Cablegate: Argentina 2007-2008 Incsr Part Ii: Financial


DE RUEHBU #0048/01 0141443
P 141443Z JAN 08





E.O. 12958: N/A

REF: STATE 137250

1. The following is Embassy Buenos Aires' input for the
2007-2008 International Narcotics Control Strategy Report
(INCSR) part II -- Financial Crimes and Money Laundering.
Marked-up text sent separately via email. Post POC is
EconOff Chris Landberg (LandbergCA@State.Gov).

Begin Text:

Argentina is neither an important regional financial center
nor an offshore financial center. Money laundering related to
narcotics trafficking, corruption, contraband and tax evasion
is believed to occur throughout the financial system, in
spite of the efforts of the Government of Argentina (GOA) to
stop it. The financial sector's continuing recovery from the
2001-02 financial crisis and post-crisis capital controls may
have reduced the incidence of money laundering through the
banking system. However, transactions conducted through
nonbank sectors and professions, such as the insurance
industry, financial advisors, accountants, notaries, trusts
and companies, real or shell, remain viable mechanisms to
launder illicit funds. Tax evasion is the predicate crime in
the majority of Argentine money laundering investigations.
Argentina has a long history of capital flight and tax
evasion, and Argentines hold billions of dollars offshore,
much of it legitimately earned money that was never taxed.

In 2006 and 2007, the National Coordination Unit in the
Ministry of Justice and Human Rights became fully functional,
managing the government's anti-money laundering and
counter-terrorism finance efforts and representing Argentina
to the Financial Action Task Force (FATF) and South American
FATF (GAFISUD). The Attorney General's special investigative
unit set up to handle money laundering and terrorism finance
cases began operations in 2007. The Argentine Banking
Superintendent's (part of Central Bank) proposal to create a
specialized anti-money laundering and counter-terrorism
finance examination program is awaiting authorization and is
not yet operational.

The most noteworthy event in 2007 was the Argentine Congress'
passage in June of anti-terrorism and counter-terrorism
finance legislation (Law 26.268, "Illegal Terrorist
Associations and Terrorism Financing"). The law, which
entered into effect in mid-July, amends the Penal Code (Law
No. 25.246, "Cover-Up and Laundering of Assets Act") to
criminalize acts of terror, terrorism financing, and money
laundering for the purpose of financing terrorism. The new
law technically provides the legal foundation for Argentina's
financial intelligence unit (the Unidad de Informacion
Financiera, or UIF), Central Bank, and other regulatory and
law enforcement bodies to investigate and prosecute such
crimes. Argentina joins Chile, Colombia, Mexico, and Uruguay
as the only countries in Latin America to have
counter-terrorism finance laws.

On September 11, 2007, President Nestor Kirchner signed into
force the National Anti-Money Laundering and
Counter-Terrorism Finance Agenda. The overall goal of this
Agenda is to serve as a road-map for fine-tuning and
implementing existing money laundering and terrorism finance
laws and regulations. The Agenda's 20 individual objectives
focus on closing legal/regulatory loopholes and improving
interagency cooperation. The next challenge is for Argentine
law enforcement and regulatory institutions, including the
Central Bank and UIF, to implement the National Agenda and
aggressively enforce the newly strengthened and expanded
legal, regulatory, and administrative measures available to
them to combat financial crimes.

Argentina's primary anti-money laundering legislation is Law
25.246 of May 2000 (noted above). Law 25.246 expanded the
predicate offenses for money laundering to include all crimes
listed in the Penal Code, sets a stricter regulatory
framework for the financial sectors, and creates the UIF
under the Ministry of Justice and Human Rights. The law
requires customer identification, record keeping, and
reporting of suspicious transactions by all financial
entities and businesses supervised by the Central Bank, the

Securities Exchange Commission (Comision Nacional de Valores,
or CNV), and the National Insurance Superintendency
(Superintendencia de Seguros de la Nacion, or SSN). The law
forbids institutions to notify their clients when filing
suspicious transaction reports (STRs), and provides a safe
harbor from liability for reporting such transactions.
Reports that are deemed by the UIF to warrant further
investigation are forwarded to the Attorney General's Office.
As of September 30, 2006, the UIF had received 2851 reports
of suspicious or unusual activities since its inception in
2002, forwarded 165 suspected cases of money laundering to
prosecutors for review, and assisted prosecutors with 121
cases. There have been only two money laundering convictions
in Argentina since money laundering was first criminalized in
1989, and none since the passage of Law 25.246 in 2000.

On March 29, 2006, the Argentine Congress passed Law 26.087,
amending and modifying Law 25.246, in order to address
Financial Action Task Force (FATF) concerns regarding the
inadequacies in Argentine money laundering and terrorism
financing legislation and enforcement. The FATF conducted a
mutual evaluation of Argentina in October 2003, which was
accepted at the FATF plenary in June 2004 and at the plenary
meetings of the Financial Action Task Force for South America
(GAFISUD) in July 2004. While the evaluation of Argentina
showed the UIF to be functioning satisfactorily, it
identified weaknesses in Argentina's anti-money laundering
legislation, as well as the lack of terrorist financing
legislation or a national anti-money laundering and
counterterrorist financing coordination strategy.

Law 26.087 responds to many of the deficiencies noted by the
FATF. It makes substantive improvements to existing law,
including lifting bank, stock exchange and professional
secrecy restrictions on filing suspicious activity reports;
partially lifting tax secrecy provisions; clarifying which
courts can hear requests to lift tax secrecy requests, and
requiring decisions within 30 days. Law 26.087 also lowers
the standard of proof required before the UIF can pass cases
to prosecutors, and eliminates the so-called "friends and
family" exemption contained in Article 277 of the Argentine
Criminal Code for cases of money laundering, while narrowing
the exemption in cases of concealment. Overall, the law
clarifies the relationship, jurisdiction, and
responsibilities of the UIF and the Attorney General's
Office, and improves information sharing and coordination.
The law also reduces restrictions that have prevented the UIF
from obtaining information needed for money laundering
investigations by granting greater access to STRs filed by
banks. However, the law does not lift financial secrecy
provisions on records of large cash transactions, which are
maintained by banks when customers conduct a cash transaction
exceeding 10,000 pesos (approximately $3,225).

The UIF, which began operating in June 2002, has issued
resolutions widening the range of institutions and businesses
required to report suspicious or unusual transactions to the
UIF beyond those identified in Law 25.246. Obligated entities
include the tax authority (Administracion Federal de Ingresos
Publicos, or AFIP), Customs, banks, currency exchange houses,
casinos, securities dealers, insurance companies, postal
money transmitters, accountants, notaries public, and dealers
in art, antiques and precious metals. The resolutions issued
by the UIF also provide guidelines for identifying suspicious
or unusual transactions. All suspicious or unusual
transactions, regardless of the amount, must be reported
directly to the UIF. Prior to the passage of Resolution
4/2005 in 2005, only suspicious or unusual transactions that
exceeded 50,000 pesos (approximately $16,130) had to be
reported; prior to 2004, suspicious transactions that were
below a 500,000 peso threshold were first reported to the
appropriate supervisory body for pre-analysis. Obligated
entities are required to maintain a database of information
related to client transactions, including suspicious or
unusual transaction reports, for at least five years and must
respond to requests from the UIF for further information
within 48 hours.

In September 2006, Congress passed Law 26.119, amending Law
25.246 to modify the composition of the UIF. The law

reorganized the UIF's executive structure, changing it from a
five-member directorship with rotating presidency to a
structure that has a permanent, politically-appointed
president and vice-president. Law 26.119 also established a
UIF Board of Advisors, comprised of representatives of key
government entities, including the Central Bank, AFIP, the
Securities Exchange Commission, the national counternarcotics
secretariat (SEDRONAR), and the Justice, Economy, and

Interior Ministries. The Board of Advisors' opinions on UIF
decisions and actions are nonbinding.

The Central Bank requires by resolution that all banks
maintain a database of all transactions exceeding 10,000
pesos, and periodically submit the data to the Central Bank.
Law 25.246 requires banks to make available to the UIF upon
request records of transactions involving the transfer of
funds (outgoing or incoming), cash deposits, or currency
exchanges that are equal to or greater than 10,000 pesos. The
UIF further receives copies of the declarations to be made by
all individuals (foreigners or Argentine citizens) entering
or departing Argentina with over US$10,000 in currency or
monetary instruments. These declarations are required by
Resolutions 1172/2001 and 1176/2001 issued by the Argentine
Customs Service in December 2001. In 2003, the Argentine
Congress passed Law 22.415/25.821, which would have provided
for the immediate fine of 25 percent of the undeclared
amount, and for the seizure and forfeiture of the remaining
undeclared currency and/or monetary instruments. However, the
President vetoed the law because it allegedly conflicted with
Argentina's commitments to MERCOSUR (Common Market of the
Southern Cone).

Argentina's Narcotics Law of 1989 authorizes the seizure of
assets and profits, and provides that these or the proceeds
of sales will be used in the fight against illegal narcotics
trafficking. Law 25.246 provided that proceeds of assets
forfeited under this law can also be used to fund the UIF.

Although Law 25.246 of 2000 expands the number of predicate
offenses for money laundering beyond narcotics-related
offenses and created the UIF, it limits the UIF's role to
investigating only money laundering arising from six specific
crimes. The law also defines money laundering as an
aggravation after the fact of the underlying crime. A person
who commits a crime cannot be prosecuted for laundering money
obtained from the crime; only someone who aids the criminal
after the fact in hiding the origins of the money can be
guilty of money laundering. Another impediment to Argentina's
anti-money laundering regime is that only transactions (or a
series of related transactions) exceeding 50,000 pesos can
constitute money laundering. Transactions below 50,000 pesos
can constitute only concealment, a lesser offense.

Prior to the passage in 2007 of terrorist financing
legislation, the Central Bank was the primary Argentine
entity engaged in fighting such crimes. The Central Bank
issued Circular A 4273 in 2005 (titled "Norms on 'Prevention
of Terrorist Financing'"), requiring banks to report any
detected instances of the financing of terrorism. The Central
Bank regularly updates and modifies the original Circular.
The Central Bank of Argentina also issued Circular B-6986 in
2004, instructing financial institutions to identify and
freeze the funds and financial assets of the individuals and
entities listed on the list of Specially Designated Global
Terrorists designated by the United States pursuant to E.O.
13224. It modified this circular with Resolution 319 in
October 2005, which expands Circular B-6986 to require
financial institutions to check transactions against the
terrorist lists of the United Nations, United States,
European Union, Great Britain, and Canada. No assets have
been identified or frozen to date.

On December 6, 2006, the U.S. Department of Treasury
designated nine individuals and two entities that have
provided financial or logistical support to Hizballah and
operate in neighboring countries' territories that border
Argentina (in the region commonly referred to as the
Triborder Area between Argentina, Brazil and Paraguay).
According to the designation, the nine individuals have
provided financial support and other services for Specially

Designated Global Terrorist Assad Ahmad Barakat, who was
previously designated by the U.S. Treasury in June 2004 for
his support to Hizballah leadership. The two entities,
Galeria Page and Casa Hamze, are located in Ciudad del Este,
Paraguay, and have been utilized in generating or moving
terrorist funds. The GOA joined the Brazilian and Paraguayan
governments in publicly disagreeing with the designations,
stating that the United States had not provided new
information proving terrorist financing activity is occurring
in the Triborder Area.

Working with the U.S. Department of Homeland Security's
Office of Immigration and Customs Enforcement (ICE),
Argentina has established a Trade Transparency Unit (TTU).
The TTU examines anomalies in trade data that could be
indicative of customs fraud and international trade-based
money laundering. The TTU will generate, initiate, and
support investigations and prosecutions related to
trade-based money laundering and the movement of criminal
proceeds across international borders. One key focus of the
TTU, as well as of other TTUs in the region, will be
financial crimes occurring in the Triborder Area, which is
bound by Puerto Iguazu, Argentina, Foz do Iguacu, Brazil, and
Ciudad del Este, Paraguay. The creation of the TTU was a
positive step towards complying with FATF Special
Recommendation VI on Terrorist Financing via alternative
remittance systems. Trade- based systems such as hawala often
use fraudulent trade documents and over and under invoicing
schemes to provide counter valuation in value transfer and
settling accounts.

The GOA remains active in multilateral counternarcotics and
international anti-money laundering organizations. It is a
member of the Organization of American States Inter-American
Drug Abuse Control Commission (OAS/CICAD) Experts Group to
Control Money Laundering, FATF and GAFISUD. The GOA is a
party to the 1988 UN Drug Convention, the UN International
Convention for the Suppression of the Financing of Terrorism,
the Inter-American Convention against Terrorism, and the UN
Convention against Transnational Organized Crime. Argentina
ratified the UN Convention against Corruption on August 28,
2006. Argentina participates in the "3 Plus 1" Security Group
(formerly the Counter-Terrorism Dialogue) between the United
States and the Triborder Area countries. The UIF has been a
member of the Egmont Group since July 2003, and has signed
memoranda of understanding regarding the exchange of
information with a number of other financial intelligence
units. The GOA and the USG have a Mutual Legal Assistance
Treaty that entered into force in 1993, and an extradition
treaty that entered into force in 2000. The Argentine
government and Central Bank assert that they remain committed
to freezing assets of terrorist groups identified by the
United Nations if detected in Argentine financial

With passage of counter-terrorism financing legislation,
strengthened mechanisms available under Laws 26.119, 26.087
and 25.246, the ratification of the UN International
Convention for the Suppression of the Financing of Terrorism,
a reorganized UIF, and enhanced enforcement capability via
the Special Prosecutors Unit and Central Bank's specialized
bank examination unit, Argentina has the legal and regulatory
capability to combat and prevent money laundering and
terrorism financing. Furthermore, the new national
anti-money laundering and counter-terrorism finance agenda
provides the structure for the government to improve existing
legislation and regulation and enhance inter-agency
coordination. The challenge now is for Argentine law
enforcement and regulatory agencies and institutions,
including the Justice Ministry, Central Bank and UIF, to
implement the National Agenda and aggressively enforce the
newly strengthened and expanded legal, regulatory, and
administrative measures available to them to combat financial

The GOA could further improve the legal/regulatory structure
by implementing the following reforms: enact legislation to
expand the UIF's role to enable it to investigate money
laundering arising from all crimes, rather than just six
enumerated crimes; establish money laundering as an

independent offense; and eliminate the currently monetary
threshold of 50,000 pesos required to establish a money
laundering offense. To comply with FATF recommendations on
the regulation of bulk money transactions, Argentina should
review the legislation vetoed in 2003 to find a way to
regulate such transactions consistent with its MERCOSUR
obligations. Other continuing priorities are the effective
sanctioning of officials and institutions that fail to comply
with the reporting requirements of the law, the pursuit of a
training program for all levels of the criminal justice
system, and the provision of the necessary resources to the
UIF to carry out its mission. There is also a need for
increased public awareness of the problem of money laundering
and its connection to narcotics, corruption and terrorism.

End Text.

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