AZERBAIJAN: TREASURY A/S COHEN DISCUSSES AML/CTF

UNCLAS SECTION 01 OF 02 BAKU 000905 SIPDIS DEPT. PASS TO TREASURY FOR COHEN E.O. 12958: N/A TAGS: EFIN SNAR EIND PGOV PTER AJ SUBJECT: AZERBAIJAN: TREASURY A/S COHEN DISCUSSES AML/CTF WITH BANKERS, BUSINESSMEN BAKU 00000905 001.2 OF 002 ¶1. (U) SUMMARY: During his first visit to Baku, October 21-22, Assistant Secretary of the Treasury, David S. Cohen, met with relevant Government and Embassy officials as well as private sector bankers and business representatives. A dinner meeting with representatives from Azerbaijan's Pasha Bank and Unibank and a local representative of the European Bank for Reconstruction and Development revealed the workings and limitations of the financial sector in Azerbaijan as well as the hopes of professionals in that field for Azerbaijan's new Financial Investigation Unit. In his meeting with Board of Directors of the American Chamber of Commerce (AmCham), members briefed him on the investment climate and overall business environment in Azerbaijan within the scope of financial sector regulations. In all of these meetings A/S Cohen praised the adoption of the new AML/CTF law as a positive step, but highlighted the need for awareness of the risks of doing business with Iranian financial institutions and businesses. Meetings with the Minister Finance, Chairman of the Central Bank, and Chairman of the State Securities Committee are reported septel. End Summary. Bankers' Dinner -------------- ¶2. (SBU) At a candid dinner with bankers, A/S Cohen learned about the daily trials and tribulations of the financial community in Azerbaijan and heard first hand impressions of how the new FIU and Anti-Money Laundering/Counter Terrorism Financing (AML/CTF) law will affect their daily operations. The bankers noted that there are some serious structural problems in the financial sector in Azerbaijan. They explained that lending rates are extremely high because there is not enough cash in the economy, so banks have to offer high deposit return rates to entice customers. Terms of loans are very short, and a proper mortgage market has yet to develop. They also noted that currency exchange controls limit their ability to process international transactions. ¶3. (SBU) Regarding the new FIU, the bankers felt that while it was a good step, it should be the final stage of the process, not the first. They explained that the GOAJ enacted its anti-corruption law four years ago, but has yet to enforce it; and noted that if enforced, it would be "revolutionary." They stated that they are currently employing Customer Due Diligence and other global best practices and noted that they are happy to comply with transaction report regulations, as these relieve them of some responsibility. (NOTE: Most banks are currently tracking transactions over 50 thousand Azerbaijani Manat (AZN),or about USD 60,000; while the new law lowers this to 20 thousand AZN. End Note. ) They are relieved that the FIU was placed under the Central Bank and praised the new Director of the FIU, Adishirin Qasimov, as being well qualified for the job. The new FIU will be called the Financial Monitoring Service. They did express concern that not just the letter, but the spirit of the law be followed and that the FIU act responsibly in its use of the reports. They also believe the Central Bank should authorize private banks as AML agents. ¶4. (SBU) In response to A/S Cohen's queries about the type and amount of business conducted in Azerbaijan with Iran, the bankers noted that trade with Iran tends to be cash based and denominated in USD. They informed A/S Cohen that if there were no sanctions on Iran, it would have little to no effect on the business of Bank Melli Iran (BMI),because the volumes BMI deals with are "miserable" and sanctions don't really touch the cash-based businesses operating in Azerbaijan. A/S Cohen urged the bankers to be cautious in any dealing which might include Iranian companies as partners since front companies were often used by FATF-identified entities to continue their illicit operations. Breakfast with AmCham -------------- ¶5. (SBU) At a breakfast meeting with the Board of Directors of the American Chamber of Commerce, A/S Cohen discussed Azerbaijan's new Financial Investigation Unit (FIU) and assured the board that the new GOAJ law on Anti-Money Laundering and Countering Terrorism Finance (AML/CTF) while not perfect was definitely a step in the right direction. He fielded questions about terrorism finance in Azerbaijan, explaining that considering historical evidence - Azerbaijan was identified as a transit country for terrorists and terrorism finance after 9/11 -- the overall neighborhood of Azerbaijan and previously poor regulations it was safe to BAKU 00000905 002.2 OF 002 assume that terrorist financing is taking place to some extent, but that the scope was as yet unknown. Given the rush of oil funds into Azerbaijan in recent years, money laundering is also of concern. ¶6. (SBU) A/S Cohen pointed out that Bank Melli of Iran, which is not a member of AmCham, had been identified as a supporter of Iran's nuclear proliferation program. He explained that money launderers and terrorist financiers look for the least regulated banking environs to conduct their transactions. He noted that because Iran has no AML/CTF regime at all, the Financial Action Task Force (FATF) has issued a series of statements, most recently in October 2009, warning against doing business with Iranian banks. A/S Cohen provided a copy of the October statement to the attendees. ¶7. (SBU) In response to his concerns that banks in Azerbaijan are aware of what will be asked of them under the new AML/CTF law and FIU regime, AmCham members noted that most banks in Azerbaijan take their reporting responsibilities seriously. They noted that the Central Bank is one of the few government agencies that is well run and opined that historically in Azerbaijan implementation of banking sector regulations has been vigorous, even to the point of being ridiculous. They claimed that over-implementation tends to be the problem with these types of initiatives and hoped that there would be a system of real checks and balances versus mere window dressing. ¶8. (U) A/S Cohen's office has cleared this cable. LU