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Cablegate: Results of Financial Systems Assessment Team Visit To

VZCZCXRO0589
PP RUEHMA RUEHPA
DE RUEHDK #0125/01 0350859
ZNR UUUUU ZZH
P 040859Z FEB 08 ZDK NUMEROUS SVCS
FM AMEMBASSY DAKAR
TO RUEHC/SECSTATE WASHDC PRIORITY 9950
INFO RUEHZK/ECOWAS COLLECTIVE PRIORITY
RUEAWJA/DEPT OF JUSTICE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHDC
RHMFIUU/DEPT OF HOMELAND SECURITY WASHDC
RHMCSUU/FBI WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RHMFIUU/HQ USAFRICOM STUTTGART GE
RHMFIUU/HQ USEUCOM VAIHINGEN GE//ECJ2//
RHMFIUU/HQ USEUCOM VAIHINGEN GE//ECJ3//
RHMFIUU/HQ USEUCOM VAIHINGEN GE//ECJ4//
RHMFIUU/HQ USEUCOM VAIHINGEN GE//ECJ5//

UNCLAS SECTION 01 OF 05 DAKAR 000125

SIPDIS

SIPDIS
SENSITIVE

STATE FOR S/CT, INL, AF/RSA, AF/W, EB/ESC/TFS AND INR/AA
JUSTICE FOR AFMLS, OIA AND OPDAT
TREASURY FOR FINCEN

E.O. 12958: N/A
TAGS: EFIN KTFN PTER KCRM PREL SNAR PGOV SG
SUBJECT: RESULTS OF FINANCIAL SYSTEMS ASSESSMENT TEAM VISIT TO
SENEGAL (FIRST OF TWO CABLES)

DAKAR 00000125 001.2 OF 005


NOTE: This cable is Part I of two-part report. Part II to be sent
septel.

SUMMARY
-------
1. (SBU) This cable is largely derived from the initial report by
an interagency Financial System Assessment Team (FSAT), which
conducted an onsite visit to Senegal November 5-9, 2007. The team
met with a wide array of government and private sector entities in
Senegal and came away with a nuanced understanding of the strengths
and weakness throughout Senegal's financial system with regards to
combating money laundering and terrorist financing. Senegal has a
comprehensive anti-money laundering (AML) framework, but there are
components which could benefit from additional training to improve
implementation. There are significant gaps in countering potential
financing of terrorism (CFT), including the lack of a terrorism
financing law. There is particular concern with respect to judges
and prosecutors, who are perceived as lacking an understanding of
AML laws or of related investigative requirements. For two main
reasons, Senegal is uniquely placed in West Africa to engage on AML
and CFT. First, it is a leader within both the West African
Economic and Monetary Union (WAEMU), which comprises eight countries
with a shared currency and common central bank. Second, Senegal has
established a functioning financial intelligence unit (FIU), the
CENTIF. The authorities and agencies with whom the FSAT spoke
appeared to be motivated and organizationally prepared to make
necessary changes to enhance its CFT regime, although resources
constraints, and perhaps high-level political will, could restrict
these efforts.

LEGAL FRAMEWORK AND SENEGAL'S UNIQUE ROLE
-----------------------------------------
2. (U) A Financial System Assessment Team (FSAT) consisting of Gary
Novis (State S/CT-Head of Delegation), Valerie Silensky (State
INL-Deputy), Suzanne Hayden (Department of Justice, Asset Forfeiture
and Money Laundering Section), Lionel M. Peres (Federal Deposit
Insurance Corporation), Mark Meinke (FBI -Terrorist Finance
Operations Section), Heather Moye (Treasury - Financial Crimes
Enforcement Network), and Mark Kellett (Department of Homeland
Security-Immigration and Customs Enforcement) conducted an onsite
visit to Senegal November 5-9, 2007. The team met with a wide array
of government and private sector entities in Senegal including: the
Customs Department and Port of Dakar, the Central Bank for WAEMU
countries and for Senegal, Senegal's Financial Intelligence Unit --
the Cellule Nationale de Traitement des Informations Financiers
(CENTIF), the Professional Bankers Association of Senegal, the
Anticorruption Commission, the Civil Forum (which is the local
representative of Transparency International), the Tax Department,
the Inspector General Office, the Ministry of Interior, the Ministry
of Finance, the Senegal office of the UNODC, Citigroup, the Ministry
of Justice, and the Senegalese Housing Bank.

3. (U) In Senegal, the AML/CFT framework and regulations must
acknowledge the unique economic and legal arrangement of the West
African Economic and Monetary Union (WAEMU), which includes Senegal,
Burkina Faso, Niger, Mali, Benin, Guinea-Bissau, Cote d'Ivoire and
Togo, as well as Senegal's role within the Union. There is a single
central bank known as the Banque Centrale des Etats de l'Afrique de
l'Ouest/Central Bank of West African States (BCEAO), a single
currency (the CFA franc) and a single monetary policy. Laws
governing monetary and economic policy are passed by this body and
binding on all members, who are required to submit and pass
implementing legislation through national legislative action. There
is no latitude to amend the law for local considerations.

4. (U) Senegal has traditionally taken a leading role in the
sub-region on financial management derived from its strategic
location and relatively sophisticated institutions. Senegal was the
first country to pass enabling legislation for the 2004 WAEMU
Anti-Money Laundering Uniform Law (No. 2004-09), the "Uniform Law."
However, the WAEMU legislation, although fairly comprehensive, does
not meet the international standard (set by the Financial Action
Task Force) with respect to AML compliance for non-bank financial
sectors and politically exposed persons.


DAKAR 00000125 002.2 OF 005


5. (U) As Senegal's AML law is a BCEAO common law, there is little
latitude to tailor it to Senegal. Regulations tailored to Senegal's
risk profile could be implemented, but implementing regulations are
rarely customized. However, Senegal takes an "all crimes" approach
to enacting the Uniform Law and pursuing money laundering.
Self-launderers may be prosecuted and it is not necessary to have a
conviction for the predicate offense. Intent may be inferred from
objective factual circumstances. Criminal liability applies to all
legal persons as well as natural persons.

6. (SBU) Although Senegal has not passed a CFT law, the penal code
was amended in March 2007 to incorporate the United Nations Security
Council Resolutions (UNSCRs) requirements for terrorist financing.
In July 2007, the WAEMU released guidance on terrorist financing for
the sub-region: Directive No. 04/2007/CM/UEMOA "Relative to the
Fight Against Terrorist Financing Among WAEMU Member States"
obliging member states to pass domestic CFT legislation. Senegalese
authorities will likely present WAEMU CFT legislation to the
National Assembly for approval in 2008.

UNSCR 1267 COMPLIANCE
---------------------
7. (SBU) The Central Bank, WAEMU, CENTIF, and the U.S. Embassy
distribute the UN 1267 Sanctions Committee lists to financial
institutions. Citigroup and BHS confirmed that they receive
designations from the Central Bank. Senegalese institutions have
not yet identified any assets related to the 1267 consolidated list.
The BHS bank also receives from the CENTIF the U.S.-generated lists
distributed pursuant to Executive Order 13224, but it is unclear
whether every bank does.

COMMON CHALLENGES
-----------------
8. (SBU) There was near-unanimity among all entities regarding the
major issues and challenges Senegal faces. Officials describe
Senegal, and West Africa in general, as "weak links" in the
international efforts to combat money laundering. Officials
acknowledge a lack of the investigative skills needed for effective
AML casework. Money is moved in and out of the country in a variety
of methods and with increasing degrees of sophistication, making it
very difficult to detect money laundering. Representatives from the
Inspector General's office described some of these, including
complex transactions in the formal banking system, cash couriers,
vehicle imports, trade-based money laundering, hawala or similar
informal transfers, and real estate schemes. Officials predict that
money laundering in Senegal will rapidly become more complex, such
as schemes using untraceable phone codes. Senegal lacks the
expertise to address more complex problems.

9. (SBU) Senegal's strategic location, relatively porous borders,
and a lack of export enforcement make it a possible transshipment
point for criminal organizations looking to export all types of
contraband throughout Africa, Europe, and the Middle East. The
United Nations Office of Drug Control (UNODC) expressed particular
concern regarding Senegal vis-a-vis the transit of goods, money, and
people from Cap Vert, Guinea-Bissau, and Gambia, as well as from the
Sahel region: Mauritania, Niger, and Mali. The steady migration
that takes place throughout the Sahel exacerbates vulnerabilities.


10. (SBU) A primary threat appears to be the relatively recent
shift in the flow of contraband and illicit proceeds in the form of
bulk cash through Senegal and on to a multitude of destinations
throughout Europe, Asia, and the Americas. WAEMU states enforce
common external tariffs, but allow the free flow of goods and
citizens among member countries. Senegal is also a member of the
Economic Community of West African States (ECOWAS) which offers
member states free trade zone and common market system. Senegal has
free trade agreements with Libya and Mauritania. The growing
narcotics trafficking through Guinea-Bissau on its southern border
is also a particular concern for Senegal.

11. (SBU) According to knowledgeable Senegalese officials, Dakar
and the sub-region have become a major distribution and logistical
hub for international drug smuggling. UNODC research indicates that

DAKAR 00000125 003.2 OF 005


nearly half of Latin American drugs passing through West Africa are
re-exported to Europe. The UNODC noted that recently two Latin
American citizens were arrested with 500,000 USD and 500,000 euro in
their possession, and were also linked to unexplained cash flows
between Senegal and Pakistan. The UNODC is concerned that a portion
of the proceeds were used to support terrorist organizations,
perhaps including the FARC or other groups. South American and
European senior drug traffickers may also be establishing bases in
Senegal where drug proceeds may be mixing with other investments
into Dakar's fast-growing real estate market. There is also concern
that traffickers are establishing front companies in the region.

12. (SBU) There was broad agreement that Senegal's real estate
sector is a potential point of access for individuals to launder the
proceeds of crime, including corruption. The FATF-style regional
body to which Senegal belongs, the Inter-Governmental Action Group
against Money Laundering and Terrorism Financing in West Africa
(GIABA), which is an agency of the sixteen member country Economic
Community of West African States (ECOWAS) has noted this
vulnerability. The Senegalese Tax Authority advised that real
estate schemes incorporating questionable proceeds transferred into
Senegal through the purchase of property were prevalent. Lebanese,
many of them second generation residents, control much of Senegal's
real estate sector. There are indications that significant funds
are flowing into Dakar's real estate market that are tied to the
preparations for the March 2008 Organization of Islamic States
summit.

SPECIFIC CHALLENGES
-------------------
13. (SBU) Particular challenges identified by the FSAT include
Senegal's mostly cash-based economy, coupled with the depth,
breadth, and prevalence of alternative remittance systems in the
informal sector. Since so many transactions are conducted in cash,
determining the source and destination of the proceeds is difficult.
Alternative remittance systems such as hawala are very common in
Senegalese communities, and are also used by other groups residing
in the country, including Middle East and North African nationals,
Chinese, Lebanese, Mauritanians, Malians, Tuaregs, and perhaps Latin
Americans. (Authorities spoke about their concerns that Tuaregs
coming from Mali could be implicated in terrorist financing
schemes.)

14. (SBU) Senegal also has a wide range of informal currency
exchange outlets, which are illegal, but largely tolerated by the
authorities. Law enforcement entities face universal issues
regarding underground banking systems: they are difficult to detect
and to disrupt, so authorities are dependent on informants. In one
example, Ministry of Interior agentsconducted an investigation of
an illegal hawala hich resulted in the arrest of only one low-level
member of the organization; the arrest was based on informant
information. The hawala process was not examined as a part of the
investigation. The Financial Intelligence Unit, CENTIF, is
reportedly working on an overview of alternative remittance systems,
which should be a first step toward a reporting and enforcement
regime vis-`-vis these entities.

15. (SBU) An overarching backdrop to all of this is the issue of
corruption - a persistent, acknowledged and, to some extent,
accepted problem in Senegal. The culture of corruption pervades
throughout the country, from placements in primary schools to a
judiciary subject to political influence. According to the
nongovernmental organization (NGO) Forum Civil, there is serious
lack of commitment or will to fight corruption. While an
anticorruption law has been enacted, most people do not know how to
recognize corruption in its many forms and are resistant to change,
so they accept it. Corruption concerns are also raised by
significant recent investments by countries that do not have
effective anti-corruption controls, including, Saudi Arabia, Iran,
the UAE, Libya, China, and India.

BANKING/REGULATORY FRAMEWORK
----------------------------
16. (SBU) On the regulatory side, the Team visited and spoke with
representatives from the BCEAO, and two agencies of Senegal's

DAKAR 00000125 004.2 OF 005


Finance Ministry: the Department of Money and Credit and the Office
of Assistance of Microfinance and Credit. The Team also spoke with
Senegal's Professional Banking and Finance Association (APBEF),
Citigroup, and the Senegal Housing Bank (BHS), who are
representative of the entities obliged to report Suspicious
Transaction Reports (STRs).

17. (U) The BCEAO's functions include banking sector supervision in
member States. The BCEAO has national representation and a national
director in all member countries, including Senegal (representation
in Dakar, Kaolack and Ziguinchor). Banks and financial institutions
must be authorized and registered in order to operate. This
authorization is granted by the Minister of Finance after the BCEAO
has examined the application and the WAEMU's Banking Commission (BC)
has certified its conformity with applicable laws. In Senegal, the
BCEAO supervises 17 banks, is actively chartering two new
institutions, and oversees 834 microfinance institutions.

18. (SBU) The Banking Commission, (BC), based in Abidjan, is
responsible for direct regulation and supervision of WAEMU banks.
In addition to inspections, it opines on authorization requests from
financial institutions and takes administrative and disciplinary
measures. The examination cycle is typically two years; however,
banks experiencing financial difficulties are subject to at least
semi-annual examinations. The BC's approximately 102 bank examiners
have a range of educational and professional backgrounds, including
economics, law, accounting, financial analysis, but little
specialization or knowledge of AML/CFT standards.

19. (U) The BCEAO has developed a training policy that includes
AML/CFT for its staff members, and is providing this program through
its West African Centre for Banking Studies and Training (COFEB) to
Senegalese banks and financial institutions, as well as counterparts
from other countries in the sub-region.

20. (U) Both banks and the APBEF identified the same
vulnerabilities and challenges within the sector. The first relates
to the universal problem of cash transactions in Senegal, and the
massive informal sector. In order to more adequately regulate the
financial system in Senegal, the BCEAO and the APBEF are attempting
to reduce cash transactions through consciousness-raising and
encouraging the population to move away from a cash-based society
and into the formal financial systems. The second issue is the
disparity in AML/CFT training received by the different financial
institutions in Senegal.

21. (SBU) The FSAT identified two primary vulnerabilities during
the assessment review. First, each safety and soundness examination
includes a basic procedural review of AML/CFT, however, complete
safety and soundness examination should include full AML/CFT
examinations. Second, and of particular concern, BCEAO officials
maintain that financial institutions are only required to file STRs
when a violation of law has occurred. Obliged entities should file
STRs when the circumstances regarding a transaction appear
suspicious in nature, regardless of perceived actual violation.

22. (SBU) As Senegal's AML law is a BCEAO common law, there is
little latitude to tailor it to Senegal. Regulations tailored to
Senegal's risk profile could be implemented, but implementing
regulations are rarely customized. Banks are required to send STRs
to the CENTIF, including from wire transfer services such as Western
Union, which banks execute. According to Citigroup, which sent a
case to CENTIF last year, and BHS, which has filed 30-40 STRs so far
this year, the FIU acknowledges when an STR is received; however,
the banks do not learn what actions the CENTIF takes or does not
take on the reports.

THE DEPARTMENT OF MONEY AND CREDIT
----------------------------------
23. (SBU) The Ministry of Finance's Department of Money and Credit
(DMC) is responsible for monitoring and supervising banks and other
financial institutions. Since the creation of the Banking
Commission, the role of this DMC has shifted to monitoring the
non-bank financial sector. The DMC noted the magnitude of Senegal's
informal sector and estimated that only about 5 percent of financial

DAKAR 00000125 005 OF 005


activity takes place through formal financial institutions. Because
of concerns about possible financial crimes, the DMC is currently
conducting a study of the informal financial sector at the behest of
CENTIF.

24. (SBU) The DMC has authority over currency exchange houses
which, under the law, are required to register, submit STRs, and
provide periodic reports back to the DMC. Prior to the enactment of
the AML Uniform Law, there were approximately two hundred currency
exchangers; currently there are less than 50 registered currency
exchange entities. DMC representatives acknowledge the problematic
existence of unregistered currency exchange houses. Successful law
enforcement action has taken place against unregistered currency
exchangers, resulting in arrests. However, those arrested have been
of relatively low-level employees.

25. (SBU) Only two DMC staff members have received any AML
training, and with the BEACO guidance on terrorist financing
released only in July 2007, no one from the DMC has had training on
its provisions. As a result, DMC officials expressed a need for
basic AML/CFT training for most of the staff as well as in detecting
suspicious transactions, and in conducting AML examinations.

MICROFINANCE SECTOR
-------------------
26. (U) Housed in the Ministry of Finance, the Cellule d'Assistance
Technique aux Caisses Populaires d'Epargne et de Credit (AT-CPEC)
registers, supervises, controls and investigates the 834
microfinance institutions (MFIs) and their projects, associations,
and organizations (including NGOs) that populate the sector and loan
money at the microenterprise level.

27. (U) The Inspections Division in AT-CPEC handles financial
investigations including AML, although all Inspections Division
employees were in the field conducting investigations at the time of
the Team's visit. AT-CPEC maintains a database of all MFIs that
includes financial information, annual reports and financial
statements, names associated with each MFI including donors,
targeted sectors, and substantive activities. All organizations,
including charitable organizations and NGOs, that aim to have a
program with any kind of microfinance assistance, must be licensed
and on the registry. This database is accessible by request to
donors, the Central Bank, Professional Association of
Microfinanciers, the CENTIF, and the Ministry of Finance. When a
MFI registers, AT-CPEC conducts due diligence using a guide from the
Central Bank, which includes examination of the MFI's
identification, financial information, and a basic guide to
identifying money laundering. Before granting a license, the
inspection team completes a site visit to see the MFI at work and
get references from the MFI's operating area. AT-CPEC routinely
re-inspects licensed MFIs.

28. (SBU) Wary of remittances from overseas to MFIs, AT-CPEC
acknowledges AML/CFT vulnerability in this sector. Although it has
not found cases of terrorism financing or money laundering within
the microfinance sector, AT-CPEC recognizes the potential of the
sector to be used as such a vehicle. When AT-CPEC has a suspicion
about or finds a problem with an MFI or project, it files an STR or
reports its findings to the CENTIF, with whom it has worked for two
years.

29. (U) AT-CPEC investigators have advanced degrees in economics,
accounting, and business; however, the only AML-specific training
that they have taken has been through the CENTIF. AT-CPEC needs to
better identify and assemble cases and reports, and share its
database and information with other government entities (and obtain
information from them). As microfinance is by definition small in
scale, and the microfinance sector is not normally a component of an
AML/CFT regime, AT-CPEC is easily overlooked as an important
institution for consideration of assistance.

NOTE: THIS CABLE IS CONTINUED SEPTEL.

SMITH

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