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Viewing cable 05LIMA5392, PERU INTERNATIONAL NARCOTICS CONTROL STRATEGY

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Reference ID Created Released Classification Origin
05LIMA5392 2005-12-21 20:31 2011-08-25 00:00 UNCLASSIFIED Embassy Lima
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 04 LIMA 005392 
 
SIPDIS 
 
JUSTICE FOR OIA AND AFMLS 
TREASURY FOR FINCEN 
STATE FOR INL/LP, WHA, EB/OIA 
 
E.O. 12958: N/A 
TAGS: SNAR EFIN KCRM PREL PTER PE
SUBJECT: PERU INTERNATIONAL NARCOTICS CONTROL STRATEGY 
REPORT PART II FINANCIAL CRIMES AND MONEY LAUNDERING 
 
1.  The following is Post's submission as Part II of the 
2004-2005 International Narcotics Control Strategy Report 
(INCSR), regarding financial crimes and money laundering. 
 
OVERVIEW AND INTRODUCTION 
------------------------- 
 
2.  Narcotics-related and other money laundering is taking 
place, but existing laws do not provide reliable or adequate 
mechanisms to estimate its scale.  Such money laundering may 
be connected with narcotics-related activity originating in 
Peru, Colombia or elsewhere in the region, and may involve 
proceeds of narcotics sales in the United States.  Peru's 
economy is primarily cash-based, facilitating possible money- 
laundering.  The economy is approximately 65 percent 
dollarized, so money laundering is likely conducted 
primarily in U.S. currency.  Post has no specific 
information on the degree to which money laundering here is 
controlled by drug-trafficking or terrorist groups, but such 
links are probable. 
 
3.  Numerous former government officials, most from the 
prior Fujimori Administration, are under investigation for 
corruption-related crimes, including money laundering. 
These officials have been accused of transferring tens of 
millions of dollars in proceeds from illicit activities 
(e.g. bribes, kickbacks, etc.) into offshore accounts in the 
Cayman Islands, the U.S., and/or Switzerland.  The Attorney 
General, a Special Prosecutor, the office of the 
Superintendent of Banks (SBS) and the Peruvian Congress have 
conducted many investigations, some of which are ongoing, 
involving dozens of former GOP officials.  However, the 
money laundering laws prior to 2002 were very limited in 
scope.  Therefore, winning money-laundering convictions for 
conduct prior to 2002 will be challenging. 
 
4.  The Public Prosecutor has won two money-laundering 
convictions in 2005.  One case was related to public 
corruption.  The other involved money laundering of drug 
proceeds.  There are three cases currently underway in the 
Peruvian court system. 
 
5.  While Peru has made a number of important advances in 
its money-laundering regime, there remain several critical 
deficiencies.  The justice system moves extremely slowly, 
with cases taking years to develop.  There are a plethora of 
financial investigating units, with diverse police divisions 
each having their own small units.  These units frequently 
have little or no expertise in tracking or analyzing complex 
money-laundering activities.  Corruption is endemic within 
the judicial system, handicapping many investigations, 
possibly including money-laundering cases.  Finally, the 
informal sector of the economy is very large, greater than 
50 percent of the overall economy, which means that much of 
the money-laundering activity is taking place beyond the 
view and reach of Peru's anti-money laundering regime. 
 
PERU'S MONEY LAUNDERING LAW 
---------------------------- 
 
6.  In June 2002, Peru adopted substantial changes to its 
existing money laundering regime, significantly broadening 
the definition of money laundering beyond a crime associated 
with narco-trafficking.  Prior to the changes, money 
laundering was only a crime when linked to narcotics 
trafficking or "narcoterrorism," and included nine predicate 
offenses that did not include corruption, bribery or fraud. 
The definition of money laundering now includes all proceeds 
from a crime.  There remains confusion, however, on the part 
of some GOP officials and attorneys, over whether money 
laundering must still be linked to the earlier list of 
predicate offenses. 
 
7.  The amended money laundering law is brief and lacks 
implementing regulations.  U.S. Treasury and other observers 
consider that the GOP will need to significantly expand and 
revise the law and develop implementing regulations to make 
the law effective and applicable in practice. 
 
8.  Separate regulations prohibit laundering money through 
casinos, but the GOP lacks sufficient resources to 
adequately supervise this $1 billion industry.  Peru's 
exchange houses, which are legal, also function with little 
governmental supervision. 
 
9.  In July 2005, Peru passed a law to require that 
individuals and entities transporting more than $10,000 in 
currency or monetary instruments into or out of Peru file 
reports with customs.  Customs is forwarding those reports 
to Peru's Financial Intelligence Unit (FIU) every three 
weeks. 
 
THE FINANCIAL INTELLIGENCE UNIT 
------------------------------- 
 
10.  Peru's Financial Intelligence Unit was created by law 
in April 2002 to collect, analyze and disseminate 
information on money laundering and other financial crimes. 
Supporting modifications to Peru's Penal Code were also 
passed.  The law directed that the FIU be an autonomous 
body, reporting information on possible financial crimes to 
the Attorney General's office.  The FIU secures its budget 
from the Prime Minister's office, international sources and 
in small measure from assets seized as a result of FIU 
actions. 
 
11.  The law that established the FIU mandates that a broad 
range of financial and non-financial entities in Peru, 
including banks, companies, stock funds or brokers, casinos, 
real estate agencies, lotteries and customs agencies, 
provide the FIU with information on financial transactions 
of a suspicious nature.  The law requires that these 
entities know the identities of their customers.  The FIU is 
also empowered to request financial transaction information 
from exchange houses, metal and antiques traders, travel 
agencies and a variety of Peruvian government agencies. 
Existing Peruvian bank secrecy rules under Peru's 
constitution limit the effectiveness of the FIU law's 
disclosure requirements.  There are two bills under 
consideration in Congress to amend the constitution to 
strengthen the disclosure requirements. 
 
12.  Financial institutions are required to report and keep 
records of individual currency transactions of over $10,000 
or transactions totaling $50,000 in one month.  Non- 
financial institutions, such as exchange houses, casinos, 
lotteries or others, must report individual transactions 
over $2500 or monthly transactions over $10,000.  Major 
institutions are required to appoint supervisory-level 
compliance officials to ensure compliance with reporting 
requirements.  The implementing regulations direct that non- 
compliance with reporting requirements be sanctioned by 
respective institutions "according to applicable law." 
Peru, however, has not adopted "due diligence" or "banker 
negligence" laws making individual bankers responsible if 
their institutions launder money. 
 
13.  The FIU law and regulations emphasize training of 
banking and government personnel to identify suspicious 
financial activities and on the establishment of systems to 
prevent money laundering before it occurs.  The law protects 
reporting individuals (bankers or others) who cooperate with 
law enforcement agencies from any legal liability for money 
laundering conducted through their institutions.  Finally, 
the law provides for the confidentiality of information 
gathered by the FIU and allows the FIU to exchange 
information with international authorities and/or with FIUs 
in other countries. 
 
FIU NOW FULLY FUNCTIONAL 
------------------------ 
 
14.  After an initial delay, the FIU is up and running and 
appears to be fully functioning with a staff of 52.  As of 
November 2005, the FIU had received 869 reports of 
suspicious transactions.  Of those, the FIU asked the 
submitting entity for additional information on 
approximately 70 percent of the reports.  Peru joined the 
Egmont group of international FIU's in June 2005, and was 
elected to chair the Financial Action Task Force South, 
headquartered in Buenos Aries, Argentina. 
 
15.  As of November 2005, the FIU had sent 36 reports of 
money laundering to the Public Prosecutor for investigation. 
Of those cases, six investigations had been completed and 
were being presented to the judiciary for prosecution.  The 
FIU assisted the Public Prosecutor in the prosecution of two 
cases.  Although the cases did not originate with the FIU, 
the assistance in analyzing banking information was 
fundamental in gaining two convictions for money laundering. 
 
CRIMINAL PENALTIES 
------------------ 
 
16.  The money laundering law establishes penalties of three 
to 15 years imprisonment for money laundering and associated 
crimes.  Previously, the Peruvian penal code imposed a 
mandatory penalty of life imprisonment upon bank and finance 
officials convicted of money laundering (more severe than 
the penalties for drug trafficking).  While the amended law 
may eventually facilitate prosecutions, its brevity and lack 
of implementing regulations are likely to limit its 
effectiveness. 
 
ASSET FORFEITURE 
---------------- 
 
17.  Peru currently lacks comprehensive and effective asset 
forfeiture legislation.  The financial investigative office 
of the Peruvian National Police's Directorate of 
Counternarcotics has seized numerous properties over the 
last several years, but few were turned over to the police 
to support counternarcotics efforts, and no clear mechanism 
exists to distribute seized assets among government 
agencies.  A bill to amend the asset forfeiture regime is 
being considered by the congressional committee with 
jurisdiction. 
 
TERRORIST FINANCE 
----------------- 
 
18.  The Peruvian Congress approved Peru's accession to the 
International Convention for the Suppression of the 
Financing of Terrorism on 26 Oct 2001.  The Office of the 
Superintendent of Banks routinely circulates to all 
financial institutions in Peru updated lists of individuals 
and entities that have been included on the UN 1267 
Sanctions Committee's consolidated list as being linked to 
Usama bin Ladin and Al Qa'ida, as well as those that have 
been designated as terrorism financiers by the USG.  The 
Superintendent of Banks provides Post with copies of the 
responses of all financial institutions. 
 
19.  However, the Superintendent of Banks does not have the 
authority to seize or freeze assets of individuals involved 
in terrorist financing.  In the event that such assets are 
identified, the Superintendent must petition a judge to 
seize or freeze them.  A final judicial decision is then 
needed to dispose of or use such assets.  To date, no assets 
connected to designated individuals or entities have been 
identified, frozen or seized by banks operating in Peru. 
Foreign Ministry officials are working with other GOP 
agencies to complete the necessary legal revisions that will 
permit asset freezing actions. 
 
20.  Finally, to date Peru has taken no actions to thwart 
the misuse of charitable and/or non-profit entities that can 
be used as conduits for the financing of terrorism. 
 
INTERNATIONAL COOPERATION AND SUPPORT 
------------------------------------- 
 
21.  The U.S. Department of Treasury's Office of Technical 
Assistance (OTA) and Post developed a two-year technical 
assistance program to help Peru fight money laundering, 
other financial crimes and corruption.  Post arranged 
funding through the Narcotics Affairs Section (NAS) to 
support a resident Treasury advisor, who worked in Peru from 
November 1, 2003 of October 31, 2005.  The resident advisor 
worked closely with FIU staff to help them expand their 
operations and arranged FIU staff visits to the U.S., Spain 
and Guatemala and brought international experts to Peru to 
train FIU and other officials. 
 
22.  The resident advisor also coordinated assistance to the 
GOP in three other areas: 1) developing a strategic plan to 
implement an anti-money laundering regime; 2) developing a 
strategic plan to identify, investigate and prosecute money 
laundering cases; and 3) improving the efficiency and 
effectiveness of anti-corruption investigations.  One 
notable outcome in 2005 was the passage of legislation 
requiring that persons carrying more than $10,000 in 
currency notify customs upon entering the country. 
 
23.  The NAS of the U.S. Embassy in Peru budgeted $250,000 
for the purchase of a computer system for the FIU.  The 
system was purchased and installed in July 2005.  The OTA 
funded $50,000 in computer equipment for the anti-money 
laundering unit of the Peruvian National Police.  In June 
2005, an OTA advisor gave a presentation on regulation of 
the gaming industry to more than 100 representatives of the 
Office of Prosecutors.  In August 2005, FinCEN funded the 
travel and lodging for three Peruvian participants for a one- 
week money laundering training program in Vienna, Virginia. 
OTA funded an additional two positions. 
 
24.  In 2005, OTA and the Drug Enforcement Administration in 
Peru worked closely on a project related to the organizing 
of the Peruvian National Police and Customs presence at 
Jorge Chavez International Airport in Lima, Peru.  The 
project helped enhance the coordination between the two 
organizations and create a more cohesive operation.  OTA 
worked with Peruvian Customs to provide a two-week training 
program on detecting and interdicting illegal and undeclared 
bulk cash shipments.  The Department of Homeland Security, 
Immigration and Customs Enforcement provided the training. 
 
25.  Finally, the GOP is also working with GAFISUD, the IDB, 
the UN, Spain, Colombia and other organizations and 
countries on cooperative efforts to fight money laundering 
and corruption in Peru. 
STRUBLE