UNSCR 1874: TREASURY U/S LEVEY DISCUSSION WITH

S E C R E T SECTION 01 OF 02 HONG KONG 001266 NOFORN SIPDIS E.O. 12958: DECL: 07/09/2019 TAGS: PREL PARM PGOV ECON MNUC HK CH JA KN KS SUBJECT: UNSCR 1874: TREASURY U/S LEVEY DISCUSSION WITH HONG KONG MONETARY AUTHORITY REF: BEIJING 1847 Classified By: Consul General Joe Donovan for reasons 1.4 (b) and (d) ¶1. (S) Summary: At a July 9 working lunch, Treasury U/S for Terrorism and Financial Intelligence Stuart Levey presented Hong Kong Monetary Authority (HKMA) Chief Executive Joseph Yam with specific examples of North Korean efforts to use HK-based banks, trading companies and individuals to circumvent UNSCRs 1718 and 1874. Yam promised to examine the cases. Levey praised the HKMA and the Hong Kong government for their close, ongoing cooperation with USG authorities. Yam stressed the importance of open communication with the USG, and said Hong Kong's reputation and position as an international financial center depends on its successful efforts to combat all forms of illicit transactions, including, but not limited to, ensuring bank compliance with UNSCRs. He encouraged U/S Levey to speak directly to Hong Kong-based banks and was pleased to hear those meetings were taking place. Responding to a briefing about DPRK-produced USD100 "Supernotes," Yam said the HKG is investigating possible North Korean involvement in producing an "extremely good" forgery of the HKD1,000 bill. End summary. Background -------------- ¶2. (C) Treasury U/S for Terrorism and Financial Intelligence Stuart Levey met on July 9 with Hong Kong Monetary Authority (HKMA) Chief Executive Joseph Yam. Accompanying Yam were Banking Supervision Executive Director Nelson Man and Banking Policy Division Head Raymond Chan. U/S Levey was accompanied by the Consul General, National Security Council Director for Counterproliferation Strategy Charles Lutes, U.S. Secret Service Assistant Director Michael Merritt and Assistant to the Special Agent in Charge Jeffrey Wood, U.S. Treasury Senior Advisor Christy Clark and Consulate Hong Kong notetaker. HK Connections With Designated Entities -------------- ¶3. (S) U/S Levey complimented the Hong Kong government's (HKG) longstanding cooperation with USG authorities in efforts to combat illicit and terrorist financing and deny financial services to those suspected of developing and trading in weapons of mass destruction (WMD),including diligent implementation of UNSCRs 1718 and 1874. He summarized his prior-day meetings with PRC officials in Beijing, and informed Yam that Chinese banks are being used by North Korea to facilitate financial transactions in support of the DPRK's ballistic missile programs and other illicit activity. U/S Levey passed detailed information that, among other things, identified two HK-based companies -- Power Luck Trading, and Wide Sky Trading Limited -- as probable Tanchon Bank front companies used to remit funds to North Korea through Chinese banks. He asked that the HKMA scrutinize the relationships of HK-based banks and firms with Tanchon and a second North Korean bank, Kwangson Banking Corporation, which has facilitated transactions on behalf of Tanchon and has engaged in similar remittance activities. U/S Levey also gave Yam a copy of the paper he passed in Beijing to PBOC Vice Governor Su Ning (septel) detailing concerns about Tanchon Commercial Bank, Namchongang Trading Company, KOMID, and procurement of luxury goods for North Korean leaders in Hong Kong and Macau. ¶4. (S) In describing North Korean company Namchongang Trading Corporation (NCG),U/S Levey said NCG uses banks in the region for financial transactions in support of the DPRK's nuclear-related procurement activities. NCG was designated by the United States on June 30 under Executive Order 13382 as supporting the DPRK's nuclear weapons program. Levey referred Yam to specific information on this topic in the paper. Levey said he discussed related issues with Hang Seng Bank earlier in the day, and he noted Hang Seng's willingness to examine the issue and take any necessary action (septel). HK-Based Procurement of Luxury Goods for DPRK -------------- ¶5. (S) Levey noted that businessman Alan Wong, who has resided in Hong Kong and Macau, has a history of procuring HONG KONG 00001266 002 OF 002 luxury goods for the North Korean leadership. Levey said Wong owns two firms in Hong Kong -- Tin Ming Trading, and World Base Shipping -- that hold bank accounts at Hang Seng Bank in Hong Kong, and at Wing Hang Bank and Bank of China in both Hong Kong and Macau. Yam said the HKMA would examine the issue. HKMA to Continue Cooperation With USG -------------- ¶6. (C) Yam thanked Levey for the information and stressed the importance of maintaining "open lines of communication" with the USG. He said, "We fully support your efforts on these matters. This issue is important to our maintenance of Hong Kong as an international financial center." Yam mentioned the "high degree of autonomy" enjoyed by the HKMA within the HKG. He said, "We'd like to know if you see any perceived inadequacies on our part, or if there's anything further we can do with regard to our systems or our financial transaction monitoring mechanisms." Yam stated that he and his colleagues sometimes prefer "private, non-official" conversations with local banks on UNSCR-related issues, especially in instances where the HKMA has no formal authority to compel a bank to act. He encouraged U/S Levey to meet directly with Hong Kong-based banks to share relevant information and was very happy to hear that those meetings were already taking place. Hong Kong Dollars Forged by DPRK? -------------- ¶7. (S) U.S. Secret Service Assistant Director Michael Merritt briefed Yam on the counterfeit USD100 "Supernote" produced and distributed by the DPRK. Merritt noted that the number of Supernotes in circulation had increased over the previous 18 months, thereby creating an international problem due to the USD's widespread global use. Yam said HK has an ongoing investigation of its own related to discovery of "an extremely good" forgery of the HKD1,000 bill. He cited North Korea as a possible source of the forged currency. ¶8. (U) U/S Levey has cleared this cable. DONOVAN