Cablegate: Argentina 2008-2009 International Narcotics Control

VZCZCXYZ0005
OO RUEHWEB

DE RUEHBU #1635/01 3370905
ZNR UUUUU ZZH
O 020905Z DEC 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2588
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS BUENOS AIRES 001635

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: EFIN KCRM KTFN SNAR AR
SUBJECT: ARGENTINA 2008-2009 INTERNATIONAL NARCOTICS CONTROL
STRATEGY REPORT (INCSR) PART II, MONEY LAUNDERING AND FINANCIAL
CRIMES

REF: STATE 103810

This cable contains draft-sensitive information. Not for internet
distribution until fully cleared.

1. (U) Per reftel, Post provides following draft of 2008-2009 INCSR
II report on money laundering and financial crimes for Argentina.

2. (SBU) Begin Text:

Argentina:

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
strong 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 2007, the Argentine Congress passed legislation criminalizing
terrorism and terrorist financing. Law 26.268, ""Illegal Terrorist
Associations and Terrorism Financing,"" entered into effect in
mid-July. The law amends the Penal Code and Argentina's anti-money
laundering law, Law No. 25.246, to criminalize acts of terrorism and
terrorist financing, and establish terrorist financing as a
predicate offense for money laundering. Persons convicted of
terrorism are subject to a prison sentence of five to 20 years, and
those convicted of financing terrorism are subject to a five to 15
year sentence. The new law provides the legal foundation for
Argentina's financial intelligence unit (the Unidad de Informacisn
Financiera, or UIF), Central Bank, and other regulatory and law
enforcement bodies to investigate and prosecute such crimes. With
the passage of Law 26.268, Argentina also joins Chile, Colombia, and
Uruguay as the only countries in South America to have criminalized
terrorist financing.

On September 11, 2007, former President Nestor Kirchner signed into
force the National Anti-Money Laundering and Counter-Terrorism
Finance Agenda. The overall goal of the National Agenda is to serve
as a roadmap for fine-tuning and implementing existing money
laundering and terrorist financing laws and regulations. The
Agenda's 20 individual objectives focus on closing legal and
regulatory loopholes and improving interagency cooperation. The
ongoing challenge is for Argentine law enforcement and regulatory
institutions to continue to implement the National Agenda and
aggressively enforce the 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 (although money laundering was first criminalized under
Section 25 of Law 23.737, which amended Argentina's Penal Code in
October 1989). Law 25.246 expands 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
(Comisisn Nacional de Valores, or CNV), and the National Insurance
Superintendence (Superintendencia de Seguros de la Nacisn, or SSN).
The law requires similar reporting by designated self-regulated
non-financial entities that report to the UIF. 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
special anti-money laundering and counter-terrorism finance
prosecution unit of the Attorney General's Office.

Law 26.087 of March 2006 amends and modifies Law 25.246 to address
many previous deficiencies in Argentina's anti-money laundering
regime. 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 court 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 30,000 pesos (approximately U.S. $9,000).

In September 2006, Congress passed Law 26.119, which amends 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 UIF legally must consult the Board of
Advisors, although its opinions on UIF decisions and actions are
nonbinding.

The UIF has issued resolutions widening the range of institutions
and businesses required to report suspicious or unusual transactions
beyond those identified in Law 25.246. Obligated entities include
the tax authority (Administracisn 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. 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 a designated period. As of September 2008 the UIF
had received 4,032 reports of suspicious or unusual activities since
its inception in November 2002, forwarded 491 suspected cases of
money laundering to prosecutors for review, and collaborated with
judicial system investigations of 155 cases of suspected money
laundering. There have been only two convictions for money
laundering since it was first criminalized in 1989 under Article 25
of Narcotics Law 23.737 and none since the passage of Law 25.246 in
2000. A third money laundering case brought under Law 23.737 is
pending before Argentina's Supreme Court.

The Central Bank requires by resolution that all banks maintain a
database of all transactions exceeding 30,000 pesos, and submit the
data to the Central Bank upon request. 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 (approximately U.S. $3200). The UIF further receives
copies of the declarations to be made by all individuals (foreigners
or Argentine citizens) entering or departing Argentina with over
U.S. $10,000 in currency or monetary instruments. These
declarations are required by Resolutions 1172/2001 and 1176/2001,
which were issued by the Argentine Customs Service in December 2001.
In 2003, the Argentine Congress passed a law that 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).

Although the GOA has passed a number of new laws in recent years to
improve its AML/CTF regime, Law 25.246 still limits the UIF's role
to investigating only money laundering arising from seven specific
or ""predicate"" crimes. Also, the law does not criminalize money
laundering as an offense independent of the underlying crime. A
person who commits a crime cannot be independently 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 (approximately U.S.
$16,000) can constitute money laundering. Transactions below 50,000
pesos can constitute only concealment, a lesser offense.

In 2006 and 2007, the National Coordination Unit in the Ministry of
Justice, Security, and Human Rights became fully functional,
managing the government's AML/CTF efforts and representing Argentina
at the FATF, the Financial Action Task Force for South America
(GAFISUD), and the OAS CICAD Group of Experts. The Attorney
General's special prosecution unit set up to handle money laundering

and terrorism finance cases began operations in 2007. Although the
Argentine Central Bank's Superintendent of Banks has not created a
specialized anti-money laundering and counter-terrorism finance
examination program as previously considered, in 2008 it began
specific anti-money laundering and counter-terrorism finance
inspections of financial entities and exchange houses.

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 provides that proceeds of assets forfeited under this law can
primarily be used to fund the UIF. Argentine courts and law
enforcement agencies have used the authority to seize and utilize
assets on a selective and limited basis, although complex procedural
requirements complicate authorities' ability to take full advantage
of the asset seizure provisions offered under these laws.

Prior to the passage of terrorist financing legislation in June
2007, the Central Bank was the lead Argentine entity responsible for
issuing regulations on combating the financing of terrorism. 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. The GOA and Central Bank assert that they remain
committed to freezing assets of terrorist groups identified by the
United Nations if detected in Argentine financial institutions.

In December 2006, the U.S. Department of Treasury designated nine
individuals and two entities that provided financial or logistical
support to Hizballah and operated in the territory of neighboring
countries that border Argentina. This region is commonly referred to
as the Tri-Border Area, between Argentina, Brazil, and Paraguay. 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 Tri-Border 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. One key focus of the TTU, as well as
of other TTUs in the region, is financial crime occurring in the
Tri-Border Area. 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 often use
fraudulent trade documents and over and under invoicing schemes to
provide counter valuation in value transfer (hawala) and settling
accounts.

The GOA remains active in multilateral counternarcotics and
international AML/CTF 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,
the 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, the UN Convention against Transnational Organized Crime,
and the UN Convention against Corruption. Argentina participates in
the ""3 Plus 1"" Security Group (formerly the Counter-Terrorism
Dialogue) between the United States and the Tri-Border 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.

With passage of counter-terrorist financing legislation and
strengthened mechanisms available under Laws 26.119, 26.087, 25.246,
and 26.268 Argentina has the legal and regulatory capability to
combat and prevent money laundering and terrorist financing.
Furthermore, the new national anti-money laundering and
counter-terrorist financing agenda provides the structure for the
Government of Argentina to improve existing legislation and
regulation, and enhance inter-agency coordination. The ongoing
challenge is for Argentine law enforcement and regulatory agencies
and institutions, including the Ministry of Justice, Central Bank,
UIF, and other institutions to implement fully the National Agenda
and aggressively enforce the newly strengthened and expanded legal,

regulatory, and administrative measures available to them to combat
financial crimes. The GOA could further improve its legal and
regulatory structure by enacting legislation to expand the UIF's
role to enable it to investigate money laundering arising from all
crimes, rather than just seven enumerated crimes; establishing money
laundering as an autonomous offense; and eliminating the current
monetary threshold of 50,000 pesos (approximately U.S. $16,000)
required to establish a money laundering offense. To comply fully
with the FATF recommendation on the regulation of bulk money
transactions, Argentina should review ways to do so 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.

WAYNE

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