US embassy cable - 04RANGOON305

S E C R E T SECTION 01 OF 02 RANGOON 000305 
 
SIPDIS 
 
STATE FOR EAP/BCLTV, EB, IO/PHO, S/CT 
COMMERCE FOR ITA JEAN KELLY 
TREASURY FOR OASIA JEFF NEIL 
USPACOM FOR FPA 
 
E.O. 12958: DECL: 03/04/2014 
TAGS: PTER, EFIN, ETTC, PREL, BM 
SUBJECT: BURMA GOES BACK TO BASICS ON TERRORIST FINANCING 
 
REF: A. STATE 37211 
 
     B. RANGOON 239 AND PREVIOUS 
     C. 03 STATE 345729 
     D. 03 RANGOON 859 
 
Classified By: COM CARMEN MARTINEZ FOR REASONS 1.5 (B,D) 
 
1. (S) Summary: Burma's efforts to fight terrorist financing 
suffer from several systemic and policy problems -- including 
corruption, a massive informal economy, and lack of 
professional capacity.  Likewise, the GOB has been slow to 
complete its UN reporting requirements and has not yet taken 
action against any individual or entity listed by the UNSC. 
However, the regime is taking steps to improve its money 
laundering regime and it remains cooperative with USG 
counterterrorism priorities in Burma.  Furthermore, we have 
no evidence that any assets of designated individuals or 
groups are being held in Burma -- though the nature of 
Burma's informal financial system make assurances impossible. 
 Now that Burma has a legal framework and investigative unit 
to fight terrorist-related money laundering, it could be the 
time to develop a low-level USG-GOB cooperative relationship 
on this issue -- much as we have, with positive results, on 
narcotics.  End summary. 
 
No Banking System, No Capacity = Big Problem? 
 
2. (C) There are several systemic obstacles hindering Burma's 
efforts to effectively monitor and control financial crimes, 
including terrorist financing.  First, the banking system in 
Burma is in shambles.  Private banks are only gradually 
returning to life after a year's hiatus following a massive 
bank run in February 2003.  The government has yet to allow 
two of the three largest (by asset and deposit) pre-run 
private banks to return to action.  State-owned banks, 
including several quasi-state banks managed and owned by the 
military, were not affected by the banking crisis, though 
they attract few customers.  These banks instead provide 
cheap (or free) credit for various GOB-priority projects. 
Only the three state-owned foreign trade banks are allowed to 
handle foreign exchange deposits and transactions. 
 
3. (C) A second problem is the country's traditional, and 
continued, reliance on the informal economy -- including a 
large hundi/hawallah network (ref D).  This network, which is 
used by all sectors of Burmese society, is loosely organized, 
which makes monitoring and enforcement very difficult.  This 
problem is exacerbated by a third systemic shortcoming, which 
is the dire lack of capacity and knowledge of financial crime 
among Burmese law enforcement agencies.  This knowledge gap 
is due to the failure, until very recently, of the GOB to 
focus on financial crime and money laundering, and also due 
to U.S. sanctions that prohibit or discourage cooperation 
with and assistance to GOB officials.  The USG is not able to 
invite GOB officials to ILEA training, for example. 
 
4. (C) Finally, Burma suffers a problem that is common to 
many other countries: corruption.  Extremely low wages for 
GOB officials, combined with poor education and training, 
make Burma's law enforcers and financial watchdogs highly 
susceptible to turning a blind eye. 
 
One Step Forward, A Half Step Back 
 
5. (C) The GOB is taking steps to improve its ability to 
prevent illegal use of the financial system, however.  Over 
the past few months, the GOB has issued the regulations 
necessary to implement a 2002 law that for the first time 
explicitly criminalizes money laundering associated with a 
number of crimes -- including terrorism (ref B).  Prior to 
2002 only narcotics-related money laundering could be 
prosecuted.  Burma's banks will now be required to file 
reports on suspicious transactions, or those above a 
threshold amount believed to be 100 million kyat (around 
US$120,000).  (Note: the GOB has not announced the threshold 
amount, only that it has set one.)  The law also establishes 
a Financial Investigative Unit (FIU), headed by a 
well-respected Police Colonel currently in the 
counternarcotics agency, dedicated to investigating financial 
crimes. 
 
6. (C) With each positive step the GOB takes, however, it is 
hampered by other policies that will make more difficult the 
prevention of money laundering.  First, continued economic 
mismanagement is pushing more and more of the economy 
underground (including financial services), driving out 
foreign investors, and crippling the private banking system. 
As the GOB's hard currency reserves dwindle, in part due to 
the 2003 U.S. sanctions that ban the remittance of U.S. 
dollars to Burma, the GOB is increasingly turning a blind eye 
to or even encouraging the unlimited import of foreign 
exchange by whatever means available. 
 
7. (C) Likewise, there remains a conflict of interest in the 
monitoring of the country's informal financial system.  The 
new FIU chief has pledged strong action on controlling the 
hundi system -- illegal under Burmese law.   However, with 
legal remittances of foreign currency made extraordinarily 
difficult by antiquated foreign exchange control laws and new 
U.S. sanctions, senior GOB and military officials and 
business cronies of the government rely even more on hundi 
for expatriating their holdings and importing dollars needed 
for local business ventures.  Also, it is well known that the 
Military Intelligence service, which trumps all when it comes 
to investigative and law enforcement matters, is often making 
money from this same hundi system, either as operators or by 
taking bribes from operators (ref D). 
 
How About the 1455 Report? 
 
8. (C) Burma is one of the 108 countries that is tardy in its 
submission of the report mandated by UNSC Resolution 1455 
(ref C).  In addition, Burma's Ministry of Foreign Affairs 
corroborates there have been no actions taken by the GOB 
against any individual or entity listed pursuant to UNSC 
counterterrorism resolutions.  However, as the deputy 
director of MOFA's international organizations office (a 
longtime UN veteran) told us, Burma had been among the first 
to issue a UNSC Resolution 1373 report and was currently 
working on its third 1373 submission.  He explained that the 
GOB thought completion of the 1373 reporting was first 
priority, but that the 1455 report would be released "soon." 
He stressed, though, that the delay in submission in no way 
indicated a flagging of the GOB's determination to be a good 
partner in the UN's terrorism fight. 
 
Nothing We Know Of 
 
9. (S) To the best of our knowledge there is no evidence that 
terrorist groups are using Burma's banking system or that 
designated individuals or groups have assets in Burma. 
However, the nature of Burma's informal financial system 
makes assurances impossible.  On counterterrorism in general, 
cooperation with the GOB has been good.  Burma is a police 
state and is very cautious and mindful of anyone that might 
cause a disturbance.  Burma's leadership knows that any 
domestic entity that is anti-American would likely be 
anti-regime first. 
 
Comment: A USG Role if We Want It 
 
10. (C) It is up to the ruling SPDC to make the type of 
systemic and policy changes necessary for Burma to put in 
place a functional anti-terrorist financing regime.  However, 
the USG could certainly assist along the margins.  Providing 
small-scale technical assistance of some variety to the 
professional members of the FIU would pay dividends: adding 
badly needed capacity, removing an excuse the GOB can use for 
not complying with its money laundering law, and making 
Burma's working-level law enforcers better partners in the 
War on Terror.  As we've seen with our limited cooperative 
relationship with front line Burmese counternarcotics forces, 
a little can go a very long way here.  End comment. 
Martinez