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Viewing cable 09SANJOSE1166, COSTA RICA INCSR REPORT 2009-2010 PART II MONEY LAUNDERING

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Reference ID Created Released Classification Origin
09SANJOSE1166 2009-12-18 21:09 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
VZCZCXYZ1546
RR RUEHWEB

DE RUEHSJ #1166/01 3522113
ZNR UUUUU ZZH
R 182111Z DEC 09
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC 0142
INFO RHMFIUU/DEPT OF JUSTICE WASHINGTON DC
RUEABND/DEA HQS WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHSJ/AMEMBASSY SAN JOSE
UNCLAS SAN JOSE 001166 
 
SIPDIS 
DEPT FOR INL, WHA/CEN, SCT, EEB 
JUSTICE FOR AFMLS, OIA, OPDAT 
TREASURY FOR FINCEN 
 
E.O. 12958: N/A 
TAGS: SNAR EFIN KCRM KTFN CS
SUBJECT: COSTA RICA INCSR REPORT 2009-2010 PART II MONEY LAUNDERING 
AND FINANCIAL CRIMES 
 
REF: STATE 117246 
 
The text of Costa Rica's 2009-2010 INCSR Part II is below.  POC at 
Post is Robert B. Andrew. 
 
 
 
Costa Rica 
 
Costa Rica is not a major regional financial center but remains 
vulnerable to money laundering and other financial crimes.  Illicit 
proceeds from fraud; trafficking in persons, arms and narcotics 
trafficking (mainly cocaine); corruption; and unregulated Internet 
gaming companies likely are laundered in Costa Rica.  While local 
criminals are active, the majority of criminal proceeds laundered 
derive primarily from foreign criminal activity.  In 2002, the 
Government of Costa Rica (GOCR) enacted Law 8204, which 
criminalized the laundering of proceeds from crimes carrying a 
sentence of four years or more.  In theory, Law 8204 applied to the 
movement of all capital.  However, its articles and regulations 
were narrowly interpreted so the law applied to those entities 
involved in the transfer of funds as a primary business purpose, 
such as banks, exchange houses and stock brokerages.  It did not 
cover entities such as casinos, dealers in jewels and precious 
metals, insurance companies; intermediaries such as lawyers, 
accountants or broker/dealers; or Internet gambling operations.  In 
March 2009, Costa Rica passed Law 8719, an anti-terrorist 
financing/money laundering regulation to address Law 8204's 
weaknesses and close money-laundering loopholes. 
 
Costa Rican financial institutions are regulated by the 
Superintendent General of Financial Entities (SUGEF), 
Superintendent General of Securities (SUGEVAL), and the 
Superintendent of Pensions (SUPEN).  All three entities fall under 
the National Council of Supervision of the Financial System 
(CONASSIF).  In 2009, Costa Rica's Constitutional Court re-affirmed 
SUGEF's financial authority to require banks to "know their 
customer" and to explain suspicious money movements. 
 
Law 8204 also established Costa Rica's Financial Analysis Unit, 
known as the UAF.  However, to comply with Egmont Group guidelines, 
Law 8719 created Costa Rica's official financial intelligence unit 
known as the UIF, which replaced the UAF.  Law 8204 obligates 
financial institutions and other businesses to identify the 
beneficial owners of all accounts; retain financial records for at 
least five years; and, report currency transactions over $10,000 
and suspicious transactions, regardless of the amount involved or 
transaction to the UIF.  Law 8204 does not establish any protection 
for reporting individuals, however failure to file suspicious 
transaction reports (STRs) can result in monetary sanctions 
established in Article 81 of the law.  The UIF requests, collects 
and analyzes STRs submitted by obligated entities and cash 
transaction reports (CTRs) it receives. 
 
The UIF has regulatory responsibilities relating to information and 
reporting requirements detailed in Law 8719.  The UIF has access to 
the records and databases of financial institutions and other 
government entities, but the Judicial Investigative Organization 
(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.  Prior to 2009, the UIF (then know as the 
UAF) was somewhat ill-equipped and under-funded to provide 
information needed by investigators.  However, in 2009 the UIF 
hired four additional forensic auditors, and one investigator to 
bring total staffing to 28.  The UIF considers itself to be 
adequately staffed and funded.  In 2009, the UIF increased the 
quality of its analysis and forwarded many thoroughly analyzed 
cases to prosecutors.  In 2009, the UIF received 518 STRS and 
forwarded 49 for to the OIJ's Financial Investigation Unit of the 
Money Laundering, Financial, and Economic Crimes Unit, which is 
under the Public Ministry (Prosecutor's Office).  This 
investigation unit has adequately trained staff.  As of the 
submission of this report, Post did not yet have numbers of 
prosecutions for money laundering in 2009. 
 
The UIF does not directly receive CTRs.  Each superintendence that 
receives CTRs holds the CTRs unless it determines that further 
analysis is required or the UIF requests the CTRs.  After analysis, 
if the UIF thinks that a CTR warrants further investigation, the 
CTRs would be forwarded to OIJ's UIF for investigation. 
 
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.  All 
persons carrying over $10,000 when entering or exiting Costa Rica 
are required to declare it to Costa Rican officials at ports of 
entry.  Declaration forms are required. Cash smuggling reports are 
entered into a database maintained by ICD and are shared with 
appropriate government agencies, including the UIF.  The OIJ 
reports that currency smuggling continues to increase at land 
borders; also, money laundering may be occurring through the use of 
wire-transfer services.  Alternative remittance systems exist in 
Costa Rica, mainly as a result of migration of Costa Ricans to the 
United States, and Nicaraguans to Costa Rica.  However, there is no 
confirmation that these remittance systems are used for money 
laundering. According to the GOCR, there is a black market for 
smuggled goods in Costa Rica, but the size is not known.  There is 
no evidence that it is being funded by narcotics or other illicit 
proceeds. 
 
There are 28 free trade zones (FTZs) within Costa Rica, used by 
approximately 251 companies.  Costa Rica's Foreign Commerce 
Promotion Agency (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 aimed 
primarily at preventing tax evasion.  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 was no evidence of trade-based money 
laundering activity in the FTZs in 2009. 
 
The formal banking industry in Costa Rica is tightly regulated, 
which offers banking and corporate and trusts formation services. 
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 147 of the Costa Rican 
Central Bank's Organic Law, which requires offshore banks to have 
assets of at least $3 million dollars, be domiciled at a banking 
facility approved by the Central Bank, 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. 
 
As a result of the entry into force of the SUGEF Agreement 8-08 
dated December 18, 2008, financial groups that had offshore banks 
either received a Costa Rican license to operate or they are now 
under the supervision of a foreign banking authority.  Prior to 
this agreement there were 6 offshore banks operating in Costa Rica. 
Since December 2008, four of those offshores transferred their 
assets/liabilities to local banks (2 of those 4 actually merged 
with local banks); one no longer operates in Costa Rica; and one 
received its license to operate in compliance with articles 44 and 
72 of this SUGEF Agreement. 
 
There are memoranda of understanding (MOUs) between Costa Rica and 
Panama and the Bahamas to allow easy information exchanges.  The 
GOCR has supervision agreements with its counterparts in both 
countries, permitting the review of correspondent banking 
operations. 
 
Gambling is legal in Costa Rica, and in April of 2008, five 
government decrees established new rules to better identify casino 
ownership and regulate operations.  None addressed online casinos 
and there is no requirement that the currency used in Internet 
gaming operations be transferred to Costa Rica.  There are over 250 
Internet sports-book companies registered to operate in Costa Rica. 
The industry, which normally moves USD 12 billion annually and 
employs 10,000 people, estimates that their transactions have 
decreased by twenty percent this year.  In light of this, sports 
books are turning to new markets in Asia and Europe. 
 
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 an 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 2009, officials 
seized over $2.4 million in narcotics-related assets.  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.  It is unclear whether the GOCR will assist other 
countries in obtaining non conviction-based forfeiture since its 
domestic laws only provide for conviction-based forfeiture. 
 
Costa Rica is a party to the major United Nations counterterrorism 
conventions, including the UN Convention for the Suppression of the 
Financing of Terrorism.  It also passed a terrorist financing law, 
Law 8719 in March, 2009. 
 
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 Designated Global 
Terrorists designated by the United States pursuant to Executive 
Order (E.O.) 13224.  However, these authorities cannot block, 
seize, or freeze property without prior judicial approval. 
 
No assets related to designated individuals or entities were 
identified in Costa Rica in 2009.  However, according to the GOCR 
there is some evidence of FARC (Revolutionary Armed Forces of 
Colombia) money laundering operations here.  In April 2008, based 
on information obtained from a laptop used by FARC leader Raul 
Reyes, Costa Rican authorities raided the residence of a university 
professor and his spouse and found $480,000 in cash that was 
believed to be a "cash reserve" for the FARC in Costa Rica. 
However, at that time the anti-terrorist financing law (Law 8719) 
was not in place and no charges were filed at that time.  There has 
been no further action by the prosecutor's office against this 
couple. 
 
Costa Rica fully cooperates with appropriate United States 
government 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 UIF 
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 
Convention for the Suppression of the Financing of Terrorism, the 
UN Convention against Transnational Organized Crime, and the UN 
Convention against Corruption.  The GOCR is a member of the Money 
Laundering Experts Working Group of the OAS Inter-American Drug 
Abuse Control Commission (OAS/CICAD).  Costa Rica is a member of 
the Caribbean Financial Action Task Force (CFATF), a Financial 
Action Task Force (FATF) style regional body.  The CFATF conducted 
a mutual evaluation of Costa Rica in 2006.  During the CFATF 
Plenary in St. Kitts and Nevis in November 2008, the GOCR reported 
on actions taken to comply with recommendations made by the team of 
experts who evaluated the GOCR's anti-money laundering regime in 
ΒΆ2006.  There were modifications to Bill 17009 (which became Law 
8719) and 8204 to clarify the filing of STRs to the UIF, among 
others. 
 
In October 2009, the Costa Rican legislature put on its agenda a 
bill to better regulate and tax casinos and other gaming 
establishments.  We do not expect passage of this bill before 
February 2010 elections. 
 
USG initiatives for 2010 include a Department of Treasury Office of 
Technical Assistance (OTA) Resident Advisor to implement a 
financial enforcement program for Costa Rica.  This will be funded 
via the Merida Initiative and should provide Costa Rica's financial 
enforcement institutions (such as ICD, SUGEF, Ministry of Finance, 
etc.) with more effective tools to combat financial crimes such as 
money laundering.  OTA assistance also includes technical support 
on reforming Costa Rica's gambling law, which would cover internet 
gambling as well.  This OTA assistance directly led to the Ministry 
of Finance's authorship of a gambling bill that is at the National 
Assembly for consideration. 
BRENNAN