Identifier
Created
Classification
Origin
08JAKARTA729
2008-04-10 06:54:00
SECRET
Embassy Jakarta
Cable title:  

A/S O'BRIEN EMPHASIZES IRAN, ASSET FREEZING IN

Tags:  KTFN EFIN PTER PGOV ID 
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PP RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHJA #0729/01 1010654
ZNY SSSSS ZZH
P 100654Z APR 08
FM AMEMBASSY JAKARTA
TO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 8647
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS PRIORITY
RUEHGB/AMEMBASSY BAGHDAD PRIORITY 0143
RUEHBJ/AMEMBASSY BEIJING PRIORITY 4916
RUEHBY/AMEMBASSY CANBERRA PRIORITY 2309
RUEHLO/AMEMBASSY LONDON PRIORITY 0865
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 1738
RUEHRH/AMEMBASSY RIYADH PRIORITY 0604
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RUEHDE/AMCONSUL DUBAI PRIORITY 0035
RUEHHK/AMCONSUL HONG KONG PRIORITY 2578
RUEHJI/AMCONSUL JEDDAH PRIORITY 0243
RUEAIIA/CIA WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY
RHHJJPI/USPACOM HONOLULU HI PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 8648
RUEHUNV/USMISSION UNVIE VIENNA PRIORITY 0175
RUCNDT/USMISSION USUN NEW YORK PRIORITY 0860
S E C R E T SECTION 01 OF 06 JAKARTA 000729 

SIPDIS

SIPDIS

DEPT FOR EAP/MTS, S/CT, EAP/RSP, NEA, EEB/ESCITFS
TREASURY FOR O'BRIEN, PHIPPS, POLITZER, DERGARABEDIAN
KUALA LUMPUR FOR MATTHEWS
SINGAPORE FOR BAKER
DOJ FOR CTS THORNTON, AAG SWARTZ
DOJ/OPDAT FOR LEHMANN/BERMAN/KALISHNIKOVA
DOJ/AFMLS FOR SAMUEL
NSC FOR E.PHU

E.O. 12958: DECL: 04/10/2018
TAGS: KTFN EFIN PTER PGOV ID
SUBJECT: A/S O'BRIEN EMPHASIZES IRAN, ASSET FREEZING IN
INDONESIA

REF: A. A) JAKARTA 618 (O'BRIEN SCENESETTER)

B. B) JAKARTA 505 (SBY VISITS IRAN)

JAKARTA 00000729 001.2 OF 006


Classified By: Classified by Deputy Economic Counselor Ruth M. Hall, Re
asons 1.4 b,c,d,e,g.

S E C R E T SECTION 01 OF 06 JAKARTA 000729

SIPDIS

SIPDIS

DEPT FOR EAP/MTS, S/CT, EAP/RSP, NEA, EEB/ESCITFS
TREASURY FOR O'BRIEN, PHIPPS, POLITZER, DERGARABEDIAN
KUALA LUMPUR FOR MATTHEWS
SINGAPORE FOR BAKER
DOJ FOR CTS THORNTON, AAG SWARTZ
DOJ/OPDAT FOR LEHMANN/BERMAN/KALISHNIKOVA
DOJ/AFMLS FOR SAMUEL
NSC FOR E.PHU

E.O. 12958: DECL: 04/10/2018
TAGS: KTFN EFIN PTER PGOV ID
SUBJECT: A/S O'BRIEN EMPHASIZES IRAN, ASSET FREEZING IN
INDONESIA

REF: A. A) JAKARTA 618 (O'BRIEN SCENESETTER)

B. B) JAKARTA 505 (SBY VISITS IRAN)

JAKARTA 00000729 001.2 OF 006


Classified By: Classified by Deputy Economic Counselor Ruth M. Hall, Re
asons 1.4 b,c,d,e,g.


1. (C) Summary: Treasury Assistant Secretary for Terrorism
Financing and Financial Crimes O'Brien visited Indonesia
April 2-3 to urge Indonesian government officials, regulatory
agencies and private sector to be vigilant about Iran's
outreach plans in the region and to more vigorously enforce
asset freezing obligations under United Nations sanctions.
A/S O,Brien also received a briefing from Sidney Jones,
Senior Advisor at the Indonesia Crisis Group (ICG),on the
various terrorist organizations active in Indonesia. A wide
variety of contacts provided information on the status of
counterterrorism (CT),sanctions implementation, anti-money
laundering and counterterrorism financing (CFT) efforts.
Indonesian officials admitted to weaknesses in implementing
UN asset freezes, supervision of the charities and other
areas covered in Indonesia's Mutual Evaluation Report (MER)
by the Asia Pacific Group on Money Laundering (APG). End
Summary.

Iran Seeks New Banking Relationships,
Using Duplicitous Tactics
--------------


2. (S) In meetings with banks, senior GOI officials and
private sector businesses, A/S O'Brien emphasized that as UN
sanctions squeeze Iran, Iran seeks new banking and account
relationships as well as to purchase banks or open branches
of Iranian banks. Iranian banks sometimes tried to disguise
their identity on transfer documents or other messages
between banks. The use of front companies, false names and
duplicitous methods are raising concerns. The Financial
Action Task Force (FATF) had found the anti-money laundering

(AML) provisions of the entire country to be so inadequate
that it called on all jurisdictions to warn all banks to
undertake enhanced due diligence when working with Iranian
banks and their foreign offices. To emphasize his points,
O'Brien passed to the Central Bank, and the Financial
Transaction Reports Analysis Center (PPATK) sensitive
information about the deceptive practices employed by Bank
Melli and separate information that Bank Tejerat planned to
establish a joint bank in Indonesia. He also gave officials
and bankers at Bank Muamalat and Bank Mandiri copies of the
two statements issued by the FATF and the FinCEN advisory of
March 20, 2008. O'Brien emphasized that there is no
enforcement of rules governing transparency in Iranian banks.
Businesspeople, regulators, and commercial banks should use
extreme caution in any dealings with Iranian entities. The
President Director of Bank Muamalat said that Indonesian
banking transactions with Iran are very small. Bank Mandiri
said it had no relationship with Iranian banks.

PPATK Notes Need for National Identifier
--------------


3. (SBU) In addition to raising points on Iran and passing
information on Banks Melli and Tejarat and the FinCEN

JAKARTA 00000729 002.2 OF 006


advisory, the Chairman of the Financial Crimes Transaction
and Analysis Center (PPATK) Yunus Husein, the Chairman,
presented PPATK's achievements, challenges and its national
strategy for 2007-2011. A/S O'Brien thanked Husein for his
good work in the Asia Pacific Group and his other efforts on
anti-money laundering (AML). Husein said that the
establishment of a national Single Identity Number was
important for progress for AML, criminal activities and CTF.
The national identifier would also help the police and would
be administered by the Ministry of Home Affairs. Husein
hopes that the Parliament can begin discussions of a revised
bill on AML in May and pass it by the end of 2008. The new
bill will extend investigative powers to the police and
recognize predicate crimes as a ground for freezing an
account. Terrorist financing is already criminalized under
Law 15/2003, he noted. Husein said that he recognized the
deficiencies in the GOI system as discussed with FATF's MER
team, especially the lack of a standard procedure for asset
freezing under UN sanctions. It was easier for the GOI to
take action on UN-designated individuals and entities rather
than if they just came from the U.S., he admitted.
Nevertheless, Husein is working with his counterpart agencies
to remedy this. Husein said that he would appreciate the
USG's help in the implementation of an effective asset
forfeiture and recovery regime and plans a trip to the U.S.
in late April. (Note: The FATF will discuss Indonesia's MER
at the APG meeting in Bali the week of July 7.)

Central Bank: Migrant Worker Transfers
--------------


4. (C) In a meeting with Director for Banking Research and
Regulation, Halim Alamsyah at Bank Indonesia, BI welcomed USG
assistance to improve its AML-CFT regime. On the issue of
Iranian banks seeking new licenses in Indonesia, Alamsyah
responded that BI takes CFT very seriously and seeks to
better educate bank supervisors about risks. BI is in the
process of bank consolidation and "does not want to give any
new licenses." He also noted that if Iran sought to purchase
a bank in Indonesia, it was unlikely to pass any "fit and
proper" test. "It would be a long process," he concluded.
A/S O'Brien urged BI to sensitize commercial banks about any
approaches from Iran for a new relationship, as well as issue
a formal notice about risks of Iranian banks as Treasury's
FinCen had done.


5. (C) Alamsyah said that BI was working to reform internal
transfers and cooperating closely with the PPATK on detection
of illicit money flows. Remittances from overseas migrant
workers was also a huge headache. "They don't trust the
banks and are worried about fees, so most of it comes through
non-bank financial transfers," he noted. Alamsyah estimates
that about $5 billion comes into Indonesia this way, about
30% from the Middle East, 30% from Asia (mostly Hong Kong,
Japan and Taiwan) and the rest from Malaysia and elsewhere.
BI has a special unit and outreach efforts to educate workers
overseas.

Charities - A Huge Challenge for the GOI
--------------


JAKARTA 00000729 003.2 OF 006



6. (SBU) A myriad of GOI officials with some responsibility
for charities described the various methods and procedures
for regulating Indonesian charities. Indonesia lacks a
coherent system for registering, licensing or monitoring the
large number of charities in the country. An official from
the Ministry of Law and Human Rights noted that foundations
and charities have to file with a notary but there is no
formal requirement to refer them to the appropriate line
Ministry (i.e. Education, Health, Religious Affairs) who
would be responsible for "overseeing" their activities. A
representative from BAZNAS, the organization in charge of
Zakat (Islamic charitable donations) noted that its mission
is to distribute donations to the neediest people. There are
about 40,000 individuals who donate significant amounts as
well as large institutions. BAZNAS distributes to community
organizations that help the poor with small programs. "But
the need is greater than the number of programs," she noted.
On money coming in from overseas, a representative from the
Ministry of Home Affairs said that Law 16/2001 regulates
grants coming from other countries and that all charities and
NGOs should report them. However, many do not do this. It
is difficult for the GOI to control and there are also deep
concerns about fraud and terrorist financing. The relevant
Ministries are working with the PPATK to examine risks and
prevent abuse.

UK and Australia Note Obstacles, Progress:
A Million Charities
--------------


7. (C) Chris Sturgeon at the UK Embassy and Justin Lee,
Australian Political Counselor have responsibility for
counter-terrorism and met with A/S O'Brien on April 3.
Sturgeon noted that there are more than 17,000 registered
charities in Indonesia but in reality probably closer to one
million. There is no single regulatory body within the
government in charge of charities. They are instead
supervised by a "nightmare number of ministries." The UK
Charities Commission (UKCC) has been doing work in Indonesia
since 2005 and has some "buy in" from the Ministry of Law,
Justice and Human Rights but less from the Ministry of
Religious Affairs. The UKCC hopes to create a regulatory
body along its model by 2011. A draft law to create and
oversight body has not been approved by the executive branch
of the GOI and there has been insufficient outreach to the
Parliament (DPR) on the draft. Sturgeon noted that the UKCC
had built up a good reputation for advisor work. The UKCC is
also trying to map the network of non-governmental
organizations active in Indonesia, a huge task, as well as
looking at Zakat reform (donations collected at mosques).
The UK is trying to play a proactive but behind-the-scenes
role so as not to generate any backlash within Indonesia
among Islamic groups or others.


8. (C) Justin Lee noted that the Government of Australia
(GOA) has provided significant support to the PPATK, which
has paid off in increased capacity. PPATK and Australia's
AUSTRAC have a good relationship. Lee sees the need to
address a whole range of border issues both to tighten up
money flows and cross-border movement of criminals and
terrorists. Border security and immigration authorities need

JAKARTA 00000729 004.2 OF 006


better staffing and training. Lee agreed wholeheartedly with
the idea to develop a cadre of financial investigators to
focus on CTF. On the issue of a national identity card or
other unique identifier, both Lee and Sturgeon noted that
there would be "tremendous resistance" from regional and
local issuers who generate significant revenues from these
cards.

Middle East Envoy Alwi Shihab:
Iran is Operating through Dubai
--------------


9. (C) In a meeting with Special Middle East Envoy Alwi
Shihab, Shihab noted that "talking to Iran is like talking to
a stubborn child." On the proposed fertilizer project with
Iran, which was publicly announced during President Yudhoyono
(SBY)'s visit to Iran in March, Shihab admitted it was "not
moving" due to the financing aspects. Even the Islamic
Development Bank (IDB) says it cannot finance it due to the
Iran controversy. "We want to keep the idea alive to get the
attractive and competitive price of $1 for gas. And we need
the fertilizer. We had hoped by the time the project
started, there would have been a political change in Iran,"
Shihab stated. Shihab says he has tried to urge Iran to
become more transparent and change the perception in the
West. He noted that the Iranians are in bad shape and that a
dramatic change in leadership is needed. Many in Iran do not
support the current regime and are unhappy. "Even the taxi
drivers are fed up," Shihab noted from his recent trip there.
A/S O'Brien repeated the points about Iranian banks and
Shihab said that he was "aware of such tricks." Shihab noted
that most Iranian entities are now operating through Dubai.
Many Iranian businesspeople there are suffering and doing
their best to change the course in Iran.


10. (C) On the issue of Saudi money coming to Indonesia to
finance schools and charities, Shihab noted, "I'm concerned
the Saudis cannot control 100% of the money sent out here. A
lot of it is not going through their government channels."
A/S O'Brien urged Shihab to reinforce the message to the
Saudi government that its money should come through the
Indonesian government,s channels to distribute funds.

O'Brien Finds Resonance with Inter-Ministry Roundtable
-------------- --------------


11. (SBU) During a roundtable session with multiple GOI
agencies involved in illicit money flows, A/S O'Brien
presented USG procedures and international best practices
under FATF Special Recommendation (SR) III in a
well-organized powerpoint and follow-on discussion chaired by
DEPLU Americas Director Harry Purwanto. O'Brien emphasized
that there are many ways to address different aspects of
terrorism financing, but one component of an effective
program are targeted financial sanctions and the use of the
1267 framework at the UN. In addition to taking assets out
of circulation, freezing has a deterrent effect on
non-designated parties as well and can provide valuable
information in locating assets. O'Brien emphasized that
moving people into high-risk ways of moving money makes them
more visible and thus more reluctant to proceed. O'Brien

JAKARTA 00000729 005.2 OF 006


also outlined the sanctions against Iran, both the broad set
of economic sanctions as well as specific targeted entities.


12. (SBU) During the Question and Answer period, A/S O,Brien
answered a range of questions about the legal challenges to
U.S. domestic designations, the difficulties in acquiring
identifiers for designated entities, and the problems
associated with designations "tipping off an ongoing law
enforcement operation against an individual or network. In
response to questions about guidance on specific
transactions, the O'Brien delegation provided the OFAC
hotline number. GOI officials told the Embassy later how
useful and informative the briefing was.

Private Sector Looking Elsewhere
in the Middle East, Not Iran
--------------


13. (SBU) Influential business leaders at the Indonesian
Chamber of Commerce (KADIN) described their business
activities in the Middle East and provided an update on
sharia banking. Attendees included Ilham Habibie, CEO of PT
Ilthabi Rekatama and son of former President Habibie;
Bachtiar Rahman, Chairman of PT Batasa Capital; Nuzirman
Nurdin of Bakrieland Development (connected to Social Welfare
Minister Aburizal Bakrie); Ismi Kushartanto, Head of Shariah
banking for Bank Negara Indonesia; Hilmi Panigoro, CEO of
Medco Energy and KADIN Chairman H. Sudrajat and International
KADIN Committee Chair Shinta Widjaja. Sudrajat estimated the
total business between Indonesia and the Middle East as only
about $3 billion excluding energy. "Opportunities are great
but follow up is weak," he noted. Panigoro noted that
Medco's relationship with Oman is good, and they have a small
field operated by Medco there. Medco is also looking at
investment in Yemen. Nurdin said that Bakrie was pursuing
its first joint project with a Middle East company. Several
around the table noted that investing in the Middle East
requires patience, as negotiations are often slow or
haphazard. During the discussion, A/S O,Brien repeated the
points about the risks of doing business with Iran and
Habibie inquired of A/S O'Brien whether any Iranian private
banks were credible. O'Brien emphasized that the entire
AML-CFT regime in Iran had been found deficient by the FATF,
which should raise concerns for anyone dealing with Iranian
banks.


14. (SBU) On sharia banking, Kushartono noted that the sector
is still small, only about 2% of market share. Sharia
financial products are still plagued by double taxation
problems. In general, there are not enough international
standards or regulations for Islamic financial products, he
noted. There was interest in developing bundled regional and
international sharia investments, but it would be hard to
implement at this stage. (Note: Indonesia announced on April
9 that it would begin selling international and domestic
Islamic bonds in the second half of 2008.)

Comments
--------------


15. (S) During the Embassy's Counter-Terrorism and Law

JAKARTA 00000729 006.2 OF 006


Enforcement Working Group discussion, there was consensus
that two main areas of capacity building the USG could
support the Indonesians are financial investigations more
broadly and CFT specifically. A/S O'Brien concurred that it
might be wise to support a cadre of 15-20 investigators to
focus on CFT cases in particular and stress the importance of
financial information to understand networks. The working
group also suggested that the individuals receiving the
training should be assigned to help support investigations.


16. (U) Treasury A/S O'Brien cleared on this message.

HUME