TERRORIST FINANCE FOLLOW UP: SRI LANKA AND MALDIVES

C O N F I D E N T I A L SECTION 01 OF 02 COLOMBO 000437

SIPDIS

FOR EB A/S E. ANTHONY WAYNE FROM AMBASSADOR LUNSTEAD

E.O. 12958: DECL: 03/09/2014
TAGS: EFIN ETTC PREL PTER MV CE LTTE
SUBJECT: TERRORIST FINANCE FOLLOW UP: SRI LANKA AND MALDIVES

REF: STATE 37211

Classified By: Ambassador Jeffrey J. Lunstead, Reasons 1.5 B, D and E


1. (C) Summary: Post believes the GSL and the GORM have been
fully cooperative with counterterrorism finance initiatives,
to the extent they are able. While neither has frozen
terrorist assets, we do not believe either Sri Lanka or the
Maldives presents an attractive banking alternative for
terrorist elements at this time. Sri Lanka has dealt with an
internal terrorist element for over twenty years and is fully
cooperative with the US in the war on terror. Maldives is a
moderate Islamic country that is highly protective of its
stature as a safe tourist haven and is fairly aggressive in
combating fundamentalist tendencies. Moreover, US Treasury
teams are slated to arrive in both countries in late April to
conduct AML training and to provide additional technical
assistance to both Governments and banking sectors. End
Summary


2. (C) In response to reftel, Post believes both Governments
of Sri Lanka and Maldives are making their best efforts in
the realm of combating terrorist financing, but a lack of
capacity may hamper their success. While both Sri Lanka and
the Maldives have initiated efforts to track terrorist
financing, neither have frozen any accounts based on USG or
UN distributed information. At this point, Post has no
evidence to suggest there are assets to be frozen.
Nonetheless, efforts to expand capabilities and look more
closely at Liberation Tigers of Tamil Eelam (LTTE) financing
could prove useful. Sri Lanka is enjoying a two-year old
cease-fire agreement with the LTTE, a US-designated Foreign
Terrorist Organization. The GSL has been the victim of
repeated terrorist attacks, has welcomed training and
assistance to help weaken LTTE networks and is fully
cooperative with the US in the war on terror. It recognizes
the effects of terrorism as a drag on economic development.
Maldives is a moderate Muslim nation whose economy is almost
entirely dependent on tourism. It values its reputation as a
"safe" country and is not tolerant of fundamentalist brands
of Islam operating on its soil. Both countries welcome
assistance from the US and other members of the international
community, both have established new rules and procedures in
their banking sectors since September 11, 2001 and both
countries have a lot to lose, and very little to gain, from
allowing terrorist elements to operate in their countries.


3. (C) A US Treasury team recently conducted an assessment of
the Sri Lankan financial sector and concluded that there are
weaknesses in the banking sector open to possible
exploitation. The assessment concluded that drugs, human
smuggling and corruption are the crimes that generate most
money laundering problems in Sri Lanka. The assessments also
found areas where additional assistance is warranted,
including new anti-money laundering legislation; training for
Central Bank and banking sector employees; training for
judges, prosecutors and investigators; the development of a
casino regulatory scheme and awareness training for
legislators and other government officials.


4. (C) Hawala networks are also used in Sri Lanka, though
their informal nature makes them difficult to track. Most
Hawala transactions are for the repatriation of funds from
workers abroad. (Note: Sri Lanka has over one million
citizens working abroad, most in the Middle East. End Note.)
It is possible that some terrorist financing is conducted
through Hawala networks in the North and East of the country,
as these areas are largely controlled by the LTTE and outside
the purview of the GSL. To date we have little indication of
broader LTTE cooperation with other transnational terrorist
groups.


5. (C) While recognizing the efforts the GSL has made in this
area, it is important we continue to press the GSL to do
more. We should continue to press them to upgrade their
investigative capacity, improve their legal and regulatory
infrastructure and pass and enforce new, strengthened
anti-money laundering and counter-terrorist finance laws.
Maldives also should upgrade its laws and continue to seek
training for its banking sector, in order to avoid becoming a
sector of interest for terrorist financiers. US Treasury
teams will arrive in both countries in late April to conduct
anti-money laundering training.


6. (C) With regard to the questions posed in reftel para 10,
Post has three suggestions. First, with regard to the GSL,
additional assistance - which could probably be tied to the
upcoming Treasury Department training - in the area of
developing laws and ensuring that pending legislation is
modern and effective could be useful. Perhaps there have
been some insights gained in the past two and a half years,
as countries have frozen assets and prosecuted cases, as to
what kinds of legislation are most effective and what
stipulations have proven problematic. Perhaps there would be
value in a wider information sharing exercise between law
enforcement and judicial elements on the subject.


7. (C) Second, if it has not already been done, US terrorism
finance experts might consider a closer examination of groups
like the LTTE. The LTTE is highly sophisticated and its
financial network and supply chains are formidable. It might
prove interesting for experts with experience in terrorist
financing patterns to come to Colombo and explore what is
known about LTTE methods. The GSL has been dealing with this
indigenous terrorist threat for a long time and might have
some insights worth considering.


8. (C) Finally, as freezing assets and working this issue has
demanded additional time and resources on the part of
Governments, perhaps the US should consider developing a list
of cooperating countries. Criteria could be established and
it might potentially feed into the Millennium Challenge
Account process for developing countries or boost a
country,s chances for additional training or assistance in
this area. Since this is also related to a wider UN effort,
perhaps some kind of remunerative incentive could be given )
like deducting the amount of assets frozen from a country,s
NY parking fines.
LUNSTEAD