VZCZCXRO3167
PP RUEHIK
DE RUEHKB #0014/01 0080820
ZNR UUUUU ZZH
P 080820Z JAN 10
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC PRIORITY 2230
INFO RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES
RUEHAK/AMEMBASSY ANKARA 3754
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 BAKU 000014 
 
SENSITIVE 
SIPDIS 
 
DEPT. PASS TO TREASURY FOR COHEN 
EUR FOR CARC AND ACE 
INL/C FOR SILENSKY 
 
E.O. 12958: N/A 
TAGS: EFIN SNAR EIND PGOV PTER AJ
SUBJECT: AZERBAIJAN: TREASURY A/S COHEN DISCUSSES AML/CTF 
WITH MINISTER OF FINANCE STATE SECURITIES COMMISSION AND 
CENTRAL BANK 
 
REF: 09 BAKU 905 
 
BAKU 00000014  001.2 OF 003 
 
 
¶1.  (U) SUMMARY:  During his first visit to Baku, October 
21-22, Treasury Department Assistant Secretary for Terrorist 
Financing, David S. Cohen, met with Government of Azerbaijan 
(GOAJ) officials and private sector business representatives. 
 In meetings with the Minister Finance, Chairman of the 
Central Bank, and Chairman of the State Committee for 
Securities, A/S Cohen acknowledged GOAJ efforts to counter 
terrorist financing and recognized progress made on preparing 
a solid AML/CTF regime.  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 representatives from Azerbaijan's 
Pasha Bank and Unibank and a local representative of the 
European Bank for Reconstruction and Development as well as 
the Board of Directors of the American Chamber of Commerce 
(AmCham) were previously reported (REFTEL).  Azerbaijan's 
Central Bank has requested technical assistance to facilitate 
AML implementation and the further establishment of a 
Financial Investigations Unit.  Embassy supports this 
request.  End Summary. 
 
Minister of Finance 
---------------------- 
 
¶2.  (SBU)  In his meeting with Minister of Finance Samir 
Sharifov, A/S Cohen praised GOAJ law enforcement agencies for 
cooperating with relevant U.S. agencies in countering 
terrorist financing, recognizing that Azerbaijan is located 
in a volatile region, in between Iran and Russia's North 
Caucasus region.  Minister Sharifov concurred; saying, "As we 
are at the crossroads we need to look at theses issues with 
more care than we might want to - but we have to do it." 
Both acknowledged that narcotics and arms trafficking are 
interrelated with terrorist financing and agreed that one of 
the most effective ways to fight these illegal activities is 
to attack their financial support networks. 
 
¶3.  (SBU) Sharifov commented that he was part of the team 
that set up the joint Azerbaijan-U.S. Anti-Terrorist 
Commission in 2001 and declared the new anti-money laundering 
(AML) law to be a positive result of that cooperation.  He 
noted that as Co-Chair of the U.S. Azerbaijan Economic 
Partnership Commission (EPC) his office had always been in 
favor of the law.  He explained that because the law 
originally came up for parliamentary review at the same time 
as the global financial crisis hit, Parliament delayed 
passing it out of fear that it would decrease deposits. 
That, in conjunction with a short-lived speculative run on 
the banks, caused concern about a decrease in liquidity in 
Azerbaijan. 
 
¶4.  (SBU) Regarding the Financial Investigations Unit (FIU), 
he noted that it was originally offered to the Ministry of 
Finance, but said he felt that the Central Bank was a better 
location, as the Central Bank is in a better position to 
monitor and regulate private banks.   He commented that it 
took some time to find the right person to head the 
organization, but stated he had faith in (current director) 
Adshirin Qasimov's ability to do the job.  He noted that 
funding has already been allocated for the FIU to begin 
staffing up to do its work.  He agreed with A/S Cohen that 
the FIU regulations should apply to all financial 
institutions including banks, insurance agencies, notaries, 
and other agents of financial control. 
 
¶5.  (SBU) A/S Cohen expressed concern regarding the 
definition of terrorist financing in the current law, noting 
that it seemed to be written to address specific acts of 
terrorism, but still allowed for general financial support of 
such organizations.  Minister Sharifov said he would need to 
check the specific legislation but doubted it would have such 
a loophole because of the norms of Azerbaijani law whereby 
not only the criminal who attempts the act, but any and all 
supporters can also be prosecuted.  He reiterated the 
bankers' concerns that there need to be checks and balances 
in the system cautioning that a freehand to law enforcement 
agencies, who tend to overact in Azerbaijan, could be a 
"nightmare". 
 
¶6.  (SBU) NOTE:  Minister Sharifov is eager to restart the 
 
BAKU 00000014  002.2 OF 003 
 
 
EPC as soon as a new USG co-Chair is appointed (presumably 
EEB A/S Jose Fernandez) and indicated that the GOAJ would 
seek some movement on Azerbaijan's designation under Section 
907 of the Freedom Support Act, and the Jackson-Vanik 
amendment in the near term.  Noting that these two 
designations are detrimental to U.S. Azerbaijan economic 
relations he said, at the very least, they would hope for the 
"usual" waiver of Jackson-Vanik if the amendment could not be 
abolished by January.  End Note. 
 
Financial Relationships with Iran 
--------------------------------------- 
 
¶7. (SBU) A/S Cohen explained to Sharifov that the Financial 
Action Task Force's (FATF) concerns regarding Iran stem from 
Iran,s lack of anti-money laundering and terrorist financing 
controls.  He noted that in 2009 alone the FATF issued three 
statements urging  all jurisdictions to  apply effective 
counter-measures to protect their financial sectors from 
money laundering and terrorist financing risks emanating from 
Iran.   Cohen noted that one way to apply effective 
countermeasures is to apply enhanced scrutiny to 
correspondent relationships between Azerbaijani and Iranian 
financial institutions.  Sharifov remarked that Iran is 
Azerbaijan's neighbor, "but neighbors do not always get 
along."  He noted that the GOAJ understands the U.S. 
position, but counseled A/S Cohen that the U.S. needs to try 
to understand Azerbaijan.  Pointing out that Azerbaijan is 
largely landlocked between Iran, Georgia and Russia, and 
needs to use Iranian territory to access the Nakhchivan 
enclave, he remarked, "You are far away and big; and we are 
close - and small." He commented that "noisy" methods do not 
play well in Iran and offered that "if there is a problem, 
tell us and we'll try to find a quiet way to handle it." 
 
¶8.  (SBU)  Sharifov explained that the banking license for 
Bank Melli Iran was issued long ago and that the Central Bank 
was aware of the issues surrounding it, but they cannot 
simply close them down.  He stated that if the GOAJ did so, 
it would be politicized.  He noted that Iran has a lot of 
liquidity and no place to spend it, because of the sanctions 
squeeze. He commented that they need to earn some interest on 
their money and, therefore, it is highly possible that local 
banks and companies have some Iranian deposits. 
 
State Securities Commission 
--------------------------------- 
 
¶9.  (SBU) In a meeting with Rufat Aslanly, Chairman of the 
State Committee for Securities (SCS) and Anar Ahkmedov, Head 
of the Marketing Department, A/S Cohen inquired about the 
SCS's overall role in the new Anti-Money Laundering (AML) 
regime and its relationship with the Financial Investigation 
Unit (FIU).  Aslanly informed him that he is additionally the 
head of the interagency AML Commission.  Aslanly stated that 
passing the AML law was an important first step, but also 
noted they have since begun to take steps to implement it. 
This includes creating 4 codes, 16 laws, 6 Presidential 
decrees and more than 100 amendments.  He claimed the GOAJ 
had implemented institutional reforms, including creating 6 
supervisory agencies for securities, insurance, designated 
non-financial businesses and professions (DNFBP),  non-profit 
religious organizations, and banks. He stated their goal was 
to have the FIU functional by the end of December, before the 
next Moneyval review. He claimed that the FIU is fully 
independent; accountable only to the President. 
 
¶10.  (SBU) When asked about currency transaction reports 
(CTR), Aslanly stated that since 2003 the CTR and suspicious 
transaction reports (STR) requirements had only been applied 
to financial institutions.  Aslanly also noted that reporting 
standards on transactions were currently awaiting approval of 
the Ministry of Justice.  He said that now the responsibility 
for monitoring the reporting would transfer to the FIU and 
include DNFBPs by the end of December.   He noted that 
because they had been doing this 2003, they had a five-year 
database to analyze. 
 
¶11.  (SBU) Aslanly was particularly concerned about 
Azerbaijan being included in the 25 countries under review by 
FATF,s International Cooperation Review Group (ICRG).  He 
said the GOAJ was "surprised" to be included in the full 
review plan at the Paris FATF meeting in October 2009, but 
 
BAKU 00000014  003.2 OF 003 
 
 
noted that they now had an action plan.  He recalled that 
during the 2008 mutual evaluation by Moneyval, the GOAJ had 9 
non-compliant (NC) or partially compliant (PC) grades out of 
16 key and core FATF recommendations.  He said they believed 
their situation to be very different today.  Aslanly stated 
that the GOAJ planned to add changes to the criminal code and 
believed it would be able to demonstrate enough development 
to be excluded from the list.  A/S Cohen commented that while 
the USG could not predict Moneyval or FATF,s decisions in 
December and February, it was clear that GOAJ actions were 
moving in the right direction. He noted that strong political 
will to improve and finalize the legislation was necessary 
and that with this; the final result would be a 
well-functioning AML/CTF regime.  Aslanly noted the GOAJ had 
constructive and proactive interaction with the U.S. 
delegation and thanked the A/S for USG support. (NOTE:  On 
Dec. 11, 2009 Moneyval decided to eliminate the special 
monitoring regime applied to Azerbaijan.  End note.) 
 
¶12.  (SBU) When asked the same question posed to the Minister 
of Finance about a loop hole in the law allowing terrorist 
financing as long as it was not associated with a specific 
terrorist act, Aslanly stated that he did not believe that 
was the case since the current law mirrors all international 
conventions and would include the attempt or participation - 
knowingly or unknowingly as a crime. 
 
Central Bank 
--------------- 
 
¶13.  (SBU) In his meeting with Central Bank Chairman Elman 
Rustamov, A/S Cohen asked about banking supervision and 
control as well as AML/CTF developments. A/S Cohen praised 
the recent steps taken in Azerbaijan.  He also inquired about 
GOAJ plans to make the FIU, sometimes referred to as the 
Financial Management Unit (FMU) or Financial Management 
Service (FMS) functional.  Rustamov noted that the central 
bank had been working on the logistics, including staffing 
and operations, for over five years. He explained that 
transitional countries normally face difficulties with this 
type of thing but, highlighted the important steps the GOAJ 
had taken, especially in 2009.  These steps included the 
Presidential decree establishing the FIU, appointment of 
department heads, creation of separate office space, and 
adoption of an approved action plan. Rustamov expressed his 
concern regarding Moneyval and FATF assessments and noted the 
GOAJ would like to see more trust from the U.S. side, not 
pressure.  He described the U.S. position as &radical8 at 
the last FATF session and stated they would like a softer 
more supportive approach.  A/S Cohen commented that while the 
U.S. could not predict the FATF,s decision, we are happy to 
have been of assistance in preparing law and stand ready to 
advise and assist in implementing that law. 
 
¶14.  (SBU) Acknowledging Azerbaijan,s financial exposure to 
Iran as well as the common history and culture between both 
countries, A/S Cohen reminded the Central Bank Chairman of 
the FATF statements on Iran.  In response, Rustamov explained 
how the Central Bank transmitted the FATF statements to 
financial institutions.  Furthermore, Central Bank staff 
explained that the Baku branch of Bank Melli Iran operated 
within the Azerbaijani legal framework and had, on occasion 
identified and blocked suspect transactions involving 
designated entities within Iran in the past.   Rustamov 
closed the meeting by noting that Azerbaijan had minimal 
trade and economic relations with Iran, and that GOAJ 
authorities maintained strict monitoring over all foreign 
financial institutions. 
 
¶15.  (U) COMMENT:  Post has received copies of the Action 
Plan and a list of specific technical assistance requests and 
forwarded them on to INL and Treasury.  This is a rare 
opportunity to support a developing institution where the 
host country is particularly interested in receiving our 
support, and where our best interests can be served by 
providing that technical assistance.   Post requests EUR/ACE 
to provide funding to support this technical assistance 
program. 
 
¶16.  (U) Treasury has cleared this cable. 
GARVERICK