MACAU (Reuters) - For most Macanese, tiny Banco Delta Asia is just another retail bank with marble-clad teller lobbies and colorful brochures in this south China gambling mecca.
But at six-country talks in Beijing this week, the bank has been vilified as a dangerous conduit for money earned illegally through counterfeiting and smuggling by one of America’s most intransigent foes, North Korea.
Banco Delta Asia (BDA), one of the former Portuguese colony’s smallest banks, has been struggling for more than a year since the U.S. Treasury designated it a “primary money-laundering concern” because of its decades-long ties to North Korea.
The action sparked a run on deposits and prompted the Macau government to take control of the bank and freeze North Korean accounts, which contain some $24 million. And international banks have shunned it, largely shutting it out of U.S. dollar business.
The crackdown also appears to have cut off a lifeline for impoverished North Korea into the international banking system.
After the designation, the North boycotted six-party talks on scrapping its nuclear program and only returned this week after Washington agreed to put the financial curbs on the agenda.
Although there appeared to be some progress in talks over North Korea’s nuclear ambitions on Wednesday, the separate financial talks ended with no agreement — a result that will likely keep Banco Delta Asia’s status in limbo.
“At the end of the day, the bank is a pawn on the chessboard of these talks,” said a Hong Kong source familiar with Banco Delta Asia’s predicament.
The Treasury, however, has accused the bank of being a “willing pawn for the North Korean government to engage in corrupt financial activities.”
These included distributing counterfeit U.S. currency, smuggling counterfeit tobacco products and servicing accounts on behalf of front companies involved in drug trafficking.
The bank “actively helped North Korean agents conduct surreptitious, multi-million dollar cash deposits and withdrawals without questioning the basis of these transactions,” Stuart Levey, the Treasury undersecretary for terrorism and financial intelligence, said in a speech in September. He added that BDA officials had taken fees to forego scrutiny of such transactions.
The designation reverberated so strongly, not because of the frozen $24 million — a small sum for any country — but because North Korea has not found a replacement international banker.
“What they (North Korea) really want is to re-establish banking relationships, but they can’t do that until they persuade the world that they are a legitimate partner to have in the banking system,” Levey told Reuters in an interview this week.
BDA’s eight branches, which include one at the Lisboa Casino, are geared more toward small retail deposits and consumer loans in Macau’s pataca currency than they are to handling massive U.S. dollar cash deposits.
On a recent weekday afternoon, there was no outward sign of the international intrigue surrounding the institution as a steady stream of customers marched into its main branch to make deposits and withdrawals.
“It’s just a normal bank. I use it mainly to pay my household bills by autopay,” said May Lee, an administrative assistant who works in Macau’s central commercial district.
Her main complaint was the bank’s lack of automated teller machines, not its role at the center of the North Korean crisis.
Macau’s retail banking market has improved in recent years as a massive casino building boom has allowed the territory to rival Las Vegas as the world’s gambling capital, just seven years after reverting to Chinese rule, with gaming revenues projected at $6.25 billion this year.
The Hong Kong source said the family-owned bank has repaid a government loan of about 500 million patacas ($62.5 million) to help replace lost deposits, and is “standing on its own feet.”
BDA spokesman Charles Ngai said in a statement last week the bank was “operating normally” under government control. However, it has not filed a financial statement since 2004, when its parent company reported total assets of HK$4.2 billion ($538 million).
The bank was founded in 1935 in the then-sleepy Portuguese trading port as Banco Hang Sang by Au Wing Ngok, father of Delta Asia’s current chairman, Stanley Au.
The younger Au, who also serves as a Macau legislator, set up banking and broking operations in Hong Kong and was instrumental in launching that territory’s gold bullion market.
Banco Delta Asia’s attorneys, Heller Ehrman LLP, said in an October 18 filing to the Treasury’s financial crimes unit that the bank purchased a large share of gold bullion produced by North Korea in the years before the Treasury designation, but has halted the trade since the North Korea accounts were frozen.
They said any money-laundering activity that might have occurred was the result of inadequate internal controls and procedures and outdated computer technology that could not generate “exception reports” to flag unusual transactions. The bank also lacked sophisticated equipment to detect counterfeit bills, the filing said, but these issues were being addressed.
Reporting by David Lawder, editing by Sonya Hepinstall and John Chalmers; Reuters Messaging: firstname.lastname@example.org; Email: email@example.com; +1 202 898 8395