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Cablegate: International Narcotics Control Strategy Report

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 MAPUTO 001627

SIPDIS
STATE FOR INL/C, AF/S, DS/IP/AF, DS/IP/ITA
JUSTICE FOR OIA AND AFMLS
TREASURY FOR FINCEN
E.O. 12958: N/A
TAGS: KCRM PTER KSEP SNAR KTFN EFIN MZ KCOR
SUBJECT: INTERNATIONAL NARCOTICS CONTROL STRATEGY REPORT
(INSCR), MONEY LAUNDERING AND FINANCIAL CRIMES

REF: SECSTATE 254401

1. Below are post answers to INSCR questions pertaining
to money laundering and financial crimes, organized in
response to the subheadings provided in State 254401.

General Questions
----------------------
2. Mozambique is not a regional financial center. Money
laundering is fairly common and local authorities
believe that narcotics proceeds have helped finance the
recent proliferation of new restaurants, shopping
centers, hotels, and mosques in the country, especially
in the capital. These businesses reputedly conceal
profits made by those importing hashish, heroin, and
synthetic drugs from South Asia (often via Tanzania)
and, to a lesser extent, cocaine from South America via
Brazil. Most narcotics are destined for South African
and European markets; Mozambique is not a significant
consumption destination and is rarely a transshipment
point to the United States. Local organized crime
controls narcotics trafficking operations in country,
with recent immigrants from Pakistan and India playing a
prominent role. Money laundering in the banking sector
is also considered to be a serious problem; in recent
years, prominent public figures in the Central Bank, the
law enforcement community and the media have been
murdered for investigating fraud and money laundering in
these institutions. Despite these problems, there are no
known links between Mozambique-based drug traffickers,
money launderers and the financing of terrorists.

3. The financial sector is not experiencing any reported
increase in crimes such as money laundering, but very
few instances of laundering are formally reported or
investigated. Black markets for smuggled goods and
financial services are widespread, dwarfing the formal
retail and banking sectors in most parts of the country,
making it difficult to determine when and where
laundering of narcotics money takes place. Local
officials are often directly involved with drug
trafficking and the laundering of profits, including the
ex-chief of the Criminal Investigative Police and
several of his top officers who are now awaiting trial
in Inhambane province on narcotics trafficking charges.
Evidence of money laundering was cited by the government
as a reason for arresting these officials in 2003, but
they are being prosecuted for narcotics trafficking, not
money laundering.

Laws and Regulations to Prevent Money
Laundering/Terrorist Financing
--------------------------------------------- -----------
4. Money laundering has long been a criminal offense in
Mozambique, but criminal charges and prosecutions for
money laundering have been rare because the law had not
been narrowly defined until enactment of the 2002 Anti-
Money Laundering Act. Implementing regulations for most
components of this law were only issued in September
2004, with more regulations forthcoming in 2005. The law
contains specific statutes related to narcotics
trafficking, but covers a wide range of laundering
sources and agents. No money laundering arrests have
taken place in 2004, nor have any prosecutions taken
place. Since implementing regulations for the 2002 law
were only recently issued, it is too early to tell how
well the law will work.

5. According to the 2002 law, banks and exchange houses
must immediately record and report to the Attorney
General's office any cash transaction valued at 441
times the national minimum wage, which amounts to about
$18,000. In addition, exchange houses are required to
turn in records of all transactions on a daily basis.
All credit card transaction attempts over $5,000 must be
reported also, and can only be processed with approval
from the Bank of Mozambique, i.e. the Central Bank.
Banks and exchange houses are required to keep
transaction records for 15 years (Article 15 of 2002
law). Financial institutions are required to report any
suspicious transactions immediately to the Attorney
General's office (Article 16). The Attorney General, in
turn, is required to determine within 48 hours whether
to permit the transaction (Article 19). Individual
bankers who cooperate with law enforcement authorities
in good faith receive protection under the 2002 law
(Article 21). Secrecy laws exist in Mozambique but do
not apply in the case of suspected money laundering
(Article 17).

6. The 1996 Money Exchange Act requires any individual
carrying more than $5,000 over the border to file a
report with Customs. Taking more than $5,000 in local
currency out of the country is prohibited. The 2002 Anti-
Money Laundering Act includes due diligence provisions
that make both respective bankers and banks responsible
if financial institutions launder money (Article 27).
Money laundering controls apply to all formal non-
banking financial institutions, including exchange
houses, stock brokerages, casinos and insurance
companies. Cash couriers must meet cross-border currency
requirements, but usually fall outside the scope of anti-
money laundering law because they generally work in the
informal sector.

7. Mozambique has not explicitly criminalized the
financing of terrorism. Its 1991 Crimes against the
Security of State Act criminalizes terrorism, but it
does not address financing. The 2002 law does list
terrorism finance as a serious crime subject to the
scope of the law, but elaborates no further (Article 4).
The same law codifies Mozambique's long-standing
authority to identify, freeze, seize and/or forfeit the
assets of those charged with financial crimes, including
terrorist finance (Articles 5 and 6). Financial
institutions do not have access to the list of
individuals and entities included on the UN 1267
Sanctions Committee or the USG lists; these lists are
distributed only to the Central Bank, the Attorney
General, and the Ministry of Foreign Affairs.
Authorities in these institutions have not positively
identified any of the agents on these lists operating in
Mozambique, and therefore no assets have been
identified, frozen, or seized.

8. Authorities acknowledge that alternative remittance
systems are common in Mozambique, many of which operate
in exchange houses that, on paper, are heavily regulated
but in fact can easily avoid reporting requirements.
There are no serious legislative, judicial, or
regulatory measures being considered to address this
problem. Charitable institutions must receive approval
by the Ministry of Justice before receiving a charter,
and are subject to investigation by the MOJ thereafter.
There is no evidence of the MOJ seriously investigating
any charities at this time.

9. In October 2002, the Council of Ministers ratified
the 1999 International Convention for the Suppression of
the Financing of Terrorism.

Offshore Financial Centers and Free Trade Zones
--------------------------------------------- -----------
10. Mozambique is not considered an offshore financial
center. Many local businessmen use offshore banking in
nearby countries, such as Mauritius. There are no free
trade zones in Mozambique.

International Cooperation
--------------------------------
11. Mozambique is a party to the 1988 UN Drug Convention
and has signed the Eastern and Southern Africa Anti-
Money Laundering Group Memorandum of Understanding. The
government has also signed the 2000 UN Convention
against Transnational Organized Crime, but has not
ratified it. The Mozambican government has enacted
significant anti-drug and anti-money laundering laws as
a means of enforcing these commitments. Mozambique has
entered a series of formal agreements with neighboring
countries to share financial information required by law
enforcement bodies. Cooperation with the United States
on these matters has taken place on an informal basis.

Asset Forfeiture and Seizure Legislation
--------------------------------------------- ----
13. The 2002 Anti-Money Laundering Act contains
provisions authorizing seizure and forfeiture of assets,
including legitimate businesses used to launder money.
In such a case, the Central Bank would be responsible
for the initial tracing of assets and the Attorney
General would be responsible for freezing and
confiscating assets. The Attorney General also has
authority to auction off confiscated assets and to
distribute proceeds to a range of parties. Despite this
legal framework, the institutions authorized to
implement the law do not have an established system for
identifying and freezing narcotics-related assets, and
no assets have been seized to date under the 2002 Anti-
Money Laundering Act.

14. Mozambican law does allow for both civil and
criminal forfeiture. An example of civil forfeiture
would be the seizure of cash in excess of the $5,000
limit from an individual who tried, secretly, to carry
this amount across the border. The seized funds would be
referred by Customs to the Central Bank. Appeals then
could be made directly to the Bank. Private financial
institutions are more closely regulated by criminal
forfeiture acts, as listed in the 2002 law and its
predecessors, but are also subject to civil suits.
Financial institutions also have the right to file a
civil suit against the government for loss of business
in cases of unreasonable suspension, a provision that
will likely discourage enforcement of the law.

15. Mozambique faces many other obstacles to enforcement
of its money laundering and drug-trafficking laws. These
include resource constraints affecting the Attorney
General's office and the Criminal Investigative Police
and significant corruption of the latter. Investigative
prosecutors at the Attorney General's Anti-Corruption
Unit often receive threats of physical violence from
organized crime. In 2001, Antonio "Siba-Siba" Macuacua,
Chief of Banking Supervision at the Central Bank, was
murdered in the stairwell of a bank that had been under
investigation. The environment for effective
prosecution of criminal cases, financial or otherwise,
has improved little since then.
LA LIME

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