US embassy cable - 05MADRID11

UNCLAS SECTION 01 OF 03 MADRID 000011 
 
SIPDIS 
 
STATE PASS INL AND EUR/WE 
JUSTICE FOR OIA AND AFMLS 
TREASURY FOR FINCEN 
 
 
E.O. 12958: DECL: N/A 
TAGS: KCRM, PTER, KSEP, SNAR, KTFN, EFIN, SP 
SUBJECT: 2004-2005 INCSR PART II: SPAIN CORRECTED VERSION 
 
REF: STATE 254401 
 
Money laundered in Spain is primarily from the proceeds of the 
Colombian cocaine trade, although money laundered through other 
Latin American countries also plays a role. Colombian 
organizations use several methods to move money from European 
drug sales out of Spain. Money is carried out by airline 
personnel traveling between Spain and Latin America.  Colombian 
companies purchase goods in Asia and sell the electronics at 
cartel run stores legally in Europe. Credit card balances are 
paid in Spanish banks for charges made in Latin America. Money 
deposited in Spanish banks is withdrawn by ATM cards in 
Colombia. Wire transfers continue to be a common way of getting 
money out of Spain. 
 
Drug proceeds from other regions enter Spain as well. Hashish 
proceeds come from Morocco and heroin money enters from Turkey. 
 
The majority of money that enters Spain to be laundered is 
smuggled across the border in three ways.  Bulk cash is carried 
in travelers' luggage or hidden on travelers' bodies when 
arriving at international airports. Shipping containers loaded 
with currency enter through Spanish ports (such as Algeciras). 
Money is also brought in by small craft along Spain's long 
coastline. 
 
The informal nonbank outlets (such as "Locutorios"), which make 
small international transfers for the immigrant community 
continue to be used to move money in and out of Spain. 
Regulators also suspect the presence of "hawala" like networks 
in the Islamic community. 
 
Tax evasion in internal markets and smuggling of goods along the 
coastline continue to be a source of illicit funds in Spain. 
Spanish authorities believe that tax evasion in the cell phone 
and property industries are the most serious problems. The 
smuggling of electronics and tobacco from Gibraltar remains an 
ongoing issue. 
 
Although little of the money laundered in Spain is believed to 
be used for terrorist financing, money from the extortion of 
businesses in the Basque region is moved through the financial 
system and used to finance the Basque terrorist group ETA. 
 
The Spanish government is aware of all of these problems. 
Unfortunately the scale of the money laundering industry and the 
sophisticated methods used create a very large law enforcement 
problem. The government makes every effort to eliminate 
financial crime in Spain. 
 
There have been no cases of Spanish officials involved in money 
laundering in Spain. 
 
The Government of Spain (GOS) remains committed to combating 
narcotics trafficking, terrorism, and financial crimes, and 
continues to work hard to tighten financial controls. The 
criminalization of money laundering was added to the penal code 
in 1988 when laundering the proceeds from narcotics trafficking 
was made a criminal offense. In 1995 the law was expanded to 
cover all serious crimes that required a prison sentence greater 
than three years. All forms of money laundering were made 
financial crimes in amendments to the code on November 25, 2003, 
which took effect on October 1, 2004. 
 
The penal code can also apply to individuals in financial firms 
if their institutions have been used for financial crimes. An 
amendment to the penal code in 1991 made such persons culpable 
for both fraudulent acts and negligence connected with money 
laundering. 
 
Businesses and financial service suppliers operating in Spain or 
targeting Spanish markets are subject to the law, Ley de 
Servicios de la Sociedad de Informacion y de Comercio 
Electronico (LSSICE), that came into force on October 12, 2002, 
for Internet marketing and distribution. The new law requires 
businesses to register their domain names, company registry, 
physical address, and other company details. Financial sector 
businesses such as online banks must still send written 
contracts to new customers for signature and obtain physical 
proof of their identity, in order to comply with existing 
banking regulations. 
 
Royal Decree 998/2003 of July 5, 2003 modified the structure of 
the Ministry of Interior to facilitate more active combating of 
drug trafficking. This law creates an Advisory Committee on 
Observation that will attempt to follow the use of technologies 
by criminal organizations and money launderers and take measures 
to ensure that Spanish law enforcement authorities are able to 
meet the new challenges. 
 
Specific measures to prevent money laundering were written to 
regulate the legal entities in the financial sector and 
individuals moving large sums of cash, in December 1993 (Law No. 
19/1993), as an expansion to the criminal code that previously 
applied only to physical persons. The regulations for enactment 
were established by Royal Decree 925/1995, which set the 
standards for regulation of the financial system. The 
regulations were amended in 2003 and cover money laundering 
linked to illicit drugs, terrorism, and organized crime. The 
financial sector is required to identify customers, keep records 
of transactions, and report suspicious financial transactions. 
The money laundering law applies to most entities active in the 
financial system, including banks, mutual savings associations, 
credit companies, insurance companies, financial advisers, 
brokerage and securities firms, postal services, currency 
exchange outlets, casinos, and individuals and unofficial 
financial institutions exchanging or transmitting money 
(alternative remittance systems). The 2003 amendments add 
lawyers and notaries as covered entities. Previously, notaries 
and lawyers were required to report suspicious cases, but now 
they are considered part of the financial system that is under 
the supervision of appropriate regulators. 
 
Law 19/2003 obligates financial institutions to make monthly 
reports on large transactions. Banks are required to report all 
international transfers greater than 30,000 euros. The law also 
requires the declaration and reporting of internal transfers of 
funds greater than 80,500 euros. 
 
In addition to suspicious transactions, individuals traveling 
internationally are required to report the importation or 
exportation of currency greater than 6,000 euros. Law 19/2003 
allows the seizure of up to 100 percent if illegal activity 
under financial crimes ordinances can be proven. Spanish 
authorities claim they have seen a drop in cash carriers since 
the law's enactment in July 2003. For cases where the money can 
not be connected to criminal activity, and has not been 
declared, the authorities may keep between 25 and 100 percent, 
depending on the amount of the currency being carried. 
 
The Commission for the Prevention of Money Laundering and 
Financial Crimes (CPBC) coordinates the fight against money 
laundering in Spain. The Secretary of State for Economy heads 
the commission and all of the agencies involved in the 
prevention of money laundering participate. The representatives 
include the National Drug Plan Office, the Ministry of Economy, 
the Federal Prosecutors (Fiscalia), Customs, the Spanish 
National Police, the Guardia Civil, CNMV (equivalent to the 
SEC), the Treasury, the Bank of Spain, and the Director General 
of Insurance and Pension Funds. Any member of the Commission may 
request an investigation, should suspicious activity be brought 
to his or her attention. 
 
The CPBC delegates responsibility to two additional 
organizations. The first is a secretariat in the Treasury, 
located in the Ministry of Economy. Following investigation and 
a guilty verdict by a court, this regulating body carries out 
penalties. Sanctions can include closure, fines, account 
freezes, or seizures of assets. Law 19/2003 allows seizures of 
assets of third parties in criminal transactions, and a seizure 
of real estate in an amount equivalent to the illegal profit. 
One weakness that remains in financial sanctions is that the 
joint owner may access joint accounts if he or she can show 
financial need. 
 
The second organization is the Executive Service of the 
Commission for the Prevention of Money Laundering (SEPBLAC), 
which serves as Spain's financial intelligence unit. SEPBLAC 
receives and analyzes suspicious activity reports (SARs) and 
currency transaction reports. SEPBLAC has the primary 
responsibility for any investigation in money laundering cases 
and directly supervises the anti-money laundering procedures of 
banks and financial institutions. Incriminating information is 
turned over to the Federal Prosecutors for prosecution. Spanish 
banks are required by law to maintain fiscal information for 
five years and mercantile records for six years. 
 
The Fund of Seized Goods of Narcotics Traffickers receives 
seized assets. This agency was established under the National 
Drug Plan. The proceeds from the funds are divided, with half 
going to drug treatment programs and half to a foundation that 
supports the officers fighting narcotics trafficking. 
 
Terrorist financing issues are governed by a separate code of 
law and commission, the Commission of Vigilance of Terrorist 
Finance Activities (CVAFT). This commission was created under 
Law 12/2003 on the Prevention and Blocking of the Financing of 
Terrorism. The commission is headed by the Ministry of Interior 
and includes representatives from the Fiscalia and Ministries of 
Justice and Economy. Currently, only the head of CVAFT can 
request information in terrorist financing cases, so other 
members must rely on the commission head to begin an 
investigation. 
 
Crimes of terrorism are defined in Article 571 of the Penal 
Code, and penalties are set forth in Articles 572 and 574. 
Sanctions range from ten to thirty years' imprisonment with 
longer terms if the terrorist actions were directed against 
government officials. Their ability to freeze accounts in the 
most recent law is more aggressive than that of most of their 
European counterparts. Though many laws are transposed from EU 
directives, Law 12/2003 goes beyond EU requirements. However, 
the implementing regulations for this law have not been written, 
and it has not been used. Once in full effect, this law will 
allow administrative freezing of suspect assets without a 
judge's order. 
 
All legal charities are placed on a register maintained by the 
Ministry of Justice. Responsibility for policing registered 
charities lies with the Ministry of Public Administration. If 
the charity fails to comply with the requirements, sanctions or 
other criminal charges may be levied. 
 
Spain is a member of the FATF, and co-chairs the FATF terrorist 
finance working group. Spain is a participating and cooperating 
nation to the South American Financial Action Task Force 
(GAFISUD), and a cooperating and supporting nation to the 
Caribbean Financial Action Task Force (CFATF). Spain is a major 
provider of counterterrorism assistance. The GOS ratified the UN 
Convention against Transnational Organized Crime on March 2, 
2002, and the UN International Convention for the Suppression of 
the Financing of Terrorism on April 9, 2002. Spain is also a 
party to the 1988 UN Drug Convention. SEPBLAC is a member of the 
Egmont Group. 
 
The GOS has signed criminal mutual legal assistance agreements 
with Argentina, Australia, Canada, Chile, the Dominican 
Republic, Mexico, Morocco, Uruguay, and the United States. 
Spain's Mutual Legal Assistance Treaty with the United States 
has been in effect since 1993. Spain also has entered into 
bilateral agreements for cooperation and information exchange on 
money laundering issues with Bolivia, Chile, El Salvador, 
France, Israel, Italy, Malta, Mexico, Panama, Portugal, Russia, 
Turkey, Venezuela, Uruguay, and the United States. Spain 
actively collaborates with Europol, supplying and exchanging 
information on terrorist groups. U.S. law enforcement agencies 
reported excellent cooperation with their Spanish counterparts 
in 2004.  U.S. customs works closely with Spanish customs, 
Spanish prosecutors, the national police corps and the Civil 
Guard.  The Drug Enforcement Administration works closely with 
SEPBLAC, the national police and the Civil Guard. These 
organizations regularly share information. Official documents 
however, will only be transferred if requested by a court. 
 
Seizures of assets involving more than one country and the 
division of the assets depend on the relationship with the third 
country. EU working groups will determine how to divide the 
proceeds for member countries. Outside of the EU, bilateral 
commissions are formed with countries that are members of FATF, 
FATF-like bodies and the Egmont Group, to deal with the division 
of seized assets. With other countries, negotiations are 
conducted on an ad hoc basis. The U.S.-Spain MLAT provides for 
sharing of seized assets, but the request must be made to the 
Spanish court hearing the case, rather than administratively. 
 
 
MANZANARES