BUILDING AN INTERNATIONAL FINANCIAL CENTER IN THE

UNCLAS SANTO DOMINGO 001998 SIPDIS SENSITIVE SIPDIS DEPT FOR WHA/CAR, TREASURY FOR SARA GRAY E.O. 12958: N/A TAGS: EFIN DR SUBJECT: BUILDING AN INTERNATIONAL FINANCIAL CENTER IN THE DR REF: SD 0992 ¶1. (U) Plans to build a privately operated international financial center in the Dominican Republic are moving forward with construction slated to begin as early as the end of this year. On August 6, Charge met with representatives from the Independent Financial Centre of the Americas (IFC) and their lawyers from Patton Boggs to discuss the proposed project which will be located in Guayacanes, about an hour east of Santo Domingo. Patton Boggs has helped to draft a law that may be considered by the Dominican Congress later this month to create a financial trade zone that would exempt IFC from local banking and financial regulations. The Chief Executive of IFC, Gaetan Bucher, said IFC,s independent regulatory framework will be based on best practices from around the world. Despite the fact that IFC will not be subject to local financial laws and will only do business outside of the DR, Bucher believes the project will improve the DR,s global image by helping to overcome negative perceptions of the country,s weak financial sector (Reftel). Scope of the Project ¶2. (U) IFC,s long-term goal is to establish an investment banking platform for the Latin American region in the DR. According to Bucher, IFC currently has 88 employees and has invested USD 46 million in research since 2004. Bucher said they are talking to U.S. banks regarding a potential bond issuance in order to raise additional funds. IFC outlined their 25-year business plan to build a financial center as well as homes, schools and other &first-world quality8 public services, including electricity and water, on 7000 acres of land located along the southeast coast an hour from Santo Domingo. IFC estimates it will create 26,000 jobs over 25 years, half of which would be in financial services and the other half would be support positions. Construction is targeted to begin at the end of this year and the center would open for business in 2010 or 2011. IFC is planning to market the Caribbean lifestyle, as well as the availability of first world services, including healthcare, within the financial zone, to help attract high quality financial experts from around the world. IFC,s Head of Security noted that there would a strong emphasis on security to counteract the DR,s reputation for high crime rates. Initially most of the financial sector employees would be recruited from overseas since the DR does not have the human resources necessary to staff the financial center. Bucher noted that he plans to work with local universities to offer scholarships and tailor the curriculum to increase capacity in the financial sector. However, this is a long-term goal that will take time to achieve. Regulatory Oversight ¶3. (U) According to Bucher, IFC will establish an independent oversight board that will then choose the members of a separate regulatory board. Although IFC insisted the independent boards would help to insulate the company from political influence, IFC said it would present a slate of candidates for the oversight board to the Dominican government,s Monetary Board for review. The company is seeking independent funding for these two boards in order to keep them separate from the owners of IFC. The draft law that Patton Boggs has written in consultation with a local law firm requires that all financial transactions take place with entities outside of the DR. IFC would be subject to local criminal laws, however none of the local banking or financial regulation laws would apply. Patton Boggs said they hope the draft legislation will be considered by the Dominican congress later in August. They did not seem to have any doubt that it would be approved. (A copy of the draft legislation will be sent to WHA/CAR by email.) ¶4. (SBU) When asked by EMBOFFs what precautions would be taken against money laundering, IFC said it would establish linkages to the Financial Action Task Force on Money Laundering (FATF) and the Financial Crimes Enforcement Network (FinCEN),as well as create a specialized financial intelligence unit (FIU) that will correspond with the GODR FIU and other FIUs around the world. Bucher acknowledged that an independent FIU, that is not a government entity, is a new concept and it is not clear how it would interact with its government counterparts. IFC said its FIU would have an investigative unit, but that it would be unable to pursue criminal charges. Bucher said he did not think the DR,s weak financial system would impede IFC from being successful. He also added that he believes IFC could help improve the DR,s global image. However, he did not address the need for reform to strengthen the financial sector. ¶5. (U) Bucher, the Chief Executive of IFC, is a Swiss banker who grew up in the DR. He has close ties to the Vecini family, which has a controlling interest in various sectors of the economy and is the main investor in IFC. Bucher said IFC has been working closely with Deloitte London and Patton Boggs on the creation of the regulatory framework for the project. IFC hired Thomas Quinn, former Director of the U.S. Air Marshal Service and Secret Service officer, as the Head of Security. They are hoping to recruit financial experts from Europe, as well as the U.S., to emphasize the global nature of the center. Bucher noted that they are seeking to attract high profile financial experts to serve on the regulatory and oversight boards. He hopes the inclusion of several well known names will enhance the credibility of the project and send a message that the company is serious about maintaining strong oversight. IFC said they have support from contacts in Washington for the project, including former U.S. Ambassador to the DR Charles Manatt. According to Bucher, IFC and Patton Boggs have briefed some members of Congress, including Rep. Donald Payne, Chairman of the Caribbean Caucus, and officials at Treasury on their plans. Comment ¶6. (SBU) A DHS representative in attendance at the meeting noted the GODR must work to amend its weak monetary and financial law. DHS also commented that the GODR FIU is not very effective and that the government must improve basic infrastructure before it can bring the financial system to a higher standard. Although the DR stands to gain from IFC,s large investment in jobs and infrastructure development, it is not clear that it will see any improvement where it is needed most, in the weak financial and banking industries. It is of course possible that these weaknesses are part of the attraction for IFC which is seeking freedom from local regulatory oversight. This project raises concerns about the attraction of locating a company in a country that does not have a strong record of enforcing laws against corruption and money laundering. BULLEN