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03TEGUCIGALPA2939 2003-12-18 21:09:00 UNCLASSIFIED Embassy Tegucigalpa
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E.O. 12958: N/A

REF: A. STATE 328024

B. STATE 324347

1. Summary

The trans-shipment of cocaine through Honduras by air, land,
and maritime routes continued, but with significant
disruption in 2003. Overall, seizures in Honduras were
higher than the past five years combined, with 5,738 kilos
of cocaine seized. Corruption within the police, Public
Ministry (Attorney General and prosecutors), and the
judiciary remain a primary impediment to successful law
enforcement cooperation. However, the Government of
Honduras has moved forward with the implementation of new
units in support of the new Money Laundering Law, which was
passed in 2002. The National Council for the Fight Against
Drug Trafficking (CNCN) renewed its commitment to lead the
country's counternarcotics efforts. The Supreme Court is
operating with greater political independence, however,
political pressures within the court have had less than
positive results on many occasions. Available funds to
implement a government approved counternarcotics master plan
remain severely limited. While the Ministry of Public
Security (which includes all police) and the Honduran Armed
Forces have taken a more active and successful role in
counternarcotics operations, the Public Ministry remains
unable or unwilling to prosecute suspects and/or seize
assets. In addition, those assets that have been seized
have yet to be disposed of properly. Honduras is a party to
the 1988 UN Drug Convention.

2. Status of Country

Honduras does not produce drugs in any meaningful
quantities. Its primary drug problem stems from the
trafficking of drugs, in particular, cocaine, via air, land,
and Western Caribbean maritime routes. There are direct air
and maritime links to U.S. cities and the Pan-American
Highway crosses southern Honduras. The Honduran police and
Honduran Navy do not have sufficient maritime assets to
attack drug trafficking along its north coast. There was a
significant increase in drug interdiction this year, with
the total amount of cocaine seized increasing from 76 kg in
2002 to 5,738 kg as of December 15, 2003. Despite the
recent passage of a broader money laundering law, money
laundering in Honduras remains a serious concern.

3. Country Actions against Drugs in 2003

Policy Initiatives: The Government of Honduras launched a
combined police and military effort in the anti-narcotics
efforts in April to create a negative impact on the
transiting of along the North Coast and Southern Borders
areas. A new Pan American Highway checkpoint, constructed
with INL assistance, provides a constant deterrent to the
flow of narcotics into Honduras from its southern border
with Nicaragua.

The new money laundering law now allows cases to be
investigated that are not directly linked to narcotics,
including corruption, terrorism, and other crimes. The
Government of Honduras formed a Financial Investigation Unit
and assigned prosecutors and investigators to special money
laundering units to insure that suspected narcotics
traffickers are fully investigated.

The Honduran Congress is in the process of reviewing a new
anti-narcotics law that will provide law enforcement with
expanded authority to initiate undercover operations. The
current law, as written, prohibits these types of narcotics
operations and mandates that police participating in sting
operations be arrested for the purchase or sale of

The new Criminal Procedures Code took effect on February 20,

2002. This code changes Honduras' criminal legal system
from an inquisitorial system to an accusatorial one. While
the code's primary goal was to decrease opportunities for
accused criminals to manipulate the justice system, it has
been used to block efforts to prosecute drug-trafficking

Accomplishments: As of December 15, 2003, 5,738 kilograms
of cocaine and 13 kilograms of heroin have been seized. In
addition, over 364,592 marijuana plants have been detected
and destroyed. Close to a thousand narcotic related arrests
have been made. The Honduran Frontier Police have been
largely responsible for these seizures, drawing on INL
provided counternarcotics training, technical assistance,
and equipment. Law enforcement agencies have also seized
cash totaling USD 1,119,130, and boats and vehicles with a
total worth of approximately USD 1,000,000.

Law Enforcement Efforts: Counternarcotics efforts are a
priority for the Government of Honduras, however the
Directorate for the Fight Against Narcotrafficking (DLCN)
suffers from poor leadership, inadequate funding, and
unqualified personnel. The DLCN appointed a new director in
June 2003, selecting a person with only military experience,
who has been unable to work effectively with U.S. and
Honduran law enforcement agencies. Despite the
ineffectiveness, the DLCN, Frontier Police, military, and
other Government of Honduras agencies have had successes.

Corruption: While the Government of Honduras has taken some
steps to address internal corruption, the judicial system
continues to be a significant impediment to effective law
enforcement. The Ministry of Public Security has taken
significant steps to investigate corrupt individuals in the
ministry. A new police Internal Affairs Unit has been
formed and several cases have been brought to trial.
However, corruption in the Public Ministry as well as the
judiciary provided significant road blocks in the
prosecution and conviction of alleged narcotraffickers,
money launderers as well as corrupt officials. In the past
eight months, two members of congress have been arrested for
participating in illegal narcotics related activity.
Although they initially claimed diplomatic immunity, one
voluntarily relinquished his immunity so that his case could
be fully investigated and brought to trial. The other, a
member of the Central American Parliament, was not able to
use his immunity due to his arrest in a third country,

Agreements and treaties: Honduras has counternarcotics
agreements with the United States, Belize, Colombia,
Jamaica, Mexico, Venezuela and Spain. The Ministry of
Public Security and the taxing authority for Honduras (DEI)
have signed an agreement that provides the Ministry of
Public Security the authority to open sealed containers with
probable cause, an authority that was formally solely held
by the DEI. The Honduran government is an active member of
the Inter-American Drug Abuse Control Commission (CICAD).
Honduras also hosts the Regional Center for Counternarcotics
Development and Judicial Cooperation in Central America,
headed by a Nicaraguan. In November 2003, Honduras
completed all necessary domestic requirements to become a
party to the UN Convention on Organized Crime.

Cultivation/Production: Cannabis remains the only illegal
drug known to be cultivated in Honduras. Although thousands
of plants were destroyed in 2003, the Government of Honduras
does not use aerial herbicides in eradication efforts. As a
rule, when marijuana farms are detected, the plants are cut
down and destroyed.

Drug Flow/Transit: Despite increased interdiction efforts,
the volume of drugs transiting Honduras continues to
increase. There has been a noticeable growth in the number
of suspect air-tracks and maritime vessels en route to
southern Mexico and the United States. Overland routes
using commercial and private vehicles continue to be used to
smuggle cocaine and heroine. Approximately 90 percent of
drugs entering/transiting Honduras is destined for the
United States, although it has now become a common practice
for traffickers to pay local transporters in drugs rather
than cash. Gang members are increasingly used to distribute
these in-kind payments to Hondurans in urban areas and along
the North Coast. There is evidence of the existence of an
illicit trade of "arms for drugs," with the arms from these
deals presumably destined for use by terrorist groups in
Colombia. Drug smuggling, using ships departing Honduran
ports on the Caribbean, is common. The Government of
Honduras has made a concerted effort to implement a port
security program with the goal of having it in place and
functional by July 2004.

Domestic Programs/Demand Reduction: The Maduro
Administration has launched two pilot programs directed at
Honduran youth to fight drug abuse. The CNCN is making
demand reduction a major part of Honduran counternarcotics
efforts. It reflects the government's appreciation that
drug trafficking through Honduras is not only a national
security threat, but a major public policy problem as well.
Drug use continues to increase among youth in Honduras; 49
percent of Hondurans are under 18 years of age. Drug abuse
by gang members is a growing issue of public concern. It is
viewed by some as only one of many public health and social
problems linked to unemployment, poverty and economic under-
development. Cannabis is the most widely abused illegal
drug in Honduras, followed by inhalants, and to a much
lesser extent cocaine and designer drugs.

The CNCN's program and the Ministry of Public Security's
program link the efforts of the government's demand
reduction entity, the Institute for the Prevention of
Alcoholism and Drug Addiction (IHADFA), with an umbrella
group (CIHSA) of NGOs working in demand reduction and drug
rehabilitation efforts. The new programs combine those
formerly operated by the Ministries of Public Health and
Education, IHADFA and CIHSA, to launch a community-wide
effort to inform youth about the dangers of drugs and
provide alternatives in the form of sports, the arts, and
after school projects. The U.S. Embassy is working with the
National Council and the Ministry of Public Security to
support this approach.

4. U.S. Policy Initiatives and Programs

U.S. Policy Initiatives: U.S. counternarcotics initiatives
aim to strengthen Honduran law enforcement entities, with a
special focus on enhancing Government of Honduras maritime
interdiction along the north coast. The Maduro
Administration has worked hard to support implementation of
bilateral counternarcotics projects and has expressed
interest in expanding program cooperation, though resources
continue to be extremely limited.

Bilateral Cooperation: The United States added almost USD
750,000 to its bilateral counternarcotics program during

2003. The U.S. Government funded additional training and
equipment to the Frontier Police, continued to support
existing canine and maritime projects, as well as the
checkpoint project along the Pan-American Highway, which was
implemented in March 2003.

The Road Ahead: The Honduran government has demonstrated a
strong renewed commitment, backed by concrete action, to
attack drug trafficking through its national territory. It
is organizing police, military, social services, and
national security policy to more effectively respond to this
challenge on a limited budget. We expect to see an
increased level of maritime and land interdiction operations
during the next year. The CNCN has taken a revitalized
leadership role within the government. We expect to work
closely with the Council to better address implementation of
the national counternarcotics master plan. Corruption,
threats, and violence continue to pose a major challenge to
effective law enforcement.

5. Statistical tables

Summary Tables for Three Years

For Calendar Years: 2003 -- 2002 -- 2001

1. Coca:

-- A. Cultivation N/A N/A N/A
-- B. Eradication N/A N/A N/A
-- C. Harvestable after Eradication

2. Potential Coca Leaf: N/A N/A N/A

3. Opium:

-- A. Cultivation N/A N/A N/A
-- B. Eradication N/A N/A N/A
-- C. Harvestable after Eradication:

4. Cannabis (in plants)

-- A. Cultivation: Unknown Unknown Unknown
-- B. Eradication: 364,592 41,402 269,000
-- C. Harvestable after Eradication:

5. Potential Cannabis Yield:
Unknown Unknown Unknown

6. Drug Seizures (in kilos)

A. Coca leaf N/A N/A N/A

B. Cocaine paste N/A N/A N/A

C. Cocaine base N/A N/A N/A

D. Cocaine HCL 5,738 76 182

E. Opium poppy straw N/A N/A N/A

F. Opium gum N/A N/A N/A

G. Heroin 13 0 0

H. Cannabis 3,205 2.85 2.74

I. Crack Cocaine (rocks) 2,157 708 714

8. Illicit Labs Destroyed: 0 0 0

9. Domestic Consumption of illicit drugs:
Unknown Unknown Unknown

10. Arrests: 1,058 722 896

11. Users: Unknown Unknown Unknown

6. Chemical Control: The Government of Honduras continues
attempts to limit the illicit introduction of precursor
chemicals into the country. Comprehensive regulations to
control the sale of chemicals necessary for the processing
of illegal narcotics, however, have yet to be developed.
During the year, the government, in conjunction with the
UNDP, installed a national data system to more effectively
track precursor chemical transactions.

7. Money Laundering: Honduras is not regarded as an
important regional financial center nor is it considered to
have a significant black market for smuggled goods.
However, Honduras does have a growing money laundering
problem, due to its connection to the narcotics trade.
Honduras passed a tough new money laundering law in February
2002 (Decree 45-2002). In 2003, the government took steps
to implement the law, by establishing and equipping the
entities responsible for combating money laundering.
Further progress, however, will depend on the training and
retention of personnel familiar with money laundering and
financial crimes, clearer delineation of responsibility
among different government entities, and improved ability
and willingness of the Public Ministry to investigate and
prosecute financial crimes aggressively. In 2003, there
were ten cases brought to court under the new money
laundering law, which were pending at year's end.

The money laundering that takes place in Honduras is
primarily related to narcotics trafficking, although there
are connections to other forms of criminal activity as well.
The 2001 arrest of the Jimenez drug trafficking cartel on
the north coast of Honduras revealed an extensive money
laundering operation of both domestic and foreign illicit
proceeds. Their operation revealed a variety of criminal
activities including narcotics trafficking, auto theft,
kidnappings, bank fraud, smuggling, prostitution and
corruption. Money laundering activities are not limited to
the banking sector, but likely include currency exchange
firms, casinos and front companies.

The 2002 money laundering law expands the definition of the
crime of money laundering to encompass (1) any non-
economically justified sale or movement of assets and (2)
asset transfers connected with trafficking of drugs, arms
and people, auto theft, kidnapping, bank and other forms of
financial fraud, or terrorism. The penalty for money
laundering is a prison term of 15 to 20 years. The law
includes banker negligence provisions that make individual
bankers subject to two to five-year prison terms for
allowing money-laundering activities.

The law created a Financial Information Unit in the National
Banking and Insurance Commission to which banks and other
non-bank financial institutions must send information on all
transfers exceeding USD 10,000 or 500,000 lempiras (about
USD 28,000), or other atypical transactions. The law
requires the Financial Information Unit and the reporting
banks to keep a registry of reported transactions for five
years. The Financial Information Unit receives over two
thousand reports per month of transactions over the
designated threshold.

The money laundering law requires that a public prosecutor
be assigned to the Financial Information Unit. In 2002, a
prosecutor from the Public Ministry was assigned to the Unit
full time. However in 2003, the Public Ministry changed
this arrangement so that now there are four prosecutors
assigned to the Unit, each on a part time basis, with
responsibility for specific cases divided among them
depending on their expertise.

Public prosecutors, under urgent conditions and with special
authorization, may subpoena data and information directly
from financial institutions. In 2003, the Financial
Information Unit initiated investigations into 74 atypical
transactions, as compared to 24 in 2002. The Unit also
responded to 156 requests for investigation made by the
Public Ministry, as compared to 48 in 2002.

Early in 2003, there was ambiguity as to which of two units
within the police forces would have responsibility for the
investigation of financial crimes. This issue was resolved
by mid-year, with responsibility assigned to the Office of
Special Investigative Services (DGSEI). By the end of 2003,
it appeared the various government entities involved in the
fight against money laundering (the police investigators,
the Financial Information Unit and the prosecutors) were
beginning to work well together and communicate more
effectively among themselves.

International Cooperation: In October 2002, Honduras became
a member of the Caribbean Financial Action Task Force.
Honduras cooperates with U.S. investigations and requests
for information pursuant to the 1988 UN Drug Convention.
Honduras has signed Memoranda of Understanding to exchange
information on money laundering investigations with Panama,
El Salvador, Guatemala and Colombia, and has signed and
ratified the UN Convention against Organized Crime. The
Honduran government adheres to the core principles for
effective banking supervision that the Basel Committee
adopted in 1997. At the regional level, Honduras is a
member of the Central American Council of Bank
Superintendents, which meets periodically to exchange

Asset Seizure and Forfeiture: The National Congress enacted
an asset seizure law in 1993 that subsequent Supreme Court
rulings substantially weakened. The 2002 money laundering
legislation greatly strengthened the asset seizure
provisions of the law, establishing an Office of Seized
Assets under the Public Ministry. The law authorizes the
Office of Seized Assets to guard and administer "all goods,
products or instruments" of a crime. However, the actual
process of establishing and equipping this office to carry
out its function has been slow.

The implementing regulations governing the Office of Seized
Assets were finalized and published in March 2003, and a
director of the office was named at the same time. However,
plans to build separate offices and a warehouse for this
entity are still incomplete, with the result that seized
assets are currently kept in various locations under
dispersed authority. Moreover, in September another
government entity made an attempt to take over the function
of controlling seized assets from the nascent Office, though
unsuccessful. Consequently, the Office of Seized Assets
cannot yet be said to have established firm control over the
asset seizure and forfeiture process. The physical
transportation of large sums of cash is also a growing
phenomenon in Honduras. As reported in last year's cable at
year-end the "Captain Ryan Case" resulted in a seizure of
USD 460,000. This marked the beginning of a trend and since
last year's report there has been seizures of cash and
assets totaling over USD 2,000,000.

Terrorist Financing: The National Banking and Insurance
Commission has issued freeze orders promptly for the names
on the UN 1267 Sanctions Committee's consolidated list and
each of the subsequent lists of individuals and entities the
U.S. has designated under relevant authorities. The
Commission has reported that, to date, no accounts linked to
the individuals or entities on the lists have been found in
the Honduran financial system. The Ministry of Foreign
Affairs is responsible for instructing the Commission to
issue freeze orders. The Commission directs Honduran
financial institutions to search for, hold and report on
terrorist-linked accounts and transactions, which, if found,
are frozen.

While Honduras is a major recipient of flows of remittances
(estimated at USD 800 million in 2003), there has been no
evidence to date linking these remittances to the financing
of terrorism. Remittances primarily flow from Hondurans
living in the United States to their relatives in Honduras,
and the great majority of these remittances are sent through
wire transfer or bank services.

Honduras has signed and ratified the 1999 International
Convention for the Suppression on the Financing of

Offshore financial centers: Honduras is not considered an
offshore financial center. Per a January 2002 National
Banking and Insurance Commission Resolution (No. 012/08-01-
2002), the operation of offshore financial institutions is