UNSCR 1874: TREASURY U/S LEVEY MEETING WITH HONG

S E C R E T SECTION 01 OF 02 HONG KONG 001297 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 MEETING WITH HONG KONG FINANCIAL SERVICES AND THE TREASURY BUREAU REF: BEIJING 1847 Classified By: Consul General Joe Donovan for reasons 1.4 (b) and (d) ¶1. (S) Summary: Hong Kong Financial Services and the Treasury Bureau Undersecretary Julia Leung told Treasury U/S Levey on July 10 that the Hong Kong government (HKG) values its cooperative relationship with the USG on North Korea-related issues. She said the Hong Kong Monetary Authority (HKMA) has already commenced investigations into Hong Kong-specific intelligence provided by U/S Levey during his July 9 meeting with HKMA Chief Executive Joseph Yam. She said that she believed financial institutions operating in Hong Kong, including Bank of China and other PRC banks, are protective of their international reputations and will be proactive in complying with North Korea-related sanctions and UNSCRs. Citing the importance of controlling financial transactions involving non-banks, Leung said the HKG expects to enact legislative amendments by mid-2010 that will formalize and expand regulation of money changers. End summary. Background -------------- ¶2. (C) Treasury U/S for Terrorism and Financial Intelligence Stuart Levey met on July 10 with Hong Kong Financial Services and the Treasury Bureau (FSTB) Undersecretary Julia Leung. Accompanying Leung were FSTB Assistant Secretary Wong Chi Kwong and Commerce and Economic Development Bureau (CEDB) Principal Assistant Secretary Wendy Chung. 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 notetaker. U/S Levey presented Leung with copies of the North Korea-related materials he provided on July 9 to Hong Kong Monetary Authority (HKMA) Chief Executive Joseph Yam (septel). In addition, Merritt presented Leung with information provided to Yam about the DPRK-produced USD100 "Supernotes," as also detailed septel. HKG Pledges Action on U.S.-Supplied Info -------------- ¶3. (S) Leung said Yam wrote to Financial Secretary John Tsang immediately following his July 9 meeting with U/S Levey to summarize the meeting and to assure Tsang that HKMA's bank supervisors would closely examine the USG's HK-specific intelligence. U/S Levey said Treasury wants to continue sharing similar information with HK authorities about possible violations of UNSCRs 1718 and 1874. He requested that the HKG confirm the accuracy of the USG information and provide feedback about its use by the HKG. Leung assured U/S Levey that Yam would "surely communicate" with Treasury about the results of HKMA's investigations. She said the HKG will "leave no stone unturned." ¶4. (S) Leung said Hong Kong has a strong legal and regulatory framework used to identify, impede and prosecute illicit remittances. Moreover, the HKG is "well aware of our international obligations as a global financial center." Leung said HK's banks -- including those named in the information presented by U/S Levey -- wish to avoid being "tarnished by any actions that could appear to violate the UNSCRs related to North Korea." She added that the potential damage to a bank's reputation from North Korea-related business far outweighs the potential profit. U/S Levey complimented the Hong Kong banking community's strong cooperation on the issue. She acknowledged that banks often face "extreme difficulties" in discerning the true purpose and ultimate beneficiary of a cross-border financial transaction or relationship. ¶5. (S) U/S Levey asked Leung's view on whether Bank of China (BOC) is as diligent as banks headquartered in Hong Kong when handling potentially North Korea-related business. "BOC is a publicly listed company in Hong Kong and, like other banks based in China, they want to grow internationally and develop their business outside China," Leung replied. "They're wary of jeopardizing their reputations, and they don't want to be associated with North Korea's weapons activities." Citing an example, Leung said BOC took "strong action" in 2007 by HONG KONG 00001297 002 OF 002 unilaterally closing all accounts held by money changers and their agents in Hong Kong, without prompting from the HKG. Even though most account holders operated legitimate businesses, BOC wished to avoid the perception of complicity in illicit money transfers, she said. HKG Takes Aim at Money Changers -------------- ¶6. (C) HKG regulations require money changers to keep records for six years on all transactions exceeding USD 1,035 (HKD 8,000). Leung said the HKG intends to introduce legislation by mid-2010 that will formalize and tighten existing regulatory procedures that govern money changers, as well as bring Hong Kong's anti-money-laundering statutes into better accord with international standards. She provided U/S Levey with a July 2009 public consultation paper that describes the legislative proposals; the consultation period will end on October 8. She said her bureau wants the Customs and Excise Department (HKCED) to assume enforcement responsibility for Hong Kong's laws and regulations governing money changers, as well as administer a new licensing system. She said FSTB has established a working group with HKCED to finalize the details of the proposed arrangement, including formation of a dedicated money changer investigation team within HKCED. ¶7. (U) U/S Levey has cleared this cable. DONOVAN