UNCLAS SECTION 01 OF 03 HANOI 003335

SIPDIS

STATE FOR EB/ESC/ESP, S/CT, EAP/BCLTV, IO/PHO, INL
TREASURY FOR FINCEN, OASIA, GENERAL COUNSEL, TASK FORCE
ON TERRORIST FINANCING, AND OFAC JUSTICE FOR OIA, AFMLS

SENSITIVE BUT UNCLASSIFIED

E.O. 12958: N/A
TAGS: PTER EFIN KTFN ETTC PREL VM EUN CTERR CNARC FINREF
SUBJECT: VIETNAM: INSCR RESPONSE PART II, MONEY
LAUNDERING AND FINANCIAL CRIMES

REF: A) STATE 254401, B) HANOI 003239


1. (U) Summary: Although the government monitors
international financial transactions in Vietnam
closely, it is not clear whether the procedures are
adequate to preclude money laundering or terrorism
financing. Some branches of the government are more
cooperative than others in trying to address this
problem. Information provided discusses anti-money
laundering/anti-terrorist financing issues, policies,
laws, implementation of regulations and plans in
Vietnam during the year 2004. Discussion is ordered
according to questions posed Ref A. End Summary.

General Questions
--------------

2. (SBU) Vietnam is not an important regional or
offshore financial center. The Vietnamese banking
sector is underdeveloped and the Government of Vietnam
(GVN) controls the flow of all U.S. dollars in official
channels. Vietnamese officials remain confident that
their strict banking regulations prevent money
laundering and terrorist financing. However, the issue
is difficult to monitor since there are no laws in
effect at this time to support international money
laundering investigations, resulting in a lack of legal
and policy-driven authority for Vietnamese law
enforcement officials to cooperate bilaterally. The
"drug economy" exists in Vietnam's informal financial
system. Vietnam has a large "shadow economy" in which
U.S. dollars and gold are the preferred currency. Due
to the limited size of Vietnam's banking system and
currency exchange controls, even legitimate businesses
carry on transactions in this "shadow economy." In
addition, Vietnamese regularly transfer money though
gold shops and other informal mechanisms to remit or
receive funds from overseas. Officially, expatriate
remittances account for 3 billion U.S. dollars and
unofficially the number may be more than double that
amount. It is believed that a percentage of
transactions in

the formal and alternative remittance
systems results from narcotics proceeds.


3. (SBU) There has been an increase in financial crimes
as a result of the developing economy; this is not
limited to money laundering. The black market for
smuggled goods is not significantly funded by narcotics
proceeds. Vietnam has three free trade zones known as
export processing zones (EPZ). Companies operating in
EPZs manufacture goods for export and enjoy customs
benefits (e.g., duty free for imported materials). A
foreign invested enterprise must have a license to
operate in the EPZ. The investment license often
stipulates what activities the company can do or what
products they can manufacture.

Laws and Regulations to Prevent Money Laundering/
Terrorist Financing
-------------- --------------

4. (SBU) Although Vietnam does not yet have a separate
law on money laundering or terrorist financing, it is
working on anti-money laundering legislation, in the
form of a Decree that is expected to be issued in the
first quarter of 2005. The Decree is expected to cover
all serious crimes without specific reference to such
offenses covered in the Penal Code. In addition,
Article 251 of the Amended Penal Code criminalizes
money laundering. The Counter-narcotics Law, which
took effect June 1, 2001, makes two narrow references
to money laundering in relation to drug offenses: it
prohibits the "legalizing" (i.e., laundering) of monies
and/or property acquired by committing drug offenses
(article 3.5); and it gives the Ministry of Public
Security's specialized counternarcotics agency the
authority to require disclosure of financial and
banking records when there is a suspected violation of
the law. The implementing regulations have not yet
been promulgated. The State Bank of Vietnam, which has
the lead on countering terrorist financing, can also
request the disclosure of information when it believes
that a transaction might fall within this category.
Furthermore, the State Bank requires banks to report
suspicious transactions of any kind.


5. (U) The Asian Development Bank is working with the
GVN on draft banking legislation. The GVN is also
working with international financial institutions to
increase its banking supervision capabilities.
Currently banks are required to maintain records from
seven to up to 20 years. Banks are responsible for
client confidentiality but are also required to provide
information to law enforcement authorities for
investigation purposes. Banks are responsible for
checking all identification and relevant papers
presented for opening accounts and implementing
transactions.


6. (U) Foreign currency (including notes, coins and
traveler's checks) in excess of USD 3,000, cash
exceeding Vietnamese Dong (VND) 5,000,000 and gold of
more than 300 grams must be declared at customs upon
arrival and departure. There is no limitation on
either the export or import of U.S. dollars or other
foreign currency provided that all currency in excess
of USD 3,000 (or its equivalent in other foreign
currencies) or in excess of VND 5,000,000 in cash is
declared upon arrival and departure, and supported by
appropriate documentation. If excess cash is not
declared, it is confiscated at the port of entry/exit
and the passenger may be fined.

International Cooperation
--------------

7. (U) The GVN is a party to the 1999 International
Convention for the Suppression of the Financing of
Terrorism and to the UN International Convention
against Illicit Traffic in Narcotic Drugs and
Psychotropic Substances (Vienna Convention). The GVN
and the USG signed the Letter Of Agreement On
Counternarcotics Cooperation in December 2003, to
establish and to support projects designed to combat
the production and trafficking of illicit narcotics and
other forms of transnational criminal activities. As a
member of the UN, Vietnam is bound by UN Security
Council Resolution 1373. GVN has circulated to its
financial institutions the lists of individuals and
entities that have been included on the UN 1267
sanctions committee's consolidated list as being linked
to Usama Bin Laden, members of the Al Qa'ida
organization or the Taliban, and has reported that no
names or assets have been identified. Vietnamese legal
provisions on counter terrorism financing are covered
in various legal documents such as the Law on Credit
Organizations, the Penal Code (Article 84 and Article
20, Paragraph 2) and others. The GVN should amend its
Criminal Code to create expanded terrorism offenses, as
a Decree cannot create offenses. The GVN should
establish a separate legal document governing the
prevention and suppression of terrorism financing. The
GVN should also enforce cross border currency controls
and regulate the use of gold as an alternative
remittance system.


8. (SBU) Post suspects that some U.S. currency derived
from illegal drug trafficking enters Vietnam's
financial institutions. Drug trafficking networks are
capable of laundering an estimated tens of millions of
dollars per month back to Vietnam, exploiting U.S.
financial institutions to wire transfer money to
Vietnamese bank and remittance accounts, as well as
engaging in smuggling bulk amounts of U.S. currency
from the United States to Vietnam. To date, the
Ministry of Public Security (MPS) has not supported any
anti-money laundering initiatives to counter either of
these activities. MPS has repeatedly refused to
respond to requests for assistance in identifying
instances in which U.S. citizens have entered Vietnam
in possession of USD 10,000 or more in cash, which by
U.S. law should have been declared prior to exiting the
United States. Furthermore, MPS does not comply with
requests for the results of their investigations into
bank accounts and individuals (and their assets) in
Vietnam identified by DEA investigation as complicit in
the laundering of drug proceeds from the United States.
The GVN should provide implementing regulations for
international cooperation.

Asset Forfeiture and Seizure Legislation
--------------

9. (SBU) Under existing Vietnamese legislation, there
are provisions for seizing of assets linked to drug
trafficking. In the course of its drug investigations,
MPS has seized vehicles, property and cash; though the
seizures typically are directly linked to the drug
crime and the final confiscation requires a court
finding. Reportedly, MPS can notify a bank that an
account is "seized" and that is sufficient to have the
account frozen. Post has posed written questions to
the Economic Police Department, MPS, related to the
current laws, jurisdiction and cooperation regarding
investigation and seizure of assets and is awaiting a
response.


10. (SBU) Comment: DEA Hanoi has received minimal
cooperation from MPS. Economic officers and assistants
met several times with officials from the State Bank of
Vietnam and the Ministry of Justice who agreed that
lack of authority pending adequate legislation hampers
cooperation. Although Vietnamese officials are also
reluctant to share draft legislation due to lack of
authority, post recognizes an apparently sincere desire
on the part of government, banking and some law
enforcement officials to finalize new legislation and
implementation regulations.
BOARDMAN