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Viewing cable 09BUENOSAIRES1257, ARGENTINA FACES CHALLENGING AML/CFT REVIEW

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Reference ID Created Released Classification Origin
09BUENOSAIRES1257 2009-12-01 16:04 2010-11-30 16:04 SECRET//NOFORN Embassy Buenos Aires
VZCZCXYZ0000
OO RUEHWEB

DE RUEHBU #1257/01 3351640
ZNY SSSSS ZZH
O R 011639Z DEC 09
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0123
INFO RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RHMFISS/DEPT OF HOMELAND SECURITY WASHINGTON DC
RHMFISS/DEPT OF JUSTICE WASHINGTON DC
RHMFISS/FBI WASHINGTON DC
RUEABND/DEA HQS WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHBU/AMEMBASSY BUENOS AIRES
S E C R E T BUENOS AIRES 001257

SIPDIS
NOFORN

E.O. 12958: DECL: 2019/12/01
TAGS: PTER SNAR ECON EFIN PGOV PREL KCOR AR
SUBJECT: ARGENTINA FACES CHALLENGING AML/CFT REVIEW

REF: BUENOS AIRES 313; BUENOS AIRES 1017; BUENOS AIRES 1212

CLASSIFIED BY: Martinez, Vilma, Ambassador, DOS, EXEC; REASON:
1.4(B), (D)

----------
Summary
----------

1. (S/NF) The Financial Action Task Force (FATF)
held a two week peer review of the Argentine anti-money laundering
and counter terror finance (AML/CFT) regime. Although hoping to
see some positive moves by Argentina, the FATF operational team
leader is skeptical of the GoA's intentions to combat money
laundering and terror finance. While most money laundering in
Argentina conceals tax evasion and corruption, narcotics-derived
funds are a growing problem. The Argentine statutory framework is
relatively strong, but the bureaucracy working the issues is poorly
led and starved of resources. Consequently, the FATF team leader
views Argentine AML/CFT enforcement as largely ineffectual, with no
meaningful prosecutions in recent memory. Some Embassy contacts
argue that the current GoA leadership, including the President,
stands to lose from honest and vigorous pursuit of money
laundering. While the final FATF report is likely to embarrass the
GoA, potentially provoking a harsh response, it is not likely to
spur meaningful reform. Until now, terror financing and narcotics
money have comprised just a small fraction of the illicit funds
transiting Argentina. The near complete absence of enforcement
coupled with a culture of impunity and corruption make Argentina
ripe for exploitation by narco-traffickers and terrorist cells.
For now, the most promising way to engage the GoA on the issue
seems to be through the new Justice Minister, with whom we have
developed a positive working relationship. We will encourage him
to engage on this set of issues. End Summary.

---------------
FATF Review
---------------

2. (C) The FATF peer review of Argentina's AML/CFT laws,
regulations and enforcement, and general compliance with FATF best
practices and recommendations began on November 16 and continued
for two weeks. FATF had originally scheduled the review for last
year but delayed it at Argentina's request. In the interim, the
GoA implemented a tax amnesty law to encourage the repatriation of
funds held overseas and in the process lost most of the AML/CFT
focus and momentum it had built up after the last FATF review in
October 2003. Econoff met with numerous AML/CFT contacts over
several weeks before the review began to assess the strengths and
weaknesses of Argentina's laws and enforcement efforts and to
evaluate perceptions of how it will fare in the review.

---------------------------------
FATF Team Leader is a Skeptic
---------------------------------

3. (C) Fabio Contini, the Italian national who heads the
operational review team, has spent over a year in Argentina as the
Economic and Financial AttachC) at the Italian Embassy and is
married to an Argentine. He has a sober view of the GoA's AML/CFT
efforts, which he deems little more than a fig-leaf. The measures
taken, he said, are calculated for minimal compliance with
international standards and evince little real enthusiasm for
cleaning up the financial system. In addition, he said that
Argentina should take control of the informal economy as a first
step toward a serious AML/CFT effort. Contini summarized his views
by noting that a substantial percentage of the Argentine economy is
underground, with pure cash transactions comprising a
disproportionate percentage of economic activity. Such an economic
system, he observed, is inherently vulnerable to money laundering
and other financial crimes. Contini said that Argentina will have
to bring this black economy into the light of day before even the
most robust AML/CFT regulations can be effective.

4. (C) While his views will be influential, Contini noted that he
does not have the last word on Argentina's FATF peer assessment.
Once his team makes its report, Argentina will have an opportunity
to respond to the findings. A debate at next year's plenary will
precede the issuance of the final report and any warnings. Contini
said that FATF warned Argentina after the last review that a second
warning could have a negative effect on Argentina's desire to
rejoin the international financial system.

--------------------------------
Money Laundering in Argentina
--------------------------------

5. (C) Embassy contacts agree that most money laundering in
Argentina is the product of tax evasion and political corruption.
For the most part, they insist that terror financing is seldom, if
ever, transacted in Argentina. Most maintain, however, that
narcotics trafficking is becoming a real problem and that,
increasingly, the dirty money sloshing through the financial system
originates in the drug trade.

-------------------
AML/CFT System
-------------------

6. (C) Embassy contacts, including Contini, have noted numerous
weaknesses in Argentina's AML/CFT regime. Most tellingly, there
have been only two convictions since the criminalization of money
laundering in 1989, and there have been no convictions under the
currently applicable statute enacted in 2000. While the
substantive law is generally considered adequate, there are
numerous loopholes to close and important areas that require
clarification.

7. (C) Local AML/CFT experts agree that, with the exceptions noted
below, Argentina has a solid legal and regulatory foundation for
combating money laundering and terror finance. The failures of the
system arise when it comes to applying the law. Inspections are
superficial and do not examine actual accounts and transactions.
According to Pablo San Martin, the head of SMS Latinoamerica, a
local accounting firm, inspectors are often content in their
interviews with banking executives to accept the predictable
anodyne responses to their inquiries without further follow-up.
Several contacts point to the Financial Information Unit (UIF) as
the weakest player on the financial crimes enforcement team, but
the consensus is that a failure of political will cripples the
whole AML/CFT project.

---------------
Self-laundering
---------------

8. (C) Several experts have highlighted the money laundering
loophole for criminals who do their own banking as a probable focus
of the FATF review. Argentine law defines money laundering as an
accessory offense so that, for example, a narcotics trafficker
cannot be charged for merely laundering the profits from his drug
deals. Only a third party who aids and abets in hiding the origins
of the money is subject to prosecution.

9. (C) According to Raul Plee, the state's attorney who heads the
unit charged with investigating financial crimes, this exemption
for self-laundering explains the lack of convictions. Plee noted
that a bill in draft form would allow him to pursue much of the
currently protected laundering activity, and he believes that FATF
will recommend enactment of the legislation. Plee observed that
some of Argentina's most embarrassing prosecutorial failures, e.g.,
when a judge dismissed charges against Pablo Escobar's widow who
bought two properties under an assumed name, originate in the
self-laundering exemption.

10. (C) In contrast, other contacts believe that if the FATF
review fixates on the self-laundering issue it will be a failure.
Marcelo Casanovas, a compliance officer with the Bank of Buenos
Aires Province and a board member of a leading anti-money
laundering association, said that self-laundering is a problem, but
to focus exclusively on that one shortcoming is to miss the whole
forest for one tree. The real problems, he insisted, are systemic.
Contini himself observed that the central failure is an absence of
political will to pursue laundering as a serious crime.

----------------------
Repatriation of Funds
----------------------

11. (C) One substantive legal issue that now seems unlikely to
trouble FATF reviewers is the tax amnesty law (Ref A) designed to
encourage repatriation of funds held outside Argentina. According
to commonly cited estimates, Argentines hide about $150 billion in
assets offshore. In an effort to lure back the billions held
outside the formal financial system, the GoA passed legislation in


December 2008 declaring an amnesty on repatriated funds that ran
from March through August of 2009. Local experts and opposition
political figures alleged that because it prohibited Argentine tax
authorities from inquiring into the source of the repatriated
funds, the law facilitated money laundering. FATF also expressed
misgivings but was at least partially placated when then-Justice
Minister Anibal Fernandez defended the law before the plenary in
Paris. In May (after the amnesty had already been in effect for
two months), the UIF issued rules requiring reports of suspicious
transactions (STRs) arising from the capital regularization
program.

12. (C) According to figures released by the GoA at the conclusion
of the amnesty, Argentines declared only $4.7 billion. Of that,
only 4.3 percent had been held abroad. The press reported that the
program failed to achieve its goal of capital repatriation.
According to Plee, requiring submission of STRs was a key factor in
this failure and was at least one reason that very little money
returned under this law. Plee and other contacts noted that the
funds declared under the amnesty were not generally the product of
criminal activity other than simple tax evasion. The Regional
Advisor from the International Monetary Fund's Financial Integrity
Group, Mariano Federici, observed that the repatriation was doomed
from the outset because Argentines do not view the local economy as
a stable place to invest, and they mistrust the government because
of its history of economic mismanagement and capricious seizure of
assets.

13. (C) Based on the requirement to file STRs and the
insignificant scale of the funds repatriated, many contacts
predicted that the tax amnesty issue will not draw much attention
under the FATF review.

------------------------
Prosecutors and Judges
------------------------

14. (C) Another weakness that experts highlighted was the lack of
judicial and prosecutorial understanding of AML/CFT issues.
According to Federici, the prosecutors and judges who should take
the lead in AML/CFT cases lack the financial sophistication
necessary to direct investigations and mount successful
prosecutions. Federici also noted that judges appear uninterested
in acquiring the skills necessary to manage money laundering cases.
When the IMF staged a training seminar, over 70 prosecutors
participated, but of the dozens invited, only one judge chose to
attend. Because judges directly manage investigations under the
Argentine legal system, no money laundering case can proceed
without active judicial engagement. Federici observed that, in the
short term, judicial indifference limits the opportunities for
money laundering convictions.

15. (C) Casanovas agreed that the judicial system suffers
deficiencies, but he maintained that prosecutors and investigators
bear more of the blame than judges. Failure to develop solid
evidence is the root of the problem, he said. He observed that
judges want to pursue concrete cases with predictable outcomes, not
squander their limited resources on prosecutions doomed to failure.


----------------------------------
FATF/GAFISUD Representative
----------------------------------

16. (C) The FATF Representative's Office, headed by Alejandro
Strega, who has a master's in law from the University of Illinois,
is responsible for coordination of AML/CFT policy and for
developing national strategy and legislation. Under the leadership
of Strega's predecessor, Juan Felix Marteau, the office earned a
reputation for foresight and action. Marteau drafted significant
legislation and developed a national AML/CFT strategy that was
endorsed by then- President Nestor Kirchner. In contrast, Strega's
performance has been lackluster, and, with his weak background in
AML/CFT and lack of resources, he has been largely ineffective.
Strega is a congenial interlocutor, speaks English well, and is
eager to engage with the Embassy, but he has little access to
Minister of Justice Julio Alak, few staff, and almost no money.

17. (C) Marteau has insinuated that he lost the job to Strega as a
reprisal for looking too closely into the casino business, where
important Kirchneristas allegedly have interests. Federici
conceded that casinos may be part of the story, but said the real

explanation lies in a personality clash and bureaucratic feud with
Alak's predecessor and current Chief of Cabinet, Anibal Fernandez.
According to Federici, when Marteau drafted his national strategy,
he consulted all high government officials with an interest in
money laundering except for Fernandez, who was Minister of Interior
at that time. As Justice Minister, Fernandez became Marteau's boss
and quickly dismissed him and brought in Strega. Federici also
noted that suspicions of connections to drug trafficking and money
laundering have sometimes wafted around Fernandez (Ref B), and
Marteau may have distrusted him based on those rumors. Strega is
the son of a labor lawyer who is a close Fernandez confederate from
his time as Mayor of Quilmes. His father, Enrique Strega, has been
an attorney for the bank workers' union headed by Juan Jose Zanola,
a Kirchner ally who was also close to former President Menem.
Zanola is now under indictment in a politically radioactive case
involving adulterated medicine, illegal campaign contributions, and
a triple homicide.

-------------------------
UIF: a Broken Institution
-------------------------

18. (S/NF) Numerous Embassy contacts and press reports have
fingered the UIF as the main agent of Argentina's AML/CFT failures.
The UIF is an inept and politically compromised institution,
according to Federici. It is led by Rosa Falduto, who won her
position based on the patronage of the judge who oversees the
electoral process, Maria Romilda Servini de Cubria. She has since
quarreled with Servini. Her other benefactor, Anibal Fernandez,
has also reportedly been keeping his distance. Federici said that
according to a highly placed contact in the UIF, Falduto holds on
to her position because she is useful to President Cristina
Fernandez de Kirchner and to her husband, the former President,
Nestor Kirchner. Federici told Econoff that Falduto is personally
holding back STRs on the Kirchner inner circle and has refused to
respond to requests for STRs on the Kirchners themselves from
Switzerland, Lichtenstein, and Luxembourg. In July, according to
Federici and consistent with information from other sources,
Falduto also personally leaked information that the UIF had
requested from FinCEN on Francisco de Narvaez, a Kirchner rival.
According to Federici, Falduto did this by design to harm the
reputation of this important opposition figure.

19. (C) The defects of the UIF, however, transcend mere
politicization. According to Federici and confirmed by several
other sources, Falduto's organization passes on raw intelligence
that is useless for building criminal cases. Contini said that
information is routinely forwarded to prosecutors so long after the
fact that it is legally and technically impossible to accumulate
evidence on suspicious transactions. In the UIF's defense,
however, San Martin noted that the AML/CFT regulators have
insufficient resources. The UIF and the Argentine Central Bank pay
poorly, he said, and cannot afford to hire sufficient investigative
staff. San Martin agreed, however, that the UIF is likely to come
in for pointed criticism in the FATF review.

--------------
Political Will
--------------

20. (C) Several contacts, including Strega himself, have asserted
that the Argentine AML/CFT regime was never designed to catch or
punish money launderers and that the absence of convictions is by
design. According to Federici, Plee's office does not get the
political support that it needs to do its job and the Ministry of
Justice under Fernandez made it plain that it did not want him to
be too aggressive. When the MOJ switched Plee's assistant Federico
di Pasquale from a long-term to a short-term job contract, it was
seen as a message that the office was on a short leash.

21. (C) According to Roberto Bulit Goni, an attorney in a private
practice dealing with money laundering issues, too many people
stand to profit from lax enforcement of money laundering statutes.
Casanovas and San Martin agree that the changes that there have
been in the AML/CFT system are mainly cosmetic. The GoA has
enacted the recommended laws and regulations, but the problem, they
noted, is hostility to even token enforcement. Congress, which
will pass to a divided opposition's control in December, has not
played a consistent role in pressing for enforcement or
investigations, but there is some prospect that the Congress and
specific committees will give it increasing attention in 2010.

22. (C) The Embassy sources noted above maintain that the MOJ,
under former Minister of Justice Anibal Fernandez (now Chief of
Cabinet), systematically frustrated progress on AML/CFT issues.
The current Minister of Justice, Julio Alak, has brought energy and
a fresh perspective to the job and has shown considerable
enthusiasm for collaborating with the United States on a wide range
of law enforcement issues. While he has not yet focused on money
laundering, the upcoming FATF report and the Argentine response and
debate at next year's plenary give us an opportunity to engage him
to focus more on AML/CFT issues. While a negative report will
likely provoke a hostile response from some quarters of the GoA, it
could well provide an opportunity and political cover for Alak to
push for greater resources and for consequential changes in the law
and enforcement. Alak appears to be serious about tackling
Argentina's law enforcement problems (Ref C) and all Mission
elements will continue to provide him with the information and,
where possible, the resources to move forward with a positive
agenda.

----------------
FATF Outcome
-----------------

23. (C) There are two views of the likely conclusions in the final
FATF report. One view is that the FATF review will be so
superficial that Argentina will pass with just a few areas for
improvement noted. Casanovas and San Martin, for example, believe
that the FATF review will be perfunctory. Reviewers will arrive
with a checklist and conclude after talking to regulators that all
the elements are in place. FATF will recommend some changes, but
the review will be generally neutral. The other view is that the
flaws are so glaring, i.e., no convictions and the problems within
the UIF, that even a superficial review will come down hard on the
GoA. Contini, as head of the operational team, seems inclined to
issue a report highlighting a lack of political will to
meaningfully combat money laundering and terror financing.

----------
Comment
----------

24. (S/NF) Argentina will likely suffer some sharp criticism in
the FATF review, blackening its eye when it is seeking to reenter
the mainstream of the global financial system. The GOA would
probably lash out publicly at a critical FATF review, with the
government blaming the criticisms on external conspirators
(including perhaps the USG). No matter the criticisms, and despite
the apparent good faith of new players like Justice Minister Alak,
it is probably unrealistic to expect that the GoA will funnel
resources to prosecutors or make a concerted effort to pursue money
launderers. The Kirchners and their circle simply have too much to
gain themselves from continued lax enforcement. Although tax
cheats and compromised politicians may still be the chief source of
dirty money, continued GoA indifference to AML/CFT could offer an
attractive local staging ground to narco-traffickers and
international terrorists. If the GoA does not move to close
loopholes and enhance enforcement, it may soon find its financial
system contaminated by drug money and terror funds.
MARTINEZ