Cablegate: Se Asian Hot Topics at Regional Aml-Cft Meetings

Published: Mon 21 Jul 2008 09:24 AM
DE RUEHJA #1396/01 2030924
R 210924Z JUL 08
E.O. 12958: N/A
SUBJECT: SE Asian Hot Topics at Regional AML-CFT Meetings
1. (SBU) The annual meetings of the regional Asia Pacific Group on
Money Laundering (APG), held in Bali July 7 to 11, helped highlight
the challenges facing Southeast Asian countries and clarify many
acute training needs. The APG discussed and adopted three joint
Mutual Evaluation Reports (MERs) on Canada, Singapore and Hong Kong
which were conducted with the Financial Action Task Force (FATF).
The APG also discussed and adopted the MERs on Burma, Indonesia and
the IMF assessment of Palau. These reports provide a snapshot and
assessment of each jurisdiction's anti-money laundering and
counter-financing of terrorism (AML-CFT) systems. While Singapore's
discussion revolved around predictable complaints on mutual legal
assistance, Indonesia's MER discussion was quite contentious as
Indonesia tried to negotiate up its ratings on six of its sixteen
"non-compliant" ratings. While ASEAN members supported an upgrade
to "partially compliant" on customer due diligence standards,
Indonesia was unsuccessful in convincing the APG plenary to improve
their marks on the standards related to the ratification and
implementation of UN instruments, international cooperation on
terrorist financing, mutual legal assistance and extradition.
Vietnam's first on-site mutual evaluation visit will take place
during the first two weeks of November 2008. End Summary.
2. (U) The review of Singapore's Joint FATF-APG Mutual Evaluation
Report (MER) was uneventful. The MER had already been approved by
the FATF Plenary in February, so this was a rather pro-forma
discussion. Singapore received a favorable assessment and, in fact,
has one of the best assessments out of all FATF members. Singapore
received a rating of either Compliant (C) or Largely Compliant (LC)
on 43 of the Recommendations and received ratings of either
Partially Complaint (PC) or Non-Compliant (NC) on only six of the
recommendations. Singapore received a PC rating on Recommendation 1
regarding the criminalization of money laundering. The members of
the evaluation team emphasized that key risks to Singapore stemmed
from regional capital flight/money laundering as a product of
uncertainty and/or corruption and terrorism in the region. They
noted that it was precisely because Singapore's deep financial
markets and developed banking system worked efficiently that people
were attracted to the market as a location for money laundering (ML)
and terrorism finance (TF). The evaluation team also raised
questions about the low number of convictions for money laundering,
despite recent improvements. There were 13 convictions for ML in
2007 ---exceeding the previous three years rate of 2 annual
convictions --- but this was still considered low by the
3. (SBU) Most of the questions in the discussion revolved around
difficulties with Singapore's mutual legal assistance. Indonesia
asked a question about Singapore's inability to assist in
investigations. However, Indonesian officials privately told the
evaluation team that, in fact, they had not ever made a formal
request to Singapore for assistance with an AML-CFT case.
Evaluators therefore were unable to cite any specific examples of
non-cooperation, since there had been no requests.
4. (U) Going forward, Singapore emphasized that it would continue
to work on implementing its new cash declaration scheme, supervising
Designated Non-Financial Businesses and Professions (DNFBPs), such
as lawyers, accountants and trust company service providers, and the
opening up of the casinos. Mr. Ong Hian Sun of Singapore's
Commercial Affairs Department was appointed as co-chair of the APG
for 2008-2010.
5. (SBU) Outside of the MER discussions, Singaporean officials
revealed two interesting, and refreshingly honest, assessments of
the risks and shortcomings of their own system. In a discussion on
risk-based approaches to supervision, the Monetary Authority of
Singapore's (MAS) Kristel Poh stated that Singapore's private
banking industry is a "high risk area" and that Singapore needed to
pay more attention to customers from risky countries, including
JAKARTA 00001396 002 OF 005
those identified by FATF's Non-Compliant Countries and Territories
(NCCT) list and the UN Sanctions lists. (The NCCT list is defunct
and is no longer maintained.) In a private discussion with SE Asia
regional FINATT about the division of labor in AML-CFT issues in
Singapore, MAS's Head of External Relations Mr. Leong Sing Cheong
admitted that if Singapore's Financial Intelligence Unit (FIU) had
been housed at the Monetary Authority that financial institutions
would not have taken it seriously. Leong confided that because the
Commercial Affairs Department (CAD) "had real teeth" in Singapore,
banks (and others) had a strong incentive to comply with rules on
suspicious transaction reports (STRs).
6. (U) Vietnam noted its technical training priorities were:
--- Preparing for its upcoming APG on-site Mutual Evaluation (ME)
visit scheduled the first two weeks of November 2008. The State
Bank of Vietnam (SBV) FIU officials reported that they were giving 6
courses in September to explain the ME process to various agencies
and financial institutions in Hanoi and Ho Chi Minh City. They
asked for experts to be included in these programs, and particularly
asked Malaysia if they would be willing to send anyone, highlighting
a specific need for help in training in identifying suspicious
activities and analyzing STRs.
--- Developing a system for inspections of financial institutions
for AML-CFT compliance. They felt they needed to institutionalize
current guidance from the SBV on how to screen against the UNSCR
1267 consolidated list in order to give this requirement the force
of law. They also wanted to get training for their banking
--- Expanding coverage of STR-reporting requirements and
implementation to the securities and insurance industries.
--- Understanding and examining practical cases from other countries
on how to address AML-CFT issues in high-cash economies, such as
7. (U) Donors raised concerns about Vietnam's lack of information
technology (IT) systems to deal with AML-CFT issues and receive
STRs. The Asian Development Bank (ADB) representative said that no
training would proceed until SBV had a functioning IT system.
AUSTRAC (Australia's FIU) was supposed to be providing an IT needs
assessment, but it was still being finalized (expected within a
month). The Vietnamese noted that the FIU had contracted a local
consultant to evaluate its IT needs and if the United Nation's
software would be appropriate. The UN advisors mentioned that they
had sent detailed parameters to SBV for system specifications to
start moving forward on IT solutions, but had not heard back.
8. (U) Bank Negara's FIU team was clearly stars of the annual
meetings. They were involved in donor coordination meetings for
ASEAN and the Mekong region (see below). Malaysia also discussed
training cooperation for Afghanistan's FIU with US Treasury
representatives. In its very thorough and well-received progress
report on items in Malaysia's action plan to address shortcomings
from its 2007 MER, Malaysia noted that the policy decision to move
ahead with a cash declaration system (similar to Singapore's) had
been made and was expected to be implemented next year.
9. (U) In the U.S. update on measures since our 2006 MER, Malaysia
asked the U.S. delegation about progress in expanding AML-CFT
regulations to include Designated Non-Financial Businesses and
Professions (DNFBPs), especially trust company service providers,
attorneys, and accountants. The head of the U.S. delegation gave an
update and noted the ongoing difficulty in requiring attorneys to
JAKARTA 00001396 003 OF 005
file mandatory STRs due to attorney-client privilege issues.
10. (U) Thailand provided a quick update on its AML-CFT work.
Canada asked if Thailand had increased the scope of its predicate
offenses (i.e. underlying criminal offenses that may give rise to a
money laundering charge). Thailand noted that they had included
gambling, smuggling and election violations as predicate offenses.
They also amended the penal code to criminalize terrorist
11. (SBU) The discussion of Indonesia's MER was the most contentious
of the entire week. Indonesia was clearly upset at the large number
of "non-compliant" ratings. Indonesia engaged in a last minute
lobbying effort to improve its ratings on many items. Treasury
Senior Advisor Paul DerGarabedian served as one of the expert
examiners. This on-site assessment took place from October 29 to
November 9, 2007. Prior to the plenary discussion, the assessment
team had extensive face-to-face meetings during the weekend with the
Indonesian authorities to finalize the draft MER. In some cases,
Indonesia provided the necessary documentation and explanation which
led to an upgrade on three of the ratings and ensured that the
report was accurate and objective. However, many of the arguments
made were politically motivated or not based on technical facts.
During the plenary discussion the Indonesian delegation requested
rating upgrades on six recommendations. Many members rallied around
Singapore, Thailand and Fiji's support to upgrade the rating on
Recommendation 5 regarding customer due diligence from a
non-compliant to a partially compliant, basing their support on a
technical argument about the enforceability of central bank guidance
to banks.
12. (SBU) Indonesia's other requests for upgrades were unsuccessful.
For example, Indonesia argued that because the UN Secretariat had
commended their work on the Security Council, they should merit a
partially compliant rating for implementing the UNSCR 1267 and 1373,
even though they have no effective system to freeze and seize
terrorist assets without delay for entities on the UNSCR 1267 list.
The New Zealand delegation articulately rebutted this assertion and
stressed that good behavior in New York had and should have no
bearing whatsoever on the APG's assessments of implementation of
effective AML-CFT systems. With regard to Indonesia's requests for
upgrades on three areas of international cooperation, the legal
assessor countered that while Indonesian officials could assert
their willingness to confiscate and freeze assets as requested by
international authorities, in fact, Indonesia had no law enabling it
to do so and had never actually done so in the past. Other
countries further noted that mutual legal assistance could only be
rendered for a crime that was a crime in both countries ("dual
criminality") which would make international legal assistance
impossible in many cases, especially given the narrow scope and
short statutes of limitations in many Indonesian laws.
13. (U) In summary, the Indonesian MER identified some progress
since being removed from the NCCT list in strengthening preventative
measures to combat money laundering. However, it noted a serious
lack of compliance with the CFT-related recommendations. The
report notes that despite effective actions to prosecute the
terrorism offense (300 convictions), authorities had not used the
terrorism financing (TF) offense to investigate and prosecute TF
related to known and identified terrorists groups in Indonesia
effectively. (Indonesia has had only one TF conviction). The
report also highlighted the lack of effective regulations on a range
of entities including: the charities sector, wire
transfers/remittance providers, foreign financial institutions in
Indonesia, Indonesian financial institutions operating overseas,
correspondent banks and business introduced by third parties,
JAKARTA 00001396 004 OF 005
securities companies, and DNFBPs. In some cases, the law is
adequate but necessary infrastructure has not been put in place.
For example, corporate entities can be held liable under the law,
but there is no enforcement of the requirement to keep records on
the beneficial owners of the companies in order to apply the law.
Systems for enhanced due diligence on politically exposed persons
were also weak, a disturbing omission in a country with wide-spread
corruption problems. The Indonesia MER will be finalized and
published on the APG's website at
14. (U) The MER contains an 8-page recommended action plan to
improve Indonesia's AML-CFT system. Under the APG process,
Indonesia now must develop its own action plan, and report on
progress against that action plan in subsequent annual APG meetings.
In donor coordination meetings, Indonesian representatives asked
for assistance in developing their own effective asset forfeiture
and seizure system, which would help them implement their UN
obligations. Specifically, they requested a review of different
country's systems for implementing this requirement so as to inform
their own decisions. They also expressed interest in a risk-based
policy framework for financial institutions supervision and training
for the policy in money laundering investigations and analysis. They
were also open to working on MLAT and extradition requests on a
regional basis.
Regional Donor Issues
15. (SBU) In a regional meeting of ASEAN members, the ASEAN
Secretariat's Dr. Aladdin Rillo noted that the AML-CFT work in their
Senior Officials Meeting on Transnational Crime (SOMTC) program was
"not working well," and that Malaysia, as the lead shepherd for that
stream, should take a more forceful role. Malaysia punted back to
the ASEAN Secretariat and the APG Secretariat on the need to do a
region-wide stock-taking exercise on appropriate regional training
programs for ASEAN.
16. (U) Various donors also outlined their regional training
programs. Australia noted its work to set up FIU to FIU networking
and mentoring (in a train-the-trainers format) and was happy to
continue with regional workshops. They noted work on financial
investigations and asset forfeiture and confiscation done primarily
bilaterally through their Indonesian JASLIC office in Semarang,
Indonesia, but could consider opening them up to the region, if any
country had a specific interest. The World Bank offered to assist
anyone with on-site inspections of financial institutions, for
example, in sample testing. The UK Charities Commission (UKCC)
reported completing two regional workshops on Special Recommendation
8 (on the non-profit organization (NPO) sector). UKCC noted that
Malaysia is the only ASEAN country that had completed a review of
its regulations on the NPO sector, and UKCC stood ready to help, but
could only provide their own time and travel, not the participants.
17. (U) Efforts to work on technology seemed paramount in donors'
minds. Cambodia clearly had a long way to go as it has yet to draft
a proper Criminal Code. It planned to do so starting 60 days after
the November 2008 election (i.e. in early 2009). Malaysia mentioned
that it and the ADB were co-funding/organizing 3 workshops on an AML
Plan for Cambodia. Lao PDR said they had received a total of 5
STRs, all of which came from banks. They currently lack an IT
infrastructure. The French said they were providing an FIU software
system to Lao PDR that had been used in francophone Africa. UNODC
and Treasury's Office of Technical Assistance would continue
providing training on Financial Investigation Techniques (FIT) in
the Mekong region and also noted an August 18-22 FIU study tour to
the Philippines.
JAKARTA 00001396 005 OF 005
Other APG Decisions
18. (U) Aside from the substantive discussions on Southeast Asia
reported above, the APG made several important decisions on it
future operations, including:
--- The formal appointment of a new rotating Co-Chair for the term
2008-2010, Mr. Ong Hian Sun of Singapore's Commercial Affairs
--- Admission of the Maldives and East Timor as full members of the
APG - the 37th and 38th members respectively;
--- Adoption of a new Strategic Implementation Planning Framework by
the APG to assist low capacity jurisdictions to effectively respond
to recommendations made in mutual evaluation reports;
--- Amendments to the APG's mutual evaluation procedures in relation
to adoption of joint FATF/APG mutual evaluation reports to better
reflect the APG's Associate Membership arrangements with the FATF.
Changes were also made to the peer review mechanism to improve the
quality and consistency of all APG reports.
19. (U) Further information on these decisions can be found on the
APG website
20. (U) This cable was drafted by Finatt/Singapore and cleared with
the head of the U.S. delegation to the APG. Any USG official with
technical questions regarding the Indonesian MER or general APG
matters may contact the U.S. Head of Delegation at
View as: DESKTOP | MOBILE © Scoop Media