2004-2005 INCSR PART II: SPAIN CORRECTED VERSION

UNCLAS SECTION 01 OF 03 MADRID 000011

SIPDIS

STATE PASS INL AND EUR/WE
JUSTICE FOR OIA AND AFMLS
TREASURY FOR FINCEN


E.O. 12958: DECL: N/A
TAGS: KCRM PTER KSEP SNAR KTFN EFIN SP
SUBJECT: 2004-2005 INCSR PART II: SPAIN CORRECTED VERSION

REF: STATE 254401

Money laundered in Spain is primarily from the proceeds of the
Colombian cocaine trade, although money laundered through other
Latin American countries also plays a role. Colombian
organizations use several methods to move money from European
drug sales out of Spain. Money is carried out by airline
personnel traveling between Spain and Latin America. Colombian
companies purchase goods in Asia and sell the electronics at
cartel run stores legally in Europe. Credit card balances are
paid in Spanish banks for charges made in Latin America. Money
deposited in Spanish banks is withdrawn by ATM cards in
Colombia. Wire transfers continue to be a common way of getting
money out of Spain.

Drug proceeds from other regions enter Spain as well. Hashish
proceeds come from Morocco and heroin money enters from Turkey.

The majority of money that enters Spain to be laundered is
smuggled across the border in three ways. Bulk cash is carried
in travelers' luggage or hidden on travelers' bodies when
arriving at international airports. Shipping containers loaded
with currency enter through Spanish ports (such as Algeciras).
Money is also brought in by small craft along Spain's long
coastline.

The informal nonbank outlets (such as "Locutorios"),which make
small international transfers for the immigrant community
continue to be used to move money in and out of Spain.
Regulators also suspect the presence of "hawala" like networks
in the Islamic community.

Tax evasion in internal markets and smuggling of goods along the
coastline continue to be a source of illicit funds in Spain.
Spanish authorities believe that tax evasion in the cell phone
and property industries are the most serious problems. The
smuggling of electronics and tobacco from Gibraltar remains an
ongoing issue.

Although little of the money laundered in Spain is believed to
be used for terrorist financing, money from the extortion of
businesses in the Basque region is moved through the financial
system and used to finance the Basque terrorist group ETA.

The Spanish government is aware of all of these problems.
Unfortunately the scale of the money laundering industry and the
sophisticated methods used create a very large law enforcement
problem. The government makes every effort to eliminate
financial crime in Spain.

There have been no cases of Spanish officials involved in money
laundering in Spain.

The Government of Spain (GOS) remains committed to combating
narcotics trafficking, terrorism, and financial crimes, and
continues to work hard to tighten financial controls. The
criminalization of money laundering was added to the penal code
in 1988 when laundering the proceeds from narcotics trafficking
was made a criminal offense. In 1995 the law was expanded to
cover all serious crimes that required a prison sentence greater
than three years. All forms of money laundering were made
financial crimes in amendments to the code on November 25, 2003,
which took effect on October 1, 2004.

The penal code can also apply to individuals in financial firms
if their institutions have been used for financial crimes. An
amendment to the penal code in 1991 made such persons culpable
for both fraudulent acts and negligence connected with money
laundering.

Businesses and financial service suppliers operating in Spain or
targeting Spanish markets are subject to the law, Ley de
Servicios de la Sociedad de Informacion y de Comercio
Electronico (LSSICE),that came into force on October 12, 2002,
for Internet marketing and distribution. The new law requires
businesses to register their domain names, company registry,
physical address, and other company details. Financial sector
businesses such as online banks must still send written
contracts to new customers for signature and obtain physical
proof of their identity, in order to comply with existing
banking regulations.

Royal Decree 998/2003 of July 5, 2003 modified the structure of
the Ministry of Interior to facilitate more active combating of
drug trafficking. This law creates an Advisory Committee on
Observation that will attempt to follow the use of technologies
by criminal organizations and money launderers and take measures
to ensure that Spanish law enforcement authorities are able to
meet the new challenges.

Specific measures to prevent money laundering were written to
regulate the legal entities in the financial sector and
individuals moving large sums of cash, in December 1993 (Law No.
19/1993),as an expansion to the criminal code that previously
applied only to physical persons. The regulations for enactment
were established by Royal Decree 925/1995, which set the
standards for regulation of the financial system. The
regulations were amended in 2003 and cover money laundering
linked to illicit drugs, terrorism, and organized crime. The
financial sector is required to identify customers, keep records
of transactions, and report suspicious financial transactions.
The money laundering law applies to most entities active in the
financial system, including banks, mutual savings associations,
credit companies, insurance companies, financial advisers,
brokerage and securities firms, postal services, currency
exchange outlets, casinos, and individuals and unofficial
financial institutions exchanging or transmitting money
(alternative remittance systems). The 2003 amendments add
lawyers and notaries as covered entities. Previously, notaries
and lawyers were required to report suspicious cases, but now
they are considered part of the financial system that is under
the supervision of appropriate regulators.

Law 19/2003 obligates financial institutions to make monthly
reports on large transactions. Banks are required to report all
international transfers greater than 30,000 euros. The law also
requires the declaration and reporting of internal transfers of
funds greater than 80,500 euros.

In addition to suspicious transactions, individuals traveling
internationally are required to report the importation or
exportation of currency greater than 6,000 euros. Law 19/2003
allows the seizure of up to 100 percent if illegal activity
under financial crimes ordinances can be proven. Spanish
authorities claim they have seen a drop in cash carriers since
the law's enactment in July 2003. For cases where the money can
not be connected to criminal activity, and has not been
declared, the authorities may keep between 25 and 100 percent,
depending on the amount of the currency being carried.

The Commission for the Prevention of Money Laundering and
Financial Crimes (CPBC) coordinates the fight against money
laundering in Spain. The Secretary of State for Economy heads
the commission and all of the agencies involved in the
prevention of money laundering participate. The representatives
include the National Drug Plan Office, the Ministry of Economy,
the Federal Prosecutors (Fiscalia),Customs, the Spanish
National Police, the Guardia Civil, CNMV (equivalent to the
SEC),the Treasury, the Bank of Spain, and the Director General
of Insurance and Pension Funds. Any member of the Commission may
request an investigation, should suspicious activity be brought
to his or her attention.

The CPBC delegates responsibility to two additional
organizations. The first is a secretariat in the Treasury,
located in the Ministry of Economy. Following investigation and
a guilty verdict by a court, this regulating body carries out
penalties. Sanctions can include closure, fines, account
freezes, or seizures of assets. Law 19/2003 allows seizures of
assets of third parties in criminal transactions, and a seizure
of real estate in an amount equivalent to the illegal profit.
One weakness that remains in financial sanctions is that the
joint owner may access joint accounts if he or she can show
financial need.

The second organization is the Executive Service of the
Commission for the Prevention of Money Laundering (SEPBLAC),
which serves as Spain's financial intelligence unit. SEPBLAC
receives and analyzes suspicious activity reports (SARs) and
currency transaction reports. SEPBLAC has the primary
responsibility for any investigation in money laundering cases
and directly supervises the anti-money laundering procedures of
banks and financial institutions. Incriminating information is
turned over to the Federal Prosecutors for prosecution. Spanish
banks are required by law to maintain fiscal information for
five years and mercantile records for six years.

The Fund of Seized Goods of Narcotics Traffickers receives
seized assets. This agency was established under the National
Drug Plan. The proceeds from the funds are divided, with half
going to drug treatment programs and half to a foundation that
supports the officers fighting narcotics trafficking.

Terrorist financing issues are governed by a separate code of
law and commission, the Commission of Vigilance of Terrorist
Finance Activities (CVAFT). This commission was created under
Law 12/2003 on the Prevention and Blocking of the Financing of
Terrorism. The commission is headed by the Ministry of Interior
and includes representatives from the Fiscalia and Ministries of
Justice and Economy. Currently, only the head of CVAFT can
request information in terrorist financing cases, so other
members must rely on the commission head to begin an
investigation.

Crimes of terrorism are defined in Article 571 of the Penal
Code, and penalties are set forth in Articles 572 and 574.
Sanctions range from ten to thirty years' imprisonment with
longer terms if the terrorist actions were directed against
government officials. Their ability to freeze accounts in the
most recent law is more aggressive than that of most of their
European counterparts. Though many laws are transposed from EU
directives, Law 12/2003 goes beyond EU requirements. However,
the implementing regulations for this law have not been written,
and it has not been used. Once in full effect, this law will
allow administrative freezing of suspect assets without a
judge's order.

All legal charities are placed on a register maintained by the
Ministry of Justice. Responsibility for policing registered
charities lies with the Ministry of Public Administration. If
the charity fails to comply with the requirements, sanctions or
other criminal charges may be levied.

Spain is a member of the FATF, and co-chairs the FATF terrorist
finance working group. Spain is a participating and cooperating
nation to the South American Financial Action Task Force
(GAFISUD),and a cooperating and supporting nation to the
Caribbean Financial Action Task Force (CFATF). Spain is a major
provider of counterterrorism assistance. The GOS ratified the UN
Convention against Transnational Organized Crime on March 2,
2002, and the UN International Convention for the Suppression of
the Financing of Terrorism on April 9, 2002. Spain is also a
party to the 1988 UN Drug Convention. SEPBLAC is a member of the
Egmont Group.

The GOS has signed criminal mutual legal assistance agreements
with Argentina, Australia, Canada, Chile, the Dominican
Republic, Mexico, Morocco, Uruguay, and the United States.
Spain's Mutual Legal Assistance Treaty with the United States
has been in effect since 1993. Spain also has entered into
bilateral agreements for cooperation and information exchange on
money laundering issues with Bolivia, Chile, El Salvador,
France, Israel, Italy, Malta, Mexico, Panama, Portugal, Russia,
Turkey, Venezuela, Uruguay, and the United States. Spain
actively collaborates with Europol, supplying and exchanging
information on terrorist groups. U.S. law enforcement agencies
reported excellent cooperation with their Spanish counterparts
in 2004. U.S. customs works closely with Spanish customs,
Spanish prosecutors, the national police corps and the Civil
Guard. The Drug Enforcement Administration works closely with
SEPBLAC, the national police and the Civil Guard. These
organizations regularly share information. Official documents
however, will only be transferred if requested by a court.

Seizures of assets involving more than one country and the
division of the assets depend on the relationship with the third
country. EU working groups will determine how to divide the
proceeds for member countries. Outside of the EU, bilateral
commissions are formed with countries that are members of FATF,
FATF-like bodies and the Egmont Group, to deal with the division
of seized assets. With other countries, negotiations are
conducted on an ad hoc basis. The U.S.-Spain MLAT provides for
sharing of seized assets, but the request must be made to the
Spanish court hearing the case, rather than administratively.


MANZANARES