This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 SAN SALVADOR 003490 
 
SIPDIS 
 
STATE FOR INL, WHA/CEN, EB/ESC/TFS 
JUSTICE FOR OIA AND AFMLS 
TREASURY FOR FINCEN 
 
E.O. 12958: N/A 
TAGS: SNAR EFIN KCRM KTFN PTER KJUS ES
SUBJECT: EL SALVADOR: FIRST DRAFT OF 2006 INCSR PART II 
(MONEY LAUNDERING) 
 
REF: SECSTATE 210351 
 
 ¶1. (U) Per Reftel, the following is Post's first draft of 
the 2006 INCSR Part II.  Year-end statistics for CY-05 are 
not yet available.  Post will add these statistics in January 
2006 and retransmit this report.  Text follows. 
 
¶2. (U) El Salvador 
 
Located on the Pacific coast of the Central American isthmus, 
El Salvador has one of the largest and most developed banking 
systems in Central America. Its most significant financial 
contacts are with neighboring Central American countries, as 
well as with the United States, Mexico, and the Dominican 
Republic. The January 2001 adoption of the U.S. dollar as 
legal tender, along with the size and growth rate of the 
financial sector, makes the country a potentially fertile 
ground for money laundering. In 2005, approximately US$XXX 
billion in remittances was likely sent to El Salvador through 
the financial system.  Most were sent from Salvadorans 
working in the United States to family members. Additional 
remittances flow back to El Salvador via other methods such 
as visiting relatives and regular mail. 
 
Most money laundering in El Salvador is conducted by 
international criminal organizations attempting to mask 
revenues from illicit activities.  These organizations use 
bank and wire fund transfers from the United States to 
disguise criminal revenues as legitimate remittances to real 
persons in El Salvador.  The false remittances are collected 
and transferred to other financial institutions until 
sufficiently laundered for use by the source of the criminal 
enterprise -- usually a narcotics trafficking organization. 
 
Decree 498 of 1998, the &Law Against the Laundering of Money 
and Assets,8 criminalizes money laundering related to 
narcotics trafficking and other serious crimes, including 
trafficking in persons, kidnapping, extortion, illicit 
enrichment, embezzlement, and contraband. The law also 
establishes the Financial Investigations Unit (FIU) within 
the Attorney General's office.  The FIU has been operational 
since January 2000. The National Police (PNC) and the Central 
Bank also have their own anti-money laundering units. 
 
Under Decree 498, financial institutions must identify their 
customers, maintain records for a minimum of five years, 
train personnel in identification of money and asset 
laundering, establish internal auditing procedures, and 
report all suspicious transactions and transactions that 
exceed approximately $57,000 to the FIU. Entities obligated 
to comply with these requirements include banks, finance 
companies, exchange houses, stock exchanges and exchange 
brokers, commodity exchanges, insurance companies, credit 
card companies, casinos, dealers in precious metals and 
stones, real estate agents, travel agencies, the postal 
service, construction companies, and the hotel industry. The 
law includes a safe harbor provision to protect all persons 
who report transactions and cooperate with law enforcement 
authorities, and also contains banker negligence provisions 
that make individual bankers responsible for money laundering 
at their institutions. Bank secrecy laws do not apply to 
money laundering investigations. 
 
To address the problem of the international transportation of 
criminal proceeds, Decree 498 requires all incoming travelers 
to declare the value of goods, cash, or monetary instruments 
they are carrying in excess of approximately $11,400. 
Falsehood, omission, or inaccuracy on such a declaration is 
grounds for retention of the goods, cash, or monetary 
instruments, and the initiation of criminal proceedings. If, 
following the end of a 30-day period, the traveler has not 
proved the legal origin of the undeclared property, the 
Salvadoran authorities have the right to confiscate it. 
 
The Government of El Salvador (GOES) has established systems 
for identifying, tracing, freezing, seizing, and forfeiting 
narcotics-related and other assets of serious crimes. The FIU 
and the PNC have adequate police powers to trace and seize 
assets, but both organizations lack the resources to do so. 
Even if resources were abundant, it remains to be seen if 
these government agencies can cooperate to achieve their 
anti-money laundering goals. 
 
For example, only one arrest for money laundering was 
achieved in 2005.  The detained individual is accused of 
establishing wire transfer accounts in fictitious names in 
order to receive transfers from the United States disguised 
as remittances.  Unfortunately, the Attorney General's office 
declined to pursue several leads generated by this person's 
arrest.  As a result, it is likely that any evidence linking 
others to this scheme has already been destroyed. 
 
Forfeited money laundering proceeds are deposited in a 
special fund used to support law enforcement, drug treatment 
and prevention, and other related government programs, while 
funds forfeited as the result of other criminal activity are 
deposited into general government revenues. Law enforcement 
agencies are allowed to use certain seized assets while a 
final sentence is pending. In 2005, the dollar amount of 
assets seized and forfeited totaled $XXX million, mostly 
derived from narcotics trafficking.  There exists no legal 
mechanism to share seized assets with other countries. 
 
Salvadoran law currently provides only for the judicial 
forfeiture of assets upon conviction (criminal forfeiture), 
and not for civil or administrative forfeiture. A draft law 
to reform Decree 498 to provide for civil forfeiture has 
stalled in the National Legislature. 
 
Although Decree 498 does not specifically mention terrorism 
or terrorist financing as predicate offenses for money 
laundering, it criminalizes the laundering of the proceeds of 
serious criminal acts. This has been interpreted to include 
terrorism. Therefore, it is illegal to launder money 
generated by a terrorist act, and assets of terrorists that 
are derived from criminal activities could be targeted under 
Decree 498. However, providing legitimate money (money that 
is not derived from a criminal act) to known terrorist 
organizations is not considered to be a crime, and the person 
contributing those funds could not be prosecuted unless it 
could be shown that he or she was directly involved in the 
planning or execution of a crime. The GOES has drafted 
anti-terrorism legislation that will further define acts of 
terrorism and establish tougher penalties for the execution 
of those acts. The draft legislation, if passed, would also 
grant the GOES the legal authority to freeze and seize 
suspected assets associated with terrorists and terrorism. 
The GOES has provided financial institutions with the names 
of all individuals and entities listed by the UNSCR 1267 
Sanctions Committee. These institutions are required to 
search for any assets related to the individuals and entities 
on the lists. There is no evidence that any charitable or 
nonprofit entity in El Salvador has been used as a conduit 
for terrorist financing. 
 
El Salvador has signed several agreements of cooperation and 
understanding with supervisors from other countries to 
facilitate the exchange of supervisory information, including 
permitting on-site examinations of banks and trust companies 
operating in El Salvador. El Salvador is a party to the 
Treaty of Mutual Legal Assistance in Criminal Matters signed 
by the Republics of Costa Rica, El Salvador, Honduras, 
Guatemala, Nicaragua, and Panama. Salvadoran law does not 
require the FIU to sign agreements in order to share or 
provide information to other countries. The GOES is party to 
the Inter-American Convention on Mutual Assistance on 
Criminal Matters, which provides for parties to cooperate in 
tracking and seizing assets. The FIU is also legally 
authorized to access the databases of public or private 
entities. The GOES has cooperated with foreign governments in 
financial investigations related to narcotics, money 
laundering, terrorism, terrorism financing, and other serious 
crimes. 
 
El Salvador is a member of the OAS Inter-American Drug Abuse 
Control Commission Experts Group to Control Money Laundering 
(OAS/CICAD), the Caribbean Financial Action Task Force and 
the Egmont Group. The GOES is party to the OAS Inter-American 
Convention Against Terrorism and the UN International 
Convention for the Suppression of the Financing of Terrorism, 
as well as the 1988 UN Drug Convention. El Salvador ratified 
the UN Convention against Transnational Organized Crime and 
the UN Convention Against Corruption in March and July of 
2004, respectively. El Salvador is also a signatory to the 
Central American Convention for the Prevention and Repression 
of Money Laundering Crimes Related to Illicit Drug 
Trafficking and Related Crimes. 
 
The growth of El Salvador,s financial sector, the increase 
in narcotics trafficking, the large volume of remittances, 
and the use of the U.S. dollar as legal tender make El 
Salvador vulnerable to money laundering. El Salvador should 
continue to expand and enhance its anti-money laundering 
policies and strengthen its ability to seize and utilize 
assets. The Government of El Salvador should criminalize the 
support and financing of terrorists and terrorist 
organizations. 
Barclay