VZCZCXRO5377
RR RUEHBI RUEHLMC
DE RUEHLM #0493/01 0851218
ZNR UUUUU ZZH
R 261218Z MAR 07
FM AMEMBASSY COLOMBO
TO RUEHC/SECSTATE WASHDC 5760
INFO RUCPDOC/USDOC WASHDC
RUEHNE/AMEMBASSY NEW DELHI 0796
RUEHKA/AMEMBASSY DHAKA 9998
RUEHIL/AMEMBASSY ISLAMABAD 6974
RUEHKT/AMEMBASSY KATHMANDU 5052
RUEHKP/AMCONSUL KARACHI 2172
RUEHCG/AMCONSUL CHENNAI 7549
RUEHBI/AMCONSUL MUMBAI 5251
RUEATRS/DEPT OF TREASURY WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION

UNCLAS SECTION 01 OF 02 COLOMBO 000493 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR SCA/INS, EEB/ESC/TFS, S/CT AND INL 
 
MCC FOR S GROFF, D NASSIRY AND E BURKE 
 
TREASURY FOR LESLIE HULL, TFI AND OTA 
 
E.O 12958: N/A 
TAGS: EAID ECON PREL PTER CE
SUBJECT: SRI LANKA: FIU, MAKING LITTLE PROGRESS, WILL BE MERGED INTO 
CENTRAL BANK 
 
REF: 06 COLOMBO 1032 
 
¶1. (SBU) Summary and comment: Sri Lanka's Financial Intelligence 
Unit (FIU), which began operations about a year ago, has made little 
progress towards becoming an effective, independent operation.  Sri 
Lanka's Central Bank Governor, who currently supervises the 
nominally autonomous FIU, plans to merge the FIU into the Central 
Bank and replace its weak Chief Executive Officer with a Central 
Bank official.  The U.S. Treasury Advisor in Sri Lanka will continue 
working with the FIU and will begin monthly meetings with the 
Central Bank Governor to ensure that his expertise is well-utilized. 
 While Embassy would ideally prefer to see a strong AND independent 
FIU, we believe the planned changes are likely to improve 
cooperation between the FIU and U.S. law enforcement and put the FIU 
on track towards greater effectiveness.  End summary and comment. 
 
FIU LANGUISHED UNDER WEAK LEADERSHIP AND INADEQUATE RESOURCES 
--------------------------------------------- ---------- 
 
¶2. (SBU) The Sri Lanka Financial Intelligence Unit (FIU) was created 
in mid-2006 as a semi-autonomous agency under the supervision of the 
Central Bank Governor.  Since then, the FIU has made little progress 
towards being a competent, independent agency able to identify signs 
of money laundering and terrorist finance.  It has struggled both at 
the management and operational level, lacking strategic focus, 
hiring few skilled staff, missing opportunities for training, and 
failing to secure adequate financial or technical resources.  These 
problems have also hampered the FIU's cooperation with U.S. law 
enforcement agencies investigating funding activities related to the 
Sri Lankan terrorist organization the Liberation Tigers of Tamil 
Eelam (LTTE). 
 
¶3. (SBU) Sri Lanka Central Bank Governor Nivard Cabraal, unhappy 
with the FIU's poor progress, has decided to fully merge the FIU 
into the Central Bank.  With this move, Cabraal will replace the 
FIU's current well-intentioned but ineffective Chief Executive 
Officer with a career Central Bank staffer whom the Governor 
believes is better suited for the job.  The new manager has 
extensive experience in bank supervision and operations, according 
to the Governor.  The Bank has not yet announced any of these 
planned actions. 
 
¶4. (SBU) In a March 16 discussion with Governor Cabraal, Ambassador 
questioned whether the planned merger was the right way to address 
the FIU's inefficacy.  The Ambassador emphasized that all FIUs must 
be seen as independent institutions, and must have the freedom to 
investigate government entities as well as private ones.  Ambassador 
suggested that the Governor think about ways to keep the FIU 
independent, if it had to remain in the Bank at all.  Ambassador 
urged the Governor to meet regularly with Embassy's U.S. Treasury 
advisor to the FIU, whose expertise was not being well utilized by 
the current FIU management.  Cabraal agreed to do so and indeed 
called in Treasury Advisor Eric Stonecipher the following week. 
 
¶5. (SBU) Ambassador also informed the Governor that the FIU had been 
slow to respond to a request from the U.S. Department of Justice, 
relayed by RSO through the Sri Lankan Solicitor General, for 
information pertinent to the ongoing U.S. prosecution of suspected 
LTTE arms procurers.  Ambassador noted that Sri Lankan Foreign 
Minister Bogollagama, visiting Washington that same week, had asked 
U.S. officials for more assistance in cutting off LTTE financing and 
weapons procurement. 
Cabraal was not aware of the request but was surprised that his 
government had not yet responded, since "you are trying to help us." 
 He promised to look into the matter and get a quick response. 
(Note: RSO followed up with the Solicitor General a few days later 
and was assured that most of the documents DOJ had requested would 
be ready to hand over as soon as they could be certified by the bank 
from which they originated.  End note.) 
 
MERGING FIU INTO CENTRAL BANK TO PROTECT IT 
------------------------------------------- 
 
¶6. (SBU) When Treasury Advisor, accompanied by Econoff, met wit the 
 
COLOMBO 00000493  002 OF 002 
 
 
Governor on March 22, Cabraal confirmed that the FIU would be merged 
into the Central Bank.  He believed the move would actually 
strengthen the FIU by getting it the staff, the resources, the 
training, and the bureaucratic cover it needed.  By the latter, 
Cabraal indicated that the FIU would benefit from protection from 
Parliamentary inquiry into how the FIU conducted its hiring, budget, 
operations, and so forth.  Cabraal implied that if the FIU operated 
under Central Bank procedures, there would be little of this nature 
for critical politicians to challenge.  He further suggested that 
the anonymity of working within the Bank would protect FIU staff 
from pressure or threats they might otherwise confront if they were 
in a more visible stand-alone institution. 
 
¶7. (SBU) Cabraal also agreed to hold monthly meetings with Treasury 
Advisor and to re-endorse the current Terms of Reference for the 
Treasury Advisor position.  The Governor asked Treasury Advisor to 
work with the incoming FIU director to prepare for the Governor's 
review a work plan for personnel, procedures, and systems. 
 
COMMENT: SORTING OUT FIU LIKELY TO IMPROVE BILATERAL COPPERATION ON 
LTTE CRIMINAL CASE 
--------------------------------------------- ------- 
 
¶8. (SBU) While Embassy would ideally prefer to see a strong AND 
independent FIU, we believe the planned move of the FIU into the 
Central Bank is likely to put the FIU on a faster track towards 
greater effectiveness.  Cabraal prides himself on being a good 
manager (reftel), and appears ready to take a more active role in 
ensuring that the FIU functions properly.  This should also result 
in improved collaboration between the FIU and U.S. law enforcement, 
as indicated by the Governor's responsiveness to our request for 
information from the FIU related to the LTTE investigation.