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Viewing cable 05SANJOSE2881, COSTA RICA INCSR REPORT 2005 - 2006 PART II, MONEY

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Reference ID Created Released Classification Origin
05SANJOSE2881 2005-12-16 22:10 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
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 02 SAN JOSE 002881 
 
SIPDIS 
 
DEPARTMENT FOR INL, WHA/CEN, and EB/ESC/TFS 
JUSTICE FOR OIA, AFMLS 
TREASURY FOR FINCEN 
DEA FOR OILS AND OFFICE OF DIVERSION CONTROL 
 
E.O. 12958: N/A 
TAGS: SNAR KTFN EFIN PTER KCRM CS
SUBJECT: COSTA RICA INCSR REPORT 2005 - 2006 PART II, MONEY 
LAUNDERING AND FINANCIAL CRIMES 
 
REF: SECSTATE 210351 
 
Draft text of the 2005-2006 INCSR, Part II for Costa Rica 
follows. 
Costa Rica 
Costa Rica is not a major financial center, but it remains 
vulnerable to money laundering and other financial crimes, 
due in part to narcotics trafficking, particularly of South- 
American cocaine, in the region and the presence in Costa 
Rica of Internet gaming companies.  Reforms to the Costa 
Rican counternarcotics law in 2002, which expand the scope 
of anti-money laundering regulations, also create a loophole 
by eliminating the government's licensing and supervision of 
casinos, jewelers, realtors, attorneys, and other non-bank 
financial institutions.  No actions were taken to close this 
loophole in 2005.  Gambling is legal in Costa Rica, and 
there is no requirement that the currency used in Internet 
gaming operations be transferred to Costa Rica.  Currently, 
over 250 sports-book companies have registered to operate in 
Costa Rica.  Many of these registered firms have the same 
owners and addresses. 
In 2002, the Government of Costa Rica (GOCR) expanded the 
scope of Law 7786 via Law 8204.  This expansion criminalizes 
the laundering of proceeds from all serious crimes.  Serious 
crimes are defined as carrying a sentence of four years or 
more.  Law 8204, which is a counter-narcotics law, also 
obligates financial institutions and other businesses (such 
as money exchangers) to identify their clients, report 
currency transactions over $10,000, report suspicious 
transactions, keep financial records for at least five 
years, and identify the beneficial owners of accounts and 
funds involved in transactions.  While Law 8204, in theory, 
covers the movement of all capital, current regulations 
based on Law 8204, Chapter IV, Article 14, apply a 
restrictive interpretation that covers only those entities 
that are involved in the transfer of funds as a primary 
business purpose. 
The formal banking industry in Costa Rica is tightly 
regulated.  However, the offshore banking sector that offers 
banking, corporate, and trust formation services remains 
open and is an 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. 
Costa Rican authorities acknowledge that they are unable to 
adequately assess risk.  The Office of the Superintendent of 
Financial Institutions (SUGEF) regulates Costa Rican 
financial institutions. 
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 Panama and the Bahamas, permitting the 
review of correspondent banking operations.  Unfortunately, 
these counterpart regulatory authorities occasionally 
interpret the agreements in ways that limit review by Costa 
Rican officials.  In September 2005, the GOCR's Attorney 
("Procurador General") ruled that SUGEF has no authority to 
regulate offshore operations.  The ruling was an attempt to 
clarify apparent contradictions between the 1995 Organic Law 
of the Costa Rican Central Bank and Law 8204.  Draft 
legislation to correct the contradiction and reassert 
SUGEF's regulatory power is under review in the Legislative 
Assembly.  However, important legal initiatives often 
languish in the Legislative Assembly for years. 
All persons carrying cash are required to declare any amount 
over $10,000 to Costa Rican officials at ports of entry. 
During 2005, officials seized over $850,000, much of it in 
undeclared cash.  In 2004, the GOCR seized $1.2 million. 
Eighteen free trade zones operate within Costa Rica, 
primarily producing electronic components, integrated 
circuits, textiles, and medicines for re-export.  The Zones 
are under the supervision of "PROCOMER" an export-promotion 
entity.  Costa Rican authorities report no indications of 
trade-based money laundering schemes in the zones.  PROCOMER 
strictly enforces control over the zones, but its measures 
are aimed primarily at preventing tax evasion. 
Costa Rica's Financial Intelligence Unit (FIU) became 
operational in 1998 and was admitted into the Egmont Group 
in 1999.  The unit is analytical, screening cases for 
referral to prosecutors.  The FIU has access to the records 
and databases of financial institutions and other government 
entities but must obtain a court order if the information 
collected is to be used as evidence in court. The unit has 
no regulatory responsibilities.  Despite its committed and 
professional staff, the unit remains ill equipped and under- 
funded to handle its current caseload (over 120 cases for 
2005) and to provide the information needed by 
investigators.  Nevertheless, the unit developed evidence it 
considers formidable in four high-profile cases of money 
laundering during 2004.  Three of those cases were 
successfully prosecuted in 2005.  Three additional money- 
laundering cases began judicial proceedings in 2005 and the 
FIU assisted international investigators to develop evidence 
in four more cases. 
Costa Rican authorities have received and circulated to all 
financial institutions the lists of individuals and entities 
designated by the U.S. or EU, or considered by the UN 1267 
Sanction's Committee to be involved in the financing of 
terrorism.  However, these authorities cannot block, seize, 
or freeze property without prior judicial approval.  Thus, 
Costa Rica lacks the ability to expeditiously freeze assets 
connected to terrorism.  No assets related to designated 
individuals or entities were identified in Costa Rica in 
ΒΆ2005.  An interagency effort is underway to reduce the time 
required to obtain such judicial approval. 
The GOCR has ratified the major UN counterterrorism 
conventions.  Additionally, a government task force drafted 
a comprehensive counterterrorism law with specific terrorist 
financing provisions in 2002.  The draft law would expand 
existing conspiracy laws to include the financing of 
terrorism.  It would also enhance existing narcotics laws by 
incorporating the prevention of terrorist financing into the 
mandate of the Costa Rican Drug Institute.  In 2004, the 
Legislative Assembly considered a separate draft terrorism 
law.  In July of 2005, the Assembly's Narcotics Committee 
approved a bill combining the two proposals, but no further 
progress has been made. 
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.  The GOCR has signed, but not 
yet ratified, the UN Convention against Corruption.  The 
GOCR has also signed the OAS Inter-American Convention on 
Mutual Assistance in Criminal Matters, and is a member of 
the Caribbean Financial Action Task Force (CFATF) and the 
aforementioned Egmont Group.