VZCZCXYZ0000
RR RUEHWEB

DE RUEHHK #2021 3080959
ZNY CCCCC ZZH
R 030959Z NOV 08
FM AMCONSUL HONG KONG
TO RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/SECSTATE WASHDC 6163
INFO RUEHBJ/AMEMBASSY BEIJING 2687
RUEHMO/AMEMBASSY MOSCOW 0497
RUEHUL/AMEMBASSY SEOUL 3432
RUEHKO/AMEMBASSY TOKYO 5043
RUEAWJA/DEPT OF JUSTICE WASHINGTON DC
RHEHNSC/NSC WASHDC

C O N F I D E N T I A L HONG KONG 002021 
 
SIPDIS 
 
STATE FOR EAP/CM, EAP/RSP, EAP/K, EEB/ESC; TREASURY FOR 
GLASER/FOWLER; DOJ FOR SCHWARZ/WEBER 
 
E.O. 12958: DECL: 11/03/2033 
TAGS: EFIN ECON PREL
SUBJECT: HKMA PROPOSES REVOKING DELTA ASIA CREDIT'S BANKING 
LICENSE 
 
REF: A. HONG KONG 459 
     ¶B. 07 HONG KONG 2430 
     ¶C. 07 HONG KONG 2567 
     ¶D. 07 HONG KONG 2904 
 
Classified By: Acting E/P Chief Jim Mullinax, Reason 1.4.b/d 
 
¶1.  (U) Summary:  The Hong Kong Monetary Authority (HKMA) 
announced October 24 that it had revoked the appointment of 
the government-installed manager of Delta Asia Credit (DAC) 
and was proposing revocation of DAC's authorization as a 
deposit-taking company.  DAC now returns to control of its 
shareholders, led by Banco Delta Asia (BDA) Chairman Stanley 
Ao, and has thirty days to appeal to Hong Kong's Chief 
Executive and Executive Council.  In the meantime, the bank 
remains effectively inoperable as restrictions preventing DAC 
from taking deposits remain in place.  End Summary. 
 
¶2.  (C) Comment: The legal process for shutting down BDA's 
Hong Kong subsidiary DAC will still take several months at 
least, potentially offering Stanley Au a media platform to 
again criticize the U.S. government's decision to designate 
BDA and the Hong Kong authorities handling of DAC.  The HKMA 
has been preparing its legal case for more than a year with 
the goal of minimizing BDA's opportunity to land any telling 
criticisms of the government's decisive action to wrest 
control of DAC away from Ao.  Despite the Hong Kong 
government's concern about negative press attention, we think 
in the current political climate in Hong Kong it is unlikely 
that the media or other activists will rush to defend a bank 
accused of handling dirty money.  End Comment. 
 
¶3.  (U) The HKMA announced Friday, October 24 that it had 
revoked the appointment of KPMG's Paul Brough as manager of 
Delta Asia Credit (DAC).  The company has been under 
HKMA-appointed management since the U.S. Treasury announced 
in September 2005 that its parent company, Macau-based Banco 
Delta Asia (BDA), had been designated as an institution of 
"primary money-laundering concern" for its dealings with 
North Korean money launderers.  As a subsidiary of BDA, DAC 
was barred by the HKMA from accepting deposits, the board of 
directors was suspended, and international accounting firm 
KPMG was appointed as the managing operator.  While DAC 
officially remained open for business, with no depositors and 
no other banks willing to process DAC payments, the bank was 
rendered inoperable. 
 
¶4.  (C) HKMA Executive Director of Banking Supervision Nelson 
Man noted that the decision to revoke the KPMG management 
contract and propose revocation of DAC's deposit taking 
authority had been under consideration for a long time.  HKMA 
has been proceeding cautiously as they expect BDA's Chairman, 
Stanley Au, will file legal action against the HKMA decision 
in Hong Kong courts.  With most depositors already repaid and 
minimal transaction balances remaining in the bank, it is no 
longer necessary to have outside management in place to 
protect depositor interests.  KPMG's monthly management fees 
are several times the net worth of the bank, said Man.  The 
original management has now officially returned, but DAC is 
still prohibited from accepting deposits or engaging in any 
business activity without explicit HKMA approval. 
 
¶5.  (C) Man said the dismissal of the KPMG manager served to 
eliminate a potential conflict of interest and avoid legal 
questions as HKMA moves forward with steps to close DAC. 
That process will still take some time.  If he chooses to 
appeal the proposed revocation, DAC's newly re-appointed 
Chief Executive David Lau must file the appeal to the Hong 
Kong Chief Executive and Executive Council within 30 days. 
The CE will then appoint a panel of experts to request 
submissions from both sides before recommending a decision to 
the Executive Council.  That decision may then be appealed 
for judicial review before taking effect.  Although the 
process could drag on indefinitely, Man averred that the Hong 
Kong government believes they are now on solid legal footing 
and will push the revocation forward.  On receiving the 
announcement, a Banco Delta Asia spokesman reportedly told 
press in Macau that the Group would appeal the proposed 
revocation. 
DONOVAN