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