BURMA GOES BACK TO BASICS ON TERRORIST FINANCING

S E C R E T SECTION 01 OF 02 RANGOON 000305 SIPDIS STATE FOR EAP/BCLTV, EB, IO/PHO, S/CT COMMERCE FOR ITA JEAN KELLY TREASURY FOR OASIA JEFF NEIL USPACOM FOR FPA E.O. 12958: DECL: 03/04/2014 TAGS: PTER EFIN ETTC PREL BM SUBJECT: BURMA GOES BACK TO BASICS ON TERRORIST FINANCING REF: A. STATE 37211 ¶B. RANGOON 239 AND PREVIOUS ¶C. 03 STATE 345729 ¶D. 03 RANGOON 859 Classified By: COM CARMEN MARTINEZ FOR REASONS 1.5 (B,D) ¶1. (S) Summary: Burma's efforts to fight terrorist financing suffer from several systemic and policy problems -- including corruption, a massive informal economy, and lack of professional capacity. Likewise, the GOB has been slow to complete its UN reporting requirements and has not yet taken action against any individual or entity listed by the UNSC. However, the regime is taking steps to improve its money laundering regime and it remains cooperative with USG counterterrorism priorities in Burma. Furthermore, we have no evidence that any assets of designated individuals or groups are being held in Burma -- though the nature of Burma's informal financial system make assurances impossible. Now that Burma has a legal framework and investigative unit to fight terrorist-related money laundering, it could be the time to develop a low-level USG-GOB cooperative relationship on this issue -- much as we have, with positive results, on narcotics. End summary. No Banking System, No Capacity = Big Problem? ¶2. (C) There are several systemic obstacles hindering Burma's efforts to effectively monitor and control financial crimes, including terrorist financing. First, the banking system in Burma is in shambles. Private banks are only gradually returning to life after a year's hiatus following a massive bank run in February 2003. The government has yet to allow two of the three largest (by asset and deposit) pre-run private banks to return to action. State-owned banks, including several quasi-state banks managed and owned by the military, were not affected by the banking crisis, though they attract few customers. These banks instead provide cheap (or free) credit for various GOB-priority projects. Only the three state-owned foreign trade banks are allowed to handle foreign exchange deposits and transactions. ¶3. (C) A second problem is the country's traditional, and continued, reliance on the informal economy -- including a large hundi/hawallah network (ref D). This network, which is used by all sectors of Burmese society, is loosely organized, which makes monitoring and enforcement very difficult. This problem is exacerbated by a third systemic shortcoming, which is the dire lack of capacity and knowledge of financial crime among Burmese law enforcement agencies. This knowledge gap is due to the failure, until very recently, of the GOB to focus on financial crime and money laundering, and also due to U.S. sanctions that prohibit or discourage cooperation with and assistance to GOB officials. The USG is not able to invite GOB officials to ILEA training, for example. ¶4. (C) Finally, Burma suffers a problem that is common to many other countries: corruption. Extremely low wages for GOB officials, combined with poor education and training, make Burma's law enforcers and financial watchdogs highly susceptible to turning a blind eye. One Step Forward, A Half Step Back ¶5. (C) The GOB is taking steps to improve its ability to prevent illegal use of the financial system, however. Over the past few months, the GOB has issued the regulations necessary to implement a 2002 law that for the first time explicitly criminalizes money laundering associated with a number of crimes -- including terrorism (ref B). Prior to 2002 only narcotics-related money laundering could be prosecuted. Burma's banks will now be required to file reports on suspicious transactions, or those above a threshold amount believed to be 100 million kyat (around US$120,000). (Note: the GOB has not announced the threshold amount, only that it has set one.) The law also establishes a Financial Investigative Unit (FIU),headed by a well-respected Police Colonel currently in the counternarcotics agency, dedicated to investigating financial crimes. ¶6. (C) With each positive step the GOB takes, however, it is hampered by other policies that will make more difficult the prevention of money laundering. First, continued economic mismanagement is pushing more and more of the economy underground (including financial services),driving out foreign investors, and crippling the private banking system. As the GOB's hard currency reserves dwindle, in part due to the 2003 U.S. sanctions that ban the remittance of U.S. dollars to Burma, the GOB is increasingly turning a blind eye to or even encouraging the unlimited import of foreign exchange by whatever means available. ¶7. (C) Likewise, there remains a conflict of interest in the monitoring of the country's informal financial system. The new FIU chief has pledged strong action on controlling the hundi system -- illegal under Burmese law. However, with legal remittances of foreign currency made extraordinarily difficult by antiquated foreign exchange control laws and new U.S. sanctions, senior GOB and military officials and business cronies of the government rely even more on hundi for expatriating their holdings and importing dollars needed for local business ventures. Also, it is well known that the Military Intelligence service, which trumps all when it comes to investigative and law enforcement matters, is often making money from this same hundi system, either as operators or by taking bribes from operators (ref D). How About the 1455 Report? ¶8. (C) Burma is one of the 108 countries that is tardy in its submission of the report mandated by UNSC Resolution 1455 (ref C). In addition, Burma's Ministry of Foreign Affairs corroborates there have been no actions taken by the GOB against any individual or entity listed pursuant to UNSC counterterrorism resolutions. However, as the deputy director of MOFA's international organizations office (a longtime UN veteran) told us, Burma had been among the first to issue a UNSC Resolution 1373 report and was currently working on its third 1373 submission. He explained that the GOB thought completion of the 1373 reporting was first priority, but that the 1455 report would be released "soon." He stressed, though, that the delay in submission in no way indicated a flagging of the GOB's determination to be a good partner in the UN's terrorism fight. Nothing We Know Of ¶9. (S) To the best of our knowledge there is no evidence that terrorist groups are using Burma's banking system or that designated individuals or groups have assets in Burma. However, the nature of Burma's informal financial system makes assurances impossible. On counterterrorism in general, cooperation with the GOB has been good. Burma is a police state and is very cautious and mindful of anyone that might cause a disturbance. Burma's leadership knows that any domestic entity that is anti-American would likely be anti-regime first. Comment: A USG Role if We Want It ¶10. (C) It is up to the ruling SPDC to make the type of systemic and policy changes necessary for Burma to put in place a functional anti-terrorist financing regime. However, the USG could certainly assist along the margins. Providing small-scale technical assistance of some variety to the professional members of the FIU would pay dividends: adding badly needed capacity, removing an excuse the GOB can use for not complying with its money laundering law, and making Burma's working-level law enforcers better partners in the War on Terror. As we've seen with our limited cooperative relationship with front line Burmese counternarcotics forces, a little can go a very long way here. End comment. Martinez