FINCEN DIRECTOR, SPANISH OFFICIALS DISCUSS MONEY

C O N F I D E N T I A L SECTION 01 OF 02 MADRID 000503

NOFORN
SIPDIS

E.O. 12958: DECL: 05/04/2018
TAGS: PREL SP ECON EFIN KTFN
SUBJECT: FINCEN DIRECTOR, SPANISH OFFICIALS DISCUSS MONEY
LAUNDERING

MADRID 00000503 001.2 OF 002


Classified By: Charge D'Affairs Hugo Llorens for reasons 1.4 (b) and (d
)


1. (U) This cable has been cleared by FinCEN Director Jim
Freis.


2. (C/NF) Summary. During a visit to Madrid April 23-24,
Department of Treasury FinCEN Director Jim Freis met with
Spanish government officials involved in anti-money
laundering and counter terrorism finance (AML-CTF)
activities. The Director of Spain's financial intelligence
unit (Sepblac),Ignacio Palicio, committed to coordinating
more closely with FinCEN and requested FinCEN assistance in
shedding light on a complex suspicious money flow pattern
involving Spain, South America and the U.S. During a meeting
with Spain's AML/CFT regulation lead at the Ministry of
Economy and Finance, Deputy Director Jose Manuel Vega agreed
to continue discussions on consistent implementation of
AML/CFT practices in globally active banks with Director
Freis and other interested parties on the margins of the next
Financial Action Task Force (FATF) meeting in June. When
asked about the efficiency of Spain's cross-border cash
control system, Vega asserted that Spain's control system
worked well despite the lack of declaration forms at
airports. Vega also noted that the use of 500 euro notes,
linked to demand in real estate, was decreasing in Spain.
End Summary.

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BUILDING STRONGER TIES WITH SPAIN'S FIU
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3. (C/NF) During his April 23-24 visit to Madrid, FinCEN
director Jim Freis met with officials from Spain's financial
intelligence unit (FIU),Sepblac. Among the participants
were Sepblac Director Ignacio Palicio, Deputy Director Pedro
de la Lama and Head of International Cooperation Alvaro
Pinilla. During the meeting, Sepblac officials described
Spain's AML/CFT structure noting that Sepblac is an
administrative FIU charged with seeking out potential money
laundering and terrorism finance transactions, while the
Ministry of Economy and Finance's Subdirectorate for Control
of Capital Movements was the lead entity for regulation and
sanctions. Both groups are subsumed under the interagency
ministerial level AML committee that meets regularly to
address policy issues.


4. (C/NF) Director Palicio expressed his appreciation for
Director Freis' visit and committed to coordinating more
closely with FinCEN. He noted that Sepblac had its best
relationships with FIUs in France and Belgium and similarly
strong relationships with the FIUs in Colombia, Mexico and
Australia. He added that Sepblac was building its ties with
the United Kingdom's FIU and highlighted its importance given
the growing population of British expatriates in Spain.
Palicio complained, however, about the poor relationship with
the FIU of Gibraltar. Political issues aside, he said that
this poor relationship represented a major problem because a
significant amount of laundered money associated with Spain's
Costa de Sol housing boom has been moved to accounts in
Gibraltar where Spain has no access. Hence, this makes it
very difficult for Spanish authorities to pursue
investigations.

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SUSPICIOUS MONEY FLOWS
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5. (C/NF) Director Palicio requested FinCEN assistance in
helping Spain shed light on a suspicious money flow pattern
involving the circulation of euros among Spain, South
American countries, and the U.S. Personal remittances from
immigrants in Spain to family members in South America appear
to be routed unnecessarily through the U.S. or (other third
countries) in transit to South America, generally without the
remitters knowing of the circuitous route. Sepblac
hypothesizes that these euros are co-mingled with cash drug
proceeds smuggled directly from Spain to South America.
Sepblac believes that the euro notes themselves are

MADRID 00000503 002.2 OF 002


eventually repatriated to Spain through formal banking
channels, particularly through Paraguay. Palicio expressed
interest in working together with FinCEN to unravel this
money flow mystery, which potentially involves institutions
in the U.S. Director Freis was receptive to this request and
noted that the project is precisely the kind of joint
strategic cooperation that he hopes to promote in the
community of FIUs.

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CROSS-BORDER CASH MOVEMENT OBSERVATIONS
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6. (C/NF) Director Freis also met with Ministry of Economy
and Finance Deputy Director General for Inspection and
Capital Movements Juan Manuel Vega Serrano and advisor Raquel
Cabeza. Vega is Spain's representative to the Financial
Action Task Force (FATF). During the meeting, Vega Serrano
highlighted money laundering flows typical to Spain. In
addition to the Paraguay money movements, he noted that large
amounts of euros were being introduced from Mauritania into
the Canary Islands and speculated that these movements were
related to cocaine processing in Nigeria or Mali. He also
highlighted euro movements from Spain to China via other
European countries through bulk cash couriers transporting
3-4 million euros at a time.


7. (C/NF) When asked about Spain's cross border cash
controls, both Sepblac and Ministry of Economy and Finance
officials explained that while there are no mandatory
declaration forms that travelers must fill out, there is an
obligation to report cross-border cash movements in excess of
10,000 euros. As such, travelers are expected to be aware of
their obligations to actively report cash movements above the
statutory amount. Despite the lack of a requirement that
each traveler actively declare whether he or she is
transporting an amount above the limit, Vega Serrano claimed
that cross border cash controls were strong, with the
Ministry now being able to implement more severe penalties
for failure to report cash. Ministry advisor Raquel Cabeza
noted that under Spanish regulation the GOS has the ability
to impose a fine of up to 100% of the undeclared amount and
that the GOS managed to collect 14 million euros in such
fines in 2007.


8. (C/NF) Asked about the circulation of 500 euro bank notes,
Vega stated that the circulation of this bank note had
recently decreased, most likely as a result of the downturn
in housing. Vega said his subdirectorate had conducted a
regression analysis which showed a correlation between the
circulation of high denomination bank notes and the housing
boom.

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DATA PRIVACY AND BANK SECRECY
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9. (C/NF) Speaking off the record, Deputy Director Vega
(please protect) acknowledged to Director Freis his belief
that some banks were hiding behind data privacy laws (bank
secrecy in the guise of data protection),and that anti-money
laundering efforts were sometimes impeded by this practice.
Deputy Director Vega confirmed the importance of globally
active banks (including those from Spain) being able to
effectively implement AML/CFT policies on an enterprise-wide
basis, and he agreed to continue discussions on ways to
promote such an outcome with Director Freis and other
interested countries on the margins of the next FATF meeting.
As a side note, Vega added that AML and data privacy laws
were often written by separate entities and because of this
were sometimes in conflict with each other.



Llorens