US embassy cable - 04RANGOON631

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 000631 
 
SIPDIS 
 
STATE FOR EAP/BCLTV, EB/ESC 
COMMERCE FOR ITA JEAN KELLY 
TREASURY FOR OASIA JEFF NEIL, EOTF/FC PAUL DERGARABEDIAN 
USPACOM FOR FPA 
 
E.O. 12958: DECL: 05/18/2014 
TAGS: EFIN, PGOV, SNAR, BM 
SUBJECT: MONEY LAUNDERING: FATF COMES TO BURMA 
 
REF: A. RANGOON 565 AND PREVIOUS 
     B. 03 RANGOON 1595 
     C. 03 RANGOON 859 
     D. 03 RANGOON 30 
 
Classified By: COM CARMEN MARTINEZ FOR REASONS 1.4 (B,D) 
 
1. (C) Summary: Anti-money laundering legislation and 
supervision were the topics of three days of discussions 
between FATF and the Burmese government.  Though the GOB has 
made much progress on paper, concerns remain over some 
troubling details and prospects for proper enforcement.  As 
FATF considers Burma's status, we urge a tough line on 
lifting countermeasures.  However, while pressuring the 
country's policymakers we should be finding creative ways to 
encourage Burma's law enforcers who, though badly outmatched, 
demonstrate the will to take on money laundering activities. 
End summary. 
 
Burma on the FATF Hot Seat 
 
2. (U) Based on Burma's failure to adequately address 15 of 
25 specific Financial Action Task Force (FATF) areas of 
concern, FATF declared Burma a "Non-Cooperative Country or 
Territory" in 2001.  (Note: the number of failing grades has 
subsequently been reduced to nine.)  In 2003, because of a 
lack of required anti-money laundering (AML) regulations and 
a mutual legal assistance (MLA) law, the FATF called on its 
members to impose additional countermeasures against Burma. 
Since then, the GOB has issued both the regulations and the 
MLA law. 
 
3. (SBU) During an unprecedented May 10-12 closed-door 
meeting, GOB finance and legal officials explained Burma's 
new AML regulations and MLA law and answered tough questions 
from a visiting FATF delegation.  An official of Japan's 
financial intelligence unit co-chaired the sessions, and 
delegations from the U.S. Treasury Department, the Australian 
Federal Police, and UNODC also attended.  Encouragingly, the 
GOB sent knowledgeable working-level officials to the 
meetings.  They were forthcoming and unusually willing and 
eager to pass on whatever documentation and information they 
could.  With a few important exceptions, the GOB delegates 
responded frankly, with inadequate or vague answers seemingly 
due to a lack of technical knowledge or the authority to 
respond authoritatively. 
 
Several Problem Areas Remain 
 
4. (C) Though the FATF delegation acknowledged the GOB's 
efforts thus far, there remain several technical or systemic 
problems.  Among these are: 
 
-- (1) a complete failure thus far by banks and real estate 
brokers to submit any suspicious transaction reports 
(although several hundred large-cash transaction reports have 
so far been submitted to anti-money laundering authorities); 
-- (2) an unusually high threshold limit for bank reporting 
(100 million kyat -- roughly US$117,000); 
-- (3) zero progress thus far in investigating two private 
banks (Asia Wealth and Myanmar Mayflower) known for their 
ties to narcotics-related money laundering (ref B); 
-- (4) inadequate measures by the Central Bank to ensure 
criminals do not own banks; 
-- (5) the inability to close a loophole that allows 
unsupervised "non-bank financial institutions" to operate 
legally and freely (refs C and D); 
-- (6) the failure to include "fraud" as a predicate offense 
for anti-money laundering action.  (Note: the GOB argued that 
in Burma fraud monetary values were too small to merit money 
laundering investigations.  The failure of last year's 
multi-million dollar pyramid schemes (ref D) contradicts 
this); 
-- (7) a troubling clause in the new mutual legal assistance 
law that allows "the Government" to overrule, without giving 
justification, decisions made by the body established to 
adjudicate assistance requests; and, 
-- (8) the questionable legal status of the MLA.  While the 
GOB claims that this legislation is "in force," it would 
appear that further implementing regulations are needed. 
 
5. (C) An Embassy-sponsored meeting for the visiting Treasury 
officials with local bankers, economists, realtors, and 
economic journalists illuminated the mismatch between what 
GOB financial authorities say, what the law requires, and 
what actually happens.  Inadequate resources, a lack of 
knowledge, corruption, and rampant tax evasion all conspire 
to make oversight of banks and real estate transactions very 
difficult.  In addition, an interesting theme emerged that in 
Burma and its informal economy money laundering is systemic 
and omnipresent, not a fringe behavior that can be easily 
monitored and eradicated.  One very intelligent and 
internationally savvy economist present even argued that in 
the short run money laundering might be a good thing since 
there are no other sources of investment capital in Burma at 
the moment. 
 
Japanese Push for "A Way Out" 
 
6. (C) Unfortunately, the FATF co-chair from Japan and the 
GOJ delegation seemed more interested in helping Burma "find 
a way out of the situation" than dispassionately assessing 
the regime's efforts thus far.  This position is far closer 
to that presented by the Japanese Embassy in Rangoon than to 
that presented in recent FATF plenary sessions.  Though the 
Australians had representatives at the meetings, he did not 
make any interventions or pose any questions. 
 
Comment: Next Steps Will be Crucial 
 
7. (C) FATF's Asia Review Group will meet Burma on June 13 in 
Korea.  The FATF plenary will also meet in Paris from June 28 
to July 2.  From our standpoint, it's important to recognize 
Burma's progress and response to international pressure. 
However, as for lifting countermeasures, FATF should hold 
Burma to an exacting standard since it is evident that the 
SPDC will call the tune on Burma's AML efforts regardless of 
what's written on paper.  A strong case for continued 
countermeasures can made on existing deficiencies in the 
mutual legal assistance framework.  Likewise, as the only 
multilateral sanction in place on Burma, the FATF 
countermeasures should be held in place as long as is 
justifiable.  This being said, we urge again (ref A) 
consideration of some kind of USG information sharing or 
indirect capacity building to assist those at the GOB working 
level who honestly want to enforce the new laws.  End comment. 
 
8. (U) This cable has been cleared with the Treasury 
delegation. 
Martinez