06MOSCOW11830, SCENESETTER: TREASURY U/S LEVEY’S VISIT TO MOSCOW

WikiLeaks Link

To understand the justification used for the classification of each cable, please use this WikiSource article as reference.
Discussing cables
If you find meaningful or important information in a cable, please link directly to its unique reference number. Linking to a specific paragraph in the body of a cable is also possible by copying the appropriate link (to be found at theparagraph symbol).Please mark messages for social networking services like Twitter with the hash tags #cablegate and a hash containing the reference ID e.g. #06MOSCOW11830.
Reference ID Created Released Classification Origin
06MOSCOW11830 2006-10-20 14:25 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXYZ0003
PP RUEHWEB

DE RUEHMO #1830/01 2931425
ZNY CCCCC ZZH
P 201425Z OCT 06
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 4315
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
INFO RHEHNSC/NSC WASHDC PRIORITY

C O N F I D E N T I A L MOSCOW 011830 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EUR/RUS 
TREASURY COX/ALIKONIS/BAKER 
NSC FOR TGRAHAM, TRACY MCKIBBEN 
 
E.O. 12958: DECL: 12/19/2015 
TAGS: ECON KTFN EFIN PTER OTRA OVIP RS
SUBJECT: SCENESETTER: TREASURY U/S LEVEY'S VISIT TO MOSCOW 
 
Classified By: Ambassador William J. Burns, Reasons 1.4 (b/d). 
 
1. (C) On behalf of the U.S. Mission in Russia, we extend a 
warm welcome to you and your delegation.  Your visit offers 
an opportunity to continue your discussions with the Russians 
on combating terrorism financing as well as our grave 
concerns about Iran's and North Korea's activity in this 
regard.  Your visit will help continue these themes of how 
our two countries can work collaboratively to lessen the 
threat posed by North Korea and Iran, including disrupting 
threatening financial flows to, through, and from them.  The 
Russians, as always, are most receptive to a message that we 
share a common threat and that only by working together can 
we ensure greater peace and stability. 
 
2.  (SBU) One major development since your most recent visit 
was the murder of Central Bank of Russia First Deputy 
Chairman Andrey Kozlov last month.  Kozlov was an energetic 
reformer who enjoyed political support at the highest levels. 
 The interlocutors with whom you will meet during this visit 
held Kozlov in high regard.  He championed the strengthening 
of counter-terrorism financing and anti-money laundering 
controls, and led efforts to revoke licenses of banks 
complicit in these activities.  President Putin has publicly 
vowed to carry on Kozlov's work and has called for the 
establishment of an interagency working group to rid the 
country's financial system of shadow economy entities. 
 
MONEY-LAUNDERING 
---------------- 
 
3. (SBU) Russia, as you know, now has developed a solid 
legislative and regulatory foundation for combating money 
laundering and terrorism financing.  Its role in spearheading 
the creation of the Eurasia Group of Combating Legalization 
of Proceeds from Crime and Terrorist Financing (EAG) has 
demonstrated both the political will and capability to 
improve the region's fight against money laundering and 
terrorism financing. Nevertheless, vulnerabilities remain. 
Russia's Federal Service for Financial Monitoring (FSFM) 
estimates that Russian citizens may have laundered as much as 
$7 billion in 2005. Experts believe that most of the dirty 
money flowing through Russia derives from domestic criminal 
or quasi-criminal activities, including evasion of tax and 
customs duties and smuggling operations. 
 
4. (SBU) Oversight of the banking system also needs 
strengthening.  Banking reform efforts have emphasized 
enforcing more stringent capital adequacy standards and 
strengthening anti-money laundering controls.  Authorities 
have revoked more than 110 licenses from banks that have not 
fulfilled their capital adequacy and suspicious transaction 
control requirements.  Despite this progress to make the 
banking sector more transparent, Russia continues to suffer 
from a weak system of financial intermediation. 
Profitability among commodities producers has generated an 
excess of capital, but there is an equal-size demand for 
capital that domestic banks are not meeting. 
 
NORTH KOREA 
----------- 
 
5. (C) In your discussions with the Russians before the G8 
Summit, you have urged the GOR to conduct investigations to 
ensure that North Korea does not use Russian financial 
institutions to facilitate illegal activities.  This theme 
was echoed at the Summit in other high-level G8 meetings. 
The Central Bank has warned Russian banks to be aware of 
entering into relationships with North Korean banks. 
Russia's Federal Financial Monitoring Service is monitoring 
all contacts with North Korea and North Korean financial 
institutions. 
 
AN AGREEMENT WITH THE UNITED STATES? 
------------------------------------ 
 
6. (C) The Director of the Federal Financial Monitoring 
Service (Russia's Financial Intelligence Unit) Viktor Zubkov 
has praised cooperation with the U.S. on financial crimes 
investigations.  Russian business daily newspaper Vedomosti 
reported that Zubkov credited a recent instance of 
information sharing with the U.S. for helping to identify 
terrorist cells operating in the North Caucasus.  He and 
Central Bank of Russia Deputy Chairman Viktor Melnikov, 
however, have criticized the pace with which Financial Action 
Task Force (FATF) requests are processed.  During their 
meetings with you, they are likely to raise the issue of 
formalizing a bilateral information-sharing agreement. 
 
TERRORIST DESIGNATIONS 
---------------------- 
 
7.  (SBU) Russia is generally supportive of the process of 
designating terrorist entities within the UN Security Council 
and a Russia's support was key to the passage of the UN 
Security Council Resolution 1617, the successor resolution to 
UNSC 1267. 
 
8.  (SBU) As you will recall, the United States has place
d a 
hold on the Russian-sponsored designation of a Chechen at the 
UN 1267 Committee, citing a lack of evidence to meet the 
legal threshold for a terrorist designation.  In April 2005, 
Russia placed a hold on two U.S.-sponsored designations - 
Buisir and Al-Hiyari, also citing lack of legal evidence. 
The issue has become an irritant in our otherwise productive 
and positive relationship on terrorism finance and financial 
crimes. 
 
BACKGROUND ON THE RUSSIAN ECONOMY 
--------------------------------- 
 
9. (SBU) Since 2000, Russia has been an economic growth 
success story driven by high oil prices and strong, sustained 
consumer demand spurred by Russia's emerging middle class 
(20-35 percent of the population).  GDP has increased at 
impressive annual rates of six-to-seven percent for eight 
straight years.  Real average incomes have risen as well, and 
 the poverty level has dropped from 40 percent of the 
population in 1998 to 20 percent today.  Unemployment is a 
relatively low seven-to-eight percent.  Russia has used its 
ample foreign reserves (over $261 billion) to pay off its 
debts.  Russia has tucked away almost $70 billion, or roughly 
6.7 percent of GDP, in a Stabilization Fund to insure against 
future oil price fluctuations.  At the same time, the 
Government has pursued a firm course of fiscal conservatism, 
running budget surpluses (a record 7.5 percent in 2005), and 
resisting significant pressure to spend Russia's oil 
windfall.  Foreign investment, which lagged for years, is 
finally reaching levels comparable to other emerging markets 
(recent projections put FDI in 2006 at almost $20 billion, or 
3 percent of GDP). 
 
10. (SBU) Nonetheless, significant weaknesses remain. 
Growing and pervasive high-level corruption, increasing state 
control over murkily-defined "strategic sectors," excessive 
bureaucracy, lack of transparency and rule of law, disregard 
for property rights, and the unpredictable application of the 
tax code are the biggest threats to long-term growth.  Social 
reforms (namely health care, municipal housing, and 
education) have stalled, largely because of political 
reluctance to embark into uncharted territory in the run-up 
to the 2008 presidential election.  Inflation persists in the 
low double-digits; the budget is slowly becoming more 
dependent on high energy prices; and higher social spending 
and government salaries are increasing expenditures.  These 
problems are exacerbated by the labor market in Russia, which 
faces two critical challenges: shortages caused by poor labor 
mobility between regions and a demographic crisis - the 
population is declining by 700,000 people per year. 
 
11. (U) Since its consolidation in 1996, the Russian stock 
market has experienced growth that has led emerging markets. 
Capitalization was close to USD 1 trillion by the end of 
August, compared to USD 346 billion at the end of August 
2005, and USD 177 billion at the end of 2003.  Natural 
resource firms have fueled the vast majority of this growth, 
thanks to a favorable ruble exchange rate following the 1998 
crisis and global increases in commodities prices.  The 
participation of foreign and domestic institutional investors 
is rising, as are market trading volumes and liquidity. 
Perhaps the most unsung factor accompanying Russia's swelling 
market valuations has been the trend among established and 
emerging firms in Russia to raise primary market equity 
capital at home. 
BURNS

Wikileaks

Advertisements
Post a comment or leave a trackback: Trackback URL.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: