UNSCR 1695 DEMARCHE DELIVERED TO HONG KONG AND

C O N F I D E N T I A L SECTION 01 OF 02 HONG KONG 003840

SIPDIS

NOFORN
SIPDIS

STATE FOR EAP/CM, EAP/K, EB/ESC/TFS, EB/IFD/OMD
TREASURY FOR FINCEN, DGLASER, WNEWCOMB, SLEVEY, LMOHTADER,
ASHARMA
JUSTICE FOR OAI, AFMLS AND NDDS

E.O. 12958: DECL: AFTER KOREAN REUNIFICATION
TAGS: ECON EFIN HK KJUS KN MC PREL
SUBJECT: UNSCR 1695 DEMARCHE DELIVERED TO HONG KONG AND
MACAU FINANCE AND TRADE AUTHORITIES

REF: A. SECSTATE 146316

B. HONG KONG 3155

C. SECSTATE 1325719

Classified By: Consul General James Cunningham, Reasons 1.4 (b,d,e)


1. (U) Summary and Action request: This is an action
cable, please see paragraphs 8 and 9.


2. (C) Summary. Consulate General Officials delivered Ref
A non-paper to Hong Kong and Macau Trade and Finance
Authorities and urged continued vigilance to prevent
transfers of North Korean financial resources and movement
of goods related to North Korean's missile and WMD
programs. Hong Kong Monetary and Police authorities
expressed their willingness to support these efforts. They
urged the U.S. Government to provide specific, detailed,
evidentiary information so that they can more effectively
monitor, investigate, stop and prosecute illicit activities
related to North Korea's missile and WMD programs. More
general information on patterns and trends would also be
very useful, said the Hong Kong officials. End Summary.


3. (C) Acting Deputy Principal Officer Laurent Charbonnet
delivered Ref A non-paper to Hong Kong Monetary Association
(HKMA) Deputy Chief Executive William Ryback on September

15. Ryback emphasized that the HKMA had alerted Hong Kong
banks to exercise vigilance regarding North Korean
financial transactions and that HKMA officials had
conducted a thorough review of North Korean transactions
moving through Hong Kong banks. Based on HKMA's review,
Ryback reported that the volume of North Korean
transactions and money moving through Hong Kong?s banks, at
least on the surface level, was low, perhaps even
"suspiciously small." Ryback stated that if North Korean
money is moving through Hong Kong banks, it may be moving
"below the surface" in disguised transactions. Ryback
requested that the U.S. government provide HKMA with
information/case studies on North Korean methodology for
moving money and/or disguising transactions so that HKMA
and Hong Kong's banks could more effectively detect illicit
transactions. In the meantime, Ryback vowed to institute a
first-level review of Hong Kong banks to determine if they
had heeded HKMA's previous warnings on North Korean money
laundering and are implementing appropriate control
measures. Ryback also recommended that Consulate officials
discuss this matter with Hong Kong's Joint Financial
Investigation Unit as it had direct prosecutorial
responsibility over entities violating Hong Kong's banking
regulations.


4. (C) HKMA Executive Director for Banking Policy Simon
Topping added that HKMA could not prohibit Hong Kong banks
from doing business with North Korean entities, but most
banks shied away from North Korean business as it was not
worth the added risk. Topping also noted that other
countries in Asia did not exhibit the same level of concern
and/or due diligence regarding anti-money laundering and
terrorist finance issues; HKMA worries that North Korean
money may simply be moving away from jurisdictions such as
Hong Kong to other less-demanding jurisdictions.


5. (C) Econoff delivered Ref A non-paper to Hong Kong
Police Force (HKPF) Narcotics Bureau Chief Superintendent
Peter Else and Joint Financial Investigation Division
Superintendent Edwin Lam on September 21. Econoff also
followed up on Deputy Principal Officer Marlene Sakaue's
August 4 meeting with Hong Kong Commissioner of Narcotics
Rosanna Ure regarding stopping banks and couriers from
assisting North Korea in moving illicit funds (Refs B and
C.) Both Else and Lam said that the HKPF is watching for
suspicious North Korean financial activities though they
did not have anything to report regarding the case of North
Korea's Daedong Credit Bank (DCB) utilizing a Hong Kong
firm, SUTL Corporation, to courier cash from Pyongyang to
Singapore. Else asked if there was additional information
regarding this case and stated that the HKPF needs
specific, concrete evidence on individuals involved in
illicit activities before it can start an investigation.

HONG KONG 00003840 002 OF 002


Else emphasized that Hong Kong laws are designed to deal
with individuals as opposed to states - the HKPF cannot
carry out a prosecutorial action against the state of North
Korea but can launch an action against any "middle-men"
North Korea uses to carry out its illicit activities. The
policemen stressed that Hong Kong's counterterrorism laws
give them the authority to investigate and prosecute
suspected money launderers and proliferators of WMD
technology and that they are willing to vigorously pursue
these violators, but need more evidentiary information.


6. (C) Else commented Hong Kong based banks heed HKMA
warnings about "high-risk customers" such as North Korean
clients and that the banks often choose to avoid any
dealings with such clients as a result. Even when they do
deal with high-risk clients, Hong Kong banks will be more
inclined to send in suspicious transaction reports on
clients that they know the HKMA is concerned about. These
suspicious transaction reports are actionable and
investigations can sometimes be based on them. Else noted
that North Korean financial activity in Hong Kong seems to
have dropped recently and speculated that the North Koreans
may be avoiding Hong Kong and Macau due to increased
government vigilance in both territories after the Banco
Delta Asia affair.


7. (U) Econoff delivered Ref A non-paper to Trade and
Industry Department Assistant Director General Erica Ng.
Ng thanked Econoff for the non-paper and promised to review
the U.S. position but did not have any immediate comment.


8. (U) The Consul General forwarded Ref A non-paper to
Macau Monetary Authority Chairman Anselmo Teng and Macau
Economic Services Director Sou Tim Peng. We will report
any reaction from the Macau Government.


9. (SBU) Action Request: Per the request of Hong Kong's
Monetary Authority, Post suggests that Washington agencies
provide case studies and/or information on
trends/patterns/typologies of North Korean money laundering
activities and illicit financial transactions so that HKMA
can alert Hong Kong's financial institutions to these
practices.


10. (SBU) Action Request: Per the request of the Hong Kong
Police Force, Post requests that Washington agencies
provide evidentiary information on individuals and/or
financial entities engaging in illicit financial practices
on behalf of North Korea in Hong Kong so that HKPF can use
this information to investigate and prosecute cases.

Cunningham