US embassy cable - 04TEGUCIGALPA819

UNCLAS SECTION 01 OF 05 TEGUCIGALPA 000819 
 
SIPDIS 
 
SENSITIVE 
 
TREASURY FOR TERRORIST FINANCING TASK FORCE 
TREASURY ALSO FOR OTA:JANTONOVICH 
STATE FOR EB/ESC/ESP, S/CT, INL/LP, AND WHA/CEN 
 
E.O. 12958: N/A 
TAGS: EFIN, PTER, SNAR, KCRM, KJUS, PGOV, PREL, HO 
SUBJECT: Honduras' Fight Against Money Laundering: A Good 
Start 
 
REF: (A) 03 Tegucigalpa 2939 
 
     (B) 04 Tegucigalpa 729 
     (C) 04 Tegucigalpa 381 
 
1. (U)  Summary and Action Request:  Two years after passing 
a new law against money laundering, the GOH has made 
considerable progress in implementing the law and 
establishing the entities responsible for the investigation 
and prosecution of financial crimes.  The USG, through the 
Department of Treasury's Office of Technical Assistance, has 
supported this process by aiding in the establishment of the 
Financial Information Unit (FIU), providing day-to-day 
assistance with investigations and case management, and 
training members of the investigative and judicial branches 
of government.  The Treasury advisors have been generally 
impressed at the speed with which Honduras has implemented 
the law.  While these efforts are beginning to show results, 
with over a hundred money laundering cases under 
investigation and over USD 3 million worth of assets seized, 
sustained progress will depend upon increased commitment 
from the GOH to prosecute financial crimes aggressively. 
 
2. (SBU) The Honduran FIU wishes to become a member of the 
Egmont Group, the international group of recognized FIUs.  A 
plan for Spain to sponsor the Honduran FIU for membership in 
2004 has fallen through, and the Director of the Honduran 
FIU has asked if the USG would be willing to sponsor the 
Unit for Egmont Group membership in 2005.  Action request 
(see also paragraph 22): Post requests input from agencies 
in Washington as to the appropriate response to this 
request.  Post's Treasury advisor believes that Honduras' 
FIU is very close to meeting the requirements for Egmont 
membership.  End Summary and Action Request. 
 
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Background 
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3. (U) In February 2002, the Honduran Congress passed new 
anti-money laundering legislation, replacing a law whose 
narrow definition of money laundering made it virtually 
impossible to successfully prosecute the crime.  The law, 
which entered into force on May 15, 2002, called for the 
establishment of two new government entities: one to collect 
and analyze financial information, and another to manage 
seized assets resulting from investigations.  The law also 
requires the coordination of these new units with two 
existing units in two other ministries.  Work to establish 
and equip these units began soon after the law was passed, 
and after some initial start-up problems, they are working 
together fairly effectively (see reftel A and previous). 
 
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Anti-Money Laundering Institutions 
---------------------------------- 
 
4. (U) The 2002 law established a Financial Information Unit 
(FIU), analogous to FinCEN in the United States, for the 
collection and analysis of suspicious financial 
transactions.  Institutionally and physically, the FIU is 
located within the National Banking and Securities 
Commission (CNBS).  The Unit currently has a staff of six 
analysts and a director who reports directly to the 
President of the CNBS. 
 
5. (U) Actual prosecution of money laundering crimes is the 
responsibility of the Office of the Special Prosecutor for 
Organized Crime (FESCCO), which is under the Public Ministry 
(analogous to the U.S. Department of Justice).  The 2002 law 
requires that a public prosecutor from FESCCO be assigned to 
the FIU for investigation of financial crimes.  In practice, 
this arrangement has evolved over time.  In 2002, a 
prosecutor from the Public Ministry was assigned to the FIU 
full-time.  In 2003, the Public Ministry changed this 
arrangement so that there were four prosecutors assigned to 
the FIU, each on a part-time basis, with responsibility for 
specific cases divided among them depending on their 
expertise.  This has since been reduced to two prosecutors 
who visit the FIU together twice a week.  The current 
arrangement seems to be working to the satisfaction of both 
parties. 
 
6. (U) In its investigation of possible financial crimes, 
FESCCO also coordinates with the Office of Special 
Investigative Services, or DGSEI, which is part of the 
Ministry of Public Security. 
 
7. (SBU) The final institution involved is the Office of 
Seized Assets, or OABI, within the Public Ministry.  The 
2002 money laundering law established this office to guard 
and administer "all goods, products or instruments" of a 
crime.  However, the actual process of establishing and 
equipping this office to carry out its function has been 
slow.  The implementing regulations governing OABI were not 
finalized until March 2003, and plans to build separate 
offices and a warehouse for the group are still incomplete, 
with the result that seized assets are currently kept in 
various locations under dispersed authority.  The press has 
reported that seized money under OABI's control has been 
used to pay the salaries of Public Ministry employees. 
Consequently, the Office of Seized Assets cannot yet be said 
to have established firm control over the asset seizure and 
forfeiture process. 
 
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The Process, and its Weakest Links 
---------------------------------- 
 
8. (U) The process for investigation and prosecution of 
financial crimes is as follows.  Banks and other non-bank 
financial institutions are required to send the FIU 
information on all transfers exceeding USD 10,000 or 500,000 
lempiras (about USD 28,000), or other atypical transactions. 
The FIU receives over 2,000 reports per month of 
transactions over the designated threshold, and is required 
to keep a registry of reported transactions for five years. 
 
9. (U) Twice a week, public prosecutors from FESCCO visit 
the FIU to examine their findings.  When the prosecutors 
from FESCCO identify a case that warrants further 
investigation, they pass the case to the investigators in 
the DGSEI.  This process can also operate in the opposite 
direction: that is, cases can be initiated by the DGSEI, 
brought to the attention of prosecutors from FESCCO, who 
then enlist the assistance of the FIU in collecting and 
investigating the financial records related to the case. 
 
10. (U) Either way, prosecutors from FESCCO, armed with the 
information from the FIU and the results of the DGSEI's 
investigations, can apply for a warrant to seize assets or 
funds identified as having been obtained through illicit or 
unlawful means.  Seized assets are turned over to OABI for 
safekeeping until a judicial hearing determines whether they 
should be permanently seized. 
 
11. (SBU) What are the weakest links of this process?  First 
and foremost, the FIU offices are not physically located in 
a safe and secure area.  Sensitive financial information 
about potentially criminal transactions is handled and filed 
in an area to which other employees of the CNBS have free 
access.  Despite urgings from three successive Treasury 
Department advisors, plans to move into a more secure 
location have been delayed due to budgetary reasons. 
However, a move is expected to occur in the latter part of 
April.  A lack of resources also means that the FIU has 
little capacity to check up on financial institutions to 
ensure that they are truly reporting all of the suspicions 
transactions that they are required to under the law. 
 
12. (SBU) In addition, the investigative capacity of the 
DGSEI officials could be considerably improved.  At present, 
some of their investigations are little more than 
perfunctory document checks, as many of the investigators 
have little knowledge of financial crimes and hence a poor 
sense of how to actively investigate such cases. 
 
13. (U) Despite these problems, it appears that the various 
government entities listed above have now worked out most of 
the kinks in their interagency relationship, and are working 
well together and communicating more effectively among 
themselves. 
 
14. (SBU) Above all, a successful fight against money 
laundering is hindered by a lack of high-level commitment to 
the prosecution of crimes committed by wealthy or well- 
connected Hondurans, and in particular by the weakness of 
the Public Ministry.  As the Ambassador and DCM have pointed 
out to senior GOH officials on several occasions (most 
recently reftel B), the Public Ministry has over a hundred 
open investigations into cases of money laundering, and has 
yet to produce a single conviction.  As any chain is only as 
strong as its weakest link, so the fight against money 
laundering and other financial crimes will only be as 
effective as the weakest institution involved in the 
process. 
------------------------------ 
USG and Other Donor Assistance 
------------------------------ 
 
15. (U) USG assistance has supported the implementation of 
the law, establishing the entities which the law requires, 
and improving the efficiency of day-to-day operations within 
these entities.  Beginning shortly after the passage of the 
law, consultants from the Department of Treasury's Office of 
Technical Assistance have been providing training sessions 
to the various groups listed above. 
 
16. (U) In August 2002, Treasury advisors held an initial 
seminar for judges, prosecutors, police investigators, 
Banking Commission officials and bank compliance officers. 
During 2003, training was more focused on specific groups, 
as Treasury advisors provided specialized training for 
roughly 80 Honduran judges, for members of the DGSEI and 
another police investigative unit, as well as regular 
periodic assistance to the FIU and the prosecutors at 
FESCCO.  Treasury advisors also assisted as the FIU provided 
training to bank compliance officers under the auspices of 
the National Association of Banks of Honduras (AHIBA). 
 
17. (U) Currently, the Treasury advisor accompanies the 
prosecuting attorneys from the Public Ministry to the FIU on 
their twice-weekly visits.  A second round of training for 
approximately 60 judges is also being planned for April, 
after which over 80 percent of Honduran judges, and all of 
those most likely to hear money laundering cases, will have 
received the training in money laundering and financial 
crimes.  Advanced investigative training and mentoring has 
also been scheduled for the latter part of April for DGSEI 
officials. 
 
18. (U) In addition to the assistance provided by the 
Treasury Department, INL funds go to strengthen the GOH 
agencies engaged in the fight against money laundering in 
various ways.  Through INL assistance in the form of 
computer equipment and technical assistance, the DGSEI Money 
Laundering Investigative unit has been able to work in a 
task force situation with prosecutors from FESCCO to 
identify and focus on strong money laundering cases. 
 
19. (U) Other donors are also supporting the GOH in this 
area.  In June 2003, the World Bank approved a seven-year, 
USD 9.9 million Financial Sector Technical Assistance 
Credit, which includes measures to support the fight against 
money laundering and the financing of terrorism.  This 
component of the Credit aims to provide training, and 
possibly equipment such as computers and software, to the 
FIU and other anti-money laundering entities within the GOH. 
The Treasury advisor and EconOff met with World Bank 
officials in mid-2003 to discuss the Bank's plans and avoid 
duplication of efforts. 
 
--------------------------------------------- -- 
A Setback: Postponement of Egmont Certification 
--------------------------------------------- -- 
 
20. (U) The Honduran government had established, as an 
immediate goal, membership by 2004 in the Egmont Group, the 
international organization of recognized FIUs.  Acceptance 
of the Honduran FIU into the Egmont Group, which currently 
has 84 members, would signify that the Honduran Unit meets 
the international standards of Financial Information Units. 
In addition, membership would allow the Honduran FIU to 
share information with FIUs of other member countries, 
resulting in a significant increase in international 
cooperation and enhanced effectiveness in investigating 
cases of financial crimes. 
 
21. (SBU) In order for a new country to join the Egmont 
Group, an existing member must sponsor the new country for 
membership.  Spain had been planning to sponsor Honduras at 
the upcoming XII Egmont Plenary to be held in June 2004. 
However in late February, Spain advised that Honduras will 
have to wait until at least 2005 to be considered for 
membership, and will remain with only observer status in 
Egmont for the coming year.  Spain's failure to actively 
sponsor Honduras for membership this year was apparently due 
to Spain's decision to sponsor two other countries this 
year, rather than a judgment that Honduras does not meet the 
qualifications for membership.  While the Director of the 
Honduran FIU is disappointed, she is continuing to work with 
the Spanish for possible sponsorship in 2005, while also 
looking for other countries which might agree to sponsor 
Honduras. 
 
22. (SBU) Action request: The Director of the Honduran FIU 
has asked if FinCEN could sponsor Honduras for Egmont Group 
membership in 2005.  Post requests input from agencies in 
Washington as to the appropriate response to this request. 
We understand that sponsorship would entail a visit from 
FinCEN officials to the Honduran FIU, assistance in 
correcting any problems identified, and then formal 
nomination of the FIU for membership in the Egmont Group at 
their plenary meeting in 2005.  The Treasury advisor at Post 
believes that, once the FIU has moved to a more secure 
location, the Unit will be in a strong position to meet the 
requirements for Egmont membership.  End Action Request. 
 
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Results 
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23. (SBU) With the apparatus for fighting financial crimes 
now essentially in place, the system is beginning to show 
results.  There are currently 115 cases under investigation 
with the DGSEI, and the Treasury advisor is encouraging the 
investigators to maximize their efficiency by focusing on 
those cases most likely to lead to convictions and seizures. 
During 2003, according to its own official figures, OABI 
seized cash totaling USD 2.75 million and goods with an 
estimated value of USD 550,000, for a total of USD 3.3 
million worth of seized assets.  As mentioned above in 
paragraph 7, however, the ability of OABI to provide 
accountability and security for these seized assets is far 
from perfect, and remains a serious concern. 
 
24. (SBU) In 2003, 10 cases were brought to court under the 
money laundering law, but as yet no one has been convicted 
under the law.  This does not mean that the law has been of 
no use, as money laundering crimes are often tied to 
predicate offenses which are prosecuted.  For example, in a 
case that has received tremendous public attention, Honduran 
Congressman Armando Avila Panchame was convicted in February 
to 20 years of prison for drug trafficking (see reftel C). 
His assets at the time of his conviction, however, amounted 
to just over 100,000 Lempira (less than USD 6,000).  While 
he is unlikely to ever be convicted of money laundering, an 
investigation is ongoing to identify and locate the proceeds 
of his illicit activities. 
 
25. (SBU) The first full-blown trial to focus exclusively on 
money laundering activities is scheduled for June in La 
Ceiba.  The Treasury advisor is coordinating with INL to 
provide travel and per diem expenses for both national and 
international witnesses. 
 
26. (U) Banking officials have told EconOffs that they see 
evidence that the new legislation is having an effect. 
There has also been anecdotal evidence of an increase in the 
physical transportation of cash in Honduras and across its 
borders, confirming the sense of some in the banking 
community that individuals wishing to move illicit funds 
have become less likely to use the banking system to do so. 
If true, this has implications for future training, and 
highlights the need for an effective response to money 
laundering to evolve over time. 
 
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Comment 
------- 
 
27. (U) The passage of strengthened money laundering 
legislation in early 2002 was the first major legislative 
success for the Maduro administration, and was seen at the 
time as a sign of the new administration's support for 
issues of concern to the U.S. and initiatives that would 
address the overall security problems in the country.  The 
next step, ensuring proper implementation of the law, has 
encountered some difficulties, but has basically proceeded 
well over the last two years.  USG assistance has been 
crucial throughout this process, and continues to have a 
positive impact upon the quality of the investigations 
taking place.  Continued progress will depend on the further 
training and retention of personnel familiar with money 
laundering and financial crimes, clearer delineation of 
responsibility among different government entities, and 
improved ability and willingness of the Public Ministry to 
investigate and prosecute financial crimes aggressively. 
End comment. 
 
Palmer