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.

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Director Stresses Economic Impact & International Cooperation
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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.

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FinCEN signs Information Exchange MOU with UAF
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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.

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Colon Free Zone Officials Discuss Complaints and Cash
Transactions
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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.

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New Banking Superintendent Stresses Need to Learn From
Experience
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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.

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Comment
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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