C O N F I D E N T I A L SECTION 01 OF 03 PANAMA 003038

SIPDIS


DEPT FOR S/CT, INL/LP, AND WHA/CEN


E.O. 12958: DECL: 12/10/2014
TAGS: EFIN PTER SNAR PM ECONOMIC AFFAIRS
SUBJECT: OVERVIEW OF PANAMANIAN EFFORTS TO ADDRESS ILLICIT
FINANCE


REF: PANAMA 2524


Classified By: Ambassador Linda E. Watt for reasons 1.4 (b) and (d).



1. (SBU) This is the first in a series of reports from
Embassy Panama's newly formed Illicit Finance Task Force
(IFTF). The interagency IFTF was initiated in September 2004
to monitor terrorist financing and the laundering of
narcotics and other criminal proceeds. The task force
includes members from DHS, DAO, DEA, RSA, NAS, ECON, and POL.


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Panama: Illicit Finance Overview
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2. (C) Numerous criminal organizations and drug trafficking
groups, including the Colombian Revolutionary Armed Forces
(FARC) and the United Self-Defense Forces (AUC), move
hundreds of millions of dollars of illicit proceeds through
Panama each year. (Comment: Embassy estimates that 70
percent of the money laundered in Panama is derived from the
sale of illegal narcotics; the other 30 percent of illicit
funds come from the proceeds of corruption, arms trafficking,
human smuggling, intellectual property rights violations and
other criminal activity. End comment.)



3. (C) Panama has made significant strides in improving its
anti-money laundering (AML) regime over the past decade, but
loopholes still exist. Likewise, under-funded and
understaffed Panamanian enforcement agencies and poorly
functioning judiciary allow launderers to operate with little
fear of arrest or prosecution. Panama's well-developed
financial services sector, the Colon Free Zone (CFZ), and
geographic location at the crossroads of international trade
and narcotics flows, make it vulnerable to money laundering
and terrorist financing. The majority of illicit funds are
smuggled into Panama via bulk cash couriers, hidden in cargo,
or transferred via wire to banks or other non-bank financial
institutions.



4. (C) Panama's use of the USD and the existence of the Colon
Free Zone make it an attractive place for traffickers to
launder proceeds through the Black Market Peso Exchange
(BMPE). Excess USD earned by South American, mainly
Colombian, drug traffickers and the need to exchan

ge these
dollars for local currency, create a black market whereby
brokers purchase excess dollars from drug traffickers (in
exchange for local currency) to sell to legitimate businesses
for lower-than-normal market rates. The USDs purchased in
this scheme are often used to pay down the trade accounts
between those businesses and CFZ exporters. Free Zone goods
are then shipped from companies in Colon to legitimate
businesses, normally in Colombia and Venezuela, and the
exchange is complete. Efforts by the CFZ Administration to
monitor BMPE bulk cash and third party payments have been
weak due to the conflicting goal of promoting commerce.



5. (C) The anti-money laundering and compliance efforts of
Panamanian banks and money remitters have improved in recent
years. In 2003, legislation was passed to increase
regulatory oversight of money remitters and allow the bank
superintendent (SB) to conduct audits of the industry.
(Comment: Embassy officials noted that although regulation
and compliance are generally improving, Panamanian
institutions tend to give less scrutiny to wire transfers
from U.S. institutions. There is a perception among
Panamanian companies that transactions from the U.S. are
strictly regulated and therefore safe to accept. End
comment.)


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Torrijos Administration and Illicit Finance
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6. (C) Since taking office in September, the Torrijos
Administration promised to take a more aggressive approach
toward money laundering and terrorist finance than did the
Moscoso Administration. Panama's Customs Service has long
suffered from endemic corruption, but, the new director,
Julio Kennion, has asked the USG to help form an Office of
Professional Responsibility to address corruption within
Customs. (Note: Ironically, unconfirmed rumors of Kennion's
involvement in corruption have already begun to surface. End
note.)



7. (C) Customs improvement is desperately needed to slow the
flow of illicit cash movements into the Colon Free Zone and
the bulk currency that fuels the BMPE. Undeclared cash
seizures have dropped from $7.4 million in 2003 to
approximately $2 million so far in 2004. In 2003, $470
million was declared with Panamanian customs officials, up
from $400 million in 2002. Total declarations for 2004 are
not yet known. (Comment: Embassy officials believe that the
drop in undeclared seizures, coupled with increasing
declarations, indicates that couriers have little fear of
further investigation once cash is declared. Customs keeps
records of declared cash, but, follow-up investigations into
the sources and uses of the cash are rare. Considering the
safety, quickness and ease of electronic transfers versus
cash transactions, $470 million in declared cash is a
startling amount for a country of Panama's size. End
comment.)



8. (C) Panama has two main bodies that analyze and
investigate financial crime: the Financial Analysis Unit
(UAF), which works under the civilian intelligence service,
the Council for Public Security and National Defense
(CSPDN/Consejo), and the Financial Investigative Unit (UIF),
which operates under the Public Ministry. The UAF was
created in 1995 (with USG assistance) and is responsible for
the analysis of financial intelligence and data. When
suspicious activity is identified by the UAF, the cases are
sent to the Attorney General who decides whether to turn them
over to the UIF for criminal investigation.



9. (C) Orcila Vega de Constable took over as head of UAF
under the Torrijos administration. Upon taking office,
Constable was instructed by members of the Torrijos
administration to aggressively attack money launderers and to
improve cooperation with the U.S. Embassy in this effort.
Currently, the UAF has 12 staff members and, since its
formation, has sent hundreds of cases to the Attorney General
and the UIF. (Note: Constable is an attorney with no
experience investigating financial crimes. End note.)



10. (C) The UIF continues to face resource and staffing
shortages, severly limiting its ability to investigate
financial crimes. Gustavo Cardenas, the head of the UIF, is
a hold over from the Moscoso Administration. The
understaffed UIF consists of nine investigators who have more
than 400 open cases. Though a number of cases are awaiting
trial, so far in 2004, the UIF has produced no money
laundering convictions. With USG assistance, the UIF
recently updated its facilities with a new computer system
capable of supporting a staff of 15. However, due to budget
constraints, it still lacks basic analytic software programs
and trained personnel to make full use of the new technology.



11. (C) Panama's long-term inability to effectively control
money laundering is partly due to the lack of internal
training for financial analysts and investigators. Neither
of the two main bodies responsible for financial intelligence
and investigation, the UAF and the UIF, have formal training
programs. Most UAF-UIF financial analysts and investigators
receive some financial training, but mainly through the
support of foreign governments or simply on-the-job.



12. (C) As is evident by the 400 financial crime cases under
investigation by the UIF, and the lack of money laundering
convictions, there are problems at the judicial level.
Panamanian judges have little familiarity or training in the
technicalities of money laundering cases. (Comment:
Likewise, corruption is more evident among judicial officials
than among law enforcement, suggesting a need for ethical
training or oversight. End comment.)


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Comment
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13. (C) For the reasons previously mentioned, Panama will
remain a preferred destination for licit and illicit funds
from around the world. Panama has improved its AML regime
and, with continued U.S. support, law enforcement is
beginning to investigate and bring cases to trial. The
challenge for the Panamanians will be to further improve
customs procedures for monitoring bulk cash movements and to
sustain and fully utilize the analytic and investigative
improvements of the UAF and UIF. More importantly, the
Panamanians need to address corruption and the inability of
Panamanian judges to convict money launderers.
WATT