U.S.-EU TROIKA ON TERRORIST FINANCING, MAY 23, 2008

C O N F I D E N T I A L SECTION 01 OF 06 BRUSSELS 001059 SIPDIS STATE FOR EUR/ERA, EEB/ESC/TFS, S/CT, IO TREASURY FOR TFFC, TFI E.O. 12958: DECL: 07/13/2018 TAGS: CE EAID EFIN ETTC EUN FR KCRM KTFN PINR PREL PTER, SI, SNAR, UNSC SUBJECT: U.S.-EU TROIKA ON TERRORIST FINANCING, MAY 23, 2008 REF: A. USEU BRUSSELS 986 Classified By: USEU EconMinCouns Peter Chase for reasons 1.4 (b),(d), (e). ¶1. (SBU) SUMMARY: Charities, cash couriers, and UN sanctions reform were the focus of the May 23 bi-annual U.S.-EU Troika meeting on Terrorist Financing in Brussels. The EU will consider the U.S. proposal for a financial sanctions workshop program to address combating terrorist abuse of the non-profit sector. Participants agreed that the mandate renewal for the UNSCR 1267 Committee on Al Qaida and Taliban sanctions provides an opportunity to address due process concerns which are being raised at EU and EU Member State courts. The Commission welcomed U.S. proposals for possible follow up on cash couriers. EU participants requested further U.S. information about emerging anti-money laundering/counterterrorism finance problems connected with the stored-value card industry, and suggested that updated FATF typologies may prove useful. Both sides expressed interest in exploring mechanisms to share terrorist financing sanctions information via the Egmont group network, leveraging EU platforms being developed t o link Financial Intelligence Units. END SUMMARY. -------------- Recent Developments: Self-Financing for Terrorist Attacks -------------- ¶2. (C) A representative from the EU's Situation Center (SitCen),summarized SitCen's analysis that attacks can be self-financed, and external financing may be unnecessary. The 2004 Madrid attacks used proceeds from domestic illicit drug sales to fund explosives. The 2005 attack and 2007 foiled plots in the UK were financed via credit cards and personal loans. Western countries are attractive places to raise money given the possibility of multiple credit cards and bank accounts, with default often identified as normal bad debt. Costs increase with spectacular plots, radicalization and recruitment, propaganda, travel, family subsistence, bribes, safe havens, forgery workshops, and other activities. Terrorists avoid money transfer controls by transferring amounts below reporting thresholds and using reliable cash couriers, hawala, and moneygrams. Emerging trends include mobile banking, pre-paid cards, and internet banking. -------------- Charities: Exchange of Views on Non-Profit Organizations (NPO) -------------- ¶3. (SBU) Terrorist exploitation of non-profits was the most extensively debated subject. In response to the U.S. push for a work program in the financial sanctions workshop, Andrej Slapnicar of the Slovenian EU Presidency agreed to report the Troika discussion to the EU Member States (EUMS). He recommended that NPOs remain on the Troika agenda and noted that EUMS had seen non-profits as a possibility for a future workshop discussion. ¶4. (U) EEB Deputy Assistant Secretary for Energy, Sanctions, and Commodities Doug Hengel, in his opening remarks, flagged the unfinished business of the 2004 U.S.-EU Summit (reinforced in the June 10, 2008 Summit),where we committed to review regulation of the non-profit sector to ensure it is not misused. Few countries fully implement the Financial Action Task Force (FATF) four-prong approach, and the existing U.S.-EU workshop is an appropriate forum to undertake a work program on non-profits. ¶5. (U) Chip Poncy (Treasury) called for greater awareness of how terrorists exploit NPOs. FATF has developed elementary typologies for charities, but we need a broader view examining terrorist organizations' life-cycles and the funding needed to sustain them, radicalization and BRUSSELS 00001059 002 OF 006 recruitment, travel, and training. U.S. experts all flag charities as the primary cause for concern. Poncy urged that the financial sanctions workshop develop a broad approach encompassing all of FATF's four pillars (regulatory, enforcement, outreach, international engagement) and including terrorist finance, counterterrorism and enforcement experts. ¶6. (SBU) Dora Balazs, Terrorist Financing Officer, Commission Directorate-General for Justice, Freedom and Security (DG JLS),reported on the EU's two commissioned studies. The first addressed transparency in the EU NPO sector and assessed all types of financial crime, including terrorist financing. An April 25 meeting convened EU law enforcement and NPO experts, discussed the report's findings, and demonstrated more scope for dialogue than at past meetings. EU law enforcement experts saw fund transfers as the greatest vulnerability. The Commission plans to hold a further meeting in late 2008 to present the results of the second study, now underway, that analyzes NPO transparency initiatives and the sector's response to addressing the threat of terrorist financing. ¶7. (SBU) In the ensuing discussion, Poncy said the USG has placed voluntary good governance and risk-based guidelines on websites that charities can implement to guard against abuse (including accounting and auditing, programmatic checks to ensure projects complete milestones identified by donors, hiring guidance, and referral to government lists of designated terrorists). Hengel explained that the recently announced USAID partner vetting system is being implemented government wide, and offered to provide more information. EU Counterterrorism Coordinator (EU CTC) Gilles de Kerchove requested U.S. views on the Swiss Montreaux Initiative. Poncy agreed that the objectives are sound, but explained that the initiative lacks the comprehensive FATF approach. Furthermore, participants include U.S.-designated terrorists with whom USG is prohibited from engaging. -------------- U.S.-EU Financial Sanctions Workshop Report -------------- ¶8. (U) The Financial Sanctions workshop will issue a "final report" of its work on implementing FATF Special Recommendation (SR) III on asset freezing and confiscation. The new work program will be decided at a later date. The incoming French Presidency probably will propose wire transfers, while the United States continued to press for a charities work program or, at a minimum, an information/organizing discussion at the October 30-31 workshop. ¶9. (U) Slapnicar summarized the stocktaking discussion at the May 21-22 U.S.-EU financial sanctions workshop and the workshop's decision to issue a final report. He highlighted the discussion on due process in the UN (see also paras 12-13),where some EU countries are promoting an experts' panel to review designations. ¶10. (SBU) Bertrand Pous, Foreign Ministry representative from the incoming French EU Presidency, outlined France's priorities on combating the financing of terrorism (CFT): (1) ensuring the EU list reflects the reality of the threat, and that EU procedures are effective and respect both the rule of law and confidentiality of sources; (2) adding CFT to the agendas of the EU's counterterrorism working groups, in part to develop a better understanding of new techniques, such as cash couriers, organized crime, etc.; and (3) integrating effective implementation of FATF Special Recommendations into law and continuing the dialogue with the United States, including the planned October 30-31 workshop and November 20 troika. Stephanie Talbot from the Finance Ministry said that, although not a final proposal, the French would probably propose wire transfers as the workshop theme and would like to keep the meeting to one day. BRUSSELS 00001059 003 OF 006 ¶11. (U) Lynne Lambert (EEB/ESC/TFS) noted the workshop series had yielded numerous accomplishments: public commitment by the U.S. and EU on fair and transparent designation procedures; outreach to the private sector; establishment of central points of contact for banks; improved criteria for designations; and a private sector advisory group for the UN Monitoring Team. She underlined that the United States would be disappointed if the U.S. and EU did not expand the prior discussions on FATF SR III to address charities, at least for part of the next financial sanctions workshop. -------------- --- UN Sanctions Reform: Recent Developments, Ideas -------------- --- ¶12. (SBU) The UN Sanctions reform discussion centered on fairness and transparency, and the upcoming mandate renewal. DAS Hengel noted fairness and transparency is a high priority for the United States. Recent reforms should be better implemented. The United States does not support the creation of an independent UN review panel, which would undermine the authority of the UN Security Council. Short of this, changes could be made in the course of renewing the UNSCR 1267 Sanctions Committee and Monitoring Team mandate. Preliminary ideas include: regularly reviewing all eligible names, which carries resource implications; publishing releasable statements of case; requiring Member States to take positions on listing or de-listing; and notifying designees upon listing. Reforms must preserve UNSC authority and must not impair the functioning of targeted economic sanctions, a valuable alternative to force or country-wide sanctions. ¶13. (SBU) Slapnicar noted that the EU has no common position on UN sanctions reform. The EU plans to organize a seminar for EU External Relations Counselors on improving the sanctions regime in New York this fall, which will deal primarily with country sanctions. Slapnicar indicated the French EU Presidency would follow up with more concrete ideas, including whether to hold U.S.-EU discussions on the margins of this seminar. -------------- Cash Couriers -------------- ¶14. (U) In another substantive discussion, the EU Commission welcomed continued dialogue, including in the TAXUD working group. The U.S. offered preliminary but specific ideas for follow-up, which the Commission generally welcomed, and which the U.S. will need to develop further. ¶15. (C) Elsner (Commission) summarized discussions at the April 1-2, 2008 U.S.-EU cash controls expert meeting (reftel). In the EU system for external border cash control, methodologies vary, but all EU external cash movements must be reported to Financial Intelligence Units (FIUs). Third countries can exchange information with Commission-managed data bases if they assure the same level of data. The United States has such permission. The EU cash controls regulation has been in place for a year and can be improved, although initial statistics show good results. ¶16. (SBU) S/CT Deputy Coordinator Virginia Palmer suggested that the Troika mandate the continued cooperation between U.S. and EU cash control experts. Future areas of cooperation could include: cash couriers and bulk cash smuggling; intelligence, which provides valuable information about terrorist networks and attack planning; continued progress on G8 projects; and working through INTERPOL. To follow up on the April 1-2 U.S.-EU meeting, we could explore further specific areas for law enforcement and investigaion methods, prosecutors, exchanging FIU inforation, or conduct joint training sessions in hird countries (e.g., in North Africa). EU experts could meet their U.S. counterparts via an exchange program, for example, visiting U.. ports to observe U.S. practices and build informal regional contact BRUSSELS 00001059 004 OF 006 networks. ¶17. (C) Elsner agreed that the U.S. and EU should continue expert exchanges similar to the April 1-2 meeting, perhaps concentrating next time on more specific items. Legal competency questions must provide the basis for such discussions. TAXUD's internal EU cash controls working group has a legal basis to discuss administrative elements of the rules but are limited in the extent to which they can discuss cooperation in the judicial or criminal area. Members of TAXUD's expert group are responsible for administrative Customs tasks; some EU Customs authorities must pass cases to another national competent authorities for investigation should there be any links to money laundering or terrorist financing. EU cash control rules are binding for administrative purposes, but national law enforcement agents are involved in cases of suspected criminal activity. ¶18. (C) Elsner continued that TAXUD would continue inviting FIUs and investigators to their expert group meetings. The largest question relates to air travelers, how to handle different types of baggage, where the declarations must be made if travelers are transiting multiple EU countries, etc. The expert group addresses these technical questions. He affirmed the importance of training and welcomed the idea of conducting an exchange with the United States. He recommended that the U.S. and EU elaborate on risk indicators in future working visits, as World Customs Organization (WCO) recommendations seem too elementary. He also recommended that experts compare the types of technical equipment used for cash controls and detection. -------------- Pre-Paid Cards -------------- ¶19. (U) U.S. and EU participants noted the potential misuse of stored-value cards and the lack of means to deal with them. They agreed to share information. ¶20. (SBU) John Tobon, DHS/ICE, presented on the U.S. pre-paid card industry, which is increasingly exploited for money laundering and organized crime. He noted recent studies predicting industry growth to USD 257 billion by 2009, and U.S. concerns over vulnerabilities unique to this growth industry. The United States does not classify pre-paid cards as a monetary instrument for border crossing reports. Proposed legislation may address this. He outlined law enforcement and Treasury concerns over the lack of required controls, reporting, or accompanying fines for abuses in issuing and using these cards. ICE is investigating fifty cases involving pre-paid cards, mostly dealing with fraud and drug trafficking. ¶21. (SBU) Luis Nunez, FBI, explained the law enforcement perspective of pre-paid cards and other currency transfer mechanisms, including mobile payments, wire transfers, and virtual and electronic or e-currency, used by U.S.-based Hamas charities and Hizballah. ¶22. (C) Philippe Pelle, Commission DG Internal Market, noted that the international community relies on U.S. typologies, and the EU is looking to the U.S. on how to address the pre-paid card issue. The EU is reviewing an e-Money Directive which may increase thresholds. FATF typologies developed three years ago may need to be revisited. ¶23. (C) Elsner (Commission) noted that the April 1-2, 2008 U.S.-EU cash controls expert working group meeting had discussed possible Customs activities on pre-paid cards. He was interested to learn that the United States may be developing a card reader to enable Customs officials to identify (1) whether a traveler is in possession of such a card, and (2) the card's value. INTERPOL and WCO are looking into the problems Customs officers face in this respect, and he would be interested in learning developments in the United States. FATF SR XI does not seem to cover these cards. BRUSSELS 00001059 005 OF 006 -------------- FIU Cooperation -------------- ¶24. (C) The discussion focused on EU efforts to establish a secure computer network among EU Financial Intelligence Units (FIUs) and how this network would interface with Egmont. Balazs (Commission) noted a 2007 report which concluded that legal tools are in place to enable FIUs to cooperate, but more work is needed to make them operational. The "FIU-Net" project, led by the Dutch Justice Ministry, promotes the operational exchange of EU information. The objective is a secure computer network to exchange AML/CFT information. Eighteen EU FIUs are physically connected to the FIU-Net system, but the FIU-Net is not yet an efficient tool to exchange information or to add value on suspicious transaction reports and cash declarations. The EU is discussing with U.S. FinCEN how to establish a secure connection and email between FIU-Net and the Egmont Secure Web. ¶25. (SBU) Poncy responded that as long as FinCEN, Egmont, and EU FIUs continue to cooperate, there is no conflict of interest. EU efforts could help take Egmont to the next generation, to include terrorist financing sanctions information, not just money laundering. This idea was raised at the U.S.-EU workshop. It is difficult to trace assets and identify who has frozen funds. Since FIUs have a network and Egmont exchanges AML information, perhaps they should exchange sanctions information too. Balazs responded that FIU-Net is a computer network; FIU cooperation mandates is another question. The EU can reflect on this possibility. ¶26. (SBU) Tobon highlighted recent major operations stemming from international cooperation on cash controls (Firewall and Hands Across the World) and invited the EU to participate. Nunez flagged the importance of working overseas with the EU. -------------- Participants -------------- ¶28. (U) UNITED STATES Douglas Hengel, Deputy Assistant Secretary for Energy, Sanctions and Commodities (EEB/ESC),State (chair) Peter Chase, Minister Counselor for Economic Affairs, U.S. Mission to the EU (USEU) DeAnna Fernandez, Treasury Suzanne Hayden, Justice Lynne Lambert, EEB/ESC/TFS, State Alessandro Nardi, EUR/ERA, State Luis Nunez, FBI Virginia Palmer, Deputy Coordinator for Counterterrorism (S/CT),State Chip Poncy, Treasury Lorelei Snyder, USEU John Tobon, Department of Homeland Security / Immigration and Customs Enforcement (DHS/ICE) ¶29. (U) EUROPEAN UNION PRESIDENCY (Slovenia): Andrej Slapnicar, MFA Slovenia (chair) Andrej Groselj, Slovenian Permanent Representation to the EU Natasa Sremac, Finance Ministry Irena Gustin, Office for Money Laundering Protection Darko Muzenic, Office for Money Laundering Protection Ales Bobic, MFA Slovenia EUROPEAN COMMISSION Albertus Straver, DG External Relations (RELEX) Nora Rolle, RELEX Karl Elsner, DG Taxation and Customs Union (TAXUD) Philippe Pelle, DG Internal Market and Services (MARKT) BRUSSELS 00001059 006 OF 006 Dora Balazs, JLS EU COUNCIL SECRETARIAT Gilles de Kerchove, EU Counter-Terrorism Coordinator (EU CTC) Mieneke de Ruiter, DG Justice and Home Affairs Massimo Bianchi, DG External Relations A representative from the EU Situation Center (name protected) INCOMING PRESIDENCY (French) Bertrand Pous, MFA, France Stephanie Talbot, Anti-Money Laundering and Counter-Terrorist Financing, Finance Ministry, France ¶30. (U) The U.S. delegation has cleared this message. WOHLERS .