VZCZCXRO2655
PP RUEHIK
DE RUEHKB #0905/01 3231323
ZNR UUUUU ZZH
P 191323Z NOV 09
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC PRIORITY 2053
INFO RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES
RUEHAK/AMEMBASSY ANKARA 3672
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 BAKU 000905 
 
SIPDIS 
 
DEPT. PASS TO TREASURY FOR COHEN 
 
E.O. 12958: N/A 
TAGS: EFIN SNAR EIND PGOV PTER AJ
SUBJECT: AZERBAIJAN: TREASURY A/S COHEN DISCUSSES AML/CTF 
WITH BANKERS, BUSINESSMEN 
 
BAKU 00000905  001.2 OF 002 
 
 
¶1.  (U) SUMMARY:  During his first visit to Baku, October 
21-22, Assistant Secretary of the Treasury, David S. Cohen, 
met with relevant Government and Embassy officials as well as 
private sector bankers and business representatives.  A 
dinner meeting with representatives from Azerbaijan's Pasha 
Bank and Unibank and a local representative of the European 
Bank for Reconstruction and Development revealed the workings 
and limitations of the financial sector in Azerbaijan as well 
as the hopes of professionals in that field for Azerbaijan's 
new Financial Investigation Unit.   In his meeting with Board 
of Directors of the American Chamber of Commerce (AmCham), 
members briefed him on the investment climate and overall 
business environment in Azerbaijan within the scope of 
financial sector regulations.  In all of these meetings A/S 
Cohen praised the adoption of the new AML/CTF law as a 
positive step, but highlighted the need for awareness of the 
risks of doing business with Iranian financial institutions 
and businesses.  Meetings with the Minister Finance, Chairman 
of the Central Bank, and Chairman of the State Securities 
Committee are reported septel.  End Summary. 
 
Bankers' Dinner 
------------------ 
 
¶2.  (SBU) At a candid dinner with bankers, A/S Cohen learned 
about the daily trials and tribulations of the financial 
community in Azerbaijan and heard first hand impressions of 
how the new FIU and Anti-Money Laundering/Counter Terrorism 
Financing (AML/CTF) law will affect their daily operations. 
The bankers noted that there are some serious structural 
problems in the financial sector in Azerbaijan.  They 
explained that lending rates are extremely high because there 
is not enough cash in the economy, so banks have to offer 
high deposit return rates to entice customers.  Terms of 
loans are very short, and a proper mortgage market has yet to 
develop.  They also noted that currency exchange controls 
limit their ability to process international transactions. 
 
¶3.  (SBU) Regarding the new FIU, the bankers felt that while 
it was a good step, it should be the final stage of the 
process, not the first.  They explained that the GOAJ enacted 
its anti-corruption law four years ago, but has yet to 
enforce it; and noted that if enforced, it would be 
"revolutionary."  They stated that they are currently 
employing Customer Due Diligence and other global best 
practices and noted that they are happy to comply with 
transaction report regulations, as these relieve them of some 
responsibility.  (NOTE:  Most banks are currently tracking 
transactions over 50 thousand Azerbaijani Manat (AZN), or 
about USD 60,000; while the new law lowers this to 20 
thousand AZN.  End Note. )  They are relieved that the FIU 
was placed under the Central Bank and praised the new 
Director of the FIU, Adishirin Qasimov, as being well 
qualified for the job.   The new FIU will be called the 
Financial Monitoring Service. They did express concern that 
not just the letter, but the spirit of the law be followed 
and that the FIU act responsibly in its use of the reports. 
They also believe the Central Bank should authorize private 
banks as AML agents. 
 
¶4.  (SBU) In response to A/S Cohen's queries about the type 
and amount of business conducted in Azerbaijan with Iran, the 
bankers noted that trade with Iran tends to be cash based and 
denominated in USD.  They informed A/S Cohen that if there 
were no sanctions on Iran, it would have little to no effect 
on the business of Bank Melli Iran (BMI), because the volumes 
BMI deals with are "miserable" and sanctions don't really 
touch the cash-based businesses operating in Azerbaijan.  A/S 
Cohen urged the bankers to be cautious in any dealing which 
might include Iranian companies as partners since front 
companies were often used by FATF-identified entities to 
continue their illicit operations. 
 
Breakfast with AmCham 
---------------------------- 
 
¶5.  (SBU) At a breakfast meeting with the Board of Directors 
of the American Chamber of Commerce, A/S Cohen discussed 
Azerbaijan's new Financial Investigation Unit (FIU) and 
assured the board that the new GOAJ law on Anti-Money 
Laundering and Countering Terrorism Finance (AML/CTF) while 
not perfect was definitely a step in the right direction.  He 
fielded questions about terrorism finance in Azerbaijan, 
explaining that considering historical evidence - Azerbaijan 
was identified as a transit country for terrorists and 
terrorism finance after 9/11 -- the overall neighborhood of 
Azerbaijan and previously poor regulations it was safe to 
 
BAKU 00000905  002.2 OF 002 
 
 
assume that terrorist financing is taking place to some 
extent, but that the scope was as yet unknown.  Given the 
rush of oil funds into Azerbaijan in recent years, money 
laundering is also of concern. 
 
¶6.  (SBU) A/S Cohen pointed out that Bank Melli of Iran, 
which is not a member of AmCham, had been identified as a 
supporter of Iran's nuclear proliferation program.  He 
explained that money launderers and terrorist financiers look 
for the least regulated banking environs to conduct their 
transactions.  He noted that because Iran has no AML/CTF 
regime at all, the Financial Action Task Force (FATF) has 
issued a series of statements, most recently in October 2009, 
warning against doing business with Iranian banks.  A/S Cohen 
provided a copy of the October statement to the attendees. 
 
¶7.  (SBU) In response to his concerns that banks in 
Azerbaijan are aware of what will be asked of them under the 
new AML/CTF law and FIU regime, AmCham members noted that 
most banks in Azerbaijan take their reporting 
responsibilities seriously.  They noted that the Central Bank 
is one of the few government agencies that is well run and 
opined that historically in Azerbaijan implementation of 
banking sector regulations has been vigorous, even to the 
point of being ridiculous.  They claimed that 
over-implementation tends to be the problem with these types 
of initiatives and hoped that there would be a system of real 
checks and balances versus mere window dressing. 
 
¶8.  (U) A/S Cohen's office has cleared this cable. 
LU