AMBASSADOR DISCUSSES AML, SME LENDING WITH THREE

C O N F I D E N T I A L CASABLANCA 000523 SIPDIS SIPDIS DEPARTMENT FOR NEA/MAG, EB/IFD, S/CT AND NEA/OFI PASS USAID FOR ANESA - J. RAGLAND TREASURY FOR OASIA - D PETERS E.O. 12958: DECL: 04/27/2016 TAGS: ECON EFIN KTFN MO SUBJECT: AMBASSADOR DISCUSSES AML, SME LENDING WITH THREE CASABLANCA BANKERS REF: RABAT 00730 Classified By: Principal Officer Douglas Greene for reasons 1.4 (b) and (d) -------------- SUMMARY: -------------- ¶1. (C) SUMMARY AND INTRODUCTION: Ambassador Riley met with the Chairmen of three of Casablanca's largest banks -- Moroccan-owned BMCE Bank Group, government controlled Banque Centrale Populaire and French-owned Soci,t, Generale -- on April 26th to discuss compliance with pending Government of Morocco (GOM) Anti-Money Laundering (AML) legislation (Ref A) and bank lending to Small and Medium sized Enterprises (SMEs). The Chairmen contrasted in style, but all three offered almost identical arguments for why Moroccan banks find it difficult to lend to SMEs. The Chairmen criticized the accounting practices, and spending priorities, of small enterprises, although they expressed willingness to boost lending in response to increased SME transparency. When asked about GOM pending AML legislation, both BMCE and SG expressed confidence that their banks are already compliant with pending AML standards. SG questioned the substance of the bill itself, suggesting strict enforcement could adversely impact Morocco's economy. Meanwhile, BP subtly indicated that conformity to AML standards remains an institutional challenge. END SUMMARY AND INTRODUCTION. BMCE BANK GROUP ¶2. (C) Ambassador Riley first met with Othman Benjelloun, Chairman and Chief Executive Officer of BMCE Bank Group. Benjelloun's office bears all the trademarks of a Wall Street "Master of the Universe", including custom made leather furniture, a large flat-screen television broadcasting the latest financial news from Bloomberg and expensive art bought at auction from Christies in London. Benjelloun carries himself with the gravitas and bearing of an elder statesman, befitting his stature as Chairman of BMCE and President of the Moroccan Banking Association. Photos on the wall show him (and his much younger wife) in the presence of Former King Hassan II, King Juan Carlos of Spain and King Mohammed VI, among others. During his conversation with the Ambassador, Benjelloun casually mentioned regular meetings with the Prime Minister, as well as having met with China's President Hu during his recent visit to Morocco. Clearly comfortable in his role, Benjelloun would not hesitate to call senior managers on speaker phone, asking them to provide precise information on the spot, in response to the the Ambassador's questions. ¶3. (C) The Ambassador and Benjelloun discussed the growing economic role of China extensively. Benjelloun noted that BMCE is the only Arab bank with a branch in Beijing. He praised the "discipline" of the Chinese people saying "much could be learned" from them and discussed his recent meeting with Chinese President Hu. He reminded the Ambassador that Morocco and China share a long-standing, close relationship and that China is showing increased interest in developing a presence in Africa. Ambassador and econoff believe that Benjelloun clearly sees China as more of an opportunity than a threat; BMCE's strategy reflects that appraisal. ¶4. (C) Benjelloun also praised Morocco's potential for offshoring and shared that GOM Prime Minister Driss Jettou is planning to announce a package of offshoring initiatives, including tax breaks, in the coming weeks. Benjelloun claimed companies including Dell Computers and French-owned Cap Gemini are expected to make immediate investments, creating 3,200 and 2,700 jobs respectively. Benjelloun was critical of SMEs complaining that they are often non-transparent and the money lent is often not invested in the business. "We lend money to someone and the first thing they do is buy a car or an apartment," Benjelloun accused. He explained that BMCE has Dh 3.2 billion (about $350 million) in SME loans currently in default. "We want to lend," he explained, "That's what we do." ¶5. (C) Turning to the pending AML law, Benjelloun was unimpressed. "We are already compliant," he boasted, and claimed the law would have "no impact" on his business. "Other banks have to worry," he stated, and, surprisingly, even named BMCE rivals Banque Centrale Populaire and Attijariwafa (Morocco's largest bank),alleging both banks have had recent problems with money laundering, both in Morocco and in overseas offices. SOCIETE GENERALE ¶6. (C) The modern, stylish residence of Mr. Abdelaziz Tazi, President and Chairman of Soci,t, Generale (SG) could easily have been found in the pages of Architectural Digest, complete with a private art collection and grand piano. Rather than meet at his office, Tazi invited the Ambassador to a sumptuous lunch at his home with two of SG's senior managers. Tazi appeared relaxed and confident, and encouraged his managers to weigh in often on their areas of expertise, including presenting almost identical arguments on bank lending to SMEs as BMCE and BP. ¶7. (C) Tazi echoed Benjelloun's attitude toward pending AML legislation. As a French bank, he explained, SG is already complaint with EU banking laws, even at branches in non-EU countries. "There are other banks that will have problems," one of his mangers explained, without naming any specifically. Tazi did, however, express some practical concerns with the legislation itself. He explained that if the provisions as currently written are strictly enforced, the bill could have negative impacts on many of the people who operate in Morocco's informal sector, including those not involved in terrorism or narcotics. His managers added that determining the origin of money is the challenge for bank compliance with AML standards and that monitoring for suspicious transaction is the easier part. Tazi then broadened the discussion into a larger criticism of financial sector regulations, complaining that in general Moroccan financial rules are not precise enough and are open to too much interpretation. BANQUE CENTRALE POPULAIRE ¶8. (C) The Ambassador next met with Noureddine Omary, President of Banque Centrale Populaire (BP). With furnishings significantly more modest than BMCE ,s, Omary's office could easily pass for the that of a mid to senior level Moroccan government official (for example, the walls displayed framed official posters of King Mohammed VI and Hassan II as opposed to personal photographs). The "off the rack" furnishings and lack of expensive art is perhaps not unexpected, as BP is still a partially (less than 20%) government-owned and controlled institution. Omary, who began his career as a government official, appeared young. He sat on the edge of seat, speaking rapidly and asking few questions. He also included a senior manager with him in the meeting, but never invited him to speak. ¶9. (C) Omary's position on lending to SMEs was consistent with BMCE, and echoed the same difficulties with transparency on the part of small enterprises. Interestingly, he even used the same turn of phrase as Benjelloun, remarking that "Lending is what we do, we want to lend more." Ambassador and Omary also discussed BP's philanthropic efforts and Ambassador explained how they may correspond to projects under consideration by the GOM as part of its Millennium Challenge Account (MCA) proposal. ¶10. (C) Omary's response to the Ambassador's inquiry on the pending AML bill was revealing. He began by joking, awkwardly, about the need to "launder money," asking "is (the money) soiled?" After this attempt at humor fell flat, Omary expressed his concerns that the law be "manageable" and that the regulations be clear detailing what his bank is expected to do. "I need to sleep well at night," Omary complained, explaining he fears spending all his time worrying about ensuring compliance to the requirements of the new law. -------------- COMMENT: -------------- ¶11. (C) Comment: While the Chairmen's responses to questions on SME lending are familiar and unsurprising, their differing responses when asked about AML legislation are much more revealing. BMCE ,s Benjelloun and Tazi of SG show no concern; more troubling is to know what exactly keeps BP Chairman Omary "up at night" and how many other bank Chairmen in Morocco share his sleeplessness. Concerns by influential persons or groups regarding AML legislation ,s potential negative impact on Morocco's large informal sector (estimated by the World Bank to represent almost 40% of the economy) could delay parliamentary consideration of the bill. The GOM claims it wishes to absorb the informal sector (and its unreported, unsupervised financial transactions) into the formal economy, but many observers say, and Omary ,s reaction confirms, that there are players who will oppose this effort. GREENE