US embassy cable - 05TAIPEI3766

UNCLAS SECTION 01 OF 02 TAIPEI 003766 
 
SIPDIS 
 
SENSITIVE 
 
DEPT PASS TO AIT/W AND USTR 
DEPT FOR EAP/TC, EAP/EP, EB/IFD/OIA AND NKWG 
TREASURY FOR OASIA MOGHTADER AND OCC AMCMAHON 
TREASURY ALSO PASS TO FEDERAL RESERVE BOARD OF GOVERNORS, 
SAN FRANCISCO FRB AND NEW YORK FRB 
 
E.O. 12958: N/A 
TAGS: ECON, PINR, KCRM, KTFN, TW, HK, Finance 
SUBJECT: TAIWAN MONEY BROKER BLUES 
 
REF: TAIPEI 3288 
 
1.  (SBU) Hong Kong professional money laundering 
investigator Peter Gallo (reftel) has written a letter to 
warn AIT about possible negative consequences of USG efforts 
to crack-down on unlicensed money brokers.  AIT/Econ thought 
the letter contained some interesting points and that it 
might also be of interest to Washington agencies.  The entire 
text of the letter is given in para 2.  AIT has supplemented 
the text with some explanations. 
 
2.  (SBU) Begin text of Gallo,s August 30, 2005 letter: 
 
The anti-money laundering project that I was engaged on when 
I met you in Taiwan has taken a turn for the worse, and my 
client (a Hong Kong bank) now has a serious problem caused by 
US regulatory policy that is threatening to put them out of 
business. 
 
What is more worrying, however, is that this seems to be a 
problem being faced by Money Service Businesses (MSB) 
throughout the United States. I am concerned that it will 
create a very serious situation that will affect money 
laundering in many countries in Asia. 
 
The problem is that my client,s US clearing bank, under 
pressure from their regulators, (the Office of the Controller 
of the Currency) have now informed them that they can no 
longer accept this business because it involves parties who 
are operating in Taiwan without a license. 
 
If my client is forced to close down, a number of perfectly 
legitimate (if unlicensed) brokers in Taiwan, who have 
operated in this business since 1949 - and who actually WANT 
to be properly licensed ) will be driven further 
underground, losing any goodwill or any hope of co-operation 
in the future.  (Note: Taiwan law enforcement authorities do 
not see these unlicensed brokers as legitimate, but rather as 
clearly in violation of the law.) 
 
If they were engaged in anything fundamentally criminal, I 
would have absolutely no sympathy, but I have investigated 
the situation myself in some detail and found that this is 
just not the case. 
 
Indeed, despite being &illegal8 ) they are very anxious to 
comply with anti-money laundering requirements. 
 
The problem is that the US regulators are simply obsessed 
with money remittance companies right now. I have spoken to 
colleagues in the US who tell me about many other businesses 
where US banks closed their accounts and put them out of 
business. 
 
I understand that Bank of America has just sent out letters 
to EVERY MSB customer they have in the US telling them that 
they are closing their accounts, so this is going to have an 
effect on money remittance companies all across Asia. 
 
If it has not already done so, it is only a matter of time 
before the problems start. My belief is that if the 
legitimate operators are closed down, this will just create 
an opportunity that criminals and terrorists will fill 
instead. 
 
We must accept the reality that there is a flow of US dollar 
cheques into Taiwan. If these cannot be cashed by legitimate 
MSBs, it will create a gap in the market that Organized Crime 
will be only too willing fill. To date, the &underground 
banking8 business in Taiwan has remained remarkably free of 
Triad involvement, but that may change. 
 
At the moment, that cheque discounting activity is being run 
on a commercial basis, and despite the fact it is labeled 
 illegal, the parties engaged in this business can trace 
any cheque and identify where they got it. If this activity 
falls into the hands of criminal syndicates, that will simply 
no longer be possible. 
 
Criminal syndicates could buy these cheques and mail them 
into the US to be cashed on a piecemeal basis, leaving great 
gaps in the paper trail that will frustrate any subsequent 
investigation. 
 
The Taiwan situation, however, pales into insignificance 
compared to the problems facing migrant workers in the US 
from Pakistan; if they cannot use money remittance companies, 
they will resort to using whatever services are available to 
them. 
If the US authorities actually believe that they will 
immediately form an orderly queue at the local bank, they are 
deluding themselves; banks have never been competitive in 
this business, their services are too expensive and slow, and 
in many cases, the recipient of the funds does not have a 
bank account, and will be in a rural area many miles away 
from a bank branch anyway. 
 
I have no doubt that someone in the community will offer the 
service informally; and in the case of Pakistan in 
particular, this could well mean terrorist-related entities. 
 
Instead of doing anything to prevent the flow of funds to 
terrorists; the US bank regulators could actually be 
delivering the business to them. 
 
We assume that US cheques in Taiwan have no terrorist 
connection, but if the legitimate established operators get 
out of this business and other less reputable entities move 
in to fill the gap, there is not telling whose hands those 
cheques will pass through. 
 
The fact that those cheques would not appear to be connected 
to any jurisdictions of concern, or any entities on the OFAC 
list, makes them particularly attractive for Islamic 
extremist terrorists. 
 
We have already seen how the 7/7 bombers in London were 
selected because they did NOT fit the pre-established 
profile. I believe that &non-obvious8 strategy will extend 
to finding ways of moving money around that does not conform 
to a profile that we are already expecting. 
 
The use of third party cheques, particularly involving an 
unconnected third country, would be ideal for this. 
 
This whole misguided approach is ridiculous and something has 
to be done about it. Creating conditions that encourage the 
growth of illegal money remittance services at the expense of 
legitimate companies is insane; it creates a serious problem 
where none currently exists. 
 
I am bringing this to your attention because I believe 
something has to be done about it at an official level, and 
hopefully done before it is too late. 
 
On the other matter (North Koreans seeking currency exchange 
and investment opportunities in the Philippines), I will go 
to Manila as soon as my contact is back 
there. 
 
Sincerely 
 
Peter A Gallo 
GPO Box 7278 
Hong Kong 
 
Tel:  852 3176 4900 (H) 
Tel:  852 9095 1410 (M) 
 
Website: asiamaze.com 
 
End text of letter. 
KEEGAN