US embassy cable - 03RANGOON1253

C O N F I D E N T I A L SECTION 01 OF 03 RANGOON 001253 
 
SIPDIS 
 
STATE ALSO FOR EAP/BCLTV, EB, INL/AAE 
COMMERCE FOR ITA JEAN KELLY 
TREASURY FOR OASIA JEFF NEIL 
USPACOM FOR FPA 
 
E.O. 12958: DECL: 09/30/2013 
TAGS: EFIN, SNAR, KCRM, PTER, BM 
SUBJECT: BURMA: NO PROGRESS ON MONEY LAUNDERING RULES 
 
REF: A. RANGOON 757 AND PREVIOUS 
     B. RANGOON 1164 AND PREVIOUS 
 
Classified By: COM CARMEN MARTINEZ FOR REASONS 1.5 (B,D) 
 
1. (C) Summary: After a promising start, Burma's efforts in 
2003 to implement its year-old money laundering law have 
fallen well shy of international expectations.  The likely 
culprits?  The collapse of the private banking sector, 
persistent corrupt cronyism, and a lack of technical 
capacity.  Since none of these problems is easily fixable, 
Burma may not meet stringent international standards for some 
time -- though we expect some progress in 2004.  End summary. 
 
One Step Forward, Long Drift Back 
 
2. (SBU) The Burmese money laundering law was greeted with 
much international approval and optimism when it was issued 
in June 2002.  Indeed, as reported in Reftels A, the first 
months after the law's enactment were encouraging as Burmese 
law enforcement officials participated in regional financial 
crime seminars and the GOB held its own training for 
financial investigators in Rangoon and Mandalay. 
 
3. (C) Since then however, and despite pressure by the 
Financial Action Task Force (FATF), there has been little 
progress in developing any of the implementing regulations 
crucial for the 2002 law to have any effect.  In Burma, new 
laws are not enforceable until all necessary rules and 
regulations are in place.  According to knowledgeable GOB 
sources, the regulations have been drafted three different 
times since June 2002, and the latest version is now with 
relevant ministries (Home Affairs, Finance, and Agriculture) 
for comment.  Ministry comment is only the second of a 4-step 
process that ends with final consideration by the Cabinet. 
There are at least three possibilities for the delays in 
getting needed rules: (1) the February 2003 collapse of the 
private banks; (2) the traditional conflict between the 
written law and the "verbal law" of the senior leadership and 
its cronies; and, (3) a lack of technical expertise. 
 
Banks Sink 
 
4. (C) As reported in Reftels B, the private banking sector 
in Burma is under water.  Following a run on private banks in 
February, these institutions basically shut down -- rationing 
withdrawals, and not offering new deposits or loans. 
According to a senior GOB official, the fragility of the 
private banking sector has made authorities very wary of 
imposing strict new reporting requirements on the banks. 
Indeed, when the law was first passed, expectations that 
banks would have to report transactions over 500,000 kyat 
(around US$500) to the Central Bank sparked a mini-run on a 
few of the banks -- especially those with alleged ties to 
criminal activities.  With this in mind, one former 
government banker told us he thought the banking crisis had 
essentially killed motivation in the Finance Ministry to push 
forward the necessary money laundering rules. 
 
5. (C) Without these rules, though, public and private banks 
are not obliged to report on any particular deposit.  In 
reality, though, the Central Bank can maintain some 
oversight.  Throughout the current crisis, private bank 
records have been passed daily to Central Bank for review -- 
a trend that will probably continue.  Also, a former 
government bank official said that state-owned banks would 
probably report any large deposit, unless the customer is 
well-known to the bank -- or to senior government officials. 
 
B'Zat U B'Dei = I Am The Law 
 
6. (C) This latter "know your customer" exception is 
important.  Senior officials and their family and associates, 
along with most others with any wealth, are regularly 
involved in large, usually undocumented, transactions.  In a 
land where the "b'zat u b'dei" or "mouth law" of high-level 
officials takes precedence over written law, it is thus 
difficult to imagine regulators imposing money laundering 
rules that will be reliably enforced.  One senior economist 
told us that his friends in the private and public banking 
sector understand the need to report large or suspicious 
transactions, but fear the repercussions of informing on 
relatives of senior GOB leadership more than any legal 
penalties. 
 
7. (C) "Mouth law" and basic, endemic, corruption have 
hindered enforcement of existing financial regulations.  A 
1986 law that requires proof of origin for funds spent on 
land transactions is poorly enforced because of underpaid 
regulators, institutional cheating on the part of buyers and 
sellers (who often keep the same name on a deed through 
several generations of sales), and the political influence of 
many large landholders. 
 
We Need Help! 
 
8. (C) Though the chicken of regulations must come before the 
egg of enforcement, Burmese law enforcement authorities 
complain that their money laundering efforts will continue to 
fall short of international expectations without more 
technical aid.  It will be essential to staff the nascent 
Financial Intelligence Unit with well-trained investigators. 
However, officials complain these efforts are stymied by 
sanctions that prevent GOB attendance at the International 
Law Enforcement Academy and limit frequent and meaningful 
training with American financial crime specialists. 
 
Now, The Good News 
 
9. (SBU) Even without progress on the 2002 money laundering 
law's implementing regulations, Burma still has good tools to 
fight money laundering, and is using them.  Under the 1993 
'Narcotic Drugs and Psychotropic Substances' law, money 
laundering associated with drug trafficking is considered a 
criminal offense and can lead to prosecution and asset 
seizure.  Using this law, authorities have seized more than 1 
billion kyat in assets since 1993.  According to GOB sources, 
80 percent of local money laundering is drug-related, with 
the balance coming largely from gem and timber smuggling. 
 
10. (SBU) Another positive sign, the Ministry of Home Affairs 
(MOHA) -- whose minister holds the chair of the Central 
Control Board established by the 2002 law to oversee GOB 
action against money laundering -- seems quite serious about 
building its law enforcement capacity.  MOHA officials are 
actively courting international assistance and training and 
are emphasizing international liaison work.  MOHA also 
reports the GOB is keen to join the Asia Pacific Review Group 
as a full member, but lacks the funds to pay membership 
expenses. 
 
11. (C) A mutual legal assistance law is being drafted with 
UN assistance to facilitate cooperation between Burma's law 
enforcement agencies and their foreign colleagues.  However, 
a GOB official involved in the law's drafting said that a 
draft is not yet finalized and there is no timetable for its 
completion or passage.  Another knowledgeable source 
mentioned that the SPDC leadership was somewhat reluctant to 
follow through on this legislation because of possible 
"foreign interference" in the government's legal process.  In 
the meantime, a Burmese police source said even without a 
formal law or treaties there has been good international 
cooperation on at least two major drug cases, though nothing 
notable since late 2002 (see 02 Rangoon 1553). 
 
Comment: Maybe Next Year 
 
12. (C) In a nutshell, the GOB has had continued success in 
fighting money laundering, but has failed so far to bring its 
overall anti-money laundering legal framework up to snuff. 
As explained above, part of the GOB's failure this year 
stemmed from the unexpected meltdown of the financial sector. 
 This problem will remain, as will other, more longstanding, 
barriers.  However, there are elements in the government who 
seem eager to push through necessary regulations and 
legislation -- though subsequent enforcement (especially by 
the weak Central Bank) will be another matter.  Thus, while 
we expect the GOB to make some forward progress in 2004, 
bringing the country's anti-money laundering efforts fully up 
to international standards may take some time. 
Martinez