MEETING WITH BANKING SUPERINTENDENT: MONEY

C O N F I D E N T I A L SECTION 01 OF 03 CARACAS 000686 SIPDIS SIPDIS TREASURY FOR KLINGENSMITH, NGRANT, AND TVANLINGEN TREASURY PASS TO FINCEN FOR WBAILY AND MPASTORA EB/ESC/TFS FOR JCLARK COMMERCE FOR 4431/MAC/WH/MCAMERON NSC FOR DTOMLINSON HQ SOUTHCOM ALSO FOR POLAD E.O. 12958: DECL: 03/30/2017 TAGS: EFIN KTFN VE SUBJECT: MEETING WITH BANKING SUPERINTENDENT: MONEY LAUNDERING HAS NO FLAG REF: A. SECSTATE 16120 ¶B. SECSTATE 33837 ¶C. BOWEN-PASTORA E-MAILS Classified By: ECONOMIC COUNSELOR ANDREW N. BOWEN FOR REASONS 1.5(b) an d (d). -------------- SUMMARY -------------- ¶1. (C) Econoffs met with Banking Superintendent Trino Diaz and Director of Venezuela's Financial Intelligence Unit (UNIF) Francisco Canela March 29 to discuss the sector's outlook and to follow-up several anti-money laundering and anti-terrorism finance demarches (refs A and B). Diaz was confident about the sector's HEALTH noting that Venezuela was in its twelfth consecutive quarter of impressive growth and that bad loans represented a very small portion (less than 2 percent) of banks' portfolios. He added that a new draft banking law did not contemplate overly restrictive or intrusive measures, would strengthen controls for risks and fiscal paradises in accordance with Basel II recommendations, and could add the industrial sector to the list of mandated sector lending. Following the meeting, Canela took econoffs on a tour of the BRV's UNIF, highlighting their desire to work cooperatively to combat terrorism financing and money laundering, and declaring that these issues "have no flag" and were "apolitical." Both Diaz and Canela's cooperative stance very likely stems from wanting to establish bona fides following concerns by FINCEN that UNIF inappropriately disclosed privileged information. FINCEN and UNIF are discussing the matter to ensure that financial information provided to the Venezuelan FIU will remain safe. END SUMMARY. -------------- Banking Sector HEALTH -------------- ¶2. (C) EconCouns, econoff and econ specialist met March 29 with Trino Alcides Diaz, the BRV's Superintendent of Banks and other Financial Institutions (SUDEBAN),to discuss his outlook for the sector. Accompanying Diaz at the meeting was Francisco R. Canela, the director of the Financial Intelligence Unit (UNIF) which falls under SUDEBAN. Noting that Venezuela was in its twelfth consecutive quarter of growth, Diaz said that he foresaw no problems in the banking sector. Total bank assets increased by 70 percent in 2006, reaching USD 70 billion. Non-performing loans amounted to less than less than 2 percent of the total loan portfolio and banks had over USD 2 for every USD 1 in bad loans. Diaz also seemed pleased to note that there were 10 foreign banks operating in Venezuela, including Citibank, which has been here for over 100 years (the total number of banks is 58). ¶3. (C) In response to EconCouns' question on direction of the BRV's Treasury Bank, Diaz replied that the Treasury Bank would continue to expand its operations gradually, and he did not foresee it withdrawing the approximately USD 9 billion in government funds from the private banking sector, nor crowding the private banks out of the marketplace through uncompetitive lending practices. He claimed that the bank was growing slowly and would eventually have branches in every corner of the country to help serve Venezuela's under-banked population. He also denied rumors that the BRV was looking to purchase a large private bank in order to extend the Treasury Bank's reach, though he did opine that a public sector consolidation was possible (read: consolidation of BANDES, Banco Industrial, BANFOANDES and others). He elaborated that many public sector banks were inefficient and, to prove his point, said that ONE bank in particular had to negotiate with over 20 different unions. -------------- The New Banking Law -------------- ¶4. (C) The BRV has been contemplating a new banking law since early 2006 and Diaz confirmed that this was still in the works. SUDEBAN and the Ministry of Popular Power for Finance (MPPF) are working with the Banking Association, Banking CARACAS 00000686 002 OF 003 Council, and Ministry of Popular Power for Industry and Light Commerce (MPPILCO) on the law and Diaz expects it to be acceptable to the private sector. He confirmed that there were no current plans to place BRV officials on private bank boards, and that the new law could add industrial sector lending to the list of sectors receiving directed lending. (Note: Currently 31.5 percent of a bank's loans are directed by law to specific sectors, including agriculture (16 percent),housing (10 percent),tourism (2.5 percent),and microcredit (3 percent). End Note.) He added that while banks complained about mandated lending, most already exceeded those requirements. Microcredit, which is supposed to make up three percent of a bank's portfolio, receives currently six percent of the sector's financing. Diaz attributed the banks' ability to exceed the required lending as representative of the "normalization" of the financial sector, which would normally invest in these areas given the country's high economic growth. (Comment: Diaz' sunny observations, notwithstanding, currency controls (money with no outlet) are probably the primary factor. End Comment.) ¶5. (C) According to Diaz, the new banking law may implement Basel II recommendations, including more control and oversight of banks, increased capitalization ratios (currently at 8 percent),and stricter regulation of tax havens. Diaz also hoped that the new law would include a requirement for SUDEBAN to inspect public sector banks, explaining the current policy, which requires SUDEBAN to be invited in by the public bank, to be inappropriate for maintaining the HEALTH of the banking sector. -------------- -------------- Anti-Money Laundering and Anti-Terrorism Finance Issues -------------- -------------- ¶6. (SBU) Diaz confirmed that he had received the invitation to attend the upcoming Treasury-supported AML/ATF inaugural conference in Bogota from April 11-13 (reftel B),but were still deciding on whether to participate. Econoff took the opportunity to raise USG and FATF concerns over illicit cash couriers and bulk cash smuggling (reftel A). Diaz and Canela were aware of the issue and noted that these activities were illegal in Venezuela. According to Canela, the tax and customs authority SENIAT tracks all movements of money in excess of USD 10,000 and travelers are required to declare any amount in excess of USD 10,000 when transiting Venezuela. Failure to do so also violated the Law Against Illegal Foreign Exchange (LIC),which governs Venezuela's currency control regime. ¶7. (C) Econoff took the opportunity to ask Diaz and Canela what SUDEBAN did with the periodic terrorism finance lists Post transmitted. Canela noted that they appreciated receiving the lists and that the UNIF entered the names into its database. Canela implied that they would share with Post any information of terrorism financiers using the Venezuelan financial system. -------------- --- Touring the UNIF: Dorothy Are We Still in Kansas? -------------- --- ¶8. (C) Following the meeting, Canela offered econoffs a tour of the UNIF. Housed in SUDEBAN's new headquarters, the UNIF appeared very active, with new computers and workers huddled around computers and a white board in the conference room. While perhaps presenting a bit of a Potemkin village for econoffs' benefit (none, for example, appeared surprised to see American officers),the employees nonetheless appeared very engaged and professional. Canela said that they currently employed 40 people and that he was working for more resources to increase their numbers. Canela noted that currently they did not have links to small exchange houses, casinos, or stock brokers and planned to expand UNIF's reach were contingent on hiring more people. During the walk-through Canela repeated their willingness to work cooperatively with Post and invited econoffs to simply pick up the phone should we ever need information. Canela told EconCouns that he had been a "financial intelligence professional" for over 20 years, mostly working for the Comptroller General's office, and had been with the UNIF for CARACAS 00000686 003 OF 003 around a year and a half. He also added that his predecessor, an Army Colonel, was difficult and not entirely suited for the job. -------------- COMMENT -------------- ¶9. (C) Both Diaz and Canela were surprising engaging and forthcoming with econoffs. They appeared genuinely interested in maintaining contact with Post and in working together in areas such as combating terrorism financing and money laundering. Diaz highlighted the participation of international banks in the Venezuelan banking sector and seemed pleased that two of the four new banks opening this year contained foreign capital. The president of an American bank here confirmed this attitude, recently noting that he had a very professional relationship with Diaz. Canela offered to bring his team to the Embassy to give a presentation on their activities and investigations and Post plans to take him up on this offer. After the tour, Canela accompanied econoffs outside and suggested that they would be open to technical assistance, including possible classes or training in the United States. In parting, he underscored that these issues affected everyone, were "apolitical," and did "not have a flag." Although Diaz spouts the Bolivarian line in public, he has made himself available to EconCouns in the past, and made himself and Canela available this time. It is very likely, however, that the extremely cooperative tone struck by both gentlemen was in no small part to bolster this reporting. Post understands FINCEN continues to discuss the inappropriate disclosure of FINCEN information with UNIF to ensure such information is appropriately safeguarded by the BRV's FIU. END COMMENT. BROWNFIELD