VZCZCXRO2457
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHJA #1396/01 2030924
ZNR UUUUU ZZH
R 210924Z JUL 08
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 9593
INFO RUCPDOC/USDOC WASHDC 1522
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUEAWJB/DEPT OF JUSTICE WASHDC
RHEHNSC/NSC WASHDC
RUEAIIA/CIA WASHDC
RUEHKO/AMEMBASSY TOKYO 2256
RUEHBY/AMEMBASSY CANBERRA 2801
RUEHUL/AMEMBASSY SEOUL 4758
RUEHBJ/AMEMBASSY BEIJING 5225
RUEHBUL/AMEMBASSY KABUL 0050
RUCNDT/USMISSION USUN NEW YORK 0927

UNCLAS SECTION 01 OF 05 JAKARTA 001396 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR EAP/MTS, EEB/ESC/TFS, EAP/RSP, INL, S/CT,IO/UNP 
TREASURY FOR MNUGENT, PDERGARABEDIAN 
COMMERCE FOR 4430 BERLINGUETTE 
JUSTICE/AFMLS FOR L. SAMUEL 
DEPARTMENT PASS FEDERAL RESERVE SAN FRANCISCO FOR FINEMAN 
 
E.O. 12958: N/A 
TAGS: EFIN ECON ETRD EINV PGOV PREL KCRM KTFN KCOR ID MY
SN, TH, VM, PS, BU, CA, HK, XB 
 
SUBJECT: SE Asian Hot Topics at Regional AML-CFT Meetings 
 
¶1.  (SBU) The annual meetings of the regional Asia Pacific Group on 
Money Laundering (APG), held in Bali July 7 to 11, helped highlight 
the challenges facing Southeast Asian countries and clarify many 
acute training needs.  The APG discussed and adopted three joint 
Mutual Evaluation Reports (MERs) on Canada, Singapore and Hong Kong 
which were conducted with the Financial Action Task Force (FATF). 
The APG also discussed and adopted the MERs on Burma, Indonesia and 
the IMF assessment of Palau.  These reports provide a snapshot and 
assessment of each jurisdiction's anti-money laundering and 
counter-financing of terrorism (AML-CFT) systems.  While Singapore's 
discussion revolved around predictable complaints on mutual legal 
assistance, Indonesia's MER discussion was quite contentious as 
Indonesia tried to negotiate up its ratings on six of its sixteen 
"non-compliant" ratings.  While ASEAN members supported an upgrade 
to "partially compliant" on customer due diligence standards, 
Indonesia was unsuccessful in convincing the APG plenary to improve 
their marks on the standards related to the ratification and 
implementation of UN instruments, international cooperation on 
terrorist financing,  mutual legal assistance and extradition. 
Vietnam's first on-site mutual evaluation visit will take place 
during the first two weeks of November 2008.  End Summary. 
 
Singapore 
--------- 
 
¶2.  (U) The review of Singapore's Joint FATF-APG Mutual Evaluation 
Report (MER) was uneventful.  The MER had already been approved by 
the FATF Plenary in February, so this was a rather pro-forma 
discussion.  Singapore received a favorable assessment and, in fact, 
has one of the best assessments out of all FATF members.  Singapore 
received a rating of either Compliant (C) or Largely Compliant (LC) 
on 43 of the Recommendations and received ratings of either 
Partially Complaint (PC) or Non-Compliant (NC) on only six of the 
recommendations. Singapore received a PC rating on Recommendation 1 
regarding the criminalization of money laundering.  The members of 
the evaluation team emphasized that key risks to Singapore stemmed 
from regional capital flight/money laundering as a product of 
uncertainty and/or corruption and terrorism in the region.  They 
noted that it was precisely because Singapore's deep financial 
markets and developed banking system worked efficiently that people 
were attracted to the market as a location for money laundering (ML) 
and terrorism finance (TF).  The evaluation team also raised 
questions about the low number of convictions for money laundering, 
despite recent improvements.  There were 13 convictions for ML in 
2007 ---exceeding the previous three years rate of 2 annual 
convictions --- but this was still considered low by the 
evaluators. 
 
¶3.  (SBU) Most of the questions in the discussion revolved around 
difficulties with Singapore's mutual legal assistance.  Indonesia 
asked a question about Singapore's inability to assist in 
investigations.  However, Indonesian officials privately told the 
evaluation team that, in fact, they had not ever made a formal 
request to Singapore for assistance with an AML-CFT case. 
Evaluators therefore were unable to cite any specific examples of 
non-cooperation, since there had been no requests. 
 
¶4.  (U) Going forward, Singapore emphasized that it would continue 
to work on implementing its new cash declaration scheme, supervising 
Designated Non-Financial Businesses and Professions (DNFBPs), such 
as lawyers, accountants and trust company service providers, and the 
opening up of the casinos.  Mr. Ong Hian Sun of Singapore's 
Commercial Affairs Department was appointed as co-chair of the APG 
for 2008-2010. 
 
¶5.  (SBU) Outside of the MER discussions, Singaporean officials 
revealed two interesting, and refreshingly honest, assessments of 
the risks and shortcomings of their own system.  In a discussion on 
risk-based approaches to supervision, the Monetary Authority of 
Singapore's (MAS) Kristel Poh stated that Singapore's private 
banking industry is a "high risk area" and that Singapore needed to 
pay more attention to customers from risky countries, including 
 
JAKARTA 00001396  002 OF 005 
 
 
those identified by FATF's Non-Compliant Countries and Territories 
(NCCT) list and the UN Sanctions lists.  (The NCCT list is defunct 
and is no longer maintained.)  In a private discussion with SE Asia 
regional FINATT about the division of labor in AML-CFT issues in 
Singapore, MAS's Head of External Relations Mr. Leong Sing Cheong 
admitted that if Singapore's Financial Intelligence Unit (FIU) had 
been housed at the Monetary Authority that financial institutions 
would not have taken it seriously.  Leong confided that because the 
Commercial Affairs Department (CAD) "had real teeth" in Singapore, 
banks (and others) had a strong incentive to comply with rules on 
suspicious transaction reports (STRs). 
 
Vietnam 
------- 
 
¶6.  (U) Vietnam noted its technical training priorities were: 
 
--- Preparing for its upcoming APG on-site Mutual Evaluation (ME) 
visit scheduled the first two weeks of November 2008.  The State 
Bank of Vietnam (SBV) FIU officials reported that they were giving 6 
courses in September to explain the ME process to various agencies 
and financial institutions in Hanoi and Ho Chi Minh City.  They 
asked for experts to be included in these programs, and particularly 
asked Malaysia if they would be willing to send anyone, highlighting 
a specific need for help in training in identifying suspicious 
activities and analyzing STRs. 
 
--- Developing a system for inspections of financial institutions 
for AML-CFT compliance.  They felt they needed to institutionalize 
current guidance from the SBV on how to screen against the UNSCR 
1267 consolidated list in order to give this requirement the force 
of law.   They also wanted to get training for their banking 
supervisors. 
 
--- Expanding coverage of STR-reporting requirements and 
implementation to the securities and insurance industries. 
 
--- Understanding and examining practical cases from other countries 
on how to address AML-CFT issues in high-cash economies, such as 
Vietnam. 
 
¶7.  (U) Donors raised concerns about Vietnam's lack of information 
technology (IT) systems to deal with AML-CFT issues and receive 
STRs.  The Asian Development Bank (ADB) representative said that no 
training would proceed until SBV had a functioning IT system. 
AUSTRAC (Australia's FIU) was supposed to be providing an IT needs 
assessment, but it was still being finalized (expected within a 
month).  The Vietnamese noted that the FIU had contracted a local 
consultant to evaluate its IT needs and if the United Nation's 
software would be appropriate.  The UN advisors mentioned that they 
had sent detailed parameters to SBV for system specifications to 
start moving forward on IT solutions, but had not heard back. 
 
Malaysia 
-------- 
 
¶8.  (U) Bank Negara's FIU team was clearly stars of the annual 
meetings.  They were involved in donor coordination meetings for 
ASEAN and the Mekong region (see below).  Malaysia also discussed 
training cooperation for Afghanistan's FIU with US Treasury 
representatives.  In its very thorough and well-received progress 
report on items in Malaysia's action plan to address shortcomings 
from its 2007 MER, Malaysia noted that the policy decision to move 
ahead with a cash declaration system (similar to Singapore's) had 
been made and was expected to be implemented next year. 
 
¶9. (U) In the U.S. update on measures since our 2006 MER, Malaysia 
asked the U.S. delegation about progress in expanding AML-CFT 
regulations to include Designated Non-Financial Businesses and 
Professions (DNFBPs), especially trust company service providers, 
attorneys, and accountants.  The head of the U.S. delegation gave an 
update and noted the ongoing difficulty in requiring attorneys to 
 
JAKARTA 00001396  003 OF 005 
 
 
file mandatory STRs due to attorney-client privilege issues. 
 
Thailand 
-------- 
 
¶10. (U) Thailand provided a quick update on its AML-CFT work. 
Canada asked if Thailand had increased the scope of its predicate 
offenses (i.e. underlying criminal offenses that may give rise to a 
money laundering charge).  Thailand noted that they had included 
gambling, smuggling and election violations as predicate offenses. 
They also amended the penal code to criminalize terrorist 
financing. 
 
Indonesia 
--------- 
 
¶11. (SBU) The discussion of Indonesia's MER was the most contentious 
of the entire week.  Indonesia was clearly upset at the large number 
of "non-compliant" ratings. Indonesia engaged in a last minute 
lobbying effort to improve its ratings on many items.  Treasury 
Senior Advisor Paul DerGarabedian served as one of the expert 
examiners.  This on-site assessment took place from October 29 to 
November 9, 2007.  Prior to the plenary discussion, the assessment 
team had extensive face-to-face meetings during the weekend with the 
Indonesian authorities to finalize the draft MER.  In some cases, 
Indonesia provided the necessary documentation and explanation which 
led to an upgrade on three of the ratings and ensured that the 
report was accurate and objective.  However, many of the arguments 
made were politically motivated or not based on technical facts. 
During the plenary discussion the Indonesian delegation requested 
rating upgrades on six recommendations.  Many members rallied around 
Singapore, Thailand and Fiji's support to upgrade the rating on 
Recommendation 5 regarding customer due diligence from a 
non-compliant to a partially compliant, basing their support on a 
technical argument about the enforceability of central bank guidance 
to banks. 
 
¶12. (SBU) Indonesia's other requests for upgrades were unsuccessful. 
 For example, Indonesia argued that because the UN Secretariat had 
commended their work on the Security Council, they should merit a 
partially compliant rating for implementing the UNSCR 1267 and 1373, 
even though they have no effective system to freeze and seize 
terrorist assets without delay for entities on the UNSCR 1267 list. 
The New Zealand delegation articulately rebutted this assertion and 
stressed that good behavior in New York had and should have no 
bearing whatsoever on the APG's assessments of implementation of 
effective AML-CFT systems.   With regard to Indonesia's requests for 
upgrades on three areas of international cooperation, the legal 
assessor countered that while Indonesian officials could assert 
their willingness to confiscate and freeze assets as requested by 
international authorities, in fact, Indonesia had no law enabling it 
to do so and had never actually done so in the past.  Other 
countries further noted that mutual legal assistance could only be 
rendered for a crime that was a crime in both countries ("dual 
criminality") which would make international legal assistance 
impossible in many cases, especially given the narrow scope and 
short statutes of limitations in many Indonesian laws. 
 
¶13. (U) In summary, the Indonesian MER identified some progress 
since being removed from the NCCT list in strengthening preventative 
measures to combat money laundering.  However, it noted a serious 
lack of compliance with the CFT-related recommendations.   The 
report notes that despite effective actions to prosecute the 
terrorism offense (300 convictions), authorities had not used the 
terrorism financing (TF) offense to investigate and prosecute TF 
related to known and identified terrorists groups in Indonesia 
effectively.  (Indonesia has had only one TF conviction).  The 
report also highlighted the lack of effective regulations on a range 
of entities including: the charities sector, wire 
transfers/remittance providers, foreign financial institutions in 
Indonesia, Indonesian financial institutions operating overseas, 
correspondent banks and business introduced by third parties, 
 
JAKARTA 00001396  004 OF 005 
 
 
securities companies, and DNFBPs.  In some cases, the law is 
adequate but necessary infrastructure has not been put in place. 
For example, corporate entities can be held liable under the law, 
but there is no enforcement of the requirement to keep records on 
the beneficial owners of the companies in order to apply the law. 
Systems for enhanced due diligence on politically exposed persons 
were also weak, a disturbing omission in a country with wide-spread 
corruption problems.  The Indonesia MER will be finalized and 
published on the APG's website at http://www.apgml.org. 
 
¶14. (U) The MER contains an 8-page recommended action plan to 
improve Indonesia's AML-CFT system.  Under the APG process, 
Indonesia now must develop its own action plan, and report on 
progress against that action plan in subsequent annual APG meetings. 
 In donor coordination meetings, Indonesian representatives asked 
for assistance in developing their own effective asset forfeiture 
and seizure system, which would help them implement their UN 
obligations.  Specifically, they requested a review of different 
country's systems for implementing this requirement so as to inform 
their own decisions.  They also expressed interest in a risk-based 
policy framework for financial institutions supervision and training 
for the policy in money laundering investigations and analysis. They 
were also open to working on MLAT and extradition requests on a 
regional basis. 
 
Regional Donor Issues 
--------------------- 
ASEAN 
----- 
 
¶15. (SBU) In a regional meeting of ASEAN members, the ASEAN 
Secretariat's Dr. Aladdin Rillo noted that the AML-CFT work in their 
Senior Officials Meeting on Transnational Crime (SOMTC) program was 
"not working well," and that Malaysia, as the lead shepherd for that 
stream, should take a more forceful role.  Malaysia punted back to 
the ASEAN Secretariat and the APG Secretariat on the need to do a 
region-wide stock-taking exercise on appropriate regional training 
programs for ASEAN. 
 
¶16. (U) Various donors also outlined their regional training 
programs.  Australia noted its work to set up FIU to FIU networking 
and mentoring (in a train-the-trainers format) and was happy to 
continue with regional workshops.  They noted work on financial 
investigations and asset forfeiture and confiscation done primarily 
bilaterally through their Indonesian JASLIC office in Semarang, 
Indonesia, but could consider opening them up to the region, if any 
country had a specific interest.  The World Bank offered to assist 
anyone with on-site inspections of financial institutions, for 
example, in sample testing.  The UK Charities Commission (UKCC) 
reported completing two regional workshops on Special Recommendation 
8 (on the non-profit organization (NPO) sector).  UKCC noted that 
Malaysia is the only ASEAN country that had completed a review of 
its regulations on the NPO sector, and UKCC stood ready to help, but 
could only provide their own time and travel, not the participants. 
 
Mekong 
------ 
 
¶17. (U) Efforts to work on technology seemed paramount in donors' 
minds.  Cambodia clearly had a long way to go as it has yet to draft 
a proper Criminal Code.  It planned to do so starting 60 days after 
the November 2008 election (i.e. in early 2009).  Malaysia mentioned 
that it and the ADB were co-funding/organizing 3 workshops on an AML 
Plan for Cambodia.  Lao PDR said they had received a total of 5 
STRs, all of which came from banks.  They currently lack an IT 
infrastructure.  The French said they were providing an FIU software 
system to Lao PDR that had been used in francophone Africa.  UNODC 
and Treasury's Office of Technical Assistance would continue 
providing training on Financial Investigation Techniques (FIT) in 
the Mekong region and also noted an August 18-22 FIU study tour to 
the Philippines. 
 
 
JAKARTA 00001396  005 OF 005 
 
 
Other APG Decisions 
------------------- 
 
¶18. (U) Aside from the substantive discussions on Southeast Asia 
reported above, the APG made several important decisions on it 
future operations, including: 
 
--- The formal appointment of a new rotating Co-Chair for the term 
2008-2010, Mr. Ong Hian Sun of Singapore's Commercial Affairs 
Department; 
 
--- Admission of the Maldives and East Timor as full members of the 
APG - the 37th and 38th members respectively; 
 
--- Adoption of a new Strategic Implementation Planning Framework by 
the APG to assist low capacity jurisdictions to effectively respond 
to recommendations made in mutual evaluation reports; 
 
--- Amendments to the APG's mutual evaluation procedures in relation 
to adoption of joint FATF/APG mutual evaluation reports to better 
reflect the APG's Associate Membership arrangements with the FATF. 
Changes were also made to the peer review mechanism to improve the 
quality and consistency of all APG reports. 
 
¶19. (U) Further information on these decisions can be found on the 
APG website www.apgml.org. 
 
¶20. (U) This cable was drafted by Finatt/Singapore and cleared with 
the head of the U.S. delegation to the APG. Any USG official with 
technical questions regarding the Indonesian MER or general APG 
matters may contact the U.S. Head of Delegation at 
Paul.Dergarabedian@do.treas.gov. 
 
HUME