TURKMENISTAN: AT FRONT END OF PREPARATION TO MEET

C O N F I D E N T I A L SECTION 01 OF 04 ASHGABAT 000981 SIPDIS STATE FOR SCA/CEN; EEB E.O. 12958: DECL: 07/29/2018 TAGS: PGOV PREL EFIN TX SUBJECT: TURKMENISTAN: AT FRONT END OF PREPARATION TO MEET INTERNATIONAL ANTI-MONEY LAUNDERING STANDARDS Classified By: Charge Sylvia R. Curran for reasons 1.4 (b) and (d). ¶1. (U) SUMMARY: A U.S. Department of Treasury team focusing on assessing Turkmenistan's anti-money laundering law enforcement capacity met with relevant state financial, legal, and legislative entities, as well as two of the three foreign banks currently operating here. Turkmenistan's banks appear to be the most well-versed regarding the effort that will be required, as they take on their share of the responsibility for implementing a new anti-money laundering law likely to be adopted this year. Government entities that oversee the financial sector via auditing activity or via regulation, licensing, or legislation, seem less confident and prepared to fulfill new internationally-mandated anti-money laundering obligations that will require them to do things they have not done in a formal sense before. The team also learned more about the status of the draft anti-money laundering law. Almost all representatives the Treasury team met were receptive to the team's invitation to participate in Treasury programs that will help their agencies establish effective procedures for standardizing future anti-money laundering reporting and investigative procedures. Although government entities largely expressed confidence that money laundering could not take hold here, they also acknowledged they could use some help in learning to guard against it. END SUMMARY. CENTRAL GOVERNMENT OFFICIAL GRAPPLING WITH IMPENDING ANTI-MONEY LAUNDERING OBLIGATIONS ¶2. (U) The head of the Central Bank of Turkmenistan's money laundering/anti-terror finance department described the bank's work with the IMF to develop the draft anti-money laundering law now under review by the Cabinet of Ministers. In the absence of a law, the Central Bank is providing guidance to the financial sector with UN guidance. She indicated that a new agency will be formed to monitor for and investigate money laundering issues. The new entity would initially be subordinated to the Central Bank, but could ultimately become independent. The new entity would likely take six months to be established, and would have some 15-20 people. Central Bank officials appeared to be familiar with internationally-mandated "know your customer" requirements, but found that doing international research of irregular activity is still difficult for government entities which do not have international financial partners. ¶3. (U) Vneshekonombank, the state's central international export-import bank, is the singular bank here with a correspondent banking relationship abroad. The Central Bank is the central state financial authority, and current decrees require all banks here to report to the Central Bank on all contacts with U.S. and European banks. The Central Bank oversees other banks' activities here, but practical, full adherence to international anti-money laundering requirements will be ensured with the new law's adoption. Central Bank representatives suggested that its personnel had seen the draft law, but did not have a copy to share with the Treasury team. They noted it was at the Cabinet of Ministers, where some amendments are being added. They offered the opinion that adherence to the $5,000 limit on wire transfers without detailed customer and financial information, as well as other strict documentation requirements, have likely impeded any money laundering aspirations in Turkmenistan. ¶4. (U) The head of the money laundering/anti-terror finance department was aware only of one case in 2002 in which terrorism was involved, but would not provide details. (NOTE: She may have been referring to the alleged embezzlement of some 40 million USD by a senior Central Bank official, who then fled the country. The money was shifted into some kind of shell account, then quietly ASHGABAT 00000981 002 OF 004 wire-transferred abroad. END NOTE.) After the new anti-money laundering law's adoption, the Central Bank will need to develop more robust regulations. The bank is planning on this, as well as the training of staff, to include those in the government who oversee the financial sector. The bank representative suggested that training will also be needed for staff at the state insurance agency, other government financial organizations, and casino operators. Central Bank personnel have received limited training, from EBRD, IMF, World Bank, and Swiss Ministry of Finance in the last several years. Bank representatives, however, indicated great interest in the Treasury team's potential capacity to provide more detailed training for personnel on anti-money laundering issues. SUPREME AUDITING CHAMBER ¶5. (U) Supreme Control Chamber Director Tuwakmammed Japarov met with the team and talked about the Chamber's mandate and authority. The Chamber, which has auditing and financial oversight powers for everything from natural resources to the national budget, reports directly to the president and appears to have been created to review incomes and expenditures and look for and report on financial irregularities in just about every corner of Turkmenistan's government. The Chamber, however, has no law enforcement arm. In cases where financial irregularities are discovered, such information is turned over to law enforcement for more detailed investigation. The Chamber's primary law enforcement counterparts are the Ministry of Internal Affairs and the Office of the Procurator General, both of which have financial/economic investigation units. The Chamber has the authority to monitor financial activities in the upper echelons of government, including heads of ministries, agency heads, and directors of state enterprises. The Chamber also has the authority to conduct audits of the Central Bank and all other banks. He noted that the Chamber plans in the near term to audit the state budgetary body. He expressed interest in the Treasury team's ability to provide training on subjects such as auditing, techniques for financial analysis, initiating a financial investigation, the role of financial entities in reporting activity, and international reporting standards for banks. MINISTRY OF JUSTICE ¶6. (U) Ministry of Justice representatives indicated that their personnel had been involved in producing the draft anti-money laundering law, as part of a working group. They noted that Justice, along with the Finance Ministry and the banks had all contributed to the new law by proposing specific amendments. As the central government entity that assesses new legislation and regulation, as well as the central authority for all types of licensing and registration, Justice officials acknowledged that anti-money laundering is a new issue for the Ministry and for Turkmenistan, and appeared to be aware of the effort that will be required to enable government entities to understand and fully implement the new law. They expressed their interest and willingness to cooperate with foreign experts to enhance their capacity to fulfill the law's requirements. PARLIAMENT ¶7. (U) The Treasury team also met with the heads of the parliamentary committees on international and inter-parliamentary relations, socio-economic policy, science and education, and local governments. These committees likely had a role in the new draft anti-money laundering law. Parliamentary Deputy Akhmuhamed Shamuhamedov led the discussion. Regarding the anti-money laundering draft, he noted that the draft is still out for comment now, and has ASHGABAT 00000981 003 OF 004 the support of tax, customs and law enforcement authorities. He said the parliament had received the draft and had sent it out to relevant ministries and agencies for review. After the review process is complete, the draft will come back to the parliament to consider its adoption. He also noted that after the law's adoption, there is a 10-day window during which other amendments might be added. Once the parliament has adopted the law and the 10-day period is over, the law goes to the President for signature, after which the draft becomes law. Relevant entities then have six months to implement the law's requirements. The committee heads asked few questions as the treasury team described its purpose and opportunities for assistance in preparing interested entities for the day when the anti-money laundering law must be implemented, but were generally receptive to the team's offer of cooperation. FOREIGN BANKS AHEAD OF NEW LAW ¶8. (C) National Bank of Pakistan's (NBP's) General Manager, Rizwan Khan, indicated that he had neither seen the draft law nor had he ever been asked to provide information about NBP's anti-money laundering procedures. He indicated that the bank was familiar with international anti-money laundering measures thanks to international counterparts and anti-money laundering policies established by the bank's headquarters in Pakistan. Khan denied the bank has ever had any money laundering cases come up. He noted that one reason for this is that the Central Bank currently does all of NBP's international transfers. NBP receives alerts on account freezes, and the Central Bank sometimes also asks that an account be frozen. He said that NBP relies on the national passport for primary customer identity information. A variety of government financial investigators come to NBP from time to time requesting customer account information, and if they have the proper legal documents, NBP gives them the information. ¶9. (C) Deutschebank's representative office Director Peter Puhl said that his bank facilitates all state import/export banking for Turkmenistan, as well as handling all of its foreign currency exchange activities. He said that Deutschebank also manages the country's currency reserves, as well as providing "substantial business support". Deutschebank is careful about the banks it does business with here. It asks for the bank's anti-money laundering policy up front, and appears to lack confidence that international anti-money laundering standards are upheld without Deutschebank ensuring that they are for the purposes of its own business activity. He did comment, however, that Vneshekonombank has demonstrated to Deutschebank that it has its own anti-money laundering regulations in place, probably due to the demands of its international counterparts. STATE BANKS AWARE, AND TRYING TO PREPARE FOR ANTI-MONEY LAUNDERING STANDARDS ¶10. (U) Senagat Bank is working with EBRD now to learn to conduct international auditing, according to bank Chairman Eyeberdy Atayev. Senior managers there are expecting to do the bank's 2007 audit in September 2008. The bank has more than 13, 000 customers, mainly in the private enterprise sector, but its Western Union partnership is a huge money maker. About 75,000 clients are wiring money abroad each year. Bank officials want to make the wire transfer service operational 24 hours a day in the near future. Wire transfers appear to be most frequently used between parents and their children attending universities abroad. The bank is working to provide credit card services such as Visa, Mastercard, and American Express in the future. Bank officials said that Vneshekonombank is currently the sole bank here offering a Visa card, but it is a debit-style card, ASHGABAT 00000981 004 OF 004 rather than a credit-based card. It is popular with parents who have children abroad. The bank is expecting to connect to the SWIFT system in November 2008, and is also anticipating approval to begin doing correspondent banking with U.S. banks. ¶11. (U) Regarding the potential for money laundering via Turkmenistan's banks, one official said, "The type of control we have here you won't see anywhere else in the world." Complex documentation requirements for payment abroad, the $5,000 transfer limit, a database of customers who have engaged in irregular activity in the past, and use of international "know your customer" requirements to accept money from abroad create strong barriers to money laundering through the bank. The chairman was confident that laundering through his bank could never happen. At the same time, he expressed interest in help with implementing the new law via training and seminars for personnel. ¶12. (U) Halk Bank Chairman Gurbanmurad Begmuradov commented similarly. He said his bank was planning to initiate correspondent banking abroad soon. He offered the opinion that the draft anti-money laundering law would be adopted this year. He expressed confidence that Turkmenistan's banking sector was far too tightly controlled by the central government to allow money laundering to occur. He said transactions are reviewed by multiple personnel to prevent improper or irregular activity. The bank has about 182,000 individual clients, and more than 5,000 business accounts. He said he is hoping to open international accounts and engage in international transactions in the future. The bank regularly receives alerts and other information on money laundering threats from U.S. and international organizations. He suggested that in addition to strict banking requirements in the country, onerous documentation requirements in Turkmenistan for making large purchases, such as real estate, make for a difficult money laundering environment, in the Begmuradov's opinion. ¶13. (SBU) President Bank Chairman Dovran Babayev was the least informative of the state bank chairmen the team met. He noted that the bank focuses on the mortgage industry, but also engages in normal banking services. The bank currently holds 1,700 individual mortgages. The bank's mortgage activity has been limited to the Ashgabat region only, but there are plans to expand its operations nationally. The bank does not currently have any plans to expand into the realm of correspondent banking, because it is simply not a priority. The Central Bank and Vneshekonombank can perform such services for President Bank if necessary, Babayev said. He expressed similar confidence about the strict policies of Turkmenistan's state banks, and denied there were areas of risk or vulnerabilities in the banking framework. ¶14. (C) COMMENT: The biggest vulnerability that Turkmenistan's financial sector has is perhaps its confidence that "it can't happen here." State-controlled banks may be overconfident, given their admission that there will be a learning curve for staff to implement anti-money laundering procedures properly. Central government entities, as well, will have to be quick studies regarding the technical aspects of conducting financial analysis and investigation, let alone monitoring methodologies. The international banks that already operate here could be ready resources to help at least domestic banks get up to speed on international anti-money laundering standards, and Department of Treasury assistance programs providing training and anti-money laundering expertise would no doubt provide a valuable contribution to Turkmenistan's future effort to assume its impending new obligations. END COMMENT. CURRAN