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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 
 
ΒΆ1. (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