the Treasury in Washington, the report details problems now being dealt with by the receivers.

Examining 50 accounts linked to North Korean banks and state companies and local Macau firms with links to Pyongyang, it covers the period between January 2002 and the Treasury's September 2005 warning. North Korean-linked business accounted for more than 7 per cent of Banco Delta's revenues in that time.

The report warns of a lack of anti-money-laundering procedures, poor information management and oversight as well as a lack of clear 'know your customer' guidelines. Bank staff and management often had little information on the commercial basis behind large cash transactions or bullion trades or up to date details of the firms and banks they were dealing with, despite management visits to North Korea.

The report also warns of information inadequacies making it 'not possible to draw conclusions with certainty as to the existence of money laundering activities'. The bank continued to accept cash and bullion business despite warnings from the Macau Monetary Authority in September 2004. 'Such transactions are suspicious,' it notes, but does not say what prompted the warnings.

The US Treasury's 2005 announcement sparked a run on the bank, government intervention and the freezing of US$25 million across 50 accounts linked to North Korea.

North Korea has demanded the return of the funds before pushing ahead with agreements struck earlier this year to denuclearise. US and Macau officials said last week that North Korea was free to collect the money.

In Beijing, the Foreign Ministry yesterday expressed hopes that the funds could soon be dealt with, acknowledging that the issue was holding up progress on the nuclear front.