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Cablegate: Costa Rica Incsr Report 2009-2010 Part Ii Money Laundering

VZCZCXYZ1546
RR RUEHWEB

DE RUEHSJ #1166/01 3522113
ZNR UUUUU ZZH
R 182111Z DEC 09
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC 0142
INFO RHMFIUU/DEPT OF JUSTICE WASHINGTON DC
RUEABND/DEA HQS WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHSJ/AMEMBASSY SAN JOSE

UNCLAS SAN JOSE 001166

SIPDIS
DEPT FOR INL, WHA/CEN, SCT, EEB
JUSTICE FOR AFMLS, OIA, OPDAT
TREASURY FOR FINCEN

E.O. 12958: N/A
TAGS: SNAR EFIN KCRM KTFN CS
SUBJECT: COSTA RICA INCSR REPORT 2009-2010 PART II MONEY LAUNDERING
AND FINANCIAL CRIMES

REF: STATE 117246

The text of Costa Rica's 2009-2010 INCSR Part II is below. POC at
Post is Robert B. Andrew.

Costa Rica

Costa Rica is not a major regional financial center but remains
vulnerable to money laundering and other financial crimes. Illicit
proceeds from fraud; trafficking in persons, arms and narcotics
trafficking (mainly cocaine); corruption; and unregulated Internet
gaming companies likely are laundered in Costa Rica. While local
criminals are active, the majority of criminal proceeds laundered
derive primarily from foreign criminal activity. In 2002, the
Government of Costa Rica (GOCR) enacted Law 8204, which
criminalized the laundering of proceeds from crimes carrying a
sentence of four years or more. In theory, Law 8204 applied to the
movement of all capital. However, its articles and regulations
were narrowly interpreted so the law applied to those entities
involved in the transfer of funds as a primary business purpose,
such as banks, exchange houses and stock brokerages. It did not
cover entities such as casinos, dealers in jewels and precious
metals, insurance companies; intermediaries such as lawyers,
accountants or broker/dealers; or Internet gambling operations. In
March 2009, Costa Rica passed Law 8719, an anti-terrorist
financing/money laundering regulation to address Law 8204's
weaknesses and close money-laundering loopholes.

Costa Rican financial institutions are regulated by the
Superintendent General of Financial Entities (SUGEF),
Superintendent General of Securities (SUGEVAL), and the
Superintendent of Pensions (SUPEN). All three entities fall under
the National Council of Supervision of the Financial System
(CONASSIF). In 2009, Costa Rica's Constitutional Court re-affirmed
SUGEF's financial authority to require banks to "know their
customer" and to explain suspicious money movements.

Law 8204 also established Costa Rica's Financial Analysis Unit,
known as the UAF. However, to comply with Egmont Group guidelines,
Law 8719 created Costa Rica's official financial intelligence unit
known as the UIF, which replaced the UAF. Law 8204 obligates
financial institutions and other businesses to identify the
beneficial owners of all accounts; retain financial records for at
least five years; and, report currency transactions over $10,000
and suspicious transactions, regardless of the amount involved or
transaction to the UIF. Law 8204 does not establish any protection
for reporting individuals, however failure to file suspicious
transaction reports (STRs) can result in monetary sanctions
established in Article 81 of the law. The UIF requests, collects
and analyzes STRs submitted by obligated entities and cash
transaction reports (CTRs) it receives.

The UIF has regulatory responsibilities relating to information and
reporting requirements detailed in Law 8719. The UIF has access to
the records and databases of financial institutions and other
government entities, but the Judicial Investigative Organization
(OIJ) must obtain a court order if the information collected is to
be used as evidence in court. Additionally, there are formal
mechanisms in place to share information domestically and with
other countries' FIUs. Prior to 2009, the UIF (then know as the
UAF) was somewhat ill-equipped and under-funded to provide
information needed by investigators. However, in 2009 the UIF
hired four additional forensic auditors, and one investigator to
bring total staffing to 28. The UIF considers itself to be
adequately staffed and funded. In 2009, the UIF increased the
quality of its analysis and forwarded many thoroughly analyzed
cases to prosecutors. In 2009, the UIF received 518 STRS and
forwarded 49 for to the OIJ's Financial Investigation Unit of the
Money Laundering, Financial, and Economic Crimes Unit, which is
under the Public Ministry (Prosecutor's Office). This
investigation unit has adequately trained staff. As of the
submission of this report, Post did not yet have numbers of
prosecutions for money laundering in 2009.

The UIF does not directly receive CTRs. Each superintendence that
receives CTRs holds the CTRs unless it determines that further
analysis is required or the UIF requests the CTRs. After analysis,
if the UIF thinks that a CTR warrants further investigation, the
CTRs would be forwarded to OIJ's UIF for investigation.

The GOCR reports that Costa Rica is primarily used as a bridge to


send funds to and from other jurisdictions using, in many cases,
companies or established banks in offshore financial centers. All
persons carrying over $10,000 when entering or exiting Costa Rica
are required to declare it to Costa Rican officials at ports of
entry. Declaration forms are required. Cash smuggling reports are
entered into a database maintained by ICD and are shared with
appropriate government agencies, including the UIF. The OIJ
reports that currency smuggling continues to increase at land
borders; also, money laundering may be occurring through the use of
wire-transfer services. Alternative remittance systems exist in
Costa Rica, mainly as a result of migration of Costa Ricans to the
United States, and Nicaraguans to Costa Rica. However, there is no
confirmation that these remittance systems are used for money
laundering. According to the GOCR, there is a black market for
smuggled goods in Costa Rica, but the size is not known. There is
no evidence that it is being funded by narcotics or other illicit
proceeds.

There are 28 free trade zones (FTZs) within Costa Rica, used by
approximately 251 companies. Costa Rica's Foreign Commerce
Promotion Agency (PROCOMER) manages the FTZ regime and has
responsibility for registering all qualifying companies.
PROCOMER's qualification process consists of conducting due
diligence on a candidate company's finances and assessing the total
cost of ownership. PROCOMER annually audits all of the firms
within the FTZ regime and touts its system of tight controls aimed
primarily at preventing tax evasion. The four major types of firms
operating under Costa Rica's FTZ regime are manufacturing,
professional services, trading, and administrative organizations.
PROCOMER reports that there was no evidence of trade-based money
laundering activity in the FTZs in 2009.

The formal banking industry in Costa Rica is tightly regulated,
which offers banking and corporate and trusts formation services.
Foreign-domiciled offshore banks can only conduct transactions
under a service contract with a domestic bank, and they do not
engage directly in financial operations in Costa Rica. They must
also have a license to operate in their country of origin.
Furthermore, they must comply with Article 147 of the Costa Rican
Central Bank's Organic Law, which requires offshore banks to have
assets of at least $3 million dollars, be domiciled at a banking
facility approved by the Central Bank, and be subject to
supervision by the banking authorities of their registered country.
Shell banks are not allowed in Costa Rica and regulated
institutions are forbidden from having any direct or indirect
relationships with institutions that may be described as shell
banks or fictitious banks. Bearer shares are not permitted in
Costa Rica.

As a result of the entry into force of the SUGEF Agreement 8-08
dated December 18, 2008, financial groups that had offshore banks
either received a Costa Rican license to operate or they are now
under the supervision of a foreign banking authority. Prior to
this agreement there were 6 offshore banks operating in Costa Rica.
Since December 2008, four of those offshores transferred their
assets/liabilities to local banks (2 of those 4 actually merged
with local banks); one no longer operates in Costa Rica; and one
received its license to operate in compliance with articles 44 and
72 of this SUGEF Agreement.

There are memoranda of understanding (MOUs) between Costa Rica and
Panama and the Bahamas to allow easy information exchanges. The
GOCR has supervision agreements with its counterparts in both
countries, permitting the review of correspondent banking
operations.

Gambling is legal in Costa Rica, and in April of 2008, five
government decrees established new rules to better identify casino
ownership and regulate operations. None addressed online casinos
and there is no requirement that the currency used in Internet
gaming operations be transferred to Costa Rica. There are over 250
Internet sports-book companies registered to operate in Costa Rica.
The industry, which normally moves USD 12 billion annually and
employs 10,000 people, estimates that their transactions have
decreased by twenty percent this year. In light of this, sports
books are turning to new markets in Asia and Europe.

Articles 33 and 34 of Law 8204 cover asset forfeiture and stipulate
that all movable or immovable property used in the commission of
crimes covered by this act shall be subject to preventative
seizure. When an asset seizure or freeze takes place, the property
is placed in a legal deposit under the control of ICD. The banking
industry closely cooperates with law enforcement efforts to trace


funds and seize or freeze bank accounts. During 2009, officials
seized over $2.4 million in narcotics-related assets. Seized
assets are processed by the ICD and if judicially forfeited, are
divided among drug treatment agencies (60 percent), law enforcement
agencies (30 percent), and the ICD (10 percent) or as determined by
ICD's council. It is unclear whether the GOCR will assist other
countries in obtaining non conviction-based forfeiture since its
domestic laws only provide for conviction-based forfeiture.

Costa Rica is a party to the major United Nations counterterrorism
conventions, including the UN Convention for the Suppression of the
Financing of Terrorism. It also passed a terrorist financing law,
Law 8719 in March, 2009.

Costa Rican authorities receive and circulate to all financial
institutions the names of suspected terrorists and terrorist
organizations listed on the UN 1267 Sanctions Committee
consolidated list and the list of Specially Designated Global
Terrorists designated by the United States pursuant to Executive
Order (E.O.) 13224. However, these authorities cannot block,
seize, or freeze property without prior judicial approval.

No assets related to designated individuals or entities were
identified in Costa Rica in 2009. However, according to the GOCR
there is some evidence of FARC (Revolutionary Armed Forces of
Colombia) money laundering operations here. In April 2008, based
on information obtained from a laptop used by FARC leader Raul
Reyes, Costa Rican authorities raided the residence of a university
professor and his spouse and found $480,000 in cash that was
believed to be a "cash reserve" for the FARC in Costa Rica.
However, at that time the anti-terrorist financing law (Law 8719)
was not in place and no charges were filed at that time. There has
been no further action by the prosecutor's office against this
couple.

Costa Rica fully cooperates with appropriate United States
government law enforcement agencies and other governments
investigating financial crimes related to narcotics and other
crimes. Articles 30 and 31 of Law 8204 grant authority to the UIF
to cooperate with other countries in investigations, proceedings,
and operations concerning financial and other crimes covered under
that law.

Costa Rica is a party to the 1988 UN Drug Convention, the UN
Convention for the Suppression of the Financing of Terrorism, the
UN Convention against Transnational Organized Crime, and the UN
Convention against Corruption. The GOCR is a member of the Money
Laundering Experts Working Group of the OAS Inter-American Drug
Abuse Control Commission (OAS/CICAD). Costa Rica is a member of
the Caribbean Financial Action Task Force (CFATF), a Financial
Action Task Force (FATF) style regional body. The CFATF conducted
a mutual evaluation of Costa Rica in 2006. During the CFATF
Plenary in St. Kitts and Nevis in November 2008, the GOCR reported
on actions taken to comply with recommendations made by the team of
experts who evaluated the GOCR's anti-money laundering regime in
2006. There were modifications to Bill 17009 (which became Law
8719) and 8204 to clarify the filing of STRs to the UIF, among
others.

In October 2009, the Costa Rican legislature put on its agenda a
bill to better regulate and tax casinos and other gaming
establishments. We do not expect passage of this bill before
February 2010 elections.

USG initiatives for 2010 include a Department of Treasury Office of
Technical Assistance (OTA) Resident Advisor to implement a
financial enforcement program for Costa Rica. This will be funded
via the Merida Initiative and should provide Costa Rica's financial
enforcement institutions (such as ICD, SUGEF, Ministry of Finance,
etc.) with more effective tools to combat financial crimes such as
money laundering. OTA assistance also includes technical support
on reforming Costa Rica's gambling law, which would cover internet
gambling as well. This OTA assistance directly led to the Ministry
of Finance's authorship of a gambling bill that is at the National
Assembly for consideration.
BRENNAN

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