BANCO DELTA ASIA SUES MACAU AND HONG KONG

C O N F I D E N T I A L HONG KONG 000918 SIPDIS STATE FOR EAP/CM, EEB/IFD AND EEB/ESC, TREASURY FOR TFFC DAS GLASER AND OASIA, BEIJING FOR TREAS ATTACHE E.O. 12958: DECL: 05/15/2019 TAGS: EFIN ECON KN MC HK SUBJECT: BANCO DELTA ASIA SUES MACAU AND HONG KONG GOVERNMENTS REF: 05 STATE 168932 Classified By: Consul General Joe Donovan for reasons 1.4 (b) and (d) ¶1. (SBU) This is an action request. See paragraphs 3 and 5. ¶2. (C) Summary: The Macau and Hong Kong governments are facing judicial challenges to the actions they took against the Banco Delta Asia (BDA) and its Hong Kong-based subsidiary, Delta Asia Credit (DAC). Macau and Hong Kong severely restricted BDA's and DAC's business activities after the U.S. Treasury Department privately warned in September 2005 it intended to designate BDA as an institution of primary money laundering concern. In Macau, a three-judge panel is evaluating a BDA challenge to the 23 special measures imposed on BDA by Macau's Chief Executive Edmund Ho when the bank returned to original shareholders in September 2007, after being under control by a government-appointed committee for two years. In Hong Kong, the Hong Kong Monetary Authority (HKMA) will defend its October 24, 2008, decision to revoke Delta Asia Credit's banking license. The U.S. Treasury Department in March 2007 issued a final ruling against BDA, effectively barring BDA from accessing the U.S. financial system and, hence, the international financial system. The bank, however, continues to operate locally in the Macau market. End Summary. ¶3. (C) Comment and Action Request: HKMA has formally requested U.S. government approval for HKMA to introduce in court the September 2005 SEC-RET/RELEASE TO HONG KONG non-paper points (Reftel, paragraphs 8 and 12) regarding the U.S. Treasury Department's intention to designate BDA as an institution of primary money laundering concern under Section 311 of the USA PATRIOT Act. We request the Department act expeditiously to obtain this clearance. The Macau and Hong Kong governments are being sued in court for carrying out actions at our behest and have cooperated fully with our government during the lengthy investigation and disposition of the BDA case. A successful court challenge would be embarrassing to them and would call into question the legality of the actions they took against BDA and DAC. End Comment and Action Request. -------------- -------------- Banco Delta Asia v. Macau's Chief Executive Edmund Ho -------------- -------------- ¶4. (C) On May 14, officials from the Macau Monetary Authority (AMCM for its Portuguese name) told us that the final government witness testified on May 13 to a three-judge panel in a case brought by BDA against Chief Executive Edmund Ho. In 2005, following the U.S. Treasury Department proposal to list BDA as a primary money laundering concern, the AMCM appointed a three-person committee to oversee BDA operations. In September 2007, Macau law compelled AMCM to return BDA to its original shareholders, but AMCM imposed 23 special measures under Article 8 of Macau's Financial Systems Act to ensure the bank's financial viability. Chief Executive Ho approved these measures, which were gazetted and implemented by AMCM. BDA contends that these measures were inappropriate in light of BDA's sufficient liquidity. The case is now in the judges' hands for their ruling. -------------- Delta Asia Credit and Banco Delta Asia v. Hong Kong Monetary Authority -------------- ¶5. (C) On May 7, HKMA officials told us that Banco Delta Asia's (BDA) deposit-taking subsidiary in Hong Kong, Delta Asia Credit (DAC) is seeking a judicial review of HKMA's October 2008 decision to revoke DAC's banking license. The HKMA, in accordance with Hong Kong's Banking Ordinance, revoked DAC's license because the bank could not conduct "meaningful" business in Hong Kong after the U.S. Treasury Department identified the bank as an institution of primary money laundering concern. As part of its defense, HKMA would like to present in court the September 2005 USG non-paper points (Reftel, paragraphs 8 and 12) that notified them of Treasury's intention to designate BDA. The information contained in this September 2005 SEC-RET/RELEASE TO HONG KONG document has long ago come out in the media and the USG actions against BDA now are matters of public record. DONOVAN