EL SALVADOR: FIRST DRAFT OF 2006 INCSR PART II

UNCLAS SECTION 01 OF 03 SAN SALVADOR 003490 SIPDIS STATE FOR INL, WHA/CEN, EB/ESC/TFS JUSTICE FOR OIA AND AFMLS TREASURY FOR FINCEN E.O. 12958: N/A TAGS: SNAR EFIN KCRM KTFN PTER KJUS ES SUBJECT: EL SALVADOR: FIRST DRAFT OF 2006 INCSR PART II (MONEY LAUNDERING) REF: SECSTATE 210351 ¶1. (U) Per Reftel, the following is Post's first draft of the 2006 INCSR Part II. Year-end statistics for CY-05 are not yet available. Post will add these statistics in January 2006 and retransmit this report. Text follows. ¶2. (U) El Salvador Located on the Pacific coast of the Central American isthmus, El Salvador has one of the largest and most developed banking systems in Central America. Its most significant financial contacts are with neighboring Central American countries, as well as with the United States, Mexico, and the Dominican Republic. The January 2001 adoption of the U.S. dollar as legal tender, along with the size and growth rate of the financial sector, makes the country a potentially fertile ground for money laundering. In 2005, approximately US$XXX billion in remittances was likely sent to El Salvador through the financial system. Most were sent from Salvadorans working in the United States to family members. Additional remittances flow back to El Salvador via other methods such as visiting relatives and regular mail. Most money laundering in El Salvador is conducted by international criminal organizations attempting to mask revenues from illicit activities. These organizations use bank and wire fund transfers from the United States to disguise criminal revenues as legitimate remittances to real persons in El Salvador. The false remittances are collected and transferred to other financial institutions until sufficiently laundered for use by the source of the criminal enterprise -- usually a narcotics trafficking organization. Decree 498 of 1998, the &Law Against the Laundering of Money and Assets,8 criminalizes money laundering related to narcotics trafficking and other serious crimes, including trafficking in persons, kidnapping, extortion, illicit enrichment, embezzlement, and contraband. The law also establishes the Financial Investigations Unit (FIU) within the Attorney General's office. The FIU has been operational since January 2000. The National Police (PNC) and the Central Bank also have their own anti-money laundering units. Under Decree 498, financial institutions must identify their customers, maintain records for a minimum of five years, train personnel in identification of money and asset laundering, establish internal auditing procedures, and report all suspicious transactions and transactions that exceed approximately $57,000 to the FIU. Entities obligated to comply with these requirements include banks, finance companies, exchange houses, stock exchanges and exchange brokers, commodity exchanges, insurance companies, credit card companies, casinos, dealers in precious metals and stones, real estate agents, travel agencies, the postal service, construction companies, and the hotel industry. The law includes a safe harbor provision to protect all persons who report transactions and cooperate with law enforcement authorities, and also contains banker negligence provisions that make individual bankers responsible for money laundering at their institutions. Bank secrecy laws do not apply to money laundering investigations. To address the problem of the international transportation of criminal proceeds, Decree 498 requires all incoming travelers to declare the value of goods, cash, or monetary instruments they are carrying in excess of approximately $11,400. Falsehood, omission, or inaccuracy on such a declaration is grounds for retention of the goods, cash, or monetary instruments, and the initiation of criminal proceedings. If, following the end of a 30-day period, the traveler has not proved the legal origin of the undeclared property, the Salvadoran authorities have the right to confiscate it. The Government of El Salvador (GOES) has established systems for identifying, tracing, freezing, seizing, and forfeiting narcotics-related and other assets of serious crimes. The FIU and the PNC have adequate police powers to trace and seize assets, but both organizations lack the resources to do so. Even if resources were abundant, it remains to be seen if these government agencies can cooperate to achieve their anti-money laundering goals. For example, only one arrest for money laundering was achieved in 2005. The detained individual is accused of establishing wire transfer accounts in fictitious names in order to receive transfers from the United States disguised as remittances. Unfortunately, the Attorney General's office declined to pursue several leads generated by this person's arrest. As a result, it is likely that any evidence linking others to this scheme has already been destroyed. Forfeited money laundering proceeds are deposited in a special fund used to support law enforcement, drug treatment and prevention, and other related government programs, while funds forfeited as the result of other criminal activity are deposited into general government revenues. Law enforcement agencies are allowed to use certain seized assets while a final sentence is pending. In 2005, the dollar amount of assets seized and forfeited totaled $XXX million, mostly derived from narcotics trafficking. There exists no legal mechanism to share seized assets with other countries. Salvadoran law currently provides only for the judicial forfeiture of assets upon conviction (criminal forfeiture), and not for civil or administrative forfeiture. A draft law to reform Decree 498 to provide for civil forfeiture has stalled in the National Legislature. Although Decree 498 does not specifically mention terrorism or terrorist financing as predicate offenses for money laundering, it criminalizes the laundering of the proceeds of serious criminal acts. This has been interpreted to include terrorism. Therefore, it is illegal to launder money generated by a terrorist act, and assets of terrorists that are derived from criminal activities could be targeted under Decree 498. However, providing legitimate money (money that is not derived from a criminal act) to known terrorist organizations is not considered to be a crime, and the person contributing those funds could not be prosecuted unless it could be shown that he or she was directly involved in the planning or execution of a crime. The GOES has drafted anti-terrorism legislation that will further define acts of terrorism and establish tougher penalties for the execution of those acts. The draft legislation, if passed, would also grant the GOES the legal authority to freeze and seize suspected assets associated with terrorists and terrorism. The GOES has provided financial institutions with the names of all individuals and entities listed by the UNSCR 1267 Sanctions Committee. These institutions are required to search for any assets related to the individuals and entities on the lists. There is no evidence that any charitable or nonprofit entity in El Salvador has been used as a conduit for terrorist financing. El Salvador has signed several agreements of cooperation and understanding with supervisors from other countries to facilitate the exchange of supervisory information, including permitting on-site examinations of banks and trust companies operating in El Salvador. El Salvador is a party to the Treaty of Mutual Legal Assistance in Criminal Matters signed by the Republics of Costa Rica, El Salvador, Honduras, Guatemala, Nicaragua, and Panama. Salvadoran law does not require the FIU to sign agreements in order to share or provide information to other countries. The GOES is party to the Inter-American Convention on Mutual Assistance on Criminal Matters, which provides for parties to cooperate in tracking and seizing assets. The FIU is also legally authorized to access the databases of public or private entities. The GOES has cooperated with foreign governments in financial investigations related to narcotics, money laundering, terrorism, terrorism financing, and other serious crimes. El Salvador is a member of the OAS Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering (OAS/CICAD),the Caribbean Financial Action Task Force and the Egmont Group. The GOES is party to the OAS Inter-American Convention Against Terrorism and the UN International Convention for the Suppression of the Financing of Terrorism, as well as the 1988 UN Drug Convention. El Salvador ratified the UN Convention against Transnational Organized Crime and the UN Convention Against Corruption in March and July of 2004, respectively. El Salvador is also a signatory to the Central American Convention for the Prevention and Repression of Money Laundering Crimes Related to Illicit Drug Trafficking and Related Crimes. The growth of El Salvador,s financial sector, the increase in narcotics trafficking, the large volume of remittances, and the use of the U.S. dollar as legal tender make El Salvador vulnerable to money laundering. El Salvador should continue to expand and enhance its anti-money laundering policies and strengthen its ability to seize and utilize assets. The Government of El Salvador should criminalize the support and financing of terrorists and terrorist organizations. Barclay