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Cablegate: Ecuador Rejects Fatf Decision to Place It On High-Risk List

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E.O. 12958: DECL: 2020/02/25
TAGS: ECON EFIN PREL PGOV KJUS KCRM KTFN PTER SNAR EC
SUBJECT: Ecuador Rejects FATF Decision to Place it on High-Risk List

REF: QUITO 101

CLASSIFIED BY: ...


id: 250884
date: 2/25/2010 23:07
refid: 10QUITO103
origin: Embassy Quito
classification: CONFIDENTIAL
destination: 10QUITO101
header:
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C O N F I D E N T I A L QUITO 000103

SIPDIS

E.O. 12958: DECL: 2020/02/25
TAGS: ECON EFIN PREL PGOV KJUS KCRM KTFN PTER SNAR EC
SUBJECT: Ecuador Rejects FATF Decision to Place it on High-Risk List

REF: QUITO 101

CLASSIFIED BY: Christopher A. Landberg, Economic Counselor, U.S.
Department of State, Economic Section; REASON: 1.4(B), (D)

Summary

1. (C) The Ecuadorian government has reacted vehemently against the
February 18 Financial Action Task Force (FATF) statement that
Ecuador has not committed sufficiently to addressing strategic
deficiencies in its anti-money laundering and counter-terrorism
finance regime. President Correa and senior GoE officials
characterized the FATF decision as unjust, argued it ignores
Ecuador's counter narcotics achievements, and alleged it is
punishment for Ecuador's ties with Iran. On February 25, Foreign
Minister Patino questioned the legitimacy of FATF and said that
Ecuador will not ask FATF to reconsider the decision. In contrast,
Central Bank officials and private sector leaders are concerned
about possible repercussions and want to play a constructive role
in getting Ecuador off the FATF high-risk list. Based on the
initial reaction and the Rio Group's recent declaration of
solidarity with Ecuador, it appears that the GoE aims to push FATF
to reconsider the decision, while building support within the
region. End Summary.

FATF Groups Ecuador with North Korea, Ethiopia, Angola

2. (SBU) The FATF plenary announced on February 18 that Ecuador
(along with Angola, Ethiopia, and North Korea) had not "committed
to an action plan developed with the FATF to address key
deficiencies" in its anti-money laundering and combating the
financing of terrorism (AML/CFT) regime and had not "delivered a
clear high-level political commitment to address these
deficiencies" going forward, thus posing a risk to the
international financial system. It called on Ecuador to work with
the FATF and FATF-Style Regional Body GAFISUD in adequately
criminalizing money laundering and terrorism finance and addressing
other deficiencies. FATF did acknowledge that Ecuador has engaged
with FATF and GAFISUD (unlike the other three countries cited).

Correa Rejects FATF Determination

3. (SBU) President Correa spent much of his weekly address on
Saturday, February 20, denouncing FATF's statement. He framed the
FATF decision as an attack on Ecuador's sovereignty. While not
directly naming the United States, Correa referred to the FATF
"blacklisting" as a sign of the "arrogance of imperialism." Correa
declared that the FATF decision "has to do with the fact the
Ecuador has relations with Iran," an assertion he repeated several
times during the address.

4. (SBU) In a preview of what has become the GoE's party line,
Correa said that contrary to FATF's findings Ecuador has achieved
extraordinary results in combating drug trafficking (Ecuador
doubled narcotics seizures in 2009, compared to 2008). He also
stated that there was no money laundering in Ecuador, adding that
"[the imperialists] need to check where the money laundering is: in
the United States and Switzerland, but instead of checking their
own countries they condemn us."

5. (SBU) Correa's efforts to protest the FATF decision at the
February 23 Rio Group Summit in Cancun, Mexico, resulted in the
group releasing a public declaration of solidarity with Ecuador.
The Rio Group declaration expressed the "deep concern" of its 29
member states (including FATF members Brazil, Argentina, and
Mexico) over FATF's statement on Ecuador and decision process. The
Rio Group declaration also reinforced the GoE's party line, noting
that President Correa "totally rejected the actions of FATF," which
are "not consistent with the evident efforts and initiatives in all
areas that Ecuador has carried out to fight money laundering and
the financing of terrorist activities."

Senior Officials Follow Correa's Lead

6. (SBU) Coordinating Minister for Economic Policy (and Acting
Central Bank President) Diego Borja stated February 19 that FATF is
"not official, nor does it represent the members of the G-20."
Minister of Government Gustavo Jalkh, who oversees Ecuador's police
forces, publicly labeled the FATF move an "injustice" and explained
that Ecuador was a model country in the region in terms of fighting
organized crime, narcotics trafficking, and money laundering.
Jalkh stated that "terrorism" was considered an "illicit activity"
under the Penal Code, and Ecuador's money laundering legislation
addressed all illicit activities (i.e., including terrorism). Both
officials, as well as Foreign Minister Patino, also repeated
Correa's allegation that the real reason for the FATF determination
was to retaliate against Ecuador for developing a close
relationship with Iran.

7. (C) Finance Minister Maria Viteri forcefully rejected FATF's
designation of Ecuador as high-risk during a February 24 meeting
with EconCouns and Treasury's visiting Ecuador desk officer.
Viteri said the FATF assessment was out of date because it was
based on a 2007 GAFISUD review, did not reflect Ecuador's positive
record in prosecuting AML/CFT cases, and did not recognize
Ecuador's previous efforts in building its AML/CFT regime.
Regarding the latter, she noted that the ongoing process of passing
laws required under the new constitution had overtaken further
review of AML/CFT regulations. (Comment: Viteri's claim that
Ecuador's FATF listing was based on a 2007 report is misinformed.
Ecuador's FATF listing is the result of a 2009 review conducted by
a FATF working group staffed by officials from member countries.
The working group measured progress in Ecuador's AML/CFT regime
since 2007, and used a Mutual Review (MER) of Ecuador's AML/CFT
regime conducted by GAFISUD in 2007 as a baseline for assessing
Ecuador's progress. End Comment.)

8. (C) Viteri expressed concern that the FATF report had political
aims and undermined the positive international image the Correa
Administration has sought for Ecuador. She characterized as
incredulous the report's inclusion of Ecuador -- itself a "victim
of terrorism" in its northern border region -- as being soft on
terrorism. Viteri also openly questioned the efficacy of promoting
AML/CFT laws, when many countries do not enforce them.
Nevertheless, she recognized that more work may be needed to
improve Ecuador's AML/CFT regime, and noted that Foreign Minister
Patino and Solicitor General Diego Garcia Carrion will lead the

GoE's official response to FATF. EconCouns highlighted that the
FATF determination had been supported by all member countries and
encouraged the GoE to work with FATF and GAFISUD to address the
deficiency areas highlighted in the statement.

9. (SBU) Ecuador's National Counsel on Money Laundering (NCML), an
inter-ministerial body in charge of Ecuadoran AML/CFT policies and
headed by Solicitor General Garcia, announced it would send letters
to FATF and GAFISUD objecting to the listing. Garcia, who has been
personally engaged in GoE exchanges with FATF, has made the most
moderate comments of all GoE officials. In both his public
comments and his statements in the diplomatic note sent February 19
to the Treasury Department and all other FATF member countries, in
which he protested the FATF decision, Garcia highlighted the GoE's
commitment to complying with FATF AML/CFT recommendations and
expressly avoided linking the FATF determination to Iran. In
contrast, Foreign Minister Patino seems to be hardening his
position. He stated February 25 that the GoE "will not ask that it
[FATF] reconsider anything, since that organization does not have
the right or the authority to put Ecuador, or any other country, on
lists of any sort." He added that the 29 members of the Rio Group
had supported Ecuador's position in this matter.

Regulators and Private Sector Eschew Politics and Focus on Solving
the Problem

10. (C) During separate February 24 meetings with EconCouns and
TreasOff, Central Bank General Manager Christian Ruiz and private
bank association President Fernando Pozo (also General Manager of
Ecuador's largest bank, Banco Pichincha) expressed deep concerns
about the FATF characterization of Ecuador. Both highlighted the
strict controls that Ecuadorian banks have in place, arguing that
these measures met or exceeded international standards. They
worried that the determination could make it more difficult and
costly for the GoE and the private sector to access international
capital markets. Both admitted that neither institution had been
included in the GoE's past discussions with FATF and GAFISUD, and
asked for Embassy guidance on how to engage.

11. (C) Members of Ecuador's four American Chambers (Quito, Cuenca,
Ambato, Guayaquil) noted similar concerns during a February 24
meeting with the Ambassador and Embassy staff, and noted their
interest in supporting efforts to remove Ecuador from the current
FATF grouping. Emboffs' consistent response to all these parties
was that Ecuador needed to work with FATF and GAFISUD (and not via
individual FATF members). Emboffs also recommended they focus on
FATF's statement, which highlights the lack of political will on
Ecuador's part, implying that these institutions could play a
useful role in encouraging GoE officials to develop a more
constructive and proactive response to FATF/GAFISUD.

12. (C) During a February 23 meeting, Wells Fargo/Wachovia
representatives told Emboffs that they will increase scrutiny of
their clients in Ecuador, which will result in higher costs.
(Wachovia, soon to complete the full transfer to Wells Fargo, is
the largest player in cash management services in Ecuador and one
of the largest in providing trade financing). They agreed with
Central Bank/Pichincha statements that Ecuadorian banks are

committed to meeting international AML/CFT standards, and commented
that they are not as worried about the local banks as they are
about how U.S. regulatory agencies will react. They have called on
their local clients to strengthen controls and for the time being
do not have plans to reduce exposure to the market. However,
decisions going forward depend on U.S. regulators' actions and, if
costs increase significantly, reducing the size of their Ecuador
portfolio is an option (as Wachovia has done in Venezuela).

Comment

13. (C) Correa and his ministers' statements, combined with
Correa's successful lobbying efforts at the Rio Group Summit,
indicate that the GoE does not intend to accept the FATF judgment
without a fight. However, given that Ecuador has limited ability
to influence FATF positions, the real result of the GoE's
government wide outburst is to paint Correa into a corner. Seeing
as the President has termed the FATF statement as an attack on
Ecuador's sovereignty, and especially in light of Foreign Minister
Patino's latest hardening of Ecuador's public position, Correa
would lose face if he were now to reverse course and make a clear
political commitment to a FATF-action plan. Nevertheless, the
interest of the Central Bank and private sector actors to pursue a
more constructive path could gradually bear fruit. The question is
whether these interested parties can help the GoE move past its
initial rejection of the determination and work with FATF to
address problem areas. The FATF decision is one of the few
instances where the GoE has experienced adverse consequences as a
result of its actions (or inactions).
HODGES

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