GOLDBERG DELEGATION'S MEETINGS WITH MALAYSIAN

S E C R E T SECTION 01 OF 03 KUALA LUMPUR 000549 SIPDIS STATE PASS USTR -- WEISEL STATE PASS FEDERAL RESERVE AND EXIMBANK STATE PASS FEDERAL RESERVE SAN FRANCISCO TCURRAN USDOC FOR 4430/MAC/EAP/M.HOGGE TREASURY FOR OASIA AND IRS E.O. 12958: DECL: 07/08/2019 TAGS: PREL PARM PGOV ECON MNUC EFIN MY KN KS SUBJECT: GOLDBERG DELEGATION'S MEETINGS WITH MALAYSIAN CENTRAL BANK AND FINANCIAL INSTITUTIONS RE IMPLEMENTATION OF UNSCR 1874 REF: KUALA LUMPUR 538 Classified By: Deputy Chief of Mission Rob Rapson for reasons 1.4 (b) a nd (d). ¶1. (C) Summary: On July 6, UNSCR 1874 Implementation Coordinator Goldberg and an inter-agency team including Treasury Deputy Assistant Secretary Glaser met with senior GOM officials from the central bank, Ministry of Finance, and other agencies to consult on implementation of UN Security Council Resolution 1874 regarding North Korea. Glaser also met separately with senior representatives Malaysian Maybank and Rashid Hussein Bank (RHB). (Note: Reftel reports on the delegation,s meetings at the Ministry of Foreign Affairs and the Prime Minister,s Office on July 6. End note.) Ambassador Goldberg and Glaser underlined to their Central Bank and Malaysian financial sector interlocutors the importance of fully implementing the new resolution, stressed the risk of doing business with North Korean individuals and entities, and shared cleared intelligence on specific entities in Malaysia thought to be facilitating transactions related to North Korea's weapons programs in violation of UN sanctions. GOM officials at both the central bank and at the Ministry of Finance assured the delegation that Malaysia was in full agreement with the views expressed by the international community on North Korea and would carry out its UN obligations effectively. Central Bank Deputy Governor Zamani said the bank had disseminated the new UN resolution to financial services companies operating in Malaysia and was in the process of drafting additional implementation guidance which it would disseminate as soon as it was complete. The two private banks noted that they were following all anti-money laundering/counter-financing of terrorism (AML/CFT) guidelines and implementing procedures to mitigate risks associated with North Korean businesses but were not aware of any inappropriate transactions involving North Korea. Officials at both Maybank and RHB said they would carry out internal investigations regarding the information DAS Glaser provided. The Malaysian Financial Intelligence Unit (FIU) committed to follow up with the U.S. Treasury on the results of both its own and the banks' investigations. End summary. ¶2. (SBU) Ambassador Goldberg and delegation met with Central Bank Deputy Governor Zamani Abdul Ghani, Financial Intelligence Unit (FIU) Director Wan Mohd Nazri Wan Osman, and Labuan Offshore Financial Services Authority (LOFSA) Director General Azizan Abdul Rahman on July 6 to discuss the need for effective implementation of UN sanctions on North Korea. Goldberg underlined the importance of the international community working together to implement UN Security Council Resolutions (UNSCRs) designed to encourage North Korea to abide by its commitments and rejoin the six-party talks. He described North Korea's recent violations of its commitments as unacceptable threats to world peace and security, and explained that the UNSC wanted to engage North Korea in peaceful dialogue with the goal of de-nuclearization and nonproliferation. It was important not to overreact, he said, but the issue must be taken seriously. The U.S. delegation had come to Malaysia to coordinate, collaborate, and exchange views on how best to increase pressure on North Korea to fulfill its obligations and commitments to give up its nuclear and ballistic missile programs, he explained. ¶3. (S) Treasury Deputy Assistant Secretary Glaser reviewed some of the specific financial provisions of UNSCR 1874 with Zamani, Wan Nazri, and Azizan, explaining that these built upon existing international anti-money laundering standards, the financial provisions contained in earlier resolutions, and longstanding concerns about the illicit finance risks posed by North Korean individuals and entities. He highlighted language in the document that called for enhanced monitoring of all financial transactions with North Korean entities and stressed that UNSCR 1718 required freezing KUALA LUMP 00000549 002 OF 003 assets not only of the named entities but also of any entity owned or controlled, directly or indirectly, or acting on behalf of or at the direction of the named sanctioned entities. He shared the names of some persons/entities in Malaysia that were acting as front companies for the sanctioned entities and described some deceptive practices used to evade sanctions, including stripping names off of bank transactions, frequently changing the names and/or locations of front companies, and not disclosing adequate information about business transactions. The U.S. planned to submit more entities to the UNSC for sanctioning, he said. DAS Glaser explained that complying with the many layers of North Korea sanctions was not an easy task for banks, and doing any business with North Korea exposed banks to significant risks. While the U.S. did not want to interfere with food shipments or other humanitarian needs, he explained, it was important to impress upon banks the level of risk involved. He mentioned both Maybank and Rashid Hussein Bank (RHB),providing specific information on possible accounts and transactions of concern, and said the U.S. would share any further information it received on these types of activities. ¶4. (SBU) Deputy Governor Zamani appreciated the sharing of the information, and informed the delegation that Malaysia's FIU had signed Memoranda of Understanding on the sharing of financial intelligence with Hong Kong and Singapore within the past two weeks, bringing the total number of such MOUs to 21 (up from 16 a year ago.) He explained that the central bank had circulated the text of the most recent UNSCR on North Korea to all financial services companies in Malaysia and was in the process of drafting a circular which would include specific guidance on how implementation should be carried out. Banks had five working days to acknowledge receipt of the guidance and would turn to the central bank to seek clarification. In addition to the central bank's quarterly meetings with compliance officers, it engaged with them directly on an ongoing basis. Zamani acknowledged that, as the net tightened around North Korea, it would be forced to engage in costlier, riskier, and less efficient means of financing its nuclear program and arms trade, including the movement of bulk cash. ¶5. (SBU) Zamani explained that Malaysian policy was to fully implement UNSC resolutions, and both Bank Negara and the Ministry of Foreign Affairs had been in discussions about North Korea's recent actions and UNSCR 1874. He heartily agreed that North Korea's actions were unacceptable. He added that both the GOM and ASEAN shared the U.S. view that North Korea must return to the six-party talks and must keep its earlier commitments. ¶6. (SBU) Ambassador Keith and the delegation also met with Finance Minister II Ahmad Husni. (Note: Ahmad Husni carries the title "Finance Minister II" because the Prime Minister carries the title of Finance Minister. End note.) Husni explained that the central bank had the lead on this issue and expressed complete confidence in its ability to implement the UN resolutions and ensure compliance by the financial sector. The Ministry of Finance did not want to get involved, he explained. Husni assured Ambassador Goldberg that the GOM was in full agreement with the U.S. and the international community on North Korea, took seriously its UN obligations and fully complied with all UN resolutions. Ambassador Goldberg and DAS Glaser reviewed briefly the issues covered in the central bank meeting earlier in the day. The Minister said he would follow up with the central bank for a detailed readout of what the central bank planned to do to address concerns expressed by the U.S. delegation. ¶7. (S) DAS Glaser met separately July 7 with senior members of Maybank and Rashid Hussein Bank (RHB),Malaysia's largest and third-largest banks, respectively, to stress the risks of doing business with North Korean entities, describe the types of deceptive practices being employed by the sanctioned KUALA LUMP 00000549 003 OF 003 entities, and share limited specific information on possible accounts and transactions at each of the two respective banks. He informed Maybank of information indicating that its offshore branch in Labuan had an account for Tanchon, one of the three entities sanctioned by the UNSC. Maybank Executive Vice President and Head of Compliance Mr. Mad Yusof Yazid described some of the bank's internal processes to ensure full dissemination of information within the bank, particularly on sanctioned entities and central bank guidance on how best to protect against fraud and other attempts to evade sanctions, and its layers of checks both domestically and internationally, with extra scrutiny being applied to any transaction involving North Korea. He said he was unaware of the specific account Glaser mentioned, but would do a thorough check. ¶8. (S) Mr. V. Maslamani, Head of Compliance at RHB told DAS Glaser that his bank was the "best in its class" for compliance, which it took very seriously. He explained that the bank had only one customer doing business with North Korea: a palm oil exporter. The bank already had checked all its branches, including those in Labuan (Malaysia's offshore financial center) and in Singapore, and had come up with nothing. DAS Glaser informed RHB officials of information indicating that KOMID, another North Korean entity sanctioned by the UN, had access to the Malaysian financial system through RHB, and may have used an account at RHB to facilitate trade with a Jakarta-based arms dealer in May 2009. Chief Operating Officer Michael Lim responded that the bank would do a thorough search. The bank already had ended its correspondent relationship with Korea Joint Stock Bank long ago because the latter could not certify that it complied with international AML/CFT standards, he explained, and would freeze any accounts it discovered doing business on behalf of the sanctioned entities. Glaser provided copies of the U.S. guidance to its domestic banks to both Maybank and RHB officials. ¶9. (U) This cable was cleared by Treasury delegation members Glaser and Fowler. KEITH