BDA's Blind Eye and Deceptive Practices

By Matthew Levitt

Just a couple of days ago the International Herald Tribune (IHT) reported that Macanese authorities had joined managers of Banco Delta Asia (BDA) in an effort to convince U.S. Treasury officials not to finalize its rule against BDA under section 311 of the USA PATRIOT Act. According to the IHT, they argued that Macanese government's successful receivership of the bank -- a panel of three officials has run the bank since September 2005 -- sufficiently cleaned up the bank such that shutting the bank out of the U.S. financial system was no longer warranted.

In fact, Macanese officials have been full partners in the U.S. Treasury's investigation of BDA. And since their receivership is not structured to remain indefinitely BDA, and in light of BDA's "deceptive financial practives and grossly-inadequate controls," the Treasury Department announced today that it was, in fact, finalizing the 311 rule targeting BDA.

The IHT story reported not on the joint U.S.-Macao investigation, but on the findings of one of two independent investigations ordered by the Macanese -- both of which amounted to accounting audits of BDA's books. American lawyers for BDA were quoted by the IHT as saying that these reviews -- which almost certainly did not include all of the over 300,000 documents reviewed by U.S. investigators -- turned up some lax record-keeping but "found [no] evidence of money laundering." The fact that BDA maintained accounts for Tanchon Commercial Bank of North Korea, a U.S.-designated entity involved in North Korean WMD proliferation, was written off by BDA's American lawyers as nothing more than a simple oversight that resulted from poor information technology systems.

In fact, Tanchon Bank functioned as "the main North Korean financial agent for sales of conventional arms, ballistic missiles, and goods related to the assembly and manufacture of such weapons," according to the February 2006 testimony of then-OFAC Director Robert Werner. According to information released by the Treasury Department today, this and other illicit activities were far from mere oversights -- they were a combination of willfully turning a blind eye, a proactive decision not to engage in the traditional due dilligence for which all financial institutions have a fiduciary obligation, and actively engaging in deceptive financial practices which facilitated the the laundering of millions of dollars in cash through the bank by several front companies. In fact, Treasury revealed, "in exchange for a fee, the bank provided those clients access to the banking system with little oversight or control."

Other deceptive practices included:

* Suppressing the identity and location of originators of transactions and arranging for funds transfers via third parties; * Repeated bank transfers of large, round-figure sums both to and from accounts held at other banks that have no apparent licit purpose; and * 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.

Along with Treasury's action today, Macanese authorities froze over $25 million in funds the bank held for clients tied to North Korea. Apparently, all independent audits notwithstanding, BDA's was deeply involved in illicit financial conduct (including financing WMD proliferation) and additional activity realted to entities involved in North Korean trade in counterfeit U.S. currency, counterfeit cigarettes, and narcotics. BDA, it turns out, is not a lax record-keeper -- it is the poster child for what it means to be a "primary money laundering concern."

TrackBack