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Owner of Macau bank denies illegal dealings with N. Korea

BEIJING—The owner of the bank at the center of a dispute that's threatening to derail nuclear talks with North Korea has denied the U.S. Treasury Department's allegations that his bank handled counterfeit American currency and laundered illicit earnings for the isolated communist regime in Pyongyang.

In a four-page statement delivered to McClatchy Newspapers on Tuesday, Stanley Au, the founder of Banco Delta Asia in Macau, said U.S. officials had provided "no evidence or proof" that account holders had links to North Korean groups that dealt in bogus dollars, counterfeit cigarettes or narcotics.

Au said that when Washington accused his bank in September 2005, none of the bank's clients was on any international "black list" for unlawful activity, and he denied the American charges that North Korea funneled bogus bills through his bank.

The Treasury leveled those charges under an obscure provision of the USA Patriot Act that now threatens to backfire against the Bush administration's efforts to dismantle North Korea's nuclear program and to combat terrorism, counterfeiting, drug trafficking and human rights abuses.

Section 311 of the Patriot Act allows the Treasury to lock any foreign bank out of the U.S. financial system without allowing the bank to defend itself or even to see the evidence against it.

The Treasury used the provision to freeze some $25 million in North Korean assets in Banco Delta Asia, which caused a run on the bank, forced it into government receivership and prompted North Korea to halt negotiations on dismantling its nuclear program.

On Feb. 13, however, the administration agreed to release the allegedly illicit assets to the Bank of China as part of a deal to revive negotiations on North Korea's nuclear program by mid-April, in exchange for fuel oil and a promise of further concessions leading to eventual nuclear disarmament.

The Bank of China and other banks, however, have refused to accept money that the United States has declared tainted, fearing they could be targeted under the same Patriot Act provision, and North Korea says it won't proceed with the nuclear accord until the money is in hand.

China demands assurances that the Treasury won't target its financial sector if it takes North Korean money, said an official who's close to the sensitive talks but spoke only on the condition of anonymity because he's not authorized to discuss the matter publicly.

Daniel Glaser, the Treasury Department's undersecretary in charge of employing the Patriot Act provisions, has been in Beijing since Sunday trying to find a face-saving compromise. His office declined to comment Tuesday.

"We are consulting with related parties," Chinese Foreign Ministry spokesman Qin Gang said Tuesday, fending off questions at a news briefing about the banking dispute.

Bankers around the world express growing unease about the Patriot Act's global reach, its presumption of guilt and its lack of due process.

"They do not like the unilateral nature of our sanctions ... so when we suddenly waive those sanctions, as in the case in North Korea, it causes us ... credibility problems," said Bruce Zagaris, a lawyer based in Washington, D.C., who specializes in complex international tax and finance enforcement issues. "You can't say things are black and white ... and tomorrow you say, `Now we've changed our mind.'"

"We have certainly voiced concerns about the extraterritoriality of the Patriot Act," said Florence Ranson, a spokeswoman for the European Banking Federation in Brussels, Belgium, which represents almost 5,000 banks in 29 countries.

Au's statement is his most vigorous public assertion yet that his bank's "many decades" of dealing with North Korean account holders weren't improper.

"It has always been the belief of BDA that these were normal business transactions," he wrote.

Whenever large quantities of U.S. currency arrived at the bank, he said, the money was sent for verification to a New York branch of HSBC, a London-headquartered global bank, preventing "circulation of any counterfeit into the financial system."

Au said PriceWaterhouseCoopers did the bank's annual audits for years, and he added that an Ernst & Young audit in late 2005 "found no evidence that BDA participated or (was) involved in any of the illicit activities as alleged."

Annesa Leung, a spokeswoman for the Ernst & Young office in Hong Kong, said the auditing firm had a confidentiality agreement and "we can't discuss client issues." An official with PriceWaterhouseCoopers canceled a scheduled interview with McClatchy.

Treasury spokeswoman Molly Millerwise, traveling with Glaser, said the agency wouldn't release the audit and pointed to action against Banco Delta Asia earlier this month that addressed the audit's findings. The Treasury's final ruling against the bank said the audit was incomplete and suggested that Banco Delta Asia still lacked sufficient internal controls against money laundering.


(Hall reported from Washington. McClatchy Newspapers correspondent Renee Schoof in Washington contributed to this report.)


(c) 2007, McClatchy-Tribune Information Services.

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