CHILE INSCR 2004 REPORT: CORRECTED COPY

UNCLAS SECTION 01 OF 06 SANTIAGO 000250 SIPDIS DEPT THIS IS CORRECTED COPY FOR SANTIAGO 02906 E.O. 12958: N/A TAGS: SNAR CI SUBJECT: CHILE INSCR 2004 REPORT: CORRECTED COPY REF: A. SANTIAGO 02906 ¶B. SECSTATE 18769 ¶1. The second section of the INSCR 2004 report was inadvertently excluded in the first submission. Please find this section at the end of the previously submitted INSCR 2004 report below. -------------- Section I: International Crime and Narcotics -------------- ¶2. Summary. While not a center of illicit narcotics production, Chile remains a transit country for cocaine and heroin shipments destined for the U.S. and Europe. Chile also has an internal cocaine and marijuana consumption problem, with ecstasy continuing to grow in popularity. Chile is a source of essential chemicals for use in coca processing in Peru and Bolivia. Chile is a party to the 1988 UN Drug Convention. End Summary. ¶3. Status of Country. Transshipment of cocaine from the Andean region is a problem for Chile, as is the persistent transit of heroin destined for the U.S. and Europe. Cocaine hydrochloride consumption has increased, although cocaine base abuse is more prevalent. Chilean authorities discovered some cocaine and amphetamine labs two years ago, but Chile is not a major source of refined cocaine. Marijuana also continues to be widely used in Chile, a drug supplied primarily by Paraguay and a handful of production farms in Chile. ¶4. Country Actions Against Drugs in 2004 a. Policy Initiatives. The Chilean Congress continues to work on a comprehensive revision of Chile's 1995 drug laws, a project pending since 1999. In an effort to combat money laundering, the Financial Intelligence Unit was created in June of 2004. The National Drug Control Commission (CONACE) develops and coordinates the National Drug Control Strategy. The current plan covers the years 2003-2008. CONACE also coordinates all demand reduction programs. b. Accomplishments. In January, 2004, five representatives from the Chilean Coalition on Drug Prevention (CHIPRED) participated in a Voluntary Visitor program on managing drug abuse prevention programs. Embassy Santiago, in conjunction with CONACE, organized the launch of CHIPRED, a network of Chilean NGOs working on drug issues, in August 2003. CHIPRED allows better coordination of programs to prevent drug abuse and reduce demand, and is a member of the Drug Prevention Network of the Americas (DPNA). In June 2004, the Financial Intelligence Unit (FIU) was launched with a mandate to investigate money laundering activity. While current laws do not provide adequate authority for the FIU, amendments are expected to be approved in 2005 to increase the investigative authority of the unit. The DEA Santiago Country Office, together with the Policia de Investigaciones de Chile ("PICH," roughly equivalent to the FBI) and the Carabineros (national uniformed police), initiated Operation Seis Fronteras VI on March 1, 2004. This operation is a six-country initiative to combat the diversion of legal chemicals in the production of cocaine. As a follow-up, the DEA Santiago Country Office and the Carabineros de Chile hosted Operation Seis Fronteras VI After-Action Conference on June 9-10, 2004. DEA and police representatives from Colombia, Venezuela, Ecuador, Brazil, Peru, Bolivia, Argentina and Chile attended the conference, which focused on analyzing the results of the three-month Seis Fronteras VI operation. Chile continues to implement its multi-year criminal justice reform project. As of the January 2004, all of Chile's 12 regions have adopted the new adversarial judicial system, leaving only the metropolitan area of Santiago operating under the old system. The new system involves oral trials rather than document-based legal proceedings and should generally result in a faster resolution of cases. The Santiago metropolitan region, which accounts for almost 40 percent of Chile's population, will present special challenges. The transition in Santiago is scheduled to occur in June 2005. c. Law Enforcement Efforts. Chilean authorities are successfully interdicting narcotics transiting through and destined for Chile. As a result of increased U.S. support for interdiction efforts in the Andean source nations, narcotics traffickers are using Chile as a transshipment point for cocaine and heroin with more frequency. Traffickers assume Chile's clean reputation with authorities in the U.S. and Europe means that vessels and aircraft originating from Chile are less closely scrutinized. In 2004, Chilean authorities seized 2697 kilograms of cocaine hydrochloride, 8.8 kilograms of heroin, and over fifty-six million Chilean pesos (approximately USD$90,000). Law enforcement agencies also arrested 9400 persons for drug-related offenses, an increase from 8343 in 2003. Chilean authorities are also addressing the domestic distribution sources of cocaine, marijuana, and ecstasy. d. Corruption. Narcotics-related corruption among police officers and other government officials is not a major problem in Chile. The government actively discourages illicit production and distribution of narcotic and psychotropic drugs and the laundering of proceeds from illegal drug transactions. No current Chilean senior officials have been accused of engaging in such activities. The high-profile scandals related to Pinochet's activities provide an example of the gravity and attention that Chile attaches to corrupt behavior by former or current government officials. Transparency International's Annual Corruption Perception Index ranked Chile 20th in 2004, one spot lower than the U.S. but three positions down from last year. e. Agreements and Treaties. Efforts are currently underway to update the U.S.-Chile Extradition Treaty signed in 1900, under which no Chilean citizen has ever been extradited to the U.S. In late 2002, Chile expressed interest in updating the current treaty, and exploratory meetings with discussions of draft language are taking place. The U.S. and Chile do not have a Mutual Legal Assistance Treaty (MLAT). The U.S. is hoping that Chile will ratify the OAS MLAT to which the U.S. is a party. Chile is party to the Inter-American Convention Against Corruption. The September 2002 letter of agreement between Chile and the U.S. remains the most recent accord for cooperation and mutual assistance in narcotics-related matters. U.S. assistance programs are implemented under this agreement. Although the GOC and the DEA signed an agreement in 1995 to create a Special Investigative Unit (SIU) within the Carabineros, no SIU currently operated in Chile. Due to the very low level of corruption and the resulting professionalism in the ranks of Chilean law enforcement, there is currently no pressing need for an SIU. Chile has bilateral narcotics cooperation agreements in force with Argentina, Austria, Bolivia, Brazil, Colombia, Costa Rica, Croatia, Cuba, Ecuador, El Salvador, Mexico, Panama, Paraguay, Peru, Russia, Singapore, South Africa, Uruguay and Venezuela. f. Cultivation/Production. There is no known major cultivation or production of drugs in Chile, and the Department of State does not identify Chile as a "major" drug-transit country. Very small amounts of marijuana are cultivated in Chile to meet domestic demand. g. Drug Flow/Transit. Increasing amounts of drugs are transshipped from Andean source countries through Chile, destined for the U.S. and Europe. Chile's extensive and modern transportation system make it attractive to narcotics traffickers. Maritime and land route trafficking has increased; the most recent trend is to traffic drugs via Chile's road system and out of the country via maritime routes. The Santiago International Airport is also used to transit particularly heroin to the U.S. and Europe. Most narcotics arrive by land routes from Peru and Bolivia, but some enter through Argentina. The efforts of Chilean authorities are hampered by treaty provisions allowing cargo originating in Bolivia and Peru to transit Chile without inspection to the ports of Arica and Antofagasta. No labs producing synthetic drugs have been found in Chile to date. Ecstasy enters the country primarily in small amounts via couriers traveling by air. h. Demand Reduction Programs. The Chilean government has expressed concern about domestic drug use. The most recent study, completed in 2002 and released by CONACE in July 2003, demonstrates that the existing treatment infrastructure in Chile is insufficient. According to the survey, 5.7 percent of Chileans had used drugs in 2002, a slight decrease from 6.3 percent recorded in 2000. Prevalence of marijuana dropped from 5.8 percent in 2000 to 5.2 percent in 2002, although current information indicates marijuana use is significantly higher than the numbers suggest. The report also states the use of cocaine base fell from 0.7 percent to 0.5 percent, but use of refined cocaine rose slightly from 1.5 percent to 1.6 percent. Current indications suggest an increase in use of both types of cocaine. The 2002 survey also found that 22.9 percent of respondents had used illegal drugs at least once in their lives. CONACE continues to work with NGOs, community organizations, and schools to develop demand reduction programs. With the launch of CHIPRED last year, the network of NGO prevention and treatment organizations, CONACE is able to cooperate more effectively with the NGO community. ¶5. U.S. Policy Initiatives and Programs a. U.S. Policy Initiatives. U.S. support to Chile in 2003 reinforced ongoing priorities in five areas: 1) Training for prosecutors, police, judges, and public defenders in their roles in the criminal justice system reform; 2) Demand reduction; 3) Enhanced police investigation capabilities; 4) Police intelligence capability; and 5) Money laundering. b. Bilateral Cooperation. During 2004, the U.S. Government pursued numerous initiatives based on the above priorities. These include: 1) a two-part training series on the nationwide drug intelligence computer network for carabineros; 2) the first Intellectual Property Rights week including a workshop for law enforcement and prosecutors, public awareness campaign and youth concert; 3) the first presentation on drug abuse prevention programs by students from four communities as a result from the launch of PRIDE in 2003; 4) an INL-funded judicial reform intensive training program for prosecutors and defenders, preceded by Digital Video Conferences with the University of the Pacific; 5) an INL-funded seminar for judges on DNA Forensic Technology; 6) a workshop for Chilean authorities on how to investigate Intellectual Property Rights crimes; 7) a DOJ-funded course on cybercrime for prosecutors, law enforcement and government officials from five countries; 8) a public affairs section grant to Fundacion Paz Ciudadana to implement ADAM (Arrestee Drug Abuse Monitoring); 9) five CHIPRED representatives participated in a voluntary visitor program on managing drug abuse prevention programs; 10) one IVP on the Financial Intelligence Unit; 11) two U.S. speakers on drugs in the workplace and drug courts; 12) INL-funded support of the police to provide equipment for counter-narcotics operations; 13) two IVPs on drug prevention and drug prosecution; 14) a series of radio programs on drug prevention recorded and distributed to more than 80 radio stations; 15) continued discussions towards updating the 1900 U.S./Chile extradition treaty. c. The Road Ahead. In 2005, the U.S. Government will continue to support Chilean efforts to combat the narcotics-related problems listed above. The U.S. plans to continue to provide capacity-building assistance to the on-going criminal justice system reform. Efforts to enhance the counter-narcotics capabilities of both the Carabineros and the Investigations Police pursuant to the Letter of Agreement will also continue. -------------- -------------- Section II: Money Laundering and Terrorist Finance -------------- -------------- ¶7. Chile has a large, well-developed banking and financial sector, and it is a stated goal of the government to turn Chile into a major regional center. The Chilean government does not believe there is a significant money laundering problem, but information is lacking as to the extent of money laundering activity. Money laundering appears to be primarily narcotics-related, and until 2003, money laundering was only a crime when it involved the direct proceeds of drug offenses. Chile is not considered to be an offshore financial center, and offshore banking-type operations are not permitted. Bank secrecy laws are strong in Chile, and the privacy rights enshrined in the constitution have been broadly interpreted and present challenges to Chilean efforts to identify money laundering. ¶8. Money laundering in Chile is criminalized under Law 19.366 of January 1995 and Law 19.913 of December 2003. Prior to the approval of Law 19.913, Chile's anti-money laundering program was based solely on Law 19.366, which criminalized only narcotics-related money laundering activities. The law required only voluntary reporting of suspicious or unusual financial transactions by banks and offered no "safe harbor" provisions protecting banks from civil liability; as a result, the reporting of such transactions was extremely low. Law 19.366 gave only the Council for the Defense of the State (Consejo de Defensa del Estado, or CDE) authority to conduct narcotics-related money laundering investigations. The Department for the Control of Illicit Drugs (Departmento de Control de Trafico Ilicito de Estupefacientes within the CDE functioned as Chile's financial intelligence unit (FIU) until a new FIU with broader powers was created under Law 19.913. ¶9. Law 19.913 went into effect on December 18, 2003. Under Law 19.913, predicate offenses for money laundering are expanded to include (in addition to narcotics trafficking) terrorism in any form (including the financing of terrorist acts or groups),illegal arms trafficking, fraud, corruption, child prostitution and pornography, and adult prostitution. The law also creates the new financial intelligence unit, the Unidad de Analisis Financiero (UAF),within the Ministry of Finance, which has replaced the CDE as Chile's FIU. Law 19.913 requires mandatory reporting of suspicious transactions by banks and financial institutions, brokerage firms, financial leasing companies, general funds managing companies and investment funds managing companies, the Foreign Investment Committee, money exchange firms and other entities authorized to receive foreign currencies, credit cards issuers and operators, securities and money transfer and transportation companies, stock exchanges, stock exchange brokers, securities agents, insurance companies, mutual funds managing companies, forwards and options markets operators, tax free zones' legal representatives, casinos, gambling houses and horse tracks, customs general agents, auction houses, realtors and companies engaged in the land development business, and notaries and registrars. The law also requires that obligated entities maintain registries of cash transactions that exceed 450 unidades de fomento (approximately $12,000) and imposes record keeping requirements (five years). All cash transaction reports contained in the internal registries must be sent to the UAF at least once per year, or more frequently at the request of the UAF. The movement of funds exceeding 450 unidades de fomento into or out of Chile must be reported to the customs agency, which then files a report with the UAF. ¶10. Shortly after the passage of Law 19.913 in September 2003, portions of the new law -- specifically those that dealt with the UAF's ability to gather information, impose sanctions, and lift bank secrecy provisions -- were deemed unconstitutional by Chile's constitutional tribunal. The tribunal held that some of the powers granted to the UAF in the law violated privacy rights guaranteed by the constitution. The tribunal's decisions eliminate the ability of the UAF to request background information from government databases or from obligated entities on the reports they submit, impose sanctions on entities for failure to file or maintain reports, or lift bank secrecy protections. The law went into effect in December 2003 without the above-mentioned powers. A new bill has been drafted to give the UAF the ability to fine or sanction obligated entities for noncompliance with the reporting requirements. The UAF was initially granted this power in the original version of Law 19.913, but the constitutional tribunal objected to this section on grounds of due process. The new bill, if passed, will address the due process issues by allowing the individual or entity 15 days to contest the sanction, and also create a stage for sanctions by the regulatory agencies prior to sanctions administered by the UAF. The bill will establish processes through which the UAF can request information from other government entities. ¶11. The Unidad de Analisis Financiero began operating in April 2004. The UAF began receiving suspicious transaction reports (STRs) from obligated entities in May 2004 and had received 25 STRs as of October 2004. Suspicious transaction reports from financial institutions are received electronically, via a system known as SINACOFI (Sistema Nacional de Comunicaciones Financieras) that is used by banks to send information amongst themselves and the Superintendence of Banks in an encrypted format. The UAF has not yet developed a suspicious transaction disclosure form for entities other than banks and financial institutions, and therefore has not received STRs from non-financial institutions. Non-bank financial institutions currently do not fall under the supervision of any regulatory body. It is estimated that the UAF will receive roughly 50-80 suspicious transaction reports per year. Cash transaction reports (CTRs) are only reported upon request, and as of October 2004, the UAF had only requested CTRs from currency exchange houses. Reports on the transportation of currency and monetary instruments into or out of Chile must be to the customs agency, which sends the reports to the UAF on a daily basis. If an obligated entity or individual fails to file a report, the UAF currently lacks the ability to sanction that entity or individual for failure to report. ¶12. After receiving a suspicious transaction report, the UAF may request account information on the subject of the STR from the institution that filed the report. The UAF may also request CTRs from obligated entities at any time, but is required by law to request at least once per year all CTRs filed from each institution. If the draft law is passed, the UAF will be able to request information from any entity that its obligated to file suspicious transaction reports, even if that entity did not file the STR that is being investigated. The draft law will also permit the UAF to request information from any entity that is not obliged to report suspicious transactions if that information is necessary to complete the analysis of an STR, and will allow the UAF access to any government databases necessary for carrying out its duties. In order to perform these functions detailed in the draft law, the UAF will need the authorization of the Santiago Appeal Court. However, in the case of access to government databases, the UAF only needs court authorization for protected information, such as that which is related to taxes. The UAF's ability to access this information depends on the passage of the draft law. ¶13. The CDE continues to analyze and investigate any cases opened prior to the establishment of the UAF. Until June 2005, all cases that are deemed by the UAF to require further investigation will be sent to the Consejo de Defensa del Estado (CDE). The UAF has not yet sent any cases to the CDE for further investigation. After June 2005, the Public Ministry (the public prosecutor's office) will be responsible for receiving and investigating all cases from the UAF Under the new law, the Public Ministry has the ability to request that a judge issue an order to freeze assets under investigation and can also, with the authorization of a judge, lift bank secrecy provisions to gain account information if the account is directly related to an ongoing case. The Pubic Ministry has up to two years to complete an investigation and prosecution. ¶14. Given the above legislative restrictions, no money laundering cases were prosecuted in 2004. At the same time, the Chilean investigative police (PICH) are actively cooperative in pursuing money laundering investigations. ¶15. Terrorist financing in Chile is criminailized under Law 18.314 and Law 19.906. Law 19.906 went into effect in November 2003 and modifies Law 18.314 in order to sanction more efficiently terrorist financing in conformity with the UN International Convention for the Suppression of the Financing of Terrorism. Under Law 19.906, the financing of a terrorist act and the provision (directly or indirectly) of funds to a terrorist organization are punishable. The Government of Chile (GOC) circulates the UNSCR 1267 consolidated list to banks and financial institutions. No terrorist assets belonging to individuals or groups named on the list have been identified to date in Chile. If assets were found, the legal process that would be followed to freeze and seize them is still unclear; Law 19.913 contains provisions that allow for prosecutors to request that assets be frozen based on a suspected connection to criminal activity. Government officials have stated that Chilean law is currently sufficient to effectively freeze and seize terrorist assets; however, the new provisions freezing assets are based on provisions in the drug law, which at times have been interpreted narrowly by the courts. Until a case emerges, it will be difficult to judge how smoothly the new system will operate. The Ministry of National Property currently oversees forfeited assets and proceeds from the sale of such assets are passed directly to the national regional development fund to pay for drug abuse prevention and rehabilitation programs. Under the present law, forfeiture is possible for real estate, vehicles, ships, airplanes, other property, money securities and stocks, and instruments used or intended for use in the commission of the underlying crime, all proceeds of such criminal activity, and businesses involved in the criminal activity or purchased with illicit funds. ¶16. Chile is a party to the 1988 UN Drug Convention, and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. In November 2001, the GOC became a party of the UN International Convention for the Suppression of the Financing of Terrorism. On December 11, 2003, the GOC signed the UN Convention Against Corruption. Chile is a member of the OAS Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering. Chile is a member of the South American Financial Action Task Force on Money Laundering (GAFISUD) and has pledged to come into compliance with the organization's recommendations. The CDE became a member of the Egmont Group of financial intelligence units in 1997, and the UAF was vetted by the Egmont Group in October 2004 to replace the CDE. ¶17. In the establishment of the UAF, the Government of Chile has created an FIU that essentially surmounts the deficiencies of the CDE and meets the Egmont Group's definition of a financial intelligence unit. However, there remain several weaknesses that may hinder the operation of the UAF, such as its inability to sanction obligated entities or individuals for failure to file reports and its lack of access to information from other government agencies. The GOC should recognized that the establishment of an effective financial intelligence unit that meets the Egmont Group's standards is imperative in the fight against money laundering and terrorist financing. If the abilities of the UAF remain limited by the current version of the new law, the steps that have been taken in Chile over the past years to create a regime capable of investigating, punishing, and deterring financial crimes may be severely limited, if not negated. The GOC should take all necessary steps to ensure that its FIU becomes a viable entity capable of combating money laundering and terrorist financing to the best of its abilities. KELLY