SCENESETTER FOR VISIT TO BANGLADESH OF TREASURY

UNCLAS SECTION 01 OF 02 DHAKA 002746

SIPDIS

SIPDIS
SENSITIVE

ISLAMABAD FOR TREASURY A/S O'BRIEN

E.O. 12958: N/A
TAGS: PGOV PTER EFIN BG
SUBJECT: SCENESETTER FOR VISIT TO BANGLADESH OF TREASURY
A/S PATRICK O'BRIEN

1, (SBU) Summary: Bangladesh is at a cross-roads in its
development of a solid AML/TF regime. Though the USG, mostly
through DOJ, has provided training programs, Bangladesh's
central Bank needs technical support with computer programs
and advisors to set up the FIU. Foreign partners have an
opportunity to get in on the ground floor to support the
bank's growing interest in combating money laundering and
terrorist financing. However, achieving new legislation and
major policy decisions in this government's final months is
problematic given the political leadership's narrow focus on
a no-holds-barred, acrimonious election expected in January

2007. End Summary.


2. (SBU) The murderous campaign of violence waged between
August and December of 2005 by the banned Islamist extremist
group Jamaatul Mujahhidin Bangladesh (JMB) ultimately forced
the BDG to tackle terrorist threats with new vigor, at least
on the law enforcement side. The BDG has basically dropped
its prior position that terrorism, domestic or foreign, was
absent from Bangladesh, though it continues to blame India
and the political opposition for facilitating or manipulating
JMB. It stresses that the overwhelming majority of
Bangladeshis are moderate and tolerant, and that virtually no
one in Bangladesh outside of JMB supported that group's
terrorist tactics.


3. (SBU) The Bangladesh Bank (BB),the country's central
bank, has spearheaded the drive to combat anti-money
laundering (AML) and Terrorist Financing (TF) since 2002 when
the Anti-Money Laundering Act 2002 (AMLA-02) was passed.
Despite gaping holes in the present law, such as the lack of
a definition of money laundering, BB has succeeded in
establishing the Anti-Money Laundering Unit (AMLU),which is
the country's de facto Financial Intelligence Unit (FIU).
The bank has sent members of the group to seminars around the
world sponsored by FIUs in Asia and the U.S., the Department
of Justice, and the Asian Pacific Group (of FIUs). The AMLU
team have developed a "Know Your Customer" manual and has
trained compliance officers in all of the country's banks and
their branches. In addition, each bank is requested to have
an anti-money laundering compliance unit in its head office.


4. (SBU) Unfortunately, progress on the Anti-Money Laundering
Act 2005 (AMLA-05 and the Anti-Terrorism Act (ATA),both of
which have undergone several cabinet-level reviews, has
stalled in part because of the upcoming election. The
government is expected to give way in mid-October to a
caretaker regime, which then has 90 days to hold a national
election. Bangladeshi elections are no holds barred, winner
take all, and the ruling BNP has already reached the point
where it is very narrowly focused on defeating its bitter
rival, the Awami League. Spontaneous uprisings and
demonstrations against serious shortages of power, fuel, and
water, resulting from bad government policies and failing
infrastructure, have made the government extra defensive.
While the two laws are unlikely to pass this year, the
central bank is pressing forward with its efforts to
establish a properly functioning FIU and an enforcement and
prosecution office to secure convictions.


5. (SBU) The banks are required through an administrative
order to make suspicious transactions reports (STRs) and,
more recently, currency transaction reports (CTRs) for
amounts of USD 700 or more. Compliance by the banks is
spotty, with approximately 200 STRs filed in the last three
years. RLA has seen samples of the STRs and BB's analysis of
the accounts which would pass muster for a prima facie case
in the United States. There is no computerization of the STR
system. Local banks submit their reports in hard copy and
the analysis is done by hand. A high-ranking bank official
said he "scrounged" two computers to start imputing the CTRs.


6. (SBU) There have been no prosecutions, in part due to the
former Bureau of Anti-Corruption's abrupt abrogation of duty
to investigate the STRs. The country's police unit, the
Criminal Investigation Division (CID),has taken on the cases
but difficulties in the criminal procedure code have yet to
be worked out between the BB and CID to facilitate faster
investigation. Even if the investigations were quickly
concluded, another stumbling block is the lack of skilled

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prosecutors, all of whom are underpaid political appointees
who will lose their jobs if the ruling party loses the
election in January.


7. (SBU) JMB's terrorist onslaught, which killed about 30
persons and wounded more than 100, spotlighted the role of
STRs. Police seizure of bank records belonging to JMB
ringleaders led BB to several banks, including those which
follow Sharia banking principles. BB fined the banks for not
filing the STRs because the patterns in the accounts of large
deposits and withdrawals clearly indicated suspicious
activity. Though the fines were small, the main culprit,
Islami Bank, faced a small dip in its stock share when the
news broke that JMB members used the bank. (Note: Islami
Bank is easily the most profitable Bangladeshi bank and is
widely seen as well managed and relatively non-corrupt.)


8. (SBU) Most every foreign consultant and BDG official
concerned with the AML/TF world agrees that Bangladesh needs
a stronger FIU with proper software to build its data base.
Currently, the AMLU unit has five computers for its 24
members and no IT capability to store or analyze the STRs.
BB's is keen for assistance but requests to Australia,
Malaysia, Philippines, and the United States have either been
rebuffed or politely refused due to lack of funds, manpower
or both.


9. (SBU) Meanwhile, the draft AMLA-05 was effectively
slow-tracked in December when the government announced that
the ATA would have to be passed first to make terrorism
financing a criminal offense. That law has serious flaws,
such as extremely broad language mirroring the draconian
Special Powers Act granting unbridled police power. In
addition, a provision calling for international cooperation
was dropped because of fear that Dhaka would be forced to
share its intelligence with "unfriendly" countries (read
India). There is now discussion at the cabinet level on
whether there even needs to be a law on terrorism, citing
that crimes committed -- in the name of terrorism -- are
already covered by the criminal code.


10. (SBU) If the ATA is scuppered, the provisions for
criminalizing terrorist financing can be restored to the
AMLA-05 draft. The new law provides powers to the FIU to meet
international recommendations set forth by the Financial
Action Task Force (FATF). If the legislation were to pass
intact, DOJ lawyers believe that the new law is roughly 85%
compliant with FATF standards. However, in cabinet meetings
held throughout the autumn, certain provisions were cut,
including a Financial Investigation and Prosecution Office
(FIPO) which would have BB examiners, specially trained
police investigators and prosecutors working together to
secure convictions. Those in favor of FIPO say it can be
done administratively. While an expedient alternative, the
future of FIPO would be subject to the administration in
charge.
CHAMMAS