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PP RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSL RUEHSR RUEHTRO
RUEHVK RUEHYG
DE RUEHPG #0350/01 1741415
ZNR UUUUU ZZH
P 231415Z JUN 09
FM AMEMBASSY PRAGUE
TO RUEHC/SECSTATE WASHDC PRIORITY 1496
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 000350 
 
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: CORRECTED VERSION OF PRAGUE 339 - U.S.-EU 
COUNTER-TERRORIST FINANCING WORKSHOP: WIRE TRANSFERS AND NEW PAYMENT 
METHODS 
 
Ref: A. PRAGUE 348 
     ¶B. PRAGUE 339 
 
NOT FOR INTERNET DISTRIBUTION 
 
¶1.  (U) This message contains an Action Request.  Please see 
paragraph 7. 
 
¶2.  (SBU) SUMMARY.  This cable contains significant revisions to 
Prague 339 and should be regarded as replacing that cable.  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 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 
(Ref A) 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) 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 be able to 
effectively exploit data reported from financial institutions to 
 
PRAGUE 00000350  002 OF 004 
 
 
ensure maximum benefit in 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 forms of 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 / POST 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) 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.  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 financing 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 
 
PRAGUE 00000350  003 OF 004 
 
 
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. 
 
-- Regulation 2560 on cross border payments, adopted by the European 
Council on April 24, 2009, which extends new regulatory coverage on 
payments by 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 and   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 the same 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: 
 
-- Greater implementation of the Nine FATF Special Recommendations 
should constitute the basis for future US-EU CFT dialogue; 
 
-- Countering terrorist financing must be dynamic, continuously 
engaging new and cross-pillar strategies; 
 
-- All relevant government authorities and industries must be 
 
PRAGUE 00000350  004 OF 004 
 
 
involved.  Dialogue with the private sector is also an important 
factor in successfully combating terrorist financing; 
 
-- The U.S.-EU dialogue could continue to involve sessions with 
private sector representatives as appropriate; and 
 
-- The workshops should continue to be held at least once per year. 
 
¶15.  (SBU)  Announcing that the EU would work with the US to 
continue 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 Ref A.)  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 CFT 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 participantsagreed 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).  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. 
 
¶18.  (U) This cable has been cleared by the members of the U.S. 
Delegation. 
 
ThompsonJones