COSTA RICA: TREASURY CONDUCTS FINANCIAL ENFORCEMENT

UNCLAS SAN JOSE 000277

SENSITIVE
SIPDIS

DEPT FOR INL/LP KBROWN AND MAHERN;
ALSO FOR WHA/CEN, WHA/EPSC:AWONG, AND EEB/ESC/TFS
TREASURY FOR SSENICH, CCORREA, AND CGAMBLE

E.O. 12958: N/A
TAGS: ECON EFIN KCRM PGOV PREL SNAR CS
SUBJECT: COSTA RICA: TREASURY CONDUCTS FINANCIAL ENFORCEMENT
ASSESSMENT

REF: 2008 San Jose 0930

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SUMMARY
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1. (U) A three-person team from the Department of Treasury's Office
of Technical Assistance (OTA) met with key GOCR officials on
financial crimes and enforcement issues from March 23-27. The team
arrived, at the request of the Central Bank President, to find an
environment ripe for financial crimes due to untaxed and unregulated
casinos, legalized prostitution and increased narco-trafficking.
The OTA team met with government agencies ranging from financial
institutions to law enforcement agencies to customs.


2. (SBU) In the near term, OTA can provide workshop-type training to
government officials on the challenges of standing-up a legislative
and regulatory framework to govern casinos. Later, the visiting
team, led by Carlos Correa of OTA, will prepare an assessment which
can be used to draft the terms of reference for launching an OTA
Financial Enforcement program in Costa Rica.


3. (SBU) Though U.S. Treasury funds support the assessment team's
current work, funds supporting a Financial Enforcement program in FY
2009 are not available. Thus, Post has proposed using State INL/LP
"bridge funding" during FY 2009 and the first quarter of FY 2010 to
launch the program and make the best use of reform-minded officials
in the current government. Costa Rica often does not qualify for
assistance based on strictly socio-economic measures. However, the
GOCR has the absorptive capacity and the willingness on this issue
-- due to the involvement of the Ministry of Finance (an agency with
a track record of success with OTA programs) -- to improve the
financial crimes environment in Costa Rica. We strongly believe
that this new OTA program is worth the investment, and as soon as
possible. END SUMMARY.

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PROVIDING THE BROAD PERSPECTIVE
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4. (U) In response to a request letter from Costa Rican Central Bank
President Francisco de Paula Gutierrez, the U.S. Department of the
Treasury authorized an assessment of Costa Rica's systemic
vulnerabilities to financial and economic crimes. Carlos Correa
(Assistant Director of Economic Crimes),Carl Gamble (Regional
Director, Latin America),and Rick Hector (Senior Advisor, Internet
& Casino Gaming) met with a wide range of officials in the Costa
Rican Government, beginning with the Central Bank President and also
including:

-- Alberto Dent, President, National Council of Financial System
Supervision, CONASSIF;

-- Cecila Sancho Calvo, Director of Private Bank Supervision, and
Nidia Varela Cordoba, Director - Department of Private Bank
Inspection, Superintendency of Financial Entities (SUGEF);

-- Juan Jose Flores, Superintendent, and Eddy Rodriguez Cespedes,
Assistant Superintendent, Superintendency of Securities(SUGEVAL);

-- Ana Lorena Brenes, Procuradora General (similar to a solicitor
general),and Tatiana Gutierrez, Solicitor of Public Ethics under
the Procuraduria General, Ministry of Justice;

-- Jenny Phillips, Vice Minister - Income Administration, Jose
Adrian Vargas, Treasurer, Desiderio Soto, Director - Customs, and
Carole Quesada Rodriguez, Director - Internal Affairs Unit, Ministry
of Finance;

-- Marcela Chacon, Vice Minister, Ministry of Public Security;

-- Jorge Rojas, General Director, and Francisco Segura, Sub
Director, the FBI-equivalent Judicial Investigative Agency (OIJ);

-- Marta Acosta, Sub-Controller, Office of the Controller General;

-- Andrea Murillo, Director, Office of Technical Assistance and
International Relations, Jose Cabrera - Organized Crime Unit
Prosecutor, Patricia Cordero - Economics Crime Unit Prosecutor, and
Walter Espinoza - Narcotics Unit Prosecutor, Office of the Attorney
General; and

-- Mauricio Boraschi, Director, and Robert Quiros, Manager -
Financial Intelligence Unit, Costa Rican Institute of Drugs (ICD).

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COMPLEX GOCR STRUCTURE COMPLICATES ENFORCEMENT
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5. (U) Embassy San Jose purposely designed a meeting program that
delivered a broad panorama of perspectives for the visiting OTA
team. In general, Costa Rican governance is characterized by a
diffusion of authority and multiplication of control mechanisms,
which is relevant to the area of financial crimes. Government
structure blurs the familiar Executive-Legislative-Judicial
relationship by a number of "autonomous" and "semi-autonomous"
institutions reporting to one or more of the three principal
branches of government. Two examples make the point:

-- the Office of the Controller General reports to the legislative
branch but has very specific powers to exercise management control
over every internal auditing department in the government; and

-- the Judicial Branch houses virtually all criminal investigation
work (by OIJ) and all prosecution (Attorney General),although the
Executive Branch houses the major financial intelligence in the ICD
which is part of the Ministry of the Presidency.

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NEAR TERM STEPS: CASINO REGULATION
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6. (U) In the near term, the OTA team agreed to provide documents
regarding key aspects of casino regulation. However, OTA Advisor
Hector cautioned that reference materials only hint, at best, at the
enormity of the undertaking to stand-up a regulatory body supported
by (1) well-crafted legislation which specifies which ministry/
agency has the authority to enforce gambling law, (2) regulations,
and (3) "sub-regulations" or standard operating procedures for
gambling enterprises.


7. (SBU) Costa Rica is particularly vulnerable to money laundering
activities originating in the gaming business since gambling is
neither taxed nor regulated in Costa Rica. The standing casino law
on the books dates from 1922. OTA is willing to return Hector and
his Casino & Gaming Team to Costa Rica for a short training session
for the GOCR to learn about the necessity, as advisor Hector
described, to "regulate (gambling) all the way" since legislating
and regulating the gaming industry is an "all or nothing"
proposition.

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MEDIUM TERM STEPS: ASSESSMENT TEAM ANALYSIS
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8. (SBU) The OTA assessment report will be very useful to Embassy
San Jose, as we focus more closely on the key issues associated with
financial and economic crimes; the report will detail the
vulnerabilities of the Costa Rican financial system to criminal
activity. More importantly, the report will recommend the basis for
collaboration with the GOCR on a financial enforcement/economic
crimes OTA program. Thus, U.S. Treasury and the GOCR can use the
report to draft a terms of reference agreement which would serve as
the basis for a formal OTA program in Costa Rica.

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LONG TERM STEPS: PROPOSED OTA PROGRAMING
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9. (U) Once OTA releases its report (with clearances from the
Embassy and key officials in the GOCR),Treasury will add Costa Rica
to its list of possible projects for support in calendar year 2010
by Treasury International Assistance Technical Agreement (TIATA)
funds. However, due to the late timing of the delivery of President
Gutierrez's letter (October 2008),Treasury could only provide funds
for an assessment team report, not a full program, in FY 2009. If
selected, Costa Rica could thus have to wait for at least seven
months -- from release of the final report in May to the end of
December - before receiving the OTA financial enforcement program.


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STATE INL POSSIBILITIES
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10. (U) In the interest of starting a program sooner than CY 2010,
Embassy San Jose sent INL/LP a proposal outlining a program for
"bridge funding," i.e. funds to launch a program in FY 2009 or first
quarter of FY 2010. The nature of such an OTA advisory program
would be "intermittent," that is one or two advisors would travel to
Costa Rica for two weeks once every two months. If the INL support

began as early as mid-July 2009, then Post projects a cost of USD
130,000 for six trips (through the end of CY 2010). If program
support was restricted to the first quarter of FY 2010, then Post
projects a cost of USD 65,000 for three two-week trips.

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BRIDGE FUNDING RATIONALE
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11. (SBU) The impetus to start a program during FY 2009 or the first
quarter of FY 2010 directly relates to the timeline of the Arias
Administration. With elections scheduled for February 2010 and a
new government taking office on May 1, the current government is
likely to lose much of its effectiveness and focus by the end of CY

2009. The current leadership in the Ministry of Finance, Ministry
of Justice, OIJ and the Costa Rican Drug Institute are committed to
reform, but many of the incumbents will change when the new
administration takes power in May, 2010. (The leadership of the
Central Bank, CONASSIF, SUGEF, SUGEVAL, and the Office of the
Controller remain in office past the 2010 elections.) Furthermore,
tackling casino legislation and regulation, though daunting, merits
starting a Financial Enforcement program as soon as possible since
the vulnerabilities to money laundering, which are significantly
compounded by growing narco-trafficking activity in Costa Rica
(reftel),are wide open; virtually no supervision exists.

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COMMENT
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12. (SBU) The visit by the OTA team reinforces our continued
commitment to start a Treasury OTA Financial Enforcement program in
Costa Rica. Economic crime challenges will only grow thanks to
Costa Rica's "three-point program on vice": untaxed and unregulated
casinos, legalized prostitution, and growing narco-trafficking.
(Costa Rica increasingly serves as an intermodal transshipment point
for drug trade between South America and North America and Europe).
The latter point is compounded by traffickers paying in product,
which has produced a local drug addiction problem. Combine these
three "vices" with the lax legal environment (e.g., casino
legislation from 1922),and opportunities abound for money
laundering and terrorist financing.


13. (U) Though Costa Rica does not often qualify for USG assistance
since it ranks relatively higher than its Central American neighbors
on socio-economic measures, it merits assistance in this case
because of the capacity of the relevant institutions (the Central
Bank and the Ministry of Finance) to absorb USG assistance, apply
the benefits, and post demonstrable results. The Ministry of
Finance is a case-in-point as it has successfully applied the
benefits of OTA programs on tax administration and budget management
and continues to do so with debt management. A Financial
Enforcement program would encourage inter-ministerial coordination
-- vital to pursuit of economic crimes -- and bolster Costa Rica's
efforts to significantly improve its security environment.

CIANCHETTE