BURMA: 2008-2009 INCSR II MONEY LAUNDERING AND FINANCIAL

UNCLAS SECTION 01 OF 03 RANGOON 000890 SIPDIS DEPT FOR EAP/MLS, INL, SCT, EEB DEPT OF JUSTICE FOR AFMLS, OIA, OPDAT TREASURY FOR FINCEN E.O. 12958:N/A TAGS: EFIN KCRM KTFN SNAR BM SUBJECT: BURMA: 2008-2009 INCSR II MONEY LAUNDERING AND FINANCIAL CRIMES REF: STATE 103810 ¶1. This report responds to reftel request for the INCSR II Money Laundering and Financial Crimes Report update. ¶2. Burma, a major drug-producing country, has taken steps to strengthen its anti-money laundering regulatory regime in 2008. The country's economy remains dominated by state-owned entities, including the military. Agriculture and extractive industries, including natural gas, mining, logging and fishing provide the major portion of national income, with heavy industry and manufacturing playing minor roles. The steps Burma has taken over the past several years have reduced vulnerability to drug money laundering in the banking sector. However, with an underdeveloped financial sector and large volume of informal trade, Burma remains a country where there is significant risk of drug money being funneled into commercial enterprises and infrastructure investment. Traffic in persons, narcotics, wildlife, gems, timber, and other contraband flows through Burma. Regionally, value transfer via trade is of concern and hawala/hundi networks frequently use trade goods to provide counter-valuation. Burma's border regions are difficult to control and poorly patrolled. In some remote regions active in smuggling, there are continuing ethnic tensions with armed rebel groups that hamper government control. Collusion between traffickers and Burma's ruling military junta, the State Peace and Development Council (SPDC),allows organized crime groups to function with virtual impunity. Although progress was made in 2008, the criminal underground faces little risk of enforcement and prosecution. Corruption in business and government is a major problem. Burma is ranked 178 out of 179 countries in Transparency International's 2008 Corruption Perception Index. ¶3. The Government of Burma (GOB) has addressed some key areas of concern identified by the international community by implementing some anti-money laundering measures. In October 2006, the Financial Action Task Force (FATF) removed Burma from the FATF list of Non-Cooperative Countries and Territories (NCCT). To ensure continued effective implementation of reforms in Burma, the FATF, in consultation with the relevant FATF-style regional body (FSRB),will continue to monitor developments there for a period of time after de-listing. In 2008, the FATF advised the GOB to enhance regulation of the financial sector, including the securities industry, and to ensure that the GOB responds adequately to any foreign requests for cooperation. Burma underwent a mutual evaluation by the FSRB Asia-Pacific Group on Money Laundering in July 2008. The FSRB Asia-Pacific Group continues to work with and monitor the GOB to strengthen is anti-money laundering measures. ¶4. Burma enacted a "Control of Money Laundering Law" in 2002. It also established the Central Control Board of Money Laundering in 2002 and a financial intelligence unit (FIU) in 2004. The law created reporting requirements to detect suspicious transactions. It set a threshold amount for reporting cash transactions by banks and real estate firms, albeit at a high level of 100 million kyat (approximately U.S. $75,000). Between 2004 and August 2008, more than 86,000 cash transaction reports were filed. The GOB's 2004 anti-money laundering measures amended regulations instituted in 2002-2003 that set out 11 predicate offenses, including narcotics activities, human trafficking, arms trafficking, cyber-crime, and "offenses committed by acts of terrorism," among others. In 2004 the GOB added fraud to the list of predicate offenses, established legal penalties for leaking information about suspicious transaction reports, and adopted a "Mutual Assistance in Criminal Matters Law." The 2003 regulations, further expanded in 2006, require banks, customs officials and the legal and real estate sectors to file suspicious transaction reports (STRs) and impose severe penalties for noncompliance. ¶5. The GOB established a Department against Transnational Crime in ¶2004. Its mandate includes anti-money laundering activities. It is staffed by police officers and support personnel from banks, customs, budget, and other relevant government departments. In response to a February 2005 FATF request, the GOB submitted an anti-money laundering implementation plan and produced regular progress reports in 2006, 2007, and 2008. In 2005, the government also increased the size of the FIU to 11 permanent members, plus 20 support staff. In August 2005, the Central Bank of Myanmar issued guidelines for on-site bank inspections and required reports that review banks' compliance with anti-money laundering (AML) legislation. Since then, the Central Bank has sent teams to instruct bank staff on the new guidelines and to inspect banking operations for compliance. ¶6. In 2007, the Burmese Government amended its "Control of Money Laundering Law" to expand the list of predicate offences to all serious crimes to comport with FATF's recommendations. In July 2007, the Central Control Board issued five directives to bring more RANGOON 00000890 002 OF 003 non-bank financial institutions, including dealers in precious metals and stones, under the AML/CTF compliance regime. In March 2008, the CCB brought additional non-bank financial institutions, including the Andaman Club Resort Hotel and jems and jade trading companies (both wholesale and retail) under the AML/CTF compliance regime. The Central Bank also required banks and financial institutions to maintain all records and documents related to customer accounts and transactions for a minimum of five years. As of August 2008, a total of 1,495 STRs had been received. In 2007, nine cases were identified as potential money laundering investigations. As of August 2008, the FIU received 444 STRs, of which seven cases were identified as potential money laundering investigations. The FIU has investigated four cases to date, two of which were sent to the courts for prosecution. Since 2006, the FIU has investigated 20 money laundering cases and submitted eight cases for prosecution. Fifty-four people have been convicted under the "Control of Money Laundering Law." ¶7. The United States maintains the separate countermeasures it adopted against Burma in 2004, identifying the jurisdiction of Burma and two private Burmese banks, Myanmar Mayflower Bank and Asia Wealth Bank, to be "of primary money laundering concern" pursuant to Section 311 of the 2001 USA PATRIOT Act. These countermeasures prohibit U.S. banks from establishing or maintaining correspondent or payable-through accounts in the United States for or on behalf of Myanmar Mayflower and Asia Wealth Bank and, with narrow exceptions, for all other Burmese banks. Myanmar Mayflower and Asia Wealth Bank had been linked directly to narcotics trafficking organizations in Southeast Asia. In March 2005, following GOB investigations, the Central Bank of Myanmar revoked the operating licenses of Myanmar Mayflower Bank and Asia Wealth Bank, citing infractions of the Financial Institutions of Myanmar Law. The two banks no longer exist. In August 2005, the Government of Burma also revoked the license of Myanmar Universal Bank (MUB),and convicted the bank's chairman under both the Narcotics and Psychotropic Substances Law and the Control of Money Laundering Law. Under the money laundering charge, the court sentenced him to one 10-year and one unlimited term in prison and seized his and his bank's assets. ¶8. The United States also maintains sanctions on Burma, which include bans on trade, investment, and financial transactions, as well as a visa ban on selected individuals. Under the Junta Anti-Democratic Efforts (JADE) Act, the Burmese Freedom and Democracy Act , and several Executive Orders, the United States bans the provision of financial services to Burma by any U.S. persons, freezes assets of the ruling junta and other Burmese institutions, and prohibits the import of Burmese-produced goods into the United States (particularly jade and gems). Additionally, other U.S. legislation, such as the Narcotics Control Trade Act, the Foreign Assistance Act, the International Financial Institutions Act, the Export-Import Bank Act, the Export Administration Act, and the Customs and Trade Act, the Tariff Act (19 USC 1307),place further restrictions on financial transactions to Burma. Other U.S. sanctions, such as visa bans on certain individuals affiliated with the military regime, also apply to Burma. ¶9. In September 2008, the United States Government identified Burma as one of three countries in the world that had "failed demonstrably" to meet its international counternarcotics obligations. ¶10. Burma became a member of the Asia/Pacific Group on Money Laundering in March 2006. The GOB is a party to the 1988 UN Drug Convention. Over the past several years, Burma has expanded its counter narcotics cooperation with other states. The GOB has bilateral drug control agreements with India, Bangladesh, Vietnam, Russia, Laos, the Philippines, China, and Thailand. These agreements include cooperation on drug-related money laundering issues. In July 2005, the Myanmar Central Control Board signed an MOU with Thailand's Anti-Money Laundering Office governing the exchange of information and financial intelligence. The government signed a cooperative MOU with Indonesia's FIU in November 2006. ¶11. Burma is a party to the UN Convention against Transnational Organized Crime and ratified the UN International Convention for the Suppression of the Financing of Terrorism in August 2006. Burma signed the UN Convention on Corruption in December 2005, but has yet to deposit an instrument of ratification with the UN Secretary General. Likewise, Burma signed the Treaty on Mutual Legal Assistance in Criminal Matters among Like-Minded ASEAN Member Countries in January 2006, but has yet to deposit its instrument of ratification with the Attorney General of Malaysia. ¶12. The Government of Burma has in place a framework to allow mutual legal assistance and cooperation with overseas jurisdictions in the investigation and prosecution of serious crimes. To fully implement a strong anti-money laundering/counter-terrorist financing regime, Burma must provide the necessary resources to administrative RANGOON 00000890 003 OF 003 and judicial authorities who supervise the financial sector so they can apply and enforce the government's regulations to fight money laundering successfully. Burma must also continue to improve its enforcement of the new regulations and oversight of its banking system, and end all government policies that facilitate the investment of drug money and proceeds from other crimes into the legitimate economy. The reporting threshold for cash transactions should be lowered to a realistic threshold that fits the Burmese context. Customs should be strengthened and authorities should monitor more carefully the misuse of trade and its role in informal remittance or hawala/hundi networks. The GOB should ratify the UN Convention against Corruption, as well as the Treaty On Mutual Legal Assistance In Criminal Matters Among Like-Minded ASEAN Member Countries. The GOB should take serious steps to combat smuggling of contraband and its link to the pervasive corruption that permeates all levels of business and government. The GOB should criminalize the financing of terrorism. VAJDA