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DE RUEHPU #0408/01 1061158
ZNR UUUUU ZZH
R 161158Z APR 09
FM AMEMBASSY PORT AU PRINCE
TO RUEHC/SECSTATE WASHDC 9849
INFO RUEHZH/HAITI COLLECTIVE
RUEHBR/AMEMBASSY BRASILIA 2287
RUEHMN/AMEMBASSY MONTEVIDEO 0359
RUEHSA/AMEMBASSY PRETORIA 2025
RUEHQU/AMCONSUL QUEBEC 1400
RUMIAAA/HQ USSOUTHCOM J2 MIAMI FL
RUCNDT/USMISSION USUN NEW YORK 1848
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 05 PORT AU PRINCE 000408 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR WHA/EX AND WHA/CAR 
S/CRS 
SOUTHCOM ALSO FOR POLAD 
STATE PASS AID FOR LAC/CAR 
INR/IAA 
INL FOR KEVIN BROWN, DIANNE GRAHAM AND MEAGAN MCBRIDE 
WHA/EX PLEASE PASS USOAS 
 
E.O. 12958: N/A 
TAGS: PGOV ECON ASEC SNAR HA
SUBJECT: CORRECTED COPY OF PORT AU PRINCE 000330 - TREASURY 
DELEGATION ASSESSES RESULTS OF ONGOING USG TAX REVENUE AND 
ANTI-MONEY LAUNDERING PROJECTS IN HAITI 
 
PORT AU PR 00000408  001.2 OF 005 
 
 
¶1.  (U) This message is sensitive but unclassified - please protect 
accordingly. 
 
¶2.  (U) SUMMARY:  The Treasury Department's Deputy Assistant 
Secretary (DAS) for Technical Assistance Policy, Larry McDonald, 
visited Port au Prince February 4-5 to make an interim assessment of 
the results of the USG's ongoing tax revenue and anti-money 
laundering projects in Haiti.  DAS McDonald met both formally and 
informally with a variety of officials from the public sector, as 
well as representatives of the Haitian private business community. 
Great progress has been made, but important areas for development 
remain.  END SUMMARY 
 
---------- 
BACKGROUND 
---------- 
 
¶3.  (U)  Haiti relies heavily on USG support; fully half of its 
annual donor aid of USD800 million comes from the United States, in 
addition to the USD600 million annual budget of the United Nations 
Stabilization Mission In Haiti (MINUSTAH), of which the USG is the 
largest contributor. 
 
¶4.  (U) As part of the USG aid package, the Treasury Department's 
Office of Technical Assistance (OTA), which operates in over 60 
countries worldwide, has a Revenue Policy and Revenue Administration 
Program (the tax revenue project), and an Economic Crimes Program 
(the anti-money laundering project), currently delivering 
intermittent technical assistance in Haiti.  The tax revenue and 
anti-money laundering projects are funded primarily by USAID and the 
DOS Bureau of International Narcotics and Law Enforcement Affairs 
(INL), respectively. 
 
¶5.  (U) The OTA is currently considering expanding its assistance in 
Haiti to cover fiscal and monetary policy programs.  In addition, 
Post representatives involved in the President's Emergency Plan for 
AIDS Relief (PEPFAR) in Haiti, which will receive almost USD100 
million in USG funding in FY10 and under which Congress has recently 
tasked the Treasury Department with certain financial project and 
training responsibilities, discussed receiving budget training and 
other technical support from OTA. 
 
¶6.  (U) The tax revenue project, led by OTA Advisor Charles Shea, 
works with the Haitian Direction Generale des Impots (General 
Directorate of Taxes, or DGI) to improve tax administration. 
Technical assistance and training are aimed at developing methods of 
increased tax collection, modernizing systems and facilities, and 
reviewing and revising the Haitian tax code.  In late 2007, USAID 
and OTA agreed to co-fund a three-year tax project (2008-2010) to 
build on the technical assistance delivered to DGI in prior years. 
In 2008, USAID contributed 75 percent of the funding (or 
USD250,000), with the 25 percent balance coming from OTA 
(USD85,000).  In 2009, USAID will again fund USD250,000, and OTA 
will increase its funding to USD137,000. 
 
¶7.  (U) The anti-money laundering project, led by OTA Advisors Fred 
Borakove and Dave Chainer, has been working for the past five years 
with a variety of public sector agencies to help build Haiti's 
capacity to address the investigation of financial crimes, money 
laundering, and asset seizure and forfeiture.  It has facilitated 
the reorganization of the Unite Centrale de Renseignements 
Financiers (Central Financial Intelligence Unit, or UCREF), for 
analysis of financial intelligence, and the resurgence of the Bureau 
des Affaires Financieres et Economiques (Bureau of Financial and 
Economic Affairs, or BAFE), the investigatory counterpart to UCREF, 
under the direction of the Police Nationale d'Haiti (Haitian 
National Police, or HNP).  The anti-money laundering project is 
currently funded entirely by INL, and continued funding through at 
least 2011 is anticipated. 
 
¶8.  (U) DAS McDonald, accompanied by the OTA's Associate Director 
for Economic Crimes Carlos Correa and the OTA Advisors, met with 
Post representatives (from USAID and the Narcotics Affairs, Economic 
 
PORT AU PR 00000408  002.2 OF 005 
 
 
and Political Sections) involved or interested in the tax revenue 
and anti-money laundering projects.  In addition, meetings were held 
with many representatives of the Government of Haiti (GOH), 
including Minister of Justice Jean Joseph Exume; MinFin Secretary of 
State Sylvain Lafalaise and members of his staff dealing with 
budget, tax and customs; DGI Director General Jean Frantz Richard, 
DGI Deputy Director General Robert Joseph, and Director General Rony 
Joseph of the Unite de Gestion et de Controle Fiscal (Large 
Taxpayers' Office, or UGCF); UCREF Director General Jean-Ostricht 
Hercules and UCREF Deputy Director General Jean Robert Achille; 
Banque Nationale d'Haiti (Central Bank) Vice Governor Philippe 
Lahens; and BAFE Commissar Normil Rameau.  DAS McDonald also met 
with members of the Haitian business community at a dinner hosted by 
the Charge and at a breakfast hosted by the Haitian-American Chamber 
of Commerce and Industry (AmCham). 
 
------------------- 
TAX REVENUE PROJECT 
------------------- 
 
¶9.  (U) DGI Deputy Director General Robert Joseph says that DGI has 
"benefited to the maximum" from OTA's programs, and now has a 
strategic plan and an action plan covering the next three and five 
years, respectively.  Initiatives have begun in the areas of 
revision of the Haitian tax code (including implementing an income 
level below which a taxpayer is not subject to tax; simplifying the 
definition of income, including a clear rule that the proceeds of 
crime are part of the taxable base; and adding criminal penalties 
for tax fraud and evasion); tax audits and collections (including 
the development of written procedures manuals and an ethics code); 
training (in the areas of audit, communication, and management); and 
taxpayer service and education. 
 
¶10.  (U) NOTE:  Currently, there is only one provision of Haitian 
law that criminalizes tax fraud, and it is extremely limited in 
scope.  The existing penalty is applicable only if an accountant has 
submitted a false tax return on a taxpayer's behalf, and in such 
case only the accountant is criminally liable.  In any other case, 
the GOH must rely on civil penalties, which thus far have not been 
widely enforced.  DAS McDonald encouraged the GOH to make better use 
of existing civil penalties, and Minister of Justice Jean Joseph 
Exume committed to conduct a comprehensive review of existing 
legislation to determine the scope of any civil authority that 
already exists to punish tax fraud and evasion. 
 
¶11.  (U) As a direct result of the OTA's technical assistance, UGCF 
recently conducted an insurance audit training module.  UGCF tracked 
the results of the seminars, and estimated an increase from 
USD13,000 to USD 124,000 in post-training annual tax revenues at one 
Haitian insurance company alone.  UGCF Director General Rony Joseph 
attributes the almost tenfold increase directly to the OTA training; 
"understanding how to tax a specialized industry requires a certain 
knowledge of that industry, so training is key."  The biggest 
problem, Joseph said, was that the auditors did not know how to 
interpret the financial statements of insurance companies.  Next, 
UGCF intends to conduct similar training and validation studies for 
the banking industry, and then either construction or 
telecommunications. 
 
¶12.  (U) The GOH's customs authority does not yet receive direct OTA 
assistance, but Director General of Customs Jean-Jacques Valentin 
sees great potential for future collaboration with the Treasury 
Department.  Customs is a big GOH revenue source - second only to 
DGI - and needs to be "professionally armed to confront challenges 
at the border."  Customs needs help with training (to fight fraud 
and illicit trafficking), obtaining necessary equipment, and 
exchanging information ("we cannot manage risk without 
information").  Customs must facilitate investment and must "be 
competitive."  Valentin believes that a mutual assistance agreement 
for technical assistance would be appropriate. 
 
¶13.  (U) Many GOH representatives (including Minister of Justice 
Jean Joseph Exume, DGI Deputy Director General Robert Joseph, and 
 
PORT AU PR 00000408  003.2 OF 005 
 
 
Director General of Customs Jean-Jacques Valentin) believe 
information exchange agreements with the USG would facilitate more 
efficient operations of their respective agencies, and plan to 
formally approach Post with such requests.  According to OTA, access 
to banking information is the biggest "stumbling block" when 
negotiating exchange of information agreements.  A 2005 Haitian 
Presidential Decree, Article 63-1, provides a legal mechanism by 
which DGI can gain access to bank records in cases where a tax audit 
is being conducted.  During DAS McDonald's visit, there was some 
discussion as to whether this decree is legally enforceable. 
Minister of Justice Exume confirmed that Article 63-1 has the force 
of law because when there is no Parliament (as was the case in 
2005), the President is authorized to issue decrees that have the 
force of law.  Because Article 63-1 has not been subsequently 
revised or revoked by Haiti's Parliament, it continues in effect as 
issued in 2005 and is binding as law.  However, DGI Deputy Director 
General Joseph pointed out that this authority is in practice 
"difficult to apply," because the law currently in force requires 
only that a list of all accounts held by persons that are the 
subject of a tax audit be provided to DGI upon request.  However, 
the contents of these accounts are available only if the taxpayer 
agrees or DGI obtains authorization from the relevant trial court. 
This year the Haitian parliament will consider a revised law (based 
on a model provided by the OTA) that would be easier to enforce. 
 
----------------------------- 
ANTI-MONEY LAUNDERING PROJECT 
----------------------------- 
 
¶14.  (U) The USG's technical assistance has contributed to several 
recent successes in the fight against economic crimes.  For example, 
BAFE recently seized USD21 million of assets located in Haiti from 
Haitian drug dealers convicted in U.S. courts, and is building 
investigatory expertise and capacity to handle kidnapping and 
corruption cases relating to financial crimes.  Further, UCREF 
expects to increase its analyst staff from four to fourteen, and is 
obtaining a "state of the art" electronic system for receiving 
information from not just banks but also from future reporting 
entities (for example, gambling establishments, exchange houses, 
wire transfer providers, microfinance institutions, and advisory 
firms that deal with financial transactions) and other data sources. 
 In addition, Central Bank examiners are learning to identify 
potential money laundering violations. 
 
¶15.  (U) Minister of Justice Exume explained that while the recent 
asset seizures were successful, an administrative structure for 
disbursing funds to GOH actors involved in counternarcotics efforts, 
including anti-money laundering, needs to be established.  To 
preserve maximum flexibility, the Ministry of Justice and Haitian 
President Rene Preval will decide periodically on an appropriate 
percentage of seized assets to be allocated to each relevant agency, 
based on the budget of each.  However, no mechanism currently exists 
to monetize non-cash receipts, which represent the majority of 
seizures to date. 
 
¶16.  (U) Minister Exume also said that while anti-money laundering 
and drug trafficking laws have existed since 2001, there is an 
ongoing lack of clarity regarding procedures.  Minister Exume noted 
that the appointment of judges with specialized knowledge in the 
subject matter fields (which is not provided for under current law) 
and nationwide jurisdiction is essential. 
 
¶17.  (U) According to UCREF Director General Jean-Ostricht Hercules, 
UCREF (Haiti's financial intelligence unit, or FIU) and BAFE (the 
HNP investigatory counterpart to UCREF) have an excellent rapport 
with each other.  They are "two complimentary institutions" with a 
"dynamic" relationship and a "regular exchange of information" both 
with each other and with other FIUs in the Caribbean region.  UCREF 
is pursuing negotiations to join the Egmont Group of FIUs, but 
before being accepted and accredited must finalize its 
anti-terrorism financing law.  The draft legislation, which the OTA 
anti-money laundering project team has already commented on, is 
expected to go on the Haitian legislative agenda this year. 
 
PORT AU PR 00000408  004.2 OF 005 
 
 
 
-------------------- 
PRIVATE SECTOR VIEWS 
-------------------- 
 
¶18.  (SBU)  At the Charge's dinner and AmCham breakfast, DAS 
McDonald met with representatives of the Haitian public sector not 
directly involved in the OTA projects, the international community, 
and the Haitian private sector.  Participants included a Central 
Bank representative; a Haitian legal consultant; a representative of 
Canadian International Development Agency (CIDA); the President of 
the Haitian Bankers Association; the CEO of Digicel, the Caribbean's 
leading cellular provider and Haiti's largest taxpayer; the Chief 
Economist of Sogebank, Haiti's largest bank; and the Haitian country 
manager for American Airlines.  DAS McDonald told these audiences 
that the USG's interest in providing technical assistance is not 
just for the benefit of the public sector; the OTA wants to ensure 
that legitimate business activity in Haiti is not being undermined. 
In response, Haitian business leaders told DAS McDonald (in addition 
to voicing their complaints about DGI inefficiency (see paras 20-23 
below)) that they are frustrated by GOH inertia.  Digicel's CEO said 
she tried to negotiate a contract to provide internet service 
covering 95 percent of the country, but could not obtain a GOH 
license, with the result that Haitian internet access remains 
spotty, particularly in rural areas. 
 
¶19.  (SBU)  AmCham members also reacted strongly against what they 
view as an external impediment to their livelihoods - the Haiti 
travel warning issued by the USG in late January, which updated the 
previous travel warning from April 2008.  They feel that the "defer 
all non-essential travel" message of the travel warning (which, it 
should be noted, is not substantively different from the April 2008 
warning) hampers their ability to conduct business effectively.  For 
example, the Digicel CEO said that Cisco IT technicians must travel 
from France to render technical assistance at Digicel's offices, 
since Cisco employees in the United States are not permitted to 
travel to Haiti due to the travel warning. 
 
¶20.  (SBU) 70 percent of the GOH's tax revenue is attributed to UGCF 
(i.e., from large taxpayers), and UGCF collects 96 percent of what 
it assesses.  As a result, DGI understandably continues to focus on 
large taxpayers in its effort to expand the taxable base.  However, 
members of the Haitian private business community expressed to DAS 
McDonald their vehement dissatisfaction that DGI continues to pursue 
them (who in most cases are already compliant), rather than focusing 
on other, mostly smaller, taxpayers, who in many cases are 
completely noncompliant.  In 2007, the six biggest taxpayers in 
Haiti contributed 60 percent of Haiti's overall tax revenue; Digicel 
alone paid USD24 million. 
 
¶21.  (SBU) According to one AmCham member, "tax evasion in Haiti is 
a national sport."  The GOH is "irresponsible" and is incapable of 
long-term planning.  It needs to give "incentives" for 
small-to-mid-size businesses to "become part of the formal economy" 
and "create a culture of tax compliance."  There is currently no 
formal appeals process to protest a tax assessment.  Fourteen months 
ago, a group of private sector taxpayers made a written proposal to 
President Preval for improving the Haitian tax system.  To date, 
they have received no response.  According to one AmCham member, "if 
the GOH does not start doing its job, Haiti's stability is at risk." 
 
 
¶22.  (SBU) Another AmCham member said that the problem of 
noncompliance is not due to loopholes in the law, but rather to 
corruption; "the cost of being corrupt is still less than the cost 
of compliance."  Evidence of this is rampant.  Tax officials are 
underpaid because they are unofficially expected to "take a cut" 
from what they collect.  Further, only one public official to date 
has made a declaration of his net worth; such a declaration is 
mandatory with respect to a large group of public officials. 
Finally, certain provisions of currently existing law seem to invite 
corruption.  For example, two accountants are required to certify a 
company's financial statements, which is literally impossible, since 
 
PORT AU PR 00000408  005.2 OF 005 
 
 
there are only four certified accountants in all of Haiti. 
 
---------- 
CONCLUSION 
---------- 
 
¶23.  (U)  The GOH representatives uniformly recognized, and 
expressed great appreciation for, the progress that has been made as 
a result of the OTA projects.  Cooperation between the USG and GOH 
has become closer in the past several years, and the "first fruits" 
of the OTA projects are evident.  DAS McDonald's visit highlighted 
the need to continue and expand the well-received OTA programs. 
 
 
¶24.  (U) DAS McDonald reflected that all notable successes in USG 
technical assistance programs share two common factors; first, the 
USG must be patient in its expectations of results, and second, the 
relevant GOH actors must have the support of higher GOH leadership. 
Further, DAS McDonald advised all GOH actors to be flexible and 
practical in their economic development plans, and to recognize that 
"small steps that accomplish slow but steady change are better than 
large ones that go nowhere." 
 
¶25.  (SBU) COMMENT:  Although much success is evident, important 
areas for development remain with respect to Haitian financial, 
economic and revenue policy, practice and implementation.  In 
particular, although the anti-money laundering project GOH actors, 
especially new Minister of Justice Jean Joseph Exume, are viewed as 
fully engaged (which will be crucial in moving forward with asset 
seizures), the tax revenue project GOH participants are perceived as 
somewhat less engaged and proactive, particularly by the private 
sector (see paras 20-23 above). 
 
¶26.  (U) This cable has been cleared by DAS McDonald. 
 
TIGHE