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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

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