CODEL SHELBY DISCUSSES BANKING, MONEY LAUNDERING,

UNCLAS SECTION 01 OF 03 TEGUCIGALPA 001554

SIPDIS

STATE FOR H, EB, S/CT, INL, DRL/IL, AND WHA/CEN
STATE PASS USTR FOR JWOLFE
STATE PASS AID FOR LAC/CEN
TREASURY FOR OTA: JANTONOVICH
DOL FOR ILAB

E.O. 12958: N/A
TAGS: EAID ECON EFIN ETRD KJUS PREL PTER OREP HO
SUBJECT: CODEL SHELBY DISCUSSES BANKING, MONEY LAUNDERING,
AND ECONOMIC DEVELOPMENT

REF: A. TEGUCIGALPA 1434


B. TEGUCIGALPA 1490

C. TEGUCIGALPA 819


1. Summary: Codel Shelby's June 28-30 visit underscored the
close economic and political relationship between the
U.S. and Honduras, while providing a welcome focus on
financial regulation and prevention of money laundering and
terrorist financing. In meetings with GOH officials and
business and banking sector leaders, the delegation discussed
the Millennium Challenge Account (MCA),port security, and
the Central American Free Trade Agreement
(CAFTA). The senators expressed interest in further
assisting the Government of Honduras (GOH) with economic
development, security training, and financial reform. The
visit took place during unrelated protests by teachers and
environmentalists, which did not impact the delegation
directly. End Summary.

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Meeting with Ministers and President Maduro
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2. Senator Richard Shelby (R-AL) and Senator John Cornyn
(R-TX) visited Honduras June 28-30 as part of a five-country
visit through Central America. In their first meeting at the
Presidential Palace, Norman Garcia, Minister of Industry and
Commerce, presented the group with a broad overview of the
main economic issues facing Honduras, namely CAFTA and the
MCA. The Senators raised the fight against terrorist
financing and money laundering, as well as immigration and
remittances. Minister of Finance Arturo Alvarado arrived
partway through the meeting, having come directly from
teacher negotiations. He updated the delegation on the
status of negotiations and explained the background to the
government's policy of controlling growth of teacher salaries
to maintain fiscal balance and keep within the macroeconomic
framework of the IMF agreement (ref A).


3. Honduran President Ricardo Maduro, joining the meeting in
progress, described the relationship between the U.S. and
Honduras as one of shared convictions and the common belief
in basic responsible behavior, citing his administration's
willingness to invest scarce political capital on issues of
importance to the U.S., such as Iraq and Cuba, as evidence of
Honduras, commitment to this friendly relationship. Maduro
spoke optimistically of the
MCA, viewing it as a means to invest in important
infrastructure projects and promote economic development.
Regarding CAFTA, Maduro commented that open markets are key
to Honduras' prospects for economic growth, stating that
ratification of CAFTA would be the single most important
thing the U.S. Congress could do for Honduras.


4. As the conversation turned to the Senators, interests in
financial institutions and the rule of law, Maduro
highlighted recent accomplishments, such as a revised
judicial system and a method of auditing state purchases.
Maduro emphasized the challenge that a lack of continuity
from one administration to the next poses for maintaining
these advances.

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Meeting with Citibank
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5. The next morning, the delegation, accompanied by members
of the Honduran Banking and Insurance Association
(AHIBA),attended a breakfast hosted by Citibank. Citibank
President Maximo Vidal reviewed the bank's operations in
Honduras, emphasizing its focus on education, economic and
community development, and quality of life. Senator Shelby
raised issues such as remittances and the prospects for
economic growth in Honduras. He discussed infrastructure
projects (including those that may potentially be funded by
the MCA - see ref B) and port security improvements as ways
to facilitate and stimulate economic growth. Senator Cornyn
also emphasized the importance of port security, noting that
a balance must exist between security and commercial issues,
such that security is adequate, but does not inhibit
commercial activity.

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Meeting at CABEI
--------------

6. Next, the delegation met with representatives of the
Central American Bank of Economic Integration (CABEI) to
discuss CABEI,s role in the region. CABEI's Chief
Economist Marvin Taylor explained that about two-thirds of
CABEI lending goes to the public sector, and stressed the
bank's role as a leader in microlending, with a focus on
small and medium enterprises. Senator Shelby voiced his
support for the bank,s focus on economic development,
extolling the benefits of regional and economic integration.
Senator Cornyn asked what challenges CABEI faces and how the
U.S. may assist the bank. Taylor cited a lack of continuity
within the Honduran government as a principal roadblock to
progress, in addition to a &fragile8 macroeconomic
environment. Taylor described CAFTA as a fantastic
opportunity to solidify economic growth. Taylor suggested
incorporating the U.S. into CABEI as a member, thereby
increasing U.S. investment.

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Factory Tour and Lunch with Manufacturers' Association
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7. Following the meeting at CABEI, members of the Honduran
Manufacturers, Association (AHM) met with the delegation and
guided them on a tour of the MANEX factory facility.
The tour highlighted the use of U.S.-made material and
equipment at the factory, emphasizing the importance of
Honduras as a destination for U.S. exports, and Honduran
reliance upon the U.S. as a market for the industry's
finished products. The factory managers explained to the
delegation that the factory must uphold the labor standards
of the companies that contract its work.


8. After the tour of the factory, AHM representatives hosted
a lunch for the delegation, and gave a presentation showing
the increase in textile-related exports from the United
States to Honduras over the past decade. Because the
outsourcing of jobs is of primary concern to many in the
United States, AHM members focused on U.S. economic gains due
to foreign investment in the Honduran textile industry. The
Senators acknowledged the association,s support for the
passage of CAFTA, with Senator Cornyn expressly stating that
he supports CAFTA as well.

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Money Laundering
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9. To discuss Honduran efforts to combat money laundering,
the delegation met with Dr. Ana Christina Mejia de Pereira,
President of the National Banking Commission (CNBS),and
Doris Aguilar, Special Prosecutor for Organized Crime, a unit
of the Public Ministry. The Treasury Department advisor from
the Office of Technical Assistance, who is currently
providing training on money laundering issues to the GOH,
also attended the meeting.


10. Mejia began by providing an overview of the anti-money
laundering law passed in 2002 and the steps taken since the
law's passage (ref C). She discussed the establishment of
the Financial Information Unit (FIU) and the development of a
cooperative working relationship among this unit, the police
investigative units responsible for financial crimes, and the
Public Ministry officials responsible for prosecution of
those crimes. Aguilar discussed recent
Public Ministry successes in prosecuting financial crimes,
but also focused on the challenges that remain, including a
lack of resources. Mejia and Aguilar were very complimentary
of the assistance that the GOH has received from the USG in
the last two years, both from the Treasury Department and
from State INL funds. Senators Shelby and Cornyn were
pleased to hear that USG assistance has been useful, and
pledged their commitment to continued support in the future.

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Media Coverage
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11. Senators Shelby and Cornyn held a press conference on the
steps of the Presidential Palace after their meeting with the
President, which was covered by all major news media.
Coverage highlighted the Senators, interest in financial
regulations to prevent money laundering and terrorist
financing, port security and certification, and economic
integration and development. Senator Shelby stated that
Honduras is strategically situated to help other countries in
the region grow by developing its own internal economy and
infrastructure. Senator Cornyn spoke of the positive
consequences that CAFTA would have for Honduras and for the
region. One news article inaccurately indicated that both
Senators support the ratification of CAFTA, when in fact only
Senator Cornyn declared his support for the agreement. The
press accurately described the Senators as optimistic about
Honduras being a future potential recipient of funding from
the MCA.

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Comment
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12. Codel Shelby was well received by all sectors here,
including the press, and supported USG interests and Embassy
efforts on a range of issues. The Senators' visit was
especially appreciated by the GOH officials in charge of
investigation and prosecution of financial crimes, who were
happy to be able to discuss this important issue with the
Chairman of the Senate Banking Committee. The Senators were
very pleased with their meeting with President Maduro, coming
away with a strong personal connection and a sympathetic
understanding of the difficulties that Maduro's
administration is currently facing.


13. This cable was not cleared by Codel members prior to
their departure.

Palmer