UPDATE ON TERRORISM FINANCE IN SPAIN

C O N F I D E N T I A L SECTION 01 OF 05 MADRID 001786

SIPDIS

STATE FOR EB/ESC/TFS (DAVE NELSON, LYNNE LAMBERT),S/CT
(TODD KUSHNER),INL/C, EUR/PGI, EUR/ERA, IO/PSC (JOLEEN
SCHWEITZER),EB/EPPD (CAROL THOMPSON),EUR/WE
TREASURY PASS JUAN ZARATE, TFFC, OFAC (GLASER),FINCEN

E.O. 12958: DECL: 04/10/2015
TAGS: EFIN ECON ETTC KTFN PTER PGOV PREL EU SP EUN
SUBJECT: UPDATE ON TERRORISM FINANCE IN SPAIN

REF: A. (A) MADRID FEBRUARY 4 2005 EMAIL TO DAVID NELSON

B. (B) 2004 MADRID 00995

Classified By: Economic Counselor Whitney Baird for reasons 1.4 (b) and
(d)


1. (U) Summary. Meetings with Spanish contacts suggest that
Spain remains serious about fighting terrorism finance. The
GOS conducts searches for funds from all individuals and
organizations listed in prenotifications and notifications
from the U.S.; no such funds have been found in Spanish
accounts in 2004 or 2005. The agencies involved are
professional, dedicated to their work, and maintain active
international contacts at the multilateral and bilateral
level. Spain is a leader in international fora on Terrorist
Finance, holding seats in the G8's Counter-Terrorism Action
Group and continuing to co-chair with the U.S. the OECD's
Financial Action Task Force Terrorist Finance Working Group.
Spain also provides terrorism finance technical assistance
and training to developing countries. In 2004, Spain's
Financial Intelligence Unit (SEPBLAC) trained or shared views
on asset freezing systems with terrorist finance personnel
from 40 countries and international institutions. We
continue to believe Spanish authorities should make greater
efforts to monitor charities. We will have an opportunity to
use a planned November seminar on terrorism finance to work
on charity and other terrorism finance-related issues
relevant to Spain. End Summary.

Background
--------------


2. (C) Terrorism finance contacts in Spain have told us
anecdotally that following the money trail has been important
in the struggle against ETA terrorists. This may explain why
Spanish officials do take terrorism finance issues seriously.
However, Islamic terrorists may not use formal financial
mechanisms, complicating the effort to use terrorism finance
investigations to help roll up Islamic terrorist networks.
At this stage, we do not know what the parliamentary
commission charged with drafting a report on the March 11
bombings will say about the financing of that event.
Interior Secretary of State Security Antonio Camacho told
Econoff in connection with a May 9 dinner for visiting FBI
Director Mueller that he believed the March 11, 2004 bombings
were financed, in part, with drug money. One of our SEPBLAC
contacts has told us that, in is opinion, the bombings may
have been financed through unregulated charities in Spain.
He emphasized though that he had no more specific
information. A contact at the MFA mentioned that public
information on the March 11 bombings indicates that funds
were moved through informal immigrant networks that include
small businesses and petty crime organizations.

Key Terrorist Finance Contacts
--------------


3. (U) The key organizations and contacts currently involved
in terrorist financing in Spain are:

Ministry of Economy
Directorate General of the Treasury
Role: Oversight of asset freezing process; attend OECD
Financial Action Task Force meetings and G8 Counter-Terrorism
Action Group meetings
Contact: Subdirector General for Capital Movements Juan
Antonio Aliaga Mendez

Bank of Spain
Executive Service of the Commission for the Prevention of
Money Laundering and Financial Crimes (SEPBLAC)
Role: SEPBLAC is Spain's Financial Intelligence Unit (FIU).
SEPBLAC performs asset checks, and provides technical
training for third countries.
Contacts: Director Gabriel Panizzo, Assistant Director
Ignacio Palicio, International Relations Officer and
Inspector of Credit Agencies Alvaro Panilla, and Investigator
Juan Carlos Calleja Lopez (working level contact who often
leads asset check and bank investigation teams)

Ministry of Foreign Affairs
Directorate General of International Affairs of Terrorism,
the United Nations and Multilateral Institutions
Role: Represent Spain in international meetings dealing with
terrorist financing, especially the UN 1267 committee and the
EU clearinghouse
Contacts: Technical Advisor for UN issues Carmen Bujan and
Area Director for European Issues Miguel Garcia-Herraiz

Ministry of Justice
Directorate General of International Judicial Cooperation
Role: Represent Spain at international meetings on terrorist
designations. Brings requests for terrorist designation to
the Spanish Court System.
Contact: Rosalia Serrano

National Prosecutors Office
Role: Prosecute terrorist financiers
Contacts: Pedro Perez Enciso--Drug and Money Laundering
Prosecutors Office

Terrorist Finance Commission (Meets Informally Until New Law
Enacted)
Headed by the Ministry of Interior's Secretary of State for
Security Antonio Camacho Vizcaino. Will also include
representatives of SEPBLAC, the MFA, the Ministry of Economy,
the National Prosecutor's Office and law enforcement agencies.
Role: In the future, the Commission will be the main
coordinating body for all terrorism finance issues. The
Commission will have statutory authority to freeze suspected
terrorist assets preventively and administratively.

Terrorist Finance Prenotifications and Notifications
-------------- --------------


4. (U) Econoffs deliver all terrorist finance
prenotifications and notifications to the Ministry of Economy
and Finance and to the Ministry of Foreign Affairs. In the
Ministry of Economy, we deliver notifications directly to the
Secretary of State for Economy (Vice Minister) David Vegara

SIPDIS
who then passes them to Subdirector General of Inspection and
Control of Capital Movements Juan Antonio Aliaga Mendez in
the Directorate General of the Treasury. Subdirector General
Aliaga's unit is responsible for ensuring that searches are
conducted and any assets found are frozen. In the Ministry
of Foreign Affairs, notifications are delivered to the
Directorate General of International Terrorism, the United
Nations and Multilateral Organizations, which works with
terrorism finance issues in the UN and the EU Clearinghouse.


5. (U) Our Ministry of Economy contacts and our MFA contacts
pass on the notifications to SEPBLAC. SEPBLAC notifies
Spain's major banks individually by fax and email and
notifies Spain's Saving Exchange Organization (similar to
Savings and Loans),which is required to notify its members.
Bank and saving exchange compliance officers are then
required by law to check their accounts and report back to
SEPBLAC if assets of the listed organization are found.


6. (C) Spain's asset checking process currently requires from
3 to 5 days to complete. Spain begins searches for terrorist
finance assets after receiving prenotifications. Subdirector
General Aliaga asked Econoff in January if Spain's process
meets U.S. goals of confidentiality, as their system
necessarily requires that bank compliance officers know of
the coming designation. After consulting with EB and
Treasury (ref email),we informed Aliaga that the
prenotifications serve to allow governments to prepare their
asset search and freeze processes without actually conducting
the check, and should not be shared with non-government
persons. We added that the U.S. concern is that an earlier
asset check could notify terrorist organizations of an
impending listing and cause them to liquidate their accounts.
Aliaga expressed dismay at our suggestion that they not
begin their search at prenotification, noting that if Spain
waits until designation, that their 3 to 5 day process would
allow groups to pull their funds before SEPBLAC can complete
their inquiry. He further argued that prior to actual
designation, Spain does not permit a freeze, but simply runs
an asset check that requires the knowledge of the compliance
officers. Aliaga emphasized that under Spanish law, bank
compliance officers must maintain secrecy regarding all
requests in discussions with Spain's bank regulators and
SEPBLAC. If a pre-listing search found assets, the freeze
would then occur the day of the actual designation. This
issue should become moot in June once SEPBLAC completes an
automatic electronic messaging system to transmit search
orders to banks. However, until the electronic system is
established, Spain's checks will remain slow and begin with
prenotification.


7. (U) So far this year, Embassy has delivered 16
prenotifications and notifications to the GOS. No assets
related to these prenotifications and notifications have been
located after searches in Spain to date. However, after
repeated engagement with SEPBLAC on their asset checking
processes, we are confident that Spanish authorities are
performing searches.
Asset Freezing
--------------

8. (U) If assets were discovered under UNSC 1267 or UNSC
1341, SEPBLAC and the Directorate General of the Treasury
have the immediate ability to freeze the assets. Spanish law
requires freezing of all designated terrorist groups'
financial assets. Any group's assets designated by the EU
Clearinghouse process are also automatically frozen under EU
and Spanish law. To freeze assets of other suspected, but
un-designated terrorist organizations, two possibilities
exist. The first is to take the case to a judge and request
judicial freezing. SEPBLAC believes this could be achieved
within a day, and allow the assets to be frozen for six
months during which time an investigation would take place to
prepare for legal proceedings at the end of the period. The
second option was offered by the Directorate General of the
Treasury, which suggested that a decree could be issued by
the Spanish Council of Ministers ordering a bank to freeze
the assets pending an investigation.


9. (U) In the near future, preventive and administrative
freezing will become a possibility under the Terrorist
Finance Law of May 2003. When the implementing regulations
for this law are published, a statutory commission will be
empowered to investigate and freeze terrorist assets without
a judicial or executive order. Once fully functioning the
Terrorist Finance Commission will provide the GOS with
preventive and administrative ability to freeze terrorist
assets. This should prove a useful new tool in combating
terrorism finance.

The New Terrorist Finance Commission
--------------


10. (C) The Commission will be headed by the Ministry of
Interior's Secretary of State for Security Antonio Camacho
Vizcaino. We understand from various sources that the
Commission will also include as its acting secretary the
SEPBLAC Director Gabriel Panizzo. A representative from the
National Prosecutor's Office, the Ministry of Economy, the
Spanish National Police, the Guardia Civil, and the National
Intelligence Center will also hold seats on the Commission.


11. (C) A concern we have identified in the proposed law is
lack of MFA representation. Our MFA contact, Miguel
Garcia-Herraiz, said that this problem will be solved in the
implementing regulations. To date, we have not received a
confirmation. Our MFA contacts have been productive
interlocutors willing to discuss terrorism finance in Spain.
The MFA represents Spain in the EU Clearinghouse and the UN
Sanctions Committee and thus plays an important role on
terrorism finance issues even if Spanish diplomats express
occasional skepticism regarding how the terrorist finance
listing regime functions. One MFA contact noted that the EU
Clearinghouse process does not function well as a designating
body. Another recounted the concern of many EU governments
that the UN Sanctions Committee process does not offer legal
recourse to listed persons and entities, and that delisting
was a common concern. Moreover, Spanish diplomats believe
that the information attached to listed entities/individuals
is sometimes not accurate; they believe that occasionally the
wrong entities/individuals' assets are being targeted, and
that in some cases the information supplied is not sufficient
to target the assets of a particular individual or group.
Even with their skepticism however, we find Spain's diplomats
to be dedicated to fighting terrorist financing in Spain and
internationally.


12. (C) In our last meeting, February 15, with SEPBLAC
Director Panizzo and International Relations Director Alvaro
Panilla, we were informed that Secretary of State for
Security Camacho intends to delegate all terrorist finance
fighting authority to SEPBLAC. At an April 1 meeting with
Secretary of State Camacho, he suggested that we direct all

SIPDIS
questions regarding the Commission and terrorism finance to
SEPBLAC's Director, which seems to support Panizzo's
contention. From the Embassy's perspective, this seems
positive in that as Spain's Financial Intelligence Unit,
SEPBLAC is fully knowledgeable in financial crimes and fully
understands Spain's banking system. SEPBLAC's Director
claims that in the future all terrorist finance
prenotifications and notifications will go directly to
SEPBLAC, and that SEPBLAC will represent Spain in all
international organizations including the EU Clearinghouse,
FATF and the G8. Contacts at the MFA and the Directorate
General of the Treasury believe they will continue to play a
role. The Economic Section will maintain contacts with all
parties to ensure that our close communication continues
during the transition to the Commission led terrorism finance
regime.


13. (C) Econoff attempted at an April 13 meeting with a
SEPBLAC contact to clarify the question of the New Commission
and SEPBLAC's responsibilities further. When asked about the
Ministry of Economy's future role, he predicted that the
Direction General of the Treasury might still maintain a role
for prenotifications and notifications for designated
terrorists and organizations. He told us, however, that the
Commission will be the sole responsible organization for
preventive and administrative investigations and freezing
that does not involve the official terrorist list.
Conversations with our contact indicate that SEPBLAC is
preparing to hire more officers for investigations and
freezing actions.

International Cooperation
--------------


14. (U) Spain is very active internationally in multilateral
organizations that work on terrorist finance. Spain is a
member of the OECD Financial Action Task Force (FATF),the G8
Counter-Terrorism Action Group (CTAG),and the Egmont Group
for bank supervision. Most Spanish delegations to these
bodies include Subdirector General of Capital Inspection
Aliaga, an MFA representative and Alvaro Panilla from
SEPBLAC.


15. (U) Spanish terrorist finance contacts value highly
cooperation with the U.S. Spain co-chairs with the U.S. the
Terrorist Finance Committee in FATF. All of our contacts
mention that they communicate regularly with State and
Treasury officials working on terrorist finance. SEPBLAC
sent two officers to Washington in the summer of 2004 to meet
with the Financial Crimes Enforcement Network (FinCEN) for a
few days. Both the Ministry of Foreign Affairs and the
Ministry of Justice sent representatives to the April 28-29,
2005 terrorist finance workshop in Luxembourg.


16. (U) Spain regularly receives delegations from foreign
countries to improve coordination with other advanced
economies and offers technical assistance in terrorist
finance and money laundering to less developed countries.
SEPBLAC contacts told us that in 2004, financial regulators
from 40 countries and institutions met with or received
training at SEPBLAC. These countries included Peru,
Bosnia-Herzegovina, The Netherlands, Mexico, The United
Kingdom, Latvia, Australia, Chile, Ukraine, South Korea,
Austria, Ireland, the Czech Republic, Germany, The United
States, Italy, Poland, Romania, Hungary, Bolivia, Honduras,
Bulgaria, Guernsey, Slovakia, Luxembourg, Belgium, France,
Japan, Portugal, Lithuania, Andorra, Canada, Monaco, Denmark,
Indonesia, and Finland. The following international
institutions also visited SEPBLAC in 2004: the World Bank,
the International Monetary Fund and the European Commission.
SEPBLAC also meets regularly and gives assistance to
FATF-like regional bodies, especially in Latin America and
the Caribbean.

Charities - A Possible Hole in the System
--------------

17. (C) One area where we believe more action could take
place in Spain, and probably the entire European Union in
fighting terrorist finance is charities. Charities and
foundations are not regulated at the national level in Spain.
Each autonomous regional government sets its own standards.
One of our MFA contacts said that one of the main challenges
in regulating charities in Europe is that each country has
separate rules for charities, and the EU has been unable to
agree on a common definition for charitable organizations,
much less regulate them.

Comment
--------------


18. (C) The effort to fight terrorist financiers remains an
area of productive cooperation in the U.S. - Spain bilateral
relationship. Spain's year-old government remains engaged in
terrorism finance issues, and supports the work of Spain's
highly professional and hard-working team of regulatory
officials. The tenor and frequency of our conversations with
terrorism finance officials suggest that Spain is checking
seriously for TF assets in connection with pre-notifications
and notifications. That no assets have been found may
indicate that Spain's efforts have limited the effectiveness
of the commercial banking sector as a conduit to move
terrorist funds in Spain, or that informal methods are being
used to move terrorist funds. We will continue to engage the
GOS in combatting the financing of terrorism. In November,
the Embassy, the Spanish Interior Ministry, and the Ortega y
Gasset Foundation will collaborate on a third terrorism
conference (successful terrorism conferences were arranged in
2002, 2003 and 2004),which this year will focus on terrorism
finance. The Interior Minister's terrorism advisor is
enthusiastic about the topic. We will use this venue to
press for discussion on topics of interest to us such as
charities. We will also work to bring appropriate USG,
academic, and NGO speakers to this event.
MANZANARES