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Cablegate: Financial Systems Assessment for Tanzania

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

UNCLAS SECTION 01 OF 07 DAR ES SALAAM 000723

SIPDIS

DEPT FOR AF/E, S/CT, INL/C

E.O. 12958:N/A
TAGS: PTER KTFN EFIN TZ
SUBJECT: Financial Systems Assessment for Tanzania


1. (SBU) Summary: A multi-agency team from Washington and
the European Union visited Tanzania to assess Tanzania's
compliance with international standards to combat money
laundering and terrorist financing. Their full report
follows below. While Tanzania has signed and/or ratified
the relevant international agreements, its capacity to
enforce the standards is extremely limited. New legislation
has been drafted but not yet passed that would extend the
definition of institutions covered by central bank (BOT)
supervision, formalize requirements for customer
identification and suspicious transaction reporting, and
establish a Financial Intelligence Unit (FIU). Tanzania
lacks law enforcement and investigations expertise, and bank
examiners lack AML/CFT training. The team makes a number of
recommendations (see paragraph 29). End Summary.

----------------------------------------
BEGIN TEXT OF FSAT REPORT --INTRODUCTION
----------------------------------------

2. (U) A financial systems assessment team (FSAT)
comprised of Rob Stapleton, State S/CT, Carol Mesheske,
State INL/C, Susan Smith, DOJ/AFMLS, David Brassanini, FBI,
Mary Jo Melancon, FinCEN, Margreet Wenting, The Netherlands
Ministry of Finance, and Kai Kristoffersen, a private
consultant contracted by the Danish Ministry of Foreign
Affairs, traveled to Dar es Salaam and Zanzibar, Tanzania
the week of March 7-11, 2005. Wayne Blackburn, the UN
Mentor to the Eastern and Southern Africa Anti-Money
Laundering Group (ESAAMLG) and Jerry Rowe and Bill Gilligan,
Treasury OTA, also participated in portions of the
assessment. The purpose of the assessment was to determine
Tanzania's compliance with international standards to combat
money laundering and terrorist financing. This is also the
first FSAT that had two European Union (EU) members on the
team in an effort to build cooperation and coordination on
the training and technical assistance front. The team met
with the Directors of Public Prosecution for both the
Mainland and Zanzibar, the Tanzania Revenue Authority, which
is responsible for customs, the Ministry of Finance, the
Multi-Disciplinary Committee for Money Laundering, the
Ministry of Foreign Affairs, the Bank of Tanzania (BoT), the
Tanzania Bankers Association, the Police Commissioner and
the Director of Criminal Investigation, the Registrar for
Non-Governmental Organizations, the Zanzibar Ministry of
Finance, the Attorney General of Zanzibar, and a group of
Zanzibari Bankers. The team also met with Mr. Michael Owen,
the Charge d'Affaires for the United States, Mr. Carsten
Nilaus Pedersen, the Danish Ambassador to Tanzania, and
Emile de Bont, head of the Economic & Trade promotion
department at the Dutch Embassy in Dar es Salaam. Below are
the findings of the team and recommendations for training
and technical assistance for the Government of Tanzania
(GoT).

3. (U) Background: Tanzania and Zanzibar make up a
government that does not quite meet the definitions of a
union or a federal republic. There is one central
government and a Parliament that passes laws that are
applicable to both the Mainland and Zanzibar. However,
Zanzibar has its own House of Representatives and its own
President. In addition, constituencies in Zanzibar elect a
number of members to the national Parliament. Police,
financial issues (including banking), and issues of national
security are Union matters and apply to both the Mainland
and Zanzibar. However, issues regarding criminal law are
not Union issues, unless they involve national security,
hence the need for two Directors of Public Prosecutions.
Tanzania currently has 28 banks. Most financial
transactions are conducted outside the formal financial
system trough alternative remittance systems (see paragraph
14). The public prefers using the alternative remittance
systems due to the absence of banks in rural areas, because
bank fees are high and the process of transferring money is
inefficient and can take longer. Officials estimated that
less than 10 percent of the population uses the formal
banking system. For a better analysis of the criminal
justice sector structure of Tanzania, please refer to the
Department of Justice's Office of Prosecutorial Development,
Assistance and Training's assessment from January 2004.

---------------------------
Identification of customers
---------------------------

4. (SBU) Circular No. 8, issued by the BoT, requires banks
and other financial institutions to identify their customers
upon opening an account and conducting transactions, and
they must retain such documents for 10 years. The circular
does not give an exhaustive list of identification
documents, but there is an obligation to establish if
somebody is acting on their own accord or on behalf of
someone else. Bankers have indicated that they have
problems obtaining reliable identification documents, due to
the fact that most people in Tanzania do not have an
official identification document. Bankers indicated that a
more enhanced ongoing customer due diligence procedure is
being conducted, with a view to the detection of suspicious
transactions.

------------------------------------
Reporting of suspicious transactions
------------------------------------

5. (SBU) Banks and other financial institutions (defined
as any person authorised by the BoT to engage in banking
business not involving the receipt of money on current
account subject to withdrawal by check) have the obligation
under Circular No. 8 to report suspicious transactions
relating to money laundering to the BoT. Circular No. 8
does not cover instances of suspected terrorist financing.
The annex to the Circular gives examples of suspicious
transactions. The bank will do an initial investigation and
then, if reported to the BoT, the BoT will do an
investigation before determining if a report should be sent
to the police, who will then conduct their own
investigation. Feedback varies widely (the Mainland seems to
be better than Zanzibar). Some of the foreign banks have
indicated that they report first to their own headquarters
before reporting to the BoT because of the lack of a safe
harbour provision, and then the headquarters decides whether
to report to the BoT.

6. (SBU) Circular No. 8 requires every bank or financial
institution to formally designate an officer responsible for
compliance with the regulations. Procedures and a training
program for personnel should be in place.

7. (SBU) As mentioned above, the circular does not provide
for a safe harbour provision, and bankers have indicated
that they feel uncomfortable filing reports. "Tipping off"
is prohibited. The BoT indicated that it has received less
than 10 suspicious transaction reports since the reporting
requirement came into effect.

8. (SBU) The BoT sends the UN list of designated
terrorists and terrorist organizations to all of the banks,
who review their accounts against the list to see if they
have any accounts in the name of anyone on the list. The
bankers stated that, in general, they did not review the
list when new accounts are opened or when transactions are
conducted; however, a couple of international bank branches
indicated their local headquarters have automated tools to
check their systems.

---------
Training
---------

9. (SBU) The BoT provides training for its own staff.
Banks indicated that they have internal training procedures
and receive training from international banks and donors. It
appears that banks on the Mainland were more knowledgeable
about anti-money laundering and counterterrorist financing
(AML/CTF) issues than banks and branches of banks in
Zanzibar. The banks said they need more training and
guidance in order to be able to comply with AML/CTF
regulations.

----------------------
Supervision/Compliance
----------------------

10. (SBU) Money laundering is not viewed as a serious
problem in Tanzania. The BoT supervises banks and non-
banking financial institutions. The BoT website indicates
that one bureau de change is registered as a non-banking
financial institution, because it receives deposits. The
financial sector of Tanzania also includes numerous (small)
savings and credit cooperative societies (SACCOs), and micro-
finance companies, that are not yet under any supervision.
However, new legislation is intended to bring the larger of
these institutions under supervision by BoT.

11. (SBU) It is not clear if all supervised institutions
mentioned above are subject to on-site inspections.
Examinations include selected branches of banks. The BoT
examination manual includes questions on compliance with AML
regulations. The BoT has 60 examiners for all banking
supervision throughout the country, but banks on the
Mainland said that the BoT examiners did not seem to be
specifically trained for AML/CTF supervision. Six
representatives from the GoT attended the U.S. AML/CTF
training for foreign supervisors in March 2005.

12. (SBU) The BoT has full access to the files of the
supervised institutions and can share this information with
the police. The BoT reported difficulties in sharing
information with foreign supervisors, but indicated this
problem is being addressed and the situation is improving.

13. (SBU) Based on Circular No. 8, the BoT has the power to
impose administrative sanctions for failure to comply with
the regulations both by the covered institution as well as
by any director, offices or staff of a covered institution.
14. (SBU) Presently, there are no requirements for gold or
gem dealers, dealers in high value goods, insurance
companies, or gatekeepers. Several OTA trip reports stated
that casinos are subject to AML/CTF requirements, based on
the Gaming Act of 2003 and Tanzania Gaming board
regulations. The Gaming Act was developed with assistance
of the US IRS, which provided assistance to the Tanzania
Revenue Authority under a USAID funded technical assistance
program. Casinos will also be required to report suspicious
transactions under the amendments to the Proceeds of Crime
Act.

------------------------------
Alternative Remittance Systems
------------------------------

15. (SBU) Both Western Union and Moneygram operate in
Tanzania and Zanzibar. Western Union operates only through
the state-owned Postal Bank system. The BoT indicated that
all international transfers must go through the banking
system. The Postal Bank indicated that Western Union
transfers are only for educational, medical or business
transactions. In Zanzibar, the average outgoing remittances
total roughly 15 million Tshillings daily; the average
incoming transfers are 100,000 - 6 million Tshillings daily
(at the time of the assessment, the exchange rate was
approximately 1100 Tshillings to 1 USD). The economy in
Tanzania is, to a large extent, cash based. Only a small
portion of the money flow goes through the 28 banks and non-
banking financial institutions. Due to the nature of the
economy, Zanzibar authorities stated hawala is frequently
used to transfer money among family members and from workers
abroad. On the Mainland the bus system is used to transport
cash. An individual will give the money to the driver, who
gives the sender a password to provide to the recipient of
the funds. When the bus arrives, the recipient provides the
password and gets the money.

16. (SBU) There are presently no cross-border cash
controls. There are no registration requirements or
compliance reviews. The use of alternative remittance
systems is viewed as a normal method to move cash and the
risk inherent in such systems is perceived as the risk of
theft or non-receipt of the funds. It is not considered to
be a risk in relation to money laundering or terrorist
financing.

-------------------
Pending Legislation
-------------------

17. (SBU) Amendments to the Proceeds of Crime Act, 1991,
(POCA) are pending. These amendments will extend the
definition of covered institutions to include operators of
gaming enterprises, cash dealers, insurance brokers,
intermediaries, securities and futures brokers and dealers,
dealers in gold, precious metals and stones, travellers
checks or financial instruments, investment fund managers,
lawyers, accountants, and real estate agents. The customer
identification and suspicious transaction reporting
requirements also will be incorporated in the new law. The
new law will add a safe harbour provision but, if the
current language is adopted, "tipping off" will no longer be
prohibited. The proposed provision only addresses
situations where the banker believes an investigation will
be jeopardized if the person whose activities are being
reported or a third party is told about the report.

---------------------------------
Financial Intelligence Unit (FIU)
---------------------------------

18. (SBU) Tanzania does not currently have an FIU. The
amendments to the POCA provide for the establishment of an
FIU that will be an independent entity within the Ministry
of Finance. In addition to its basic functions of receiving,
analyzing and disseminating information on suspicious
transaction reports, the proposed FIU will also, in
consultation with the relevant regulatory authorities, issue
reporting and recordkeeping guidelines to banks and other
reporting entities. It will also liaise with investment
and business licensing authorities in vetting prospective
investors.

19. (SBU) The amendments also provide for the establishment
of a Multi-Disciplinary Committee on Anti-Money Laundering
that will serve as a policy advisory body for the GoT. The
Committee will be composed of representatives from various
agencies, including the Ministries of Finance and Foreign
Affairs, the BoT, the Attorneys General's Chambers of
Tanzania and Zanzibar, the Police, and the Capital Markets
and Securities Authority, in addition to the Commissioner of
the FIU.
---------------
Legal Framework
---------------

20. (SBU) The POCA currently provides the only legal
mechanism for the investigation and prosecution of money
laundering crimes. Under this law, only money laundering
predicated upon drug trafficking is an offense. Although
the law states that it applies to both Mainland Tanzania and
Zanzibar, the Zanzibar Director of Public Prosecutions
explained that unless a penal law affects national security,
it is not a "Union" matter and thus, the POCA would be
unconstitutional if applied to Zanzibar. In that case, only
Mainland Tanzania has a money laundering offense. However,
because the FIU is a financial matter, the reporting
requirements created by the new amendments will apply to
Zanzibar.

21. (SBU) The POCA creates several types of narcotics
predicated money laundering offenses with seizure and
forfeiture provisions for money laundering cases directly
related to narcotics-trafficking. All forfeiture in
Tanzania is conviction based. If a conviction is obtained,
the frozen assets are forfeited and turned over to the
general treasury fund. There is no separate asset
forfeiture fund. The police manage seized and forfeited
assets; there is no specialized bureau for managing seized
or forfeited assets. The Ministry of Foreign Affairs
receives all foreign requests for mutual legal assistance,
and passes the request to the Mainland Attorney General or
to the Attorney General of Zanzibar, as appropriate.

22. (SBU) The Government of Tanzania is currently preparing
new amendments to the POCA, which will expand the predicate
offenses for money laundering beyond crimes involving drug-
trafficking, to include terrorism, terrorism financing,
illicit arms trafficking, corruption or bribery, fraud,
counterfeiting, armed robbery, theft, insider dealing and
market manipulation, or any other offense that the Minister
of Finance might declare. The GoT hopes to introduce the
amendments in the April session of Parliament; otherwise, it
is doubtful the amendments will be enacted before February
2006. Under this bill, money laundering continues to be a
separate, autonomous offense, without a requirement to
obtain a conviction for the underlying predicate crime, and
extends to anyone who acquires, possesses, uses or
administers property, which he knows or ought to know is the
proceeds of the predicate offenses. The law also
criminalizes acts of concealment if the person knows or
ought to have known the property is the proceeds of the
predicate offenses. One part of the law appears to create a
strict liability offense, making criminal any transaction
involving the proceeds of the predicate offense. In
discussing this provision with the National Anti-Money
Laundering Committee, it was clear that this was not the
drafters' intent, and the committee asked for assistance in
correcting the language. The team provided comments on the
draft amendments to the drafting committee by separate
correspondence. (Some members of the FSAT who attended the
ESAAMLG meeting the following week had the opportunity to
discuss the comments the team provided to the drafting
committee, who was also in attendance. The drafting
committee had a number of general questions about an AML
regime, and some very specific questions on the structure
and function of an FIU.) The bill adds asset forfeiture
sharing provisions, conspiracy as a criminal offense,
creates corporate criminal liability, provides law
enforcement the ability to conduct electronic surveillance
and freeze assets, and provides witness and judicial officer
protection measures such as trial by video link, relocation,
and non-disclosure of a witness' identity.

23. (SBU) Terrorism and terrorist financing are defined in
The Prevention of Terrorism Act of 2002, which defines
terrorist activities and establishes punishments of up to 30
years in prison. The Act also makes it possible to
administratively freeze the assets of UN designated
terrorists or terrorist organizations as well as those added
to a list by the Minister of Home Affairs. All persons are
required to report suspicious transactions related to
terrorism to the police. The Permanent Secretary at the
Ministry of Foreign Affairs indicated that there is a multi-
disciplinary government group (consisting of officials from
the Ministries of Foreign Affairs, Home Affairs, Finance,
Justice, the BoT, the Police and the President's office,)
that reviews information coming from the UN on persons and
entities relating to terrorism. On mutual legal assistance
matters pertaining to terrorism, the Inspector General of
the Police or Commissioner of the Police is the central
authority for foreign requests.

---------------
Law Enforcement
---------------

24. (SBU) Lacking the technical and practical expertise,
enforcement authorities find it difficult, if not
impossible, to investigate and prosecute sophisticated
criminal organizations and complex crimes such as money
laundering. Despite having a money laundering law for over
ten years, none of these offices has dedicated specific
resources for investigating and prosecuting money
laundering. There is neither a specialized prosecutorial
unit for the prosecution of money laundering nor a
specialized financial investigations unit within the police.
Additionally, the prosecutors' offices do not have any
dedicated financial analysts or forensic accountants to
assist them with the preparation of their cases.
Nationwide, there are thousands of criminal cases under
investigation, and there are not sufficient police
investigators or prosecutors to adequately handle the load.

25. (SBU) In addition to the lack of qualified personnel to
investigate and prosecute money laundering, the personnel
currently available do not have the necessary knowledge or
experience to conduct effective financial investigations or
the technical tools to assist them in these investigations.
Currently there are no prosecutors trained to conduct
financial investigations, and the DPPs for the Mainland and
Zanzibar desperately need financial investigative training
for members of their offices, police investigators and
judges. In January 2005, OTA conducted a Financial
Investigation training course for 40 Tanzanian officials
from the Police, DPP and Public Corruption Bureau. This
training included presentations by Tanzania experts on their
laws, criminal procedures and investigative techniques. The
DPP for the Mainland has identified six prosecutors to be
specially trained in the prosecution of money laundering
offenses, but it is not clear whether these prosecutors will
be formed into a specialized unit. Thus, the training of
investigators, prosecutors and judges is a clear and
immediate necessity to enable them to effectively carry out
their responsibilities to identify, investigate and
prosecute money laundering and the financing of terrorism.

-------------------------------------
Non-Governmental Organizations (NGOs)
-------------------------------------

26. (SBU) The GoT created the Office of the Registrar of
NGOs/Charities, located in the Office of the Vice President.
The office is only six weeks old, despite the fact that The
Non-Governmental Organizations Act (NGOA) was passed in
2002, because it took over two years to write the
implementing regulations. The NGOA requires the
registration of all NGOs and each NGO, with certain
exceptions for very small, local organizations, is required
to file an audited financial statement and list of
activities every year, which are available to the public.
However, an NGO is not required to indicate its sources of
funding. Various officials estimate that there are between
4,000 and 6,000 NGOs in Tanzania. The NGOA also requires
the creation of a board to certify new NGOs, as well as the
creation of a council that coordinates all NGOs operating in
Mainland Tanzania (this law does not apply to Zanzibar).
The Registrar stated that his office will create a database
of all NGOs and a website where information on registered
NGOs will be posted.

27. (SBU) Failure to comply with the NGO law can result in
the rescission of registration. If the NGO continues to
operate, it is up to other agencies or law enforcement to
investigate and prosecute.

28. (SBU) Registration occurs on three levels: district, if
operating in one district, regional, if operating in a
region larger than a district, and national if it is an
international NGO or if its scope of operation extends
beyond more than one region. Eventually, each district will
have an official representative of the Registrar's office,
who will be responsible for registering NGOs in that
district. There are 136 districts in the Mainland. It is
unlikely that each district office will be computerized or
able to plug into a database because of a lack of funds.
The district representative will have to use the postal
service to mail registration and other information back to
the Registrar's office in Dar es Salaam.

---------------
Recommendations
---------------

29. (SBU) The GoT has ratified the International Convention
for the Suppression of the Financing of Terrorism and within
the next year anticipates ratifying the Palermo Convention,
and, as a member of ESAAMLG, agreed to application of the
FATF Forty Recommendations and the Nine Special
Recommendations on Terrorism. To fully comply with these
conventions and recommendations, the following additional
measures must be taken on both the Mainland and in Zanzibar:

--Enact, without further delay, the amendments to the POCA
to expand the predicates for money laundering, create an
FIU, expand customer identification requirements, and
mandate suspicious transaction reporting by a wide-range of
reporting entities;

--Criminalize money laundering as it relates to activities
in Zanzibar and ensure that such law provides powers to
identify, seize, freeze, and forfeit assets involved in
money laundering;

--Examiners responsible for reviewing banks and financial
institutions for compliance should receive specialized
training in AML/CTF;

--Bankers should receive awareness and specialized training
on money laundering and terrorist financing;

--Tipping off by personnel of banks, financial institutions
and other entities that are covered by the revised proceeds
of crime bill, and government employees who deal with
suspicious transaction reports should be strictly prohibited
in all cases;

--The GoT should write regulations to implement the changes
to the Proceeds of Crime Act and the BoT should rescind
Circular No. 8 once it is replaced by the new regulations,
as soon as possible;

--The GoT should, as expeditiously as possible in order not
to delay the coming into force of the new act, ensure that
there is adequate supervision, including reviews for
compliance, of all institutions covered by the revised
Proceeds of Crime Bill and of alternative remittance
systems;

--The GoT should arrange for an awareness campaign and
training for all covered entities to be sure they understand
their responsibilities and are able to comply;

--The language in the FIU section of the bill needs to be
clarified, because it currently states that the Committee
will oversee the operations of the FIU. If the FIU is to be
truly independent, then the language should be changed to
reflect this. Otherwise, the precise relationship between
the FIU and the Committee needs to be clarified;

--The FIU should be specifically authorized to receive and
analyze suspicious transactions related to terrorist
financing;

--Once the FIU is established, the staff should receive
adequate training so it can fulfill its responsibilities and
achieve membership in the Egmont Group;

--Expand the number of prosecutors and law enforcement
agents dedicated to the investigation and prosecution of
money laundering and the financing of terrorism;

--Create a specialized unit within the prosecutor's office
to investigate and prosecute all types of money laundering
cases throughout Mainland Tanzania;

--Create a specialized unit within the prosecutor's office
to investigate and prosecute all types of terrorism and the
financing of terrorism;

--Train prosecutors and investigators on how to effectively
conduct a financial investigation, including training to
increase their understanding of financial records and
corporate documents and their applicability to criminal
prosecutions for money laundering;

--Provide basic training for investigators to include case
management, evidence collection and safeguarding, forensics,
and forfeiture;

--Provide task force training to the various agencies with
reporting, investigating and prosecuting responsibilities
under the new amendments;

--Establish a Police Task Force that would include elements
from key government organizations required by law to
investigate criminal acts, such as customs, border patrol,
and intelligence agencies;

--Train prosecutors, judges and investigators to enhance
their knowledge and understanding of the money laundering
law and the complexities of "following the money";

--Train prosecutors and investigators to enhance their
abilities to gather evidence from foreign countries on money
laundering and terrorism;

--Consider enacting additional legislation to create a non-
conviction based forfeiture system, a separate bureau for
the management of seized and forfeited assets, and the
creation of an asset forfeiture fund;

--The NGO Registrar's office should be required to report
suspicious transactions to the FIU;

--NGOs should be required to list their sources of funding;

--The Office of Registrar of NGO/Charities should be funded
and staffed at levels to permit follow up with organizations
that fail to file annual reports, coordinate with other
State bodies on organizations that are de-registered, and
verification of annual reports filed by organizations; and

--Implement cross-border reporting requirements.

-----------------------
END TEXT OF FSAT REPORT
-----------------------

30. (SBU) Post comment: USG efforts to combat money
laundering and the finance of terrorism are an important
part of post's MPP. Post has supported the US Treasury's
Office of Technical Assistance (OTA) in its two-year work
plan to provide support to the GOT in developing an AML/CFT
regime and in training examiners, investigators, and
prosecutors. Progress on new legislation has been slow, in
part because the issue is not the GOT's highest priority.
Still, GOT officials recognize the weaknesses of their
financial regulatory system and are willing partners with
the USG to address those weaknesses. Post will continue to
support USG programs that can help the GOT implement the
recommendations listed above. End comment.

STILLMAN

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