Bank dealt with weapons proliferator, report notes

PUBLISHED : Thursday, 19 April, 2007, 12:00am
UPDATED : Thursday, 19 April, 2007, 12:00am

Banco Delta's N Korean client was on US Treasury blacklist

Banco Delta Asia kept accounts for a North Korean bank blacklisted by the US Treasury Department for weapons proliferation, according to an independent accounting report.

The report by accountants Ernst & Young examined 50 Macau accounts linked to North Korean state banks and companies, as well as local firms with links to Pyongyang.

It notes that one account was kept open for four months after the North Korean institution was blacklisted as a 'weapons of mass destruction proliferator' on June 29, 2005.

The account was closed in September that year, apparently amid pressure over the Treasury's claims that the family-run Banco Delta was a 'willing pawn' in three decades of North Korean state-sponsored crime in Macau. The matter was reported to the Macau Monetary Authority.

The Treasury's concerns forced Macau authorities to freeze US$25 million in North Korean accounts and later blacklist Banco Delta from any dealings with the US financial system.

The report, obtained by the South China Morning Post, makes it clear that the US$25 million was a fraction of the tens of millions of North Korean funds passing through Banco Delta in term deposits, trade financing and gold. The bank served as its most significant link to the international financial system.

The blacklisting under the US Patriot Act formally takes affect today, despite a Banco Delta petition this week to overturn the ruling.

The Ernst & Young report - ordered by Macau government receivers in the wake of the 2005 Treasury crackdown - was cited this week as supporting evidence by Banco Delta.

While clearing the bank of being involved in North Korean counterfeiting operations during the acceptance of large US cash deposits from Pyongyang, the report draws no firm conclusions on money-laundering allegations. It also repeatedly warns of poor oversight of its North Korean dealings in the study of its activities between 2002 and September 2005.

The account with the North Korean 'weapons proliferator' was used to highlight weak 'know your customer' procedures.

Banco Delta officials told Ernst & Young that they constantly checked the US Treasury's terrorist list but the bank's name was on a different list on its website, the report notes.

The North Korean bank's name has been deleted from the report sent to Washington this week. The report, completed in December 2005, has never been made public.

The blacklisting of Banco Delta this week comes amid frantic diplomacy to get North Korea to stick to its agreement to end its nuclear programme. Pyongyang failed to meet a deadline to shut down its Yongbyon nuclear reactor at the weekend, citing difficulties over the US$25 million.

The US and Macau announced last week that the money was ready to be collected, saying technical difficulties had been resolved.

But North Korea has yet to collect it. Banking and diplomatic sources said North Korea was determined to ensure it could still access the international banking system, despite the Treasury's crackdown.

'The ability of North Korea to have full access to the international banking system is at the core of the issue,' said one source familiar with North Korea's negotiations.

'It wants to make clear that there will be no movement on the reactor until the money is able to move in a proper way, bank to bank. That is important for North Korea.'