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### Viewing cable 09SANJOSE277, COSTA RICA: TREASURY CONDUCTS FINANCIAL ENFORCEMENT

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
09SANJOSE277 | 2009-04-05 19:07 | 2011-03-21 16:04 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy San Jose

`

    VZCZCXYZ0000
    RR RUEHWEB

    DE RUEHSJ #0277/01 0951939
    ZNR UUUUU ZZH
    R 051939Z APR 09
    FM AMEMBASSY SAN JOSE
    TO RUEHC/SECSTATE WASHDC 0713
    INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
    RUEATRS/DEPT OF TREASURY WASHINGTON DC

` `

    UNCLAS SAN JOSE 000277

    SENSITIVE
    SIPDIS

    DEPT FOR INL/LP KBROWN AND MAHERN;
    ALSO FOR WHA/CEN, WHA/EPSC:AWONG, AND EEB/ESC/TFS
    TREASURY FOR SSENICH, CCORREA, AND CGAMBLE

    E.O. 12958: N/A
    TAGS: ECON EFIN KCRM PGOV PREL SNAR CS
    SUBJECT:  COSTA RICA: TREASURY CONDUCTS FINANCIAL ENFORCEMENT
    ASSESSMENT

    REF:  2008 San Jose 0930

    -------
    SUMMARY
    -------

    ¶1. (U) A three-person team from the Department of Treasury's Office
    of Technical Assistance (OTA) met with key GOCR officials on
    financial crimes and enforcement issues from March 23-27.  The team
    arrived, at the request of the Central Bank President, to find an
    environment ripe for financial crimes due to untaxed and unregulated
    casinos, legalized prostitution and increased narco-trafficking.
    The OTA team met with government agencies ranging from financial
    institutions to law enforcement agencies to customs.

    ¶2. (SBU) In the near term, OTA can provide workshop-type training to
    government officials on the challenges of standing-up a legislative
    and regulatory framework to govern casinos.  Later, the visiting
    team, led by Carlos Correa of OTA, will prepare an assessment which
    can be used to draft the terms of reference for launching an OTA
    Financial Enforcement program in Costa Rica.

    ¶3. (SBU) Though U.S. Treasury funds support the assessment team's
    current work, funds supporting a Financial Enforcement program in FY
    2009 are not available.  Thus, Post has proposed using State INL/LP
    "bridge funding" during FY 2009 and the first quarter of FY 2010 to
    launch the program and make the best use of reform-minded officials
    in the current government.  Costa Rica often does not qualify for
    assistance based on strictly socio-economic measures.  However, the
    GOCR has the absorptive capacity and the willingness on this issue
    -- due to the involvement of the Ministry of Finance (an agency with
    a track record of success with OTA programs) -- to improve the
    financial crimes environment in Costa Rica.  We strongly believe
    that this new OTA program is worth the investment, and as soon as
    possible.  END SUMMARY.

    -------------------------------
    PROVIDING THE BROAD PERSPECTIVE
    -------------------------------

    ¶4. (U) In response to a request letter from Costa Rican Central Bank
    President Francisco de Paula Gutierrez, the U.S. Department of the
    Treasury authorized an assessment of Costa Rica's systemic
    vulnerabilities to financial and economic crimes.  Carlos Correa
    (Assistant Director of Economic Crimes), Carl Gamble (Regional
    Director, Latin America), and Rick Hector (Senior Advisor, Internet
    & Casino Gaming) met with a wide range of officials in the Costa
    Rican Government, beginning with the Central Bank President and also
    including:

    -- Alberto Dent, President, National Council of Financial System
    Supervision, CONASSIF;

    -- Cecila Sancho Calvo, Director of Private Bank Supervision, and
    Nidia Varela Cordoba, Director - Department of Private Bank
    Inspection, Superintendency of Financial Entities (SUGEF);

    -- Juan Jose Flores, Superintendent, and Eddy Rodriguez Cespedes,
    Assistant Superintendent, Superintendency of Securities(SUGEVAL);

    -- Ana Lorena Brenes, Procuradora General (similar to a solicitor
    general), and Tatiana Gutierrez, Solicitor of Public Ethics under
    the Procuraduria General, Ministry of Justice;

    -- Jenny Phillips, Vice Minister - Income Administration, Jose
    Adrian Vargas, Treasurer, Desiderio Soto, Director - Customs, and
    Carole Quesada Rodriguez, Director - Internal Affairs Unit, Ministry
    of Finance;

    -- Marcela Chacon, Vice Minister, Ministry of Public Security;

    -- Jorge Rojas, General Director, and Francisco Segura, Sub
    Director, the FBI-equivalent Judicial Investigative Agency (OIJ);

    -- Marta Acosta, Sub-Controller, Office of the Controller General;

    -- Andrea Murillo, Director, Office of Technical Assistance and
    International Relations, Jose Cabrera - Organized Crime Unit
    Prosecutor, Patricia Cordero - Economics Crime Unit Prosecutor, and
    Walter Espinoza - Narcotics Unit Prosecutor,  Office of the Attorney
    General; and

    -- Mauricio Boraschi, Director, and Robert Quiros, Manager -
    Financial Intelligence Unit, Costa Rican Institute of Drugs (ICD).

    --------------------------------------------- -
    COMPLEX GOCR STRUCTURE COMPLICATES ENFORCEMENT
    --------------------------------------------- -

    ¶5. (U) Embassy San Jose purposely designed a meeting program that
    delivered a broad panorama of perspectives for the visiting OTA
    team.  In general, Costa Rican governance is characterized by a
    diffusion of authority and multiplication of control mechanisms,
    which is relevant to the area of financial crimes.  Government
    structure blurs the familiar Executive-Legislative-Judicial
    relationship by a number of "autonomous" and "semi-autonomous"
    institutions reporting to one or more of the three principal
    branches of government.  Two examples make the point:

    -- the Office of the Controller General reports to the legislative
    branch but has very specific powers to exercise management control
    over every internal auditing department in the government; and

    -- the Judicial Branch houses virtually all criminal investigation
    work (by OIJ) and all prosecution (Attorney General), although the
    Executive Branch houses the major financial intelligence in the ICD
    which is part of the Ministry of the Presidency.

    -----------------------------------
    NEAR TERM STEPS:  CASINO REGULATION
    -----------------------------------

    ¶6. (U) In the near term, the OTA team agreed to provide documents
    regarding key aspects of casino regulation.  However, OTA Advisor
    Hector cautioned that reference materials only hint, at best, at the
    enormity of the undertaking to stand-up a regulatory body supported
    by (1) well-crafted legislation which specifies which ministry/
    agency has the authority to enforce gambling law, (2) regulations,
    and (3) "sub-regulations" or standard operating procedures for
    gambling enterprises.

    ¶7. (SBU) Costa Rica is particularly vulnerable to money laundering
    activities originating in the gaming business since gambling is
    neither taxed nor regulated in Costa Rica.  The standing casino law
    on the books dates from 1922.  OTA is willing to return Hector and
    his Casino & Gaming Team to Costa Rica for a short training session
    for the GOCR to learn about the necessity, as advisor Hector
    described, to "regulate (gambling) all the way" since legislating
    and regulating the gaming industry is an "all or nothing"
    proposition.

    --------------------------------------------
    MEDIUM TERM STEPS:  ASSESSMENT TEAM ANALYSIS
    --------------------------------------------

    ¶8. (SBU) The OTA assessment report will be very useful to Embassy
    San Jose, as we focus more closely on the key issues associated with
    financial and economic crimes; the report will detail the
    vulnerabilities of the Costa Rican financial system to criminal
    activity.  More importantly, the report will recommend the basis for
    collaboration with the GOCR on a financial enforcement/economic
    crimes OTA program.  Thus, U.S. Treasury and the GOCR can use the
    report to draft a terms of reference agreement which would serve as
    the basis for a formal OTA program in Costa Rica.

    -----------------------------------------
    LONG TERM STEPS:  PROPOSED OTA PROGRAMING
    -----------------------------------------

    ¶9. (U) Once OTA releases its report (with clearances from the
    Embassy and key officials in the GOCR), Treasury will add Costa Rica
    to its list of possible projects for support in calendar year 2010
    by Treasury International Assistance Technical Agreement (TIATA)
    funds.  However, due to the late timing of the delivery of President
    Gutierrez's letter (October 2008), Treasury could only provide funds
    for an assessment team report, not a full program, in FY 2009.  If
    selected, Costa Rica could thus have to wait for at least seven
    months -- from release of the final report in May to the end of
    December - before receiving the OTA financial enforcement program.

    -----------------------
    STATE INL POSSIBILITIES
    -----------------------

    ¶10. (U) In the interest of starting a program sooner than CY 2010,
    Embassy San Jose sent INL/LP a proposal outlining a program for
    "bridge funding," i.e. funds to launch a program in FY 2009 or first
    quarter of FY 2010.  The nature of such an OTA advisory program
    would be "intermittent," that is one or two advisors would travel to
    Costa Rica for two weeks once every two months.  If the INL support

    began as early as mid-July 2009, then Post projects a cost of USD
    130,000 for six trips (through the end of CY 2010).  If program
    support was restricted to the first quarter of FY 2010, then Post
    projects a cost of USD 65,000 for three two-week trips.

    ------------------------
    BRIDGE FUNDING RATIONALE
    ------------------------

    ¶11. (SBU) The impetus to start a program during FY 2009 or the first
    quarter of FY 2010 directly relates to the timeline of the Arias
    Administration.  With elections scheduled for February 2010 and a
    new government taking office on May 1, the current government is
    likely to lose much of its effectiveness and focus by the end of CY
    ¶2009.  The current leadership in the Ministry of Finance, Ministry
    of Justice, OIJ and the Costa Rican Drug Institute are committed to
    reform, but many of the incumbents will change when the new
    administration takes power in May, 2010. (The leadership of the
    Central Bank, CONASSIF, SUGEF, SUGEVAL, and the Office of the
    Controller remain in office past the 2010 elections.) Furthermore,
    tackling casino legislation and regulation, though daunting, merits
    starting a Financial Enforcement program as soon as possible since
    the vulnerabilities to money laundering, which are significantly
    compounded by growing narco-trafficking activity in Costa Rica
    (reftel), are wide open; virtually no supervision exists.

    -------
    COMMENT
    -------

    ¶12. (SBU) The visit by the OTA team reinforces our continued
    commitment to start a Treasury OTA Financial Enforcement program in
    Costa Rica.  Economic crime challenges will only grow thanks to
    Costa Rica's "three-point program on vice": untaxed and unregulated
    casinos, legalized prostitution, and growing narco-trafficking.
    (Costa Rica increasingly serves as an intermodal transshipment point
    for drug trade between South America and North America and Europe).
    The latter point is compounded by traffickers paying in product,
    which has produced a local drug addiction problem.  Combine these
    three "vices" with the lax legal environment (e.g., casino
    legislation from 1922), and opportunities abound for money
    laundering and terrorist financing.

    ¶13. (U) Though Costa Rica does not often qualify for USG assistance
    since it ranks relatively higher than its Central American neighbors
    on socio-economic measures, it merits assistance in this case
    because of the capacity of the relevant institutions (the Central
    Bank and the Ministry of Finance) to absorb USG assistance, apply
    the benefits, and post demonstrable results.  The Ministry of
    Finance is a case-in-point as it has successfully applied the
    benefits of OTA programs on tax administration and budget management
    and continues to do so with debt management.  A Financial
    Enforcement program would encourage inter-ministerial coordination
    -- vital to pursuit of economic crimes -- and bolster Costa Rica's
    efforts to significantly improve its security environment.

    CIANCHETTE

`