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