(S) HKMA PLANS DELICENSING OF BDA SUBSIDIARY DELTA

S E C R E T HONG KONG 004772

SIPDIS

NOFORN
SIPDIS

STATE FOR EB/ESC/TFS S/CT IO/PHO EAP/CM EAP/K
TREASURY FOR LEVEY/GLASER/SHARMA
JUSTICE FOR DAAG BSWARTZ, AFLMS SHAYDEN

E.O. 12958: DECL: 12/15/2026
TAGS: ECON EFIN KJUS PREL HK MC
SUBJECT: (S) HKMA PLANS DELICENSING OF BDA SUBSIDIARY DELTA
ASIA CREDIT

Classified By: DPO Marlene Sakaue, reasons 1.4 b and d


1. (S) Summary. Hong Kong Monetary Authority (HKMA) Deputy
Chief Executive William Ryback and Executive Director for
Banking Supervision Arthur Yuen told the DPO on December 14
that HKMA plans to commence procedures to delicense Banco
Delta Asia's Hong Kong deposit-taking subsidiary, Delta Asia
Credit, in the next 60-90 days (February/March 2007),with
projected completion of action by mid-year 2007. In alerting
the USG, and requesting discretion, the HKMA wishes both to
avoid conflicting actions that could embarrass the HKG and to
give the USG an opportunity now to provide specific evidence
about any Delta Asia Credit transactions that could affect
planned HKMA action. End summary.


2. (S) Ryback explained that shortly after the USG
designated Macau's Banco Delta Asia (BDA) as a primary money
laundering concern, HKMA launched a review of BDA's Hong Kong
subsidiary, Delta Asia Credit (DAC). HKMA has been managing
this process quietly, without media attention. Describing
the process, Ryback said that, while this type of review can
take a long time in the U.S., the HKMA cannot wait much
longer. Further, once a delicensing process is set in
motion, the HKMA cannot reverse course. If there were good
reasons to do so, however, HKMA could postpone commencement
of action for a short while. HKMA currently plans to begin
taking steps within 60 to 90 days, with completion of action
expected in mid-year 2007.


3. (S) Ryback told us that the HKMA had recently completed
its review of Delta Asia Credit, and HKMA,s legal staff is
currently assessing the case. While HKMA had spotted some
"dumb, money-losing activities," it had not found any obvious
illicit transactions. Ryback emphasized that, absent
concrete evidence that meets required thresholds, HKMA, as a
bank supervisor, can delicense an institution but is not in a
position to shut it down. Given concerns about Delta Asia
Credit,s ability to continue operations and to pay off
depositors, HKMAhas decided to request certain remedies. In
pratical terms, there are two possible outcomes: thebank
decides to change its structure and managemet; or
delicensing occurs, with the entity payingoff its deposits.
Given uncertainty about the ulimate owner, the first is not
likely. Thus, Dela Asia Credit will more likely be
delicensed as a deposit-taking institution, but it could
choose o continue operations as a money lender. (Note:Current HKG anti-money laundering laws do not cove money
lenders. The HKG has told us that it plans to draft new
legislation to cover additional sectors by late 2008.)


4. (S) Ryback reiterated that HKMA has managed this issue
quietly, and HKMA has not yet notified Delta Asia Credit.
HKMA requests USG discretion with regard to this matter.
Ryback and Yuen explained that, in notifying the USG of its
plans, HKMA,s purpose was two-fold:

-- HKMA wants to avoid a scenario in which the HKMA commences
action to delicense Delta Asia Credit and, for example, the
USG conversely decides to recommend either unfreezing BDA's
funds and/or returning BDA to Stanley Au's control.

-- HKMA has the authority to delicense Delta Asia Credit, but
is not planning any additional legal actions against the
institution. If the USG has additional evidence to share
with the Hong Kong Government (HKG) that could prove Delta
Asia Credit was conducting illicit transactions on behalf of
the North Korean Government, the USG should consider
providing such information now, as the HKG could then
consider additional legal action against Delta Asia Credit.
Once the HKMA process gets underway, it cannot be reversed.
Cunningham