FINCEN DIRECTOR BOOSTS USG ANTI-MONEY LAUNDERING

UNCLAS PANAMA 001798 SIPDIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EFIN EINV ETRD KCRM PM SUBJECT: FINCEN DIRECTOR BOOSTS USG ANTI-MONEY LAUNDERING MESSAGE REF: A. PANAMA 1477 ¶B. PANAMA 1532 ¶C. PANAMA 1187 ¶1. This message is SENSITIVE. Please protect accordingly. 2.(U) Summary: FinCEN Director Robert Werner, Deputy Director William Baity, and staff member Mauricio Pastora visited Panama on August 23 and 24. Director Werner delivered the keynote address at the 10th Hemispheric Conference on Money Laundering and Terrorist Financing, where he reinforced USG anti-money laundering messages. FinCEN and Emboffs met with Director of the Financial Analysis Unit (UAF) Amado Barahona, Banking Superintendent Olegario Barrelier, Colon Free Zone (CFZ) Vice President Juan Fidel Macias and CFZ User,s Association Vice President Digna Donado. FinCEN signed an MOU with the UAF governing the exchange of information between the two agencies. -------------- -------------- Director Stresses Economic Impact & International Cooperation -------------- -------------- ¶2. (U) Director Werner,s keynote address to an estimated 400 conference attendees reinforced the USG,s commitment to combating money laundering world-wide. The speech highlighted the distortionary effect of illicit funds on legitimate economic activity and the importance of preventing those engaged in illegal activity from being able to enjoy the proceeds. Director Werner discussed the transborder nature of money laundering, emphasized international cooperation in anti-money laundering activities and maintaining the autonomy of regulatory institutions to ensure their ability to effectively carry out their mandate. He expressed concern over the proliferation of front companies and the use of off-shore accounts in financial institutions with branches in Panama. The speech discussed the risk-based approach adopted by FinCEN in effectively administering and enforcing anti-money laundering regulations. -------------- - FinCEN signs Information Exchange MOU with UAF -------------- - ¶3. (U) FinCEN met with the Financial Analysis Unit (UAF) on Wednesday August 24th. Director Werner and UAF Director Amado Barahona signed an MOU governing information sharing between the two agencies. The MOU will formalize and stream-line existing information exchanges previously handled on a case-by-case basis under the information sharing principles of the Egmont Group of Financial Intelligence Units. ¶4. (SBU) Barahona expressed concern regarding the level of detail in the FinCEN responses on certain information requests. Barahona stated he had difficulty obtaining related information from US law enforcement agencies. He also requested access to US bank account information. Director Werner explained that FinCEN could not disclose law enforcement related information without permission from the originating agency but agreed to look into both issues. Barahona stated the UAF recently created a statistical and strategic analysis unit and planned to post some reports on their website. Director Barahona emphasized that the UAF itself does not have enforcement capabilities. In the event of suspected money laundering activity, the UAF requests the industry regulators to administer sanctions and/or fines on an individual or organization. Barahona also commented that Panama,s high income tax on casinos (10% of gross revenue and 35% of net revenue) discouraged money launderers from establishing a casino for the purposes of laundering money. -------------- -------------- Colon Free Zone Officials Discuss Complaints and Cash Transactions -------------- -------------- ¶6. (U) The FinCEN delegation met with CFZ Administration Vice President Juan Fidel Macias and CFZ User,s Association Vice President Digna Donado on Thursday August 24th to discuss the CFZ,s anti-money laundering efforts and oversight of CFZ businesses. Motta Group Chief Financial Officer Fernando Guardia Williamson was also in attendance. Guardia emphatically noted widespread frustration among CFZ businessmen who believe they are subject to higher standards than the import/export firms in the United States with which they compete. Director Werner noted that the U.S. had a variety of controls to monitor transactions by U.S. firms and through U.S. banks but that money laundering is a cross border activity that cannot be solved without international cooperation. ¶7. (SBU) According to the CFZ Administration, approximately 40 of the 2,300 or so CFZ companies are audited for compliance with CFZ regulations each year. Cash transaction reporting and record keeping is reviewed with a team of six auditors. Officials stated the CFZ and the UAF have proposed establishing suspicious transaction reporting specifically for the CFZ. According to Guardia, approximately 20 percent of Motta,s sales are paid in cash. CFZ administrators concurred, estimating 20 to 25 percent of overall CFZ sales are paid in cash. CFZ exports are reported to be over $5 billion per year (not including sales by CFZ firms of goods that are shipped directly from the manufacturer to the customer or otherwise do not physically pass through the CFZ). However, Director Barahona stated only about $70 million worth of cash transactions over $10,000 were reported to the UAF by CFZ businesses in 2004 and about $50 million in 2005 (approximately 1-2%). ¶8. (SBU) Guardia and the CFZ representatives explained that they believe the discrepancy is the result of customers dividing their business among multiple CFZ firms to acquire a range of products, but spending less than $10,000 at each firm. They stated that the level of cash flowing through any individual CFZ firm could be monitored by cash transaction reports filed by banks on the deposits made by the firm and via the firm's tax filing which should reflect their cash flow. -------------- -------------- New Banking Superintendent Stresses Need to Learn From Experience -------------- -------------- ¶9. (SBU) Newly appointed Superintendent of Banks Olegario Barrelier (Ref A & B) admitted that he was not familiar with many of the changes that had occurred in anti-money laundering regulations and technologies in recent years but added that he hoped to learn quickly and wanted to make sure that Panama incorporated the most up-to-date technology and processes to safeguard the financial system. The UAF provides the Superintendency with profiles on each bank prior to each bank inspection and the Superintendency agreed to additional or targeted inspections in response to requests from the UAF. Barrelier noted that the Pablo Rayo Montano drug money laundering case (Ref C) had caused a lot of concern in the banking community. He stated he planned to meet informally with the sector to get their observations. He proposed studying the Panamanian accounts in Montano,s network to see what new controls might be necessary. UAF director Barahona noted that one bank did file a suspicious activity report on a transfer to Brazil made by the Montano-owned company Nautipesca. The meeting identified that bank cash flow data transmitted from the bank to the UAF (via the Superintendency,s electronic reporting system) was consolidated and did not identify cash flow by branch. -------------- Comment -------------- ¶10. (SBU) Panamanian officials were pleased to have the opportunity to meet with the FinCEN delegation and reiterated their commitment to combating money laundering. Relations between the UAF and the Banking Superintendency appeared positive. However, the meetings highlighted several gaps in Panama,s regulatory efforts and activities. Discussions between the UAF and the Banking Superintendency indicated a lack of clarity regarding inter-agency responsibilities. A former Banking Superintendency official told Econchief the current UAF Director is less proactive than his predecessors. In fact, Director Barahona,s comment regarding casinos and money laundering appeared disingenuous as the high income tax on casino revenue is only relevant if the illicit funds are being properly recorded and reported. Further, money launderers who are not casino owners can still attempt to launder funds as casino players. ¶11. (SBU) FinCEN and Emboffs noted the fact that CFZ regulators did not want to meet separately from the User,s Association. At several points in the meeting, CFZ officials deferred to Motta Industry representative Mr. Guardia who appeared to be running the meeting. CFZ representatives seemed unconcerned with the low level of cash transaction reporting (reports which would be key to tracking payments made through the Colombian Black Market Peso Exchange) and instead were focused on how bank and tax filings could show that their businesses were not fronts for drug traffickers. The premise that over 95% of the $5 billion in annual CFZ business is conducted in transactions less than $10,000 is not credible. ¶12. (U) This message is approved by the FinCEN delegation. ARREAGA