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### Viewing cable 08SANJOSE930, COSTA RICA INCSR REPORT 2008-2009 PART II, MONEY LAUNDERING

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
08SANJOSE930 | 2008-11-26 23:11 | 2011-03-08 16:04 | UNCLASSIFIED | Embassy San Jose

Appears in these articles:
http://www.nacion.com/2011-03-06/Investigacion/NotasDestacadas/Investigacion2702320.aspx
http://www.nacion.com/2011-03-06/Investigacion/NotaPrincipal/Investigacion2702324.aspx
http://www.nacion.com/2011-03-06/Investigacion/NotasSecundarias/Investigacion2702325.aspx
http://www.nacion.com/2011-03-06/Investigacion/NotasSecundarias/Investigacion2702326.aspx
http://www.nacion.com/2011-03-06/Investigacion/NotasSecundarias/Investigacion2702327.aspx

`

    VZCZCXYZ0009
    PP RUEHWEB

    DE RUEHSJ #0930/01 3312319
    ZNR UUUUU ZZH
    P 262319Z NOV 08
    FM AMEMBASSY SAN JOSE
    TO RUEHC/SECSTATE WASHDC PRIORITY 0309
    INFO RUEAWJA/DEPT OF JUSTICE WASHINGTON DC
    RUEABND/DRUG ENFORCEMENT ADMIN HQ WASHINGTON DC
    RUEATRS/DEPT OF TREASURY WASHINGTON DC

` `

    UNCLAS SAN JOSE 000930

    SIPDIS

    DEPT FOR INL AND WHA/CEN, SCT, AND EEB
    JUSTICE FOR OIA, AFMLS, OPDAT, NDDS
    TREASURY FOR FINCEN
    DEA FOR OILS AND OFFICE OF DIVERSION CONTROL

    E.O. 12958: N/A
    TAGS: SNAR KCRM KTFN CS
    SUBJECT: COSTA RICA INCSR REPORT 2008-2009 PART II, MONEY LAUNDERING

    AND FINANCIAL CRIMES

    REF: STATE 103810

    ¶1. (U) The text of Costa Rica's 2008-2009 INCSR Part II is below.
    POC at Post is Robert Andrew.

    Costa Rica

    Although Costa Rica is not a major regional financial center, it
    remains vulnerable to money laundering and other financial crimes.

    Narcotics trafficking (mainly cocaine) continues to be a primary
    motive for money laundering, but fraud, trafficking in persons, arms

    trafficking, corruption, and the presence of Internet gaming
    companies all contribute to money laundering activity.  While local

    criminals are active, the majority of criminal proceeds laundered
    derive primarily from foreign criminal activity.  Reforms in 2002 to

    the Costa Rican counternarcotics law expanded the scope of
    anti-money
    laundering regulations, but also, unintentionally, created an
    opportunity to launder funds by eliminating the government's
    licensing and supervision of casinos, jewelers, realtors, attorneys,

    cash couriers, and other nonbank financial institutions.  While
    these
    loopholes have not yet been closed, they should be addressed as part

    of a bill on terrorist financing and money laundering that is
    expected to pass in late 2008 or early 2009.  Although terrorist
    financing is not yet a crime in Costa Rica, according to the
    Government of Costa Rica (GOCR) there is some evidence of FARC money

    laundering operations here.  In a high-profile case in March 2008, a

    prominent couple from the Costa Rican academic community was caught

    with a safe containing $480,000 in FARC money.  They were not
    arrested and have not been charged.  The couple was also involved in

    a real estate transaction on behalf of a prominent FARC leader,
    which
    to date has not been investigated.  Bank fraud, especially via the
    Internet, appears to be on the rise, though there has not been a
    rise
    in counterfeit currency.

    Gambling is legal in Costa Rica, and there is no requirement that
    the
    currency used in Internet gaming operations be transferred to Costa

    Rica.  There are well over 250 sports-book companies registered to
    operate in Costa Rica.

    According to the GOCR, there is a black market for smuggled goods in

    Costa Rica, but the size is not known.  There is no particular
    evidence that it is being funded by narcotics or other illicit
    proceeds.

    Costa Rica is not considered an offshore financial center.  While
    the
    formal banking industry in Costa Rica is tightly regulated, the
    offshore banking sector, which offers banking, corporate and trust
    formation services, remains a minor area of concern.  Foreign-
    domiciled offshore banks can only conduct transactions under a
    service contract with a domestic bank, and they do not engage
    directly in financial operations in Costa Rica.  They must also have

    a license to operate in their country of origin.  Furthermore, they

    must comply with Article 146 of the Costa Rican Central Bank's
    Organic Law, which requires offshore banks to have assets of at
    least
    USD 3 million, a physical presence in Costa Rica, and be subject to

    supervision by the banking authorities of their registered country.

    Shell banks are not allowed in Costa Rica and regulated institutions

    are forbidden from having any direct or indirect relationships with

    institutions that may be described as shell banks or fictitious
    banks.  Bearer shares are not permitted in Costa Rica.

    Currently, six offshore banks maintain correspondent operations in
    Costa Rica: three from The Bahamas and three from Panama.  The GOCR

    has supervision agreements with its counterparts in both countries,

    permitting the review of correspondent banking operations.  However,

    these counterpart regulatory authorities occasionally interpret the

    agreements in ways that limit review by Costa Rican officials.  In
    2005, the Attorney General ruled that the Superintendent General of

    Financial Entities (SUGEF) lacked authority to regulate offshore
    operations due to an apparent contradiction between the 1995 Organic

    Law of the Costa Rican Central Bank and Law 8204, the primary anti-
    laundering legislation (described below).  However, there is a MOU
    between Costa Rica and Panama and the Bahamas to allow easy
    information exchanges.  Draft legislation to correct the
    contradiction and reassert the SUGEF's regulatory power was
    submitted
    to the national assembly for consideration in 2008.  Addition
    actions
    by SUGEF should decrease the number of offshore banks in the next
    year.

    The GOCR reports that Costa Rica is primarily used as a bridge to
    send funds to and from other jurisdictions using, in many cases,
    companies or established banks in offshore financial centers.
    Alternative remittance systems exist in Costa Rica, mainly as a
    result of Costa Rican immigration to the United States, or
    Nicaraguans to Costa Rica. However, there is no confirmation that
    these remittance systems are used for money laundering.

    There are 28 free trade zones (FTZs) within Costa Rica, used by
    approximately 250 companies.  The Promotora del Comercio Exterior de

    Costa Rica (PROCOMER) manages the FTZ regime and has responsibility

    for registering all qualifying companies.  PROCOMER's qualification

    process consists of conducting due diligence on a candidate
    company's
    finances and assessing the total cost of ownership.  PROCOMER
    annually audits all of the firms within the FTZ regime and touts its

    system of tight controls.  The four major types of firms operating
    under Costa Rica's FTZ regime are manufacturing, professional
    services, trading, and administrative organizations.  PROCOMER
    reports that there has been no evidence of money laundering activity

    in the FTZs in 2008.

    In 2002, the GOCR enacted Law 8204.  Law 8204 criminalizes the
    laundering of proceeds from all serious crimes (not only
    drug-related
    money laundering), which are defined as crimes carrying a sentence
    of
    four years or more.  Law 8204 obligates financial institutions and
    other businesses to identify their clients, report currency
    transactions over U.S. $10,000 and suspicious transactions to the
    financial intelligence unit (FIU), known in Costa Rica as the Unidad

    de Analisis Financiero (UAF).  Law 8204 also requires that financial

    records be retained for at least five years, and that the beneficial

    owners of accounts and funds involved in transactions be identified.

    While Law 8204, in theory, applies to the movement of all capital,
    current regulations are narrowly interpreted so that the law applies

    only to those entities that are involved in the transfer of funds as

    a primary business purpose, such as exchange houses and stock
    brokerages.  Therefore, the law does not cover such entities as
    casinos, dealers in jewels and precious metals, insurance companies,

    intermediaries such as lawyers, accountants or broker/dealers, or
    Internet gambling operations, as their primary business is not the
    transfer of funds.  However, as part of an anti-terrorism bill that

    is expected to pass before the end of 2008 or early 2009, there is a
    provision that should correct these loopholes.  Additionally, in
    April of 2008, several government decrees established new rules to
    better identify casino ownership.

    Costa Rican financial institutions are regulated by the SUGEF, the
    Superintendent General of Securities (SUGEVAL), and the
    Superintendent of Pensiones (SUPEN).  All three entities fall under

    the National Council of Supervision of the Financial System
    (CONASSIF).  All financial entities subject to the jurisdiction of
    SUGEF, SUGEVAL and SUPEN are obligated to submit suspicious
    transaction reports (STRs), regardless of the amount involved or
    transaction reported.  Law 8204 does not establish any protection
    for
    reporting individuals with respect to their cooperation with law
    enforcement entities.  Nevertheless, this does not exempt them from

    reporting; if they do not file STRs, they may be subject to
    pecuniary
    sanctions established in Article 81 of Law 8204.

    The UAF, which is located within the Costa Rican Drug Institute
    (ICD), became operational in 1998.  Article 123 of Law 8204 empowers

    the UAF to request, collect and analyze STRs and cash transaction
    reports (CTRs) submitted by obligated entities.  The UAF, if
    warranted by its analysis, refers these reports to the Money
    Laundering, Financial, and Economic Crimes Unit of the Judicial
    Investigative Organization (OIJ), under the Public Ministry
    (Prosecutor's Office).  Each superintendency holds the CTRs until
    they determine further analysis is required or until the UAF
    requests
    them.  All requests and reports from the UAF must be signed by the
    Director of the ICD.

    The UAF has no regulatory responsibilities.  The UAF has access to
    the records and databases of financial institutions and other
    government entities, but the OIJ must obtain a court order if the
    information collected is to be used as evidence in court.
    Additionally, there are formal mechanisms in place to share
    information domestically and with other countries' FIUs.

    In spite of its broad access to government information and high
    levels of cooperation with the financial sector, the UAF is somewhat

    ill-equipped and under-funded to provide information needed by
    investigators.  However, in 2009 the UAF plans to hire four
    additional forensic auditors and one investigator, bringing total
    staffing to 27.  In 2008, the UAF continued to increase the quality

    of its analysis and forwarded more thoroughly analyzed cases to
    prosecutors.  The UAF received 500 STRs in 2008; 36 were forwarded
    to
    the OIJ for investigation.

    The GOCR body responsible for investigating financial crimes is the

    financial investigations unit (or Unidad de Investigacion
    Financiero-
    UIF) of the OIJ.  The OIJ reports that currency smuggling has
    increased at their land borders; also, they suspect money laundering

    is occurring through the use of wire-transfer services.  The OIJ is

    assisted by the UAF and has adequately trained staff.  In 2008,
    there
    were two prosecutions for financial crimes.  The UAF's primary
    mission is analysis; the UIF is investigative.

    All persons carrying, entering or exiting Costa Rica are required to

    declare any amount over U.S. $10,000 to Costa Rican officials at
    ports of entry.  Declaration forms are required.  Cash smuggling
    reports are entered into a database maintained by ICD and is shared

    with appropriate government agencies, including the UAF.

    Articles 33 and 34 of Law 8204 cover asset forfeiture and stipulate

    that all movable or immovable property used in the commission of
    crimes covered by this act shall be subject to preventative seizure.

    When asset seizure or freeze takes place, the property is placed in
    a
    legal deposit under the control of ICD.  The banking industry
    closely
    cooperates with law enforcement efforts to trace funds and seize or

    freeze bank accounts.  During 2008, officials seized over USD 2
    million in narcotics-related assets, much of it in undeclared cash.

    Seized assets are processed by the ICD and if judicially forfeited,

    are divided among drug treatment agencies (60 percent), law
    enforcement agencies (30 percent), and the ICD (10 percent) or as
    determined by ICD's council.

    Although the GOCR has ratified the major UN counterterrorism
    conventions, terrorist financing is not yet a crime in Costa Rica.

    In 2002, a government task force drafted a comprehensive
    counterterrorism law with specific terrorist financing provisions.

    The draft law, when passed, would expand existing laws to include
    the
    financing of terrorism and enhance existing narcotics laws by
    incorporating the prevention of terrorist financing.  In 2008, Costa

    Rica received a third extension to pass this law on terrorist
    financing to avoid being expelled from the Egmont Group of financial

    intelligence units.  The GOCR expects the legislation to be passed
    in
    late 2008 or early 2009, before the extended deadline of March 2009.

    In addition to the pending law on terrorism, the GOCR's legislature

    is working to pass an organized crime bill which would close
    additional money-laundering loopholes.

    Costa Rican authorities receive and circulate to all financial
    institutions the names of suspected terrorists and terrorist
    organizations listed on the UN 1267 Sanctions Committee consolidated

    list and the list of Specially esignated Global Terrorists
    designated by the Unted States pursuant to E.O. 13224.  However,
    thee authorities cannot block, seize, or freeze property without
    prior judicial approval.  Thus, Costa Rica lacks the ability to
    expeditiously freeze assets connected to terrorism.  However, no
    assets related to designated individuals or entities were identified

    in Costa Rica in 2008.

    Costa Rica fully cooperates with appropriate USG law enforcement
    agencies and other governments investigating financial crimes
    related
    to narcotics and other crimes.  Articles 30 and 31 of Law 8204 grant

    authority to the UAF to cooperate with other countries in
    investigations, proceedings, and operations concerning financial and

    other crimes covered under that law.

    Costa Rica is a party to the 1988 UN Drug Convention, the UN
    International Convention for the Suppression of the Financing of
    Terrorism, and the UN Convention against Transnational Organized
    Crime.  On March 21, 2007, the GOCR ratified the UN Convention
    against Corruption.  The GOCR has also signed, but not yet ratified,

    the Organization of American States (OAS) Inter-American Convention

    on Mutual Assistance in Criminal Matters, and has ratified the
    Inter-
    American Convention against Terrorism.  Costa Rica is a member of
    the
    Caribbean Financial Action Task Force (CFATF).  As noted above,
    SUGEF
    has signed MOUs with Panama and the Bahamas to help regulate the six

    offshore banks that have representation here.  The most recent
    mutual
    evaluation of Costa Rica was conducted by the CFATF in July 2006.
    The GOCR is a member of the Money Laundering Experts Working Group
    of
    the OAS Inter-American Drug Abuse Control Commission (OAS/CICAD).
    The UAF is a member of the Egmont Group.

    Even though the Government of Costa Rica convicted a handful of
    individuals for money laundering over the last several years,
    further
    efforts are required to bring Costa Rica into compliance with
    international anti-money laundering and counter-terrorist financing

    standards.  In 2009, Post plans to introduce the GOCR to various
    training opportunities offered by organizations such as the
    Department of Justice, ICE (of DHS), the Florida International
    Bankers' Association, and the Federal Reserve Bank of Atlanta.  In
    addition, Post plans to link relevant agencies in the GOCR to peer
    agencies in other Latin American countries, most notably Colombia
    and
    Mexico.

    The GOCR needs to criminalize terrorist financing prior to the
    Egmont
    Group March 2009 deadline for expulsion.  The GOCR also needs to
    pass
    legislation that reconciles contradictions regarding the supervision

    of its offshore banking sector, and should extend its anti-money
    laundering legislation and regulations to cover the Internet gaming

    sector, dealers in jewelry and precious metals, attorneys, casinos,

    as well as any business activity that might entail the use of cash
    and other nonbank financial institutions.  Finally, Costa Rica
    should
    continue to ensure that its financial intelligence unit and other
    GOCR authorities are adequately equipped to combat financial crime.

    CIANCHETTE

`