McClatchy did a big feature on the little bank in Macau, Banco Delta Asia.
Stanley Au, the bank’s principal stockholder, is adamant about getting his bank back.
The US Treasury is resisting, not a surprise, since the bank’s “potential for recidivism” under Au’s leadership was the rather lame justification for not giving Banco Delta Asia a clean bill of health after BDA and the Macau Monetary Authority spent 18 months jumping through Treasury’s hoops on improved anti money laundering (AML) practices—the ostensible objective of the Patriot Act Section 311 investigation.
The interesting piece of news is that the Chinese government is apparently backing Mr. Au:
China, which took back control of Macau from Portugal in 1999, has quietly come to Au's defense, resisting U.S. pressure to force him to sell the bank, saying the pressure amounts to interference. Quinones said senior Chinese officials had told him that "if the U.S. Treasury Department begins to intrude into private banking and business, then foreign investors will pack up and leave."
That posture has put Beijing at loggerheads with Treasury Secretary Henry Paulson, who hails the use of financial sanctions to rein in "rogue" nations and terrorists, and encourages other nations to give their finance ministries similar tools.
I think Henry Paulson and Treasury are asking China to save U.S. face by letting them have Stanley Au’s head on a pike, so we can claim that we weren’t wasting the world’s time for a year and a half on BDA.
As I wrote concerning the sorry denouement of the Strategic Dialogue, it’s always dangerous to presume on a Chinese friendship, especially if you admit that you’re in a weak position and want a little help from your buddies in Beijing to look good.
In the BDA matter, beyond the pleasure of beating the dog in the water (exploiting the opposite party’s unfavorable position to gain additional advantage and administer some rough justice), I suspect the Chinese feel that Treasury, instead of asking the them to acquiesce in the sacrifice of their loyal ally, Stanly Au, has to make amends for all the heartburn that its Office of Terrorism and Financial Intelligence inflicted on them.
My take on the Chinese state of mind is that they deeply resented the bullying that OTFI subjected them to in its quixotic effort to cut North Korea off from Chinese banks, typified by the notorious remark by the mastermind of our hardline anti-North Korea policy, David Asher, that the move against BDA was an exercise in intimidation against Chinese banks, “killing the chicken to scare the monkeys”, as he put it.
The message the Chinese received from the U.S. climbdown on the North Korean funds in BDA—arranging the remittance to Russia via the Fed—was that Patriot Act Section 311 investigations against foreign banks are not mere matters of U.S. domestic regulation.
The U.S. government can no longer hide behind the feeble fiction that these investigations are not an exercise in foreign policy, or that the State Department and the President are helpless to intervene in what they pretend are Treasury’s tenacious, apolitical efforts to protect the U.S. financial system against criminal and terrorist contamination.
And the fact that the Six Party Agreement was held hostage to the hardliners’ BDA vendetta for over three months probably convinced the Chinese that putting the Patriot Act Section 311 tiger back in its cage—or beyond the reach of determined bureaucrats willing to unleash a devastating regulatory assault on Chinese banks—is a matter of considerable importance and urgency.
To the Chinese, I believe it’s time for the U.S. government to acknowledge the foreign policy dimension of Patriot Act Section 311 investigations targeting Chinese banks, and make their imposition and resolution the subject of explicit prior bilateral negotiations between Beijing and Washington.
In particular, I think the Chinese have told the State Department that any unilateral Treasury Department actions targeting Chinese banks will be interpreted as--and responded to--as a hostile piece of anti-diplomacy.
And I don’t think Henry Paulson is going to get anywhere with the Chinese until he privately assures them that Patriot Act investigations against Chinese banks--and demands on Chinese regulators that go beyond AML processes and infringe on Chinese sovereignty--are off the table, and confirms the concession publicly by acquiescing to Stanley Au’s return to BDA in some form.
Showing posts with label Stanley Au. Show all posts
Showing posts with label Stanley Au. Show all posts
Friday, July 06, 2007
Wednesday, May 16, 2007
China Matters cited in McClatchy reporting on Banco Delta Asia
From Kevin Hall, Bank owner disputes money-laundering allegations, McClatchy Newspapers Washington Bureau, May 17, 2007:
"In the next couple of years, the Bank was periodically contacted by other U.S. government agents and we cooperated in their inquiries," Au said in a statement to the Treasury first published by China Matters, an Internet blog.
The full texts of the petition from Delta Asia Group and Stanley Au’s supporting personal statement to the U.S. Treasury Department requesting that its rule against Banco Delta Asia be rescinded, and an analysis of the key points involved, can be found in the post Stanley Au Makes His Case for Banco Delta Asia by clicking on this link.
"In the next couple of years, the Bank was periodically contacted by other U.S. government agents and we cooperated in their inquiries," Au said in a statement to the Treasury first published by China Matters, an Internet blog.
The full texts of the petition from Delta Asia Group and Stanley Au’s supporting personal statement to the U.S. Treasury Department requesting that its rule against Banco Delta Asia be rescinded, and an analysis of the key points involved, can be found in the post Stanley Au Makes His Case for Banco Delta Asia by clicking on this link.
Tuesday, May 15, 2007
Stanley Au Makes His Case for Banco Delta Asia
As sharp-eyed reader David pointed out, the owners of Banco Delta Asia group are petitioning the Treasury Department to rescind its final rule against BDA.
In a China Matters exclusive, I’ve obtained and posted the files for Delta Asia Group’s petition and the personal statement of DAG’s largest shareholder, Stanley Au.
Au’s petition, in particular, provides some interesting detail on BDA’s operations, describing it as a small bank with 8 branches and 150 employees, handling deposits for 40,000 local account holders (about 10% of Macau’s population).
According to Au, BDA’s business with North Korea developed out of a relationship with Pyongyang’s Daesong Bank and the Foreign Trade Bank of DPRK, and grew to include handling North Korea’s bullion sales—a business that Midland Bank apparently gave up on because the margins were so low. He states that business with North Korea and North Korea-related entities accounted for about 7% of the bank’s total revenues in 2005.
Concerning the notorious allegations that North Korea was using BDA to inject counterfeit currency into the world financial system, Au declares under penalty of perjury that BDA received counterfeit currency from North Korea on one occasion—in 1994.
Au further states that BDA closed accounts for two of the three depositors (believing that the third had unwittingly deposited the funny money), reported the matter to the Macau police, and...
“After the Bank reported this incident to the Macau police, I was contacted by agents of the United States government...they asked a number of questions about the circumstances under which the counterfeit notes came into the Bank’s possession. I cordially answered the questions and asked if their preference was that we should desist from doing business with North Korean entities. They said that they would like us to continue to deal with them, as it was better that we conducted this business rather than another financial entity that might not be so cooperative with the United States."
Unfortunately, Au doesn’t recall the names of the agents he dealt with.
However, he did state that since 1994, “the Bank made the policy decision to send all large value deposits of US dollar bills from North Korean sources to the Hong Kong branch of Republic (which became HSBC) to certify authenticity using its advanced technology. "
Unless the Treasury Department can introduce evidence of significant counterfeit dollar activity handled by BDA since 1994, Au’s statement should cause serious heartburn for the hardline crowd.
The background of the petitions is this:
The final rule against Banco Delta Asia isn’t a law; it’s a rule by a regulatory agency.
Because it’s not a law, there is no evidentiary/due process/transparency hocus-pocus.
The whole process is conducted secretly and unilaterally, which is pretty much the way the government likes it, I’m sure.
Beefs about rules are handled under the Administrative Procedures Act, which was enacted in 1946 to address concerns about the broad range of regulatory, quasi-legal powers wielded by agencies of the executive branch starting with FDR’s New Deal.
Interested parties may petition the relevant agency, in this case the Treasury Department, to review its ruling. Upon receipt of the petition, the Treasury Department can decide to reverse its rule or reject the petition; there’s no requirement to have any kind of hearing, rebut arguments, etc.
If the interested party is dissatisfied with the outcome, it can sue—in this case in district court.
However, the only basis for allowing a lawsuit to proceed is if Treasury abused its regulatory powers, in legal speak if Treasury acted arbitrarily and capriciously, abused its discretion, or otherwise acted not in accordance with the law.
BDA has already filed its petition.
Stanley Au is an “interested party” not just because he’s the majority stockholder in Delta Asia Group, the holding company that owns BDA.
He’s an interested party because the Treasury Department declared that his continued ownership of the bank is the sole reason why the Treasury Department can’t rest easy and accept the improvements that BDA, the government management committee running the bank, the Macau Monetary Authority, and the government of the Macau SAR undertook to improve bank management, tighten financial controls, and pass anti-money laundering and anti-terrorism laws during the 18 months of the Treasury’s investigation of BDA.
As Treasury put it in the final rule:
Despite any remedial measures and regulatory changes, this historical pattern of disregard by the bank’s management and primary shareholder regarding both the systemic due diligence failures at the bank and the potential use of the bank for illicit purposes, and the resultant likelihood of recidivism...leave us concerned about the potential for the bank to be continued to be used for money laundering and other illicit purposes. [emphasis added—ed.]
Since the 2005-era managers of the bank are long gone and not coming back, that leaves Stanley Au as the only reason why BDA can’t be trusted to be a clean bank.
Obviously, Treasury doesn’t like Stanley Au.
But maybe that’s not a good enough reason to cut his bank off from the U.S. financial system.
Treasury has not taken the step of calling a Stanley Au a criminal banker.
Treasury chose not to classify BDA as a money-laundering bank e.g. a bank that as a matter of conscious policy conducts money-laundering on behalf of illicit actors.
BDA was sanctioned as a bank “of primary money laundering concerns”, one with weak financial controls, instead. The whole point of that designation is to get the bank and the local authorities to tighten controls, which they did.
So Treasury is now trying to use a bait and switch approach, threatening sanctions meant to effect a tightening of financial controls, then, after the controls are tightened, saying that was not enough because the real issue is suspicion of undesirable intent by the bank’s owner.
The interesting (and for Treasury, rather awkward) question of why the Macau Monetary Authority should be judged incapable of preventing recidivism by its most famous or notorious corporate citizen—implying that the real problem is with the Macau government—is begged by the muddled Treasury rule, but never addressed.
Furthermore, how enticing are the temptations of recidivism to Stanley Au?
I don’t think that impartial observers would believe that the potential profits from future illicit North Korean transactions are so great that Au would take the colossal risk of pursuing them while under the scrutiny of new management, a new board, the Macau and Hong Kong monetary authorities, and the U.S. Treasury Department.
In the conclusion of his statement, Au does a convincing job of pointing out that “recidivism” on his part would be little more than professional suicide:
"Successful resolution of the concerns raised by the U.S. government, which have been publicized around the world, has been a matter of greatest importance both to the Bank and to the Government of Macau...I understood that it was of paramount importance, for my own sake, for the Bank’s sake, and for the Government’s sake to make every effort to fully implement commitments made by my Government’s representatives in my bank’s name, while under the scrutiny of the U.S. authorities and the international media. To have done otherwise would have been unthinkable."
The alternate view—one that is probably shared by Stanley Au, the Macau Monetary Authority, China, the UN as it interpreted its sanctions against North Korea’s nuclear, missile, and proliferation networks, and, I suspect a large percentage of the world’s nations—is that legitimate North Korean financial activity does exist, BDA had a right to solicit North Korean accounts and handle North Korean transactions, and Stanley Au should be allowed to run his bank as long as he conforms to the laws of his jurisdiction--and not be used as a political football in Washington's dealings with Pyongyang.
The Delta Asia Group petition observes:
But BDA’s owners and former managers had no reason to know, prior to FinCEN’s September 2005 finding, that the United States now held the view that bank dealings with North Korea must be entirely avoided. Whether for geopolitical reasons or otherwise, the U.S. government chose not to avail itself of any of the formal mechanisms available to it to put banks on notice of this apparent change of policy...Instead it “announced” this new position by singling out for sanction one small Macau bank, apparently hoping to achieve by in terrorem effects what it did not wish to impose by straightforward regulation.
In terms of attempts to get the rule rescinded, the allegation with the most damaging potential is that the Treasury Department never raised its fears of recidivism during its investigation and rule-making process in order to give Au a chance to give a satisfactory response—it announced these concerns for the first time in its final rule and, what's more, made them the central justification for imposing the most onerous "Special Measure Five".
If BDA decides to try to overturn the rule with a lawsuit, this appearance of “arbitrary and capricious action” by the Treasury Department may persuade the judge to let the legal system open the whole North Korean policy/Patriot Act 311 can of worms to determine if evidence or diplomatic strategy drove Treasury’s seemingly flawed, self-contradictory rule on BDA.
If so, damning statements like this one from David Asher, the self-styled architect of Washington’s North Korea initiatives, may persuade a US judge that the burden of proof is on the Treasury Department to substantiate its allegations against BDA in open court—or abandon them:
The Illicit Activities Initiative prominently involved the use of several—the development of the—conceptualization of the use of several of the tools you’re discussing today including USA Patriot Act Section 311. We worked hand in glove with the Treasury Department to apply and plan to apply against North Korea, and after a time of deep research we came to conclude that one of the best spots was in Macau against Banco Delta Asia."
...
“Banco Delta was a symbolic target. We were trying to kill the chicken to scare the monkeys. And the monkeys were big Chinese banks doing business in North Korea...and we’re not talking about tens of millions, we’re talking hundreds of millions.”
In a China Matters exclusive, I’ve obtained and posted the files for Delta Asia Group’s petition and the personal statement of DAG’s largest shareholder, Stanley Au.
Au’s petition, in particular, provides some interesting detail on BDA’s operations, describing it as a small bank with 8 branches and 150 employees, handling deposits for 40,000 local account holders (about 10% of Macau’s population).
According to Au, BDA’s business with North Korea developed out of a relationship with Pyongyang’s Daesong Bank and the Foreign Trade Bank of DPRK, and grew to include handling North Korea’s bullion sales—a business that Midland Bank apparently gave up on because the margins were so low. He states that business with North Korea and North Korea-related entities accounted for about 7% of the bank’s total revenues in 2005.
Concerning the notorious allegations that North Korea was using BDA to inject counterfeit currency into the world financial system, Au declares under penalty of perjury that BDA received counterfeit currency from North Korea on one occasion—in 1994.
Au further states that BDA closed accounts for two of the three depositors (believing that the third had unwittingly deposited the funny money), reported the matter to the Macau police, and...
“After the Bank reported this incident to the Macau police, I was contacted by agents of the United States government...they asked a number of questions about the circumstances under which the counterfeit notes came into the Bank’s possession. I cordially answered the questions and asked if their preference was that we should desist from doing business with North Korean entities. They said that they would like us to continue to deal with them, as it was better that we conducted this business rather than another financial entity that might not be so cooperative with the United States."
Unfortunately, Au doesn’t recall the names of the agents he dealt with.
However, he did state that since 1994, “the Bank made the policy decision to send all large value deposits of US dollar bills from North Korean sources to the Hong Kong branch of Republic (which became HSBC) to certify authenticity using its advanced technology. "
Unless the Treasury Department can introduce evidence of significant counterfeit dollar activity handled by BDA since 1994, Au’s statement should cause serious heartburn for the hardline crowd.
The background of the petitions is this:
The final rule against Banco Delta Asia isn’t a law; it’s a rule by a regulatory agency.
Because it’s not a law, there is no evidentiary/due process/transparency hocus-pocus.
The whole process is conducted secretly and unilaterally, which is pretty much the way the government likes it, I’m sure.
Beefs about rules are handled under the Administrative Procedures Act, which was enacted in 1946 to address concerns about the broad range of regulatory, quasi-legal powers wielded by agencies of the executive branch starting with FDR’s New Deal.
Interested parties may petition the relevant agency, in this case the Treasury Department, to review its ruling. Upon receipt of the petition, the Treasury Department can decide to reverse its rule or reject the petition; there’s no requirement to have any kind of hearing, rebut arguments, etc.
If the interested party is dissatisfied with the outcome, it can sue—in this case in district court.
However, the only basis for allowing a lawsuit to proceed is if Treasury abused its regulatory powers, in legal speak if Treasury acted arbitrarily and capriciously, abused its discretion, or otherwise acted not in accordance with the law.
BDA has already filed its petition.
Stanley Au is an “interested party” not just because he’s the majority stockholder in Delta Asia Group, the holding company that owns BDA.
He’s an interested party because the Treasury Department declared that his continued ownership of the bank is the sole reason why the Treasury Department can’t rest easy and accept the improvements that BDA, the government management committee running the bank, the Macau Monetary Authority, and the government of the Macau SAR undertook to improve bank management, tighten financial controls, and pass anti-money laundering and anti-terrorism laws during the 18 months of the Treasury’s investigation of BDA.
As Treasury put it in the final rule:
Despite any remedial measures and regulatory changes, this historical pattern of disregard by the bank’s management and primary shareholder regarding both the systemic due diligence failures at the bank and the potential use of the bank for illicit purposes, and the resultant likelihood of recidivism...leave us concerned about the potential for the bank to be continued to be used for money laundering and other illicit purposes. [emphasis added—ed.]
Since the 2005-era managers of the bank are long gone and not coming back, that leaves Stanley Au as the only reason why BDA can’t be trusted to be a clean bank.
Obviously, Treasury doesn’t like Stanley Au.
But maybe that’s not a good enough reason to cut his bank off from the U.S. financial system.
Treasury has not taken the step of calling a Stanley Au a criminal banker.
Treasury chose not to classify BDA as a money-laundering bank e.g. a bank that as a matter of conscious policy conducts money-laundering on behalf of illicit actors.
BDA was sanctioned as a bank “of primary money laundering concerns”, one with weak financial controls, instead. The whole point of that designation is to get the bank and the local authorities to tighten controls, which they did.
So Treasury is now trying to use a bait and switch approach, threatening sanctions meant to effect a tightening of financial controls, then, after the controls are tightened, saying that was not enough because the real issue is suspicion of undesirable intent by the bank’s owner.
The interesting (and for Treasury, rather awkward) question of why the Macau Monetary Authority should be judged incapable of preventing recidivism by its most famous or notorious corporate citizen—implying that the real problem is with the Macau government—is begged by the muddled Treasury rule, but never addressed.
Furthermore, how enticing are the temptations of recidivism to Stanley Au?
I don’t think that impartial observers would believe that the potential profits from future illicit North Korean transactions are so great that Au would take the colossal risk of pursuing them while under the scrutiny of new management, a new board, the Macau and Hong Kong monetary authorities, and the U.S. Treasury Department.
In the conclusion of his statement, Au does a convincing job of pointing out that “recidivism” on his part would be little more than professional suicide:
"Successful resolution of the concerns raised by the U.S. government, which have been publicized around the world, has been a matter of greatest importance both to the Bank and to the Government of Macau...I understood that it was of paramount importance, for my own sake, for the Bank’s sake, and for the Government’s sake to make every effort to fully implement commitments made by my Government’s representatives in my bank’s name, while under the scrutiny of the U.S. authorities and the international media. To have done otherwise would have been unthinkable."
The alternate view—one that is probably shared by Stanley Au, the Macau Monetary Authority, China, the UN as it interpreted its sanctions against North Korea’s nuclear, missile, and proliferation networks, and, I suspect a large percentage of the world’s nations—is that legitimate North Korean financial activity does exist, BDA had a right to solicit North Korean accounts and handle North Korean transactions, and Stanley Au should be allowed to run his bank as long as he conforms to the laws of his jurisdiction--and not be used as a political football in Washington's dealings with Pyongyang.
The Delta Asia Group petition observes:
But BDA’s owners and former managers had no reason to know, prior to FinCEN’s September 2005 finding, that the United States now held the view that bank dealings with North Korea must be entirely avoided. Whether for geopolitical reasons or otherwise, the U.S. government chose not to avail itself of any of the formal mechanisms available to it to put banks on notice of this apparent change of policy...Instead it “announced” this new position by singling out for sanction one small Macau bank, apparently hoping to achieve by in terrorem effects what it did not wish to impose by straightforward regulation.
In terms of attempts to get the rule rescinded, the allegation with the most damaging potential is that the Treasury Department never raised its fears of recidivism during its investigation and rule-making process in order to give Au a chance to give a satisfactory response—it announced these concerns for the first time in its final rule and, what's more, made them the central justification for imposing the most onerous "Special Measure Five".
If BDA decides to try to overturn the rule with a lawsuit, this appearance of “arbitrary and capricious action” by the Treasury Department may persuade the judge to let the legal system open the whole North Korean policy/Patriot Act 311 can of worms to determine if evidence or diplomatic strategy drove Treasury’s seemingly flawed, self-contradictory rule on BDA.
If so, damning statements like this one from David Asher, the self-styled architect of Washington’s North Korea initiatives, may persuade a US judge that the burden of proof is on the Treasury Department to substantiate its allegations against BDA in open court—or abandon them:
The Illicit Activities Initiative prominently involved the use of several—the development of the—conceptualization of the use of several of the tools you’re discussing today including USA Patriot Act Section 311. We worked hand in glove with the Treasury Department to apply and plan to apply against North Korea, and after a time of deep research we came to conclude that one of the best spots was in Macau against Banco Delta Asia."
...
“Banco Delta was a symbolic target. We were trying to kill the chicken to scare the monkeys. And the monkeys were big Chinese banks doing business in North Korea...and we’re not talking about tens of millions, we’re talking hundreds of millions.”
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