ID:197817
    Date:2009-03-19 16:13:00
    Origin:09BUENOSAIRES313
    Source:Embassy Buenos Aires
    Classification:CONFIDENTIAL
    Dunno:09BUENOSAIRES257
    Destination:VZCZCXYZ0000
OO RUEHWEB

DE RUEHBU #0313/01 0781613
ZNY CCCCC ZZH
O 191613Z MAR 09
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3343
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUEAIIA/CIA WASHINGTON DC IMMEDIATE
RUEABND/DEA HQS WASHINGTON DC IMMEDIATE
RHMFISS/DEPT OF HOMELAND SECURITY WASHINGTON DC IMMEDIATE
RHMFISS/DEPT OF JUSTICE WASHINGTON DC IMMEDIATE

    
C O N F I D E N T I A L BUENOS AIRES 000313 
 
SIPDIS 
 
E.O. 12958: DECL: 03/18/2019 
TAGS: KTFN, EFIN, PTER, PREL, PARM, MNUC, KNNP, AR 
SUBJECT: ARGENTINE TAX AMNESTY LAW LOOKS ACCEPTABLE ON 
PAPER, BUT CONCERNS REMAIN ABOUT ENFORCEMENT 
 
REF: BUENOS AIRES 257 
 
Classified By: Ambassador E. Anthony Wayne for Reasons 1.4 (b,d) 
 
------- 
Summary 
------- 
 
1. (C) The local controversy over Argentina's new tax amnesty 
law continues, in part due to the uproar that followed 
mention of the law in the International Narcotics Control 
Strategy Report (INCSR) on money laundering in Argentina 
(reported Reftel).  The GoA dismisses concerns that the new 
law will facilitate money laundering, and made assurances 
during the late February Financial Action Task Force (FATF) 
plenary that Argentina will continue to comply with its 
international commitments with regards to anti-money 
laundering and counter terrorism finance (AML/CFT).  FATF's 
President recently told Argentine press that "It's not enough 
to have a good law, you have to apply it," and noted that 
FATF will review the GoA's implementation of the law during 
its evaluation of Argentina this fall.  Local bankers say the 
law has damaged the reputation of Argentina's financial 
system and they do not expect it to succeed in repatriating 
significant funds.  Legal experts say the law, its 
implementing regulations, and Argentina's overall AML/CFT 
regime together contain sufficient safeguards to prevent 
money laundering.  However, these experts worry that the GoA 
does not have the legal and regulatory capacity to enforce 
the controls.  They also warn that the tax amnesty law could 
be used to legitimize local cash holdings derived from 
corruption and gambling operations.  The area of concern, 
therefore, as with the overall Argentine AML/CFT legal and 
regulatory regime, is lack of enforcement -- an issue FATF 
should focus on during its evaluation.  End Summary. 
 
--------------------------------------------- ------- 
Background: Tax Amnesty and Capital Repatriation Law 
--------------------------------------------- ------- 
 
2. (SBU) In November 2008, Argentina's President sent a bill 
to Congress to encourage the repatriation of funds held by 
Argentine individuals and companies abroad.  The Argentine 
Congress approved the bill December 18; it entered into force 
December 24.  Under this law, companies or individuals have a 
six-month window, beginning March 1, 2009, to declare funds 
held abroad (or outside the financial system) to the local 
tax authority (AFIP).  Those choosing to keep these funds 
abroad will be charged an 8% tax rate.  Repatriated funds 
will face a 6% tax if the funds are deposited in local banks, 
3% if invested in GoA bonds, or 1% if invested in real 
estate, infrastructure, or agricultural or industrial 
ventures. 
 
3. (SBU) The law, which aims to entice the return of billions 
held outside the formal financial system (both offshore and 
in-country and roughly estimated at about $130 billion), 
generated controversy and bad press for the GoA from the 
moment the President introduced it.  Many local experts and 
opposition political figures allege the law will facilitate 
money laundering.  Their concern stems from the fact that the 
law prohibits AFIP from inquiring about the source of the 
repatriated funds.  As a reflection of similarly-held 
international concerns, the President of the Financial Action 
Task Force (FATF), Antonio Rodrigues, sent a letter to the 
GoA in late 2008 asking for more details.  The letter was 
subsequently leaked, embarrassing the GoA and further 
exacerbating local debate. 
 
4. (SBU) In response to critics, the GoA made assurances that 
the law's implementing regulations would adhere to FATF 
AML/CFT standards.  The GoA published the implementing 
regulations February 2, 2009.  These regulations require 
local financial institutions to comply with existing rules 
and regulations of the Argentine Central Bank (BCRA) and 
Argentina's Financial Intelligence Unit (FIU).  They also 
include a requirement that transfers from abroad originate in 
countries that comply with international AML/CFT standards. 
 
-------------------------------------- 
Conflict Between Central Bank and AFIP 
-------------------------------------- 
 
5. (SBU) A surprising recent development is the dispute that 
has surfaced between AFIP and the BCRA over the application 
of the Argentina's Foreign Exchange Penal Code (Law 19359). 
The law holds the BCRA responsible for investigating offenses 
such as unauthorized trades and making false statements on FX 
 
transactions.  This law (and associated BCRA regulations) 
require that financial entities verify that all current 
transactions meet Argentine laws or that all past 
transactions also complied with Argentine law. 
 
6. (SBU) The consequence of this law is that an individual 
who sent money out of the country in the past via illegal 
means can now bring that money back under the new tax amnesty 
and avoid prosecution for tax evasion, but may still be 
prosecuted for violating the FX Penal Code.  AFIP officials 
have reportedly called on the BCRA to refrain from applying 
the FX Penal Code, since it would undermine the purpose of 
the tax amnesty (scaring both banks and those looking to 
repatriate funds), but the BCRA has said that changing the 
law requires Congressional action. 
 
7. (SBU) The FX Penal Code was not the only law the GoA 
neglected to consider when drafting the tax amnesty.  GoA 
officials also forgot that most financial inflows are subject 
to capital controls, requiring the unremunerated deposit of 
30% of the total amount into a local bank account for one 
year.  To correct this oversight, the Economy Ministry 
recently announced the suspension of capital controls on 
incoming financial flows through the end of the six-month 
amnesty period.) 
 
--------------------------------------------- - 
FATF President Emphasizes Need for Enforcement 
--------------------------------------------- - 
 
8. (SBU) The GoA's Justice Minister personally attended the 
February 24-26 FATF plenary in Paris to defend the law and 
its implementing regulations.  He assured FATF members that 
Argentina will continue to adhere to international AML/CFT 
standards.  The GoA later reported to Argentine press that 
FATF members -- including the U.S. -- had accepted the 
Minister's arguments without comment or criticism.  In a 
March 1 interview with Argentine daily La Nacion, FATF 
President Rodrigues said the FATF evaluation team visiting 
Argentina later this year will verify that the GoA has put in 
practice its promises to ensure the tax amnesty law does not 
facilitate money laundering.  "It's not enough to have a good 
law," he said, "You have to apply it correctly."  "If someone 
taking advantage of the law only failed to pay taxes, but the 
money comes from a licit source," he said, "FATF won't say 
anything...on the condition that the owners of those funds 
demonstrate to the financial authorities the origin." 
Rodrigues also noted that if a country fails to comply with 
FATF recommendations, it enters into a process of "enhanced 
follow-up," so this is the risk facing Argentina. 
 
----------------------- 
The View from the Banks 
----------------------- 
 
9. (C) Post's financial sector contacts say the tax amnesty 
is bad news for banks, bringing few benefits at a high cost. 
They do not expect large inflows at a time when most people 
are trying to find ways to buy dollars or pull dollar 
deposits out of the system (and away from the reach of the 
GoA).  They also say the damage to the Argentine banking 
system's reputation became apparent immediately following the 
President's introduction of the initiative.  Foreign banks 
immediately became more suspicious of Argentine financial 
transactions and local banks now experience greater 
difficulties in their correspondent banking relationships. 
Finally, several bankers have argued to Econoffs that they 
will treat large inward transfers -- especially from unknown 
clients -- with extreme caution.  A financial reporter for 
local newspaper La Nacion agrees and recently told EconOff 
that local bankers are especially concerned about the 
possible repercussions they may face under the FX Penal Code. 
 
 
----------------------------- 
The Private Legal Perspective 
----------------------------- 
 
10. (C) Post consulted two legal experts with extensive 
private sector and government experience in the area of 
AML/CFT.  Neither likes the law or believes it will fulfill 
the purpose of attracting significant funds.  However, both 
agree the implementing regulations and existing BCRA and FIU 
regulations appear to establish sufficient controls, at least 
on paper, to make it difficult to use the law to launder 
dirty money coming from overseas through the financial 
system.  In particular, both think the Foreign Exchange Penal 
Code, mentioned above, will heighten bank oversight of 
 
questionable transactions and discourage such transfers. 
However, both are concerned about GoA commitment to enforcing 
the safeguards. 
 
11. (C) One of the lawyers, who has advised banks and 
exchange houses for decades, argues the law does not absolve 
any party taking advantage of the tax amnesty from declaring 
the source of the funds.  Technically, he said, "the law only 
allows the cleaning of money that evaded taxes, not illicit 
earnings."  While AFIP may be barred from inquiring as to the 
source, he noted, any financial institution accepting the 
funds is required under other Argentine laws and central bank 
regulations to make inquiries and report suspicious 
transactions to the FIU.  Therefore, he believes the law is 
technically as sound as similar laws in other countries ("all 
of which, in practice, facilitate money laundering," he 
says). 
 
12. (C) The other lawyer, who previously filled a high-level 
AML/CFT post in the GoA, is more pessimistic.  While he 
grudgingly agrees the law has adequate safeguards on paper, 
he argues that it does not matter given the woeful state of 
enforcement of Argentine AML statutes and regulations.  The 
FIU, he argues, is a dysfunctional organization not capable 
of analyzing or investigating suspicious activity reports, 
and the Special Public Prosecutors Unit that pursues money 
laundering cases is poorly funded and staffed.  Furthermore, 
he argues that local banks facing the current global 
financial crunch are desperate for funds and the incentive, 
therefore, is to take whatever deposits they can get. 
Finally, he believes the high-risk area is funds flowing into 
real estate investments and infrastructure projects.  While 
the notary publics that authorize the paperwork for such 
deals are subject to the same laws as financial institutions, 
they are not overseen by the BCRA and there is more 
opportunity for corruption. 
 
13. (C) Both lawyers fully agree that the question to ask is 
why the GoA pushed so hard to pass a law that few expect will 
result in large-scale repatriated funds from abroad (as one 
said, "at a time when most Argentines are desperate to get 
dollars out of the country").  Both share the opinion that 
the real purpose of the law is to allow government officials 
and their cronies in the private sector to legitimize the 
cash proceeds of payoffs (bribes and other forms of official 
corruption) and shady business operations (i.e., gambling). 
 
----------------------- 
German Embassy Comments 
----------------------- 
 
14. (C) Econoff also spoke with the xxxxxxxxxxxxxx, who has worked 
closely with the 
Argentine FIU for years on AML/CFT issues.  Based on 
Germany's experience with a similar law, xxxxxxxxxxxxxx believes 
a tax amnesty in itself is not a bad thing.  xxxxxxxxxxxxxx also notes 
that "there is no rule saying the tax revenue administration 
has to ask where the money comes from."  That is the solution 
most countries, including Germany, choose, "because it's the 
most effective way to control incoming financial 
transactions."  However, xxxxxxxxxxxxxx notes that a government may 
instead choose to rely on the ordinary control points, such 
as banks, FIUs, and Central Banks ("this is what Belgium did 
with their law.")  However, when you choose this route, as 
the GoA has, "you have to make sure your control points have 
the capacity to deal with the increased cash inflow." 
 
15. (C) This is where the concerns lie with Argentina. 
Whereas the GoA recently announced that it would triple the 
budget of the FIU, the money will not come through in time 
for the FIU to increase its support for banks dealing with 
inflows during the March to September time frame established 
by the law.  xxxxxxxxxxxxxx adds that most of those who have been 
working on AML/CFT issues in Argentina believe that if the 
law succeeds in enticing back sizable capital flows, "banks 
will be overwhelmed by the quantity of cash flow and will 
report everything to the FIU to be on the safe side. The FIU 
does not have the capacity to investigate all incoming cases 
the way they should, so it will pass everything unanalyzed to 
Raul Plee (lead AML/CFT Prosecutor).  Plee and his three 
prosecutors will be buried under the multitude of cases" and 
will have difficulty determining which cases to investigate. 
 
16. (C) xxxxxxxxxxxxxx concurs with the majority opinion 
that few will take advantage of the law to legalize money. 
Nevertheless, xxxxxxxxxxxxxx told GoA National AML/CFT Coordinator 
Alejandro Strega: "if you want to convince people in Paris 
(at the FATF meeting), you have to show that you apply safety 
 
measures and controls outside AFIP.  And you have to counter 
the suspicion most countries have that your government needs 
cash and tries to get money out of any source they can get no 
matter how many national or international rules they have to 
breach." 
 
----------------------------------- 
Post Comment on the Tax Amnesty Law 
----------------------------------- 
 
17. (C) Senior GoA officials have informed Ambassador and 
other Emboffs that the GoA will ensure that all Argentine 
AML/CFT legislation, including the tax amnesty law, abides by 
the GoA's international commitments.  Nevertheless, as noted 
above, Post has not found any non-government individual who 
thinks the impact of the GoA's tax amnesty law will be good 
for the country or will be successful in attracting 
significant funds back into the system.  Our contacts also 
worry about that the law poses a high risk of facilitating 
the laundering of funds held locally in cash and derived from 
questionable means, i.e., corruption and gambling. 
 
18. (C) On paper, however, the law, along with the 
implementing regulations and various other laws and BCRA and 
FIU regulations, appears to have sufficient safeguards in 
place to preclude abuse for purposes of laundering dirty 
money.  The issue then, as with all GoA legislation and 
regulation related to AML/CFT, is enforcement and 
implementation.  The Argentina INCSR II report on money 
laundering repeatedly highlights the GoA and Argentine 
judicial system's shortcomings on this point.  In fact, the 
INCSR report notes that there have been no convictions for 
money laundering in Argentina since AML legislation entered 
into force in 2000.  This lack of enforcement, therefore (and 
not just related to the tax amnesty law), is an area that 
FATF should focus on during its mutual evaluation of 
Argentina scheduled for later this year.  End Comment. 
WAYNE