VZCZCXRO1317
PP RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHTRO RUEHVK
RUEHYG
DE RUEHPG #0339/01 1681405
ZNR UUUUU ZZH
P 171405Z JUN 09
FM AMEMBASSY PRAGUE
TO RUEHC/SECSTATE WASHDC PRIORITY 1475
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBS/USEU BRUSSELS
RUEAWJA/DEPT OF JUSTICE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEFHLC/DEPT OF HOMELAND SECURITY WASHDC
RUEHGG/UN SECURITY COUNCIL COLLECTIVE
RHMFIUU/FBI WASHINGTON DC
RUCPDOC/USDOC WASHDC
RHEHNSC/NSC WASHDC
RUEAIIA/CIA WASHINGTON DC
RUEKJCS/DOD WASHDC
RUEADRO/HQ ICE DRO WASHINGTON DC

UNCLAS SECTION 01 OF 04 PRAGUE 000339 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB/ESC, EUR/ERA, LA/EBA/BRIAN EVANS 
TREASURY FOR GLOBAL AFFAIRS, TFFC, OFAC AND OSP 
ICE FOR TF INVESTIGATIONS - JOINT VETTING UNIT/DAVID KANE 
 
E.O.12958: N/A 
TAGS: EFIN ETTC EAID KTFN KWBG KPAL KJUS KCRM KNNP PREL
PTER, UNSC, SNAR, EUN, EZ 
SUBJECT: PART 2: U.S.-EU COUNTER-TERRORIST FINANCING WORKSHOP 
(PRAGUE MAY 27-28): WIRE TRANSFERS AND NEW PAYMENT METHODS 
 
Ref: PRAGUE 338 
 
NOT FOR INTERNET DISTRIBUTION 
 
¶1.  (U) This message contains an Action Request.  Please see 
paragraph 7. 
 
¶2.  (SBU) SUMMARY.  This is the second of two cables reporting on 
U.S.-EU Terrorism Finance Workshop held in Prague on May 27-28.  In 
response to U.S. diplomatic efforts, the Czech Presidency of the 
European Union (EU), in partnership with the upcoming Swedish 
Presidency, hosted the eighth in a series of expert-level U.S.-EU 
workshops on combating terrorism finance.  About 120 participants 
from EU member states and institutions, the U.S., and the UN 
Monitoring Team attended the workshop, which focused on 
opportunities for U.S.-EU cooperation in three new areas: wire 
transfers, non-profit organizations and new payment methods.  While 
recognizing differences between the U.S. and EU legal framework and 
practice, workshop participants focused on commonalities and agreed 
to prepare a common outreach paper to be approved by the U.S. and EU 
member states.  The next workshop will take place under the Spanish 
EU Presidency during the first half of 2010.  This cable reports on 
discussions relating to wire transfers, new payment methods and 
ideas for U.S.-EU future cooperation (Part 1 (reftel) addresses 
non-profit organizations).  Europeans requested USG assistance in 
bringing U.S. wire transfer companies into compliance with FATF SR 
VII.  END SUMMARY. 
 
-------------------- 
¶I. Implementation of FATF SR VII: Wire Transfers 
-------------------- 
 
¶3.  (SBU) Workshop participants recognized that terrorists often 
find ways to exploit new technology.  U.S. presenters expressed 
particular concern over e-payments/e-currency, online gaming and 
pornography sites, stored-value cards, and mobile payments.  In the 
first session, the U.S., EU and European private sector 
representatives exchanged experiences and discussed challenges 
related to the implementation of Financial Action Task Force (FATF) 
Special Recommendation VII (SR VII) on wire transfers.  EU speakers 
presented implementation of SR VII in the European legal framework, 
the European common understanding on wire transfers, Germany's 
implementation of SR VII at a national level, EU private sector 
implementation, and practical examples of transfers non-compliant 
with the regulations.  U.S. Department of the Treasury, Director of 
Strategic Policy Chip Poncy compared and contrasted the EU approach 
to SR VII with the U.S. approach, including a discussion of the 
comprehensive U.S. legal framework and challenges the U.S. faces. 
 
¶4.  (SBU) The U.S. and EU acknowledged that: 
 
-- Implementation of SR VII is crucial in identifying and addressing 
terrorist financing (TF) and other illicit financing risks for banks 
and other financial institutions, law enforcement and national 
security authorities, and sanctions enforcement authorities; 
 
-- The private sector continues to be an essential partner in 
combating financing of terrorism (CFT) and regulatory authorities 
must work with private sector to ensure compliance, including 
through enforcement actions where appropriate; 
 
-- The private sector is concerned by reports questioning the 
quality of the many government-issued lists of identifiers for use 
in banks' costly compliance software -- their measures can only be 
as good as the data they are checking against; 
 
-- The private sector struggles with implementing so many government 
watch lists without consolidated data (e.g., trade controls, 
economic sanctions, technology controls, terrorism lists, suspect 
government officials lists, money laundering lists, criminal 
activity lists, etc.); and 
 
-- Law enforcement and sanctions authorities must exploit data 
reported from financial institutions to ensure maximum benefit in 
 
PRAGUE 00000339  002 OF 004 
 
 
identifying and investigating TF and other forms of illicit finance. 
Both U.S. and EU government authorities should provide greater 
feedback to the financial community about the importance of SR VII 
in combating TF and other illicit finance. 
 
¶5.  (SBU) Following the presentations, multiple EU member state and 
institutional delegations raised concerns that most of the 
non-compliant wire transfers in their jurisdictions originate in the 
U.S. via U.S. wire transfer companies or banks.  The EU may not be 
able to force compliance with this law because the source of the 
problem originates under the U.S. jurisdiction.  EU banks may be 
reluctant to draw regulators' attention to the noncompliance of 
their U.S. partners for fear of losing key relationships, especially 
in today's challenging financial sector climate.  The U.S. 
delegation explained that this was probably due to a difference in 
legal threshold for mandatory identity disclosure. The U.S. 
delegation also pointed out that in regards to Western Union and 
other money service businesses (MSBs), the industry practice was to 
include identification information on all transfers over $1,000 (the 
FATF standard), even though the U.S. legal requirement was $3,000. 
Belgium's representative to the EU's "Three Level Three (3L3) 
Committees" (e.g., CEBS (Committee of European Banking Supervisors), 
CESR (Committee of European Securities Regulators), and CEIOPS 
(Committee of European Insurance and Occupational Pensions 
Supervisors)) Anti-Money Laundering Task Force (AMLTF) noted that it 
was important for financial institutions to maintain a dialogue with 
regulators and to notify them of countries which repeatedly fail to 
comply with SR VII.  A representative from Italy asked whether the 
U.S. and EU should sign a Memorandum of Understanding to address the 
gap between our SR VII approaches. 
 
¶6.  (SBU) The U.S. and EU agreed to engage regulators to explore 
ways to address noncompliance on SR VII through a collaborative 
approach with respective regulatory counterparts.  The U.S. also 
promised to share with EU FATF representatives information about 
possible upcoming opportunities to submit comments on potential 
changes to the U.S. rules relevant to SR VII via our open Notice of 
Public Rule-Making (NPRM) procedures. 
 
¶7.  (SBU) ACTION REQUEST / COMMENT:  Given the importance of this 
issue to several EU capitals, posts would benefit from coordinated 
U.S. interagency and regulatory guidance on how the U.S. and EU 
could address the SR VII discrepancy issue.  The EU appears willing 
to work with the U.S. in good faith to achieve full compliance with 
SR VII.  If the USG plans to meet the FATF standard by revising a 
threshold of $1000 for wire transfer company reporting requirements, 
this could help the EU in turn implement full compliance with the 
international standard.  END ACTION REQUEST / COMMENT. 
 
-------------------- 
II. New Payment Methods 
-------------------- 
 
¶8.  (SBU) Participants recognized that the payment market is fast 
developing.  New payment methods are continuously emerging to 
benefit consumers, but these also pose new threats of misuse by 
terrorists and criminals.  Participants agreed that risk assessment 
and deployment of countermeasures should strike the right balance 
between allowing the market to develop and minimizing the 
possibility of money laundering and terrorist financings abuses. 
 
¶9.  (SBU) Lars Rutberg of the Swedish Bankers' Association (SBA) 
described new market trends and the new regulatory framework in the 
EU, including: 
 
-- the new EU Payments Services Directive (PSD), to be implemented 
by the EU Member States by November 1, 2009, which applies not only 
to banks but to many other types of payment/financial institutions 
in the EU area such as money remitting businesses. 
 
-- the new EU "E-Money" Directive, adopted by the European 
Parliament on April 24, 2009, now awaiting adoption by the European 
Council in September of 2009. 
 
 
PRAGUE 00000339  003 OF 004 
 
 
-- Regulation 2560 on cross border payments, adopted by the European 
Council on April 24, 2009, which extends new regulatory coverage on 
payments to direct debits. 
 
¶10.  (SBU) Rutberg reported that there has been a significant 
improvement in wire transfer compliance in Sweden.  Upon immediate 
implementation of the FATF SR VII measures in Sweden concerning 
originator information on wire transfers, the Swedish Bankers' 
Association noted that approximately 30 percent of the transfers 
were non-compliant.  The majority of the non-compliant transfers 
involved transfers from or through American banks.  [See above.] 
The rate of noncompliance has since decreased:  currently 2 or 3 of 
every 1,000 transfers are non-compliant with the EU law.  The major 
technical problems continue to be the wrong format in which wire 
information is entered (i.e. not entered in SWIFT format, entered 
into incorrect boxes, and etc.). 
 
¶11.  (SBU) Rutberg focused on the role of the Euro Payments Council 
(EPC), established in 2002 to facilitate the migration from a 
national to a Single European Payment Area (SEPA).  The formation of 
the EPC was strongly supported by the European Central Bank (ECB) 
and the European Commission.  There are currently two rule books 
under SEPA: SEPA Credit Transfer, which came into force on 1/28/09; 
and SEPA Direct Debit, which will take effect in November 2009. 
Other new regulatory "frameworks" being developed by the ECB 
include: SEPA Online Payments, the E-Mandate (internet currency), 
mobile phone payments, and E-Invoice. 
 
¶12.  (SBU) David Kane, U.S. DHS/ICE, described the threat posed by 
the lack of regulation over stored value cards (SVCs).  While most 
money laundering and banking experts view SVCs as cash equivalents, 
SVCs are not subject to currency and monetary instrument reporting 
requirements (CMIR) in the U.S. upon importation/exportation that 
apply to cash, money orders and certain checks, creating a loophole 
for potential abuses.  For example, if criminal and terrorist 
organizations utilize SVCs to move large amounts of their illicit 
funds to/from the U.S., they could do so anonymously by using ATM 
machines for deposits and withdrawals, which would be very difficult 
for law enforcement to spot or track.  To prevent this, the SVCs 
should be made subject to the same regulatory regime upon 
exportation from, or importation into the U.S. (CMIR reporting) as 
cash and its equivalents. 
 
¶13.  (SBU) Rutberg echoed Kane's concerns and said that the SBA was 
closely monitoring these SVC service providers in Sweden, and has 
already shutdown numerous shady SVC providers.  Concluding the 
discussion, Veronica Fucile of the Bank of Italy applauded FATF's 
reconsideration of how to better regulate and handle alternate 
payment methods, which the Italian banking community views as ripe 
for abuse by terrorist organizations. 
 
-------------------- 
III. Ideas for U.S.-EU Future Cooperation 
-------------------- 
 
¶14.  (SBU) In the closing session, Tomas Rumpl,  Czech Presidency 
chair of the EU Council Working Party on Terrorism (COTER), proposed 
the following five guidelines for future U.S.-EU terrorist finance 
workshop cooperation on behalf of the EU: 
 
-- The Nine FATF Special Recommendations should constitute the basis 
for future dialogue; 
 
-- Countering terrorist financing must be dynamic, continuously 
engaging new and cross-pillar strategies; 
 
-- All relevant public authorities and industries must be involved. 
Dialogue with the private sector is a key factor in successful 
combating terrorist financing; 
 
-- The U.S.-EU dialogue should continue in the format of the 
workshops to which private sector representatives should be invited 
as appropriate; and 
 
 
PRAGUE 00000339  004 OF 004 
 
 
-- The workshops should be held once per year. 
 
¶15.  (SBU)  Announcing that the EU would continue to work on 
refining these guidelines, Rumpl emphasized that the EU is open in 
principle to discussing any terrorism finance-related topic in 
future workshops.  (Comment: The U.S. delegation offered informal 
feedback on this proposal on the margins of the event, but we must 
follow up.  The Czech proposal may be aimed at solidifying an EU 
consensus to allow a broader discussion with the U.S. on sensitive 
TF issues.  See also comment regarding workshop next steps in 
reftel.)  On behalf of the U.S. delegation, Poncy welcomed future 
dialogue, but noted the challenge of translating workshop 
discussions into action. 
 
¶16.  (SBU) In closing remarks, a European Commission representative 
reiterated a desire to better coordinate U.S. and EU CTF efforts in 
third countries, particularly to avoid duplication of efforts in 
providing technical assistance programs.  A German representative 
repeated a request made at the previous workshop to explore a 
similar venue for U.S.-EU experts to discuss challenges related to 
country-specific sanctions regimes.  The U.S. delegation welcomed 
this idea and agreed to participate if the EU wished to pursue. 
[Note:  The latter does not reflect a coordinated Government of 
Germany position or proposal.  German economic and finance 
ministries would actually likely oppose such an initiative if 
pursued formally.  Nonetheless, the Czech Presidency raised this 
proposal at the TF Troika the following day.  Troika participants 
agreed that country-based sanctions should be addressed in an 
alternative venue, perhaps during the presidency which is not 
hosting the annual TF workshop.]  Finally, workshop participants 
agreed to prepare a common outreach paper to be approved by the U.S. 
and EU member states. 
 
------------ 
Participants 
------------ 
 
¶17.  (U) U.S. participants included representatives from the State 
Department's Bureau of Economic, Energy and Business 
Affairs/Terrorist Financing and Economic Sanctions Policy, the 
State's Office of European Union and Regional Affairs; the U.S. 
Mission to the EU; U.S. Embassy Prague; U.S. Embassy Stockholm; the 
Treasury Department's Office of Global Affairs/Terrorist Financing 
and Financial Crimes Office (TFFC), Office of Strategic Policy 
(OSP), and the Department of Homeland Security's Terrorist Financing 
Investigations - Joint Vetting Unit, Immigration and Customs 
Enforcement (ICE).  TFFC and OSP made formal presentations in this 
workshop.  The approximately 100 European workshop participants 
included representatives from the EU member states, the EU 
Commission, the EU Council, EUROPOL, Switzerland, and the UN 
Monitoring Team. 
 
ThompsonJones