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Cablegate: Cuba - Money Laundering and Financial Crimes

VZCZCXYZ0033
PP RUEHWEB

DE RUEHUB #0753/01 3521205
ZNR UUUUU ZZH
P 181205Z DEC 09
FM USINT HAVANA
TO RUEHC/SECSTATE WASHDC PRIORITY 5017
INFO RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUCOGCA/COMNAVBASE GUANTANAMO BAY CU PRIORITY
RHMFISS/HQ USSOUTHCOM MIAMI FL PRIORITY
RUCOWCV/CCGDSEVEN MIAMI FL PRIORITY
RUEKJCE/JOINT STAFF WASHINGTON DC PRIORITY
RHEFDIA/DIA WASHINGTON DC PRIORITY
RHEFHLC/HQ DHS WASHDC PRIORITY
RUEANQT/FINCEN VIENNA VA PRIORITY 0001
RHMFIUU/US CUSTOMS AND BORDER PRO WASHINGTON DC PRIORITY

UNCLAS HAVANA 000753

SIPDIS

DEPT FOR WHA/CCA, INL, SCT, AND EEB
DEPT OF JUSTICE FOR AFMLS, OIA, AND OPDAT
DEPT OF TREASURY FOR FINCEN

E.O. 12958: N/A
TAGS: EFIN KCRM KTFN SNAR CU
SUBJECT: CUBA - MONEY LAUNDERING AND FINANCIAL CRIMES
(INCSR PART II)

REF: STATE 114958 ("2009-2010 INCSR INSTRUCTION CABLE")

1. GENERAL ASSESSMENT: The Government of Cuba (GOC) made no
significant changes to its anti-money laundering and
counter-terrorist financing (AML/CTF) policy in 2009, nor did
it publicly report any significant arrests, seizures or
prosecutions. One minor regulatory change gave the GOC even
more control over foreign currency transactions in a move
that could, as a side effect, deter potential
money-laundering activity. In addition, the GOC cooperated
with the World Customs Organization in an anti-illicit bulk
cash smuggling operation and is reportedly working with
countries in the region to share counternarcotics
information. In July of this year, the GOC stated it would
present a draft counternarcotics agreement to the United
States, but as of December 2009 the GOC had yet to provide
that proposal.

2. In general, the GOC claims to be in full compliance with
international counter-terrorism conventions and to have taken
into account the recommendations of the Basel Committee and
the Financial Action Task Force when preparing banking
regulations. While Cuba has developed a number of
regulations since 1997 relating to the detection and
prevention of movements of illicit capital and the GOC
tightly controls foreign currency movements both within and
to/from the island, Cuba continues to have one of the most
secretive and non-transparent national banking systems in the
world.

3. This report follows the format provided in the 2009-2010
INCSR Instruction Cable (Reftel).

-----------------
GENERAL QUESTIONS
-----------------

4. Cuba is not considered an important regional financial
center. Cuban practices and U.S. sanctions prevent Cuba's
banking system from fully operating in the international
financial system. The GOC released no information about any
money laundering or terrorist financing activities within
Cuba in 2009. Cuba is not a member of the International
Monetary Fund or the Financial Action Task Force (FATF), two
of the top organizations active in fighting money laundering
worldwide.

5. The Cuban economy operates in two currencies: the Cuban
peso (CUP) and the Cuban convertible peso (CUC). The
currencies are traded at 24:1 in government foreign exchange
houses, but the official exchange rate of 1:1 is used in
government statistics, making it nearly impossible to
reconcile Cuban official monetary statistics.

6. There is a significant black market in Cuba that operates
as a supply and demand market parallel to the heavily
subsidized and rationed formal market controlled by the
state. The black market, including mostly goods obtained
locally but also some smuggled goods, is primarily funded by
the nearly $1 billion in remittances sent to Cuba every year.
These funds, mostly in U.S. dollars or euros, are traded for
Cuban pesos at government foreign exchange houses. The
official CUC to U.S. dollar exchange rate is 1:1.08.

7. The U.S. Government does not have any direct evidence of
money laundering or terrorist financing activities in Cuba in
2009. No mention of GOC complicity in money laundering or
terrorism financing was made in the national or international
media in 2009. It should be noted, however, that the
national media in Cuba is completely controlled by the state,
which permits only laudatory press coverage of itself. Crime
is almost never reported. The GOC does not routinely publish
or publicize AML/CTF activities.

--------------------------
OFFSHORE FINANCIAL CENTERS
--------------------------


8. Cuba is not considered an attractive offshore financial
center for financial or corporate services. Relatively few
international businesses operate in Cuba. Cuba has not
licensed any offshore casinos or internet gaming sites.

----------------
FREE TRADE ZONES
----------------

9. Cuba does not operate any free trade zones. Cuba had
created three export zones for manufacturing, but shut all of
them down due to lack of interest and as part of its
recentralization policy between 2004 and 2005.

------------------------------
LEGAL FOUNDATION OF AML REGIME
------------------------------

10. Cuba has the following laws and regulations in place in
relation to AML/CTF:

-Resolution 91 of March 9, 1997: This resolution provides
for the application of "Guidelines for members of the
national banking system relating to the detection and
prevention of movements of illicit capital".

-Resolution 27 of December 7, 1997: This resolution provides
for the creation of the Central Risk Information Office
(CIR), which compiles and processes information on suspected
or actual instances of money laundering. The resolution
requires all banks and non-bank financial institutions to
report such information on a monthly basis.

-Instruction 1 of February 20, 1998: Established 19 steps to
implement the general guidelines in Resolution 91, including
"know the client", monitoring large cash deposits and
withdrawals, identifying company accounts as the most likely
vehicle for money laundering, and designating a prevention
compliance official responsible for identifying and taking
such steps as may be necessary in connection with suspected
money laundering activities.

-Law 87 of February 26, 1999: Added money laundering to the
penal code. Article 346 of Chapter II of Law 87 states, "Any
person who acquires, converts, or transfers resources,
property or rights thereto, or attempts to carry out such
transactions, in full awareness, or having the obligation to
know or rationally assume, from the occasion or circumstances
of the transaction, that such resources, property or rights
are the direct or indirect proceeds of acts connected with
illicit trafficking in drugs, arms or persons, or with
organized crime, shall be liable to a penalty of imprisonment
from five to twelve years. Any person who conceals, or
obstructs measures to ascertain, the nature, origin,
whereabouts, destination, movement or true ownership of
resources, property or rights thereto...shall be liable to
the same penalty." Those who commit these acts out of
inexcusable ignorance shall be imprisoned for two to five
years.

-Instruction 2 of April 26, 2000: Further clarified the
guidelines from Resolution 91.

-Law 93 of December 20, 2001: Law against acts of terrorism.
In regards to the financing of terrorism, Chapter IX reads,
"Any person who by any means, directly or indirectly,
collects, transports, provides or has in his power financial
or material funds or resources with the intention that they
should be used or in the knowledge that they are to be used
in order to carry out any of the offences envisaged in the
Law, shall be subject to imprisonment of ten to thirty years.
The same penalty shall apply to any person who, directly or
indirectly, makes funds, financial or material resources or
financial or related services of any other kind available to
any person or entity who uses them to carry out any of the
offences envisaged in this Law."

-Instruction 19 of May 7, 2002: "Guidelines for the struggle

against financing terrorism" for the purpose of enforcing the
provisions in Cuban Law 93 of 2001, UN's International
Covenant to Suppress Financing of Terrorism of 1999, UN
Security Council Resolution 1373, FATF recommendations of
2001, Cuban Resolution 91 of 1997, and Cuban Instruction 1 of
1998.

-Resolution 17 of March 19, 2004: Established the Bank
Supervision Office in the Central Bank to process information
provided by the Central Risk Information Office and others
about delicate and illegal activities, corruption, and
possible operations for laundering money linked with the
Cuban banking system.

-Instruction 26 of July 30, 2004: Provides new guidelines
for the preventing, detecting, facing, and deterring
operations of illicit capital movements (money laundering),
and illicit operations in the collections of payments.

11. In addition, the Central Bank of Cuba issued Order 66 of
June 1, 1998 on bank secrecy, which requires financial
institutions to provide any information or documents
requested of them by the empowered authorities (courts, tax
authorities, inspectors of the Bank Supervisory Authority)
relating to financial transactions or banking operations in
cases of presumed or suspected movement of illicit funds.
Cuban Instruction 19 of 2002 states that the legal provision
concerning Bank Secrecy in Cuban Laws shall not be an
impediment to collaborating with the authorities when the
empowered authority under statutory right applies for
information.

12. In 2009, the international press reported that the Cuban
Central Bank issued Instruction 1 of March 27, 2009 with new
rules governing foreign currency transactions and the use of
foreign currency accounts. The instruction restricts who can
open and use bank accounts in foreign currency to foreigners
and authorized representatives, and it appears to target
Cuban free-lance agents operating unofficially on behalf of
foreign companies. In addition, cash transactions are now
only authorized for salary payments. All other cash
transactions require authorization from the bank president or
his representative. One press story attributed this
restriction to Cuba's liquidity crunch. As a side effect,
the tighter government control could serve as a deterrent for
potential money-laundering activities. The GOC has not made
any public announcements or statements about these new rules,
which as of December 2009 were still not published on the
Central Bank's website or in the Official Gazette.

----------------
FINANCIAL SECTOR
----------------

13. Every financial institution has a designated official
who reports to the top executive of the institution and is
responsible for identifying and taking such steps as may be
necessary in connection with suspected money laundering
activities. According to Cuban Instruction 19 of 2002, banks
are required to report immediately to competent entities of
the Ministry of Interior and the Central Bank's Central Risk
Information Office about any "complex transaction of an
unusual amount" and also about those transactions that do not
show any legal economic purpose, that demonstrates
unquestionably that a money laundering operation is in
progress, or when, on reasonable grounds, a suspicion arises
that any fund is related or is going to be used in terrorist
actions. According to press reports, the Central Bank
through Instruction 1 of 2009 now requires banks also to
determine if a given financial transaction corresponds to a
(state or foreign) company's approved corporate or social
purpose. Furthermore, Resolution 91 of 1997 indicates a
statutory threshold of CUP 10,000 (equivalent to $10,000 at
the time) to trigger a report. The National Banking System
should keep records for five years from the conclusion of the
transactions. We have no information regarding the capacity
(staffing or otherwise) of the Central Risk Information
Office to supervise or examine financial institutions for

compliance with AML/CTF laws and regulations.

14. In Cuba's fifth and most recent report to the UNSC
Counter-Terrorism Committee from June 8, 2006, the GOC said
that the Cuban banking system does not have the authority to
analyze financial transactions conducted outside the Cuban
banking system. In response to a question about whether
there had been any studies of informal and illegal financial
transactions conducted in Cuba, the GOC downplayed the
informal sector's significance and even questioned its
existence. The GOC stated, "the Committee refers to informal
and illegal transactions; if such transactions exist, they
must be inconsequential compared to the millions of
transactions, worth billions of Cuban pesos conducted by
natural and juridical persons and handled by bank offices
every year, or the money flows in the thousands of current
accounts or millions of savings accounts kept by people in
bank branches."

15. We are not aware of any reporting of any suspicious
activities by any bank or financial institution. We are also
not aware of any legal protection for individuals (bankers or
otherwise) with respect to their cooperation with law
enforcement in regards to AML/CTF investigations.

------------------
FIU INVESTIGATIONS
------------------

16. Cuba does not have a financial intelligence unit.

----------------------------------------
ASSET FORFEITURE AND SEIZURE LEGISLATION
----------------------------------------

17. The GOC has not made public any information regarding
arrests, prosecutions or convictions for money laundering or
terrorist financing since January 1, 2009. Banks are
authorized by Instruction 19 to take preventive action by
blocking or freezing the funds of other financial assets of
Cuban or foreign individuals or legal persons under suspicion
for money-laundering (including as the result of drug
trafficking) transactions. The penal code provides that
anyone convicted of money laundering or terrorism financing
will forfeit any proceeds. The penal code further provides
that authorities may seize not only financial assets but any
property "instrumental to or resulting from the offence, to
keep it and have it examined by experts where necessary."
The GOC has not made public any information regarding
narcotics-related, terrorism-related, or other
criminal-related financial assets frozen or seized in 2009.

-------------------
TERRORIST FINANCING
-------------------

18. Cuba criminalized the financing of terrorism as required
by the UN International Convention for the Suppression of the
Financing of Terrorism, UNSC Resolution 1373, and FATF
Special Recommendation 9 through Instruction 19, "Guidelines
for the Struggle against Financing of Terrorism" on May 7,
2002. We are unaware as to whether the GOC has circulated to
its financial institutions the list of individuals and
entities that have been included on the UN 1267 sanctions
committee's consolidated list, or any other UN, U.S., or
third party list.

19. We are unaware of any steps the GOC has taken to
regulate informal remittance carriers. Cuba does not report
estimates of funds received through remittances, but
estimates from the U.S. General Accounting Office,
Congressional Research Service, The Commission for Assistance
to a Free Cuba, Cuban economists, and international
economists range between $500 million and $1 billion. Most
of these remittances come from Cuban-Americans and are
delivered to family members. Historically, only 10-20
percent are carried by formal remittance carriers (i.e.
Western Union) due to previous U.S. restrictions on the

dollar amount and frequency of remittances. However, changes
to U.S. regulations announced in April 2009 and implemented
in September 2009 removed most of those restrictions and made
it easier to send funds through licensed remittance
forwarders and financial institutions. It remains unclear
how these regulatory changes will affect the use of
individual cash couriers or other informal money transfer
systems. The circulation of the U.S. dollar has been
prohibited since 2004. The Cuban government tightly controls
all currency exchange and charges a 10 percent commission on
U.S. dollar exchanges.

20. There are very few independent charitable or non-profit
entities, mostly operating through the Catholic Church.
Instruction 19 of 2002 states that special attention should
be paid to operations made by the "so-called non-profit
organizations", which can: be used by terrorist
organizations simulating to be legally established; use
legitimate entities as channels to finance terrorism, with
the purpose of preventing their assets from being frozen; or
hide the undercover deviation of funds designed to illegal
purposes towards terrorist organizations. The GOC heavily
regulates the small non-profit sector, but we have no insight
into how the guidelines in Instruction 19 are enforced.

21. Travelers to Cuba must fill out a Customs Declaration if
they are carrying cash in excess of $5,000 or the equivalent
in other currencies. Travelers departing Cuba are only
permitted to export convertible currency and other valuables
exceeding an amount of $5,000 if: the amount had been
previously imported and declared; or the amount was lawfully
acquired in Cuba, which shall be proven through presentation
of the relevant bank documents.

---------------------------------------
BILATERAL AND INTERNATIONAL COOPERATION
---------------------------------------

22. The United States has no bilateral counternarcotics,
anti-money laundering, or counter-terrorism agreements with
Cuba and does not fund any GOC counternarcotics or
counter-terrorism law enforcement initiatives. In July of
this year, the GOC stated it would present a draft
counternarcotics agreement, but as of December 2009 the GOC
had yet to provide that proposal. Cuba's drug czar has
publicly raised the idea of greater counternarcotics
cooperation with the United States, and President Raul Castro
has called for a bilateral agreement on narcotics, migration,
and terrorism. However, these calls have not been
accompanied by actionable proposals on which to base future
Cuban cooperation.

23. In the absence of normal bilateral relations, the U.S.
Coast Guard Drug Interdiction Specialist (DIS) assigned to
the U.S. Interests Section (USINT) acts as the main conduit
for anti-narcotics issues with the host country on a
case-by-case basis. Cuban authorities provided DIS exposure
to Cuban counternarcotics efforts, including providing
investigative criminal information, such as names of suspects
and vessels; debriefings on drug trafficking cases; and
access to meet with the Chiefs of Havana's International
Criminal Police Organization (INTERPOL) and Customs offices.
No AML/CTF cases were presented through DIS channels in 2009.
Similar cooperation on counter-terrorism activities does
not/not exist.

24. On August 25, 2009, the GOC granted USINT's Regional
Security Officer permission to serve subpoenas from the U.S.
District Court, Southern District of Florida, on three
Cuban-American brothers suspected of defrauding the United
States out of more than $100 million in illegal Medicare
claims. The complaints specify that the warrants for arrest
are directed against personal property (assets), although
none of the property identified is in Cuba. The suspects
were being held in a Cuban prison on unspecified charges.
There have been no further requests for assistance or
exchanges of information between USINT and Cuban authorities
concerning this case.


25. Cuba has ratified the UN International Convention
against Illicit Traffic in Narcotic Drugs and Psychotropic
Substances (Vienna Convention), the UN Convention against
Corruption, and the UN International Convention for the
Suppression of the Financing of Terrorism. Cuba signed but
has not ratified the UN Convention against Transnational
Organized Crime (Palermo Convention). Cuba is not a member
of any FATF-style regional body, but it claims to have taken
FATF recommendation into consideration when drafting AML/CTF
regulations.

26. The GOC maintains that it has close ties to regional
counternarcotics initiatives. The GOC reported that in 2009
it was a party to two memorandums of understanding and 56
judicial assistance agreements. Further, Cuba participates
in international efforts such as the United Nations' Heads of
Drug Law Enforcement Agencies (HONLEA) meetings. In May
2009, Havana hosted a working group meeting of the exchange
of intelligence information among the European Union, Latin
America and the Caribbean that included 44 delegates from 34
nations. In June, a regional seminar was held regarding
Mutual Judicial Assistance between Latin American and
Caribbean nations, organized by experts from the United
Nations Office on Drugs and Crime (UNODC) and the Cuban
Ministry of Justice, and attended by 10 regional nations.
UNODC Director Antonio Maria Costa visited Cuba in 2009 to
review Cuban efforts pertaining to drug addiction and
prevention.

27. GOC personnel attended two training courses offered by
international partners that focused on maritime drug
interdiction and money laundering. The GOC also reported it
continued to strengthen its relationship with the INTERPOL,
primarily regarding persons who move internationally and are
believed to be involved in drug-related crimes.

28. The Mexican press reported Cuba's participation in an
October ministerial including 16 countries from Latin America
and the Caribbean concerning the "world problem of drugs,
security and cooperation." One of the measures reportedly
agreed to was the sharing of intelligence through each
country's gradual participation in the Mexico Platform,
including a database to track drug related crimes.

29. Also in October, Cuba participated through the World
Customs Organization (WCO) in Operation ATLAS (Assess,
Target, Link, Analyze and Share), the largest multilateral
operation in history targeting cash smugglers. U.S.
Immigration and Customs Enforcement (ICE) led Operation ATLAS
with more than 80 countries (including Cuba) participating in
the seizure of $3.5 million in cash and the identification of
$24 million in undeclared currency that may have otherwise
gone undetected at ports of entry around the world during the
five-day period. We understand the Cuban Customs Agency was
an active participant in the operation.
FARRAR

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