VZCZCXYZ0000
RR RUEHWEB

DE RUEHSJ #0277/01 0951939
ZNR UUUUU ZZH
R 051939Z APR 09
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC 0713
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SAN JOSE 000277 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR INL/LP KBROWN AND MAHERN; 
ALSO FOR WHA/CEN, WHA/EPSC:AWONG, AND EEB/ESC/TFS 
TREASURY FOR SSENICH, CCORREA, AND CGAMBLE 
 
E.O. 12958: N/A 
TAGS: ECON EFIN KCRM PGOV PREL SNAR CS
SUBJECT:  COSTA RICA: TREASURY CONDUCTS FINANCIAL ENFORCEMENT 
ASSESSMENT 
 
REF:  2008 San Jose 0930 
 
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SUMMARY 
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¶1. (U) A three-person team from the Department of Treasury's Office 
of Technical Assistance (OTA) met with key GOCR officials on 
financial crimes and enforcement issues from March 23-27.  The team 
arrived, at the request of the Central Bank President, to find an 
environment ripe for financial crimes due to untaxed and unregulated 
casinos, legalized prostitution and increased narco-trafficking. 
The OTA team met with government agencies ranging from financial 
institutions to law enforcement agencies to customs. 
 
¶2. (SBU) In the near term, OTA can provide workshop-type training to 
government officials on the challenges of standing-up a legislative 
and regulatory framework to govern casinos.  Later, the visiting 
team, led by Carlos Correa of OTA, will prepare an assessment which 
can be used to draft the terms of reference for launching an OTA 
Financial Enforcement program in Costa Rica. 
 
¶3. (SBU) Though U.S. Treasury funds support the assessment team's 
current work, funds supporting a Financial Enforcement program in FY 
2009 are not available.  Thus, Post has proposed using State INL/LP 
"bridge funding" during FY 2009 and the first quarter of FY 2010 to 
launch the program and make the best use of reform-minded officials 
in the current government.  Costa Rica often does not qualify for 
assistance based on strictly socio-economic measures.  However, the 
GOCR has the absorptive capacity and the willingness on this issue 
-- due to the involvement of the Ministry of Finance (an agency with 
a track record of success with OTA programs) -- to improve the 
financial crimes environment in Costa Rica.  We strongly believe 
that this new OTA program is worth the investment, and as soon as 
possible.  END SUMMARY. 
 
------------------------------- 
PROVIDING THE BROAD PERSPECTIVE 
------------------------------- 
 
¶4. (U) In response to a request letter from Costa Rican Central Bank 
President Francisco de Paula Gutierrez, the U.S. Department of the 
Treasury authorized an assessment of Costa Rica's systemic 
vulnerabilities to financial and economic crimes.  Carlos Correa 
(Assistant Director of Economic Crimes), Carl Gamble (Regional 
Director, Latin America), and Rick Hector (Senior Advisor, Internet 
& Casino Gaming) met with a wide range of officials in the Costa 
Rican Government, beginning with the Central Bank President and also 
including: 
 
-- Alberto Dent, President, National Council of Financial System 
Supervision, CONASSIF; 
 
-- Cecila Sancho Calvo, Director of Private Bank Supervision, and 
Nidia Varela Cordoba, Director - Department of Private Bank 
Inspection, Superintendency of Financial Entities (SUGEF); 
 
-- Juan Jose Flores, Superintendent, and Eddy Rodriguez Cespedes, 
Assistant Superintendent, Superintendency of Securities(SUGEVAL); 
 
-- Ana Lorena Brenes, Procuradora General (similar to a solicitor 
general), and Tatiana Gutierrez, Solicitor of Public Ethics under 
the Procuraduria General, Ministry of Justice; 
 
-- Jenny Phillips, Vice Minister - Income Administration, Jose 
Adrian Vargas, Treasurer, Desiderio Soto, Director - Customs, and 
Carole Quesada Rodriguez, Director - Internal Affairs Unit, Ministry 
of Finance; 
 
-- Marcela Chacon, Vice Minister, Ministry of Public Security; 
 
-- Jorge Rojas, General Director, and Francisco Segura, Sub 
Director, the FBI-equivalent Judicial Investigative Agency (OIJ); 
 
-- Marta Acosta, Sub-Controller, Office of the Controller General; 
 
-- Andrea Murillo, Director, Office of Technical Assistance and 
International Relations, Jose Cabrera - Organized Crime Unit 
Prosecutor, Patricia Cordero - Economics Crime Unit Prosecutor, and 
Walter Espinoza - Narcotics Unit Prosecutor,  Office of the Attorney 
General; and 
 
-- Mauricio Boraschi, Director, and Robert Quiros, Manager - 
Financial Intelligence Unit, Costa Rican Institute of Drugs (ICD). 
 
--------------------------------------------- - 
COMPLEX GOCR STRUCTURE COMPLICATES ENFORCEMENT 
--------------------------------------------- - 
 
¶5. (U) Embassy San Jose purposely designed a meeting program that 
delivered a broad panorama of perspectives for the visiting OTA 
team.  In general, Costa Rican governance is characterized by a 
diffusion of authority and multiplication of control mechanisms, 
which is relevant to the area of financial crimes.  Government 
structure blurs the familiar Executive-Legislative-Judicial 
relationship by a number of "autonomous" and "semi-autonomous" 
institutions reporting to one or more of the three principal 
branches of government.  Two examples make the point: 
 
-- the Office of the Controller General reports to the legislative 
branch but has very specific powers to exercise management control 
over every internal auditing department in the government; and 
 
-- the Judicial Branch houses virtually all criminal investigation 
work (by OIJ) and all prosecution (Attorney General), although the 
Executive Branch houses the major financial intelligence in the ICD 
which is part of the Ministry of the Presidency. 
 
----------------------------------- 
NEAR TERM STEPS:  CASINO REGULATION 
----------------------------------- 
 
¶6. (U) In the near term, the OTA team agreed to provide documents 
regarding key aspects of casino regulation.  However, OTA Advisor 
Hector cautioned that reference materials only hint, at best, at the 
enormity of the undertaking to stand-up a regulatory body supported 
by (1) well-crafted legislation which specifies which ministry/ 
agency has the authority to enforce gambling law, (2) regulations, 
and (3) "sub-regulations" or standard operating procedures for 
gambling enterprises. 
 
¶7. (SBU) Costa Rica is particularly vulnerable to money laundering 
activities originating in the gaming business since gambling is 
neither taxed nor regulated in Costa Rica.  The standing casino law 
on the books dates from 1922.  OTA is willing to return Hector and 
his Casino & Gaming Team to Costa Rica for a short training session 
for the GOCR to learn about the necessity, as advisor Hector 
described, to "regulate (gambling) all the way" since legislating 
and regulating the gaming industry is an "all or nothing" 
proposition. 
 
-------------------------------------------- 
MEDIUM TERM STEPS:  ASSESSMENT TEAM ANALYSIS 
-------------------------------------------- 
 
¶8. (SBU) The OTA assessment report will be very useful to Embassy 
San Jose, as we focus more closely on the key issues associated with 
financial and economic crimes; the report will detail the 
vulnerabilities of the Costa Rican financial system to criminal 
activity.  More importantly, the report will recommend the basis for 
collaboration with the GOCR on a financial enforcement/economic 
crimes OTA program.  Thus, U.S. Treasury and the GOCR can use the 
report to draft a terms of reference agreement which would serve as 
the basis for a formal OTA program in Costa Rica. 
 
----------------------------------------- 
LONG TERM STEPS:  PROPOSED OTA PROGRAMING 
----------------------------------------- 
 
¶9. (U) Once OTA releases its report (with clearances from the 
Embassy and key officials in the GOCR), Treasury will add Costa Rica 
to its list of possible projects for support in calendar year 2010 
by Treasury International Assistance Technical Agreement (TIATA) 
funds.  However, due to the late timing of the delivery of President 
Gutierrez's letter (October 2008), Treasury could only provide funds 
for an assessment team report, not a full program, in FY 2009.  If 
selected, Costa Rica could thus have to wait for at least seven 
months -- from release of the final report in May to the end of 
December - before receiving the OTA financial enforcement program. 
 
 
----------------------- 
STATE INL POSSIBILITIES 
----------------------- 
 
¶10. (U) In the interest of starting a program sooner than CY 2010, 
Embassy San Jose sent INL/LP a proposal outlining a program for 
"bridge funding," i.e. funds to launch a program in FY 2009 or first 
quarter of FY 2010.  The nature of such an OTA advisory program 
would be "intermittent," that is one or two advisors would travel to 
Costa Rica for two weeks once every two months.  If the INL support 
 
began as early as mid-July 2009, then Post projects a cost of USD 
130,000 for six trips (through the end of CY 2010).  If program 
support was restricted to the first quarter of FY 2010, then Post 
projects a cost of USD 65,000 for three two-week trips. 
 
------------------------ 
BRIDGE FUNDING RATIONALE 
------------------------ 
 
¶11. (SBU) The impetus to start a program during FY 2009 or the first 
quarter of FY 2010 directly relates to the timeline of the Arias 
Administration.  With elections scheduled for February 2010 and a 
new government taking office on May 1, the current government is 
likely to lose much of its effectiveness and focus by the end of CY 
¶2009.  The current leadership in the Ministry of Finance, Ministry 
of Justice, OIJ and the Costa Rican Drug Institute are committed to 
reform, but many of the incumbents will change when the new 
administration takes power in May, 2010. (The leadership of the 
Central Bank, CONASSIF, SUGEF, SUGEVAL, and the Office of the 
Controller remain in office past the 2010 elections.) Furthermore, 
tackling casino legislation and regulation, though daunting, merits 
starting a Financial Enforcement program as soon as possible since 
the vulnerabilities to money laundering, which are significantly 
compounded by growing narco-trafficking activity in Costa Rica 
(reftel), are wide open; virtually no supervision exists. 
 
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COMMENT 
------- 
 
¶12. (SBU) The visit by the OTA team reinforces our continued 
commitment to start a Treasury OTA Financial Enforcement program in 
Costa Rica.  Economic crime challenges will only grow thanks to 
Costa Rica's "three-point program on vice": untaxed and unregulated 
casinos, legalized prostitution, and growing narco-trafficking. 
(Costa Rica increasingly serves as an intermodal transshipment point 
for drug trade between South America and North America and Europe). 
The latter point is compounded by traffickers paying in product, 
which has produced a local drug addiction problem.  Combine these 
three "vices" with the lax legal environment (e.g., casino 
legislation from 1922), and opportunities abound for money 
laundering and terrorist financing. 
 
¶13. (U) Though Costa Rica does not often qualify for USG assistance 
since it ranks relatively higher than its Central American neighbors 
on socio-economic measures, it merits assistance in this case 
because of the capacity of the relevant institutions (the Central 
Bank and the Ministry of Finance) to absorb USG assistance, apply 
the benefits, and post demonstrable results.  The Ministry of 
Finance is a case-in-point as it has successfully applied the 
benefits of OTA programs on tax administration and budget management 
and continues to do so with debt management.  A Financial 
Enforcement program would encourage inter-ministerial coordination 
-- vital to pursuit of economic crimes -- and bolster Costa Rica's 
efforts to significantly improve its security environment. 
 
CIANCHETTE