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RR RUEHWEB

DE RUEHBU #2241/01 3241518
ZNR UUUUU ZZH
R 201518Z NOV 07
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 9743
INFO RUEADRO/HQ ICE DRO WASHINGTON DC
RUEAIAO/HQ ICE IAO WASHINGTON DC
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUEHAC/AMEMBASSY ASUNCION 6697
RUEHCV/AMEMBASSY CARACAS 1596
RUEHMN/AMEMBASSY MONTEVIDEO 6906
RUEHSG/AMEMBASSY SANTIAGO 0915
RUEHBR/AMEMBASSY BRASILIA 6583
RUEHLP/AMEMBASSY LA PAZ NOV SAO PAULO 3588
RUEHRI/AMCONSUL RIO DE JANEIRO 2397

UNCLAS BUENOS AIRES 002241 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
TREASURY FOR LTRAN AND MMALLOY 
TREASURY PASS IRS FOR BENEDETTA KISSEL, HENRY LOUIE 
DHS/ICE FOR A/S JULIE MEYERS 
DHS FOR A/S INTL AFFAIRS MARISA LINO 
DHS FOR CHIEF OF STAFF CHAD SWEET 
DHS/ICE FOR CARLOS MAZA AND GLORIA FICHOU 
EB/IFD/OIA FOR WSCHOLZ 
E FOR THOMAS PIERCE 
PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE 
PASS USTR FOR DUCKWORTH 
USDOC FOR 4322/ITA/MAC/OLAC/PEACHER 
US SOUTHCOM FOR POLAD 
 
E.O. 12958: N/A 
TAGS: AR ETRD ECON KTFN
SUBJECT: ARGENTINE TAX AUTHORITY'S ABAD ON CRISTINA GOVERNMENT, TAX 
INFORMATION EXCHANGE, CSI, AND 9/11 ACT 
 
Ref: (A) Buenos Aires 1800 
     (B) Buenos Aires 1795 
 
This cable contains sensitive information - not for internet 
distribution. 
 
------- 
Summary 
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¶1. (SBU) Alberto Abad, head of Argentina's customs and revenue 
authority, AFIP, sees key economic challenges facing the incoming 
Cristina Fernandez de Kirchner (CFK) administration as re-inserting 
Argentina into global capital markets, dealing with inflation, 
reducing the heavy burden of state subsidies on the budget, and 
attracting needed foreign direct investment.  Abad, himself mooted 
as a leading CFK Economy Minister candidate, told the Ambassador 
November 14 that he knows and respects incoming Economy Minister 
Lousteau but is uncertain how much room to maneuver Lousteau will be 
given in the new government by "de facto Economy Minister" Nestor 
Kirchner.  Abad expressed hope that CFK's more open international 
engagement style could lead to resolution of the longstanding Paris 
Club impasse. 
 
¶2. (SBU) Abad expressed appreciation for the agreement by the 
Embassy's Immigration and Customs Enforcement (ICE) unit to include 
AFIP tax investigators alongside their customs colleagues in the 
joint U.S./GoA Trade Transparency Unit.  He sees this as a first 
step on the path to establishing broader tax information exchange 
cooperation.  Noting the U.S. Treasury Department has conditioned 
discussions of a formal U.S./GoA Tax Information Exchange Agreement 
discussions on a commitment to negotiate a broader Bilateral Income 
Tax Treaty, Abad argued that exchanging Argentine and U.S. tax data 
now would further our joint priorities in combating money laundering 
and terrorist finance.  On the U.S. 9/11 Act, Abad had earlier 
proposed creating a database of legitimate/trustworthy Argentine 
exporters and sharing this information with DHS Customs and Border 
Patrol to  expedite entry of goods into the U.S. from Argentine 
businesses.  Ambassador outlined the U.S. Customs-Trade Partnership 
Against Terrorism (C-TPAT) which has established similar programs 
with Australia and New Zealand.  ICE subsequently arranged a 
briefing by visiting C-TPAT officials for Argentine Customs 
authorities.  Abad sees the U.S. IRS as a model to be emulated and 
seeks a closer working relationship.  Post recommends a Treasury/IRS 
invitation for Abad to visit Washington as a deliverable for the 
December 10 CFK inauguration. 
End Summary. 
 
----------------------------------------- 
Abad on CFK Economy Minister Cabinet Pick 
----------------------------------------- 
 
¶3. (SBU) Before Cabinet Chief Fernandez's November 14 announcement 
of CFK cabinet appointments, local media was calling AFIP's Alberto 
Abad one of the top candidates to replace Miguel Peirano as Economy 
Minister.  In a November 15 meeting with Ambassador, he joked that 
the "Peter Principle" (rising in a bureaucracy to one's level of 
incompetence) applied in his case, and that after six years 
improving the AFIP organization and building a culture of taxpayer 
compliance for the first time in Argentina's history, he would be 
more than content to move on when his term expires in December 
 
¶2008. 
 
¶4. (SBU) Abad praised the choice of Banco Provincia de Buenos Aires 
President Martin Lousteau as Economy Minister, noting that.  As an 
ex-director of BAPRO (the Banco Provincia holding company), Abad 
said he was familiar with Lousteau's work.  It remains to be seen, 
Abad said, just how much room to maneuver Lousteau will be given in 
the new government.  He repeated the conventional wisdom that, 
whoever sits in the Ministry, Nestor Kirchner will remain the "de 
facto Economy Minister."  Abad expressed hope that CFK's more open 
international engagement style could lead to resolution of the 
longstanding Paris Club impasse.  Key economic challenges facing the 
incoming CFK administration, Abad concluded, are re-inserting 
Argentina into global capital markets, dealing with inflation, 
reducing the heavy burden of state subsidies on the budget, and 
attracting needed foreign direct investment. 
 
----------------------- 
Growing Tax Collections 
----------------------- 
 
¶5. (SBU) Ambassador praised AFIP's strong track record in boosting 
government revenue collection, noting a 30% increase in VAT 
collections alone in the first half of 2007.  Abad noted that 
revenues should increase from a projected Pesos 200 billion in 2007 
to the Pesos 230 billion (approx US$ 73 billion) level in 2008.  He 
called the bulk of GoA revenue growth due to economic expansion 
(including dramatically increased employment), the capture of a 
larger share of the inflation-boosted income in income taxes, and 
the imposition of new taxes (including export taxes and a financial 
transactions tax).  He also attributed increased revenues to a 
greater number of taxpayers filing their required returns and to 
AFIP's enhanced collection efforts. 
 
¶6. (SBU) Abad highlighted that recent increases in export tariffs on 
soy, wheat and corn are expected to bring in an additional $1-plus 
billion a year towards CFK's stated goal of achieving a 4% primary 
fiscal surplus.  Export tariffs offer the GoA three key benefits, 
Abad said: they are a growing source of revenue (so long as 
international commodity prices remain high); they help lower and 
control politically sensitive domestic food prices; and they are not 
shared by the federal government with the provinces.  (Export 
tariffs were not contemplated under the GoA's dated co-participation 
law that sets federal/principal revenue sharing formulas.) 
Ambassador noted the November 13 announcement of significantly 
expanded export tariffs on both crude and refined hydrocarbons. 
(The latter are not expected to raise significant additional GoA 
revenue, but rather ensure that the bulk of domestic hydrocarbon 
production is consumed locally at prices substantially below world 
market levels.)  How increased revenues will be used by the GoA is 
out of AFIP's hands but the quality of GoA spending is a matter of 
concern for all Argentines, Abad said.  Transportation and energy 
subsidies may have had some short term logic/utility, but they are 
creating substantial medium term disequilibria.  Increases in public 
utility tariffs expected early in the CFK administration will be 
"complicated," he concluded. 
 
--------------------------------------------- -- 
TTU, Request to Expand Tax Information Exchange 
--------------------------------------------- -- 
 
 
 
¶7. (SBU) Ambassador noted that, at their last meeting in September 
(Reftels) he and Abad had discussed the idea of expanded 
investigative cooperation with the joint U.S./GoA Tax Transparency 
Unit (TTU).  Given AFIP's strength in the area of monetary 
instrument reporting, Ambassador said, the Department of Homeland 
Security's Immigration and Customs Enforcement (ICE) unit welcomes 
AFIP's proposal to include its tax investigators within the Buenos 
Aires TTU operation.  An AFIP investigative presence would enhance 
the ability of U.S./Argentine investigators to monitor potential 
illegal financial movements. 
 
¶8. (SBU) Abad welcomed ICE's flexibility and saw this as a first 
small step on the path to establishing broader tax information 
exchange cooperation.  Abad recalled that the U.S. Treasury 
Department continues to condition a formal US/GoA Tax Information 
Exchange Agreement (TIEA) on negotiation of a broader Bilateral 
Income Tax Treaty, notwithstanding the fact that the U.S. in 2007 
signed a TIEA with Argentina's Mercosur partner Brazil based only on 
the promise of future tax treaty negotiations.  Abad and his Chief 
of Staff Ernesto Donato argued that the exchange of Argentine and 
U.S. tax data needs to be viewed from a more "modern" perspective: 
beyond serving the interests of both nations' tax authorities, the 
exchange would further our joint priorities in combating money 
laundering and terrorist finance.  Argentina, they noted, is already 
building its anti-evasion and anti-money laundering capacity through 
the negotiation of cooperation and information exchange agreements 
with a number of other national tax authorities, including those of 
Brazil, China and Italy. 
 
¶9. (SBU) Argentina also participates actively as an observer nation 
in the OECD's tax forum, and the head of AFIP's revenue service, 
Horacio Castagnola, will travel to South Africa in February to 
attend an OECD conference that will address the $11+ billion of 
taxable revenues being help in global offshore tax havens. 
Argentina does have some limited contact with the U.S. IRS now 
though Argentina's membership in the Inter-American Center for Tax 
Administration (Centro Inter-Americano de Administracion Tributario) 
which includes Latin nations and Canada, Spain, Italy, France, 
Luxembourg South Africa and most recently India as members and 
observers.  But AFIP sees the U.S. IRS as a model to be emulated and 
seeks a closer working relationship.  The only solution to the 
globalization of tax evasion, money laundering and terror finance, 
Abad concluded, is increased exchange of information by tax and 
revenue authorities.  "Give us a signal," he concluded.  "We don't 
need to negotiate a big bilateral agreement, but we want to develop 
a new, closer relationship with you." 
 
--------------------------------------------- 
Container Security Initiative (CSI) Expansion 
--------------------------------------------- 
 
¶10. (SBU) Ambassador noted ICE's satisfaction with the success of 
the CSI program to date in Argentina and recalled Abad's request at 
their September meeting (Ref B) to expand the CSI's current 
operation in Buenos Aires to other ports in Argentina.  While any 
future expansion of CSI operations worldwide requires legislative 
review by the U.S. Congress and no additional CSI staff are likely 
be assigned to Argentina in the coming year, Ambassador welcomed 
solutions offered by the GoA to increase the monitoring capabilities 
within the existing CSI operation, including the use of remote 
scanning operations and/or training of Argentine staffed teams. 
 
 
 
Abad noted that his Director of Customs, Ricardo Echegaray hopes to 
utilize remote cameras to expand CSI coverage beyond the Port of 
Buenos Aires' Exolgan Terminal to additional terminals there and to 
two maritime ports in the Province of Buenos Aires, Zarate and 
Campana. 
 
--------------------------------------------- ------- 
GoA on "9/11" Maritime Cargo Scanning Law Compliance 
--------------------------------------------- ------- 
 
¶11. (SBU) Ambassador recalled his September discussion with AFIP 
Echegaray (Ref B) on Congress' passage of the 9/11 Act that mandates 
all U.S.-bound shipping containers be scanned at foreign ports 
beginning July 2012.  Abad had raised the idea creating a database 
of Argentine exporters determined to be legitimate and trustworthy 
("operadores confiables") and sharing this information with the DHS 
Customs and Border Patrol officials to facilitate expeditious entry 
of goods into the U.S. from Argentine businesses.  Ambassador 
outlined the U.S. Customs-Trade Partnership Against Terrorism 
(C-TPAT) which has established similar programs with Australia and 
New Zealand. 
 
¶12. (SBU) Abad was familiar with C-TPAT and with recent 
U.S./European Union discussions along these lines.  He looked 
forward to getting additional information from the U.S. Customs and 
Border patrol officials.  (Note: A subsequent November 16 meeting 
was arranged with Echegaray by ICE with visiting C-TPAT officials to 
explain the C-TPAT program and explore the potential for a future 
partnership arrangement with Argentina.)  Abad said that, while the 
GoA understands the motivation behind the 9/11 law and is developing 
plans to comply with its somewhat onerous provisions, others are not 
so supportive.  He noted the comments of World Customs Organization 
(WCO) Secretary General Michel Danet who, during a WCO piracy and 
trademark fraud conference in Buenos Aires in early November, said 
that this law is "crazy" and "useless."  (Danet was quoted in local 
media as saying "The law is crazy and useless.  It is a unilateral 
(U.S.) decision which imposes additional costs on the rest of the 
nations and is a step backwards because it is 100% about control and 
does not consider risk analysis.") 
 
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Comment 
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¶13. (SBU) With a background in accounting (Price Waterhouse), Abad 
was appointed to head AFIP by interim President Duhalde in January 
¶2002.  He was retained in his position by President Kirchner with 
good reason: Abad is considered one of the most capable and 
competent technocrats in Argentine government today, and his record 
in enhancing AFIP's professionalism and in expanding customs and tax 
collection is widely recognized.  Post supports Abad's desire to 
establish a closer working relationship with the IRS and concurs 
with his assessment that a broader exchange of tax information would 
further our joint priorities in combating money laundering and 
terrorist finance.  Treasury may wish to consider an invitation for 
Abad to visit his IRS counterparts in Washington.  This could be 
presented as a deliverable by a senior U.S. government official at 
the upcoming December 10 CFK inauguration in Buenos Aires. 
 
WAYNE