TERROR FINANCE: 2005 UPDATE NUMBER 2 - BRAZIL

C O N F I D E N T I A L SECTION 01 OF 02 BRASILIA 000788

SIPDIS

TREASURY FOR ZARATE
TREASURY FOR OFAC (WERNER)
NSC FOR BREIER, RENIGAR
STATE FOR EB/ESC/TFS (NELSON)
STATE FOR S/CT (KUSHNER)
STATE FOR IO/PSC (SCHWEITZER)
STATE FOR EB/EPPD (THOMPSON)

E.O. 12958: DECL: 03/16/2024
TAGS: KTFN EFIN PTER KVPR CVIS PREL BR
SUBJECT: TERROR FINANCE: 2005 UPDATE NUMBER 2 - BRAZIL
RESPONSE

REF: A. STATE 32688


B. 04 BRASILIA 560

C. BRASILIA 123

Classified By: Deputy Chief of Mission Phillip Chicola, Reasons
1.5 (b)
and (d).


1. (U) This cable responds to ref A request for an evaluation
of the GoB's ability to cooperate in disrupting terrorism
financing. The answers below are keyed to questions in ref A
paragraph 10.

Question A - Amounts Frozen and Authorities
--------------


2. (U) We enjoy productive relationships with the responsible
GoB technical agencies, such as the Financial Intelligence
Unit (COAF) and the Central Bank, which enable us to quickly
dispatch routine name checks for persons or entities on the
UNSCR 1267 and 1373 terror finance lists. During these
checks, the GoB has not found, and therefore not frozen, any
assets, accounts or property in the names of persons or
entities on the UN terror-finance lists.


3. (U) Under current Brazilian law the GoB would require a
judicial order to freeze terrorist assets, should such be
found. That may change before long, as the GoB is working on
legislation that would make terrorism finance a crime on its
own merits, as opposed to being one of the predicate offenses
to money laundering. The legislation also would provide the
GoB the authority to freeze accounts administratively,
without recourse to judicial order.

Question B - Obstacles to Deeper Cooperation
--------------


4. (C) If given evidence (or at least credible intelligence)
of terror financing by Al-Qaida or its associated groups in
Brazil, we suspect the GoB would support UN designations of
those implicated. Indeed, given the multilateral nature of
the exercise, and to emphasize what the Gob would like to be
seen as its "responsible role" in the multilateral arena, the
GoB may insist on taking the lead in designations of such
terror financiers, instead of merely co-sponsoring with the
USG. That said, the natural sluggishness of the Brazilian
interagency system would likely be an impediment to the quick
action the USG might seek.


5. (C) The GoB does not share the level of USG concern about
Hizballah activities. GoB contacts note that Hizballah is a
legitimate Lebanese political party, with parliamentary
representation, as well as a recognized charitable
organization. While not dismissing U.S. concerns outright,
they ask for evidence that remittances to Hizballah from
Brazil go to finance terrorist acts. This view, along with
the absence of a UN Security Council designation of
Hizballah, under USCRs 1267 or 1373, will remain an obstacle
to cooperation with the GoB against that group.

Question C - Openness to Training and Assistance
-------------- ---


6. (U) The GoB has accepted USG training and technical
assistance and remains interested in participating in
additional programs. FinCen conducted a November 2003 needs
assessment of COAF, which led to the provision of computers
and analytical software, funded from an FY02 Triborder
supplemental. This allocation also has been used to send
three analysts from each of the tri-border countries'
financial intelligence units for a week's training/exchange
at FinCen.


7. (U) In addition, Embassy's Legal Attache facilitated the
provision of a NAS-funded anti-money laundering course with
an anti-terror finance component to Brazilian Federal Police
in Recife in September 2004. Both DOJ's OPDAT and an IRS
team have conducted needs assessments within the last year
for potential anti-money laundering training; those training
programs have not yet been implemented.

Question D - Risk Level
--------------


8. (U) The GoB has an adequate legal framework for dealing
with terrorism finance. Its institutions also are relatively
strong, leading the IDB to conclude in a recent study that
the incidence of money laundering in Brazil's banking system
was lower than average in Latin America (ref C). We believe
these favorable factors extend to Brazil's ability to
minimize the exploitation of its banking sector by terrorist
financiers.


9. (U) The GoB has a fair capacity to track transactions that
take place through the formal banking system. COAF has
access to databases of suspicious transactions, currency
transaction reports (CTRs) on transactions over Reals 10,000
(about $3,700) and has access to government tax data, among
other databases. The remnants of previous exchange controls,
which require most foreign exchange purchases to be licensed
(albeit automatically) by the Central Bank, enhance the GoB's
ability to track international transactions. The GoB relies
on banks and other financial institutions to comply with
know-your-client rules to ensure reporting of assets
belonging to anyone or the UN terror finance lists. Banks
also are required to report suspicious transactions. Within
the year, however, the Central Bank expects to complete a
computerized registry of basic identifying information on
current accounts in the country. While the aim of the
registry is to tackle money-laundering, the registry will
allow real-time searches for accounts belonging to any entity
on the UN lists.


10. (SBU) Balancing the relative strength of safeguards in
the formal banking system are several holes that remain in
the GoB's ability to stop potential remittances to terror
groups. For example, while many large Brazilian (and
foreign) banks have active compliance officers that enforce
know-your-customer rules and report suspicious transactions,
we have less confidence that smaller and regional banks
actively do so. As is the case elsewhere in the world, the
GoB has no ability to track transactions of terrorists or
their cutouts whose names do not appear on the UN lists.
Finally, the GoB is incapable of tracking remittances
overseas through informal networks, be they through local
money-changers (known as "Doleiros") or Hawalla networks.


11. (C) Given the size of the Muslim/Middle-Eastern origin
population in Brazil (9 to 12 million people of Lebanese and
Syrian descent),its tradition of remitting money home to
support family and charitable organizations and the balance
of strengths and weaknesses of anti-money laundering controls
in the Brazilian banking system, we would argue Brazil is at
high risk for raising or banking money for terrorists at the
tens of thousands of dollars threshold. In Brazil's case, we
believe it useful to distinguish between the risks associated
with different terror groups: at present, the risk of fund
raising for Hizbollah and Hamas is high, while the risk of
fund-raising for Al-Qaida and its network is likely low.

DANILOVICH