CUBA - MONEY LAUNDERING AND FINANCIAL CRIMES

UNCLAS HAVANA 000112 SIPDIS DEPT FOR WHA/CCA, INL, S/CT, AND EEB DEPT OF JUSTICE FOR AFMLS, OIA, AND OPDAT DEPT OF TREASURY FOR FINCEN E.O. 12958: N/A TAGS: EFIN KCRM KTFN SNAR CU SUBJECT: CUBA - MONEY LAUNDERING AND FINANCIAL CRIMES (INCSR PART II) REF: A. 08 STATE 103810 ¶B. 08 HAVANA 952 ¶1. General Assessment: There were no significant developments or changes regarding Cuba's policy on anti-money laundering or counter-terrorist financing (AML/CTF) in 2008. The Government of Cuba (GOC) claims to be in full compliance with international counter-terrorism conventions and to have taken into account the recommendations of the Basel Committee and the Financial Action Task Force when preparing banking regulations. While Cuba has developed a number of regulations since 1997 relating to the detection and prevention of movements of illicit capital, Cuba continues to have one of the most secretive and non-transparent national banking systems in the world. We have no evidence that any AML/CTF measures have been implemented or if any offenders were prosecuted in 2008. We are unaware of any Cuban government attempts to track, block, or seize money laundering or terrorist assets, although the authority to do so is contained in Law 93 Against Acts of Terrorism, as well as Instruction 19 of the Superintendent of the Cuban Central Bank. -------------- GENERAL QUESTIONS -------------- ¶2. Cuba is not considered an important regional financial center. Cuban practices and U.S. sanctions prevent Cuba's banking system from fully operating in the international financial system. The GOC released no information about any money laundering or terrorist financing activities within Cuba in 2008. Cuba is not a member of the International Monetary Fund or the Financial Action Task Force (FATF),two of the top organizations active in fighting money laundering worldwide. ¶3. Ernesto Betancourt, a Cuban-American analyst who was former President Fidel Castro's economic adviser in the first year after the 1959 revolution, has long argued that Cuba's secrecy laws and isolation from most of the international banking system make it an ideal location for drug traffickers to launder their illicit proceeds. In 2005, the U.S. Congress investigated 3.9 billion U.S. dollars converted into new U.S. dollars through a Cuban bank account in the Swiss bank UBS. UBS previously paid a fine to the U.S. Treasury for fraudulently including Cuba in the cash-swap program in violation of U.S. sanctions. The GOC claimed the U.S. dollars were legitimately collected from tourism and remittance receipts. The Cuban economy operates in two currencies: the Cuban peso (CUP) and the Cuban convertible peso (CUC). The currencies are traded at 24:1 in government foreign exchange houses, but the official exchange rate of 1:1 is used in government statistics, making it nearly impossible to reconcile Cuban official monetary statistics. ¶4. The U.S. Government does not have any direct evidence of money laundering or terrorist financing activities in Cuba in ¶2008. No mention of GOC complicity in money laundering or terrorism financing was made in the media in 2008. It should be noted, however, that the media in Cuba is completely controlled by the state, which permits only laudatory press coverage of itself. Crime is almost never reported. The GOC does not routinely publish or publicize AML/CTF activities. -------------- OFFSHORE FINANCIAL CENTERS -------------- ¶5. Cuba is not considered an attractive offshore financial center for financial or corporate services. Relatively few international businesses operate in Cuba. Cuba has not licensed any offshore casinos or internet gaming sites. -------------- FREE TRADE ZONES -------------- ¶6. Cuba does not operate any free trade zones. Cuba had created three export zones for manufacturing, but shut all of them down due to lack of interest and as part of its recentralization policy between 2004 and 2005. -------------- LEGAL FOUNDATION OF AML REGIME -------------- ¶7. Cuba has the following laws and regulations in place in relation to AML/CTF: -Resolution 91 of March 9, 1997: This resolution provides for the application of "Guidelines for members of the national banking system relating to the detection and prevention of movements of illicit capital". -Resolution 27 of December 7, 1997: This resolution provides for the creation of the Central Risk Information Office (CIR),which compiles and processes information on suspected or actual instances of money laundering. The resolution requires all banks and non-bank financial institutions to report such information on a monthly basis. -Instruction 1 of February 20, 1998: Established 19 steps to implement the general guidelines in Resolution 91, including "know the client", monitoring large cash deposits and withdrawals, identifying company accounts as the most likely vehicle for money laundering, and designating a prevention compliance official responsible for identifying and taking such steps as may be necessary in connection with suspected money laundering activities. -Law 87 of February 26, 1999: Added money laundering to the penal code. Article 346 of Chapter II of Law 87 states, "Any person who acquires, converts, or transfers resources, property or rights thereto, or attempts to carry out such transactions, in full awareness, or having the obligation to know or rationally assume, from the occasion or circumstances of the transaction, that such resources, property or rights are the direct or indirect proceeds of acts connected with illicit trafficking in drugs, arms or persons, or with organized crime, shall be liable to a penalty of imprisonment from five to twelve years. Any person who conceals, or obstructs measures to ascertain, the nature, origin, whereabouts, destination, movement or true ownership of resources, property or rights thereto...shall be liable to the same penalty." Those who commit these acts out of inexcusable ignorance shall be imprisoned for two to five years. -Instruction 2 of April 26, 2000: Further clarified the guidelines from Resolution 91. -Law 93 of December 20, 2001: Law against acts of terrorism. In regards to the financing of terrorism, Chapter IX reads, "Any person who by any means, directly or indirectly, collects, transports, provides or has in his power financial or material funds or resources with the intention that they should be used or in the knowledge that they are to be used in order to carry out any of the offences envisaged in the Law, shall be subject to imprisonment of ten to thirty years. The same penalty shall apply to any person who, directly or indirectly, makes funds, financial or material resources or financial or related services of any other kind available to any person or entity who uses them to carry out any of the offences envisaged in this Law." -Instruction 19 of May 7, 2002: "Guidelines for the struggle against financing terrorism" for the purpose of enforcing the provisions in Cuban Law 93 of 2001, UN's International Covenant to Suppress Financing of Terrorism of 1999, UN Security Council Resolution 1373, FATF recommendations of 2001, Cuban Resolution 91 of 1997, and Cuban Instruction 1 of ¶1998. -Resolution 17 of March 19, 2004: Established the Bank Supervision Office in the Central Bank to process information provided by the Central Risk Information Office and others about delicate and illegal activities, corruption, and possible operations for laundering money linked with the Cuban banking system. -Instruction 26 of July 30, 2004: Provides new guidelines for the preventing, detecting, facing, and deterring operations of illicit capital movements (money laundering), and illicit operations in the collections of payments. ¶8. In addition, the Central Bank of Cuba issued Order 66 of June 1, 1998 on bank secrecy, which requires financial institutions to provide any information or documents requested of them by the empowered authorities (courts, tax authorities, inspectors of the Bank Supervisory Authority) relating to financial transactions or banking operations in cases of presumed or suspected movement of illicit funds. Cuban Instruction 19 of 2002 states that the legal provision concerning Bank Secrecy in Cuban Laws shall not be an impediment to collaborating with the authorities when the empowered authority under statutory right applies for information. -------------- FINANCIAL SECTOR -------------- ¶9. Every financial institution has a designated official who reports to the top executive of the institution and is responsible for identifying and taking such steps as may be necessary in connection with suspected money laundering activities. According to Cuban Instruction 19 of 2002, banks are required to report immediately to competent entities of the Ministry of Interior and the Central Bank's Central Risk Information Office about any "complex transaction of an unusual amount" and also about those transactions that do not show any legal economic purpose, that demonstrates unquestionably that a money laundering operation is in progress, or when, on reasonable grounds, a suspicion arises that any fund is related or is going to be used in terrorist actions. Furthermore, Resolution 91 of 1997 indicates a statutory threshold of CUP 10,000 (equivalent to USD 10,000 at the time) to trigger a report. The National Banking System should keep records for five years from the conclusion of the transactions. We have no information regarding the capacity (staffing or otherwise) of the Central Risk Information Office to supervise or examine financial institutions for compliance with AML/CTF laws and regulations. ¶10. In Cuba's fifth and most recent report to the UNSC Counter-Terrorism Committee from June 8, 2006, the GOC said that the Cuban banking system does not have the authority to analyze financial transactions conducted outside the Cuban banking system. In response to a question about whether there had been any studies of informal and illegal financial transactions conducted in Cuba, the GOC downplayed the informal sector's significance and even questioned its existence. The GOC stated, "the Committee refers to informal and illegal transactions; if such transactions exist, they must be inconsequential compared to the millions of transactions, worth billions of Cuban pesos conducted by natural and juridical persons and handled by bank offices every year, or the money flows in the thousands of current accounts or millions of savings accounts kept by people in bank branches." ¶11. We are not aware of any reporting of any suspicious activities by any bank or financial institution. We are also not aware of any protection for individuals (bankers or otherwise) with respect to their cooperation with law enforcement in regards to AML/CTF investigations. -------------- FIU INVESTIGATIONS -------------- ¶12. Cuba does not have a financial intelligence unit. -------------- ASSET FORFEITURE AND SEIZURE LEGISLATION -------------- ¶13. We are not aware of any arrests, prosecutions, or convictions for money laundering or terrorist financing since January 1, 2008. Banks are authorized by Instruction 19 to take preventive action by blocking or freezing the funds of other financial assets of Cuban or foreign individuals or legal persons under suspicion for money-laundering (including as the result of drug trafficking) transactions. The penal code provides that anyone convicted of money laundering or terrorism financing will forfeit any proceeds. The penal code further provides that authorities may seize not only financial assets but any property "instrumental to or resulting from the offence, to keep it and have it examined by experts where necessary." We are not aware of any narcotics-related, terrorism-related, or other criminal-related financial assets frozen or seized in 2008. -------------- TERRORIST FINANCING -------------- ¶14. Cuba criminalized the financing of terrorism as required by the UN International Convention for the Suppression of the Financing of Terrorism, UNSC Resolution 1373, and FATF Special Recommendation 9 through Instruction 19, "Guidelines for the Struggle against Financing of Terrorism" on May 7, ¶2002. We are unaware as to whether the GOC has circulated to its financial institutions the list of individuals and entities that have been included on the UN 1267 sanctions committee's consolidated list, or any other UN, U.S., or third party list. ¶15. We are unaware of any steps the GOC has taken to regulate informal remittance carriers. Cuba does not report estimates of funds received through remittances, but estimates from the U.S. General Accounting Office, Congressional Research Service, The Commission for Assistance to a Free Cuba, Cuban economists, and international economists range between USD 500 million and USD 1 billion. Most of these remittances come from Cuban-Americans and are delivered to family members. Only 10-20 percent are carried by formal remittance carriers (i.e. Western Union) due to U.S. restrictions on the dollar amount and frequency of remittances. The majority of funds most likely enter Cuba through individuals. The use of the U.S. dollar was declared illegal in 2004 and the Cuban government tightly controls all currency exchange. ¶16. There are very few independent charitable or non-profit entities, mostly operating through the Catholic Church. Instruction 19 of 2002 states that special attention should be paid to operations made by the "so-called non-profit organizations", which can: be used by terrorist organizations simulating to be legally established; use legitimate entities as channels to finance terrorism, with the purpose of preventing their assets from being frozen; or hide the undercover deviation of funds designed to illegal purposes towards terrorist organizations. We have no insight into how these guidelines are enforced, but the GOC heavily regulates this sector. ¶17. Travelers to Cuba must fill out a Customs Declaration if they are carrying an amount in cash exceeding USD 5,000 or the equivalent in other currencies. Travelers departing Cuba are only permitted to export convertible currency and other valuables exceeding an amount of USD 5,000 if: the amount had been previously imported and declared; or the amount was lawfully acquired in Cuba, which shall be proven through presentation of the relevant bank documents. -------------- BILATERAL AND INTERNATIONAL COOPERATION -------------- ¶18. The United States has no counternarcotics agreements with Cuba and does not fund any GOC counternarcotics or counter-terrorism law enforcement initiatives. In the absence of normal bilateral relations, the U.S. Coast Guard Drug Interdiction Specialist (DIS) assigned to USINT acts as the main conduit for anti-narcotics issues with the host country on a case-by-case basis. Cuban authorities provided DIS exposure to Cuban counternarcotics efforts, including investigative information, debriefings on drug trafficking cases, and access to meet with the Chiefs of Havana's INTERPOL and Customs offices. No AML/CTF cases were presented through DIS channels in 2008 (Ref B). Similar cooperation on counter-terrorism activities does not/not exist. ¶19. Cuba's drug czar has raised the idea of greater counternarcotics cooperation with the United States. President Raul Castro has called for a bilateral agreement on narcotics, migration, and terrorism. However, these approaches have not been offered with forthright or actionable proposals as to what the U.S. Government should expect from future Cuban cooperation. In Cuba's June 2006 report to the UNSC Counter-Terrorism Committee, the GOC accused the United States of "using false and irrational arguments (to) reject a proposal made by Cuba to establish a bilateral counter-terrorism program. That proposal was made on 29 November 2001 and repeated on 3 December 2001, 12 March 2002 and 17 December 2002 during the nineteenth round of the discussions on immigration between the two Governments." ¶20. Cuba has ratified the UN International Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (Vienna Convention),the UN Convention against Corruption, and the UN International Convention for the Suppression of the Financing of Terrorism. Cuba signed but has not ratified the UN Convention against Transnational Organized Crime (Palermo Convention). Cuba is not a member of any FATF-style regional body, but it claims to have taken FATF recommendation into consideration when drafting AML/CTF regulations. FARRAR