BURMA: NO PROGRESS ON MONEY LAUNDERING RULES

C O N F I D E N T I A L SECTION 01 OF 03 RANGOON 001253

SIPDIS

STATE ALSO FOR EAP/BCLTV, EB, INL/AAE
COMMERCE FOR ITA JEAN KELLY
TREASURY FOR OASIA JEFF NEIL
USPACOM FOR FPA

E.O. 12958: DECL: 09/30/2013
TAGS: EFIN SNAR KCRM PTER BM
SUBJECT: BURMA: NO PROGRESS ON MONEY LAUNDERING RULES

REF: A. RANGOON 757 AND PREVIOUS

B. RANGOON 1164 AND PREVIOUS

Classified By: COM CARMEN MARTINEZ FOR REASONS 1.5 (B,D)


1. (C) Summary: After a promising start, Burma's efforts in
2003 to implement its year-old money laundering law have
fallen well shy of international expectations. The likely
culprits? The collapse of the private banking sector,
persistent corrupt cronyism, and a lack of technical
capacity. Since none of these problems is easily fixable,
Burma may not meet stringent international standards for some
time -- though we expect some progress in 2004. End summary.

One Step Forward, Long Drift Back


2. (SBU) The Burmese money laundering law was greeted with
much international approval and optimism when it was issued
in June 2002. Indeed, as reported in Reftels A, the first
months after the law's enactment were encouraging as Burmese
law enforcement officials participated in regional financial
crime seminars and the GOB held its own training for
financial investigators in Rangoon and Mandalay.


3. (C) Since then however, and despite pressure by the
Financial Action Task Force (FATF),there has been little
progress in developing any of the implementing regulations
crucial for the 2002 law to have any effect. In Burma, new
laws are not enforceable until all necessary rules and
regulations are in place. According to knowledgeable GOB
sources, the regulations have been drafted three different
times since June 2002, and the latest version is now with
relevant ministries (Home Affairs, Finance, and Agriculture)
for comment. Ministry comment is only the second of a 4-step
process that ends with final consideration by the Cabinet.
There are at least three possibilities for the delays in
getting needed rules: (1) the February 2003 collapse of the
private banks; (2) the traditional conflict between the
written law and the "verbal law" of the senior leadership and
its cronies; and, (3) a lack of technical expertise.

Banks Sink


4. (C) As reported in Reftels B, the private banking sector
in Burma is under water. Following a run on private banks in
February, these institutions basically shut down -- rationing
withdrawals, and not offering new deposits or loans.
According to a senior GOB official, the fragility of the
private banking sector has made authorities very wary of
imposing strict new reporting requirements on the banks.
Indeed, when the law was first passed, expectations that
banks would have to report transactions over 500,000 kyat
(around US$500) to the Central Bank sparked a mini-run on a
few of the banks -- especially those with alleged ties to
criminal activities. With this in mind, one former
government banker told us he thought the banking crisis had
essentially killed motivation in the Finance Ministry to push
forward the necessary money laundering rules.


5. (C) Without these rules, though, public and private banks
are not obliged to report on any particular deposit. In
reality, though, the Central Bank can maintain some
oversight. Throughout the current crisis, private bank
records have been passed daily to Central Bank for review --
a trend that will probably continue. Also, a former
government bank official said that state-owned banks would
probably report any large deposit, unless the customer is
well-known to the bank -- or to senior government officials.

B'Zat U B'Dei = I Am The Law


6. (C) This latter "know your customer" exception is
important. Senior officials and their family and associates,
along with most others with any wealth, are regularly
involved in large, usually undocumented, transactions. In a
land where the "b'zat u b'dei" or "mouth law" of high-level
officials takes precedence over written law, it is thus
difficult to imagine regulators imposing money laundering
rules that will be reliably enforced. One senior economist
told us that his friends in the private and public banking
sector understand the need to report large or suspicious
transactions, but fear the repercussions of informing on
relatives of senior GOB leadership more than any legal
penalties.


7. (C) "Mouth law" and basic, endemic, corruption have
hindered enforcement of existing financial regulations. A
1986 law that requires proof of origin for funds spent on
land transactions is poorly enforced because of underpaid
regulators, institutional cheating on the part of buyers and
sellers (who often keep the same name on a deed through
several generations of sales),and the political influence of
many large landholders.

We Need Help!


8. (C) Though the chicken of regulations must come before the
egg of enforcement, Burmese law enforcement authorities
complain that their money laundering efforts will continue to
fall short of international expectations without more
technical aid. It will be essential to staff the nascent
Financial Intelligence Unit with well-trained investigators.
However, officials complain these efforts are stymied by
sanctions that prevent GOB attendance at the International
Law Enforcement Academy and limit frequent and meaningful
training with American financial crime specialists.

Now, The Good News


9. (SBU) Even without progress on the 2002 money laundering
law's implementing regulations, Burma still has good tools to
fight money laundering, and is using them. Under the 1993
'Narcotic Drugs and Psychotropic Substances' law, money
laundering associated with drug trafficking is considered a
criminal offense and can lead to prosecution and asset
seizure. Using this law, authorities have seized more than 1
billion kyat in assets since 1993. According to GOB sources,
80 percent of local money laundering is drug-related, with
the balance coming largely from gem and timber smuggling.


10. (SBU) Another positive sign, the Ministry of Home Affairs
(MOHA) -- whose minister holds the chair of the Central
Control Board established by the 2002 law to oversee GOB
action against money laundering -- seems quite serious about
building its law enforcement capacity. MOHA officials are
actively courting international assistance and training and
are emphasizing international liaison work. MOHA also
reports the GOB is keen to join the Asia Pacific Review Group
as a full member, but lacks the funds to pay membership
expenses.


11. (C) A mutual legal assistance law is being drafted with
UN assistance to facilitate cooperation between Burma's law
enforcement agencies and their foreign colleagues. However,
a GOB official involved in the law's drafting said that a
draft is not yet finalized and there is no timetable for its
completion or passage. Another knowledgeable source
mentioned that the SPDC leadership was somewhat reluctant to
follow through on this legislation because of possible
"foreign interference" in the government's legal process. In
the meantime, a Burmese police source said even without a
formal law or treaties there has been good international
cooperation on at least two major drug cases, though nothing
notable since late 2002 (see 02 Rangoon 1553).

Comment: Maybe Next Year


12. (C) In a nutshell, the GOB has had continued success in
fighting money laundering, but has failed so far to bring its
overall anti-money laundering legal framework up to snuff.
As explained above, part of the GOB's failure this year
stemmed from the unexpected meltdown of the financial sector.
This problem will remain, as will other, more longstanding,
barriers. However, there are elements in the government who
seem eager to push through necessary regulations and
legislation -- though subsequent enforcement (especially by
the weak Central Bank) will be another matter. Thus, while
we expect the GOB to make some forward progress in 2004,
bringing the country's anti-money laundering efforts fully up
to international standards may take some time.
Martinez