Iran. The Department of State has designated Iran as a State Sponsor of Terrorism. Iran is not a regional financial center. The Minister of Economic Affairs and Finance submitted a bill governing money laundering countermeasures to the Iranian parliament in October 2002. The bill provides for the seizure and forfeiture of properties related to money laundering. A special Council composed of applicable ministers and the Governor of the Central Bank has also been formed to consider necessary powers for the Government of Iran (GOI) to fight economic crimes. On December 26, 2001, Bank Karafarin received a license from the Central Bank and became the first private bank to operate in Iran in 23 years.
Iran has a robust underground economy and the use of alternative remittance systems to launder money is widespread. The draft money laundering legislation is designed—in part—to help prevent underground economic activities. For example, Iran’s real estate market is used to launder money. Real estate transactions take place in Iran, but often no funds change hands there; rather, payment is made overseas. This is typically done because of the difficulty in transferring funds out of Iran and the weakness of Iran’s currency, the rial. The real estate market, in at least one instance, has been used to launder narcotics-related funds. Hawala is also used to transfer value to and from Iran. Factors contributing to the widespread use of hawala are currency exchange restrictions and the large number of Iranian expatriates. The smuggling of goods into Afghanistan from Iran is also involved with the barter trade for narcotics and trade-based money laundering. Goods purchased in Dubai are sent to the port of Bandar Abbas in Iran and then via land routes to other markets in Afghanistan and Pakistan. The goods imported into Iran and sent into Afghanistan are often part of the Afghan Transit Trade. However, many of these goods are eventually found on the regional black markets.
Iran is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. There is no law against terrorist financing.
Ireland. The primary sources of funds laundered in Ireland are derived from narcotics-trafficking, fraud and tax offenses. Money laundering occurs in financial institutions and the bureaux de change. Additionally, investigations in Ireland indicate that professionals continue to specialize in the creation of legal entities as a means of laundering money. Trusts are also established as a means of transferring funds from the country of origin to “offshore” locations. It is difficult to establish the true beneficiary of the funds, which makes it difficult to follow the money trail and establish a link between the funds and the criminal.
Money laundering relating to narcotics-trafficking and other offenses was criminalized in 1994. Financial institutions (banks, building societies, the Post Office, stockbrokers, credit unions, bureaux de change, life insurance companies, and insurance brokers) are required to report suspicious transactions and currency transactions exceeding approximately $15,000, implement customer identification procedures, and retain records of financial transactions. Under certain circumstances, the High Court can order a freeze, and where appropriate, seize the proceeds of crimes. The exchange of information between police and the Revenue Commissioners, where criminal activity is suspected, is authorized.
The use of solicitors, accountants, and “company formation agencies” in Ireland to create “shell companies” has been cited in a number of “suspicious transaction reports,” and in requests for assistance from Financial Action Task Force (FATF) members. Investigations have disclosed that these companies are used to provide a series of transactions connected to money laundering, fraudulent activity, and tax offenses. The difficulties in establishing the “beneficial owner” have been complicated by the fact that the directors are usually nominees and are often principals of a solicitors’ firm or of a company formation agency.
In July 2001, the Government of Ireland (GOI) enacted the Company Law Enforcement Act 2001 (Company Act), to deal with problems associated with shell companies. This is the most important new companies act in more than 40 years. The legislation established the position of Director of Corporate Enforcement, whose responsibility it is to investigate and enforce the Company Act. The changes are directed at ensuring a greater measure of compliance, following the disclosure of major lapses in connection with a range of inquiries in recent years. Under the new law, the beneficial director of a company will have to be named. The Company Act will require all newly registered Irish companies to engage, in part, in business dealings within the State. It will also require that either the company’s director be a resident of Ireland, or the company must post a bond as a surety for failure to comply with the appropriate company law. The GOI is setting up a new multi-agency unit to enforce the law, and is in the process of recruiting personnel.
The GOI introduced new legislation targeting fundraisers for both international and domestic terrorist organizations. The “Suppression of the Financing of Terrorism” bill will extend the existing powers of the GOI to seize property and/or other financial interests belonging to convicted criminals and terrorists. The bill will allow the Garda Siochana (the national police) to apply to the courts to freeze large sums of cash where certain evidentiary requirements are met. In 2002, Irish authorities identified and froze the terrorist-related assets in several accounts.
A money laundering investigation concerning a bureau de change operation uncovered evidence of the laundering of terrorist funds derived from international smuggling. Substantial cash payments into the bureau de change were not reflected in the principal books, records, and bank account. The bureau de change held a large cash reserve that was drawn upon when necessary by members of the terrorist organization. The bureau de change would remit payments from its legitimate bank account to entities in other jurisdictions, on behalf of the terrorist organization.
The Bureau of Fraud Investigation serves as Ireland’s Financial Intelligence Unit. The Bureau analyzes financial disclosures and is a member of the Egmont Group. Ireland is a party to the 1988 UN Drug Convention and the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime.
The Suspicious Transaction Reports filed by financial institutions have increased over the past four years from 1,421 reports filed in 1999 to 3,725 filed in 2002 (through October 31). Investigations of money laundering cases have increased from 1,520 in 1999 to 4,170 in 2002 (through October 31). Convictions for money laundering offenses under the Criminal Justice Act totaled 7 in 1999, 10 in 2000, 4 in 2001 and 2 in 2002 (through October 31). A conviction on charges of money laundering carries a maximum penalty of 14 years’ imprisonment and an unlimited fine.
Ireland’s offshore banking is concentrated in Dublin’s International Financial Services Centre (IFSC). Approximately 400 international financial institutions and companies operate in the IFSC. Services offered include fiscal management, re-insurance, fund administration and foreign exchange dealing. The Central Bank of Ireland regulates the IFSC companies.
In January of 2001, Ireland and the United States signed a Mutual Legal Assistance in Criminal Matters Treaty (MLAT); however, it is not yet in force. An extradition treaty between Ireland and the United States is already in force. Ireland is a member of the Council of Europe and FATF. Ireland is a signatory to the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Ireland has signed, but not yet become a party to, the UN International Convention for the Suppression of the Financing of Terrorism.
Expeditious implementation of Ireland’s new anti-money laundering laws, and stringent enforcement of all such initiatives, will ensure that Ireland maintains an effective anti-money laundering program. The GOI should require that the beneficial owners of all shell companies licensed prior to the passage of the 2001 Company Law Enforcement Act be identified or disbanded.
Isle of Man. The Isle of Man (IOM) is a Crown Dependency of the United Kingdom located in the Irish Sea. Its large and sophisticated financial center is potentially very vulnerable to money laundering at the layering and integration stages.
As of June 30, 2002, the IOM’s financial industry consists of approximately 17 life insurance companies; 22 insurance managers; more than 160 captive insurance companies; more than 14.7 billion pounds (approximately, $24.1 billion) in life insurance funds under management; 59 licensed banks and two licensed building societies; 80 investment business license holders; 27.2 billion pounds (approximately, $44.6 billion in bank deposits); and 128 collective investment schemes with 5.2 billion pounds (approximately, $8.5 billion) of funds under management. There are also 124 licensed corporate service providers, with approximately another 65 seeking licenses.
The Financial Supervision Commission (FSC) and the Insurance and Pension Authority (IPA) regulate the IOM financial sector. The FSC is responsible for the licensing, authorization, and supervision of banks, building societies, investment businesses, collective investment schemes, corporate service providers, and companies. The IPA regulates insurance companies. To assist license holders in the effective implementation of anti-money laundering techniques, the regulators hold regular seminars and additional workshop training sessions in partnership with the Financial Crime Unit (FCU) and the Isle of Man Customs and Excise.
Money laundering related to narcotics-trafficking was criminalized in 1987. The Prevention of Terrorism Act 1990 made it an offense to contribute to terrorist organizations, or to assist a terrorist organization in the retention or control of terrorist funds. In 1998 money laundering arising from all serious crimes was criminalized. Financial institutions such as banks, fund managers, stockbrokers, insurance companies, are required to report suspicious transactions. In addition, financial businesses such as lawyers, registered legal practitioners, accountants holding or handling clients’ funds, corporate service providers, and trust service providers are obligated to know their customer.
In December 2000, the FSC issued a consultation paper, jointly with the Crown Dependencies of Guernsey and Jersey, called “Overriding Principles for a Revised Know Your Customer Framework,” to develop a more coordinated approach on anti-money laundering. Among other issues, the consultation paper proposes that every institution would have to check its whole book of business to determine that it has sufficient information available to prove customer identity.
An update to this consultation paper was issued in February 2002. It will be necessary to amend regulatory guidance to give effect to the Overriding Principles, and the consultation process to achieve this will commence early in 2003.
The IPA, as regulator of the IOM’s insurance and pensions business, also issues Anti-Money Laundering Standards for Insurance Businesses (the “Standards”), which are binding upon the industry and which include the Overriding Principles. The Overriding Principles have been revised in a manner suitable for their implementation by insurance companies. This includes, similarly, a requirement that all insurance businesses check their whole book of businesses to determine that they have sufficient information available to prove customer identity.
The current set of Standards became effective February 1, 2002, and was amended to include wire transfers in June 2002. The insurance industry is currently working towards the implementation of a revised set of Standards, which must be fully operational by March 31, 2003.
The Criminal Justice Act, which was adopted/amended, in 2001 extends the power to freeze and confiscate assets to a wider range of crimes, increases the penalties for a breach of money laundering codes, and repeals the requirement for the Attorney General’s consent prior to disclosure of certain information. The law also addresses the disclosure of a suspicion of money laundering. It is now an offense to fail to make a disclosure of suspicion of money laundering for all predicate crimes, whereas previously this just applied to drug and terrorism related crimes. The law also lowers the standard for seizing cash from “reasonable grounds” to believe that it was related to drug or terrorism crimes to a suspicion of any criminal conduct.
The IOM has also introduced the Customs and Excise (Amendment) Act 2001, which gives various law enforcement and statutory bodies within the Island the ability to exchange information, where such information would assist them in discharging their functions. The Act also permits Customs and Excise to release information it holds to any agency within or outside the Island for the purposes of any criminal investigation and proceeding. Such exchanges can be either spontaneous or by request.
As a result of the terrorist events in the United States on September 11, 2001, the Government of the IOM drafted the Anti-Terrorism and Crime Bill 2002. The purpose of the bill is to enhance reporting, by making it an offense not to report suspicious transactions relating to money intended to finance terrorism. The IOM statute will become effective during 2003.
The IOM has also adopted (United Nations Measures) Order 2001, with the purpose of implementing UNSCR 1373, by providing for the freezing of terrorist funds, as well as creating a criminal offense with respect to facilitators of terrorism or its financing. The FSC’s anti-money laundering guidance notes have been revised to include information relevant to terrorist events. The Guidance Notes were issued in December 2001.
Additionally, the Island has introduced the Online Gambling Regulation Act 2001 and an accompanying AML (Online Gambling) Code 2002. The Act and the Code are supplemented by regulations issued by the Gambling Control Commission, which provides more detailed guidance on the prevention of money laundering through the use of online gambling.
Suspicious transactions reports are reported to the FCU, which also has the role of being the IOM’s Financial Intelligence Unit (FIU).
In August 2002, new regulations were introduced that require money service businesses (MSBs), such as exchange bureaux and money transmitters, to register with Customs and Excise. The regulation has the effect of implementing the 1991 EU Directive on Money Laundering (Directive 91/308/EEC on the prevention of the use of the financial system for the purpose of money laundering, as revised by Directive 2001/97/EC) in relation to MSB, and provides for supervision of them by Customs and Excise to ensure compliance with the AML Codes.
The IOM is a member of the Offshore Group of Banking Supervisors. The IOM cooperates with international anti-money laundering authorities on regulatory and criminal matters. Application of the 1988 UN Drug Convention was extended to the IOM in 1993. The IOM is also assisting FATF Working Groups considering matters relating to customer identification and companies’ issues. The IOM is also a member of the International Association of Insurance Supervisors and the Offshore Group of Insurance Supervisors. The FIU belongs to the Egmont Group.
The IOM has developed a relatively comprehensive anti-money laundering program, and should continue its commitment to combating financial crime. IOM officials should continue to closely monitor its anti-money laundering program to assure its effectiveness, and IOM authorities should work with international anti-money laundering authorities to deter financial crime and the financing of terrorism and terrorists.
Israel. The Government of Israel (GOI) has made substantial progress enacting anti-money laundering legislation to support its efforts to strengthen its anti-money laundering regime, which resulted in the 2002 removal of Israel from the Financial Action Task’s list of Non-Cooperative Countries and Territories (NCCT) in the fight against money laundering.
Israel enacted the “Prohibition on Money Laundering Law” (PMLL), on August 8, 2000. The PMLL established a legal framework for an anti-money laundering system, but required the passage of several implementing regulations before the law could fully take effect. In November 2000, Israel enacted an implementing regulation called for by the PMLL. The “Prohibition on Money Laundering (Reporting to Police)” regulation established mechanisms for reporting to the police transactions involving property that was used to commit a crime or that represents the proceeds of crime.
Israel continued its efforts to reform its anti-money laundering system, and enacted additional implementing regulations provided for by the PMLL. The “Prohibition on Money Laundering (The Banking Corporations Requirement Regarding Identification, Reporting, and Record Keeping) Order” was approved in 2001. The Order establishes specific procedures for banks with respect to customer identification for account holders and beneficial owners, record keeping, and reporting of irregular and suspicious transactions reporting. The “Prohibition of Money Laundering (Methods of Reporting Funds when Entering or Leaving Israel) Order,” also approved in 2001, requires individuals who enter or leave Israel with cash, bank checks, or traveler’s checks above the equivalent of $12,500 to report that information to customs authorities. Failure to comply is punishable by imprisonment of up to six months and a fine of approximately $37,000 or ten times the amount not declared, whichever is greater. Additional regulations passed in 2001 addressed financial sanctions for covered institutions that fail to comply with their obligations under the PMLL, including requirements for customer identification, record keeping, and reporting of irregular transactions upon their respective financial sectors.
The PMLL criminalizes money laundering and notes more than 18 serious crimes as predicate offenses for money laundering. These specified unlawful activities for money laundering are in addition to offenses described in the Prevention of Terrorism Ordinance. The PMLL also authorized the issuance of regulations requiring financial service providers to identify, report, and keep records, for specified transactions for seven years. The law also provided for the development of a Financial Intelligence Unit.
Under the PMLL, money laundering offenses are punishable by up to ten-years’ imprisonment and heavy fines. In 2002, the Government of Israel reported that there were 18 money laundering cases that had reached various stages of investigation and/or adjudication. Five cases yielded indictments; one case is under consideration by the district prosecutor; one case is completed; one case ended with the deportation of the suspect; and ten cases are in various stages of investigation. In 2002, the government seized approximately $19.1 million in illicit assets, of which approximately $15 million were seized within the framework of money laundering cases.
In February 2002, Israel’s FIU, the Israeli Money-laundering Prohibition Authority (IMPA), began operations. The IMPA has received over 100,000 currency transaction reports (CTRs) and 407 suspicious transaction reports (STR) since becoming operational. Banks, portfolio managers, stock exchange members, currency service providers, customs, the postal bank, insurance providers, and provident fund mangers must file CTRs and STRs with the IMPA. IMPA develops intelligence cases that it passes on to the Israeli National Police, Customs, and the Israeli Security Agency for Criminal Investigation and Enforcement.
As noted above, FATF removed Israel from the NCCT list in June 2002. Israel’s efforts to meet FATF’s recommendations include establishing currency-reporting guidelines, creating an FIU, criminalizing money laundering associated with serious crimes, and improving Israel’s ability to locate and freeze assets associated with terrorism. In June 2002, IMPA was admitted into the Egmont Group of Financial Intelligence Units. A U.S. advisory issued by the Department of Treasury’s Financial Crimes Enforcement Network in June 2000 to U.S. financial institutions, emphasizing the need for enhanced scrutiny of certain transactions and banking relationships in Israel to ensure that appropriate measures are taken to minimize risk for money laundering, was withdrawn in 2002, acknowledging Israel’s enactment and implementation of reforms in its counter-money laundering system.
Under the legal assistance law, Israeli courts are empowered to enforce forfeiture orders executed in foreign courts for crimes committed outside Israel. This ability has recently been enhanced by the new anti-money laundering law. Informally, the GOI has cooperated with requests from U.S. law enforcement in matters of financial crime, including those involving narcotics and terrorism. In 2002, Israeli and U.S. law enforcement cooperated as part of an “Operation Joint Venture,” a long-term money laundering investigation focusing on an international Israeli network that launders cash proceeds from Colombian drug-trafficking organizations. The Israeli National Police have provided U.S. law enforcement with information on the network that has led to the arrest of six individuals, including two Colombian traffickers. The United States and Israel also have a Mutual Legal Assistance Treaty that entered into force in May of 1999. However, U.S. and foreign law enforcement continue to see Israeli subjects and involvement in a wide variety of money laundering operations.
Israel is a party to the 1988 UN Drug Convention, and has signed, but has not yet become a party to, the UN International Convention for the Suppression of the Financing of Terrorism. Israel has also signed, but has not yet ratified, the UN International Convention Against Transnational Organized Crime, which is not yet in force internationally.
The Central Bank of Israel should accelerate the process by which it examines industry compliance with its anti-money laundering law, and ensure that financial institutions are moving quickly to fully verify customer identity for accounts opened before the law was enacted. In addition, the government should re-examine the relationship between IMPA and the police to determine ways to maximize interaction between the two agencies. Israel should continue to enact all regulations pursuant to the PMLL to strengthen its anti-money laundering regime. Israel should also focus on the misuse of the international Israeli diamond trade to launder funds.
Italy. Italy’s financial sector remains vulnerable to money laundering. Italy is also a drug consumption country and a transshipment point for moving illicit narcotics into Western Europe. In 2002, Italian organized criminal groups—particularly those in the southern part of the country—continued to engage in narcotics and alien smuggling, contraband cigarette smuggling, extortion, usury, and kidnapping. Organized crime launders the proceeds of these activities through Italian banks, casinos, real estate, and the gold market. For example, Italian, Albanian, and Montenegrin criminal organizations form offshore companies to purchase bulk cigarettes that are marked for export, and smuggle them into Italy where they are sold tax-free throughout the European Union. This highly lucrative trade is made more attractive by relatively light penalties-a maximum of five years in prison.
During 2002, Italian authorities uncovered cases of suspected money laundering involving securities brokers, online offerings of foreign exchange derivatives, the use of futures contracts, and the smuggling of diamonds, gold, and other precious metals.
Italian law criminalizes money laundering in connection with felony offenses punishable by imprisonment for 3 or more years. A wide range of financial institutions—including stock brokerages, exchange houses, and insurance companies—must identify their customers, record and report transactions above 10,300 euros (approximately $10,526), and report suspicious transactions. In addition, institutions and individuals must report cross-border movements of currency that exceed 10,300 euros. Using the cross-border reports, the Anti-Mafia Directorate is conducting a retrospective analysis of irregular and suspect money flows from groups—especially those suspect of links to terrorism and 19 countries of concern. In particular, the Directorate is looking at the transfer of funds, incoming and outgoing, and their origins and destinations.
The Government of Italy (GOI) has established reliable systems for identifying, tracing, freezing, seizing, and confiscating assets from narcotics-trafficking and other serious crimes. The law allows for forfeiture in both civil and criminal cases. While the GOI enforces its existing asset seizure and forfeiture laws, the aggressiveness in doing so is dependent on which local magistrate is working a particular case. Unofficial figures indicate that the Financial Police seized the equivalent of $465 million in assets from criminal groups during 2002. Approximately $50 million was ultimately forfeited. Funds from asset forfeitures are placed into the General State Accounts. In accordance with the Council of Europe procedures, the GOI is committed to sharing these assets with cooperating countries.
Decree No. 153/97 designates the Ufficio Italiano dei Cambi (UIC), which is part of the Bank of Italy, to serve as the Italian Financial Intelligence Unit and to act as the recipient of suspicious transactions reports (STRs). The decree also provides a “safe harbor” provision for individuals who report suspicious transactions, and creates an inter-ministerial commission to coordinate anti-money laundering among Italian law enforcement and regulatory agencies. The decree also establishes organizational links among agencies that are involved in the fight against organized crime, and encourages international cooperation against money laundering.
The UIC is a member of the Egmont Group. The UIC receives and analyzes financial disclosures, and forwards them to the appropriate law enforcement agency—the Anti-Mafia Directorate, Carabinieri, Polizia di Stato, or the Guardia di Finanza—for further investigation when deemed necessary. The UIC also performs supervisory and regulatory functions such as issuing decrees, regulations, and circulars. To date, the UIC has memoranda of understanding with France, Spain, the Czech Republic, Croatia, Slovenia, and Australia. It is currently in negotiations with Japan and Switzerland.
Because of the banking controls, narcotics traffickers are using alternative way of laundering their drug proceeds. To prevent and deter the use of non-traditional entities for money laundering, GOI has enacted a decree which broadens the coverage of the anti-money laundering regulations. Those entities now covered include: debt collectors, exchange house, insurance companies, casinos, real estate agents, gold and valuables dealers and importers, and antiques dealers.
Italy is a member of the Financial Action Task Force (FATF). A member of the European Union, Italy is a party to the 1988 UN Drug Convention and the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime. Italy has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Italian cooperation with the United States on money laundering investigations is exemplary. Italy and the United States have a Customs Assistance Agreement and a Mutual Legal Assistance Treaty and an extradition treaty in place, which ensure the sharing of records relevant to narcotics-trafficking, money laundering, terrorism, and terrorist financing investigations. An effort to remove a reservation to the MLAT that would allow the U.S. and Italy to give forfeiture assistance has not yet taken effect. Currently, the U.S. must avail itself of relevant international conventions to obtain GOI assistance in forfeiture cases. Removing the reservation would also allow for a bilateral agreement to share forfeited assets. Italy also has information sharing agreements with other countries for the exchange of information related to money laundering cases. The GOI also has a number of bilateral agreements with foreign governments in the area of investigative cooperation on drug trafficking and organized crime. GOI is involved in multilateral negotiations with the EU to enhance asset tracing and seizure.
On January 13, 2000, Italy signed the UN International Convention for the Suppression of the Financing of Terrorism and the Italian Parliament ratified the Convention in December 2002. In October 2001, Italy passed a Decree that created the Inter Ministerial Financial Security Committee, which is charged with coordinating GOI efforts to track and interdict terrorist financing. The Committee has far reaching powers that include obtaining information from all government ministries in waiver of the Official Secrecy Act and the authority to order a freeze of terrorist-related assets. Another decree issued in October 2001 criminalized the financing of terrorist activity with a penalty of imprisonment of seven to fifteen years. Decree Law No. 12/2002 extends the suspicious transaction reporting requirement to cover terrorist financing. Entities subject to the reporting requirement must also inform UIC of any freezing measures they take with regard to accounts suspected of being linked to terrorist entities. They must also make available to UIC all financial information they possess relating to any person or organization on UN or other terrorist lists. During 2002, UIC, in conjunction with the Italian judiciary, initiated a number of proceedings and investigations into suspected terrorist activities. In most cases, prosecutors have authorized UIC to disclose to foreign FIUs information they have uncovered in the course of these investigations. In August 2002, the GOI acted jointly with the U.S. Government to block the financial assets of 25 individuals or groups allegedly associated with Usama Bin Ladin’s network.
Although the GOI has comprehensive internal auditing and training requirements for its financial sector, implementation of these measures by non-bank financial institutions still lags behind that of banks, as evidenced by the relatively low number of STRs that have been filed by non-bank financial institutions. The GOI should increase its training efforts and supervision in the area of non-bank financial institutions to decrease their vulnerability to money laundering.
Jamaica. Jamaica, the foremost producer and exporter of marijuana in the Caribbean, is also a major transit country for cocaine flowing from South America to the United States and other international destinations. Traffickers seek to legitimize the profits from these illegal drug flows, and Jamaica is therefore a prime candidate for money laundering activities, although it is difficult to estimate the extent of money laundering that occurs in the country. Jamaica’s banking system, however, has been under intense scrutiny from regulators in the wake of several major banking scandals in the mid- to late-1990s, making Jamaican financial instruments an unattractive mechanism for laundering money. As a result, much of the proceeds from narcotics-trafficking and other criminal activity is used to acquire tangible assets such as real estate or luxury cars, while still more merely passes through Jamaica as cash shipments to South American countries.
The GOJ does not yet require declarations of cross-border movements of currency or monetary instruments. Criminals exploit this weakness and move large amounts of cash through Jamaica—often in shipments totaling hundreds of thousands of U.S. dollars. Even when cash couriers are caught, the absence of a currency declaration requirement hampers police efforts to bring criminal charges against the couriers. Further complicating the picture are the hundreds of millions of U.S. dollars in legitimate remittances sent home to Jamaica by the substantial Jamaican population overseas. Distinguishing between legal transfers and illegal flows is no easy task.
Jamaica’s anti-money laundering regime is governed by the Money Laundering Act (MLA) approved by Parliament in December 1996 and implemented on January 5, 1998. The MLA criminalized narcotics-related money laundering and introduced record keeping and reporting requirements for financial institutions on all currency transactions over $10,000. Exchange bureaus and “cambios” have a reporting threshold of $8,000. The MLA was amended in March 1999 to raise the threshold to $50,000, in response to complaints from financial sector institutions that had difficulties with the amount of paperwork resulting from the $10,000 threshold. At that time, a requirement was also added for banks to report suspicious transactions of any amount to the Director of Public Prosecutions (DPP). In February 2000, the MLA was amended to add fraud, firearms trafficking, and corruption as predicate offenses for money laundering. The most recent legislative update, in February 2002, imposed a requirement for money transfer and remittance agencies to report transactions over $50,000.
The Government of Jamaica (GOJ) established a Financial Crimes Division under the DPP to assist in the implementation of its anti-money laundering program. This unit is responsible for receiving and analyzing information contained in suspicious activity reports filed by financial institutions. The unit officially began operations in June 2001. No major cases of money laundering arrests or prosecutions were reported in 2002, although the Financial Crimes Division investigated a number of reports.
Further action is required in the area of asset forfeiture to permit the GOJ to take full advantage of this mechanism in its anti-money laundering efforts. Law enforcement authorities are hampered by the fact that Jamaica has no civil forfeiture law, and under the 1994 Drug Offenses (Forfeiture of Proceeds) Act, a criminal drug-trafficking conviction is required as a prerequisite to forfeiture. This often means that even when police discover illicit funds, the money cannot be seized or frozen and must be returned to the criminals. In at least one case in 2002, however, the GOJ creatively used income tax regulations to levy fines and penalties that resulted in the de facto forfeiture of a large amount of cash being smuggled out of the country.
With regard to anti-terrorism financing, Jamaica has not yet developed its final legislative response, although a comprehensive Anti-Terrorism Act is currently under consideration, with passage expected in 2003. As an interim measure, the Bank of Jamaica requires the banking industry to adopt the “Guidance Notes for Financial Institutions in Detecting Terrorist Financing” issued by the Financial Action Task Force (FATF) in April 2002.
Jamaica and the United States have a Mutual Legal Assistance Treaty that entered into force in 1995. Jamaica is a party to the 1988 UN Drug Convention the Organization of American States (OAS) Inter-American Convention Against Corruption. Jamaica has signed, but not yet ratified the UN Convention Against Transnational Organized Crime which is not yet in force internationally. Jamaica is also a member of the Caribbean Financial Action Task Force and the Organization of American States Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering.
The GOJ has made progress in fighting money laundering, but further work is necessary to bring its regime into line with international standards. The GOJ should institute measures implementing the FATF’s Eight Special Recommendations on Terrorist Financing. Jamaica should enact legislation requiring declarations of large cross-border movements of currency in order to address the problem of cash couriers, as well as accompanying legislation allowing for asset seizure. The scope of predicate offenses for money laundering should be extended to encompass all serious crimes (legislation doing so has been proposed but not yet enacted) and serious thought should be given to returning the reporting threshold to $10,000 as originally mandated. The GOJ should also ensure that the Financial Crimes Division has sufficient resources to identify and investigate money laundering activity adequately.
Japan. Japan is an important world financial center, and as such is at major risk for money laundering. The principal sources of laundered funds are narcotics-trafficking and financial crimes (illicit gambling, extortion, abuse of legitimate corporate activities, and all types of property related crimes) as well as the proceeds from violent crimes, mostly linked to Japan’s criminal organizations, e.g., the Boryokudan. The National Policy Agency of Japan estimates the aggregate annual income from the Boryokudan’s illegal activities is estimated to be approximately $10 billion, $3.38 billion of which is derived from income from the trafficking of methamphetamines. U.S. law enforcement reports that drug-related money laundering investigations initiated in the United States periodically show a link between drug-related money laundering activities in the United States and bank accounts in Japan. The number of Internet-related money laundering cases is increasing. In some cases, criminal proceeds were concealed in bank accounts obtained through the Internet market.
Prior to 1999, Japanese law only criminalized narcotics-related money laundering. The Anti-Drug Special Law, which took effect in July 1992, criminalizes drug-related money laundering, mandates suspicious transaction reports for the illicit proceeds of drug offenses, and authorizes controlled drug deliveries. This legislation also creates a system to confiscate illegal profits gained through drug crimes. The seizure provisions apply to tangible and intangible assets, direct illegal profit, substitute assets, and criminally derived property that have been commingled with legitimate assets. The limited scope of the law and the burden required of law enforcement to prove a direct link between money and assets to specific drug activity severely limits the law’s effectiveness. As a result, Japanese police and prosecutors have undertaken few investigations and prosecutions of suspected money laundering. Many Japanese officials in the law enforcement community, including Japanese Customs, believe that the Boryokudan have been exploiting Japan’s financial institutions.
Pursuant to the 1999 Anti-Organized Crime Law, which came into effect in February 2000, Japan expanded its money laundering law beyond narcotics-trafficking to include money laundering predicates such as murder, aggravated assault, extortion, theft, fraud, and kidnapping. The new law also extends the confiscation laws to include the additional money laundering predicate offenses and value-based forfeitures. It also authorizes electronic surveillance of organized crime members and enhances the suspicious transaction reporting system.
To facilitate exchange of information related to suspected money laundering activity, the Anti-Organized Crime Law established the Japan Financial Intelligence Office (JAFIO) on February 1, 2000, as Japan’s Financial Intelligence Unit. Financial institutions in Japan report suspicious transactions to the JAFIO, which analyzes them and disseminates them as appropriate. JAFIO also issued “Examples of Typical Suspicious Transactions” as a guideline for financial institutions. The guideline was revised in March 2002 to add more specific suspicious transaction cases, such as transactions done by Boryokudan and their associates. Additionally, JAFIO held meetings with financial institutions in various regions in March and April 2002 to introduce current money laundering methods and trends, with the intent of improving the quality of suspicious transaction reports.
The Financial Services Agency (FSA) supervises public-sector financial institutions and securities transactions. The FSA classifies and analyzes information on suspicious transactions reported by financial institutions, and provides law enforcement authorities with information relevant to their investigation. Japanese banks and financial institutions are required by law to record and report the identity of customers engaged in large currency transactions. There are no secrecy laws that prevent disclosure of client and ownership information to bank supervisors and law enforcement authorities. Under the 1998 Foreign Exchange and Foreign Trade Control Law, banks and other financial institutions had to report transfers abroad of five million yen (approximately $44,579) or more. In April 2002, Parliament enacted the Law on Customer Identification and Retention of Records on Transactions with Customers by Financial Institutions, and revised the Foreign Exchange and Foreign Trade Law, so that financial institutions, as of January 2003, are required to make positive customer identification for both domestic transactions and transfers abroad in amounts of more than two million yen (approximately $17,828.) Banks and financial institutions are also required to maintain records for an adequate period of time should they be needed to reconstruct significant transactions.
Japanese financial institutions have cooperated, when requested, with law enforcement agencies, including U.S. and other foreign government agencies investigating financial crimes related to narcotics. Japan has not adopted “due diligence” or “banker negligence” laws that make individual bankers responsible if their institutions launder money, but there are administrative guidelines in existence that require due diligence. The law does, however, protect bankers and other financial institution employees who cooperate with law enforcement entities.
The 1998 Foreign Exchange and Foreign Trade Control Law requires travelers entering and departing Japan to report physically transported currency and monetary instruments (including securities, and gold weighing over one kilogram) exceeding one million yen (approximately $8,916), or its equivalent in foreign currency, to customs authorities. Failure to submit a report, or submitting a false or fraudulent one, can result in a fine of up to 200,000 yen (approximately $1,782) or six months imprisonment. However, the reporting requirement is enforced only sporadically.
In response to the events of September 11, 2001, the FSA used the anti-money laundering framework provided in the Anti-Organized Crime Law to require financial institutions to report transactions where funds appeared to both stem from criminal proceeds, and to be linked to individuals and/or entities designated by FSA Notices as suspected to have relations with terrorist activities. In June 2002, the Act on Punishment of Financing of Offenses of Public Intimidation, which adds terrorist financing to the list of predicate offenses for money laundering and provides for the freezing of terrorism-related assets, was enacted. Japan signed the UN International Convention on the Suppression of the Financing of Terrorism on October 30, 2001, and accepted it on June 11, 2002. After September 11, 2001, Japan froze accounts related to the Taliban. Since then, Japan has regularly frozen assets and accounts linked to terrorists listed by the UN and others. There are indications that Japan is considering new legislation to upgrade its antiterrorism law to enhance the government’s ability to freeze and confiscate assets of terrorist organizations.
Underground banking systems operate widely, especially in immigrant communities. Such systems violate the Banking Law and the Foreign Exchange Law. The police have investigated 35 underground banking cases in which foreign groups transferred illicit proceeds to foreign countries. The aggregate value of such transfers has amounted to 420 billion yen (approximately $3.5 billion) since the beginning of 1992. About 120 billion yen ($1 billion) have been illegally transferred to China and Korea, and about 90 billion yen ($750 million) to Peru.
Japan has not enacted laws that allow for sharing of seized narcotics assets with other countries. However, the Japanese Government cooperates with efforts by the United States and other countries to trace and seize assets, and makes use of tips on the flow of drug-derived assets from foreign law enforcement efforts to trace funds and seize bank accounts.
Japan is a party to the 1988 UN Drug Convention. In December 2000, Japan signed, but has not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Japan is a member of the Financial Action Task Force. The JAFIO joined the Egmont Group of FIUs in 2000. Japan is also a member of the Asia/Pacific Group on Money Laundering. Efforts are now underway to conclude a Mutual Legal Assistance Treaty between Japan and the United States. In 2002, Japan’s FSA and the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission signed a non-binding Statement of Intent (“SOI”) concerning cooperation and the exchange of information related to securities law violations. The SOI assists in the investigation and prosecution of securities and futures fraud, predicate offenses to money laundering.
Japan has many legal tools and agencies in place to successfully detect, investigate, and combat money laundering. In order to strengthen its anti-money laundering regime, the Government of Japan should stringently enforce the Anti-Organized Crime Law. Japan should enact penalties for non-compliance with the Foreign Exchange and Foreign Trade Law, adopt measures to share seized assets with foreign governments, and enact banker “due diligence” provisions.
Jersey. The Bailiwick of Jersey (BOJ), one of the Channel Islands, is a Crown Dependency of the United Kingdom. The Islands are known as Crown Dependencies because the United Kingdom is responsible for their defense and international relations. Jersey’s sophisticated offshore services industry is similar to international financial services centers worldwide. A number of reports and surveys have shown its anti-money laundering and regulatory regimes to be close to international standards.
The financial services industry, regulated by the Jersey Financial Services Commission (FSC), consists largely of bank deposits of $170 billion; mutual funds of $150 billion, insurance companies (which are largely captive insurance companies), investment advice, dealing, and management companies ($50 billion under management), and trust and company administration companies. In addition, the above offer corporate services, such as special purpose vehicles for debt restructuring and employee share ownership schemes. For high net worth individuals, it offers wealth management services.
Jersey’s main anti-money laundering laws are: the Drug Trafficking Offenses (Jersey) Law of 1988, which criminalizes money laundering related to narcotics-trafficking; the Prevention of Terrorism (Jersey) Law, 1996, which criminalizes money laundering related to terrorist activity; and the Proceeds of Crime (Jersey) Law, 1999, which extended the predicate offenses for money laundering to all offenses punishable by at least one year in prison. A new law, the Terrorism (Jersey) Law 2002, is a response to the events of September 11, 2001, and enhances the powers of the insular authorities to investigate terrorist offenses, to cooperate with law enforcement agencies in other jurisdictions, and to seize assets. The Law was adopted by the Island Parliament and awaits Royal Assent.
The FSC has issued anti-money laundering Guidance Notes that the courts take into account when considering whether or not an offense has been committed under the Money Laundering Order. The reporting of suspicious transactions is mandatory under the narcotics-trafficking, terrorism and anti-money laundering laws.
After consultation with the financial services industry, the FSC issued a position paper (jointly issued in Guernsey and the Isle of Man) that set out a number of proposals for tightening further the essential due diligence requirements that financial institutions should meet regarding their customers. The position paper states the FSC’s intention to insist, inter alia, on affirming the primary responsibility of all financial institutions to verify the identity of their customers, regardless of the action of intermediaries. The paper also states an intention to require a progressive program to obtain verification documentation for customer relationships established before the Proceeds of Crime (Jersey) Law came into force in 1999. New Anti-Money Laundering Guidance Notes are currently being drafted that will incorporate these principles and replace those described above. These Notes are likely to come into force in 2003.
Approximately 30,000 Jersey companies are registered with the Registrar of Companies, who is the Director General of the FSC. In addition to public filing requirements relating to shareholders, the FSC requires details of the ultimate individual beneficial owner of each Jersey registered company to be filed, in confidence, with the Commission. That information is available, under appropriate circumstances and in accordance with the law, to U.S. and other investigators. In addition, a number of companies that are registered in other jurisdictions are administered in Jersey. Some companies, known as “exempt companies,” do not have to pay Jersey income tax and are only available to non-residents. Jersey does not provide “offshore” licenses. All regulated individuals are equally entitled to sell their services to residents and non-residents alike. All financial businesses must have a “real presence” in Jersey, and management must be in Jersey.
Jersey has extensive powers to cooperate with other law enforcement and regulatory agencies and regularly does so. The FSC is also able to cooperate with regulatory authorities, for example, to ensure that financial institutions meet anti-money laundering obligations. Recently, the FSC has reached agreements on information exchange with securities regulators in Germany (July 2001), France (November 2001), and the United States (May 2002). The 1988 Agreement Concerning the Investigation of Drug Trafficking Offenses and the Seizure and Forfeiture of Proceeds and Instrumentalities of Drug Trafficking, as amended in 1994, was extended to Jersey in 1996. Jersey authorities have also put in place sanction orders freezing accounts of individuals connected with terrorist activity.
Jersey has established a financial investigation unit known as the Joint Financial Crime Unit (JFCU). This unit is responsible for receiving, investigating, and disseminating suspicious transaction reports (STRs). The unit includes Jersey Police and Customs officers, as well as a financial crime analyst. The JFCU is a member of the Egmont Group.
Jersey plans to put in place the necessary legislation to be in compliance with the UN International Convention for the Suppression of the Financing of Terrorism as soon as the Terrorism (Jersey) Law 2002 receives approval by the Privy Council. This will enable Jersey to try individuals for terrorist crimes, notably, including the financing of terrorism committed outside Jersey. Application of the 1988 UN Drug Convention was extended to Jersey on July 7, 1997.
Jersey has established an anti-money laundering program, and should continue to demonstrate its commitment to fighting financial crime. In some instances, Jersey’s requirements, such as the regulation of trust company businesses and the requirement for companies to file beneficial ownership with the FSC, go beyond what international standards require, in order to directly address Jersey’s particular vulnerabilities to money laundering.
Jordan. Jordan is not a regional financial center. The Central Bank of Jordan, which regulates foreign exchange transactions, issued anti-money laundering regulations designed to meet the FATF 40 Recommendations on Money Laundering in August 2001. Under Jordanian law, money laundering is considered an “unlawful activity” subject to criminal prosecution.
Revisions to the penal code subsequent to the September 11, 2001 attacks on the United States have also criminalized financing of terrorist organizations. Jordan has signed, but not yet ratified, the International Convention for the Suppression of Financing of Terrorism. Jordan has complied with its obligations under UNSCR 1267/1390 by reviewing assets of terrorists and terrorist groups identified at the United Nations 1267 Sanctions Committee, although no such assets have been identified in Jordan to date.
Jordanian officials report that financial institutions file suspicious transactions reports and cooperate with prosecutors’ requests for information related to narcotics-trafficking cases. Jordan’s Central Bank has instructed financial institutions to be particularly careful when handling foreign currency transactions, especially if the amounts involved are large or if the source of funds is in question. The Banking Law of 2000 waives banking secrecy provisions in cases of suspected money laundering.
Jordan is a party to the 1988 UN Drug Convention. Jordan has taken steps in constructing an anti-money laundering program, but much remains to be done. Jordan should consider establishing a Financial Intelligence Unit (FIU) that can analyze and disseminate suspicious transaction reports to law enforcement agencies. Additional training of Jordanian customs and police services may be required to identify money laundering methodologies and initiate investigations.
Kazakhstan. Kazakhstan has a somewhat advanced financial infrastructure in comparison to other countries in the region. When combined with a significant organized crime presence, entrenched smuggling networks, and corruption involving the oil industry, the country is at risk for money laundering. Smuggling of cash is an ongoing problem in Kazakhstan. Although travelers are required to report the amount of cash they are carrying as they enter or exit the country, porous borders and corrupt officials allow a large amount of cash to pass undetected. Most of the smuggled cash is probably related to illegal capital flight, but there are reports that Kazakhstan has become a transport route for cash and trade items moving into Afghanistan to finance terrorist organizations.
Money laundering was criminalized in Kazakhstan by Article 30 of the 1998 anti-drug law, which makes it illegal to launder money in connection with the sale of illegal drugs. However, the definition of money laundering used in the act is narrow. A further limit to the effectiveness of the law is that bank records may not be examined until after a criminal case has been initiated. The Government of Kazakhstan (GOK) is reportedly aware of the problems with the policing of financial crimes, including money laundering, and is taking corrective measures. In January 2002, the Tax Committee was replaced by the Financial Police Agency, which has authority to investigate money laundering and other financial crimes. In March 2002, the Financial Police reported that in the previous year they had presented for prosecution 31 cases of money laundering, none of which were associated with narcotics-trafficking.
The National Bank has established a “know your customer” program and has asked local banks to report suspicious financial activities. Perhaps as a result, there are reports that large amounts of money seem to be moving into less regulated parts of the economy. As of January 2003, both the Financial Police and the National Bank are sponsoring different drafts of anti-money laundering legislation with the goal of passing an effective anti-money laundering law in 2003.
Kazakhstan should pass comprehensive anti-money laundering and counter-terrorist financing laws.
Kenya. Kenya is a regional financial and trade center for East, Central, and Southern Africa. Kenya’s capital, Nairobi, has approximately 50 banks. Kenya’s economy has a large informal sector and a thriving network of cash-based, unrecorded transfers, primarily used by expatriates to send and receive remittances internationally.
Section 49 of the Narcotic Drugs and Psychotropic Substance Control Act of 1994 criminalizes money laundering related to narcotics-trafficking. Narcotics-related money laundering is punishable by a maximum prison sentence of 14 years. Central Bank regulations require banks to verify the identity of customers wishing to open an account or conduct a transaction. Under the regulations, banks must maintain records of large transactions. Banks and other financial institutions are required to report large transactions to the Central Bank.
In 2002, the Kenya Bankers Association issued guidelines requiring banks to report suspicious transactions to the Central Bank. These guidelines do not have the force of law.
The Government of Kenya (GOK) has drafted, but not yet passed, legislation that would criminalize terrorist financing. The GOK has also drafted legislation that would criminalize money laundering beyond the scope of narcotics-trafficking, establish a Financial Intelligence Unit, and allow for the seizure of assets belonging to terrorist financiers and members of organized criminal groups. Currently, only the proceeds of narcotics-trafficking are subject to seizure.
Kenya is a party to the 1988 UN Drug Convention and a signatory to the UN International Convention for the Suppression of the Financing of Terrorism. Kenya is an active member of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), a FATF-style regional body.
Kenya should enact a comprehensive anti-money laundering regime that criminalizes terrorist financing and money laundering related to all serious crimes, as Kenya has committed to doing as a member of ESAAMLG.
Korea (Democratic Peoples Republic of Korea). The Department of State has designated North Korea as a State Sponsor of Terrorism. Information about the money laundering situation in North Korea is generally unavailable. North Korea’s self-imposed isolationism and secrecy as well as its refusal to participate in international organizations make knowledge of the role of North Korea’s financial system and drug trafficking situation supposition at best.
What little is known and documented, however, includes North Korea’s continued use of Macau as a base of operations for money laundering and other illicit activities. Macau is a useful intermediary, for it provides North Koreans with access to global financial systems. There are reports that Pyongyang also has used Macau to launder counterfeit $100 bills and Macau’s banks as a repository for the proceeds of North Korea’s growing trade in illegal drugs.
North Korea has signed, but not yet become a party to, the UN International Convention for the Suppression of the Financing of Terrorism.
North Korea should enact a comprehensive anti-money laundering regime and take steps to stop financial crimes originating in North Korea.
Korea (Republic of Korea). Money laundering related to narcotics-trafficking has been criminalized since 1995, and financial institutions have been required to report transactions known to be connected to narcotics-trafficking to the Public Prosecutor’s Office since 1997. All financial transactions using anonymous, fictitious, and nominee names have been banned since the 1997 enactment of the Real Name Financial Transaction and Guarantee of Secrecy Act. The Act also requires that persons engaged in financial institutions, apart from judicial requests for information, not provide or reveal to others any information or data on the contents of financial transactions without receiving a written request or consent from the parties involved. However, secrecy laws do not apply when such information must be provided for submission to a court or as a result of a warrant issued by the judiciary.
In a move designed to broaden its anti-money laundering regime, the Republic of Korea (ROK) also criminalized the laundering of the proceeds from 38 additional offenses, including economic crimes, bribery, organized crime, and illegal capital flight, through the Proceeds of Crime Act (POCA), enacted in September 2001. The POCA provides for imprisonment and/or a fine for anyone receiving, disguising or disposing of criminal funds. The legislation also provides for confiscation and forfeiture of illegal proceeds.
The Financial Transactions Reports Act (FTRA), passed in September 2001, requires financial institutions to report suspicious transactions to a Financial Intelligence Unit (FIU) within the Ministry of Finance and Economy. In November 2001 the Korean Cabinet issued regulations implementing the newly enacted FTRA, and officially launched the Korea Financial Intelligence Unit (KoFIU). KoFIU is composed of 60 experts from various agencies, including the Ministry of Finance and Economy, the Justice Ministry, the Financial Supervisory Commission, the Bank of Korea, the National Tax Service, the National Police Agency, and the Korea Customs Service. KoFIU analyzes suspicious transaction reports (STRs) and forwards information deemed to require further investigation to domestic law enforcement and the Public Prosecutor’s office. Financial institutions must report transactions of over 50 million won ($10,000) that are suspected of being tied to criminal proceeds or to tax evasion. They may report transactions in lesser amounts if there are “reasonable” grounds for doing so. Improper disclosure of financial reports is punishable by up to five years imprisonment and a fine of up to 30 million won (approximately $25,000). In addition, KoFIU supervises and inspects the implementation of internal reporting systems established by financial institutions.
As of December 31, 2002, KoFIU received a total of 275 STRs from financial institutions. KoFIU completed its analysis of 206 cases, amounting to KRW 96 billion, that were then disseminated to law enforcement agencies, including the public prosecutor’s office, the National Police Agency, the National Tax Service, the Korea Customs Service and the Financial Supervisory Service. FIU is still investigating another 69 STRs. Last November, one businessman was prosecuted for laundering a total of 24 billion Korean won (approximately $22 million) through 634 checks.
Money laundering controls are applied to non-banking financial institutions, such as exchange houses, stock brokerages, casinos, insurance companies, merchant banks, mutual savings, finance companies, credit unions, credit cooperatives, trust companies, securities companies, insurance companies, credit insurance corporations and exchange houses. Intermediaries such as lawyers, accountants, or broker/dealers are not covered. Any traveler carrying more than $10,000 or the equivalent in other foreign currency is required to report the currency to the Korea Customs Service.
The Anti-Public Corruption Forfeiture Act of 1994 provides for the forfeiture of the proceeds of assets derived from corruption. In November 2001, the ROK established a system for identifying, tracing, freezing, seizing, and forfeiting narcotics-related and/or other assets of serious crimes. Under the system, KOFIU is responsible for analyzing and providing information on STRs that require further investigation. The Bank Account Tracing Team under the Narcotics Investigation department of the Seoul District Prosecutor’s Office (established in April 2002) is responsible for tracing and seizing drug-related assets. The Seoul District Prosecutor’s office seized $109,000 worth of assets related to illegal foreign exchange transactions in the one case it prosecuted. Drug trafficking-related assets worth $53,000 of assets were forfeited during 2002. The ROK actively cooperates with the United States and other countries to trace or seize assets.
As of today South Korea does not have any specific laws regarding terrorist financing per se. An Anti-Terrorism Act is pending before the National Assembly. Should this Act be passed, it will include articles that specifically criminalize terrorist financing. The Supreme Prosecutors’ Offices look at black market exchanges and the Korea Customs Service monitors trade-based money laundering in an effort to prevent and/or curb such activities. As of this date, no additional legislative initiatives are pending. Reportedly, at this time are no known charitable or non-profit entities operating in Korea that are used as conduits for the financing of terrorism, although the Korean government’s own efforts to monitor and prevent illegal financial transfers overseas would also inhibit these entities from operating freely.
Through its Korean Financial Investigative Unit (authorized by the Ministry of Finance and Economy) the ROK circulated to its financial institutions the list of individuals and entities that have been included in the UN 1267 Sanctions Committee’s consolidated list as being linked to Usama Bin Ladin, members of the al-Qaida organization or the Taliban, or that the USG or the EU have designated under relevant authorities. Due in part to Korea’s remaining restrictive foreign exchange laws, no listed terrorists are known to be operating in Korea at this time or to be maintaining financial accounts. Consequently, Korean banks have not identified any terrorist assets.
The ROK is a party to the 1988 UN Drug Convention and, in December 2000, signed, but has not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. In October 2001, the ROK signed the UN International Convention for Suppression of the Financing of Terrorism. The ROK is an active member of the Asia/Pacific Group on Money Laundering. The ROK became a member of the Egmont Group in 2002 and applied for membership in the Financial Action Task Force. An extradition treaty between the United States and the ROK entered into force in December 1999. The United States and the ROK cooperate in judicial matters under a Mutual Legal Assistance Treaty, which entered into force in 1997. In 2002, the ROK signed information-sharing memorandums of understanding with the Belgian, Polish and U.K. FIUs. Also in 2002, the ROK proposed signing an MOU with the U.S. Financial Crime Enforcement Network, the U.S. FIU, for the exchange of money laundering-related information. The ROK is awaiting a response.
The passage of the new measures provides the ROK with important legal tools to combat money laundering. Korea should criminalize the financing and support of terrorism and should continue to move forward to adopt and implement its pending legislation. The ROK should extend its anti-money laundering regime to financial intermediaries. The ROK should continue its policy of active participation in international anti-money laundering efforts, both bilaterally and in multilateral fora.
Kuwait. Kuwait is not a major regional financial sector; it has seven commercial banks and one Islamic bank, all of which provide traditional banking services comparable to those of Western-style commercial banks. Kuwait also has three specialized government banks that provide medium and long-term financing.
On March 10, 2002, the Emir signed Law No. 35, which criminalizes money laundering. The law stipulates that banks and financial institutions may not keep or open any anonymous accounts or accounts in fictitious or symbolic names; banks must require proper identification of regular and occasional clients according to official documents issued by competent state authorities. The law also requires banks to keep all records of transactions and customer identification information for a minimum of five years, perform training and establish internal control systems, and report any suspicious transactions.
Law 35 designates the Public Prosecution Department as the sole authority to receive reports on money laundering operations, and to take the necessary actions. The law provides for a penalty of up to seven years imprisonment in addition to fines and asset confiscation. The penalty is doubled if an organized group commits the crime, or if the offender took advantage of his influence or his professional position. The law includes articles on international cooperation, and monitoring cash and precious metals transactions. Provisions of Article 4 of Law No. 35 state that every person shall, upon entering the country, inform the custom authorities of any national or foreign currency, gold bullion, or any other precious materials in his/her possession valued in excess of Kuwait Dinars 3,000 (about $ 10,000).
The law authorizes the Minister of Finance to set forth the resolutions necessary to ensure its implementation. The Minister of Finance can issue resolutions to enhance combating money laundering operations without the need to amend the legislation. Moreover, banks and financial institutions may face a steep fine (approximately $3.3 million) if found in violation of the legislation.
In addition to those imposed by Law 35, Kuwait’s anti-money laundering reporting requirements are contained within the Central Bank of Kuwait’s Instructions No. (2/SB/50/97). Instructions contain provisions for: customer identification and the prohibition against opening or keeping anonymous accounts or accounts in obviously fictitious names (Articles 1 and 2), record keeping requirements and the seizing of suspected funds (Articles 3 and 4), and a prohibition against bank staff members’ divulging to customers about the reporting of their suspicious transactions (Article 6).
Further provisions call for paying special attention to complex, large, or unusual transactions, and the reporting of crimes and suspicious transactions (STRs) to the Central Bank of Kuwait, which then notifies the Ministry of Interior (Article 7); coordination among banks on STR trends and patterns (Article 8); reporting of Currency Transaction Reports (CTRs) above 10,000 Kuwaiti dinars (KD) (approximately $33,000) (Article 9); internal bank controls for detecting money laundering and bank staff training programs (Article 10); anti-money laundering guidelines for financial institutions in the form of “Guidelines for the Identification of Suspicious Transaction Patterns” (Article 11); and compliance requirements for branches and subsidiaries of Kuwaiti banks located abroad (Article 12).
Implementing legislation must still be developed to delineate the functions of the Financial Intelligence Unit (FIU) and to set up the requisite financial institution reporting system. Kuwait has still not formally established its FIU.
In September 2002, insurance companies, exchange bureaus, gold and precious metals shops, brokers in the Kuwait Stock Exchange, and all other financial brokers, were placed under strict supervision of the Ministry of Commerce and Industry. Such sectors have to abide by all regulations concerning customer identification, record keeping of all transactions for five years, internal control systems, and the reporting of suspicious transactions.
Although Kuwait has criminalized all forms of money laundering activities, substantial areas of the Kuwaiti financial sector are either under-regulated or not regulated or supervised at all. Islamic banks are not under the supervision of the Central Bank. Kuwait’s one Islamic bank, Kuwait Finance House (KFH), is a charitable organization licensed and supervised out of the Ministry of Commerce and Industry, which apparently does not perform any type of examination of the KFH books. Another significant loophole is that so-called “VIP” transactions are not subject to the reporting requirements.
Following the September 11, 2001 attacks against the United States, certain Islamic charity organizations such as the Revival of Islamic Heritage Society (RIHS) and its subsidiary, the Afghan Support Committee (ASC), which operate from Kuwait and have branches in Pakistan and Afghanistan, were suspected of providing funds to al-Qaida. U.S. authorities have designated the branches in Pakistan and Afghanistan as being used to funnel funds to terrorist organizations. There is no indication that such activities occurred with the knowledge of the Kuwaiti head office.
In August, 2002, the Kuwaiti Ministry of Social Affairs and Labor issued a ministerial decree to create a Department of Charitable Organizations. The primary responsibilities of the new department are to receive applications of registration from charitable organizations, monitor their operations, and establish a new accounting system to insure that such organizations comply with the law both at home and abroad. The Department will establish guidelines explaining how charities must collect donations and finance their activities. The new Department will also be charged with conducting periodic inspections to insure that they maintain administrative, accounting, and organizational standards according to Kuwaiti law.
The 2002 law on money laundering does not cite terrorist financing as a crime; however, the definition of criminal activity is broad. Kuwait established a national committee to follow up on all issues concerning terrorism. Reportedly there have been no money laundering or terrorist financing arrests or prosecutions in 2002. However, two terrorist suspects were charged in late 2002 with “gathering funds for, and financing the establishment of, military training camps abroad.”
The Gulf Cooperation Council represents Kuwait on the Financial Action Task Force (FATF). Kuwait is not a signatory to the UN International Convention for the Suppression of the Financing of Terrorism, but is a party to the 1988 UN Drug Convention. It has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally.
Kuwait should move to implement and enforce Law 35 and the anti-money laundering regulations. A specific counter-terrorism finance law should be enacted. Kuwait should establish a FIU and provide the FIU the ability to share information with foreign regulators and law enforcement authorities.
Kyrgyzstan. Kyrgyzstan (the Kyrgyz Republic) is not a regional financial center. Money laundering is not a crime in the Kyrgyz Republic. Moreover, it has a comparatively underdeveloped banking system. Like other countries in the region, the Kyrgyz Republic is susceptible to alternative remittance systems to launder money or transfer value such as hawala and trade fraud. The major sources of illegal proceeds include narcotics-trafficking, smuggling of consumer goods, tax and tariff evasion, and official corruption.
The Central Bank has provisions that require customer identification procedures and make an exception to bank secrecy rules for suspicious transaction reporting, but these provisions are reportedly ignored by the commercial banks. Oversight of the banking sector remains weak and Kyrgyzstan’s law enforcement agencies lack the resources and expertise to conduct effective financial investigations.
Recognizing that the first step in constructing an effective anti-money laundering program is to criminalize money laundering, in 2002 the Government of Kyrgyzstan (GOK) drafted a law “On Opposition to Legalization (Laundering) of Incomes Obtained in Illegal Way in the Kyrgyz Republic.” The draft law defines predicate offenses or criminal conduct as income “obtained as a result of committed crime.” Mandatory suspicious transaction reporting by Kyrgyzstan financial institutions is included in the draft law. The law does not address money laundering methodologies that by-pass financial institutions. Details and possible revisions of the draft legislation are as yet unclear.
The Kyrgyz Republic is a party to the 1988 UN Drug Convention, and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. The Kyrgyz Republic has not signed the UN International Convention for the Suppression of the Financing of Terrorism.
The Kyrgyz Republic should approve comprehensive anti-money laundering and anti-terrorism finance legislation that adheres to international standards, and become a party to the UN International Convention for the Suppression of the Financing of Terrorism. The GOK should also be aware that money laundering can easily by-pass financial institutions and take enforcement measures to address these vulnerabilities.
Laos. Laos is not a regional financial center and has no anti-money laundering legislation. Banking laws and regulations governing money laundering also do not exist. The country does have strict laws on the export of its currency, the Lao kip. The proceeds of drug trafficking most likely are sent to other countries through alternative remittance systems.
In late 2001, the Government of Laos (GOL) agreed to freeze terrorist financial assets. However, the Lao banking system is underdeveloped and there has been little progress to date.
The GOL is a party to the 1971 UN Convention on Psychotropic Substances and has stated its goal to become a party to the 1988 UN Drug Convention. GOL sends its officials to relevant Association of Southeast Asian Nations (ASEAN) regional conferences on money laundering.
Laos should pass anti-money laundering and anti-terrorism financing legislation. Laos should also sign the UN International Convention for the Suppression of Financing of Terrorism.
Latvia. The problems associated with money laundering continue to be a concern in Latvia in spite of compliance with legislative norms, regulations and “best practices” within the financial sector. Sources of laundered money include counterfeiting, corruption, white-collar crime, extortion, financial-banking crimes, stolen cars, and prostitution. Organized crime is thought to account for two-thirds of laundered proceeds. Latvia’s mainly cash economy has been moving toward the use of electronic, credit, and other non-cash payments. At the same time, there are no restrictions in Latvia for cross-border currency movement (cash or non-cash, domestic or foreign) or the physical movement of other financial instruments. In August 2002 there were 222 operational bureaux de change, 21 casinos, 251 gaming halls, and 9,500 gambling machines.
The Government of Latvia (GOL) criminalized money laundering for all serious crimes in 1998. There are requirements for customer identification, the maintenance of records on all transactions, and the reporting of large cash transactions (40,000 lats or approximately $64,600), and suspicious transactions to the Office for the Prevention of the Laundering of Proceeds Derived from Criminal Activity (Control Service), which is Latvia’s Financial Intelligence Unit (FIU). The Control Service, which employs 13 persons, was established under the oversight of the Prosecutor’s Office. Additional allocations for financing the Control Service for the year 2003 were made for the purpose of increasing the staff, purchasing technical resources and enhancing software development.
The number of suspicious disclosures reported to the Control Service increased from 17 percent of all reported transactions in 2000 to 32 percent in 2001. By September 2002, 50 criminal cases had been initiated by the Prosecutor’s Office, three of which are pending. General trends in possible money laundering activity include the increasing use of bogus (fictitious) businesses or offshore companies. Another trend is the so-called “one-day-transaction” that actually entails a number of successive transactions in a short space of time.
Since July 2001, the Finance and Capital Market Commission (FCMC) has served as the public regulator, overseeing the Central Bank, the Securities and Exchange Commission, and insurance companies. The FCMC has approved guidelines for identifying customers and unusual and suspicious transactions, including guidance on the internal control mechanisms that financial institutions should have in place. It has advised financial institutions to pay much closer attention to transactions involving FATF-designated list of Non-Cooperative Countries and Territories or NCCT countries. The FCMC has also posted on its web page a list of persons suspected of having links to terrorism and the FATF guidelines for financial institutions for detection of cases of terrorism financing. Latvia continues to address the issue of offshore investments. Information on offshore company owners had been confidential. A commercial law, effective January 2002, now requires more information on the branches of offshore companies in Latvia. The law requires that at least half the board members of such companies must be permanent residents of Latvia, parent companies must submit their annual reports to a new commercial register, and changes in the parent companies’ authorized personnel in Latvia must likewise be reported, in order to facilitate checking suspicious transactions.
The European Union 2001 Report on Latvia’s Progress towards Accession to the EU characterized the perceived level of corruption in Latvia as relatively high. This was echoed by the Transparency International Corruption Perceptions Index 2002, which assigns Latvia a score of 3.7. (“Highly clean” rates a “10.”) In January 2002 the Crime and Corruption Prevention Council was established; in April the Parliament adopted the Law on Prevention of Conflict of Interest of Public Officials; and, in May the Law on Corruption Prevention and Enforcement Bureau was adopted. The law established and funded one bureau whose sole task is to address and combat public corruption.
Reportedly, interagency cooperation between Latvian law enforcement agencies tends to be best at the highest governmental levels, but weaker at the working level due to lack of financial, material, and human resources. The investigative and gathering of evidence processes need streamlining. Two teams were created to work only on money laundering investigations. One was formed at the Financial Police, the other at the Economic Police. The latter has been operational since March 2002. To date, there have been no criminal convictions and no forfeitures of illicit proceeds based on money laundering.
Latvia participates in the Council of Europe’s Select Committee of Experts on the Evaluation of Anti-money Laundering Measures (Moneyval, formerly PC-R-EV), and as a member underwent a mutual evaluation in March 2000 that resulted in many of the aforementioned changes. It is currently in the process of the second round of evaluations. Latvia ratified the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of Proceeds from Crime in 1998, and the Council of Europe Criminal Law Convention on Corruption in December 2001. A Mutual Legal Assistance Treaty has been in force between the United States and Latvia since 1999. Latvia is a party to the UN Drug Convention, and in December 2001 ratified the UN Convention against Transnational Organized Crime, which is not yet in force internationally. The Control Service has been a member of the Egmont Group since 1999 and has cooperation agreements on information exchange with FIUs in Belgium, Bulgaria, the Czech Republic, Estonia, Finland, Italy, Lithuania, and Slovenia.
The GOL has initiated a number of measures toward combating the financing of terrorism, and became a party to the UN International Convention for the Suppression of the Financing of Terrorism (November 14, 2002), as well as five other international conventions on combating terrorism. Regulations have been adopted regarding the implementation of sanctions imposed by UNSCR 1267 and 1333. Regulations of the Cabinet of Ministers No. 437 “On the Sanction Regime of the United Nations Security Council against the Afghan Islam Emirates in the Republic of Latvia” guides the implementation of the sanctions imposed by the above-referenced UNSCRs. Latvia already had a mechanism for freezing financial resources or other property.
Amendments to the law “On Prevention of the Laundering of the Proceeds from Crime” have been in force since February 2002, which, among other things, provide for: 1) recognizing terrorism as a predicate offense for money laundering, 2) classifying financial resources or other property as proceeds derived from crime if they are directly or indirectly controlled or owned by a physical or juridical person included in the terrorist watch list, 3) making the Latvian FIU the authority that disseminates information on the watch list to credit and financial institutions, 4) giving the FIU authority to demand that credit and financial institutions suspend debit operations in the accounts of such persons or suspend movement of other property of such persons for up to six months, and 5) giving the FIU the authority to cooperate with foreign or international anti-terrorism agencies concerning issues of control over the movement of financial resources or other property linked to terrorism.
Since September 11, 2001, Latvian authorities have taken concrete steps to implement the above regulations. They have given considerable effort to tracing transactions executed by terrorists or their accomplices. Other practical measures include organizing relevant training courses for personnel in financial institutions, creating a special anti-terrorism information network within the financial system, nominating a person to deal with anti-terrorism issues at the FIU, and establishing an FIU reporting system and procedures concerning terrorist finances.
The GOL should continue to research ways to improve cooperation between Latvian law enforcement agencies at the working level. Latvia’s success in combating money laundering will depend on its perseverance and political will to combat corruption and organized crime. The GOL should adopt and implement cross-border currency controls, should regulate its bureaux de change and its gaming industry as well as the offshore companies that it licenses.
Lebanon. Lebanon has one of the more sophisticated and well-capitalized banking sectors in the region. Combined with the tradition of bank secrecy, the extensive use of foreign currency (particularly dollars), the influx of remittances from expatriate workers, and a general lack of accountability and enforcement, this allowed for an environment conducive to laundering money from sources that include narcotics, counterfeiting, smuggling, evasion of international sanctions as well as of domestic tax and currency regulations, and other organized criminal activity. Expatriate Lebanese citizens have established themselves in the underworld of the gold trade in Panama and other locations in Latin America and the diamond trade in Africa. Lebanese buyers in Liberia, Sierra Leone, and other African countries purchase raw diamonds from un-staked or illicit mines in exchange for cash. The diamonds are then passed through customs and shipped abroad to international markets in Israel, Belgium, and India for cutting, polishing, and selling.
Lebanon made significant progress in institutionalizing its anti-money laundering efforts in 2002, which culminated in the Financial Action Task Force’s (FATF’s) removal of Lebanon from the list of non-cooperative countries in June 2002. With its removal from the NCCT list, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) Advisory which had instructed all U.S. financial institutions to “give enhanced scrutiny” to all transactions involving Lebanon was also lifted. Lebanon’s efforts to meet FATF’s recommendations include criminalizing money laundering, establishing currency reporting guidelines, and creating a financial intelligence unit (FIU). In October 2002, the Cabinet approved legislation to criminalize the financing of terrorism. The draft law is currently awaiting parliamentary action.
In April 2001, Lebanon adopted Law No. 318 creating a framework for the lifting of bank secrecy, broadening the criminalization of money laundering beyond drugs, mandating suspicious transaction reporting, requiring financial institutions to obtain customer identification information, and facilitating access to banking information and records by judicial authorities. The provisions of Law No. 318 expand the type of financial institutions subject to the provisions of the Banking Secrecy Law of 1956, to include institutions such as exchange offices, financial intermediation companies, leasing companies, mutual funds, insurance companies, companies promoting, building, and selling, real estate, and dealers in high-value commodities. In addition, companies engaged in high-value items (precious metals, antiquities) and real estate are obligated to report suspicious transactions in accordance with Law 318. Charitable and non-profit organizations must be registered with the Ministry of Interior, are required to have proper “corporate governance” including audited financial statements and are subject to the same “suspicious” reporting requirements.
All financial institutions and money exchange houses are regulated by the Central Bank (Banque du Liban). In May 2001, Law 318 was further delineated by Banque du Liban to require financial institutions to identify all clients including transient clients, maintain records of customer identification information, request information about the beneficial owners of accounts, conduct internal audits, and exercise due diligence in conducting transactions for clients.
Law No. 318 also established a financial intelligence unit (FIU), the “Special Investigation Commission” (SIC), which is an independent entity with judicial status to investigate money laundering operations and to monitor compliance of banks and other financial institutions with the provisions of Law No. 318. SIC serves as the centerpiece of Lebanon’s anti-money laundering regime and has been the critical driving force behind the implementation process.
The SIC is responsible for receiving and investigating reports of suspicious transactions. SIC is the only entity with the authority to lift bank secrecy for administrative and judicial agencies and it is the administrative body through which foreign requests for assistance are processed.
Since its inception, SIC has been active in providing support to international case referrals. Through the first nine months of its operation, it received 37 case referrals relating to money laundering and terrorist financing activities. All were investigated and bank secrecy regulations were lifted in 22 instances. The cases included 14 requests from the United States. From January 1 through mid-November 2002, SIC investigated 113 cases involving allegations of money laundering. Twenty of the cases were related to terrorist financing. SIC has circulated to all financial institutions the list of individuals and entities included on the UN 1267 sanctions committee’s consolidated list as being linked to al-Qaida or Taliban.
Offshore banking is not permitted in Lebanon. Current legislation stipulates that assets proven by a final court ruling to be related to or proceeding from money laundering will be confiscated. In addition, conveyances used to transport narcotics will be seized. Legitimate businesses established from illegal proceeds after passage of Law 381 are also subject to seizure.
The SIC has signed a number of memoranda of understanding with some FIUs concerning anti-money laundering and combating terrorist financing. Lebanon has endorsed the Basel Core Principles and is in the process of implementing them. Lebanon is party to the 1988 UN Drug Convention (although it has expressed reservations to several sections of the Convention relating to bank secrecy), and in December 2001 it signed the UN Convention against Transnational Organized Crime, which is not in force internationally.The Government of Lebanon made significant progress in its efforts to develop an effective anti-money laundering system. Passage of the amendments to Law 318 will be the best indicators that Lebanon remains on the right track in the fight against money laundering. The SIC is urged to work with financial institutions to increase the level and quality of suspicious transaction reporting. More efficient cooperation between SIC and other concerned parties, such as police and customs, could yield significant improvements in investigations or initiating investigations. Lebanon should sign the International Convention for the Suppression of Financing of Terrorism, and move swiftly to approve the draft law criminalizing terrorist financing.
Lesotho. Lesotho does not have a significant money laundering problem. There is currently no legislation criminalizing money laundering or terrorist financing. In 2001, the Government of Lesotho (GOL) began drafting an anti-money laundering statute based on the South African Development Community model. However, the GOL has not yet introduced the bill in Parliament.
Lesotho requires banks to know the identity of their customers and to report suspicious transactions to the Central Bank. The GOL also requires banks to report all transactions exceeding 100,000 maloti (approximately $11,000) to the Central Bank.
Lesotho is a party to both the UN International Convention for the Suppression of the Financing of Terrorism and the 1988 UN Drug Convention. Lesotho has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally.
Lesotho should criminalize money laundering and terrorist financing and should develop a viable anti-money laundering regime. Lesotho should also join the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), a FATF-style regional body.
Liberia. Liberia is vulnerable to money laundering because it is a major transshipment point for illegal diamond smuggling, especially rough diamonds from Sierra Leone, and illegal arms trading. Liberia is also a growing transit country for narcotics on their way to Europe from Nigeria. As a significant diamond producing country, Liberia has attracted international attention because of its failure to effectively regulate its diamond industry under a certificate of origin regime, as called for by the UN. Money laundering involving diamonds and other precious metals and gems remains a concern. In May 2001, the UN Security Council adopted a resolution, since extended into 2003, prohibiting any trade in rough diamonds with Liberia. The Security Council took this step as a means of controlling the illicit trade in “conflict” diamonds from, or moving through, Liberia. Despite the fact that UN sanctions remained in place throughout 2002, Liberians continued to mine and smuggle stones. The Liberian Government claims it has not discouraged local diggers for fear that hundreds or thousands of unemployed miners would converge on the capital. The UN sanctions allegedly have caused a 40 percent drop in the price of stones on the local market. As a result, and given the proximity of Liberia’s principal alluvial deposits to the border with Sierra Leone, local diggers are illicitly moving Liberian rough diamonds into Sierra Leone, where they fetch a better return, and can more easily be represented as of non-Liberian origin. Diamonds have also be used on a broad scale to purchase arms and otherwise fund conflict in the region, as detailed in the reports of UN experts. A typical money laundering scheme might include a businessman entering Liberia with a large amount of cash. The investor might purchase or otherwise obtain rough diamonds from illicit miners (without stakes) or other illicit sources in exchange for cash. These diamonds would then be passed through customs and shipped abroad to international markets in Israel, Belgium, and India for cutting, polishing, and resale.
Foreign diamond traders, including Eastern Europeans and Lebanese, often come to Monrovia to purchase diamonds on the black market and then export them out of Liberia through Monrovia’s Roberts International Airport. Local security commanders and government officials are often paid to allow diamonds to pass through customs unchecked.
In 2001, the Liberian Government developed a prototype certificate of origin for diamonds based on the Kimberley process. However, the UN has not yet approved this certification regime as sufficiently effective to justify the removal of sanctions.
Under anti-money laundering regulations enacted in 2001, monies that are carried out of the country over the sum of 7,000 Liberian dollars (approximately $150) must be in the form of travelers’ checks, money orders, or bank drafts. When entering the country, amounts of money that exceed 10,000 Liberian dollars (approximately $215) must be declared to the Central Bank of Liberia. However, this regulation is not regularly enforced, and widespread corruption exists in Liberia’s customs authorities.
Liberia’s offshore activity is concentrated in the ship registry business, which is managed by the Liberian International Ship and Corporate Registry (LISCR), based in Virginia. The LISCR also manages Liberia’s corporate registry. Offshore companies are permitted to issue bearer shares.
In 2000, the Economic Community of West African States (ECOWAS) established the Intergovernmental Group for Action Against Money Laundering (GIABA), based in Dakar. Liberia is a member of GIABA, although no Liberian representatives attended the GIABA anti-money laundering seminar in November 2002. In July 2002 Liberia participated in the 2002 West African Joint Operation Conference (WAJO) that promotes regional law enforcement cooperation against drug trafficking, terrorism, and money laundering.
Liberia is not a party to the 1988 UN Drug Convention, nor has it signed the UN International Convention for the Suppression of the Financing of Terrorism.
Liberia should enact a comprehensive anti-money laundering regime that criminalizes money laundering and terrorist financing. Liberia should also enforce its cross-border reporting requirements and take steps to properly regulate its diamond industry.
Liechtenstein. The Principality of Liechtenstein’s (Liechtenstein) well-developed offshore financial services sector, relatively low tax rates, loose incorporation and corporate governance rules, and a tradition of strict bank secrecy have contributed significantly to the ability of financial intermediaries in Liechtenstein to attract funds from abroad. These same factors have historically made the country attractive to money launderers. Rumors and accusations of misuse of Liechtenstein’s banking system persist in spite of the progress this principality has made in its efforts against money laundering.
Liechtenstein’s financial services sector includes 17 banks, three non-bank financial companies, and 16 public investment companies, as well as insurance and reinsurance companies. Its 230 licensed fiduciary companies and 60 lawyers serve as nominees for, or manage, more than 75,000 entities (mostly corporations, Anstalts, or trusts) available primarily to nonresidents of Liechtenstein. Approximately one-third of these entities hold the controlling interest in other entities, chartered in countries other than Liechtenstein. Laws permit corporations to issue bearer shares.
Narcotics-related money laundering has been a criminal offense in Liechtenstein since 1993, but the first general anti-money laundering legislation was added to Liechtenstein’s laws in 1996. Although the 1996 law applied some money laundering controls to financial institutions and intermediaries operating in Liechtenstein, the anti-money laundering regime at that time suffered from serious systemic problems and deficiencies.
Liechtenstein’s Financial Intelligence Unit (FIU), the Einheit fuer Finanzinformationen (EFFI) became operational in March 2001, and a member of the Egmont Group in June 2001. The EFFI works closely with the prosecutor’s office and law enforcement authorities, as well as with a new unit of the National Police that deals with economic and organized crime. The FIU began operations on the basis of an executive order, but Liechtenstein formally adopted a law in May 2002 providing a statutory basis for the FIU’s authority.
The EFFI has developed a system for suspicious transaction reporting (STR) analysis that involves internal analysis, consultation with police and a ten-day period to decide whether to forward the report to prosecutors for further action. EFFI has set up a database to analyze the STRs. Currently, banks, insurers, financial advisers, postal services, bureaux de change, attorneys, financial regulators, and casinos are required to file STRs.
The Financial Supervision Authority (FSA) is responsible for supervising all banks and fiduciaries licensed to operate in Liechtenstein. The FSA has the authority to conduct on-site spot checks and request information as required.
Following the Financial Action Task Force’s (FATF) identification in 2000 of Liechtenstein as non-cooperative in international efforts to fight money laundering (NCCT), the U.S. Treasury Department issued an Advisory instructing U.S. financial institutions to “give enhanced scrutiny” to all transactions involving Liechtenstein. The Government of Liechtenstein (GOL) took legislative and administrative steps to improve its anti-money laundering regime. Specifically, the GOL amended its Due Diligence Act to incorporate “know your customer” principles that require banks and all other financial intermediaries to identify their clients and the beneficial owners of accounts. The GOL revised relevant portions of its criminal code to add a wide range of predicate crimes to the definition of money laundering and expanded money laundering offenses, in non-narcotics offenses, to cover “own funds.” The new laws also address the independence of accountants reporting to the FSA on anti-money laundering compliance.
The GOL also reformed its system of suspicious transaction reporting. Reporting is now permitted for a much broader range of offenses and may be made based on a suspicion rather than the previous standard of “a strong suspicion.” Nonetheless, the new law continues to require that financial institutions undertake some “clarification” of transactions before making a report, and there is some concern that this may be inhibiting the level of reporting or involve some risk of “tipping off.”
The reforms to Liechtenstein’s anti-money laundering regime have had positive results. In 2001, the EFFI reported 158 suspicions of money laundering, as opposed to 67 in the previous year, an increase of 136 percent. The EFFI recognizes the numerically low participation level among Liechtenstein’s financial institutions. Only six banks out of 17 reported to the EFFI, seven out of 87 lawyers, and 20 out of 645 fiduciaries. Most of the customers involved in money laundering activities were from Germany (21 percent), Italy (10 percent), and Russia (9.5 percent). While U.S. customers only account for five percent of the money laundering reports, most of the assets under investigation in 2001 originated from the United States, ($667 million), followed by France ($533 million) and Russia ($146 million).
The relatively small number of STRs filed by financial institutions in Liechtenstein has generated several money laundering investigations. For example, on July 19, 2001, the GOL formally charged two previously indicted managers of trusts with conspiring to launder millions of dollars for the Colombian Cali drug cartel, and related criminal organizations, through Liechtenstein bank accounts. On March 21, 2002, the Liechtenstein Ministry of Justice filed a complaint against Gabriel Marxer, a former parliamentarian, on the grounds he participated in the laundering of $6.5 million originating from United States businessman James C. Sexton. United States authorities initiated the investigation as part of a large anti-fraud operation. Police authorities arrested eight people and blocked two bank accounts. The amount frozen has not yet been disclosed.
The GOL has made progress in strengthening its anti-money laundering regime and implementing recent reforms. It has increased the resources, both human and financial, devoted to fighting money laundering. The GOL has also improved its international cooperation provisions in both administrative and judicial matters, and has committed all financial institutions (banks and non-bank intermediaries) to obtain full identification of accounts’ beneficial owners. To comply with new legislation that froze unidentified accounts on January 1, 2002, trustees and other financial intermediaries identified and filed client profiles with banks for over 45,000 customers, or approximately 97.2 percent of the total unidentified accounts by December 31, 2001. To remedy problems with the implementation of the laws, a Due Diligence Unit (SSP) was established to supervise compliance with anti-money laundering regulations. Its chief reports directly to the Prime Minister. Under the direction of the SSP, audits were conducted of a number of trustees supervised under the Due Diligence Act, and deficiencies were reviewed. The SSP works effectively and closely with the EFFI, the Office of the Prosecutor, and with the Police. Liechtenstein judges have worked hard to fully reduce the backlog of judicial assistance requests.
The FATF recognized in June 2001 that Liechtenstein had remedied the serious deficiencies in its anti-money laundering regime and removed Liechtenstein from the FATF NCCT list. Similarly, the U.S. Treasury Department withdrew its Advisory against Liechtenstein. On July 24, 2002, the FATF informed the GOL that it would end the monitoring of the country, thus recognizing the measures taken against money laundering. “Liechtenstein has addressed all previously identified deficiencies and therefore, will no longer require monitoring by the FATF,” the FATF’s annual report stated.
Liechtenstein has in place legislation to seize, freeze, and share forfeited assets with cooperating countries. Liechtenstein has issued ordinances to implement United Nations Security Council Resolution (UNSCR) 1267, which requires all states to freeze funds and other financial resources of the Taliban, including funds derived by an undertaking owned or controlled by the Taliban, and UNSCR 1333, which requires all states to freeze funds and other financial assets of Usama Bin Ladin and his associates, including those in the al-Qaida organization. Amendments to the ordinances in October and November 2001, allowed the GOL to freeze the accounts of individuals and entities who were designated pursuant to these UNSCR resolutions. The GOL updates these ordinances regularly. On November 7, 2001, law enforcement entities in Switzerland, Liechtenstein, and Italy conducted raids and seized documents relating to Al Taqwa and Nada Management. Liechtenstein froze five Al Taqwa accounts and investigated five companies. In connection with these actions, the GOL responded to a mutual legal assistance request from Switzerland and opened a domestic investigation based on money laundering and organized crime.
Liechtenstein is a member of the Council of Europe Select Committee on Experts on the Evaluation of Anti-Money Laundering Measures (Moneyval, PC-R-EV), and is a party to the Council of Europe Convention on Laundering, Search and Confiscation of Proceeds from Crime. On October 3, 2001, the GOL signed the UN International Convention for the Suppression of the Financing of Terrorism. Liechtenstein has also signed, but has not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Liechtenstein has endorsed the Basel Committee’s “Core Principles for Effective Banking Supervision.” Liechtenstein and the United States are concluding negotiations on a Mutual Legal Assistance Treaty (MLAT).
A FATF review in June 2002 found that the numbers of submitted STRs has increased, and Liechtenstein has made progress in addressing the previous shortcomings in its anti-money laundering regime. The GOL should continue to build upon the foundation of its evolving anti-money laundering regime. The GOL should insist that trustees and other fiduciaries comply fully with all aspects of the new anti-money laundering legislation and attendant regulations. The GOL should also criminalize the financing and support of terrorism.
Lithuania. Lithuania is not a regional financial center. However, its geographic location and limited experience in regulating financial institutions and transactions makes it attractive for some money launderers. Although some money laundering is related to narcotics proceeds, most is tied to tax evasion, smuggling, illegal production and sale of alcohol, capital flight, and profit concealment. It is estimated the shadow economy accounts for some 20 percent of the economy. Large-scale laundering via commercial banks carries significant risk, but money laundering outside the banking system is widespread due to loopholes in the tax system, corruption, and the prevalence of alternative remittance systems.
The criminal code created in 1997 was amended to criminalize the act of money laundering. In January 1998, the Law on the Prevention of Money Laundering (LPML), entered into force. The LPML provides for suspicious transaction reporting and the identification of customers whose transactions exceed litas (LTL) 50,000 (approximately $15,000) or the equivalent in foreign currency. The LPML also made provisions for maintaining a register of customers who engage in transactions that exceed LTL 50,000 or the equivalent in foreign currency; and retain certain documents for a minimum of ten years. Along with collection of reports, the LPML specifies information to be reported to the tax police. The Bank of Lithuania (BOL) issues currency transaction reporting requirements and regulations and is required to share money laundering violation information with law enforcement and other state institutions upon request. Non-bank financial institutions operate under guidelines similar to banks. The BOL has the authority to examine the books, records, and other documents of all financial institutions.
The Money Laundering Prevention Division (MLPD) of the Financial Crimes Investigation Service is Lithuania’s Financial Intelligence Unit. The MLPD is a member of the Egmont Group. Lithuania has signed memoranda on exchange of laundering-related financial and intelligence information with financial intelligence agencies of Belgium, Croatia, the Czech Republic, Estonia, Finland, Latvia, and Poland. The Lithuanian Tax Police Department, in charge of investigations of financial crimes, also has cooperation agreements with law enforcement agencies of Belarus, Georgia, Kazakhstan, Russia and Ukraine. In May 2002, the Lithuanian parliament ratified a governmental agreement with Germany on cooperation in work against organized crime, terrorism and other serious crimes.
Lithuania is a party to the 1988 UN Drug Convention, and ratified the UN Convention against Transnational Organized Crime, which is not yet in force internationally, in 2002. Lithuania is also a party to the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime. There is a mutual legal assistance treaty (MLAT) between the United States and Lithuania, which entered into force in 1999. Lithuania is a member of the Council of Europe’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (Moneyval, formerly PC-R-EV), and the MLPD is a member of the Egmont Group.
Lithuania should sign the UN International Convention for the Suppression of the Financing of Terrorism and criminalize terrorist financing.
Luxembourg. Luxembourg is the seventh-largest financial center in the world, with more than 200 international financial institutions that benefit from the country’s strict bank secrecy laws, and operate a wide range of services and activities. Luxembourg is currently the third largest domicile for investment funds (behind the United States and France), with over $950 billion in net assets managed by the investment fund industry. Luxembourg is considered an offshore financial center. Foreign-owned banks account for around 94 percent of total bank assets, the majority of which are subsidiaries of German, French and Belgian banks. For this reason, and given their proximity to Luxembourg, a large number of suspicious transaction reports (STRs) in Luxembourg are generated from transactions involving clients in these countries. Luxembourg currently has no cross-border currency reporting requirements. As of December 2002, 177 banks were operating as “universal banks,” with the ability to provide a wide range of services. As of October 2002, Luxembourg had 1,960 “undertakings for collective investment” (UCIs), or mutual fund companies, which included but were not limited to investment funds, 93 insurance companies (estimate), and 265 reinsurance companies. The size and sophistication of Luxembourg’s financial center pose major risks for money laundering. Although Luxembourg bank secrecy rules may appear vulnerable to abuse by those transferring illegally obtained assets, under Luxembourg law the secrecy rules are waived in the prosecution of money laundering and other criminal cases.
Luxembourg has a well-developed legal and regulatory system to combat money laundering, and financial sector laws are modeled to a large extent by EU directives. The Law of 7 July 1989, updated in 1998, serves as Luxembourg’s primary anti-money laundering law, criminalizing the laundering of proceeds for an extensive list of predicate offenses. The Law of 5 April 1993 implements the 1991 EU anti-money laundering directive (91/308/EEC), and includes customer identification, record keeping, and suspicious transaction reporting requirements. The Act of 11 August 1998 extends anti-money laundering provisions to notaries, casinos, and external auditors, and adds corruption, weapons offenses, and organized crime to the list of predicate offenses for money laundering. Among other things, the Act of 10 June 1999 extends anti-money laundering provisions to accountants. Luxembourg is presently in the domestic implementation phase of the EU directive on the Prevention of the use of the Financial System for the Purpose of Money Laundering (2001/97/EC). The new legislation, expected to be enacted in 2003, will extend reporting requirements to lawyers, certain real estate professionals, and dealers in high-value goods.
The Parquet Economique et Financier Luxembourg/Service Anti-Blanchiment (the Public Prosecutor), serves as Luxembourg’s Financial Intelligence Unit (FIU), receiving and analyzing suspicious transaction reports from the financial sector. The Commission de Surveillance du Secteur Financier (CSSF) is an independent government body that serves as the oversight authority for banks and the securities market, and supervises professionals covered by the country’s anti-money laundering laws. The Commissariat aux Assurances (CAA) has oversight authority over the insurance sector, and the Luxembourg Central Bank oversees the payment and securities settlement system. The identities of the beneficial owners of accounts are available to all entities involved in oversight functions, including registered independent auditors, in-house bank auditors, and the CSSF. No distinctions are made in Luxembourg laws and regulations between onshore and offshore activities. Foreign institutions seeking establishment in Luxembourg must demonstrate prior establishment in a foreign country, and meet stringent minimum capital requirements. Companies must maintain a registered office in Luxembourg and background checks are performed on all applicants. A government registry publicly lists company directors, and nominee (anonymous) directors are not permitted. Bearer shares are permitted. Banks must undergo annual audits under the supervision of the CSSF (CSSF reg. No. 27). Independent auditors have established a “peer review” procedure in compliance with an EU recommendation on quality control for external audit work to assure the adherence to international standards on auditing.
The Government of Luxembourg (GOL) is actively engaged in efforts to combat money laundering, and to further develop its effectiveness in this area. Under the direction of the Ministry of the Treasury, the CSSF has established a public-private committee comprising supervisory authorities, law enforcement authorities, the FIU, and representatives of financial professions and other professions under the scope of EU and Luxembourg anti-money laundering rules. The committee, the Comite de Pilotage anti-Blanchiment (COPILAB) meets monthly to develop a common approach to strengthen Luxembourg’s anti-money laundering regime.
Suspicious transaction reporting requirements apply not only to banks, but also to auditors, accountants, notaries, and life insurance providers. Financial institutions are required to retain records for a period of five years. Individuals aiding government officials in money laundering investigations are protected by law. Since 2000, the number of STRs filed by obligated institutions have more than tripled; the number of STRs received by authorities for 2002 is expected to have reached 600. Nonetheless, there have been no arrests or prosecutions for money laundering since January 2001. Luxembourg authorities regularly exchange information with counterparts in other countries, and attribute the lack of arrests for money laundering to the fact that suspected perpetrators are usually not physically present in Luxembourg.
Since September 11, 2001, Luxembourg has committed itself to fighting the financing of terrorism. Luxembourg authorities have been actively involved in bilateral and international fora and training in order to become more effective at fighting the financing of terrorism. Dialogue and other bilateral proceedings between the GOL and the United States have been particularly extensive. The GOL also has actively disseminated information concerning suspected terrorists throughout its institutions in an effort to identify and freeze the assets of these individuals.
Upon request from the United States, Luxembourg froze the bank accounts of individuals suspected of involvement in terrorism. Luxembourg also froze eighteen accounts on its own. Five court challenges have been filed thus far by the account holders. During 2002, over $200 million in suspect accounts were frozen by Luxembourg authorities pending further investigation (most of which were not fruitful, and the assets were then released). Currently, terrorism financing is addressed under Luxembourg’s money laundering statutes. However, the GOL has draft legislation, expected to be enacted during the first half of 2003, that will criminalize terrorism financing separately from money laundering as well as codify it as a predicate offense of money laundering. Luxembourg authorities have not found evidence of the widespread use in Luxembourg of alternative remittance systems such as hawala, black market exchanges, or trade-based money laundering. Officials comment that existing anti-money laundering rules would apply to such systems, and no separate legislative initiatives are currently being considered to address them.
Luxembourg is a party to the 1988 UN Drug Convention, and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Luxembourg laws facilitating international cooperation in money laundering include the Act of 8 August 2000, which enhanced and simplified procedures on international judicial cooperation in criminal matters, and the Law of 14 June 2001, which ratified the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime. Luxembourg has a definitive system not only for the seizure and forfeiture of criminal assets, but also for the sharing of those assets with other governments. Luxembourg is a member of the European Union, the Financial Action Task Force (FATF), and the Organization for Economic Cooperation and Development (OECD). The Luxembourg FIU is a member of the Egmont Group and has negotiated memoranda of understanding (MOU) with several countries, including Belgium, Finland, France, Korea, Monaco, and Russia. Luxembourg and the United States have had a Mutual Legal Assistance Treaty (MLAT) since February 2001. In September 2001, Luxembourg signed, but has not yet ratified, the UN International Convention for the Suppression of the Financing of Terrorism. A proposed law for the ratification of the Convention is currently before the Luxembourg parliament.
Luxembourg has enacted laws and adopted practices that help to prevent the abuse of its bank secrecy laws. The GOL should continue to strengthen enforcement to prevent international criminals from abusing Luxembourg’s financial sector and should give serious consideration to legislative amendments to address the continued use of bearer shares and the lack of cross-border currency reporting requirements.
Macau. Under the one country-two systems principle that underlies Macau’s 1999 reversion to the People’s Republic of China, Macau has substantial autonomy in all areas except defense and foreign affairs. Macau’s free port, lack of foreign exchange controls, and significant gambling industry create an environment that can be exploited for money laundering purposes. In addition, Macau is a gateway to China, and can be used as a transit point to remit funds and criminal proceeds to and from China. Macau has a small economy and is not a financial center. The offshore financial sector is not fully developed.
The IMF conducted a financial sector assessment of Macau, and the results published in August 2002 stated that Macau was “materially non-compliant” with the money laundering principles of the Basel Committee’s “Core Principles for Effective Banking Supervision.” The assessment concluded that an anti-money laundering legal framework was in place in Macau, but recommended improvements in implementation and enforcement.
Macau’s 1993 Financial System Act lays out regulations to prevent the use of the banking system for money laundering. It imposes requirements for the mandatory identification and registration of financial institution shareholders, customer identification, and external audits that include reviews of compliance with anti-money laundering statutes. The 1997 Law on Organized Crime criminalizes money laundering for the proceeds of all domestic and foreign criminal activities, and contains provisions for the freezing of suspect assets and instrumentalities of crime. Legal entities may be civilly liable for money laundering offenses, and their employees may be criminally liable.
The 1998 Ordinance on Money Laundering sets forth requirements for reporting suspicious transactions to the Judiciary Police and other appropriate supervisory authorities. These reporting requirements apply to all legal entities supervised by the regulatory agencies of the Macau Special Administrative Region Government (MSARG), including pawnbrokers, antique dealers, art dealers, jewelers, and real estate agents. There is no significant difference in the regulation and supervision of onshore versus offshore financial activities.
The gaming sector and related tourism are critical parts of Macau’s economy. Direct taxes from gaming comprised 60 percent of government revenue in 2001 and about 30 percent of GDP in 2000. The MSARG ended a long-standing gaming monopoly early in 2002 when it awarded concessions to two additional operators. These two firms have yet to begin gaming operations. Under the old monopoly framework, organized crime groups were, and continue to be, associated with the gaming industry through their control of VIP gaming rooms, and activities such as racketeering, loan sharking, and prostitution. The VIP rooms cater to clients seeking anonymity within Macau’s gambling establishments and are particularly removed from official scrutiny. As a result, the gaming industry, in particular, provides an avenue for the laundering of illicit funds.
The Macau Inspectorate of Gaming has not played an active role in preventing money laundering in the casinos. The casinos have not filed any suspicious transaction reports. The MSARG is drafting regulations designed to prevent money laundering in the gambling industry as part of the restructuring of that sector.
Terrorist financing is criminalized under the Macau criminal code (Decree Law 58/95/M of November 14, 1995, Articles 22, 26, 27, and 286). The MSARG has the authority to freeze terrorist assets, although a judicial order is required. Macau financial authorities directed the institutions they supervise to conduct record searches for terrorist assets, using U.S. Executive Order 13224 and United Nations lists. No assets have been found to date.
The Macau legislature passed an anti-terrorism law in April 2002 that increases Macau’s compliance with UNSCR 1373. The legislation criminalizes violations of UN Security Council resolutions, including anti-terrorist resolutions, and strengthens anti-terrorist financing provisions. The UN International Convention for the Suppression of the Financing of Terrorism will apply to Macau when the People’s Republic of China accedes to it.
The increased attention paid to financial crimes in Macau after the events of September 11 led to an increase in the number of suspicious transaction reports. Fifty-five reports were filed from January to November 2002. In previous years, only a handful of reports were filed each year.
In May 2002, the Macau Monetary Authority revised its anti-money laundering regulations for banks to bring them into greater conformity with international practices. Guidance also was issued for banks, moneychangers, and remittance agents addressing record keeping and suspicious transaction reporting for cash transactions over $2,500. MSARG officials attended anti-money laundering training sessions offered by the Asia/Pacific Group on Money Laundering (APG). The police boosted hiring in 2002, which will provide more resources for anti-money laundering efforts.
The United States has no law enforcement cooperation agreements with Macau, though international cooperation can be requested on the basis of international conventions in force in Macau. The MSARG is preparing legislation to enable it to negotiate mutual legal assistance agreements with other jurisdictions.
Macau is a member of APG and the Offshore Group of Banking Supervisors. The People’s Republic of China is a party to the 1988 UN Drug Convention, and through it the Convention is applicable to Macau.
Macau has taken a number of steps in the past two years to create an effective anti-money laundering regime. Macau is urged to implement and enforce existing laws and regulations. Macau should ensure that regulations, structures, and training are put in place to prevent money laundering in the gaming industry, including implementing, as quickly as possible, the regulations it has drafted on the prevention of money laundering in casinos. Macau should establish a Financial Intelligence Unit as soon as possible. The MSARG should also consider measures that provide for cross-border bulk currency and threshold reporting. Macau should increase public awareness of the money laundering problem, improve interagency coordination, and boost cooperation between the MSARG and the private sector in combating money laundering.
Macedonia, Former Yugoslav Republic of. The Former Yugoslav Republic of Macedonia (FYROM) is not a regional financial center. The country’s economy is heavily cash-based because of the population’s distrust of the banking, financial, and tax systems. Money laundering in the FYROM is most likely connected to financial crimes such as tax evasion, smuggling, financial and privatization fraud, bribery, and corruption. A small portion of money laundering is believed to be connected to narcotics-trafficking.
Article 273 of the FYROM’s criminal code, which came into force in 1996, criminalizes money laundering related to all crimes. The legislation specifically identifies narcotics and arms trafficking as predicate offenses, and contains an additional provision that covers funds that are acquired from other punishable actions. In November 2001, Parliament passed the Law on Money Laundering Prevention (LMLP), which explicitly defines money laundering for the first time in Macedonian legislation. The LMLP, which went into effect in March 2002, requires financial institutions to know, record, and report the identity of clients that perform cash transactions exceeding 10,000 euros, to prepare programs to protect themselves against money laundering, and to report suspicious transactions. The Customs administration is required to register and report the cross-border transport of currency or monetary instruments exceeding 10,000 euros.
Furthermore, the LMLP establishes the Directorate for Money Laundering Prevention within the Ministry of Finance. The Directorate collects, processes, analyzes, and stores data received from financial institutions and other government agencies. Reporting entities are legally protected in their cooperation with law enforcement entities. The Directorate has the authority to submit collected information to the police and the judiciary.
In June 2002, parliament passed a Law establishing a Financial Police Unit. The unit is yet to be created, but the implementation program is already in place. The unit will be within the Ministry of Finance, and it will investigate suspicious transactions reported to the Directorate and other potential financial crimes.
Macedonian authorities require court orders before they can freeze assets with suspected links to money laundering or terrorist financing. The FYROM has proposed amendments to the LMLP that will allow financial institutions to temporarily freeze assets of suspected money launderers and terrorist financiers.
Macedonia has concluded a number of Police Cooperation Agreements with almost all of the countries from the Region (Albania, Bulgaria, Croatia, Romania, Slovenia, Austria, Turkey, Greece, Russian Federation, Ukraine, Egypt) and has a number of mutual legal assistance agreements with many countries. Exchange of police information is regularly provided through Interpol channels. The FYROM also provides law enforcement information in connection with requests from other countries with which it lacks a formal information exchange mechanism, including the United States.
The FYROM is a member of the Council of Europe (COE) Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (Moneyval, formerly PC-R-EV), and in October 1999, underwent a mutual evaluation by the group. The FYROM is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally.
The FYROM should criminalize terrorist financing and take further steps to develop a viable anti-money laundering regime.
Madagascar. Madagascar is not a regional financial center. Criminal activity in Madagascar reportedly includes smuggling in animal products such as tortoise shells and reptile skins for sale in the international market. These schemes have in the past been related to money laundering activities within the country.
Madagascar’s 1997 anti-money laundering law criminalizes money laundering related to narcotics-trafficking. The Central Bank and the Ministry of Finance can request a court order to freeze a bank account or another financial asset. The National Assembly is considering an updated anti-money laundering law that reportedly would criminalize money laundering for all crimes, criminalize terrorist financing, and require banks and other financial institutions to report suspicious transactions.
Madagascar is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Madagascar has signed, but not yet become a party to, the UN International Convention for the Suppression of the Financing of Terrorism.
Madagascar should enact a comprehensive anti-money laundering regime that criminalizes terrorist financing and money laundering for all serious crimes.
Malawi. Malawi is not a regional financial center. The Reserve Bank of Malawi (RBM), Malawi’s Central Bank, supervises the country’s six commercial banks. Some money laundering is tied to smuggling. Under Malawi’s existing exchange control regime, foreign exchange remittances not backed by a “genuine transaction” are illegal; traders therefore launder funds in their efforts to remit savings abroad.
Financial institutions are required to record and report the identity of customers making large transactions, and banks must maintain those records for seven years. Banks are allowed, but not required, to submit suspicious transaction reports to the RBM. The RBM inspects banks’ records every quarter and has access to those records on an “as needed” basis for specific investigations.
Malawi’s current laws do not specifically criminalize money laundering, but can be used to prosecute money laundering cases. The Government of Malawi (GOM) has drafted a “Money Laundering and Proceeds of Serious Crime” bill, which is part of Parliament’s pending business for 2003. The draft law would specifically criminalize money laundering related to all serious crimes. The draft law would also establish a legal framework for identifying, freezing, and seizing assets related to money laundering.
While the GOM has not specifically criminalized terrorist financing, the RBM has the legal authority to identify and freeze assets suspected of involvement in terrorist financing. The RBM has circulated to the financial community all names included on the UN 1267 Sanctions Committee consolidated list and all other names suggested by the United States Government as connected to terrorist financing. The RBM continues to monitor the financial system for money laundering activity.
Malawi has signed the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG) Memorandum of Understanding. Malawi is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally.
Malawi should take steps to strengthen its anti-money laundering and counter-terrorist financing regimes as it has agreed to do as a member of ESAAMLG. Malawi should also become a party to the UN International Convention for the Suppression of the Financing of Terrorism.
Malaysia. Malaysia is not a major regional financial center, although it does offer a wide range of financial services in its formal financial sector, its offshore financial center, and through alternative money remittance systems that are potentially attractive to money launderers. The true extent of money laundering in Malaysia is not known, and to date there have been no effective prosecutions of money laundering activities.
Malaysia’s Anti-Money Laundering Act (AMLA) became effective in January 2002. The AMLA criminalizes money laundering and lifts bank secrecy provisions for criminal investigations involving approximately 150 predicate offenses. The law imposes obligations on financial institutions regarding customer identification, record keeping, and suspicious transaction reporting by both bank and non-bank financial institutions. Banks include commercial and merchant banks, Islamic banks, and Labuan offshore banks. Non-banking financial institutions (NBFIs) include finance companies, discount houses, money brokers, insurers, Takaful (i.e., Islamic insurance) companies, securities dealers, moneychangers, futures brokers, development banks and casinos. Reporting individuals and their institutions are protected by law with respect to their cooperation with law enforcement.
Suspicious transaction reports are required under Section 14 of the AMLA. However, thresholds, requirements, and forms are industry or code-of-conduct based; thus, there is no consistency. Banks, insurers, insurance brokers, and moneychangers in the conventional, Islamic, and offshore sectors are required to file suspicious transaction reports. Money laundering controls have not yet been extended to many non-banking financial institutions, including exchange houses, stock brokerages, and casinos or to intermediaries such as lawyers, accountants, and brokers. Development banks and casinos are scheduled to come under reporting requirements in 2003. The AMLA allows for the development of regulations to standardize these requirements. However, as of yet no regulations have been implemented. Approximately 800 suspicious transaction reports were filed since the law’s implementation in January 2002.
The January 2002 law also created a Financial Intelligence Unit (FIU) located in the Central Bank, Bank Negara Malaysia (BNM). The FIU, now operational, is tasked with receiving and analyzing information, and forwarding its findings to the appropriate legal and regulatory authorities for prosecution, as required. Malaysia’s longstanding National Coordination Committee to Counter Money Laundering (NCC) is composed of members from 13 government agencies. The NCC oversaw the drafting of the anti-money laundering law and coordinates government-wide anti-money laundering efforts.
The Government of Malaysia (GOM) has a well-developed regulatory framework, including licensing and background checks, to oversee onshore financial institutions. BNM guidelines require customer identification and verification, financial record keeping, and suspicious activity reporting. These guidelines are intended to require banking institutions to determine the true identities of customers opening accounts and to develop a “transaction profile” of each customer with the intent of identifying unusual or suspicious transactions. The actual examination coverage of anti-money laundering efforts is still in development for all segments. Currently seventeen examiners are responsible for money laundering inspections for both onshore and offshore banks. Examination procedures are being developed, and additional examiner training is forthcoming.
In 1998 Malaysia imposed foreign exchange controls that restrict the flow of the local currency, the ringgit, from Malaysia. Some currency smugglers have since been arrested. Under these exchange control laws, onshore banks must note cross-border transfers over 10,000 ringgit (approximately $2,630).
The potential for money laundering activities at the offshore banking facility in the Labuan Offshore Financial Center (often referred to simply as “Labuan”) is of concern, as there is no requirement for the beneficial owners of international business companies (IBCs) to be identified. The Labuan Offshore Financial Services Authority (LOFSA) regulates the wide range of financial services, such as offshore banking and trust partnerships, provided by the offshore sector. Labuan hosts 53 offshore banks (46 foreign-owned), approximately 50 insurance companies, four mutual funds, 15 fund managers, 29 leasing operations, and 18 active trust companies. Because there is no requirement to register offshore trusts, their number is not known. Nominee trustees are permitted in Labuan, as are nominee directors of the 2,070 IBCs incorporated or registered in Labuan. There is no requirement to disclose the beneficial owner of a corporation. There is, however, a government registry of corporate directors and shareholders, although this information is not available to the public.
Malaysia has not criminalized terrorist financing per se, although terrorist financing is included as a predicate offense in the country’s anti-money laundering law. Additionally, the GOM has the authority to identify, freeze, and seize terrorist- or terrorism-related assets. Malaysia has issued orders to all licensed financial institutions, both onshore and offshore, to freeze the assets of individuals and entities listed by the UN Security Council Resolution (UNSCR) 1267. As of December 31, 2002, Malaysia had located no terrorist-related assets.
Malaysia forbids illegal deposit taking, unlawful compensation deals, illegal remittance or transfer, and money laundering, which provides the legal groundwork to deal with alternative remittance systems, such as hawala, black market exchanges and trade-based money laundering. However, Malaysia faces a challenge in regulating alternative remittance systems that are, by their nature, unofficial and unrecorded. Though the government has rules regulating charities and other non-profit entities, authorities have generally taken a hands-off approach to both groups.
The Malaysian FIU and its Australian counterpart, AUSTRAC, signed a memorandum of understanding to facilitate the sharing of financial intelligence for the purposes of combating money laundering. The GOM has offered to conclude a similar memorandum of understanding between Malaysia’s FIU and FinCEN, the U.S. FIU, for the purpose of facilitating the exchange of financial intelligence. Malaysia allows foreign countries to check the operations of their banks’ branches. Malaysia has cooperated closely with U.S. law enforcement in investigating terrorist, counternarcotics, and other cases. In April 2002, the GOM passed the Mutual Assistance in Criminal Matters Bill 2002. Malaysia has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. The GOM has not signed the UN International Convention for the Suppression of the Financing of Terrorism. Malaysia is a party to the 1988 UN Drug Convention. Malaysia has endorsed the Basel Committee’s “Core Principles for Effective Banking Supervision” and is a member of the Offshore Group of Banking Supervisors and the Asia/Pacific Group on Money Laundering. Malaysia is seeking membership in the Egmont Group.
The GOM should continue to enhance the viability of its evolving anti-money laundering regime by amending its anti-money laundering legislation to include as predicate offenses all serious crimes and should expand coverage of the Anti-Money Laundering Act to all financial institutions, onshore and offshore, not presently covered. Malaysia should adequately regulate non-governmental organizations, including charities, to ensure they are not used for terrorist or other criminal ends. The GOM should issue and implement all regulations, as required in the AMLA, and issue standardized requirements that are applied consistently for all financial institutions, bank and non-bank, supervised by Bank Negara Malaysia. Bank Negara will also need to increase its staff of examiners. For all entities such as trust companies and IBCs, Malaysia should insist on “fit and proper tests” for all management, and identification of all beneficial owners. The GOM should also insist on the registration of trusts, and stringent auditing and examination requirements in its offshore financial center, to prevent the misuse of the offshore financial center by organized crime and terrorist organizations, and their supporters. Additionally, the GOM should accede to the UN International Convention for the Suppression of the Financing of Terrorism, and, to further implement UN Security Council Resolutions 1373 and 1390, should enact legislation that explicitly criminalizes terrorist financing.
The Maldives. The Maldives is not considered an important regional financial center. The financial sector of the Maldives is very narrowly based with five commercial banks (one international bank, three branches of public banks from neighboring countries and the state owned bank), two insurance companies, and a government provident fund. There are no offshore banks.
The Maldives Monetary Authority (MMA) is the regulatory agency for the financial sector. MMA has authority to supervise the banking system through the Maldives Monetary Authority Act. These laws and regulations provide the MMA access to records of financial institutions and allow it to take actions against suspected criminal activities. Banks are required to report any unusual movement of funds through the banking system on a daily basis. However, there is no specific legislation dealing with money laundering. Currently, separate laws address the narcotics trade, terrorism, and corruption: Law No. 17/77 on Narcotic Drugs and Psychotropic Substances prohibits consumption and trafficking of narcotics. The law also prohibits laundering of proceeds from narcotics trade. Law No 2/2000 on Prevention and Prohibition of Corruption prohibits corrupt activities by both public and private sector officials. It also provides for the forfeiture of proceeds and also empowers judicial authorities to freeze accounts pending a court decision.
Reportedly, the Government of Maldives (GOM) has approved the development of an Anti-Money Laundering Law and establishment of a Financial Intelligence Unit.
Law No. 10/90 on Prevention of Terrorism in the Maldives deals with some aspects of money laundering and terrorist financing. Provision of funds or any form of assistance towards the commissioning or planning any such terrorist activity is unlawful. The MMA has issued “know your customer” directives and other instructions to banks enforcing freeze order requests, which are binding on banks and other financial institutions. The MMA monitors unusual financial transactions through banks, financial institutions, and money transfer companies through its bank supervision activities. The four foreign banks operating in the country also follow instructions issued with regard to terrorist financing by their parent organizations. To date, there have been no known cases of terrorist financing activities through banks in the Maldives.
The Maldives is a party to the 1988 UN Drug Convention.
The Maldives should enact comprehensive anti-money laundering and anti-terrorist financing legislation that adheres to world standards. The GOM should also become a party to the UN International Convention for the Suppression of the Financing of Terrorism.
Mali. Mali is not a regional financial center nor is money laundering considered to be a problem.
In 2000, the Economic Community of West African States (ECOWAS) established the Intergovernmental Group for Action Against Money Laundering (GIABA), based in Dakar, Senegal. In November 2002, the GIABA hosted an anti-money laundering seminar for representatives of 14 ECOWAS members, including Mali. In July 2002, Mali participated in the 2002 West African Joint Operation Conference (WAJO) that promotes regional law enforcement cooperation against drug trafficking, terrorism, and money laundering.
Mali became a party to the UN International Convention for the Suppression of the Financing of Terrorism on March 28, 2002. On April 12, 2002, Mali ratified the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Mali is a party to the 1988 UN Drug Convention.
Mali should enact comprehensive anti-money laundering legislation that criminalizes terrorist financing and money laundering for all serious crimes.
Malta. Malta has spent the last decade preparing itself for accession to the European Union (EU). As a result, it has toughened up its regulations to accommodate European investors and introduced several laws designed to shed its image as an offshore tax haven. Malta has made significant headway, introducing EU-compliant legislation for the prevention of money laundering, and strong financial services legislation. Malta does not appear to have a serious money laundering problem.
The Government of Malta (GOM) criminalized money laundering in 1994. Maltese law imposes a maximum fine of approximately $2 million and/or 14 years in prison for those convicted. Also in 1994, the GOM issued the Prevention of Money Laundering Regulations, applicable to financial and credit institutions, life insurance companies, and investment and stock firms. These regulations impose requirements for customer identification, record keeping, the reporting of suspicious transactions, and the training of employees in anti-money laundering topics. In 1996, the banking unit at the Maltese Financial Services Authority (MFSA) updated the Guidance Notes issued by the Central Bank of Malta. The MFSA is the regulatory agency responsible for licensing new banks and financial institutions; additionally the MFSA has historically monitored financial transactions going through Malta. It has recently widened its regulatory scope to encompass banking, insurance, investment services, company compliance, and the stock exchange. MFSA also took over the role of supervisory authority of the banking sector. Presently there is an initiative to consolidate all guidance notes for all of the covered financial services.
In December 2001, Malta’s parliament established the Financial Intelligence Analysis Unit (FIAU) through an amendment to the Prevention of Money Laundering Act. The unit became fully functional in the summer of 2002. Its board consists of members of the Central Bank of Malta, the MFSA, the Ministry of Finance, the Police, Malta’s Custom and Security Service, and the Attorney General. The FIAU co-ordinates the fight against money laundering, collects information from financial institutions, and liaises with parallel international institutions as well as local investigative authorities (the MFSA & the GOM Police). The FIAU is charged with investigating suspicious financial transactions and other questionable money-related activity, and has organized training sessions and conferences for Maltese financial practitioners to make them aware of the implications of the 2001 Money Laundering Act.
Malta has also moved to bolster the prosecutorial opportunities in financial crime investigations. The GOM has recently designated one of the country’s five prosecutors to deal solely with money laundering cases. Bank secrecy laws are completely lifted by law in cases of money laundering (or other criminal) investigations. The Attorney General is currently pursuing an investigation into an alleged money laundering case involving two lawyers. Neither has yet been charged, but they are being investigated for their alleged role in a smuggling operation involving Northern Ireland. The marked increase in the number of suspicious transaction reports (STRs), up from nine in 1998 to 43 in 2002, also indicates Malta’s determination to crack down. Enforcement should continue to strengthen as the new FIAU begins its work analyzing STRs for referral for police investigation.
Malta remains an offshore jurisdiction and is a member of the Offshore Group of Banking Supervisors. Over 200 companies retain offshore status against some 30,000 that do not, and legislation dealing with offshore business will remain in force until 2004. Offshore registration of banks and international business corporations (IBCs) was halted in January 1997, and the GOM has publicly announced that offshore business will completely cease by 2004. Companies and trusts are now fairly well regulated, and international entities are subject to 35 per cent tax. Bearer shares or anonymous accounts are no longer permitted in Malta.
The Financial Action Task Force (FATF), which reviewed Malta’s financial regime via the FATF Non-cooperative Countries and Territories exercise in 2000, did not name Malta as a non-cooperative jurisdiction but did urge Malta “to accelerate the phasing-out of the nominee company system.” As a result, the number of IBCs has declined from 417 in 2001, to 285 in 2002, and the number of offshore banks has declined from 3 to 1 (Erste Bank).
Malta has criminalized terrorist financing. In 2002, the criminal code was amended in such a way that terrorist financing would meet the standard for categorization as a “serious crime” under Malta’s Prevention of Money Laundering Act. To date, the Act itself does not specifically mention or define terrorist financing.
The MFSA circulates to its financial institutions the names of individuals and entities included on the UN 1267 Sanctions Committee’s consolidated list. To ensure compliance, the list is posted on the MFSA website and the MFSA contacts every financial institution directly to confirm whether or not the institution has done business with any person or entity appearing on the consolidated list. To date no assets have been identified, frozen, and/or seized as a result of this process.
Alternative remittance systems such as hawala, black market exchanges, and trade-based money laundering, are not a problem in Malta. Such activities are against the law in Malta, and if discovered, those participating would be prosecuted. Anyone wishing to raise money for charitable reasons must receive a government license. The overwhelming majority of all charitable fund raising in Malta is done by the Catholic Church and related institutions.
Malta is a member of the Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (Moneyval, formerly PC-R-EV). Malta is a party to the 1988 UN Drug Convention and the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime. Malta has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Malta ratified the UN International Convention for the Suppression of the Financing of Terrorism in November 2001. Malta has also ratified the Council of Europe European Convention on the Suppression of Terrorism and has amended its criminal code to be in alignment with these conventions.
Malta’s recent acceptance by the Organization of Economic Cooperation and Development (OECD) is perhaps the best indicator that Malta is no longer considered a tax haven. Malta should continue to enhance its anti-money laundering regime. If Malta’s Prevention of Money Laundering Act only references the proceeds of a terrorist act as a predicate offense and does not specifically criminalize the support or financing of terrorism, the legislation should be amended to include this activity or a new legislation should be enacted.
Marshall Islands. The Republic of the Marshall Islands (RMI), a group of atolls located in the North Pacific Ocean, is a sovereign state in free association with the United States. The population of RMI is approximately 65,000. The financial system in RMI has total banking system assets of $87.2 million and total deposits of $77.4 million, with domestic deposits exceeding 50% of Gross Domestic Product. The RMI financial sector consists of three banks, two of which are insured by the Federal Deposit Insurance Corporation, and a government-owned development bank whose primary function is to perform development lending in government-prioritized sectors; and several low-volume insurance agencies that primarily sell policies on behalf of foreign insurance companies. In realization of the country’s vulnerability to systemic shock in the financial sector, the government introduced a reform program geared toward enhancing transparency, accountability and good governance.
In June 2000, the Financial Action Task Force (FATF) placed the Marshall Islands on the list of Non-Cooperative Countries and Territories (NCCT) in the fight against money laundering. The designation was based on RMI’s lack of basic anti-money laundering regulations (including the criminalization of money laundering), customer identification requirements and a suspicious transaction reporting system. Additionally, the RMI had registered about 4,000 international business corporations. The relevant information regarding the beneficial owners of these IBCs was guarded by secrecy provisions in its law, and consequently, this information was not accessible to financial institutions, international regulatory bodies or law enforcement agencies.
Over the past two years, the Marshall Islands enacted significant legislative reforms to address the major deficiencies identified by the FATF. Money laundering was criminalized and customer identification and suspicious transaction reporting mandated. The Marshall Islands also issued guidance to its financial institutions for the reporting of suspicious transactions. In addition, the RMI drafted anti-money laundering regulations.
In November 2000, the Government of the Marshall Islands (GRMI) approved the establishment of a Financial Intelligence Unit that may exchange information with international law enforcement and regulatory agencies. The Domestic Financial Intelligence Unit (DFIU) is located within the Banking Commission. The DFIU receives, analyzes, and disseminates currency and suspicious transaction reports.
In May 2002, the RMI passed and enacted its Anti-Money Laundering Regulations, 2002. The 2002 Regulations provide the standards for reporting and compliance within the financial sector. Components of this legislation include reporting of beneficial ownership, internal training requirements regarding the detection and prevention of money laundering by financial institutions, record keeping, and suspicious and currency transaction reporting. Additionally, the Banking Commission and the Attorney General’s office worked with the U. S. Government to develop a set of examination policies and an examination procedures manual. Both sets of documents are being used by examiners from the Banking Commission as guides in the on-site reviews of banks’ and financial institutions’ compliance with the anti-money laundering regulations. Since the establishment of the statutory and regulatory framework, the banking commission has conducted on-site examinations of financial institutions and cash dealers.
The Banking Commission has issued two sets of advisories on suspicious transaction reporting and currency transaction reporting. The advisories are accompanied by reporting forms and instructions that are similar to those used in the United States. Guidelines on customer due diligence and record keeping have also been issued to the industry, as a supplement to the advisories.
In September 2002, amendments were made to the anti-money laundering legislation. The first amendment was to remove the $10,000 threshold for transaction record keeping. The original legislation stated that banks only had to keep the records of transactions that were over $10,000.
Marshall Islands non-resident corporations (NRCs), the equivalent of international business companies, are of concern with respect to money laundering. By December 2000, there were reportedly 4,000 NRCs registered, half of which were companies formed for registering ships. Currently, there are 5,500 registered NRCs. NRCs are allowed to offer bearer shares. Corporate officers, directors, and shareholders may be of any nationality and live anywhere. NRCs are not required to disclose the names of officers, directors, and shareholders or beneficial owners, and corporate entities may be listed as officers and shareholders. Although NRCs must maintain registered offices in the Marshall Islands, corporations can transfer domicile into and out of the Marshall Islands with relative ease. Marketers of offshore services via the Internet promote the Marshall Islands as a favored jurisdiction for establishing NRCs. In addition to NRCs, the Marshall Islands offer non-resident trusts, partnerships, unincorporated associations, and domestic and foreign limited liability companies. Offshore banks and insurance companies are not permitted in the Marshall Islands.
The substantial and comprehensive effort to align the Marshall Island’s anti-money laundering regime with international standards, including the adoption of new laws, a new regulatory scheme, and the establishment of an FIU, resulted in its 2002 removal from FATF’s NCCT list.
The Marshall Islands is not a signatory to the 1988 UN Drug Convention. As of September 2002, RMI has enacted a Proceeds of Crime Act, Counter-Terrorism Act, and Foreign Evidence Act but is not a signatory to the UN International Convention for the Suppression of the Financing of Terrorism nor of the Convention against Transnational Organized Crime, which is not yet in force internationally.
The Marshall Islands became a member of the Egmont Group of FIUs, as well as a member of the Asia/Pacific Group on Money Laundering in June 2002. RMI is also a founding member of the recently established Pacific Islands Financial Supervisors, a group of regulators from the Pacific Islands Forum countries that will be representing the region in the Basel group.
The GRMI should continue to enhance and implement its money laundering legislation and increase supervision of the offshore sector. In particular, the GRMI must effectively implement the laws and procedures it has put in place. If the Counter-Terrorism Act does not criminalize the financing of terrorists and terrorism, it should be amended to do so. The RMI should sign and ratify the UN International Convention for the Suppression of the Financing of Terrorism. Additionally, the GRMI should expand the record keeping, reporting and licensing requirements for all non-bank financial institutions.
Mauritius. Mauritius is a developing financial hub and a major route for foreign investments into the Asian sub-continent. Officials in Mauritius indicate that the majority of money laundering in Mauritius takes the form of schemes to purchase goods in other countries with illegal funds and selling the goods in Mauritius.
Money laundering is a criminal offense in Mauritius. On June 8, 2002, Mauritius approved the Financial Intelligence and Anti-Money Laundering Act, which replaced the Economic Crime and Anti-Money Laundering Act of 2000. The Financial Intelligence and Anti-Money Laundering Act provides for the establishment of a Financial Intelligence Unit (FIU) located within the Ministry of Economic Development, Financial Services, and Corporate Affairs. The FIU became operational on August 9, 2002. The Financial Intelligence and Anti-Money Laundering Act also imposes penalties on persons committing money laundering offenses; establishes suspicious activity reporting obligations for banks, financial institutions, cash dealers, and relevant professions; and provides for cooperation with the FIUs of other countries.
The FIU has the responsibility of collecting and analyzing suspicious activity reports (SARs), and forwards those reports to the Independent Commission Against Corruption (ICAC). The ICAC, set up in June 2002, has the power to investigate money laundering offenses. The ICAC also has the authority to freeze and seize the assets related to money laundering. The FIU is also working to develop the information technology structure to properly store the SARs.
In 2000, the Financial Action Task Force (FATF) conducted a review of Mauritius’s anti-money laundering regime against the 25 specified criteria for evaluating non-cooperative countries and territories. After conducting the review, FATF did not designate Mauritius as a non-cooperative country.
Mauritius has an active offshore financial sector. In 2001, the Financial Services Development Act was passed. This Act established the Financial Service Commission (FSC), which performs the functions that were formerly carried out by the Mauritius Offshore Business Activities Authority (MOBAA). The FSC is responsible for licensing and regulating of non-banking financial services. All applications to form offshore companies must be reviewed by the FSC. Information on companies can also be requested from the FSC. Along with reviewing of applications, the FSC supervises activities of offshore companies.
The Prevention of Terrorism Act of 2002 was promulgated in Mauritius on February 19, 2002. This legislation criminalizes terrorist financing. Finally the legislation gives the Government of Mauritius powers to track and investigate terrorist-related funds, property, and assets, and cooperate with international bodies.
Mauritius is a party to the 1988 UN Drug Convention. Mauritius has signed, but not yet ratified, both the UN International Convention for the Suppression of the Financing of Terrorism and the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Mauritius is a member of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), a FATF-style regional body. In August 2002, representatives from Mauritius attended the ESAAMLG plenary and Ministerial Council Meeting in Swaziland, and volunteered for the first round of ESAAMLG mutual evaluations, scheduled to take place in 2003. Mauritius is a member of the Offshore Group of Banking Supervisors.
Mauritius should continue to work with ESAAMLG to strengthen the region’s anti-money laundering regimes.
Mexico. The illicit drug trade continues to be the principal source of funds laundered through the Mexican financial system. Other crimes, including corruption, kidnapping, firearms trafficking, and immigrant trafficking, are also major sources of illegal proceeds. The smuggling of bulk shipments of U.S. currency into Mexico and the movement of the cash back into the United States via couriers, armored vehicles, and wire transfers, remain favored methods for laundering drug proceeds. Mexico’s financial institutions are vulnerable to currency transactions involving international narcotics-trafficking proceeds that include significant amounts of U.S. currency or currency derived from illegal drug sales in the United States.
According to U.S. law enforcement officials Mexico remains one of the most challenging money laundering jurisdictions for the United States. While Mexico has taken a number of steps to improve its anti-money laundering system, significant amounts of narcotics related proceed are still smuggled across the border. In addition, such proceeds can still be deposited into the financial system through Mexican banks or casas de cambio, or repatriated across the border without record of the true owner of the funds. Furthermore, despite advances in international cooperation and information sharing it still remains difficult for U.S. law enforcement to obtain key financial records from Mexico and to extradite money laundering defendants. These problems have hampered a number of recent U.S. law enforcement initiatives.
The Government of Mexico (GOM) continues efforts at implementing an anti-money laundering program according to international standards such as those of the Financial Action Task Force (FATF), which Mexico joined in June 2000. Money laundering related to all serious crimes was criminalized in 1996 under article 400 bis of the Federal Penal Code, and is punishable by imprisonment of five to fifteen years and a fine. Penalties are increased when a government official in charge of the prevention, investigation, or prosecution of money laundering commits the offense.
Regulations have been implemented for banks and other financial institutions (mutual savings companies, insurance companies, financial advisers, currency exchange houses, stock market, money remittance companies, and credit institutions) to know and identify customers, and maintain records of transactions. These entities must report transactions over $10,000, transactions involving employees of financial institutions who engage in unusual activity, and “unusual transactions” to the Secretariat of Finance and Public Credit’s (Hacienda) General Directorate for Investigations of Transactions (DGAIO), Mexico’s financial intelligence unit (FIU).
Since 1998, the DGAIO has received over 30 million reports of “relevant transactions” averaging 500,000 per month, and since 1997, over 20,000 Suspicious Activity Reports (SARs), averaging 500 per month. Regulations effective in February 2001 extended reporting, record keeping, and customer identification requirements to non-bank financial institutions. Also in 2001, Mexico established suspicious transaction reporting requirements for the smaller foreign exchange houses that process most of the remittances from Mexican workers in the United States.
The Special Unit to Combat Money Laundering (UECLD) of the Attorney General’s Office was formally established on July 17, 2000, with authority to initiate, coordinate, and determine the appropriate preliminary inquiries in order to consign them to the judicial authorities and follow up the processes, as well as to seize the illicit proceeds. During 2001-2002, the UECLD initiated 131 preliminary inquiries, of which 69 have been consigned to the judiciary. It issued 130 arrests warrants and 24 condemnatory sentences involving 33 individuals, and seized 250,913,665 Mexican pesos, $11,622,521, 1,000 Italian lira, and 1,000 Spanish pesetas. However, there continues to be a substantial lack of cooperation between the PGR and the Hacienda in money laundering investigations.
In August, investigators and prosecutors from the PGR and the Finance Ministry received training in investigative techniques and investigative task forces. It is anticipated that the use of the task force approach taught during this course will promote greater inter-agency cooperation.
In addition, FIU personnel have initiated working level relationships with federal law enforcement entities, including the PGR’s Special Unit on Organized Crime (UEDO) and the Federal Investigative Agency (AFI), to support criminal investigations with ties to money laundering. Improved exchange of information among the FIU, financial institutions, and other government entities charged with money laundering investigations should facilitate successful prosecutions of criminals involved in money laundering.
In December 2000, Mexico amended its Customs Law to reduce the threshold for reporting inbound cross-border transportation of currency or monetary instruments from $20,000 to $10,000. At the same time, it established a requirement for the reporting of outbound cross-border transportation of currency or monetary instruments of $10,000 or more.
During 2001-2002, the GOP conducted operations in several ports of entry and departure, particularly at Mexico City International Airport where the following seizures were made: 833,027 Mexican pesos,. $8,854,545, 1,981,000 Colombian pesos, 10 pounds sterling, 110 guilders, 8,500 Taiwanese dollars, and 2,000 colons.
In addition, in December 2002, a Mexican court sentenced Jose Ocampo Verdugo to 17 years and six months in prison for money laundering. Authorities had arrested Ocampo, the owner of Caja Popular Puerto Vallarta, in November 1999, because he had laundered drug proceeds on behalf of the Amezcua drug trafficking organization. Also in December 2002, Mexican authorities charged Ivonne Sota Vega (“La Pantera”) with money laundering for the Arrellano Felix Organization through the administration, purchase, and sale of real property.
Mexico has expanded its anti-money laundering legislation and developed a broad network of bilateral agreements with the United States, and regularly meets in bilateral law enforcement working groups with the United States. Nevertheless, United States requests to Mexico for the seizure, forfeiture, and repatriation of criminal assets have not met with success. Most recently, after a four-year delay, Mexico informed the United States that it would not be able to repatriate assets in an armored car robbery case in which the convicted criminal in the United States admitted that all the funds he deposited into an account in Mexico were funds he stole from the victim financial institution. United States efforts to obtain financial records have been unsuccessful, despite the existence of new agreements and mechanisms.
The GOM and the United States Government (USG) continue to implement other bilateral treaties and agreements for cooperation in law enforcement issues, including the Financial Information Exchange Agreement (FIEA) and the Memorandum of Understanding (MOU) for the exchange of information on the Cross-border Movement of Currency and Monetary Instruments. In October 2001, the U.S. Customs Service and Mexico City entrepreneurs inaugurated a Business Anti-Smuggling Coalition (BASC) that includes the establishment of a financial BASC chapter created to deter money laundering.
In addition to its membership in the FATF, Mexico participates in the Caribbean FATF as a cooperating and supporting nation. Mexico is an observer member of the South American Financial Action Task Force (GAFISUD). Through membership and participation in the FATF and its regional subgroups, the Egmont Group of FIUs and the OAS/CICAD Experts Group to Control Money Laundering, Mexico continues to expand its presence at international anti-money laundering fora. As current President of the OAS/CICAD Group of Experts to Control Money Laundering (2002-2003), in July 2002, Mexico hosted the XV meeting of the Group. The key accomplishment during this meeting was the subsequent approval by CICAD of the incorporation of the FATF Eight Special Recommendations on Terrorist Financing into the OAS Model Regulations on Money Laundering. The GOM is a party to the 1988 UN Drug Convention, and the 2000 United Nations Convention against Transnational Organized Crime, which is not yet in force internationally. In September 2000, the GOM signed the UN International Convention for the Suppression of the Financing of Terrorism. The GOM responded to USG efforts to identify and block terrorist-related funds. Although no assets were frozen, it continues to monitor suspicious financial transactions.
The GOM should improve the mechanisms and implementation for asset forfeiture and money laundering cooperation with the United States. The GOM should consider upgrades for computer hardware and of analytical software to enhance processing and analysis of suspicious transactions and reports of large value. The GOM should also criminalize terrorist financing. Furthermore despite the preventive mechanisms that have been put in place, improved cooperation among law enforcement authorities, and a strong public campaign against corruption, the GOM continues to face challenges in prosecuting and convicting money launderers and should continue to focus its efforts on improving its ability to investigate and prosecute money launderers.
Micronesia. The Federated States of Micronesia (FSM) is a sovereign state in free association with the United States. It is not a regional financial center. There have been no known money laundering schemes related to narcotics proceeds. Financial crimes, such as bank fraud, do not appear to be increasing in frequency. Contraband smuggling, centered on alcohol and tobacco products, may generate illicit proceeds. There may be limited financial crimes outside the formal banking sector by cash dealers involved in remittances to the home countries of some foreign workers.
There are three financial institutions in the country: Bank of Guam, Bank of the FSM, and the FSM Development Bank. The Bank of Hawaii closed its FSM branches in November 2002. The Bank of the FSM and the FSM Development Bank are local institutions. The Bank of the FSM is the only non-U.S. bank insured by the Federal Deposit Insurance Corporation (FDIC). The Bank of Guam is also FDIC insured. The FSM Banking Board performs “spot audits” on all the banks.
In December 2000, FSM enacted the Money Laundering and Proceeds of Crime Act (the Act). The Act went into effect July 1, 2001, and is codified as FSM Code, Title 11, Chapter 9. The Act criminalizes money laundering and provides for the freezing and seizure of assets. Predicate crimes include all serious offenses punishable by imprisonment of more than one year. The Act also provides for collection of financial information and intelligence, and international cooperation in money laundering matters. Micronesia began drafting implementing regulations for the Act in 2001. Legislation aimed at enhancing law enforcement cooperation with the United States and other countries in investigating serious crimes was enacted as the Mutual Assistance in Criminal Matters Act of 2000 (FSM Code, Title 12, Chapter 17). The law sets forth procedures for requesting assistance and responding to requests from other countries. Legislation to explicitly criminalize terrorist financing is pending.
FSM became a party to the UN International Convention for the Suppression of the Financing of Terrorism on September 23, 2002. The FSM Department of Justice has established a protocol for regular notification to the Banking Board of the names of suspected terrorist individuals and organizations. No assets of individuals or entities so designated have been seized or frozen.
FSM should continue to cooperate with the United States and regional groupings on money laundering and financial crimes. FSM should also continue to enhance its anti-money laundering regime by criminalizing terrorist financing and adopting and implementing the pending laws and regulations.
Moldova. Moldova is not considered an important regional financial center. Moldova’s banking system is relatively new and is vulnerable to money laundering. There does not appear to be significant narcotics-related money laundering. However, there are reports that Russian crime groups purchase businesses in Moldova through which they launder illegal proceeds. The Moldovan economy is predominantly cash-based.
Moldova passed an anti-money laundering law in November 2001 and amended it on June 21, 2002. The law criminalizes money laundering for “all crimes” and requires banks and non-bank financial institutions to report suspicious transactions. Suspicious transactions are determined to be any transaction over $7,200 for individual transactions, $14,400 for wire transfers, and $21,600 for transfers by a business. Travelers entering Moldova are required to complete a currency reporting form. Banks must maintain account and transaction records for five years. The law protects financial institutions against criminal, civil, and administrative liability arising from the reporting of suspicious transactions. Commercial banks can be held responsible for negligence if money laundering occurs in their institution.
The Office of the Prosecutor General has established a financial intelligence unit to initiate investigations based on suspicious transaction reports. There have been no arrests for money laundering.
In November 2001 Moldova passed the Law on Combating Terrorism, which criminalizes terrorist financing. Article 106 of the Moldovan criminal code, scheduled for enactment in January 2003, would give law enforcement authorities the ability to freeze and seize illicit funds.
Moldova became a party to the UN International Convention for the Suppression of the Financing of Terrorism on October 10, 2002. Moldova is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Moldova is a member of the Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (Moneyval, formerly PC-R-EV), a FATF-style regional body.
Monaco. The Principality of Monaco is considered vulnerable to money laundering, because of its strict bank secrecy laws, extensive network of casinos and its unregulated offshore sector. Russian organized crime and the Italian Mafia reportedly have laundered money in Monaco.
There are approximately 70 banks and financial institutions in Monaco, with more than 300,000 accounts (with a population of about 5,000 Monegasque nationals and another 25,000 foreign residents). Approximately 85 percent of the banks’ customers are non-resident.
Most of the banking sector is concentrated in portfolio management and private banking. The subsidiaries of foreign banks operating in Monaco can withhold customer information from the parent bank. Monaco also has an offshore sector, and permits the formation of both trusts and five different types of international business companies (IBCs): limited liability companies, branches of foreign parent companies, partnerships with limited liability, partnerships with unlimited liability, and sole proprietorships. However, ready-made “shelf companies” are not permitted. The incorporation process generally takes four to nine months. Monaco does not maintain a central registry of IBCs, and authorities have no legal basis for seeking information on the activities of offshore companies.
Money laundering in Monaco is a criminal offense. Banks, insurance companies, and stockbrokers are required to report suspicious transactions and to disclose the identities of those involved. Casino operators must alert the government of suspicious gambling payments possibly derived from drug trafficking or organized crime. Another law imposes a five-to-ten-year jail sentence for anyone convicted of using ill-gotten gains to purchase property (which is itself subject to confiscation).
Monaco established its Financial Intelligence Unit, the Service d’Information et de Controle sur les Services Financiers (SICCFIN), to collect information on suspected money launderers. In 2000, the Financial Action Task Force criticized the anti-money laundering regime of Monaco for the insufficient resources provided to SICCFIN. According to a press report of November 2001, Monaco and France have reached an agreement on initiatives to counter money laundering in the principality. The French Finance Ministry stated that SICCFIN had doubled the number of its staff, and that there had been a “noteworthy” increase in the number of suspicious activity reports being filed. In March 2002, Monaco and France signed a memorandum of understanding regarding the sharing of information between the securities regulatory commissions of the two countries, in connection with money laundering.
In January 2002, Monaco and Switzerland signed an agreement to cooperate with one another in the fight against money laundering. The agreement includes provisions for information exchange between the two countries. Later in the year Monaco signed similar agreements with Liechtenstein and Panama. In previous years Monaco had reached similar agreements with Luxembourg, France, Spain, Belgium, Portugal and the United Kingdom.
Monaco is a party to the 1988 UN Drug Convention. In June 2001 it submitted a notification indicating that it had ratified the UN Convention against Transnational Organized Crime, which is not yet in force internationally. SICCFIN is a member of the Egmont Group of FIUs. Monaco became a party to the UN International Convention for the Suppression of the Financing of Terrorism in November 2001. In April and August 2002, Monaco promulgated Sovereign Orders to import into domestic law the international obligations it accepted when it ratified that Convention. In May 2002, Monaco acceded to the Council of Europe Convention on the Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime. In July and August 2002, Monaco passed Act 1.253 and promulgated two Sovereign Orders, intended to implement UNSCR 1373 to criminalize terrorism and its financing.
Monaco’s actions to increase the resources of SICCFIN should increase the efficacy of Monaco’s anti-money laundering regime, particularly in the area of cooperation with SICCFIN’s foreign counterparts. Monaco should establish a central registry for IBCs, and grant SICCFIN the authority to obtain information on the activities of offshore companies.
Mongolia. Mongolia is not a financial center. Mongolia’s vulnerability to transnational crimes such as money laundering has grown with the country’s increased levels of international trade and tourism. Mongolia’s long unprotected borders with Russia and China make it particularly vulnerable to smuggling and narcotics-trafficking. Illegal money transfers and public corruption are other sources of illicit funds. Mongolia does not have anti-money laundering legislation. It also has been slow in establishing interagency coordination mechanisms to help monitor international financial transactions. Moreover, growing corruption, a weak legal system, an inability to effectively patrol its borders to detect smuggling, and lack of capacity to conduct transnational criminal investigations all hamper Mongolia’s ability to fight all forms of transnational crime.
Mongolia is not party to the 1988 UN Drug Convention. However, in recent years Mongolia has increased its participation in fora that focus on transnational criminal activities. For example, Mongolia has observer status in the Asia/Pacific Group on Money Laundering. Mongolia has signed, but not yet ratified, the UN International Convention for Suppression of the Financing of Terrorism.
Mongolia should pass anti-money laundering and terrorist financing legislation.
Montserrat. Montserrat is a Caribbean overseas territory of the United Kingdom. Volcanic activity between 1995 and 1998 reduced the population and business activity on the island, although an offshore financial services sector remains that may attract money launderers because of a lack of regulatory resources. As with the other British Caribbean overseas territories, Montserrat underwent an evaluation of its financial regulation in 2000, co-sponsored by the local and British governments.
Indeed the report highlighted the need to devote additional resources in order to properly supervise its offshore financial institutions. The government plans to use licensing revenues to help provide funding for additional supervisory resources but acknowledged that if it cannot dedicate the resources necessary to resolve the deficiencies noted in its report “it will recognize that there will be no option but to review its involvement in offshore finance.”
Montserrat’s offshore sector consists of approximately 15 offshore banks and approximately 22 international business companies (IBCs) and 30 Companies Act companies the majority of which engage only in conducting local business. The Financial Services Centre (FSC) regulates offshore banks, whereas the Eastern Caribbean Central Bank (ECCB) supervises Montserrat’s three domestic banks. IBCs may be registered using bearer shares, providing for anonymity of corporate ownership.
The Proceeds of Crime Act (POCA), 1999 criminalized the laundering of proceeds from any indictable offense and mandated the reporting of suspicious transactions to a Reporting Authority. However, the Reporting Authority has not yet been established. Although the Act directs the Governor to issue a code of practice establishing further regulations for financial institutions, the code of practice has not yet been issued. The government is planning to introduce captive insurance legislation that will require licensing and regulation, and until such legislation is enacted, there will be no offshore captive insurance industry. The government may also ask that the ECCB take over responsibility for supervising Montserrat’s offshore banking sector as the ECCB has done in several other Caribbean jurisdictions.
U.S. law enforcement cooperation with Montserrat is facilitated by a treaty with the United Kingdom concerning the Cayman Islands relating to mutual legal assistance in criminal matters that was extended to Montserrat in 1991. Montserrat’s current legislation, however, makes information exchange difficult between regulators and foreign authorities. Montserrat is a member of the Caribbean Financial Action Task Force (CFATF), and is subject to the 1988 UN Drug Convention.
Montserrat should issue regulations to implement the POCA and establish the Reporting Authority to act as a Financial Intelligence Unit that can share information with foreign authorities with appropriate safeguards. It should enact measures to identify and record the beneficial owners of IBCs and immobilize bearer shares. It should also increase resources to financial supervision, particularly in the area of on-site supervision, especially as it looks to expand its offshore sector, to help ensure that money launderers do not abuse Montserrat’s financial services.
Morocco. Morocco is not a regional financial center and the extent of the money laundering problem in Morocco is not known. There have been reports of money laundering activities within the country related to international arms smuggling. Morocco remains an important producer and exporter of cannabis, with estimated revenues of $3 billion. Some of these proceeds may be laundered in Morocco and abroad. Large numbers of Moroccans have a strong economic dependence on the narcotics trade. There is no indication that international or domestic terrorist networks have engaged in wide-spread use of the narcotics trade to finance terrorist organizations and operations in Morocco. There are reports that money may be laundered through bulk cash smuggling and the purchase of smuggled goods. Banking officials have indicated that the country’s system of unregulated money exchanges provides opportunities for launderers. Morocco has offshore banks.
The Moroccan banking system is modeled after the French system and consists of 16 banks, five government-owned specialized financial institutions, approximately 30 credit agencies, and 12 leasing companies. The monetary authorities in Morocco are the Ministry of Finance and the Central Bank, Bank Al Maghrib, which monitors and regulates the banking system. Bank Al Maghrib has decreed that all financial institutions must institute a customer identification policy and maintain specified transaction records.
As of January 2003, Morocco is moving towards the enactment of a single unified law to combat terrorism financing and money laundering. The legislation mandates specific reporting requirements by banks. It also designates the Central Bank as the country’s lead financial enforcement entity and specifies investigative procedures. Morocco should enact legislation that adheres to world standards. Morocco is a party to the UN International Convention for the Suppression of Financing of Terrorism.
Mozambique. Mozambique is not a regional financial center. Most money laundering in Mozambique is related to bank fraud and corruption. However, lax oversight and weak banking regulations suggest that Mozambique’s financial institutions are vulnerable to money laundering. In particular, there is growing concern that the proceeds of arms trafficking, stolen vehicles sales, narcotics-trafficking, prostitution, and contraband smuggling may be laundered through Mozambique’s financial institutions.
Mozambique’s non-bank financial sector, primarily comprised of exchange houses, may be susceptible to money laundering. In August 2002, an Indian national with connections to a Maputo exchange house was detained at an airport in Mozambique attempting to board a flight to Johannesburg with approximately $1 million. He subsequently escaped from jail.
Mozambique’s National Assembly passed an anti-money laundering law in December 2001, which was ratified by the Council of Ministers on February 5, 2002. As of the end of 2002, however, implementing regulations had not been drafted. The law extends the crime of money laundering to encompass predicate offenses beyond narcotics-trafficking to most other serious crimes. The law also allows for asset seizure and forfeiture and requires financial institutions to verify the identity of their customers, keep transaction records for at least 15 years, and report suspicious transactions. The law protects employees of financial institutions who cooperate with money laundering investigations and exempts such cooperation from bank and professional secrecy rules. The law also contains “banker negligence” provisions, which hold individual bankers responsible for money laundering.
Bankers have the right to refuse service to anyone who refuses to identify the beneficiary of an account. Judicial authorities are given the right to request account information from financial institutions and to gain access to computer records from banks, individuals, and companies that are suspicious. Judicial authorities also have the right to authorize the tapping of phone conversations as part of financial investigations.
Customs regulations require those entering or leaving the country with foreign currency or negotiable instruments in amounts greater than $5,000 to file a report with Customs. Taking local currency out of the country is prohibited. In December 2002, South African authorities apprehended a Pakistani national attempting to cross the South Africa-Swaziland border with $40,000 hidden under his clothing. He had traveled numerous times between South Africa and Mozambique.
The Government of Mozambique (GOM) has the authority to freeze and seize assets related to terrorist financing. The GOM has circulated the list of terrorist individuals and entities designated by the UN 1267 Sanctions Committee, as well as the list of Specially Designated Global Terrorists designated by the United States pursuant to E.O. 13224.
Mozambique is a member of the Eastern and Southern Africa Anti-Money Laundering Group, a FATF-style regional body. Mozambique has signed, but not yet ratified, the UN International Convention for the Suppression of the Financing of Terrorism. Mozambique is a party to the 1988 UN Drug Convention. It has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally.
Mozambique should implement its anti-money laundering law, establish a Financial Intelligence Unit, and criminalize terrorist financing.
Namibia. Namibia is not a regional financial center. Namibia has one government bank and six commercial banks. Of particular concern in Namibia is the smuggling of precious minerals and gems, the proceeds of which Namibian authorities think may be laundered through Namibian banking institutions.
Namibia has not criminalized money laundering. Banks are required to report suspicious transactions and to record and report the identity of customers engaging in large transactions. Bankers and other individuals making suspicious transaction reports are protected by law with respect to their cooperation with law enforcement authorities. Banks and other financial institutions are required to maintain records related to large transactions and make those records available to government authorities for use in narcotics-related and other criminal investigations.
Namibia is in the process of drafting an anti-money laundering law that would apply to bank and non-bank financial institutions. The law would criminalize money laundering and terrorist financing. It would also address cross-border currency reporting requirements and information sharing with foreign law enforcement authorities. Other aspects of the bill are still being considered.
In August 2001, Namibia hosted the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) Task Force and Ministerial Council Meeting. Namibia served as the Chair of ESAAMLG from August 2001 until August 2002.
Namibia is not a party to the 1988 UN Drug Convention. On August 16, 2002, Namibia ratified the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Namibia has signed, but not yet ratified, the UN International Convention for the Suppression of the Financing of Terrorism.
Namibia should pass a law that criminalizes money laundering and terrorist financing as part of a viable anti-money laundering regime, as it has committed to doing through its membership in ESAAMLG.
Nauru. Nauru is a small central Pacific Island nation with a population of approximately 10,600. It is an independent republic and an associate member of the British Commonwealth. The Republic of Nauru is an established “zero” tax haven, as it does not levy any income, corporate, capital gains, real estate, inheritance, estate, gift, sales, or stamp taxes. It is an offshore banking center with a number of weaknesses in its regulatory structures. The government-owned Bank of Nauru acts as the Central Bank for monetary policy but it has no regulatory function over offshore banks. Nauru’s legal, supervisory, and regulatory framework has provided significant opportunities over time for the laundering of the proceeds of crime.
In June 2000, the Financial Action Task Force (FATF) placed Nauru on the list of Non-Cooperative Countries and Territories (NCCT) in the fight against money laundering. The FATF, in its June 2000 report, cited several concerns, including excessive bank secrecy provisions, a lack of basic anti-money laundering regulations, and Nauru’s failure to criminalize money laundering. In July 2000, the U.S. Treasury Department issued an advisory to U.S. financial institutions, warning them to give enhanced scrutiny to all financial transactions originating in, or routed to or through Nauru, or involving entities organized or domiciled, or persons maintaining accounts in Nauru. In June 2001, FATF determined that Nauru had made insufficient progress toward remedying deficiencies in its anti-money laundering regime and warned that FATF would impose countermeasures by September 30, 2001 if Nauru failed to address such deficiencies.
In response to mounting international pressure, the Government of Nauru passed the Money Laundering and Proceeds Crime Act of 2001 (AMLA 2001) in August 2001. The AMLA 2001 requires financial institutions to maintain accounts in the name of the account holder, thus prohibiting anonymous accounts and accounts held in fictitious names. It also requires financial institutions to record and verify the identity of accountholders, to report suspicious activity, and to develop internal anti-money laundering policies and procedures. Section 33 of AMLA 2001 protects financial institutions from liability for reporting suspicious activity. The AMLA 2001 allows for the establishment of a Financial Institutions Supervisory Authority (FISA), with the authority to supervise financial institutions’ compliance with the AMLA 2001. The FISA will also be the recipient of reports of suspicious transactions filed by financial institutions. Thus far, FISA has not been formed and no suspicious transaction reports have been filed.
Finally, the AMLA 2001 provides for mutual assistance with respect to money laundering investigations. There were, however, limitations placed on compliance with foreign requests for assistance. Nauru may refuse to comply with a request if the action sought by the foreign authority is contrary to any provision of the Republic of Nauru Constitution, or would prejudice the national interest.
On September 7, 2001, FATF issued a press release recognizing the passage of the AMLA 2001. FATF, however, found the legislation to have several deficiencies, and urged Nauru to enact appropriate amendments by November 30, 2001 in order to avoid the application of countermeasures. On December 5, 2001, FATF called upon its members to impose countermeasures against Nauru because of Nauru’s failure to remedy deficiencies in its anti-money laundering regime. Countermeasures may include heightening requirements on financial institutions to identify their customers and expanding suspicious activity reporting, among other measures. On December 6, 2001, Nauru amended the AMLA 2001 to address certain deficiencies in the original act, including clarifying that the law applies to all financial institutions incorporated under the laws of Nauru (as opposed to just financial institutions conducting business within Nauru), and by broadening the definition of money laundering. Despite the passage of anti-money laundering legislation with amendments, there is a lack of a legal framework and effective regime for the regulation and supervision of offshore banks.
In January 2002, the U.S. Treasury Department supplemented its previously issued advisory by reminding U.S. banks and other financial institutions of their obligations under the newly enacted Section 313 of USA PATRIOT Act of 2001 concerning correspondent accounts with foreign shell banks. Under this new law, U.S. financial institutions, as well as other financial institutions operating in the United States, are required to terminate any U.S. correspondent accounts provided to foreign shell banks, and they must take reasonable steps to ensure that correspondent accounts held by foreign banks are not being used to provide U.S. banking services indirectly to foreign shell banks.
On Friday, December 20, 2002, the Secretary of Treasury, after consultation with the Departments of Justice and State, as well as other concerned U.S. government agencies, designated Nauru as a jurisdiction of “primary money laundering concern” under section 311 of the USA PATRIOT Act (the Act). In the announcement, the U.S. Treasury published a list of 161 banks licensed by the Republic of Nauru, the majority of which are believed to be shell banks. Under the Act, once a jurisdiction has been designated as a “primary money laundering concern” there are five special measures that can be imposed, either individually or jointly in any combination. In the announcement, U.S. Treasury proposed invocation of special measure five, requiring U.S. financial institutions to close payable-through or correspondent accounts involving the designated country.
The Government of Nauru has cooperated with officials from the United States and other countries in certain criminal investigations involving Nauruan institutions. Nauru recently joined the United Nations. Nauru has observer status within the Asia/Pacific Group on Money Laundering. Nauru has signed, but not yet ratified, the UN International Convention for the Suppression of the Financing of Terrorism. Nauru has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally.
Nauru continues to remain on the FATF NCCT list, having failed to address the vulnerabilities to its offshore sector. Nauru’s government should act immediately to abolish its offshore banking sector, which, because it consists primarily of shell banks, cannot be adequately supervised to ensure that it is not exploited by transnational criminal elements. Nauru must pass and enact banking regulations to bolster its AMLA 2001. Nauru must set up its Financial Institutions Supervisory Authority and begin accepting suspicious transaction reports, as set out in the AMLA 2001. Nauru should criminalize the financing and support of terrorists and terrorism.
Nepal. Nepal is not a regional financial center and there are no indications that Nepal is used as an international money laundering center. The Government of Nepal (GON) has not criminalized money laundering and legislation on money laundering, mutual legal assistance and witness protection, developed as part of the GON’s Master Plan for Drug Abuse Control, remained stalled in 2002. Banks are not required to record the identity of customers engaging in significant transactions. However, any Nepalese citizen who wishes to open a foreign currency account must obtain a license to do so from the National Bank (NRB), and Nepalese citizens wishing to take currency overseas must obtain a letter of credit from a bank recognized by the NRB. The NRB has the authority to seize any assets that it determines to be the proceeds of illegal activity. Nepal has explored the development of an offshore sector.
The hawala system (hundi in Nepal), in which illegal proceeds are laundered through alternative informal remittance systems, is widespread. There have been no significant initiatives to regulate the system in Nepal. In Nepal, hundi is linked to the issues of capital flight, tax avoidance, and corruption. Reportedly, efforts to provide transparency in hawala transactions in foreign jurisdictions have resulted in the increased use of regulated financial institutions in Nepal.
Nepal is not a signatory to the UN International Convention for the Suppression of the Financing of Terrorism. No suspect assets belonging to entities on UN list 1267 have been identified in Nepal. Nepal is a party to the 1988 UN Drug Convention.
Nepal should enact anti-money laundering and counter-terrorist finance legislation and develop a comprehensive anti-money laundering regime that would require the mandatory filing of suspicious transaction reports, and establish a financial intelligence unit. The GON should also initiate training for law enforcement and customs agencies to enable them to recognize and investigate money laundering.
Netherlands Antilles. The. Aruba, which has autonomous control over its internal affairs, is a part of the Kingdom of the Netherlands. The Netherlands Antilles is comprised of Curacao, Bonaire, the Dutch part of Sint Maarten/St. Martin, Saba, and Sint Eustatius. The Government of the Netherlands Antilles (GONA) is located in the capital of Curacao, Willemstad, which is also the financial center of the five islands. There is a lack of border control between Sint Maarten and St. Martin that creates opportunities for money launderers.
The Netherlands Antilles has a significant offshore financial sector with 39 international banks and approximately 50 trust companies providing financial and administrative services to their international clientele, including 18,750 international companies, mutual funds, and international finance companies. The law and regulations on bank supervision state that international banks must have a physical presence on the island and hold records there. The Central Bank supervises the international banks. Authorities in other countries supervise some mutual funds. International corporations may be registered using bearer shares. It is the practice of the financial sector in the Netherlands Antilles to maintain copies of bearer share certificates for international corporations, which include information on the beneficial owner, either with the bank or the company service providers. There is a proposal to require that the name of the ultimate beneficial owner of the bearer share be recorded in a registry and made accessible to law enforcement officials upon a treaty-based request for the information.
Onshore banks are increasingly using their discretionary authority to protect themselves against money laundering. The largest commercial bank has lowered its limits on moneygrams from $10,000 to $2,000. Banks are reluctant to do business with the Internet gaming providers, provoking complaints from that sector.
Money laundering is a crime. Legislation in 1993 and subsequent interpretations regarding the “underlying crime” establish that prosecutors do not need to prove that a suspected money launderer also committed an underlying crime in order to obtain a money laundering conviction. It is sufficient to establish that the money launderer knew, or should have known, of the money’s illegal origin. In 2000, the National Ordinance on Freezing, Seizing, and Forfeiture of Assets derived from crime went into effect. The law allows the prosecutor to seize the proceeds of any crime once the crime is proven in court.
Over the past couple of years, the GONA has taken steps to strengthen its anti-money laundering regime by expanding suspicious activity reporting requirements to gem and real estate dealers; enhancing the possibilities of freezing, seizing, or the forfeiture of criminal assets; introducing indicators for the reporting of unusual transactions for the gaming industry; issuing guidelines to the banking sector on detecting and deterring money laundering; and modifying existing money laundering legislation that penalized currency and securities transaction, by including the use of valuable goods. In 2002, the largest money laundering case took place in Aruba and is still pending before the courts.
In 2002 a new ordinance, called the “National Ordinance on the Supervision of Fiduciary Business,” instituted a Supervisory Board that oversees the international financial sector. The GONA plans to bring the supervision of this sector under the Central Bank’s supervisory authority. At the same time, GONA subjected the members of this sector to “know-your-customer” rules. Also in May 2002 cross-border currency reporting legislation came into force. The law specifies reporting procedures for an individual bringing in or taking out more than NAF 20,000 (approximately $11,000) in cash or bearer instruments. In July, an individual traveling from Puerto Rico and carrying $193,000 in a suitcase, destined for the free trade zones, was arrested for failing to declare the cash under this new law.
A legislative proposal giving the Central Bank authority to supervise the mutual fund sector is expected to go into effect as early as January 2003. The free trade zones are minimally regulated; however, administrators and businesses in the zones have indicated an interest in receiving guidance on detecting unusual transactions. This guidance is expected to be prepared in early 2003.
Unusual transactions are by law reported to the Financial Intelligence Unit called the Netherlands Antilles Reporting Center, Meldpunt Ongebruikelijke Transacties (MOT NA). As of November 21, 2002, the MOT NA had received 25,323 unusual transaction reports, and the unit analyzed and disseminated 781 unusual transaction reports to authorities. The number of reports received is a sharp increase over the 7,700 reported in 2001 and reflects additional indicators, an expansion in reporting institutions and a backlog in processing.
The current staff of the MOT NA continues to work diligently to enhance the effectiveness and efficiency of its reporting system. In 2002, the MOT NA had a staff of five, an increase from a fluctuating two-four in 2001; in 2003 the staff is expected to increase by another five members. Significant progress has been made in automating suspicious activity reporting; in 2002 reporting institutions sent 99.2 percent of their reports to the MOT NA electronically. One hundred percent of the dissemination is now done on-line, and soon most of the matches with external databases will be done electronically. The MOT NA has issued a manual for casinos on how to file reports and has started to install the software in the casinos, which will allow the reports to be submitted electronically.
On October 18, 2002, the GONA published new indicators for the reporting of unusual transactions with regard to terrorism financing. The new indicators require that unusual transactions reported to the police or judicial authorities in connection with money laundering or the financing of terrorism must also be reported to the MOT NA. This requirement also extends to unusual transactions relating to credit cards and money transfers, as well as to unusual transactions with regard to game of chance transactions.
The MOT NA is an active member of the Egmont Group. Netherlands Antilles law allows the exchange of information between the MOT NA and foreign Financial Intelligence Units by means of memoranda of understanding (MOUs) and by treaty. In 2002 the MOT NA received 32 requests for information on 782 subjects. The MOT NA issued eight requests for information on 25 subjects. The MOT NA’s policy is to answer requests within 48 hours after receipt. However, the large lists of terrorist inquiries have presently forced the MOT NA to an average answering time of eight days.
In January 2002, the GONA enacted legislation allowing a judge or prosecutor to freeze assets related to the Taliban cum suis and Usama Bin Ladin cum suis (cum suis means that all companies and persons connected with Usama Bin Ladin are included.). The legislation contains a list of individuals and organizations suspected of terrorism. The Central Bank instructed financial institutions to query their databases for information on the suspects and to immediately freeze any assets that were found. In October 2002, the Central Bank instructed the financial institutions under its supervision to continue these efforts and to consult the UN website for updates to the list.
As part of the Kingdom of the Netherlands, the Netherlands Antilles participates in the Financial Action Task Force (FATF). It is a member of the Caribbean Financial Action Task Force (CFATF). In 1999, the Netherlands extended application of the 1988 UN Drug Convention to the Netherlands Antilles. The Kingdom of the Netherlands, of which the Netherlands Antilles is a part, signed the International Convention for the Suppression of the Financing of Terrorism on January 10, 2000. In accordance with Netherlands Antilles law, which stipulates that all the legislation must be in place prior to ratification, the Government of the Netherlands Antilles is preparing legislation which will enable the Netherlands Antilles to ratify the Convention. The Netherlands’s Mutual Legal Assistance Treaty with the United States also applies to the Netherlands Antilles. With regard to requests for assistance relating to fiscal offenses addressed to the Netherlands Antilles, an agreement was signed in April 2002 between the Netherlands, and the United States, which is also applicable to the Netherlands Antilles, for the exchange of information with respect to taxes. This agreement is scheduled to come into force on January 1, 2004.
The Government of the Netherlands Antilles has shown a commitment to combating money laundering by establishing a solid anti-money laundering program. An increase to the MOT staff is particularly notable. The GONA should criminalize the financing of terrorists and terrorism, and its focus should continue on increasing regulation and supervision of the offshore sector and free trade zones and pursuing money laundering investigations and prosecutions.
The Netherlands. The Netherlands is a major regional financial center and as such is vulnerable to the laundering of funds generated from a variety of illicit activities, including narcotics-trafficking and financial fraud. Money laundering in the Netherlands is most likely controlled by major drug cartels and other international criminal organizations. The Netherlands’ Security Service investigates terrorist financing, and is cooperating with law enforcement entities that are experienced in this area.
In 1994, the Netherlands criminalized money laundering related to all crimes, although prosecutors first had to prove the predicate offense before prosecuting for money laundering. In 2002, legislation was enacted making money laundering a separate offense, easing somewhat the government’s burden of proof regarding the criminal origins of proceeds. Under the new law, the government needs only to prove that the proceeds “apparently” originated from a crime.
All financial institutions in the Netherlands, including banks, bureaux de change, and credit card companies, are required to report cash transactions over 2,000 euros (approximately $2,000), as well as any less substantial transaction that appears unusual, to the Office for Disclosure of Unusual Transactions (MOT), the Netherlands’ Financial Intelligence Unit (FIU). In December 2001, the reporting requirements were expanded to include commercial dealers of high-value goods. The reporting requirements are expected to be expanded in mid-2003 to include trust and service company providers, notaries, lawyers, real estate agents, accountants, tax advisors. Under the Identification of Services Act (WID), all those that are subject to reporting obligations must identify their clients, either at the time of the transaction or at some point prior to the transaction, before providing financial services.
Financial institutions are also required by law to maintain records necessary to reconstruct financial transactions for at least five years and to respond quickly to government requests for information in narcotics-related cases. The requirements also have been applicable to the Central Bank of the Netherlands (to the extent that it provides covered services) since 1998. There are no secrecy laws or fiscal regulations that prohibit Dutch banks from disclosing client and owner information to bank supervisors, law enforcement officials, or tax authorities. Financial institutions and all other institutions under the reporting and identification acts and their employees are specifically protected by law from criminal or civil liability related to cooperation with law enforcement or bank supervisory authorities.
Since 1996, entities providing commercial services, such as accountants, lawyers, and notaries, have applied money laundering reporting procedures within their professions. The competent authorities have established unusual activity and transaction indicators in preparation for the implementation of the 2001 amendment to the EU Directive on Money Laundering, which will enable trust and service company providers, notaries, lawyers, real estate agents, accountants, tax advisors to report unusual transactions.
The Money Transfer and Exchange Offices Act, which was enacted in June 2002, requires money transfer offices, as well as exchange offices, to obtain a permit to operate, and subjects them to supervision by the Central Bank. Every money transfer client has to be identified.
The MOT reviews and analyzes the unusual transactions and cash transactions filed by banks and financial institutions. It forwards suspicious transaction reports with preliminary investigative information to operational law enforcement agencies and to the office for operational support of the National Public Prosecutor for MOT cases (BLOM). In 2001, the last year for which complete figures are available, the MOT recorded 76,085 unusual transactions in its database, of which it forwarded 20,233 as suspicious. In order to facilitate the forwarding of suspicious transactions, the MOT and BLOM created an electronic network called Intranet Suspicious Transactions. Also, a website for the actual reporting of unusual transactions by financial institutions was developed, thus completing the electronic infrastructure. Furthermore, the MOT receives data from the Public Prosecution Service/Criminal Asset Deprivation Bureau and cross checks it in the MOT database. Suspicious transaction reports with matching data from the Criminal Asset Deprivation Bureau are disseminated to the BLOM.
In 2002, the “Sanction Provision for the Duty to Report on Terrorism” became effective. This new ministerial decree requires financial institutions to report all transactions (actually carried out or intended) that involve persons, groups, and entities that have been linked, both domestically and internationally, with terrorism, to the MOT. Terrorist financing is a crime in the Netherlands.
The MOT is a member of the Egmont Group of FIUs. It is also involved in efforts to expand cooperation between disclosure offices, particularly within the EU. The Netherlands is a party to the 1988 UN Drug Convention and the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime. The Dutch participate in the Basel Committee, and have endorsed the Committee’s “Core Principles for Effective Banking Supervision”. In February 2002, the Netherlands became a party to the UN International Convention for the Suppression of the Financing of Terrorism. The Netherlands has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. The Netherlands is a member of the Financial Action Task Force (FATF) and participates in the Caribbean Financial Action Task Force (CFATF) as a Cooperating and Supporting Nation. The Netherlands is also a member of the Dublin Group, and chairs its Central European Regional Group. There is a Mutual Legal Assistance Treaty in effect between the Netherlands and the United States, as well as an Agreement regarding Mutual Cooperation in the Tracing, Freezing, Seizure and Forfeiture of proceeds and Instrumentalities of Crime and the Sharing of Forfeited Assets.
In the past two years, a group of European FIUs (the United Kingdom, France, Italy, Luxembourg, and the Netherlands) developed a network system called FIU NET for international information exchange. The task force that manages this process is chaired by the head of the MOT.
Since March 2002, the MOT has been the main contractor for the European Commission in a Anti-Money Laundering Project for the PHARE (Economic Reconstruction Assistance to Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, Hungary, Slovenia, Romania, Bulgaria, Cyprus, and Malta) program. The purpose of the project is to provide support to Central and Eastern European countries in the development and/or improvement of anti-money laundering regulations. For this purpose, the MOT has established a project team of six persons. In addition to the team, there is a consortium of international experts. The PHARE Anti-Money Laundering Project will continue until December 25, 2003.
The Netherlands has a comprehensive anti-money laundering regime.
New Zealand. New Zealand is not a major regional or offshore financial center. It has a small number of banks and financial institutions whose operations can be effectively monitored by government authorities. There is evidence that some money laundering does take place, although not to a significant extent. Narcotics proceeds and commercial crime are the primary sources of illicit funds. International organized criminal elements do operate in New Zealand.
A 1995 amendment to New Zealand’s Crimes Act 1961 criminalized the laundering of proceeds knowingly derived from a serious offense. The Financial Transaction Reporting Act 1996 contains obligations for a wide range of financial institutions, including banks, credit unions, casinos, real estate agents, lawyers, and accountants. These entities must identify clients, maintain records, and report suspicious transactions. The Act also contains a “safe harbor” provision and requires the reporting of large cross-border currency movements.
The Terrorism Suppression Act, enacted in October 2002, criminalized terrorist financing. This Act also made the necessary changes to the existing law to enable New Zealand to ratify the UN International Convention for the Suppression of the Financing of Terrorism on November 4, 2002. The Act gives the government wider authority to designate entities as terrorist organizations and freeze their assets. The Prime Minister is responsible for making the designation upon a recommendation prepared by the New Zealand Police. Once the designation is made, the New Zealand Police informs banks and other appropriate parties. A public notice is also published. The Police are currently developing additional procedures to implement the provisions of the Terrorism Suppression Act.
New Zealand has consistently implemented financial controls against entities included on the UN 1267 Sanctions Committee consolidated list. It has not yet identified in New Zealand any assets from these entities.
New Zealand and the United States do not have a Mutual Legal Assistance Treaty. However, New Zealand legislation applies certain provisions of the Mutual Assistance in Criminal Matters Act 1992 unilaterally to the United States. In practice, New Zealand and U.S. authorities have had a good record of cooperation and information sharing in this area.
New Zealand is a party to the 1988 UN Drug Convention, and in July 2002, ratified the UN Convention against Transnational Organized Crime, which is not yet in force internationally. New Zealand is a member of the Financial Action Task Force, the Asia/Pacific Group on Money Laundering (APG), and the Pacific Islands Forum. Its Financial Intelligence Unit is a member of the Egmont Group. The New Zealand government has played a leadership role in promoting efforts to combat money laundering in the South Pacific region, providing substantial amounts of technical assistance and training.
New Zealand has established a comprehensive anti-money laundering regime. It should build upon this base by continuing its implementation of its Terrorism Suppression Act. Additionally, New Zealand should continue its recognized leadership in the international arena.
Nicaragua. While Nicaragua is not a regional financial center, Nicaragua’s status as a drug transit zone and its highly vulnerable banking system make the country an attractive target for narcotics-related money laundering.
The Government of Nicaragua (GON) has pledged to fight terrorism, money laundering, and narcotics-trafficking. However, resource constraints and corruption complicate efforts to counter these threats. Between August 2000 and 2001, four of Nicaragua’s eleven banks failed amid allegations of fraud and mismanagement. Nicaragua suffers generally from economic instability, weak regulation, and lax oversight of its financial system.
Nicaragua’s Law 177 of 1994 criminalized money laundering related to narcotics-trafficking and other illicit activities. Law 285 of 1999 reformed Law 177 and requires banks to report cash deposits that exceed $10,000 to the Bank Superintendency, which forwards these reports for analysis to the Commission of Financial Analysis (CFA) within the National Anti-Drug Council. Though not a Financial Intelligence Unit, the CFA is assigned responsibility for detecting money laundering trends, coordinating with other investigative agencies, and reporting its findings to the National Anti-Drug Council. On paper, the CFA is composed of representatives from various elements of law enforcement and banking regulators, but in practice the CFA is not operational.
Law 285 prohibits anonymous accounts and requires financial institutions to identify customers and maintain transaction records for five years. Law 285 also requires travelers entering the country to declare cash, monetary instruments, or precious metals exceeding $10,000 or its foreign equivalent. Law 285’s implementing measure, Decree 74, requires that financial institutions report all complex, unusual, and significant transactions, and transactions with no apparent legal purpose, to the Bank Superintendency and to the CFA.
Currently, there is a new law that has been put before the Nicaraguan National Assembly establishes money laundering as an autonomous crime (the previous law was ambiguous in a way that allowed some to argue that only money laundering connected to illicit drug activity was illegal) and requires more stringent reporting of large or suspicious bank deposits. The new legislation also sets up a Commission of Financial Analysis that will conduct both analysis and investigations. The law is expected to be enacted in 2003.
During the past year, the GON has pushed a strong anti-corruption campaign. Several prominent figures from the previous administration have been arrested and provisionally convicted for corruption and money laundering. Other major figures are now using parliamentary immunity to avoid facing money laundering charges in local courts.
Nicaragua is a party to the 1988 UN Drug Convention, and has ratified the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Nicaragua is a member of the Organization of American States Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering. Nicaragua has signed the Central American Treaty for the Prevention and Repression of Money and Asset Laundering Related to Illicit Activities Connected with Drug Trafficking and Related Crimes. Nicaragua also became a party to the UN International Convention for the Suppression of the Financing of Terrorism on November 14, 2002. Nicaragua ratified the OAS Mutual Legal Assistance Convention in 2002. Nicaragua was reinstated to the Caribbean Financial Action Task Force (CFATF) in 2002 after having been suspended due to a lack of participation.
The GON should begin allocating resources and developing technical expertise for complete operation of the CFA in order to strengthen its financial systems against money laundering and terrorist financing and ensure compliance with relevant anti-money laundering controls. The GON also should take a more active stance vis-à-vis the international community, which could provide useful support and anti-money laundering training.
Niger. Niger is not a regional financial center. While there are criminal activities that take place within the region, there is no evidence to suggest that money laundering activities take place on a large scale within Niger. Seven small commercial banks and one modest-sized local bank operate in Niger. Black market currency exchanges operate freely and currency easily flows unregulated through Niger’s porous borders. Most economic activity takes place in the informal sector.
The Central Bank of West African States (BCEAO), based in Dakar, Senegal, is the Central Bank for the countries in the West African Economic and Monetary Union (WAEMU): Benin, Burkina Faso, Guinea-Bissau, Cote d’Ivoire, Mali, Niger, Senegal, and Togo, all of which use the French-backed CFA franc currency. All bank deposits over approximately $7,700 made in BCEAO member countries must be reported to the BCEAO, along with customer identification information. In September 2002, the WAEMU Council of Ministers, which oversees the BCEAO, issued a directive requesting that each member country set up a national committee under their Minister of Finance to deal with financial information as it relates to money laundering. The BCEAO would be in charge of coordinating such committees. Each member country is now responsible for putting legislation in place to implement this directive, and the legislation is expected to be harmonized regionally.
Although currently there are no legal requirements to do so, banks in Niger report suspicious activity to the BCEAO and to local law enforcement. In 2002, one bank account in Niger was frozen due to its relationship to illegal financial activity.
The WAEMU Council of Ministers issued another directive in September 2002 requesting member countries to pass legislation requiring banks to freeze the accounts of any persons or organizations targeted by the UNSCR 1267/1390 consolidated list.
In 2000, the Economic Community of West African States (ECOWAS) established the Intergovernmental Group for Action Against Money Laundering (GIABA), based in Dakar, Senegal. In November 2002, GIABA hosted an anti-money laundering seminar for representatives of 14 ECOWAS members, including Niger. In July 2002, Niger participated in the 2002 West African Joint Operation Conference (WAJO) that promotes regional law enforcement cooperation against drug trafficking, terrorism, and money laundering.
Niger is a party to the 1988 UN Drug Convention, and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Niger is a member of the West African Economic and Monetary Union (WAEMU).
Niger should criminalize money laundering and terrorist financing. Niger should also make suspicious transaction reporting mandatory.
Nigeria. The Federal Republic of Nigeria is the most populous country in Africa and is West Africa’s largest economy. Nigeria is a hub of trafficking in persons, narcotics-trafficking, and criminal financial activity for the entire continent. Nigerian trafficking and money laundering organizations have proven adept at devising new ways of subverting international and domestic law enforcement efforts and evading detection. This success in avoiding detection and prosecution has led to an increase in financial crimes of all types, including bank fraud, real estate fraud, identity theft, and advance fee fraud. Despite the efforts of the government to counter years of rampant corruption, crime continues to plague Nigerians.
Advance fee fraud is a lucrative financial crime that generates for criminals hundreds of millions of dollars in illicit profits annually. Initially Nigerian criminals made advance fee fraud infamous; recently nationals of many African countries and from a variety of countries around the world have begun to perpetrate it. This type of fraud is referred to internationally as “Four-One-Nine” fraud (419 is a reference to fraud section in Nigeria’s criminal code). While there are many variations, the main goal of 419 fraud is to trick victims into payment of an advance fee by persuading them that they will receive a very large benefit in return. These “get rich quick” schemes have ended for some victims in monetary losses, kidnapping, or murder. Businesses and individuals around the world have been and continue to be targeted by perpetrators of 419 fraud, often via the Internet.
In the past, attempts to prosecute narcotics and money laundering cases have been hampered by an ineffective judicial system and widespread government corruption. Nigeria was ranked 101st out of 102 on Transparency International’s 2002 Corruption Perceptions Index.
In June 2001, the Financial Action Task Force (FATF) placed Nigeria on the list of Non-Cooperative Countries and Territories (NCCT) in combating money laundering. Among the deficiencies cited by FATF were the failure to criminalize money laundering for offenses other than those related to narcotics, the lack of customer identification requirements for over-the-counter transactions under a threshold of $100,000, inadequate suspicious transaction reporting requirements, the absence of anti-money laundering measures applied to stock brokerage firms and other financial institutions, and the high level of government corruption. In April 2002, FinCEN, the U.S. Financial Intelligence Unit, issued an Advisory to inform banks and other financial institutions operating in the United States of serious deficiencies in the anti-money laundering regime of Nigeria.
In June 2002, FATF stated that it would consider recommending countermeasures against Nigeria at its October 2002 plenary if Nigeria did not engage with the FATF Africa Middle East Review Group and move quickly to enact legislative reforms that addressed FATF concerns. In October, noting that the Government of Nigeria (GON) had begun to take legislative action, FATF recommended countermeasures against Nigeria if the GON did not enact sufficient legislative reforms by December 15, 2002.
On December 14, 2002, the National Assembly of Nigeria passed three pieces of anti-money laundering legislation. President Obasanjo signed the legislation into law the same day. The first piece of legislation—“An Act to Amend the Money Laundering Act 1995 and for Matters Connected Therewith”—requires customer identification for over-the-counter transactions over $5,000, and specifies penalties for failure to comply. Under the law, financial institutions must report cash transactions that exceed one million naira (approximately $8,800) for individuals and five million naira (approximately $45,000) for corporate bodies. The amendment also criminalizes money laundering for all crimes. The second piece of legislation—an amendment to the Banking and Other Financial Institutions Act (BOFI)—expands anti-money laundering measures to cover stock brokerage firms and foreign currency exchange facilities. The BOFI amendment also gives the Central Bank greater authority to freeze suspicious accounts and to deny bank licenses. Finally, “An Act to Provide for the Establishment of a Commission for Economic and Financial Crimes and for Matters Connected Therewith” (Financial Crimes Commission Act) establishes the Financial Crimes Commission (FCC)—a Financial Intelligence Unit that will coordinate anti-money laundering investigations and information sharing. The FCC will have the authority to share information with the Financial Intelligence Units of other countries. The Financial Crimes Commission Act criminalizes terrorist financing.
Nigeria is a party to both the 1988 UN Drug Convention and the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Nigeria has signed, but is not yet a party to, the UN International Convention for the Suppression of the Financing of Terrorism.
The United States and Nigeria signed a Mutual Legal Assistance Treaty (MLAT) in 1989, which entered into force in January 2003. Nigeria has signed memoranda of understanding with Russia, Iran, India, Pakistan, and Uganda to facilitate cooperation in the fight against narcotics-trafficking and money laundering.
The GON should create the FCC and ensure that it is adequately staffed and funded. Nigeria should enact legislation that requires financial institutions to report suspicious transactions regardless of whether the financial institution decides to carry out the transaction. The GON should continue to engage with FATF to ensure that Nigeria’s remaining anti-money laundering deficiencies are corrected so that Nigeria has a viable anti-money laundering regime that comports with all international standards and is capable of sharing information with foreign regulatory and law enforcement agencies globally.
Niue. Niue is a self-governing parliamentary democracy in the South Pacific that maintains a free association with New Zealand. Niueans are citizens of New Zealand and are part of the British Commonwealth.
Concerns were raised in the past about Niue’s vulnerability to money laundering. Legislation from the mid-1990s created an offshore financial center heavily dependent upon international business companies (IBCs). In addition, a small number of offshore banks were licensed. Niue also offers trusts, partnerships, financial management, and insurance services. Niue allows the creation of asset protection trusts that are impervious to many types of legal claims arising in other jurisdictions. In addition, trusts in Niue are exempt from taxation if the parties to the trust are not residents of Niue.
The International Business Companies Act of 1994 is the legislative basis for establishing IBCs. Marketers of offshore services promote Niue as a favored jurisdiction for establishing IBCs for a variety of reasons. Niue does not require the disclosure of beneficial ownership of IBCs, permits bearer shares, allows the marketing of shelf companies, and does not require IBCs to keep a register of directors. Internet marketers also offer shelf companies complete with associated offshore bank accounts and mail-drop forwarding services. Regardless of how the IBCs are marketed, all are legally formed and registered by a Panamanian law firm on behalf of Niue.
In June 2000, the Financial Action Task Force (FATF) placed Niue on the list of Non-Cooperative Countries and Territories (NCCT) in the fight against money laundering because of numerous deficiencies in Niue’s anti-money laundering regime. In particular, the report cited deficiencies in customer identification requirements, and concerns that the structure and effectiveness of the regulatory regime for offshore financial institutions and IBCs were inadequate. Following the FATF exercise, the U.S. Treasury Department issued an advisory to United States financial institutions advising them to give enhanced scrutiny to all financial transactions involving Niue.
The Proceeds of Crime Act 1998 criminalizes the laundering of proceeds from any offense punishable by at least one year in prison. Under the Proceeds of Crime Act, financial institutions may report suspicious transactions either to the police or to the Attorney General. However, there have been no such reports, and there are not relevant procedures in place to deal with their possible collection and analysis.
Niue enacted the Financial Transactions Reporting Act (FTRA) in November 2000. The FTRA imposes reporting and record keeping obligations upon banks, insurance companies, securities dealers and futures brokers, money services businesses and persons administering or managing funds on behalf of IBCs. Specifically, the FTRA requires financial institutions to report suspicious transactions, verify the identity of its customers, and keep records of financial transactions for six years. However, the Act contains a number of loopholes that result in inadequate customer identification requirements, among other deficiencies. For example, section 11 of the FTRA requires that financial institutions verify the identity of customers who wish to conduct a transaction. Subsection 11(2) provides a loophole in that a financial institution dealing with an intermediary need establish the identity of the underlying customer only if the transaction exceeds $10,000.
The FTRA also calls for the establishment of a Financial Intelligence Unit (FIU) within the office of the Attorney General. The FIU has still not been established. Niuean officials have said that the establishment of the FIU will depend upon the outcome of ongoing discussions among the Pacific Islands Forum of a proposed regional FIU for Forum member countries. Niue supports the establishment of a regional FIU to share information among Pacific Island states.
In June 2002, Niue brought into force the International Banking Repeal Act. This Act eliminated Niue’s offshore banks. As a result, all offshore banking licenses have been terminated. In addition, Niue now maintains in country a mirror of the IBC registry kept in Panama. All company registration information is kept on island by a registered agent and is accessible to appropriate officials.
Due to these reforms, the FATF decided in October 2002 that Niue has in place an anti-money laundering system that generally meets international standards. Niue was therefore removed from the NCCT list. The U.S. Treasury Department subsequently withdrew its June 2000 advisory to U.S. financial institutions Niue.
Niue is not a member of the United Nations. In November 2001, the government amended the United Nations Act 1946 so as to enable the Cabinet to promulgate regulations giving effect to UN Security Council resolutions. The government of Niue is reviewing its legislation to comply with UN Security Council Resolution 1373. This will include making terrorist financing a criminal offense and authorizing the freezing of assets or accounts. Niue is a member of the Asia/Pacific Group on Money Laundering.
In 1998, Niue passed the Mutual Assistance in Criminal Matters Act, which authorizes the Attorney General of Niue to provide certain types of legal assistance to other countries involved with criminal investigations. Niue has no bilateral cooperation agreements with other countries for the exchange of information on money laundering, though the government has expressed a willingness to cooperate with international efforts to combat money laundering.
Niue should continue to enhance its anti-money laundering legislation. Recent reforms address some of the deficiencies in Niue’s anti-money laundering regime; however, the government must finalize and promulgate the necessary regulations to bring the legislation into full force, including the establishment of a FIU. Niue must ensure that the recently enacted reforms are fully and effectively implemented. Additionally, Niue should criminalize terrorist financing.
Norway. Norway is not an important regional financial center; there are 19 commercial banks in the country and approximately 125 savings banks. Money laundering in Norway is related mainly to funds generated by the smuggling of liquor and cigarettes and takes place outside its financial system. However, structuring of deposits still appears to be a problem within the financial system. According to Oekokrim, which serves as Norway’s Financial Intelligence Unit, Norway has been experiencing an increase in financial crime such as bank fraud. These types of crimes overshadow narcotics-related money laundering in Norway.
The Norwegian Penal Code includes many criminal offenses as predicates to money laundering. Current money laundering statutes require financial institutions to report large and suspicious transactions to Oekokrim, to verify the identity of their customers, and to keep records of transactions for at least five years. Large cross-border cash transactions by banks are routinely reported to the Central Bank and kept on file. Individual bankers may be held responsible if their institutions are used to launder money. Norway’s anti-money laundering legislation has been strengthened in recent years to conform to the FATF Forty Recommendations.
The Banking, Insurance, and Securities Commission of Norway monitors the financial markets and financial institutions, issues warnings, forwards the consolidated UNSCR 1267/1390 list of terrorist entities and individuals to financial institutions, and issues orders to freeze assets and funds. The Commission conducts on-site inspections to monitor the finance sector and to ensure that the regulations are complied with correctly. The Commission has also taken steps to strengthen reporting requirements of charitable entities.
There were approximately 30 major arrests and/or prosecutions for money laundering in Norway in 2001 and 25 in 2002. Law enforcement officials have the authority to freeze and confiscate assets during money laundering investigations. Suspicious or unusual transaction reports filed by financial institutions have steadily increased over the past four years from 788 reports in 1999 to 992 reports in 2001. There have been 745 suspicious transaction reports filed as of June 30, 2002.
On June 28, 2002, a new bill entered into force, permanently establishing legislative measures against acts of terrorism and the financing of terrorism, and fulfilling the requirements of the UN International Convention for the Suppression of the Financing of Terrorism. Norway ratified this Convention on July 15, 2002. Norway has now ratified all 12 of the International Conventions and Protocols relating to terrorism.
Norway has the authority to identify, freeze, and seize terrorist financial assets. On October 11, 2002, Norway adopted the EU’s Common Position on the Application of Specific Measures to Combat Terrorism. No investigations have yet been conducted involving violations of terrorist financing provisions. However, one money laundering and banking case has been associated with the use the Dahabshiil and Al-Barakaat hawala systems.
Norway is a member of the Financial Action Task Force (FATF). Oekokrim is a member of the Egmont Group. Norway is a party to the 1988 UN Drug Convention and the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime. Norway has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally.
Oman. Oman is not a regional or offshore financial center and does not have a significant money laundering problem. Its small banking sector is supervised by the Central Bank of Oman (CBO), which has the authority to suspend or reorganize a bank’s operations. Oman has six commercial banks with 304 Omani and 10 foreign branches. There are also nine foreign incorporated banks with 27 branches in the country. Smuggling trade goods across Oman’s long borders and coastline is becoming an increasing concern. Oman may also be vulnerable to forms of trade-based money laundering and customs fraud.
In March 2002, Royal Decree No. 34/2002 was issued promulgating “The Law of Money Laundering.” This new law strengthened the existing money laundering regulations by detailing bank responsibilities, widening the definition of money laundering to include funds obtained through any criminal means, and providing for the seizure of assets and other penalties. The new law applies to other types of non-bank financial institutions as well. As of the end of 2002, there had been no arrests under the new law.
The Royal Oman Police (ROP), in coordination with the CBO, is responsible for investigating money laundering activities. Banks are required to know their customers and report all suspicious transactions. Oman has plans to establish a Financial Intelligence Unit (FIU) that will receive suspicious transactions and help coordinate resulting investigations. Oman regulates charitable organizations.
Oman is a party to the 1988 UN Drug Convention, and a member of the Gulf Cooperation Council (GCC), which is a member of the Financial Action Task Force (FATF). In June 2001, Oman underwent a FATF mutual evaluation. Oman has responded to terrorist asset freeze lists by distributing the lists to all banks and other financial institutions in the country for checking against their accounts. Thus far, the Government of Oman has reported negative results.
Oman should continue to implement its anti-money laundering program, specifically creating a FIU and training criminal investigators to initiate money laundering investigations from the field. Oman also should become more aware of the dangers of alternative remittance systems to launder money and transfer value such as hawala and trade-based money laundering. Oman should also criminalize terrorist financing.
Pakistan. Financial crimes related to narcotics-trafficking, terrorism, smuggling, tax evasion, and corruption remain a significant problem in Pakistan. Production of narcotics in Pakistan is negligible, but Pakistani criminal networks play a central role in the transshipment of narcotics and smuggled goods from Afghanistan to international markets. The proceeds of narcotics-trafficking and funding for terrorist activities are often laundered by means of the alternative remittance system called hawala. This system is also widely used by the Pakistani people for legitimate purposes. A nexus of private, unregulated charities has also emerged as a major source of illicit funds for international terrorist networks.
The Control of Narcotics Substances Act of 1996 criminalizes the laundering of narcotics-related proceeds. The Act contains provisions for the freezing and forfeiture of assets associated with narcotics-trafficking and the reporting of financial transactions believed to be associated with narcotics-trafficking. Pakistan’s Ministry of Finance in 2002 drafted anti-money laundering and anti-terrorist financing legislation to bring Pakistan into compliance with international norms. As of late December 2002, this legislation was awaiting consideration by the newly elected National Assembly.
Pakistan’s cooperation in Operation Enduring Freedom has brought renewed focus on the role of informal financial networks in financing terrorist activity. In July 2002, the Government of Pakistan (GOP) passed an ordinance regulating hawala moneychangers and facilitating cross-verification of financial transactions between Pakistan and the Gulf States. These measures have led to the registration and formalization of many hawala businesses, but a significant number continue to operate outside the legal framework. A large percentage of hawala transfers to Pakistan consists of the repatriation of wages from the roughly five million Pakistani expatriates residing abroad. There have also been reports of money laundering using gold and gems. Trade-based money laundering is also prevalent. Goods such as foodstuffs, electronics, vegetable oils, and other products that are primarily exported from Dubai to Karachi are then forwarded, at least on paper, to Afghanistan via the Afghan Transit Trade. Through smuggling, corruption, avoidance of customs duties and taxes, and barter deals for narcotics, many of the goods destined for Afghanistan find their way into the burgeoning Pakistani black market. The trading in these goods and commodities is also believed to be used to provide counter-valuation in hawala transactions.
Currently, Pakistan does not have a financial intelligence unit (FIU). Pakistan’s National Accountability Bureau, Anti-Narcotics Force, Federal Investigative Agency (FIA), and Customs oversee Pakistan’s anti-money laundering efforts. The National Accountability Bureau has been successful in investigating and prosecuting corruption. Pakistan is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. As of January 2003, Pakistan had not signed the UN International Convention for the Suppression of the Financing of Terrorism, but has identified and blocked terrorist assets. Pakistan became a member of the FATF-style regional body, the Asia/Pacific Group on Money Laundering in 2000.
Pakistan should move quickly to enact anti-money laundering and anti-terrorist financing legislation that conforms to international standards. It also should issue financial regulations that mandate the reporting of all suspicious transactions and establish an FIU. In addition, in light of the role that private charities have played in terrorist financing, the GOP should develop a system to regulate charitable organizations and to shut down those charitable organizations that finance violence and terrorism. More emphasis should be put on the misuse of trade to launder money. The misuse of the Afghan Transit Trade should be examined. Customs needs assistance in automation, efforts to control smuggling, and training in how to recognize money laundering. Law enforcement also needs training in investigating financial crimes. The judicial sector needs to be strengthened and should develop more familiarity with money laundering. Tax reform will also be an essential component in helping to counteract the appeal of hawala.
Palau. An archipelago in the Western Pacific with a population of about 19,000, and per capita GDP of about $7,000, Palau is not a major financial center. Upon its independence in 1994, Palau entered the Compact of Free Association with the United States. The U.S. dollar is legal tender. Amid reports in late 1999 and early 2000 that offshore banks in Palau had carried out large-scale money laundering activities, a few international banks banned financial transactions with Palau. In response, Palau established a banking commission that recommended financial control legislation to the National Congress in 2001. Following that, Palau took several steps to address financial security through banking regulation and supervision, and the establishment of a legal framework for an anti-money laundering regime. Several pieces of legislation were enacted in June 2001.
The Money Laundering and Proceeds of Crimes Act of 2001 criminalized money laundering and created a Financial Intelligence Unit. This legislation imposes threshold and suspicious transaction reporting, and record keeping requirements for five years from the date of the transaction. Credit and financial institutions are required to keep regular reports of all transactions made in cash or bearer securities in excess of $10,000, or its equivalent in foreign cash or bearer securities. This threshold reporting also covers domestic or international transfers of currency or securities involving a sum greater than $10,000. All such transactions (domestic and/or international) are required to go through a credit or financial institution licensed under the laws of the Republic of Palau. This Act also contains provisions allowing the freezing and forfeiture of assets that are the proceeds of a crime.
The Financial Institutions Act of 2001 established the Financial Institutions Commission, an independent regulatory agency that is responsible for licensing, supervising and regulating financial institutions in Palau. Credit and financial institutions are required to verify customers’ identity and address. In addition, these institutions are required to check for information by “any legal and reasonable means” to obtain the true identity of the principal/party upon whose behalf the customer is acting. If identification cannot, in fact, be obtained, all transactions must cease immediately.
Palau has enacted several legislative mechanisms to foster international cooperation. The Mutual Assistance in Criminal Matters Act (MACA), also passed in June 2001, enables authorities to cooperate with other jurisdictions in criminal enforcement actions related to money laundering, and to share in seized assets. The Foreign Evidence Act of 2001 provides for the admissibility in civil and criminal proceedings of certain types of evidence obtained from a foreign State pursuant to a request by the Attorney General under the MACA.
Palau acceded to the UN International Convention for the Suppression of the Financing of Terrorism on November 14, 2001. Palau forwarded to its financial institutions the names of suspected terrorists and terrorist organizations and asked that any assets or accounts belonging to those individuals or entities be immediately reported to the Government and seized. No such assets have been found. Anti-terrorism legislation has been drafted and is expected to be introduced to the National Congress shortly. Additionally, the Task Force on Anti-Terrorism and Homeland Security has been created and is reviewing Palau’s efforts to detect and prevent terrorism in the Republic.
Palau is a member of the Asia/Pacific Group on Money Laundering. It has signed Pacific Island Forum anti-money laundering initiatives and has sought to abide by the Honiara Declaration, which calls for Forum countries to implement the Financial Action Task Force 40 Recommendations on Money Laundering.
Palau has taken several steps toward enacting a legal framework with which to combat money laundering. Palau should continue its efforts to implement the broad-based legal reforms already put in place. If the draft of the pending anti-terrorism legislation does not specifically criminalize the support and financing of terrorists, Palau should insert such a provision.
Panama. Despite significant progress to strengthen Panama’s anti-money laundering regime since October 2000, money laundering remains a serious problem in Panama and is a potential threat to the stability of the country’s legitimate financial institutions. Panama’s proximity to major drug-producing countries, its sophisticated international banking sector, its U.S. dollar-based economy, and the Colon Free Zone’s (CFZ) role as an originating or transshipment point for goods purchased with narcotics dollars through the Colombian Black Market Peso Exchange make the country particularly vulnerable to money laundering. Panama’s financial institutions engage in currency transactions involving international narcotics-trafficking proceeds that include significant amounts of U.S. currency or currency derived from illegal drug sales in the United States.
Panama’s large offshore financial sector includes international business companies (over 370,000 currently registered in Panama), offshore banks (approximately 34 banks), captive insurance companies (corporate entities created and controlled by a parent company, professional association, or group of businesses), and trusts. Captive insurance has become one of the most important sectors of Panama’s offshore financial industry, following banking. The high volume of trade occurring through Panama’s Colon Free Trade Zone (there are approximately 2,040 businesses established in the Zone) presents opportunities for trade-based money laundering to occur.
In June 2000, the Financial Action Task Force (FATF) identified Panama as a non-cooperative country or territory (NCCT) in international efforts to fight money laundering. In July 2000, the U.S. Treasury Department issued an advisory to U.S. financial institutions advising them to “give enhanced scrutiny” to financial transactions involving Panama, including transactions involving the CFZ.
These events prompted the Government of Panama (GOP) to engage in coordinated effort to enact and implement laws, executive orders, and regulatory agreements with banks to bring Panama’s anti-money laundering program into compliance with international standards. In October 2000, the GOP enacted two laws and issued two Executive decrees to address FATF’s concerns about its anti-money laundering regime:
Law No. 41 (Article 389) of October 2, 2000, amended the Penal Code by expanding the number of predicate offenses for money laundering beyond drug trafficking to include criminal fraud, arms trafficking, trafficking in humans, kidnapping, extortion, embezzlement, corruption of public officials, terrorism, and international theft or trafficking of motor vehicles. Law No. 41 established a punishment of 5 to 12 years imprisonment and a fine.
Law No. 42 of October 2, 2000, requires financial institutions (banks, trust companies, money exchangers, credit unions, savings and loans associations, stock exchanges and brokerage firms, and investment administrators) to report the Financial Analysis Unit (UAF)—Panama’s Financial Intelligence Unit—currency transactions in excess of $10,000 and suspicious financial transactions. Law 42 also mandates casinos, CFZ businesses, the national lottery, real estate agencies and developers, and insurance/reinsurance companies to report to the UAF currency or quasi-currency transactions that exceed $10,000. Furthermore, Law 42 requires Panamanian trust companies to identify to the Superintendency of Banks the real and ultimate beneficial owners of trusts.
Executive Decree No. 163 of October 3, 2000, which amended the June 1995 decree that created the UAF, authorizes the UAF to share information with FIUs of other countries, subject to entering into a Memorandum of Understanding (MOU) or other information exchange agreement. The Panamanian UAF and the U.S. FIU, the Financial Crimes Enforcement Network (FinCEN), concluded an informal information sharing arrangement and have since shared information through letters of exchange on a case-by-case basis. In 2002 the Panamanian UAF signed memoranda of understanding with seven countries—Mexico, Italy, Guatemala, the Dominican Republic, Croatia, Honduras, and the Principality of Monaco—bringing the total to nineteen. In addition MOUs with Spain, France, Bulgaria, Colombia, Brazil, and El Salvador are awaiting signatures by those respective governments.
Executive Order No. 163 also allows the UAF to provide information related to possible money laundering directly to the Office of the Attorney General for investigation. The UAF continues efforts to raise the level of compliance for reporting suspicious financial transactions particularly by non-bank financial institutions and businesses in the CFZ.
Executive Order 213 of October 3, 2000, amending Executive Order 16 of 1984 relative to trust operations, provides the dissemination of information related to trusts to appropriate administrative and judicial authorities. Furthermore, in October 2000, Panama’s Superintendency of Banks issued an Agreement No. 9-2000 that defines requirements that banks must follow for identification of customers, exercise of due diligence, and retention of bank records reporting transactions.
In light of these significant legislative and regulatory reforms and GOP efforts to implement these reforms, the FATF recognized in June 2001 that Panama had remedied the serious deficiencies in its anti-money laundering regime and removed Panama from FATF’s list of non-cooperative countries and territories. Similarly, the U.S. Treasury Department withdrew its advisory against Panama in June 2001.
In 2002, the Ministry of Commerce and Industry issued a circular to all finance companies reminding them of the transaction-reporting requirement of Law 42. It also increased the number of inspections on finance companies, and began drafting a law to regulate the operations of pawnshops and exchange houses. The Autonomous Panamanian Cooperative Institute (IPACOOP) established a specialized unit for the supervision of loans and credit cooperatives regarding compliance with the requirements of Law 42. The National Securities Commission carried out numerous training sessions and workshops for its personnel and regulated entities. The Colon Free Zone Administration prepared and issued a procedures manual for the users of the Free Zone, outlining their responsibilities regarding prevention of money laundering and requirements under Law 42.
In December 2002, the Panamanian Legislative Assembly approved the Financial Crimes Bill (Law No. 6 of December 6, 2002), which establishes criminal penalties of up to ten years in prison and fines of up to one million dollars for financial crimes that undermine public trust in the banking system, the financial services sector, or the stock market. The penalties criminalize a wide range of activities related to financial intermediation, including the following: illicit transfers of moneys, accounting fraud, insider trading, and the submission of fraudulent data to supervisory authorities.
With support from the Inter-American Development Bank, the GOP is implementing a Program for the Improvement of the Transparency and Integrity of the Financial System. This Transparency Program is targeted at, through enhanced communication and information flow, training programs, and technology, strengthening the ability of those government institutions responsible for preventing and combating financial crimes and terrorist-financed activities.
Panama has brought cases for domestic prosecution, and the UAF routinely transfers cases to the UIF for investigation. To increase GOP interagency coordination, the UAF and Panamanian Customs are developing an office at the Tocumen International Airport to expedite the entry of customs currency declaration information into the UAF’s database. This will enable the UAF to begin more timely investigations. In 2002, Panamanian Customs continued an anti-money laundering program at Tocumen International Airport, begun in 2001, to deter currency smuggling by seizing and forfeiting all undeclared funds in excess of $10,000 from arriving passengers. During 2002, Panamanian customs officers at Tocumen International Airport seized $3,745,000 in undeclared currency.
GOP cooperation in the investigation of the Hemisphere’s largest Black Market Peso Exchange money laundering scheme was instrumental in the U.S. conviction in 2002 of Yardena Hebroni, owner of Speed Joyeros, a CFZ enterprise. The GOP also revoked the Panamanian residency of Hebroni, an Israeli national, after she was ordered deported from the United States. Also notable in 2002 was GOP cooperation in the investigation of large-scale political corruption, theft, and embezzlement of Government of Nicaragua funds, and money laundering by former Nicaraguan president Arnoldo Aleman and members of his government and family. The Panamanian portion of the investigation resulted in the freezing of $7 million of the Nicaraguan funds in Panamanian banks and in the freezing of considerable real estate holdings in Panama.
The GOP identified the combating of money laundering as one of five goals in its five-year National Drug Control Strategy issued in 2002. The Strategy commits the GOP to devote $2.3 million to anti-money laundering projects, the largest being institutional development of the UAF. Also in 2002, the Institute of Autonomous Panamanian Cooperatives, UAF, and the Embassy Narcotics Assistance Section cosponsored a roundtable on money laundering that offered practical training to financial institutions in meeting the reporting requirements under Law No. 42.
In October the UAF, Bank Superintendency and Public Ministry inaugurated a public campaign for the prevention of money laundering that articulated the link between money laundering and terrorist financing and included television commercials co-funded by the Embassy NAS. Also in 2002, the Panamanian Gaming Commission received training on compliance and security issues from the Las Vegas Gaming Commission Seminar earlier in the year.
Panama and the United States have a Mutual Legal Assistance Treaty that entered into force in 1995. The GOP has also assisted numerous countries needing assistance in strengthening their anti-money laundering programs, including Guatemala, Costa Rica, Russia, Honduras, and Nicaragua. Panama also hosted the Sixth Hemispheric Congress on the Prevention of Money Laundering in August 2002. Panama is active in the multilateral Black Market Peso Exchange Group (BMPEG) Directive. In March 2002, the GOP signed the cooperation agreement issued by the Working Group as part of a regional effort against the black market system. Panama is a member of the Organization of American States (OAS) Inter-American Drug Abuse Control Commission (CICAD), the Caribbean Financial Action Task Force (CFATF), and the Offshore Group of Banking Supervisors (OGBS), and the UAF is a member of the Egmont Group. Panama is a party to the 1988 UN Drug Convention.
In response to USG efforts to identify and block terrorist-related funds, the GOP continues to monitor suspicious financial transactions. Panama is a signatory to over eleven United Nations conventions and protocols addressing actions against terrorism, some dating back to 1963. During 2002, the GOP became a party to the UN International Convention for the Suppression of the Financing of Terrorism, and in 2000 signed, but has not ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally.
Panama should criminalize terrorist financing, continue its regional assistance efforts, and continue implementing the significant reforms it has undertaken to its anti-money laundering regime, in order to reduce the vulnerability of Panama’s financial sector and to enhance Panama’s ability to investigate and prosecute financial crime, money laundering and potential terrorist financing.
Papua New Guinea. Papua New Guinea is not a regional financial center. Its banking sector is relatively small and fairly well-regulated. However, there are no laws against money laundering.
Papua New Guinea is an observer to the Asia/Pacific Group on Money Laundering. Papua New Guinea is not a party to the 1988 UN Drug Convention.
Papua New Guinea should enact a comprehensive anti-money laundering regime that criminalizes terrorist financing and money laundering for all serious crimes. Papua New Guinea should sign the UN International Convention for the Suppression of the Financing of Terrorism.
Paraguay. Paraguay is a principal money laundering center, and although accurate figures are unknown, the National Anti-Drug Secretariat (SENAD) suspects that narcotics-trafficking may generate about 40 percent of money laundering. Money laundering occurs in both the banking and non-banking financial systems.
Money laundering is established as a criminal offense under Paraguay’s two anti-money laundering statutes, Law 1015 of 1996, and Article 196 of Paraguay’s Criminal Code, adopted in 1997. The existence of the two laws has led to substantial confusion due to overlapping provisions. Under Article 196, the scope of predicate offenses includes only offenses that carry a maximum penalty of five years or more; Law 1015 includes additional offenses. Article 196 also establishes a maximum penalty of five years for money laundering offenses, while Law 1015 carries a prison term of two to ten years. This is particularly significant because under the new Criminal Code and Criminal Procedure Code, defendants who accept charges that carry a maximum penalty of five years or less are automatically entitled to a suspended sentence and a fine instead of jail time, at least for the first offense. There have been three convictions for money laundering so far in Paraguay, all under Article 196. All three defendants admitted their guilt and accepted the fine and suspended sentence.
Bank secrecy laws do not prevent banks and financial institutions from disclosing information to bank supervisors and law enforcement entities. Additionally, bankers and others are protected under the anti-money laundering law with respect to their cooperation with law enforcement agencies. Law 1015 also contains “due diligence” and “banker negligence” provisions and applies money laundering controls to non-banking financial institutions, such as exchange houses.
Law 1015 of 1996 requires banks and financial institutions to know and record the identity of customers engaging in significant large currency transactions and to report those suspicious activities to the Financial Intelligence Unit. However the extent to which these requirements are implemented in practice remain in question. The Unidad de Análisis Financiera (UAF) located at the time in the Secretaria de Prevención de Lavado de Dinero o Bienes (SEPRELAD). The UAF is the government entity responsible for receiving and analyzing suspicious activity reports (SARs). The Government, however, lacks a standardized form for SAR reporting, which inhibits the reporting and analysis process. Analysis is also limited because SAR reporting is manual, and the UAF analysts must input the information from the SAR forms into the UAF database. No reporting requirements exist for large currency transactions. As of mid-August 2002, the UAF had received 300 SARs for that year and had referred only ten cases for investigation.
For many years, investigations and prosecution of money laundering cases were also hampered by SEPRELAD’s burdensome bureaucratic structure, budget woes, and the loss of trained personnel. SEPRELAD’s weakness was reflected in the small number of cases presented to the Attorney General’s (AG) office for prosecution. Before 2001, only one went to trial and it was dismissed by the judge on procedural grounds. In the last two years, the USG worked with the SEPRELAD’s UAF to find the means to augment the number of ready-to-prosecute money laundering cases, and to forge more cooperative working relationships between the UAF, the SENAD, the AG, and the Central Bank’s new money laundering unit as well. There were some initial successes such as the FAU’s post 9/11 cases, which showed millions of dollars in wire transfers from Ciudad del Este to Lebanon. Although charges of money laundering were not presented against any individual, part of the information prepared by the UAF helped buttress the criminal case against one suspected fund-raiser for terrorist organizations. He was sentenced to six-and-a-half years in prison for tax evasion. In an effort bring new vitality to the battle against money laundering, the Financial Analysis Unit (FAU) was removed from SEPRELAD’s supervision and commissioned to the AG’s office in July 2002, and a new director assumed charge in December 2002. Taking the FAU out of the ineffective SEPRELAD and putting it under the AG’s authority should enhance cooperation at the working level and improve the AG’s ability to investigate money laundering and terrorist financing. Changing its ineffective director is also expected to infuse new vitality into the unit.
Paraguay continued to experience banking failures, including the closing of the National Worker’s Bank (BNT), and the collapse of Banco Aleman in June 2002. The most spectacular case involved $16 million diverted from the Central Bank to private accounts apparently linked to the President’s family. The GOP is working with the U.S. Treasury and Justice Departments to trace and account for the missing funds and return them to the Central Bank. The GOP is also suing the U.S. lawyer who handled the funds in the U.S., in an attempt to recover the funds.
The anti-money laundering law of 1996 provides a basic system for forfeiting narcotics-related assets, including bank accounts and a system for forfeiting proceeds derived from narcotics-trafficking. The law authorizes sharing forfeited assets with other governments. Legitimate businesses can be seized if they are derived from illicit proceeds. Businesses can also be fined or subjected to administrative sanctions if merely used to launder money. The laws only provide for criminal forfeiture.
Paraguay currently has limited resources to investigate and prosecute money laundering cases. Investigations are carried out by a small financial crimes investigative unit, the Unidad de Investigación de Datos Financieros (UIDF). The UAF and the Superintendency of Banks refer analyzed cases to the UIDF for investigation. The UIDF is housed within Paraguay’s SENAD, which has adequate police but limited resources to trace and seize assets. Because there are only about 200 prosecutors nationwide for a population of 5.5 million, money laundering investigations in Paraguay are assigned to a single prosecutor. Government corruption is an ongoing problem related to money laundering and money laundering investigations.
Little in the way of personal background information is required to open a bank account or to make financial transactions in Paraguay; therefore there is a high incidence of money laundering activities. Paraguay is an attractive offshore financial center for neighboring countries, particularly Brazil. Foreign banks are registered in Paraguay and non-residents are allowed to hold bank accounts, but current regulations forbid banks from advertising or seeking deposits from outside the country. The Superintendent of Banks, who exercises his right to audit financial institutions, supervises all banks under the same rules and regulations. But there are few effective controls over businesses, and businesses can operate without paying taxes. The large informal economy is outside the GOP’s regulatory scope.
The multi-billion dollar contraband re-export trade is centered in Ciudad del Este—the heart of Paraguay’s informal economy, and is outside the government’s regulatory scope, which also facilitates money laundering in Paraguay. The area is well known for arms and drug trafficking, and international property rights crimes. There are no controls on the amount of currency that can be brought into or out of the country, and there are no cross-border reporting requirements. The area is also suspected by government officials in Paraguay and the U.S. to be a source of terrorist financing. Recent raids in CDE have led to the seizure of arms catalogs, bomb-making materials, extremist Islamic materials, and receipts of wire transfers from Paraguay to the Middle East and the United States. Paraguay has taken some measures to tackle this “gray” economy and to move to a more formal, diversified economy. Paraguay is looking to a “maquila” industry and tourism as alternatives for Ciudad del Este (CDE) and the entire tri-border area.
In the wake of the September 11 attacks, and the call for a crackdown on illicit financial activities that may be fueling terrorist groups, the Central Bank established a complementary money laundering operation to SEPRELAD. La Unidad de Análisis sobre Prevención de Lavado de Dinero o Bienes, or the Analysis Unit for the Prevention of the Laundering of Money or Goods, was originally developed to coordinate the review of the Paraguayan financial institutions’ databases for information regarding suspected terrorists. However, the Analysis Unit only has purview over financial institutions, while SEPRELAD has a much broader mandate, to include gambling houses, real estate companies, and many other institutions handling cash and financial transactions. The U.S. Government and the Egmont Group recognize only SEPRELAD’s UAF as a financial intelligence unit.
In addition to establishing the Analysis Unit, the GOP has carried out limited efforts to combat terrorist financing. Although there is draft anti-terrorism legislation that was introduced in the Chamber of Deputies in 2002, the GOP currently has no specific laws criminalizing terrorism or terrorist financing. Paraguay has adopted provisions to cover conduct that would be considered terrorist acts, but most of these acts do not carry a sentence of more than five years, nor are they considered predicate offenses for money laundering. The GOP has also signed, but not yet ratified, the OAS Inter-American Convention on Terrorism, which is not in force internationally, and the UN International Convention for the Suppression of the Financing of Terrorism. Paraguay is a member the South American Financial Action Task Force (GAFISUD) and is scheduled to undergo a mutual evaluation on anti-money laundering practices in 2003. Paraguay is also a member of the Egmont Group of Financial Intelligence Units. The GOP has signed the OAS Inter-American Drug Abuse Control Commission (OAS/CICAD) Hemispheric Drug Strategy. Paraguay is party to the 1988 UN Drug Convention, and participates in Summit of the Americas and CICAD-related meetings on money laundering. The GOP has signed, but not ratified, the OAS Inter-American Convention on Mutual Assistance in Criminal Matters and the UN Convention against Transnational Organized Crime, which is not yet in force internationally. It also endorsed the Basel Committee’s “Core Principles for Effective Banking Supervision.” In 1994, the United States and Paraguay entered into an Agreement to Cooperate in the Prevention and Control of Money Laundering Arising from Illegal Trafficking in Narcotics and Psychotropic Substances, and the GOP also entered into a bilateral agreement with Brazil in 2000 to permit the exchange of money laundering information.
While the GOP took some positive steps in 2002, and provided excellent cooperation in the fight against terrorism, there are other initiatives that should be pursued to increase the effectiveness of Paraguay’s anti-money laundering regime. Existing money laundering legislation should be modified to resolve the conflicting aspects of the two laws. The GOP should clearly identify either the UAF or the Analysis Unit as the national financial intelligence unit, or combine the two existing agencies into a single unit to receive, analyze and disseminate information on money laundering. Measures should be taken to expedite the SAR reporting process, such as the development of a standard form that could be sent electronically to the FIU, as well as conducting outreach activities to sensitize financial institutions about reporting requirements. In addition, procedures to file large currency transaction reports should be initiated to further combat illegal financial activity. Paraguay should also adopt legislation that criminalizes and penalizes terrorism and terrorist financing, and establishes terrorist acts and financing as predicate offenses for money laundering.
Peru. Peru is not a major regional financial or offshore money laundering haven. Narcotics-related and other money laundering does occur, but existing laws do not provide reliable or adequate mechanisms to estimate its scale in Peru. 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 70-80 percent dollarized, so money laundering is probably conducted primarily in U.S. currency.
A number of 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, or protection money) into offshore accounts in the Cayman Islands, the United States, and/or Switzerland. The Peruvian Attorney General, a Special Prosecutor, the office of the Superintendent of Banks (SBS) and the Peruvian Congress have conducted numerous investigations, some of which are ongoing, involving dozens of former GOP officials. In 2002, the Government of Peru (GOP) continued to make strong efforts at uncovering and recovering the millions of U.S. dollars believed to be the proceeds of money laundering activities carried out by Vladimiro Montesinos, former director of the Peruvian National Intelligence Service.
In 2002, the GOP strengthened its anti-money laundering regime. Prior to 2002, Peru had a limited anti-money laundering legislative and regulatory framework. The previous system criminalized only the laundering of proceeds directly associated with narcotics-trafficking and “narcoterrorism.” The new law builds on the 1991 banking law, the 1996 General Law of the Financial and Insurance System and Organic Law of the Superintendency of Banking and Insurance (No. 26702) and 1998 implementing regulations. The new law is very brief, however, and lacks implementing regulations. Furthermore, only certain financial institutions are regulated under the money laundering law, and no regulatory control is exercised over most non-banking enterprises (exchange houses, stock brokerages, etc.). The U.S. Treasury and other outside observers believe that the GOP will need to add detail to the law and develop implementing regulations to make the law effective and applicable in practice. Peru has separate regulations that prohibit laundering money through casinos, but the GOP lacks sufficient resources to adequately supervise this industry.
On April 12, 2002, President Toledo signed into law Bill 27693, which among other things provided for the creation of Peru’s first Financial Intelligence Unit, the Unidad de Inteligencia Financiera (UIF). The UIF is an autonomous body responsible for receiving, analyzing, and disseminating suspicious transaction reports. Implementing regulations for the UIF law were issued on October 31, 2002. Prior to the April 2002 law, all unusual or suspicious financial transactions were reported directly to the Office of the Attorney General, and the information was then shared with the Financial Investigative Office of the Peruvian National Police Directorate of Counternarcotics (DINANDRO). Under the new law, the FIU will report information on possible crimes to the Attorney General’s office. Also, only banks and financial institutions were required to file suspicious transaction reports under the old legislation. Under the new law, exchange houses, casinos, auto dealers, construction or real estate firms, and other sectors are all required to report suspicious transactions to the UIF. The UIF is also empowered to request financial transaction information from exchange houses, metal and antiques traders, travel agencies and a variety of Peruvian government agencies.
The new legislation also reinstated reporting requirements for large cash transactions. An amendment to the previous anti-money laundering law had required the reporting of currency transactions over 30,000 soles (about $10,000), but this requirement was suspended in August 1998, one month after the amendment went into effect. This amendment did not apply to institutions other than banks or financial companies. The new money laundering law requires the reporting of individual cash transactions exceeding $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 $2,500 or monthly transactions over $10,000. Private businesses, banks, and financial companies must report these transactions to the UIF, and major institutions are required to appoint supervisory-level compliance officials to ensure that reporting requirements are met. The 2002 legislation does not address the issue of the transportation of cash or monetary instruments into or out of Peru.
Although the UIF was not yet operational at the end of 2002, the GOP projects that it will be established by early 2003. In October 2002, implementing regulations were issued and the Ministry of Economy and Finance appropriated funds for the initial staffing of the UIF. In early December, the GOP designated a director for the Financial Intelligence Unit.
On June 20, 2002, a new law was passed that expands the predicate offenses from money laundering to include the laundering of assets related to any crime. The penalties for money laundering were also altered. Instead of a life sentence for the crime of laundering money, the new law sets prison terms of eight to fifteen years for convicted launderers, with a minimum sentence of twenty-five years for cases linked to narcotics-trafficking, terrorism, or laundering through banks or financial institutions. In addition, the revised Penal Code criminalizes “willful blindness,” the failure to report money laundering conducted through one’s financial institution when one has knowledge of the money’s illegal source, and imposes a three to six year sentence for failure to file suspicious transaction reports. However, to date, this law lacks implementing regulations, which are necessary to make the law effective and applicable in practice. To date, there have been only two prosecutions and no convictions for money laundering.
Peru currently lacks comprehensive and effective asset forfeiture legislation. The financial investigative office of the Peruvian National Police’s Directorate of Counter-narcotics 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.
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, the Taliban, and al-Qaida, as well as those on the list of Specially Designated Global Terrorist Entities designated by the United States pursuant to E.O. 13224 (on terrorist financing). To date, no assets connected to designated individuals or entities have been identified, frozen or seized.
The new legislation, however, fails to provide the GOP with the authority to successfully fight money laundering as a means of terrorist financing. Terrorism is considered a problem in Peru, which is home to the terrorist organization Shining Path. Although the Shining Path has been designated by the United States both as a foreign terrorist organization pursuant to section 219 of the Immigration and Nationality Act and pursuant to E.O. 13224, and the United States and 100 other countries have issued freezing orders against its assets, the GOP has no legal authority to quickly and administratively seize or freeze terrorist assets. In the event that such assets are identified, the Superintendent for Banks must petition a judge to seize or freeze them. A final judicial decision is then needed to dispose of or use such assets. Draft legislation that would enable the GOP to do so is currently stalled in the Foreign Affairs Ministry.
Peru ratified the UN International Convention for the Suppression of the Financing of Terrorism on November 10, 2001 and has signed, but not yet ratified, the OAS Inter-American Convention on Terrorism, which is not in force internationally. Peru is a party to the 1988 UN Drug Convention. On January 23, 2002, Peru deposited its instrument of ratification for the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Peru is a member of the Organization of American States Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering, and the South American Financial Action Task Force (GAFISUD) Peru and the U.S. Government signed a new extradition treaty in July 2001. The GOP ratified the treaty in October 2002 and the United States completed its ratification on January 23, 2003. Entry into force is pending the exchange of instruments of ratification. The Peruvian Ministry of Finance and the U.S. Treasury Department exchange financial information for money laundering investigations based on a 1991 Financial Information Exchange Agreement (FIEA).
By establishing a Financial Intelligence Unit and improving existing money laundering legislation in 2002, the GOP made serious advancements in strengthening its anti-money laundering regime. However, much progress is still required. The GOP should proceed with efforts to make the new Financial Intelligence Unit operational, so that the UIF can begin receiving and processing suspicious transaction reports. The Superintendent of Banks and Insurance Companies should appoint a director to the UIF as soon as possible. Training is needed for prosecutors, judges, police, auditors, bankers, and banking supervision officials in identifying suspicious transactions and in carrying out money laundering investigations and prosecutions. Anti-corruption efforts in Peru should be a priority, and the need for strong confidentiality protocols for the UIF should be stressed. The GOP should strengthen procedures to fight money laundering related to non-banking sectors, and should increase efforts to pass legislation criminalizing the financing of terrorists and terrorism and allowing for administrative blocking of terrorist assets. The U.S. Treasury Department is developing an assistance program to strengthen Peru’s capabilities in the above areas.
Philippines. The Philippines is a major financial center in the Pacific. In the past few years, the illegal drug trade in the Philippines reportedly has evolved into a billion-dollar industry. Additionally, the Philippines has experienced an increase in foreign organized criminal activity from China, Hong Kong, and Taiwan. Insurgency groups operating in the Philippines fund their activities through narcotics- and arms-trafficking, and engage in money laundering through alleged ties to organized crime. Corruption of government officials is also a source of laundered funds.
In June 2000, the Financial Action Task Force (FATF) placed the Philippines on the list of Non-Cooperative Countries and Territories (NCCT) in the fight against money laundering. The major deficiencies cited by FATF were excessive bank secrecy provisions and lack of a basic set of anti-money laundering regulations, including customer identification and record keeping requirements. Following its placement on the NCCT list, FinCEN, the U.S. financial intelligence unit, issued an advisory to all U.S. financial institutions instructing them to “give enhanced scrutiny” to transactions involving the Philippines.
In June 2001, the FATF determined that the Philippines had made insufficient progress toward remedying the noted deficiencies, and warned that FATF would impose countermeasures by September 30, 2001, if the Philippines failed to address such deficiencies. In the face of mounting international pressure, the Philippines enacted legislation in September 2001 that addressed many of the FATF’s concerns. FATF withdrew its call for countermeasures against the Philippines in September 2001; however, the Philippines remains on the NCCT due to the continued deficiencies relevant to bank secrecy restrictions, provisions in the law that would disallow prosecution for money laundering as a result of crimes committed prior to enactment of the law, and for inhibiting the Central Bank from conducting examinations of specific deposits without obtaining a court order.
The Anti-Money Laundering Act of 2001 (AMLA) criminalizes money laundering, an offense defined to include the conduct of activity involving the proceeds of any unlawful activity, and imposes penalties that include a term of imprisonment of up to seven years. The Implementing Rules and Regulations (IRR) for the Anti-Money Laundering Act were enacted in April 2002.
The AMLA establishes the Anti-Money Laundering Council (AMLC). The AMLC is composed of the Governor of the Bangko Sentral ng Pilipinas as chairman, and the Commissioner of the Insurance Commission and the Chairman of the Securities Exchange Commission as members. The AMLC serves as the Philippines’ Financial Intelligence Unit (FIU). Since its establishment, the Government of the Philippines (GOP) reports the AMLC has provided training to other government agencies, financial institutions and private sector organizations. It also participated in a joint initiative to establish anti-money laundering task forces/desks in the Department of Justice, the National Bureau of Investigation (NBI) and the Philippine Center on Transnational Crime (PCTC).
The AMLC is authorized, among other things, to receive suspicious activity reports from covered institutions and to freeze assets alleged to be connected to money laundering. However, the AMLC is unable to instantly freeze bank accounts. By law, the AMLC must wait for Suspicious Transaction Reports (STRs) to be filed, and then establish probable cause. Once probable cause is established, the AMLC is able to freeze an account for a period of 15 days. The AMLC is required to obtain a court order to be able to examine an account. A drawback to this system, especially in connection with terrorist financing, is that terrorism has not yet been defined as a crime. According to the GOP, in its first year of operations, the AMLC received 33 STRs and 32 Covered Transaction Reports (CTRs) and nine Letter-Advices. Additionally, the AMLC issued 27 freeze orders and froze 133 accounts or investments with a total value of $298,600.
The AMLA builds upon the customer identification and suspicious activity reporting requirements contained in the earlier bank circulars, requiring “covered institutions” – i.e., banks, insurance companies, and broker-dealers in securities – to establish and record the true identity of their clients, based on official documents, and to maintain records of all transactions for five years from the date of such transactions. The AMLA further requires covered institutions to report “covered transactions,” which are set at a threshold of PHP 4 million (approximately $80,000) or an equivalent in foreign currency based on the prevailing exchange rate within five consecutive banking days. Currently, Rule 5(3) in the IRR requires all suspicious transactions with covered institutions, irrespective of the amounts involved, to be reported to the AMLC. This new rule goes beyond what is stated in the AMLA, where there is no obligation to report suspicious transactions outside the definition of “covered transactions,” thereby creating possible conflict between the scope of the AMLA and the implementing rules and regulations.
In addition the AMLA relaxes the strict bank secrecy laws of the Philippines. In cases of violation of the AMLA, and upon order of any competent court, the AMLC is able to examine any particular deposit or investment, with any banking institution or non-bank financial institution, when it has been established that there is probable cause that the deposits or investments are in any way related to a money laundering offense. Deposits made before the effective date of the AMLA are not subject to this disclosure.
Currently the Philippine Congress is considering amendments to the AMLA. One proposed amendment would reduce the “covered transaction” threshold amount from P 4,000,000 (approximately $80,000) to P 500,000 (approximately $10,000) and provide for mandatory suspicious transaction reporting, regardless of amount. There is a separate provision for suspicious transaction reporting that has no threshold requirement. The proposed amendments of Section 9(c) would require banks to file reports for both covered and suspicious transactions within five working days from the date of their discovery. The proposed amendment of Section 11 is to give the AMLC the authority to examine deposits and investments without a court order.
The Philippines is a member of the Asia/Pacific Group on Money Laundering and is a party to the 1988 UN Drug Convention. The Philippines and the United States have a Mutual Legal Assistance Treaty that entered into force in 1996. On November 16, 2001, the Philippines signed, but has not yet become a party to, the UN International Convention for the Suppression of the Financing of Terrorism. The GOP has signed and ratified the UN Convention against Transnational Organized Crime, which is not yet in force internationally.
The Philippines confronts a number of problems in its efforts to counter money laundering. The current threshold for reporting suspicious transactions should be lowered to be effective. The AMLC must be given the authority to retrieve account information relating to deposits or investments made prior to the date of AMLA’s enactment and to respond to requests from foreign authorities regarding deposits and investments. Secrecy provisions must be relaxed to allow the Bangko Sentral to supervise and conduct periodic or special investigations without obtaining permission from any other authority and it must be allowed to inquire about and examine any deposit or investment with any banking or non-banking financial institution in the country. The Philippines must address these deficiencies in its current regime, and finalize and implement the necessary regulations. Otherwise, the FATF will recommend that its 29 member states levy countermeasures against the GOP. The Philippines must also criminalize the financing and support of terrorism.
Poland. As a gateway between the former Soviet Union republics and countries of the European Union and lucrative markets beyond, Poland lies directly in the path of narcotics-traffickers and organized crime groups. The burgeoning economy of Europe, and open borders with former socialist countries, have led to a significant growth in transnational crime. Narcotics-trafficking, organized crime activity, auto theft, smuggling, extortion, counterfeiting, burglary, tax fraud, tax evasion, and other crimes generate criminal proceeds in the range of $2-3 billion yearly, according to Polish government estimates. Poland’s banks serve as transit points for the transfer of criminal proceeds. Polish currency exchange businesses and casinos are likewise venues for money laundering activity. The unregistered or gray economy is estimated at approximately 16 percent of GDP. Prosecutors have investigated more than 75 cases involving money laundering since Poland criminalized money laundering in 1997. To date, only one of the cases forwarded to the courts has resulted in a successful prosecution.
In June 2001, the November 2000 Act on Counteracting Introduction into Financial Circulation of Property Values Derived from Illegal or Undisclosed Sources, often referred to as “the Act of 16 November,” came into force. This Law broadened the offense of money laundering to encompass all serious crimes, and increased penalties. The 2000 Law also provided for the creation of a Financial Intelligence Unit (FIU), the General Inspectorate of Financial Information (GIIF), to collect and analyze large and suspicious transactions. GIIF is housed within the Ministry of Finance and became operational in July 2001. In its first year of existence, GIIF received over 350 suspicious transaction reports. More than 38 went to the Prosecutor’s Office, and of these, no fewer than 37 prosecutions based on the information from GIIF were initiated. Currently, the Ministry of Justice is preparing between 60 and 70 money laundering cases for trial. GIIF is authorized to put a suspicious transaction on hold for 48 hours. The Public Prosecutor then has the right to suspend the transaction for three months further, pending a court decision.
A major weakness of Poland’s former money laundering regime was that it did not cover many non-bank financial institutions that had traditionally been used for money laundering. Under the new regime, the scope of institutions subject to identity verification, record keeping, and suspicious transaction reporting (SAR) has been widened. Financial institutions subject to the reporting requirements include banks, brokerages, casinos, insurance companies, investment and pension funds, leasing firms, private currency exchange offices, real estate agencies, and notaries public. In addition, financial institutions are now required to put internal anti-money laundering procedures into effect—a process that is overseen by GIIF. The GIIF is also working with the private sector to develop a better risk profile in Poland, including taking measures to prevent the misuse of charities.
Additional amendments to the money laundering law are expected to come into force in early 2003. These amendments broaden the scope of institutions obligated to report, bring Poland’s anti-money laundering legislation up to EU standards regarding the 15,000 euro (approximately $15,000) reporting threshold, authorize the Ministry of Finance to freeze assets, and give the Polish government authorization to act against terrorism financing. The law authorizes the Ministry of Finance to block suspicious transactions for up to 48 hours. If the Ministry of Finance wants to freeze a transaction for a longer period of time, the case must be referred to a prosecutor, who has the authority to freeze a transaction for an additional three months while an investigation is undertaken. Poland is still working on amendments to the criminal code, which would further improve the government’s ability to seize assets. Poland also recently created an office of anti-terrorist operations within the National Police to coordinate and supervise regional anti-terrorism units as well as train local police in anti-terrorism measures.
Poland is a party to the 1988 UN Drug Convention, the European Convention on Extradition and its Protocols, the European Convention on Mutual Legal Assistance in Criminal Matters, and the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime. In November 2001, Poland ratified the UN Convention against Transnational Organized Crime, which is not yet in force internationally. In 2002, Poland signed the UN Convention for the Suppression of the Financing of Terrorism, which is expected to be ratified in the first quarter of 2003. Poland also signed and expects to ratify shortly the UN International Convention for the Suppression of Terrorist Bombings.
As a member of the Council of Europe, Poland participates in the Council of Europe’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (Moneyval, formerly PC-R-EV) and has undergone a mutual evaluation by that group.
A Mutual Legal Assistance Treaty between the United States and Poland came into force in 1999. In addition, Poland has signed bilateral mutual legal assistance treaties with Sweden, Finland, Ukraine, Lithuania, Latvia, Estonia, Germany, Greece and Hungary.
Poland has taken a number of steps to put in place a comprehensive anti-money laundering regime to meet international standards, and became one of the newest members of the Egmont Group in June 2002. Poland should pass specific anti-terrorist financing legislation and work to better coordinate investigations between relevant investigating agencies and prosecutors so as to obtain an improved record of prosecutions and convictions.
Portugal. Portugal is an entry point for narcotics transiting into Europe, and officials of the Government of Portugal (GOP) indicate that most of the money laundered in Portugal is narcotics-related. GOP officials also report that bureaux de change, wire transfers, and real estate purchases are used for laundering criminal proceeds.
Portugal has put in place a comprehensive anti-money laundering regime. Money laundering related to narcotics-trafficking and other serious offenses has been criminalized. The cross-border movements of currency that exceed 12,000 euros, approximately $12,000, must be declared. All financial institutions, including insurance companies, must identify their customers, maintain records for a minimum of ten years, and demand written proof from customers regarding the origin and beneficiary of transactions that exceed 12,000 euros. Non-financial institutions, such as casinos, property dealers, lotteries, and dealers in high-value assets must also identify customers engaging in large transactions, maintain records, and report suspicious transactions to the Office of the Public Prosecutor.
On February 11, 2002, Act 10/2002 was brought into force. This Act extended the list of entities obliged to report, to include account officers, external auditors, notaries, registrars, and money carriers. It also includes any other entities involved with the purchase and sale of real estate or commercial entities; operations connected with funds, securities, or other assets belonging to clients; opening or management of savings bank accounts or securities accounts; creation, exploitation, or management of companies, trust funds, or similar structures; and the execution of any financial operation. In addition, according to this Act, the obligated entities have the duty to report any operation which, due to its scope, seems suspicious, independent of the transaction amount.
Act 10/2002 also expands money laundering to include as predicate crimes, trafficking in nuclear materials, trafficking in persons, trafficking in human organs or tissues, child pornography, trafficking in listed species, and tax fraud.
When money laundering is suspected, financial institutions must cease processing the transaction in question and report it to the judicial authority and the Office of the Public Prosecutor. The Public Prosecutor then forwards STRs for analysis to the Central Unit for Money Laundering Investigation (SCIB), which acts as the Financial Intelligence Unit (FIU) for Portugal. Often, reporting entities, usually banks, file their formal report with the Prosecutor’s Office while informally reporting the case directly to the SCIB. If money laundering is indicated, the Portuguese Judicial Police (PJP) will conduct an investigation. The SCIB consists of ten criminal investigation officers. The SCIB reported receiving 251 STRs in 2001 and 256 STRs in 2002 (January-October 31)—mainly from banks and other financial entities. A total of 1,013 STRs have been filed since 1998. The SCIB is a member of the Egmont Group.
From January 2002 to November 2002, the PJP conducted 30 investigations of money laundering in connection with narcotics-trafficking. Portuguese laws also call for the confiscation of property and assets connected to money laundering, and authorize the PJP to trace illicitly obtained assets—including those passing through casinos and lotteries—even if the predicate crime is committed outside of Portugal. The GOP reported that 2.5 million euros ($2.5 million) were seized in 2002 (up to October 31).
More recent legislation to combat organized crime, which came into force in 2002, authorizes police to request files of individuals under investigation. Additionally, with a court order, police are now able to obtain and use audio and videotape as evidence in court. The law allows the Public Prosecutor to request that a lien be placed on the assets of individuals being prosecuted, in order to facilitate asset seizures related to narcotics and weapons-trafficking, terrorism, and money laundering.
Public and private sector regulators and organizations play important roles in Portugal’s anti-money laundering program. In addition to monitoring compliance, educating the regulated industry, and training officials, a number also alert judicial authorities to evidence of money laundering.
The GOP has comprehensive legal procedures that enable it to cooperate with foreign jurisdictions and share seized assets.
The Portuguese Madeira Islands International Business Center (MIBC) has a free trade zone, an international shipping register, offshore banking, trusts, holding companies, stock corporations, and private limited companies. The latter two business entities, of which there are approximately 4,000 registered in Madeira, are similar to international business corporations (IBCs). All entities established in the MIBC will remain tax exempt until 2011. Twenty-seven offshore banks are currently licensed to operate within the MIBC. The Madeira Development Company supervises offshore banks.
Companies can also take advantage of Portugal’s double taxation agreements. Decree-Law 10/94 permits existing banks and insurance companies to establish offshore branches. Applications are submitted to the Central Bank of Portugal for notification, in the case of EU institutions, or authorization, in the case of non-EU or new entities. The law allows establishment of “external branches” that conduct operations exclusively with non-residents or other Madeiran offshore entities, and “international branches” that conduct both offshore and domestic business. Although Madeira has some local autonomy, its offshore sector is regulated by Portuguese and EU legislative rules, and it is supervised by the competent oversight authorities. Bearer shares are not permitted.
Portugal is a member of the Council of Europe, the European Union, and the Financial Action Task Force (FATF). Portugal held the FATF presidency from 1999 to 2000. Portugal is a party to the 1988 UN Drug Convention, and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Portugal is also a party to the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds of Crime, and became a party to the UN International Convention for the Suppression of the Financing of Terrorism on October 18, 2002.
Portugal has put into place comprehensive and effective measures to combat money laundering. The GOP’s passage of new laws in 2002 will strengthen its ability to investigate and prosecute. The GOP should continue to exercise due diligence over its offshore sector, and closely monitor domestic non-bank financial institutions.
Qatar. Qatar has a relatively small population (approximately 600,000 residents), with an extremely low rate of general and financial crime. The financial sector, though modern, is limited in size, and subject to strict regulation by the Qatar Central Bank (QCB). There are fifteen licensed financial institutions, including two Islamic banks; sixteen exchange houses; and three investment companies. Although Qatar is a cash-intensive economy, cash placement by money launderers is believed by authorities to be a negligible risk due to the close-knit nature of the society in Qatar and the rigorous “know your customer” procedures required.
On September 11, 2002, the Emir of the State of Qatar signed the Anti-Money Laundering Law. According to Article 28 of the law, money laundering offenses involve the acquisition, holding, disposing of, managing, keeping, exchanging, depositing, investing, transferring, or converting of funds from illegal proceeds. The law imposes penalties of imprisonment of five to seven years, in addition to fines. The law expanded the powers of confiscation of proceeds gained from the commission of a crime and instrumentalities used to commit a crime, to include the identification and freezing of assets as well as the ultimate confiscation of the illegal proceeds upon conviction of the defendant for money laundering.
The law requires all financial institutions to report suspicious transactions to the QCB and retain records for up to fifteen years. The law also gives the QCB greater powers to inspect suspicious bank accounts and grants the authorities the right to confiscate money in illegal transactions. Article 17 permits Qatar to extradite convicted criminals in accordance with international or bilateral treaties.
In addition to reporting suspicious transactions, financial institutions (including businesses conducting hawala transactions) must report all cash transactions of 30,000 Qatari rials (approximately $11,000) or above to the QCB. The threshold was recently raised to QR 100,000 (approximately $37,000). All financial institutions also must identify the person entering into a business relationship or conducting a transaction.
All accounts must be opened in person. (Only Qatari citizens, foreign residents, and citizens of other Gulf Cooperation Council [GCC] states are permitted to open bank accounts.) In January 2002, QCB issued Circular Number 9 regarding the Combat of Money Laundering and Financing of Terrorism. This circular was designed to increase the awareness of all banks operating in Qatar with respect to anti-money laundering efforts by explaining money laundering schemes and monitoring suspicious activities.
Qatar’s charities are under direct supervision of the Ministry of Civil Service Affairs and Housing, as detailed in Law No. 8 of 1998 regarding private associations and institutions. Among the requirements of this law are: 1. registration; 2. regular government audits; 3. government approval for all disbursals; and 4. government inspection of facilities, documents and records.
Article 37 of Law Number 8 of 1998, concerning the establishment and governance of private associations and institutions, stipulates that the Ministry of Awqaf (Endowments) and Islamic Affairs shall oversee and monitor all the activities of private institutions within the boundaries that are regulated by executive provisions. The Ministry may examine the institution’s books, records, and documents that are related to its activities, and it may amend its bylaws. The institution shall provide the Ministry with any information, documents, or other data it requests.
According to Article 1 of Law 15 of 1993, banks practicing in offshore business shall be formed either as joint stock companies having their head offices in the State of Qatar or as branches of Qatari or foreign banks.
The QCB, Public Prosecutor and the Criminal Investigation Division (CID) of the Ministry of Interior are the principal entities that have the responsibility for investigating and prosecuting money laundering cases. The QCB receives all suspicious transaction reports and conducts an initial analysis. The QCB obtains additional information from the banks and other government ministries before determining whether to forward the suspicious report to the Ministry of Interior. The Public Prosecutor and CID work closely on all criminal cases, although in financial cases they often seek the assistance of the QCB. There are no specialized units within the Public Prosecutor or CID’s offices that initiate or investigate financial crimes. Qatar does not have a Financial Intelligence Unit (FIU). There is little financial crimes investigative experience. There have been no arrests or prosecutions related to money laundering or terrorist financing in 2002. The Government of Qatar (GOQ) is working to increase the ability of local authorities to investigate financial crimes, particularly as outlined in the new money laundering law. Qatar does not yet have any cross-border reporting requirements for financial transactions. Immigration and customs authorities are reviewing this policy and are increasingly interested in expanding their ability to detect trade based money laundering. A recent seizure of approximately $400,000 of suspect gold entering the country is one example of the government’s increased efforts.
The GOQ is currently revising its criminal law to include the crime of terrorism and the financing of terrorism. The current penal code includes a minor punishment for association with “illegal societies” but does not specifically address terrorism. Despite the absence of this law, Qatar has taken steps to combat the financing of terrorism, including requiring banks to freeze the assets of the individuals and entities listed on the UNSCR 1267/1390 consolidated list.
Qatar is a party to the 1988 UN Drug Convention. Qatar is not a signatory to the UN International Convention for the Suppression of the Financing of Terrorism nor the UN Convention against Transnational Organized Crime. Qatar actively participates in the Financial Action Task Force (FATF) as a member of the GCC.
The passage of Qatar’s new money laundering law and the drafting of a criminal law to address terrorism finance crimes are indications of Qatar’s commitment to combating money laundering and terrorism financing. Implementation and enforcement of the new law and regulations are essential to the success of Qatar’s efforts. Training for law enforcement and customs authorities in recognizing and investigating money laundering is also essential. Qatar should sign the UN Convention for the Suppression of Terrorist Financing.
Romania. Romania continues to develop its anti-money laundering regime. Its geographic location makes it a natural transit country for trafficking in narcotics, arms, stolen vehicles, and illegal aliens and, therefore, vulnerable to money laundering. As in other countries in Eastern Europe, corruption and the presence of organized crime activity facilitate money laundering. The proceeds of financial crimes and the smuggling of cigarettes, alcohol, coffee, and other dutiable commodities are also believed to be laundered in Romania.
Romania criminalized money laundering with the adoption in January 1999 of Law No. 21/99 “On the Prevention and Punishment of Money Laundering.” The law became effective in April 1999 and mandated provisions for customer identification, record keeping, reporting transactions of a suspicious or unusual nature, currency transaction reporting for transactions over 10,000 euros (approximately equivalent to $10,000), a Financial Intelligence Unit (FIU), and internal anti-money laundering procedures and training for all domestic financial institutions covered by the law. The list of entities subject to the reporting requirements includes banks, non-bank financial institutions, attorneys, accountants, and notaries. There exists some natural discomfort on the part of the banking industry regarding requirements to assist law enforcement, but this has not stopped the Government of Romania (GOR) from establishing further measures, such as Norm No. 3, “Know Your Client.” These norms, issued in February 2002 by the National Bank of Romania, bring Romania’s norms into line with the Basel Committee’s “Customer Due Diligence for Banks.”
Romania’s parliament has a new draft law on money laundering. This law revises certain provisions in the former law. First, the new law defines money laundering using the “all crimes” approach, which means that any crime may be a predicate offense rather than the former list of specific crimes. In addition, the new law expands the number and types of entities required to report to the National Office for the Prevention and Control of Money Laundering. Some of these new entities include art dealers, travel agents, privatization agents, postal officials, money transferors, and real estate agents. The new law also provides for both STR and CTR reporting, with the CTR amounts conforming to EU standards. The “Know Your Customer” identification requirements have also been honed so that identification of the client becomes necessary upon both the beginning of a relationship and upon single or multiple transactions meeting or approaching a 10,000 euro standard. This brings Romania into line with Recommendation No. 10 of the FATF 40 Recommendations on Money Laundering.
The National Office for the Prevention and Control of Money Laundering (NOPCML) is Romania’s Financial Intelligence Unit (FIU). The NOPCML receives and evaluates suspicious and unusual transaction reports as well as currency transaction reports. Since its establishment the NOPCML has reviewed over 2,000 suspicious transaction reports. The law also provides for feedback to be given, upon request, to NOPCML from the General Prosecutor’s Office, and for NOPCML to participate in inspections and controls in conjunction with supervisory authorities. Lastly, it provides for training and for future conferences in conjunction with international partner FIUs, specifically Italy and Austria. The Directorate of Economic and Financial Crimes of the national police also has a mandate to pursue money laundering. There have been 226 money laundering cases investigated since 2001 but none have resulted in arrests.
After the events of September 11, 2001, Romania passed a number of legislative measures designed to sanction acts contributing to terrorism. Emergency Ordinance 141, passed in October 2001, legislates that taking of measures, or the production of or acquisition of means or instruments with an intention to commit terrorist acts, are offenses exactly the same as terrorist acts themselves. The ordinance also discusses the character and composition of a terrorist act. These offenses are punishable with imprisonment ranging from five to twenty years. Emergency Ordinance 159, also passed in 2001, sets measures for preventing the use of the financial and banking system to finance terrorist attacks, and sets forth the parameters for the government to combat such use. The National Bank of Romania, which oversees all banking operations in the country, also issued Norm No. 5 in support of Emergency Ordinance 159. Emergency Ordinances 153 was passed to strengthen the government’s ability to carry out the obligations under UNSCR 1373.
In April 2002, the GOR’s Supreme Defense Council of the Country adopted a National Security Strategy, which included a General Protocol on the Organization and Functioning of the National System on Preventing and Combating of Terrorist Acts. This system, effective July 2002 and coordinated through the Intelligence Service, brings together and coordinates a multitude of agencies, including 14 ministries, the General Prosecutor Office, the National Bank, and the National Office for the Prevention and Control of Money Laundering.
Romania is a member of the Council of Europe (COE) and participates in the Council of Europe’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (Moneyval, formerly PC-R-EV). A mutual evaluation in April 1999 by the PC-R-EV uncovered a number of areas of concern, including the high evidence standard required for reporting suspicious transactions, a potential conflict with the bank secrecy legislation, and the lack of provisions for cases in which the reporting provisions are intentionally ignored. Romania is currently working with EU legal experts to address the PC-R-EV concerns.
The NOPCML is a member of the Egmont Group. The Mutual Legal Assistance Treaty signed in 2001 between the United States and Romania entered into force in October 2001. Romania has demonstrated its commitment to international anti-crime initiatives by participating in regional and global anti-crime efforts. Romania is a party to the 1988 UN Drug Convention and has signed and ratified the UN Convention against Transnational Organized Crime, which is not yet in force internationally. With Law No. 263/2002, passed in 2002, Romania ratified the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime. During 2002, Romania also ratified the Council of Europe’s Criminal Law Convention on Corruption. Romania has signed, but has not yet become a party to, the UN International Convention for the Suppression of the Financing of Terrorism.
Romania should continue addressing the concerns of the Council of Europe evaluators as to further improvements in its anti-money laundering regime and should continue its progress on money laundering investigations and prosecutions.
Russia. Russia’s ability to transform its economy and implement a new anti-money laundering program is crucial to its efforts to combat laundering of criminal proceeds domestically and internationally. The magnitude of money laundering is considered to be large, given the number and scale of contributing factors. Russia’s abundance of natural resources, infiltration of society by organized crime, porous borders, geographic role as a gateway to Europe and Asia, and under-funding of regulatory and law enforcement agencies leave it vulnerable to money laundering. For example, the Russian exclave of Kaliningrad, situated between Poland and Lithuania, has a history of smuggling goods and an active black market economy. As those two countries are expected to join the European Union (EU) in 2004, control of the movement of goods and people has been a thorny issue, only recently resolved between the Russian Federation and the EU.
Capital flight, and the trade fraud often associated with it, use many of the same techniques used in money laundering. Consequently, such irregular and illegal transactions, designed to avoid Russian taxes, and the instability of the Russian economy have obscured the detection of money laundering per se. Central Bank of Russia estimates of the Russian funds that have moved through the banks chartered in Nauru alone (approximately $70 billion in 1998) give some idea of the enormous size of the problem.
Russia’s law on “Combating the Legalization (Laundering) of Income Obtained by Illegal Means” became effective on February 1, 2002. The law requires obligated financial institutions to monitor and report transactions to an authorized agency, keep records, and identify their customers. Russian financial institutions (e.g., credit organizations, securities market professionals, insurance and leasing companies, funds transfer organizations, and pawnshops) must monitor and report to the government covered transactions that exceed 600,000 rubles (approximately $20,000). Financial institutions must also report transactions that contain certain high-risk features or when money laundering is suspected. Earlier reforms (1999) by the Central Bank of Russia (CBR) instituted regulatory measures to scrutinize offshore financial transactions. In the following six months, wire transfers from Russian banks to offshore financial centers dropped significantly. At the same time the Central Bank curtailed establishing correspondent relations with offshore banks by raising the standards for “eligible” offshore financial institutions and thereby reducing the number. More recently the CBR has been issuing strong guidelines regarding anti-money laundering practices within credit institutions.
The law also calls for an executive agency to be established as a Financial Intelligence Unit (FIU). That agency is the Financial Monitoring Committee (FMC), which is accountable to the Ministry of Finance and is staffed primarily by employees of the Ministry of Finance Currency Control Department, although the FMC is technically independent. The FMC serves as an administrative FIU, having no law enforcement investigative powers. Recent amendments to the anti-money laundering law have increased the FMC’s information gathering authority to include activities of investment foundations, non-state pension funds, gambling businesses, and sales of precious metals and jewelry. Moreover, the amendments allow the FMC, in concert with banks, to freeze possible terrorist financial transactions up to one week. (Banks may freeze transactions for two days and the FMC may follow up with an additional five days.) Using encrypted software provided by the FMC, virtually all reporting from credit, securities, and insurance institutions is submitted via electronic means. The FMC anticipates opening seven regional departments in 2003. A cooperation agreement with Italy’s FIU was signed on December 10, 2002. A similar agreement with the French is planned for January 2003. The FMC is a member of the Egmont Group of FIUs.
In light of the reforms to Russia’s anti-money laundering regime, FATF withdrew its call for countermeasures against Russia in September 2001 and removed Russia from its list of non-cooperative jurisdictions in October 2002. The U.S Treasury Department Advisory, which had instructed U.S. financial institutions to “give enhanced scrutiny” to all transactions involving Russia was also lifted. FATF also granted Russia observer status for the FATF plenary in February 2003. A FATF mutual evaluation is planned for 2003.
Russia holds membership in the Council of Europe’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (Moneyval, formerly PC-R-EV), and underwent a mutual evaluation in June 2000, which was discussed at the January 2001 meeting of the group. Russia ratified the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime in January 2001. Russia is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. The United States and Russia signed a Mutual Legal Assistance Treaty in 1999, which entered into force on January 31, 2002. In November 2002, Russia ratified the UN International Convention for the Suppression of the Financing of Terrorism.
The Russian Federation has enacted new legislation and executive orders to strengthen its ability to fight terrorism. On January 11, 2002, President Putin signed a decree entitled “On Measures to Implement the UN Security Council Resolution (UNSCR) No. 1373 of September 28, 2001.” Noteworthy among this decree’s provisions are the introduction of criminal liability for intentionally providing or collecting assets for terrorist use, and the decree’s instructions to relevant agencies to seize assets of terrorist groups. This latter clause, however, conflicted with existing domestic legislation. Accordingly, on September 24, 2002, the Duma approved an amendment to the anti-money laundering law, resolving the conflict, and allowing banks to freeze assets immediately, pursuant to UNSCR 1373. This law came into force on January 2, 2003. The procedures for how this new authority will be implemented in practice are still being discussed within the GOR. Reportedly, no terrorist assets have yet been identified and seized in Russia. Following the Moscow hostage crisis, the Russian legislature took additional steps. On October 31, 2002, the Federation Council (Russia’s upper house) approved a supplemental article to the 2003 federal budget, allocating from surplus government revenues an additional 3 billion rubles ($100,000,000) in support of federal anti-terrorism programs and improvement of national security.
The enactment of comprehensive anti-money laundering legislation in 2001 marked a milestone in Russia’s anti-money laundering regime. Russia’s commitment to strengthen that regime has been demonstrated by its aggressive progress this past year. Russia should continue to build on this momentum in analysis and detection of money laundering offenses and should demonstrate its ability and political will to achieve prosecutions and convictions.
Samoa. Samoa does not have major organized crime, fraud, or drug problems. The most common crimes that generate revenue within the jurisdiction would appear to be low-level fraud and theft. The domestic banking system is very small, and there is relatively little risk of significant money laundering derived from domestic sources. Samoa’s offshore banking sector is relatively small but insufficiently regulated. The Government of Samoa (GOS) enacted the Money Laundering Prevention Act (the Act) in June 2000. This law criminalizes money laundering associated with numerous crimes, sets measures for the prevention of money laundering and related financial supervision. Newly adopted regulations and guidelines fully implementing this legislation came into force in December 2002. Under the Act, a conviction for a money laundering offense is punishable by a fine not to exceed WST $1 million, a term of imprisonment not to exceed seven years, or both.
The Act requires financial institutions to report transactions considered suspicious to a Money Laundering Prevention Authority (MLPA), to be appointed by the Minister of Finance but currently working under the auspices of the Governor of the Central Bank. The MLPA will receive and analyze these disclosures, and if it establishes reasonable grounds to suspect that a transaction involves the proceeds of crime, it will refer the information to the Attorney General and the Commissioner of Police.
The Act requires financial institutions to record new business transactions exceeding WST $30,000 (approximately $10,000), to retain records for a minimum of seven years, and to identify all parties to the transactions. This threshold reporting system exposes the financial institutions to potential abuse. As it is written, financial institutions are under no obligation to maintain any record for single transactions where the amount is under WST $30,000, so numerous small transactions could avoid detection. Nevertheless, Section 4.3(a) of the Money Laundering Prevention Regulations 2002 requires financial institutions to identify their customers when “there are reasonable grounds for believing that the one-off transaction is linked to one or more other one-off transactions and the total amount to be paid by or to the applicant for business in respect to all of the linked transactions is Samoan Tala $30,000, or the equivalent in another currency.” Section 12 of the Act establishes that all financial institutions have an obligation under this law to “develop and establish internal policies, procedures and controls to combat money laundering, and develop audit functions in order to evaluate such policies, procedures and controls.” The new Regulations and Guidelines also remedy the lack of specificity in the Act about the obligation of financial institutions to establish the identity of the beneficial owner of an account managed by an intermediary. Specifically, Section 12.06 of the new Money Laundering Prevention Guidelines for the Financial Sector provides that “…If funds to be deposited or invested are being supplied by or on behalf of a third party, the identity of the third party (i.e., the underlying beneficiary) should also be established and verified.” The law requires individuals to report to the MLPA if they are carrying with them WST $10,000 (approximately $3,300) or more, in cash or negotiable instruments, upon entering or leaving Samoa.
The Act removes secrecy protections and prohibitions on the disclosure of relevant information. Moreover, it provides protection from both civil and criminal liability for disclosures related to potential money laundering offenses to the competent authority.
The Central Bank of Samoa, the Office of the Registrar of International and Foreign Companies, and the MLPA regulate the financial system. There are three locally incorporated commercial banks, supervised by the Central Bank. The Office of the Registrar of International and Foreign Companies has responsibility for regulation and administration of the offshore sector. There are no casinos, but two local lotteries are in operation.
Samoa is an offshore financial center, with eight offshore banks licensed. For entities registered or licensed under the various Offshore Finance Centre Acts there are no currency or exchange controls or regulations, and no foreign exchange levies payable on foreign currency transactions. No income tax or other duties, nor any other direct or indirect tax or stamp duty is payable by registered/licensed entities. In addition to the eight offshore banks, Samoa currently has 7,553 international business corporations (IBCs), five international insurance companies, six trustee companies, and 157 international trusts. Section 16 of the Offshore Banking Act does not prohibit persons who have been sentenced for an offense involving dishonesty from applying to be employed as directors or managers of offshore banks. The Act only requires prior approval, in writing, of the Minister, without setting any criteria to guide the decision. In addition, there is no provision in the Act that specifies the qualifications for an owner/shareholder of an offshore bank. IBCs may be registered using bearer shares and shelf companies that conceal the identity of the beneficial owner and the date of incorporation. Corporate entities may be listed as officers and shareholders because Samoan IBCs have all the legal powers of a natural person. There are no requirements to file annual statements or annual returns. These provisions make IBCs particularly attractive to money launderers, and Samoan authorities have not yet addressed them.
International cooperation can only be provided when Samoa has entered into a mutual cooperation agreement with the requesting nation. Under the Act, the MLPA has no powers to exchange information with overseas counterparts. The inability of the MLPA simply to exchange information on an administrative level is a material weakness of the current system. The GOS is, however, drafting legislation to remedy this weakness and seeks to adopt a Mutual Assistance Bill, based on the Commonwealth Secretariat model, that will be request-, not treaty-driven.
Samoa signed the UN International Convention for the Suppression of the Financing of Terrorism in November 2001, and ratified it on September 27, 2002. Consonant with this action, and with Samoa’s strong and vocal support for anti-terrorism efforts, was the passage in April 2002 of the Prevention and Suppression of Terrorism Act. This legislation defines and provides for terrorist offenses, including offenses dealing specifically with the financing of terrorist activities. The combined effect of the Money Laundering Prevention Act of 2000 and the Prevention and Suppression of Terrorism Act of 2002 is to make it an offense for any person to provide assistance to a criminal to obtain, conceal, retain or invest funds or to finance or facilitate the financing of terrorism.
Samoa is a member of the Asia/Pacific Group on Money Laundering and the Pacific Island Forum. Samoa has not signed the 1988 UN Drug Convention.
Since the passage of the Money Laundering Prevention Act in June 2000, Samoa has continued to strengthen its anti-money laundering regime and has issued regulations and guidelines to financial institutions so that they have a clear understanding of their obligations under the Act. The GOS should work to ensure that this legislation becomes fully operational. Particular emphasis should be directed toward regulation of the offshore financial sector, principally the establishment of due diligence procedures for owners and directors of banks and the elimination of anonymous accounts for onshore and offshore banks. The GOS should enact legislation to identify the beneficial owners of IBCs to help ensure that criminals do not use them for money laundering or other financial crimes. Samoa should adopt its pending legislation to allow for international cooperation and information sharing.
Sao Tome and Principe. Sao Tome, which has a small economy and only one commercial bank, is not a regional financial center.
Sao Tome is a party to the 1988 UN Drug Convention.
Sao Tome should criminalize money laundering and terrorist financing. Sao Tome should also enact legislation allowing the GOSTP to freeze assets related to money laundering and terrorist financing.
Saudi Arabia. Saudi Arabia is a growing financial center in the Gulf Region of the Middle East. There is little money laundering in Saudi Arabia related to narcotics-trafficking and other traditional predicate offenses. There is believed to be some money laundering related to terrorist financing. However, Saudi Arabia has increased its attention on money laundering activity following the September 11 terrorist attacks and has made contributions in the war on terrorist financing. Nevertheless, there are a number of vulnerabilities that need to be addressed.
In Saudi Arabia, money laundering is a crime based on a Quranic passage stating, “Assets arising from illegal acts shall be forbidden and confiscated.” It is subject to prosecution based on Sharia (Islamic) law, the Banking Control Law, and Saudi Arabian labor law. Jurisdiction over money laundering offenses lies in the Sharia courts. Saudi Arabia has had a small number of prosecutions for money laundering that originated from the filing of suspicious transaction reports. There is currently a proposal to draft a specific law dealing with money laundering offenses.
Saudi law prohibits non-resident individuals or corporations from opening bank accounts in Saudi Arabia without the specific authorization of the Saudi Arabian Monetary Authority (SAMA). SAMA guidelines correspond to Financial Action Task Force (FATF)’s 40 Recommendations, and specifically require banks to enforce “know your customer rules,” maintain records of suspicious transactions, and inform SAMA of suspicious transactions. Saudi Arabia carries out regular inspection of banks to ensure compliance of laws and regulations. SAMA has been active in providing anti-money laundering training to Saudi financial institutions. The GOSA has established an anti-money laundering unit in SAMA and has required Saudi banks to have specialized anti-money laundering units and staff to work with SAMA and law enforcement authorities. The GOSA has also recently created a Financial Intelligence Unit (FIU) in the Security and Drug Control Department of the Ministry of the Interior. The new FIU is tasked with handling money laundering cases and coordinating its activities with SAMA and appropriate law enforcement agencies.
Saudi Arabia has signed the International Convention for Suppression and Financing of Terrorism based on UNSCR 1373. Saudi Arabia has frozen accounts of individuals and organizations in response to information provided by the U.S. Government. The GOSA signed a multilateral agreement under the auspices of the Arab League to fight terrorism. Saudi Arabia has also invited the FATF to carry out a mutual evaluation in early 2003 against the FATF 40 Recommendations and the Special Eight Recommendations on Terrorist Financing.
Hawala transactions outside banks and licensed moneychangers are illegal in Saudi Arabia. Reportedly, many money laundering cases that SAMA has investigated in the past decade involved the hawala system. In order to help counteract the appeal of hawala, particularly to many of the approximately six million expatriates living in Saudi Arabia, Saudi banks have taken the initiative and created fast, efficient, high quality, and cost-effective fund transfer systems. An important advantage for the authorities is that the senders and users of fund transfers are clearly identified.
Saudi Arabia has established a High Commission for oversight of all charities. Charities in Saudi Arabia are supposed to be licensed, registered, audited, and supervised. Contributions to charities are usually Zakat, which is an Islamic religious duty with specified humanitarian purposes. However, hundreds of millions of dollars in charitable donations leave Saudi Arabia every year and, wittingly or unwittingly, some of these funds have been channeled to terrorist organizations. New guidelines, regulations, and financial control mechanisms have been proposed to help counteract the misuse of charitable donations.
Saudi Arabia should pass specific anti-money laundering and anti-terrorist financing laws. Progress is being made in establishing one centralized FIU. However, as in many countries in the region there is an over-reliance on suspicious transaction reporting to generate money laundering investigations. Law enforcement agencies should take the initiative and proactively generate investigations. More emphasis should be put on the misuse of trade and commodities to launder funds. Saudi Arabia should move rapidly to enforce the new regulations and guidelines established to counteract the misuse of charitable donations.
Senegal. Senegal’s banking system and formal and informal money-exchange systems are vulnerable to the laundering of proceeds from corruption, narcotics-trafficking, illegal gems and arms-trafficking, and trafficking in persons, all of which are prevalent in West Africa. Numerous foreign banks, including several French and African banks, have branches in Senegal.
Article 102 of Senegal’s 1997 drug code criminalizes narcotics-related money laundering as a misdemeanor punishable by up to 10 years in prison. The last money laundering prosecution under this law was in 1999. The drug code requires banks to report suspicious transactions believed to be linked to narcotics-trafficking. Banks are required to keep records between one and ten years, depending on the type of record. The drug law authorizes the seizure of assets related to narcotics-trafficking. Banking secrecy provisions can only be waived by a judge’s order as part of case involving narcotics. There is no requirement to report cross-border currency transactions.
The Government of Senegal (GOS) is considering an anti-money laundering law that would apply to banks, non-bank financial institutions, and intermediaries. The proposed law would criminalize money laundering for many serious crimes. Under the law, banking information could be shared with law enforcement authorities, and individuals could be held legally responsible if they do not report suspicious activity. The law would also expand current asset seizure provisions so that authorities could seize assets related to the laundering of proceeds from many serious crimes. The law would also establish a Financial Intelligence Unit.
In 2000, the Economic Community of West African States (ECOWAS) established the Intergovernmental Group for Action Against Money Laundering (GIABA), based in Dakar, Senegal. In November 2002, the GIABA hosted an anti-money laundering seminar for representatives of 14 of the 15 ECOWAS members, including Senegal. A Senegalese magistrate is the acting head of GIABA.
The Central Bank of West African States (BCEAO), based in Dakar, is the Central Bank for the countries in the West African Economic and Monetary Union (WAEMU): Benin, Burkina Faso, Guinea-Bissau, Cote d’Ivoire, Mali, Niger, Senegal, and Togo, all of which use the French-backed CFA franc currency. All bank deposits over approximately $7,700 made in BCEAO member countries must be reported to the BCEAO, along with customer identification information.
In September 2002, the WAEMU Council of Ministers, which oversees the BCEAO, approved an anti-money laundering regulation applicable to banks and other financial institutions, casinos, travel agencies, art dealers, gem dealers, accountants, attorneys, and real estate agents. The regulation is subject to review by member countries, which would be responsible for implementing many provisions of the regulation. The regulation is expected to go into effect in early 2003.
Under the WAEMU regulation, financial institutions would be required to verify and record the identity of their customers before establishing any business relationship. The regulation would require financial institutions to maintain customer identification and transaction records for ten years. The regulation would also impose certain customer identification and record maintenance requirements on casinos.
All financial institutions, businesses, and professionals under the scope of the WAEMU regulation would be required to report suspicious transactions. The regulation calls for each member country to establish a National Office for Financial Information Process (CENTIF), which would be responsible for collecting suspicious transactions and would have the authority to share information with other CENTIFs within the WAEMU as well as with the Financial Intelligence Units of non-WAEMU countries.
The WAEMU Council of Ministers issued another directive in September 2002 requesting member countries to pass legislation requiring banks to freeze the accounts of any persons or organizations designated by the UN 1267 Sanctions Committee.
In 2001 the BCEAO hosted a conference on money laundering. In July 2002 Senegal participated in the 2002 West African Joint Operation Conference (WAJO) that promotes regional law enforcement cooperation against drug trafficking, terrorism, and money laundering.
Senegal is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the United Nations Convention against Transnational Organized Crime, which is not yet in force internationally.
Senegal should criminalize terrorist financing and money laundering for all serious crimes. The GOS should work with its partners in WAEMU to establish a comprehensive anti-money laundering regime in the region.
Seychelles. Seychelles is a not a major financial center, but it does have a developed offshore financial sector, which makes the country vulnerable to money laundering.
The Government of Seychelles (GOS), in efforts to diversify its economy beyond tourism, has taken steps to develop an offshore financial sector to increase foreign exchange earnings. The GOS actively markets Seychelles as an offshore financial and business center that allows the registration of non-resident companies. There are currently over 4,800 registered international business companies (IBCs) in Seychelles that pay no taxes in Seychelles, and are not subject to foreign exchange controls. The Seychelles International Business Authority (SIBA), which acts as the central agency for the registration for IBCs, promotes the fact that IBCs need not file annual reports. The SIBA is part of the Ministry of International Trade, and also manages the Seychelles International Trade Zone. In addition to IBCs, Seychelles permits offshore trusts (registered through a licensed trustee), offshore insurance companies, and offshore banking.
A major weakness of the Seychelles’ offshore program is that it still permits the issuance of bearer shares, a feature that can facilitate money laundering by making it extremely difficult to identify the beneficial owners of an IBC. Seychelles officials stated in 2000 that they were reviewing the question of bearer shares and intended to outlaw them. In the interim, the GOS has indicated that it will not approve the issuance of any more bearer shares.
In 1996, the GOS enacted the Anti-Money Laundering Act (AMLA), which criminalizes the laundering of funds from all serious crimes, requires financial institutions and individuals to report to the Central Bank transactions involving suspected cases of money laundering, and establishes safe harbor protection for individuals and institutions filing such reports. The AMLA imposes record keeping and customer identification requirements for financial institutions, and also provides for the forfeiture of the proceeds of crime. Under the AMLA, anyone who engages directly or indirectly in a transaction involving money or other property (or who receives, possesses, conceals, disposes of, or brings into Seychelles any money or property) associated with crime, knowing or having reasonable grounds to know that the money or property is derived from an illegal activity, is guilty of money laundering. In addition, anyone who aids, abets, procures, or conspires with another person to commit the crime, while knowing, or having reasonable grounds for knowing that the money was derived from an illegal activity, is likewise guilty of money laundering.
In 1998, the Central Bank of Seychelles issued a comprehensive set of guidance notes that further elucidated and strengthened the provisions of the 1996 Act. The Central Bank of the Seychelles receives and analyzes suspicious activity reports and disseminates them to the competent authorities.
In 2000, the GOS repealed the 1995 Economic Development Act (EDA). The EDA provided concessions (protection from asset seizure and immunity from prosecution for crimes committed abroad and most crimes, other than violent crimes and narcotics-trafficking, committed in the Seychelles) to individuals investing more than $10 million in the Seychelles.
The Seychelles is a member of the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG), a FATF-style regional body. The Seychelles is a party to the 1988 UN Drug Convention. The Seychelles has signed, but not yet become a party to, both the UN International Convention for the Suppression of the Financing of Terrorism and the UN Convention against Transnational Organized Crime, which is not yet in force internationally.
The GOS should criminalize terrorist financing. The GOS should expand its anti-money laundering efforts by moving to immobilize bearer shares and requiring complete identification of beneficial owners of IBCs. The GOS should establish a Financial Intelligence Unit to collect, analyze, and share financial data with foreign counterparts, in order to effectively combat money laundering and other financial crimes. Seychelles should also actively participate in ESAAMLG.
Sierra Leone. Sierra Leone, which has a small commercial banking sector, is not a regional financial center. Loose oversight of financial institutions, weak regulations, rampant corruption, and a prevalent informal money-exchange system create an atmosphere conducive to money laundering. Given the importance of the large diamond sector to the economy, the prevalence of money laundering in the diamond sectors of neighboring countries and the loose oversight of the financial sector, Sierra Leone’s diamond sector is particularly vulnerable to money laundering.
There is no specific legislation concerning money laundering. However, the Ministry of Justice is in the process of developing such laws. Banks are required to record the identity of customers engaging in large currency transactions and to maintain adequate records necessary to reconstruct significant transactions in order to respond to government information requests. Banks are also required to report suspicious transactions, although they do not usually adhere to this requirement. Bank secrecy laws prevent the disclosure of client and ownership information except under court order.
In 2000, the Economic Community of West African States (ECOWAS) established the Intergovernmental Group for Action Against Money Laundering (GIABA), based in Dakar, Senegal. In November 2002, GIABA hosted an anti-money laundering seminar for representatives of 14 ECOWAS members, including Sierra Leone.
Sierra Leone is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Sierra Leone has signed, but has not yet become a party to, the UN International Convention for the Suppression of the Financing of Terrorism.
Sierra Leone should criminalize money laundering and terrorist financing, enforce existing financial laws and regulations, and provide legal authority for the seizure of criminal and terrorist assets.
Singapore. As a significant international financial and investment center, and in particular a major offshore financial center, Singapore is attractive to potential launderers. Bank secrecy laws and the lack of routine currency reporting requirements may make Singapore an attractive destination to foreign drug traffickers, other foreign criminals and terrorist organizations and their supporters seeking to launder their money, and for flight capital. Money laundering occurs mainly in the offshore sector, but may also occur in the non-bank financial system, including extensive moneychangers and remittance agencies. As of December 7, 2002, there were 59 offshore banks, down significantly from 83 in December 2000; all are branches of foreign banks. Singapore does not permit shell banks, either in the domestic or offshore sectors. There are no offshore trusts, although banks may open trust, nominee, and fiduciary accounts. All banks in Singapore, whether domestic or offshore, are subject to the same regulation, record keeping and reporting requirements. There are also hundreds of offshore international and financial service businesses. An offshore company must have a locally registered office with a physical address and a minimum of two directors, at least one of who must be a Singaporean citizen, permanent resident, or employment pass holder. A company incorporated in Singapore has the same status and powers as a natural person. Bearer shares are not permitted. Casinos or Internet gaming sites are illegal in Singapore.
The Corruption, Drug Trafficking, and other Serious Crimes (Confiscation of Benefits) Act of 1999 (CDSA) criminalizes the laundering of proceeds from narcotics and over 150 other offenses. Financial institutions must report suspicious transactions and positively identify customers engaging in large currency transactions. Financial institutions are required to maintain adequate records to respond quickly to Government of Singapore (GOS) inquiries in money laundering cases. However, there are no reporting requirements on amounts of currency brought into or taken out of Singapore.
The Monetary Authority of Singapore (MAS), a semi-autonomous entity under the Ministry of Finance, serves as Singapore’s Central Bank and financial sector regulator. MAS performs extensive prudential and regulatory checks on all applicants for banking licenses, including a check to see if the bank is under adequate home country banking supervision. Banks must have clearly identified directors. It is illegal to perform banking transactions without a license. In 2000, MAS issued a series of regulatory guidelines (i.e., “Notices”) requiring banks to apply “know your customer” standards, adopt internal policies for staff compliance, and cooperate with enforcement agencies on money laundering cases. Banks must obtain documentation, such as passports or identity cards, from all personal customers so that the bank can verify their names, permanent contact addresses, dates of birth, and nationalities, and conduct inquiries into the bona fides of company customers.
The regulations specifically require that financial institutions obtain evidence of the identity of the beneficial owners of offshore companies or trusts. The guidelines also mandate specific record keeping and reporting requirements, outline examples of suspicious transactions that should prompt reporting, and establish mandatory intra-company point-of-contact and staff training requirements. MAS Notice 626 applies to banks, Notice 824 applies to finance companies, Notice 1014 applies to merchant banks, and Notice 314 to direct life insurers and brokers. MAS issued similar guidelines for securities dealers and investment advisors, and futures brokers and advisors.
The Suspicious Transaction Reporting Office (STRO), part of the Singapore Police Force’s Commercial Affairs Department, began operating on January 10, 2000, and receives and analyzes suspicious transaction reports filed by financial institutions. It is also authorized to exchange intelligence derived from these reports with foreign counterparts.
The Terrorism (Suppression of Financing) Act, passed in 2002, criminalizes terrorist financing, although the provisions of the Act are actually much broader. In addition to making it a criminal offense to deal with terrorist property (including financial assets), the Act criminalizes the provision or collection of any property (including financial assets) with the intention that the property be used, or having reasonable grounds to believe that the property will be used, to commit any terrorist act or for various terrorist purposes. The Act also provides that any person in Singapore, and every citizen of Singapore outside Singapore, who has information about any transaction or proposed transaction in respect of terrorist property, or who has information that he/she believes might be of material assistance in preventing a terrorism financing offense, must immediately inform the Police. The Act gives the authorities the power to freeze and seize terrorist assets. The Act, which supplements and extends interim legislation enacted in November 2001, took effect January 29, 2003.
Separate legislative authority, Section 27A(1)(b) of the Monetary Authority of Singapore Act, as amended in 2002, provides MAS with broad powers to direct financial institutions to comply with international obligations, including UN Security Council Resolutions 1267, 1333, 1373, 1390 and other similar resolutions. Regulations issued by the MAS to implement this authority took effect September 30, 2002. The regulations—S 515/2002, the MAS (Anti-Terrorism Measures) Regulations 2002—bar banks and financial institutions from providing resources and services of any kind which will benefit terrorists and from doing “anything that...assists or promotes” terrorist financing. Financial institutions must notify the MAS immediately if they have in their possession, custody or control any property belonging to terrorists or any information on transactions involving terrorists’ funds. The regulations apply to all branches and offices of any financial institution incorporated in Singapore, or incorporated outside of Singapore but which are located in Singapore.
The MAS, on October 9, 2001, issued Circular FSG 48/2001, instructing financial institutions in Singapore to comply with a series of circulars intended to implement UNSCR 1373, including a freeze on assets possessed or controlled by any person known to have committed or attempted to commit acts of terrorism. MAS previously issued Circular FSG 5/2001 to implement UNSCR 1267, and FSG 6/2001 to implement UNSCR 1333. MAS issued revised circulars updating the freeze order after new names were added to the UNSCR 1267 consolidated list, although the process was not immediate. Singapore officials say they have not identified any assets in Singapore of persons included in the UNSCR 1267 consolidated list.
Alternative remittance systems exist, and are used mainly by the approximately 600,000 foreign workers in Singapore. All remittance agents, formal or informal, must be licensed and are subject to the same laws and regulations, including requirements for record keeping and the filing of suspicious transaction reports. Informal networks that are not licensed are considered illegal.
Charities in Singapore are subject to extensive government regulation, including close oversight and reporting requirements, and restrictions that limit the amount of funding which can be transferred out of Singapore. With a few exceptions, all charities must register with the Government, and must, as part of the registration process, submit governing documents outlining the charity’s objectives and particulars on all trustees. The Commissioner of Charities has the power to investigate charities, including authority to search and seize records, and to restrict the transactions the charity can enter into, suspend charity staff or trustees, and/or establish a scheme for the administration of the charity. Charities must keep detailed accounting records, and retain them for at least seven years.
Under the “Charities (Fund-raising Appeals for Foreign Charitable Purposes) Regulations 1994,” any charity or person who wishes to conduct or participate in any fund raising for any foreign charitable purpose must apply for a permit. The applicant has to show that at least 80 percent of the funds raised will be used in Singapore, although the Commissioner of Charities has discretion to allow a lower percentage to be applied within Singapore. Permit holders are subject to additional record keeping and reporting requirements, including details on every item of expenditure disbursed, amounts transmitted to persons outside Singapore, and to whom the money was transmitted. There do not appear to be any restrictions or reporting requirements on foreign donations to charities in Singapore.
Singapore is party to the 1988 UN Drug Convention, and in December 2000 signed, but has not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Singapore signed and ratified the UN International Convention for the Suppression of the Financing of Terrorism. Singapore is a member of the Financial Action Task Force, the Asia/Pacific Group on Money Laundering, the Egmont Group, and the Offshore Group of Banking Supervisors. To bolster law enforcement cooperation and facilitate information exchange, Singapore enacted the Mutual Assistance in Criminal Matters Act (MACM) in March 2000. The MACM provides for cooperation on any serious criminal offense. The provisions of the MACM apply to countries that have concluded treaties, memoranda of understanding, or other agreements with Singapore. Singapore and the United States signed the Agreement Concerning the Investigation of Drug Trafficking Offenses and Seizure and Forfeiture of Proceeds and Instrumentalities of Drug Trafficking in November 2000, the first agreement concluded pursuant to the MACM. This agreement facilitates the exchange of banking and corporate information on drug money laundering suspects and targets, to include access to bank records. The Terrorism (Suppression of Financing) Act provides for mutual legal assistance in cases where there is no treaty, MOU or other agreement in force between Singapore and another country that is a party to the UN International Convention for the Suppression of the Financing of Terrorism. Singapore’s FIU has concluded MOUs concerning cooperation in the exchange of financial intelligence with counterparts in Australia and Belgium.
The GOS should continue close monitoring of its domestic and offshore financial sectors. As a major financial center, it should also take measures to regulate and monitor large currency movements into and out of the country to ensure that international criminals, terrorists, terrorist organizations or their supporters do not misuse Singapore’s financial system.
Slovakia. The geographic, economic, and legal conditions that shape the money laundering environment in Slovakia are typical of those in other Central European transition economies. Slovakia’s location along the major lines of communication connecting Western, Eastern, and Southeastern Europe makes it a transit country for smuggling and trafficking in narcotics, arms, stolen vehicles, and illegal aliens. Organized crime activity and the opportunities to use gray market channels also lead to a favorable money laundering environment. Financial crimes such as fraud, tax evasion, embezzlement, and conducting illegal business have been quite problematic for Slovak authorities. Non-bank financial institutions, which have been particularly susceptible to laundering, were brought under the transaction reporting requirements in January 2001.
With the law “On Protection Against the Legalization of Proceeds from Criminal Activities”, also known as Act No. 367/2000, Slovakia criminalizes money laundering for all serious crimes and imposes customer identification, record keeping, and suspicious transaction reporting requirements on banks. As noted above, in January 2001, non-bank financial institutions (casinos, post offices, brokers, stock exchanges, commodity exchanges, asset management companies, insurance companies, real estate companies, tax advisors, auditors, and credit unions) became subject to suspicious transaction reporting requirements. New anonymous passbook savings accounts are banned as of October 2000. In 2002, legislative amendments abolished all existing bearer passbooks and extended reporting requirements to art and gem dealers, legal advisors, consultants, and accounting services.
Slovakia’s Financial Intelligence Unit (FIU), the OFiS of the Bureau of Financial Police (UFP), has jurisdictional responsibilities over money laundering violations. Established in 1996, the OFiS-UFP receives and evaluates suspicious transaction reports, and collects additional information to establish the suspicion of money laundering. Once enough information has been obtained to warrant suspicion that a criminal offense has occurred, the OFiS-UFP forwards the case to the State Prosecutor’s Office for investigation and prosecution. Since its establishment in 1996, through 2001, the UFP has received 1,628 reports alleging suspicious transactions totaling SKK 89.7 billion ($2.2 billion). Approximately seven percent of those reports led to criminal prosecutions. Recently, the FIU was divided into three departments. A receptor branch receives and disseminates reports from the obligated entities. A supervisory branch ensures the cooperation of the reporting entities as well as international cooperation. The analytical branch does the actual analysis. OFiS-UFP analysts participate regularly in international and domestic fora related to combating money laundering.
Slovakia ratified the UN International Convention on the Suppression of the Financing of Terrorism on September 13, 2002. The Convention has been incorporated into amendments of the Bank Act, Penal Code and Act No. 367/2000. However, Slovakia elected to pursue several optional terms of the convention that will be fully incorporated no later than March 31, 2003. All competent authorities in the Slovak Republic have full legislative power to freeze or confiscate terrorist assets in accordance with UN Resolution 1373. No terrorist finance related accounts have been frozen or seized in Slovakia.
Slovakia is a party to the European Convention on Mutual Legal Assistance and became a party to the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime in 2001. Slovakia is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Slovakia became a member of the Organization for Economic Cooperation and Development (OECD) in December 2000, thereby expanding its opportunities for multilateral engagement. Slovakia is a member of the Council of Europe (COE) and participates in the Council of Europe’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (Moneyval, formerly known as PC-R-EV). Slovakia sends experts to conduct mutual evaluations on fellow member countries; it also underwent mutual evaluations by this group in 1998 and 2001. As a result, Slovakia has been implementing changes to its money laundering regime based on the recommendations put forth in the reports.
The OFiS-UFP is a member of the Egmont Group. Slovakia has an MOU with the financial intelligence units of Slovenia, Belgium, Poland and the Czech Republic, and a letter of exchange with the FIU of Slovenia. The OFiS-UFP is the responsible authority for international exchange of information regarding money laundering under the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime.
Slovakia should continue to improve its anti-money laundering legislation. Continued implementation of the provisions of Slovakia’s new anti-money laundering legislation will give the Slovak financial system greater protection by helping it prevent and detect money laundering in all financial sectors. Slovakia should also criminalize terrorist financing.
Slovenia. Slovenia’s economic stability and location on the Balkan drug route offer attractive opportunities for money laundering. Narcotics-trafficking, which is a growing problem, is the main source of illegal proceeds. Other significant sources of illegal proceeds are fraud, trafficking in weapons, illegal immigration, and currency and securities counterfeiting, as well as extraterritorial offenses such as tax evasion, tax and VAT fraud, and corruption. Organized crime is believed to be involved in both predicate crimes and laundering operations. Money laundering often tends to be undertaken by citizens of the other former state socialist countries, using non-resident accounts. Slovenia’s Financial Intelligence Unit, the Office for Money Laundering Prevention (OMLP), is a member of the Egmont Group.
Slovenia’s Law on the Prevention of Money Laundering was enacted in 1994 and amended in 2001. The law criminalized money laundering and requires all financial institutions, casinos, and legal persons to report suspicious transactions and currency transactions above 5 million Slovenian Tolars (approximately $23,000.) Records must be retained for a minimum of five years.
In October 2001, the Slovenian Parliament passed an anti-money laundering law that updated the original 1994 law by, among other provisions, expanding the OMLP’s sources of available financial information, extending OMLP’s authority to temporarily halt suspect transactions, and requiring mandatory client identification for transactions exceeding 3 million Slovenian Tolars (approximately $13,699). December 2001 saw the passage of a new law that would increase the power of supervisory authorities to prohibit the establishment of new bearer passbook accounts, as well as phase out already-existing bearer passbook accounts. Further amendments to the law, which extended reporting obligations to lawyers, law firms, notaries, auctioneers, art dealers, gaming houses, and lottery concessions, were passed and entered into force in July 2002. A special Financial Crime Division was established within the General Police Directorate in 2000 and is in charge of conducting preliminary investigations into money laundering cases, as well as into other economic crimes. Other active financial supervisory bodies include the Bank of Slovenia, the Securities Market Agency, the Insurance Supervisory Agency, and the Office for Gaming Supervision.
Slovenia is a member of the Council of Europe’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (Moneyval, formerly PC-R-EV) and has undergone a mutual evaluation by the Committee, as well as lending its own experts to evaluate other member countries. Slovenia is a party to the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime. Slovenia is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally.
Slovenia has signed, but not yet become a party to, the UN International Convention for the Suppression of Financing of Terrorism. Slovenia should pass specific anti-terrorist financing legislation.
Solomon Islands. The Solomon Islands is not a regional financial center. The Islands’ banking system is small. The country has not criminalized money laundering.
The Solomon Islands is not a party to the 1988 UN Drug Convention.
The Solomon Islands should criminalize terrorist financing and money laundering for all serious crimes. The Solomon Islands should sign the UN International Convention for the Suppression of the Financing of Terrorism.
South Africa. South Africa’s position as the major financial center in the region and its relatively sophisticated banking and financial sector make that nation a very attractive target for transnational criminal syndicates. South African officials report that over 150 criminal groups operate within the country. Reports indicate that many of these criminal organizations are of West African and South African origin, along with the Russian Mafia and Chinese Triads. Kidnapping, fraud, stolen vehicles, human trafficking, narcotics, diamond and weapons smuggling, and money laundering are major criminal activities challenging local law enforcement. Reportedly, between $2 and $8 billion are laundered through South African institutions every year.
The Proceeds of Crime Act, No. 76 of 1996, criminalizes money laundering for all serious crimes. In 1998, the Prevention of Organized Crime Act, No. 121 (POCA), was promulgated, which supersedes the previous Act. The POCA also criminalizes money laundering, mandates the reporting of suspicious transactions, and provides a “safe harbor” for good faith compliance. Subsequent regulations direct that these reports be sent to the Commercial Crime Unit of the South African Police Service. Both of these Acts contain criminal and civil forfeiture provisions. However, the Government of South Africa (GOSA) has been unsuccessful in its efforts to implement the law. The POCA was amended several times, and several challenges to arrests and seizures are pending.
In November 2001, the National Council of Provinces, the upper chamber of parliament, passed the Financial Intelligence Center Bill (FICB). The FICB provides for the establishment and staffing of a Financial Intelligence Center (FIC) that will coordinate policy and efforts to counter money laundering activities. The FIC will similarly act as a centralized repository of information. The FICB creates new legal categories of accountable and reporting institutions. These include companies and businesses considered particularly vulnerable to money laundering activities, such as banks, life insurance companies, foreign exchange dealers, casinos, and real estate agents. FICB requires these institutions to report suspicious transactions, identify customers, maintain records of transactions for at least five years, and appoint compliance officers to train employees to comply with the law. Suspicious transactions are to be reported to the FIC. If the FIC has reasonable grounds to suspect that a transaction involves the proceeds of criminal activities, the FIC will forward this information to the investigative and prosecutorial authorities.
The FICB also establishes a Money Laundering Advisory Council to advise the Minister of Finance on policies and measures to combat money laundering. Regulations to implement the FICB have received final approval by Parliament and the Minister of Finance. As a result, accountable institutions will begin reporting to the FIC in February. Officials in South Africa report that the FIC will be operational in early March of 2003.
The GOSA became a signatory to the UN International Convention for the Suppression of the Financing of Terrorism on November 10, 2001. Officials indicate plans to draft anti-terrorism legislation, which are expected to be promulgated by the summer of 2003. In part, this proposed legislation will give the FIC the responsibility to track terrorist funding.
South Africa is a party to the 1988 UN Drug Convention and the UN Convention against Transnational Organized Crime, which is not yet in force internationally. The United States and South Africa have concluded a bilateral extradition treaty and a Mutual Legal Assistance Treaty, both of which entered into force on June 25, 2001. South Africa is an active member of the Eastern and Southern African Anti-Money Laundering Group.
Although the GOSA has criminalized money laundering for all serious crime, and passed additional legislation necessary to construct a viable anti-money laundering regime, the GOSA should take steps to ensure its implementation of these laws. Additionally, the GOSA should enact legislation criminalizing terrorist financing. Unless it does so, South Africa’s financial institutions will remain vulnerable to abuse by organized crime and misuse by terrorist organizations and their supporters.
Spain. Money laundering in Spain results primarily from the proceeds of the cocaine trade. There is also a significant black market for smuggled goods. The laundering occurs primarily in the financial system, although there are indications that money is also laundered through the real estate sector and the informal financial centers sometimes used by the immigrant community as an informal remittance system. Drug traffickers continue to resort to courier networks to remit large amounts of bulk cash to South America and the Middle East.
The Government of Spain (GOS) remains committed to combating narcotics-trafficking, terrorism, and financial crimes. Its 1993 Anti-Money Laundering Law (No. 19) and corresponding 1995 regulations cover money laundering linked to illicit drugs, terrorism, and organized crime. The financial sector is required to identify customers, keep records of transactions, and report suspicious financial transactions. The Commission for the Prevention of Money Laundering and Monetary Offenses coordinates the GOS’s anti-money laundering efforts and carries out regulatory and training functions for the financial sector. The financial sector includes banks, mutual savings associations, insurers, financial advisers, postal services, currency exchange outlets, and casinos.
Crimes of terrorism are defined in Article 571 of the Penal Code and penalties are set forth in Articles 572 and 574. Sanctions range from ten to thirty years imprisonment with longer terms if the terrorist actions were directed against government officials. Currently, the GOS can freeze terrorist financial assets only if such action has been approved by an international organization such as the United Nations or European Union, or if a judge orders the freezing. The UNSCR 1267 consolidated list of individuals and entities has been distributed to the Spanish financial community. A bill is pending before the Spanish Parliament that would facilitate the administrative freezing of bank accounts of terrorist groups and individuals. Passage is expected in the first quarter of 2003.
The Executive Service of the Commission for the Prevention of Money Laundering (SEPBLAC) serves as Spain’s Financial Intelligence Unit. SEPBLAC receives and analyzes suspicious activity reports and forwards those that may indicate money laundering to law enforcement agencies.
Businesses and financial service suppliers operating in Spain or targeting Spanish markets are subject to a new law, Ley de Servicios de la Sociedad de Informacion y de Comercio Electronico (LSSICE), that came into force on October 12, 2002, for Internet marketing and distribution. The new law requires businesses to register their domain names, company registry, physical address, and other company details. Financial sector businesses such as online banks must still send written contracts to new customers for signature and obtain physical proof of their identity, in order to comply with existing banking regulations.
Spain is a member of the FATF, a participating and cooperating nation to the South American Financial Action Task Force (GAFISUD), and a cooperating and supporting nation to the Caribbean Financial Action Task Force (CFATF). It ratified the UN Convention against Transnational Organized Crime, which is not yet in force internationally, on March 2, 2002, and the UN International Convention for the Suppression of the Financing of Terrorism on April 9, 2002. Spain is also a party to the 1988 UN Drug Convention. SEPBLAC is a member of the Egmont Group.
Spain has signed criminal mutual legal assistance agreements with Argentina, Australia, Canada, Chile, the Dominican Republic, Mexico, Morocco, Uruguay, and the United States. Spain’s Mutual Legal Assistance Treaty with the United States has been in effect since 1993. Spain also has entered into bilateral agreements for cooperation and information exchange on money laundering issues with Bolivia, Chile, El Salvador, France, Israel, Italy, Malta, Mexico, Panama, Portugal, Russia, Turkey, Venezuela, Uruguay, and the United States. Spain actively collaborates with Europol, supplying and exchanging information on terrorist groups.
Spain should continue the strong enforcement of its anti-money laundering program and its leadership in the international arena. It should consider whether additional measures are required to address possible money laundering in the stock market to ensure that the sector is not used for financial crimes.
Sri Lanka. Sri Lanka is neither an important regional financial center nor a preferred center for money laundering. Hawala is practiced as an alternative remittance system. While Sri Lanka recently experienced a failure of a small savings bank due to fraud by senior bank officials, there has been no evidence linking their activities to money laundering or terrorist financing.
As of January 2003, a draft law to deal with money laundering has been approved by the Central Bank and sent to the Ministry of Justice for review and presentation to cabinet and parliament. Currently, financial transactions relating to terrorism and narcotics are illegal under Central Bank regulations and Bank Secrecy laws. In December 2001, the Central Bank introduced regulations on customer due diligence. However, the Central Bank continues to allow the operation of bearer certificates of deposits. Terrorist financing is an offense punishable by imprisonment for a period of five to ten years. The Central Bank of Sri Lanka has circulated the list of individuals and entities that have been included on the UN 1267 Sanctions Committee’s consolidated list with instructions to identify, freeze and seize terrorist assets. To date no such assets have been identified. Sri Lanka is a party to the UN International Convention for the Suppression of the Financing of Terrorism and to the 1988 UN Drug Convention.
Regulations under the Sri Lankan legislation provide for freezing and forfeiture of assets of individuals and entities involved with the financing of terrorism. There is no specific provision in the law to freeze and forfeit narcotics related assets; however, trafficking, possessing, importing or exporting of narcotics is punishable by death or life imprisonment under the Poisons, Opium and Dangerous Drugs Ordinance (OPDDO).
Draft amendments to OPDDO and a separate draft money laundering bill are expected to include asset forfeiture and seizure provisions for narcotics-related crimes and money laundering. Sri Lanka should pass the draft money laundering legislation, criminalize the financing of terrorism and begin steps to implement an anti-money laundering program, which would include training of law enforcement and customs on how to recognize and investigate money laundering.
St. Kitts and Nevis. The Government of St. Kitts and Nevis (GOSKN) is a federation composed of two islands in the Eastern Caribbean, but each island has the authority to organize its own financial structure. The federation is at major risk for corruption and money laundering due to the high volume of narcotics-trafficking activity through and around the islands and the presence of known traffickers on the islands, two of whom are the subjects of an important and long-standing U.S. extradition request. An inadequately regulated economic citizenship program adds to the problem.
Most of the financial activity in the federation is concentrated in Nevis, whose economy has become increasingly dependent upon the fees generated by the registration of offshore entities. The Nevis offshore sector has one offshore bank (a wholly owned subsidiary of a domestic bank) approximately 17,000 international business companies and 3,000 trusts. The Nevis domestic structure consists of five domestic banks, four domestic insurance companies (all of which are subsidiaries of St. Kitts companies), one money remitter and 65 trust and company service providers. In St. Kitts, there are four domestic banks, 2 credit unions, four domestic insurance companies, two money remitters and 15 company service providers. There are also 13 trusts and 450 exempt companies. A regional stock exchange, common to the members of the Organization of Eastern Caribbean states (OECS) and supervised by a regional regulator, is located in St. Kitts. There is one casino in St. Kitts and the government is expected to issue two other casino licenses.
Legislation for Internet gaming is in place, but no licenses have yet been issued. The Eastern Caribbean Central Bank has direct responsibility for regulating and supervising the offshore bank in Nevis, as it does for the domestic sector in the entire GOSKN, and for making recommendations regarding approval of offshore bank licenses.
No evidence of terrorist financing has yet been known to be developed in St. Kitts and Nevis. Subsequently, St. Kitts and Nevis enacted the Anti-Terrorism Act #21, effective November 27, 2002. Sections 12 and 15 of the Act criminalize terrorist financing. The Act implements various UN Conventions against terrorism. The GOSKN has some existing controls that apply to alternative remittance systems but has undertaken no initiatives that apply directly to the potential terrorist misuse of charitable and non-profit entities.
In June 2000, FATF placed St. Kitts and Nevis on the list of Non-Cooperative Countries and Territories (NCCT) in the fight against money laundering. The FATF in its report cited several concerns surrounding the anti-money laundering regime of St. Kitts and Nevis. Among the problems identified by FATF were the narrow definition of money laundering as a punishable offense, the absence of mandatory suspicious transaction reporting and the lack of effective supervision of the Nevis offshore sector. In July 2000, the U.S. Treasury Department issued an advisory to U.S. financial institutions, emphasizing the need for enhanced scrutiny of certain transactions and banking relationships in St. Kitts and Nevis to ensure that appropriate measures are taken to minimize risk for money laundering. As a result of the legislative changes addressed below as well as the responsiveness of the GOSKN to requests for mutual legal assistance and other financial sector regulatory inquiries; however, the FATF, with certain on-going follow-up conditions, removed the GOSKN from the NCCT list in June 2002. The U.S. Treasury Department removed its Financial Advisory in August 2002.
In response to the initial FATF 2000 listing of St. Kitts and Nevis, the GOSKN began to take significant steps to address the deficiencies in its anti-money laundering regime as well as to build up its oversight infrastructure. The Proceeds of Crime Act No. 16 of 2000 criminalized money laundering from serious offenses (defined to include more than drug offenses) and imposed penalties ranging from imprisonment to monetary fines. The Act also overrides secrecy provisions that may have constituted obstacles to the access of information with respect to account holders or beneficial owners on the part of administrative and judicial authorities.
In addition, the Financial Intelligence Unit Act No. 15 of 2000 authorized the creation of a Financial Intelligence Unit (FIU). The FIU began operations in 2001 and has a director, deputy director, two legal representatives and five police officers. The FIU is to receive, collect and investigate suspicious activity reports (SARs); it is also charged with liaising with foreign jurisdictions. The FIU continues to receive computers and other assistance from the USG as well as management and asset forfeiture mentoring from the USG and the Caribbean Anti-Money Laundering Program a program jointly funded by the United States, the United Kingdom and the European Union.
Other measures designed to remedy shortcomings in St. Kitts and Nevis’ anti-money laundering regime have included the Financial Services Commission Act No. 17 of 2000, Nevis Offshore Banking (Amendment) Ordinance No. 3 of 2000, the Anti-Money Laundering Regulations No. 15 of 2001, the Companies (Amendment) Act No. 14 of 2001, the Anti-Money Laundering (Amendment) Regulations No. 36 of 2001, the Nevis Business Corporation (Amendment) Ordinance No. 3 of 2001 and the Nevis Offshore Banking (Amendment) Ordinance No. 4 of 2001. The GOSKN also issued regulations requiring financial institutions to identify their customers, to maintain a record of transactions, to report suspicious transactions to the FIU and to establish anti-money laundering training programs. The Financial Services Commission has issued guidance notes on the prevention of money laundering pursuant to the Anti-Money Laundering Regulations. The Commission’s Regulator is authorized to carry out anti-money laundering examinations. The GOSKN has separated the offshore marketing and regulatory functions. In particular, an offshore Marketing and Development Department, separate from the Financial Services Commission, was established in April 2001. Legislation requires certain identifying information to be maintained about bearer certificates, including the name and address of the bearer of the certificate, as well as its beneficial owner. In addition to these measures, Nevis issued regulations aimed at facilitating the identification of beneficial owners of corporations and corporate shareholders.
Financial Services (Exchange of Information) Regulations were promulgated in 2002. These regulations define the parameters for the exchange of information between domestic regulatory agencies and foreign regulatory agencies. Financial services officials in St. Kitts and Nevis have been seeking to educate relevant stakeholders as to their responsibilities related to anti-money laundering, e.g., using radio, television, newspapers and seminars. The GOSKN encouraged the founding of an association of compliance officers within relevant financial institutions and provided training in anti-money laundering to government financial services personnel.
St. Kitts and Nevis is a member of the Caribbean Financial Action Task Force and the Organization of American States Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering. A mutual legal assistance treaty between St. Kitts and Nevis and the United States entered into force in early 2000. St. Kitts and Nevis is a party to the 1988 UN Drug Convention and in November 2001 signed, but has not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. The GOSKN became a party to the UN International Convention for the Suppression of the Financing of Terrorism on November 16, 2001.
Notwithstanding its recent progress, St. Kitts and Nevis remains vulnerable to money laundering and other financial. St. Kitts and Nevis should continue to devote sufficient resources to effectively implement its anti-money laundering regime.
St. Lucia. St. Lucia is not a major financial center; however, it has developed an offshore financial service center that could potentially make the island more vulnerable to money laundering and other financial crimes. Currently, St. Lucia has one offshore bank, 733 international business companies (IBCs), ten international trusts, ten international insurance companies, seventeen Registered Agents and Trustee (Service Providers), two money remitters, one Mutual Fund Administrator and five domestic banks. Four other parties have applied for offshore bank licenses; two are pending and the other two have been refused.
The Government of St. Lucia (GOSL) established the Committee on Financial Services in 2001. The Committee, which meets monthly, is designed to safeguard St. Lucia’s financial services sector. The Committee is composed of the Minister of Finance, the Attorney General, the Solicitor General, the Director of Public Prosecutions, the Director of Financial Services, the Registrar of Business Companies, the Commissioner of Police, the Deputy Permanent Secretary of the Ministry of Commerce, the police officer in charge of Special Branch, the Comptroller of Inland Revenue and others.
The Financial Intelligence Authority Act No. 17 of 2002 authorized the establishment of a Financial Intelligence Unit for St. Lucia, which the GOSL expects will become operational early in 2003. The FIU will receive suspicious activity reports and will be able to compel the production of information necessary to investigate possible offenses under the 1993 Proceeds of Crime Act and the 1999 Money Laundering (Prevention) Act. Failure to provide information to the FIU is a crime, punishable by a fine or up to ten years imprisonment. The Financial Intelligence Authority Act permits the sharing of information obtained by the FIU with foreign FIUs. The Caribbean Anti-Money Laundering Program (CALP), which is funded jointly by the United States, the United Kingdom and the European Union, has trained St. Lucia’s FIU personnel and the necessary computer equipment is being provided by the Department of State.
The 1993 Proceeds of Crime Act criminalized money laundering with respect to narcotics. (The GOSL also is drafting legislation to enact a new Criminal Code and Evidence Act.) The Proceeds of Crime Act also provided for a voluntary system of reporting account information to the police or prosecutor when such information may be relevant to an investigation or prosecution. In addition, the Act required financial institutions to retain information on new accounts and details of transactions for seven years.
Many of the 1993 Proceeds of Crime Act provisions were superseded by the 1999 Money Laundering (Prevention) Act, which criminalized the laundering of proceeds with respect to 15 prescribed offenses, including narcotics-trafficking, corruption, fraud, terrorism, gambling and robbery. The Money Laundering (Prevention) Act mandates suspicious transaction reporting requirements and imposes record keeping requirements. In addition, the Money Laundering (Prevention) Act imposes a duty on financial institutions to take “reasonable measures” to establish the identity of customers, and requires accounts to be maintained in the true name of the holder. The Act also now requires an institution to take reasonable measures to identify the underlying beneficial owner when an agent, trustee or nominee operates an account. These obligations apply to domestic and offshore financial institutions, including credit unions, trust companies, and insurance companies. In April 2000, the Financial Services Supervision Unit issued detailed guidance notes, entitled “Minimum Due Diligence Checks, to be conducted by Registered Agents and Trustees.”
Pursuant to the Act, the Money Laundering (Prevention) Authority was established in early 2000. The Authority consists of five persons “who have sound knowledge of the law, banking or finance.” The Authority’s functions include receipt of suspicious transactions reports, subsequent investigation of the transactions, dissemination of information within (e.g., to the Director of Public Prosecutions) or outside of St. Lucia, and monitoring of compliance with the law. The Money Laundering (Prevention) Act imposes a duty on the Authority to cooperate with competent foreign authorities. Assistance includes the provision of documents, giving of testimony, undertaking of examinations, execution of search and seizure, and the provision of information and evidentiary items. The Authority has a number of regulatory powers, including the right to enter the premises of a financial institution during normal working hours to inspect transaction records or copy relevant documentation, issue guidelines to financial institutions, and to instruct a financial institution to facilitate an investigation by the Authority.
In 1999, the GOSL also enacted a comprehensive inventory of offshore legislation, consisting of the International Business Companies (IBC) Act, the Registered Agent and Trustee Licensing Act, the International Trusts Act, the International Insurance Act, the Mutual Funds Act and the International Banks Act. An IBC may be incorporated under the IBC Act. Only a person licensed under the Registered Agent and Trustee Licensing Act as a licensee may apply to the Registrar of IBCs to incorporate and register a company as an IBC. The registration process involves the Registered Agent submitting to the registrar the memorandum and articles of the company, payment of the prescribed fee and the Registrar’s determination of compliance with the requirements of the Act. IBCs can be registered online through the GOSL’s Pinnacle web page IBCs intending to engage in banking, insurance or mutual funds business may not be registered without the approval of the Minister responsible for international financial services. An IBC may be struck off the register on the grounds of carrying on business against the public interest.
The GOSL has neither signed nor ratified the UN International Convention for the Suppression of the Financing of Terrorism. No evidence of terrorist financing has known to have been developed in St. Lucia. The GOSL has not taken any specific initiatives focused on the misuse of charitable and nonprofit entities.
As a member of the Caribbean Financial Action Task Force (CFATF), St. Lucia underwent a first mutual evaluation immediately prior the establishment of St. Lucia’s offshore sector. St. Lucia will undergo its Second Round evaluation in March 2003. St. Lucia is a party to the 1988 UN Drug Convention and a member of the OAS Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering. In February 2000 St. Lucia and the United States brought into force a Mutual Legal Assistance Treaty. On September 26, 2001, St. Lucia signed the UN Convention against Transnational Organized Crime, which is not yet in force internationally.
The GOSL should continue to enhance and implement money laundering legislation and increase supervision of the offshore sector. The GOSL also should take the steps necessary to bring St. Lucia into full compliance with the FATF 8 Special Recommendations. The GOSL should fully establish a Financial Intelligence Unit to allow information exchange with foreign authorities.
St. Vincent and the Grenadines. Until its government fully implements the financial sector and anti-money laundering laws it has recently enacted, St. Vincent and the Grenadines (SVG) will remain vulnerable to money laundering and other financial, as a result of the rapid expansion and inadequate regulation of its offshore sector in recent years.
SVG’s offshore sector includes 15 offshore banks (down from 33), 9,734 IBCs (down from over 11,000), two offshore insurance companies, six mutual funds, 400 international trusts, and Internet gaming licenses. SVG’s domestic sector comprises five commercial banks, one development bank, two savings and loan banks, one building society, 21 insurance companies, nine credit unions and two money remitters. As with most Eastern Caribbean countries, the Eastern Caribbean Central Bank (ECCB) supervises SVG’s five domestic banks. Beginning in October 2001 with an administrative agreement and finalized in the International Banks (Amendment) Act No. 30 of 2002, the Government of SVG (GOSVG) has given the ECCB increasing authority to review and make recommendations regarding approval of offshore bank license applications and to directly supervise SVG’s offshore banks in cooperation with the GOSVG’s Offshore Finance Authority (OFA). The agreement includes provisions for joint on-site inspections to evaluate the financial soundness and anti-money laundering programs of offshore banks. The OFA alone continues to supervise and regulate the other offshore sector entities. The GOSVG has strengthened the structure and staffing of the OFA by appointing five new members to the OFA board, including a new chairman and individuals bringing it to a total of 12 staff to regulate offshore insurance and mutual funds. However, this staff exercises only rudimentary controls over these institutions.
In June 2000, the Financial Action Task Force (FATF) placed SVG on the list of Non-Cooperative Countries and Territories (NCCT) in the fight against money laundering. The FATF in its report cited several concerns, including the fact that SVG had not put into place anti-money laundering regulations or guidelines with respect to offshore financial institutions, including customer identification, record keeping or suspicious transaction reporting requirements. FATF also cited obstacles to international cooperation and rudimentary licensing and registration requirements for financial institutions in SVG. In July 2000, the U.S. Treasury Department issued an advisory to U.S. financial institutions, warning them to give enhanced scrutiny to all financial transactions originating in or routed to or through SVG, or involving entities organized or domiciled, or persons maintaining accounts in, SVG.
Since July 2000, the GOSVG has acted on a number of fronts to address the concerns of the international community. It has passed substantial legislation, primarily the International Banks (Amendment) Act No. 7 of 2000 that deals with the authorization and regulation requirements for offshore banks as well as with the rules regarding the transfer of shares and beneficial interest. SVG also enacted the International Banks (Amendment) Act of October 2000, which enables the Offshore Finance Inspector to have access to the name or title of an account of a customer and any other confidential information about the customer that is in the possession of a licensee. SVG has enacted the International Business Companies Amendment Act No. 26 of 2002, which became effective on May 27, 2002, immobilizes and registers bearer shares. It has also revoked the Confidentiality Act and passed the Exchange of Information Act No. 29 of 2002 to authorize and facilitate the exchange of information, particularly among regulatory bodies. It has revoked 16 bank licenses as well as caused the licenses of two others to be surrendered. In April 2001, the GOSVG revoked its economic citizenship program, which provided the legal basis to sell SVG citizenship and passports, although no passports are reported to have been issued.
SVG enacted the Proceeds of Crime and Money Laundering (Prevention) in December 2001 and the Proceeds of Crime (Money Laundering) Regulations in January 2002. Subsequent amendments further strengthened provisions of the Act and the Regulations. Among other measures, this Act criminalizes money laundering and imposes on financial institutions and regulated businesses a requirement to report suspicious transactions suspected of being related to money laundering or the proceeds of crime. The related regulations establish mandatory record keeping rules and limited customer identification/verification requirements. Subsequent to the passage of the Financial Intelligence Unit Act No. 38 of 2001, the GOSVG has established a Financial Intelligence Unit (FIU) that began operation in the summer of 2002. The FIU Act, 2001 allows for the exchange of information with foreign FIUs. An amendment to the FIU Act permits the sharing of information even at the investigative or intelligence stage. The FIU has received approximately eight suspicious activity reports (SARs) during 2002. The FIU has conducted investigations and has forwarded a case to the Director of Public Prosecutions with the recommendation to file a money laundering charge. The case is still pending. The FIU has received initial and ongoing training from the Caribbean Anti-Money Laundering Program, a program jointly funded by the United States, the United Kingdom and the European Union, and Department of State-funded computer and other equipment as well as mentoring in management and asset tracing and forfeiture.
The FATF stated in its October 2002 report that the SVG had enacted most, if not all, legislation needed to remedy deficiencies; however, until the deficiencies are fully addressed and the necessary reforms implemented, the SVG will remain listed. FATF invited the SVG to submit implementation plans that will enable the FATF to evaluate actual realization of the legislative changes in the SVG anti-money laundering regime. The SVG submitted an implementation plan in August 2002. The GOSVG’s current progress in implementing anti-money laundering measures will be reviewed at the February 2003 FATF plenary.
Subsequently, St. Vincent and the Grenadines enacted the United Nations Terrorism Measures Act #34, effective August 2, 2002. Sections 3 and 4 of the Act criminalize terrorist financing. The GOSVG is a party to the UN International Convention for the Suppression of the Financing of Terrorism and is deemed to be partially compliant. No evidence has yet been known to be developed of terrorist financing in SVG. Also, the GOSVG has not undertaken any specific initiatives focused on the misuse of charitable and non-profit entities.
The GOSVG is a member of the Caribbean Financial Action Task Force (CFATF), and underwent its Second Round mutual evaluation in November 2002. In addition, SVG is a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering. SVG is a party to the 1988 UN Drug Convention and acceded to the Inter-American Convention Against Corruption in 2001. An updated extradition treaty and a Mutual Legal Assistance Treaty between the United States and SVG entered into force in September 1999.
The GOSVG should address concerns raised by the international community concerning the remaining deficiencies in the GOSVG’s anti-money laundering regime. The FIU should strengthen its relationship with its foreign counterparts and join the Egmont Group. The GOSVG also should ensure that it properly supervises the offshore sector and adequately trains regulatory and law enforcement personnel on money laundering operations and investigations.
Suriname. Suriname is not a regional financial center. Money laundering takes place as a result of transnational criminal activity related to the transshipment of Colombian cocaine and European-produced ecstasy through Suriname en route to markets in Europe and the United States. Narcotics-related money laundering is believed to occur primarily through the non-banking financial system and a variety of other means, including the sale of gold purchased with illicitly obtained money and the manipulation of commercial and state-controlled bank accounts. Suriname’s casinos and cambios are also presumed to be used to facilitate money laundering.
Suriname’s overall anti-money laundering regime is considered weak, although in September 2002 the Government of Suriname (GOS) brought into force a package of anti-money laundering legislation based on the recommendations of the Caribbean Financial Action Task Force (CFATF). The new legislation defines money laundering and establishes penalties for money laundering activities, requires the reporting of unusual and suspicious financial transactions, establishes a Financial Intelligence Unit (FIU) to track and report on unusual and suspicious financial transactions, and requires financial service providers to confirm the identities of clients, individual or corporate, and to store information on clients for seven years. The FIU, to be administered by the Attorney General’s office, is designed to assist in the enforcement of the requirements of the banks and other financial institutions to identify, record and report the identity of customers engaging in significant transactions. The legislation includes a due diligence section making individual bankers responsible if their institution is laundering money and ensures the protection of bankers and others with respect to their cooperation with law enforcement officials. The GOS is receiving technical assistance in establishing the FIU from the EU/US/UK-funded Caribbean Anti-Money Laundering Program. The U.S. is providing equipment and furniture for the FIU.
The new legislation also amends the criminal code to provide for the confiscation of illegally obtained proceeds and other assets obtained partly or completely through criminal offenses, to allow criminal offenses to be filed and penalties to be levied against corporate entities, and to punish persons who participate in an organization that intends to commit crime. The Government of Suriname (GOS) has not criminalized terrorist financing, although current legislation allows assets to be seized under criminal investigative authority. No terrorist-related assets have been identified in Surinamese financial institutions.
Suriname is a member of the CFATF and the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering. Suriname is a party to the 1988 UN Drug Convention.
The GOS should set as priorities the effective implementation of the new anti-money laundering legislation, including establishment of the FIU, and enactment of legislation to criminalize terrorist financing.
Swaziland. Swaziland is a growing regional financial center. International narcotics-trafficking continues to grow in Swaziland, increasing the threat of money laundering. Swaziland’s proximity to South Africa, lack of effective counternarcotics legislation, limited enforcement resources, relatively open society, and developed economic infrastructure make it attractive for trafficking organizations and increase the risk for money laundering.
The Money Laundering Act of 2001 criminalizes money laundering for specified predicate offenses, including narcotics-trafficking, kidnapping, counterfeiting, extortion, fraud, and arms-trafficking. The Act establishes a currency reporting requirement, requires banks to report suspicious transactions to the Central Bank, and provides conditions when assets may be frozen and forfeited. The penalty for money laundering is six years imprisonment, a fine amounting to roughly $2,500, or both. The Act also allows for providing assistance to foreign countries that have entered into mutual assistance treaties with the Government of Swaziland.
Swaziland has an extradition treaty with South Africa, as well as a protocol and mutual understanding on narcotics with Commonwealth Countries.
Swaziland is party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN International Convention against Transnational Organized Crime, which is not yet in force internationally. Swaziland is an active member in the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), a FATF-style regional body. In August, 2002, Swaziland hosted the ESAAMLG plenary and Council of Ministers meeting. At the Council of Ministers meeting, Swaziland assumed the one-year presidency of ESAAMLG.
Swaziland should criminalize terrorist financing. Swaziland should also establish a Financial Intelligence Unit capable of sharing information with foreign law enforcement and regulatory officials.
Sweden. Sweden does not appear to have a significant money laundering problem. Swedish anti-money laundering legislation includes all serious crimes. Sweden’s money laundering controls allow Sweden to fulfill the recommendations of the Hague Forfeiture Convention.
Swedish law requires financial institutions, insurance companies, currency exchange houses, and money transfer companies to verify customer identification, inquire into a transaction’s background, and verify identities for each transaction, particularly in the case of new customers and involving amounts above SEK 110,000 ($12,300). Swedish law allows for the sanctioning of non-compliant institutions rather than the individual officers of those institutions. Any suspicious transactions are required to be reported to the police Financial Intelligence Unit (FIU). The FIU is entitled to demand customer information from dealers in antiques, jewelry and art; companies buying and selling new and used vehicles; and firms dealing with gambling and the sale of lottery tickets. Swedish law also provides for the seizure of assets derived from drug-related activity.
Although Sweden did not adopt the euro as its country’s legal currency, it recognized the potential for money laundering prior to and during the changeover period. Guidelines were issued to the financial sector regarding the scrutinizing of large-scale financial transactions, and the FIU conducted a study on potential problems associated with the changeover.
In 2002, the FIU received approximately 8,000 suspicious transaction reports, almost double the number reported in 2001.
Sweden ratified the UN International Convention for the Suppression of the Financing of Terrorism on June 6, 2002. In July 2002, Sweden adopted a new law on the freezing of assets to combat the financing of terrorism, with the additional purpose of fully implementing UNSCR 1373. Prior to this law, assets could not be frozen. The law also makes it illegal to collect, supply or receive money or other kinds of assets for the purpose of financing terrorist crimes or activities.
Sweden has endorsed the September 1997 Basel Committee’s “Core Principles for Effective Banking Supervision.” Sweden is a member of the Financial Action Task Force and the Council of Europe. Its FIU is a member of the Egmont Group. Sweden is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. It is also a party to the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime.
Switzerland. Switzerland’s central geographic location; relative political, social, and monetary stability; wide range of available financial services; and long tradition of bank secrecy are all factors that make Switzerland a major international financial center. These same factors make Switzerland attractive to potential money launderers. However, Swiss authorities are aware of this and waive bank secrecy rules in the prosecution of money laundering and other criminal cases.
Reporting indicates that criminals attempt to launder proceeds in Switzerland from a wide range of illegal activities conducted worldwide, particularly narcotics-trafficking and corruption. Switzerland’s extensive market in fine arts is also used to launder money. Although both Swiss and foreign individuals or entities conduct money laundering activities in Switzerland, narcotics-related money laundering operations are largely controlled by foreign narcotics-trafficking organizations, often from the Balkans or Eastern Europe. For example, some of the money generated by Albanian narcotics-trafficking rings in Switzerland goes to armed Albanian extremists in the Balkans.
Money laundering is a criminal offense. Switzerland has significant anti-money laundering legislation in place making banks and other financial intermediaries subject to strict Know-Your-Customer and reporting requirements. Switzerland has also implemented legislation for identifying, tracing, freezing, seizing, and forfeiting narcotics-related assets.
The current money laundering laws and regulations have been extended to non-bank financial institutions. Consequently, all non-bank financial intermediaries are required to either join an accredited self-regulatory organization (SRO), or come under the direct supervision of the Money Laundering Control Authority (MLCA) of the Federal Finance Administration. The MLCA was formed in 1998 to oversee anti-money laundering laws in the non-banking sector. The SROs must be independent of the management of the intermediaries they supervise and must enforce compliance with due diligence obligations. Non-compliance can result in a fine or a revoked license. About 7,000 fiduciaries operate in this previously unregulated arena. During the summer of 2002, the MLCA shut down three financial management companies, because they were operating illegally and failed to comply with anti-money laundering regulations. This action marked the first time the MLCA took direct action against financial intermediaries in Switzerland.
Additional legislation effective January 1, 2002 is intended to make the prosecution of organized crime, money laundering, corruption and other white-collar crime more effective by increasing the personnel and financing of the criminal police section of the federal police office. The law confers on the federal police and Attorney General’s office the authority to take over cases that have international dimensions, involve several cantons, or which deal with money laundering, organized crime, corruption and white collar crime. During the summer of 2002, the Swiss Federal Council presented a bill to the Nationalrat, Switzerland’s National Council, that addressed a number of terrorism issues surrounding ratification of the UN terrorism conventions. This bill also includes legislation for implementation, including a self-standing provision on terrorist financing that introduces criminal liability for legal persons for terrorism financing. The Staenderat was expected to make a decision on this bill in December 2002, and the Swiss House is scheduled consider it in the first half of 2003.
The Money Laundering Reporting Office Switzerland (MROS) is Switzerland’s Financial Intelligence Unit (FIU). All financial intermediaries (banks, insurers, fund managers, currency exchange houses, securities brokers, etc.) are legally obliged to establish customer identity when forming a business relationship. They also must notify the MROS, or a government authorized supervisory body, if a transaction appears suspicious. If financial institutions determine that assets were derived from criminal activity, the assets must be reported to MROS and frozen within 5 days until a prosecutor decides whether to take further action. MROS’ staff, particularly the non-banking sector staff, increased in 2002, so the FIU now has twice the staff it had at its establishment in 1998.
Switzerland’s banking industry offers the same account services for both residents and non-residents. These can be opened through various intermediaries who advertise their services. As part of Switzerland’s international financial services, banks offer certain well-regulated offshore services, including permitting non-residents to form offshore companies to conduct business, which can be used for tax reduction purposes.
The Swiss Commercial Law does not recognize any offshore mechanism per se and its provisions apply equally to residents and non-residents. The stock company and the limited liability company are two standard forms of incorporation offered by Swiss Commercial Law. The financial intermediary is required to verify the identity of the beneficial owner of the stock company and must also be informed of any change regarding the beneficial owner. Bearer shares may be issued by stock companies but not by limited liability companies.
The Government of Switzerland has made it a key foreign policy goal to correct the country’s image as a haven for illicit banking services. In November 2001, the Swiss Federal Banking Commission ordered the dismissal of the Swiss manager of Zurich’s Bank Leumi le-Israel because of professional malfeasance in accepting funds from a customer with questionable ties and fund sources. The Commission will also implement a new regulation, starting July 2003, that will significantly increase the banks’ diligence rules for “high risk” clients whose political exposure make them vulnerable to corruption. The new regulations call for a systematic recording of new and existing business relationships, the performance of comprehensive, in-depth investigations into “risky” relationships, and electronic monitoring of high-risk transactions.
The Oversight Commission of the Swiss Bankers Association fined Credit Suisse for inadequate due diligence in connection with a total of $214 million deposited in the bank by former Nigerian dictator Sani Abacha. Swiss press reports put the fine at $500,000 (SFr. 750,000), making it the largest fine ever imposed by the Commission. The recipient of the fine will be the International Red Cross Committee.
Despite the measures that Switzerland has taken, it continues to come under fire by its neighbors and EU member countries for its continued banking secrecy laws and its refusal to look upon tax evasion as a crime. The EU finance ministers issued a warning to Switzerland in 2002, saying that Switzerland’s lack of action is hampering the global crackdown on money laundering and other financial crimes, and threatened sanctions if Switzerland does not change its banking secrecy laws. However, current Swiss law provides for no banking secrecy for suspected fraud, money laundering, or terrorist-related funds, despite Switzerland’s steadfast position on maintaining banking secrecy in the face of tax evasion not related to other crimes.
Switzerland ranks among the world’s leading art markets. Generating about $200 billion a year in turnover, the market offers lucrative opportunities for organized crime to transfer stolen art or use art to launder criminal funds. The Swiss art market is especially attractive for unethical transactions since artworks, which may have been smuggled into Switzerland, can legally be re-exported as genuine Swiss artwork after five years. Swiss officials are concerned about the possible abuse of its art dealer market and a new bill against illegal cultural transfers is slated for parliamentary debate next year. The United States is Switzerland’s most important art trading partner, importing $300 million worth of art from Switzerland in 2001.
The soon-to-be amended Swiss penal code makes terrorism financing a predicate offense for money laundering. It has yet to pass the Nationalrat, but it is expected to pass in the spring of 2003, and will be effective immediately upon passage. Switzerland cooperates with the United States to trace and seize assets, and has shared a large amount of funds seized with the U.S. Government (USG) and other governments. The Government of Switzerland has worked closely with the USG on numerous money laundering cases. The banking community cooperates with enforcement efforts. In addition, legislation permits “spontaneous transmittal”—allowing the Swiss investigating magistrate to signal to foreign law enforcement authorities the existence of evidence in Switzerland. For example, the Swiss used this provision in 2001 to signal Peru that it had uncovered accounts linked to former Peruvian presidential advisor Vladimiro Montesinos.
Since September 11, 2001, Swiss authorities have been alerting Swiss banks and non-bank financial intermediaries to check their records and accounts against lists of persons and entities with links to terrorism. The accounts of these individuals and entities are to be reported to the Ministry of Justice as suspicious transactions. Based on the “State Security” clause of the Swiss Constitution, the authorities have ordered banks and other financial institutions to freeze assets of organizations and individuals designated by UN 1267 Sanctions Committee. In 2001, the MROS was notified a record 417 times of suspicious transactions, according to its annual report published in May 2002. This marks a 34 percent increase over the previous year’s 311 notifications. The MROS blocked a record $1.8 billion (SFr. 2.73 billion) during 2001, compared to $436 million (SFr. 656 million) during 2000. Five international cases account for more than $1.3 billion (SFr. 2 billion) in assets blocked during 2001. Much of the increase in the number of reported cases was due to the extensive search of terrorist assets following September 11. At least 95 notifications concerning funds totaling $24.6 million (SFr. 37 million) were linked to the terrorist attacks. In 35 cases, the beneficial owner of the blocked assets was a Saudi-Arabian national, in 33 cases Swiss, and in 5 cases Italian. Others came from Liechtenstein, Afghanistan, France, Egypt, United States, United Kingdom, Bahamas, Syria, Turkey, Bosnia-Herzegovina, Bangladesh, Somalia, United Arab Emirates, Bahrain, and Pakistan. In the year following September 11, 2001, Switzerland froze 72 bank accounts worth $20 million with suspected links to terrorism. Over 400 money laundering cases, totaling over 2.7 billion Swiss francs, reported during the same time frame.
Switzerland is a signatory of, but has not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Switzerland has ratified the Council of Europe Convention on the Laundering, Search, Seizure, and Confiscation of Proceeds from Crime. Switzerland is expected to soon have ratified all of the UN terrorism conventions. The Federal Council presented, with its bill to Parliament in the summer of 2002, language concerning ratification of the UN International Convention for the Suppression of the Financing of Terrorism and the UN International Convention for the Suppression of Terrorist Bombings. Of the twelve UN Conventions, ten have been ratified, and the Nationalrat is expected to ratify the other two in the spring session. To date, Switzerland has not ratified the 1988 UN Drug Convention.
Switzerland has a Mutual Legal Assistance Treaty in place with the United States, and Swiss law allows authorities to furnish information to U.S. regulatory agencies provided it is kept confidential and used for supervisory purposes. Switzerland is a member of the Financial Action Task Force and the Egmont Group. Switzerland is a member of the Basel Committee on Banking Supervision, which established the first international code of conduct for banks. Legislation that aligns the Swiss supervisory arrangements with the Basel Committee’s “Core Principles for Effective Banking Supervision” is contained in the Swiss Money Laundering Act.
Switzerland should extend its anti-money laundering program to include dealers in art and high-end goods. Switzerland should continue to work toward full implementation of its anti-money laundering regime.
Syria. Syria is designated by the U.S. Department of State as a State Sponsor of Terrorism. As host to one of the most underdeveloped banking sectors in the world, Syria is not a likely center for money laundering via the formal financial sector. Since private banks were nationalized in the early 1960s, Syria’s entire financial system has been owned and operated by the state. The existing public banks are inefficient and highly-regulated, and focus almost exclusively on financing public enterprises. As a result, Syrian businessmen traditionally use banks in neighboring Lebanon and Jordan to receive a full range of banking services. The private sector routinely conducts foreign currency transactions to finance imports, generally by using letters of credit from Lebanon and Europe. Due to foreign exchange controls, the private sector also has restricted access to foreign currency. Illicit proceeds from the narcotics trade may flow through Syria, but it is generally believed they are moved to Lebanon for laundering purposes. As a result, the primary money laundering vulnerability in Syria is not necessarily through financial institutions but via the use of alternative remittance systems such as hawala, trade-based money laundering, gold, and currency smuggling. These money laundering methodologies are known to be used to finance terrorism throughout the region and elsewhere.
The government-controlled banking system in Syria consists of the Central Bank of Syria and five public banks, each specializing in one aspect of economic activity: the Commercial Bank of Syria, the Agricultural Cooperative Bank, the Industrial Bank, the Real Estate Bank, and the People’s Credit Bank. These banks employ a rigid interest rate structure that discourages savings deposits, particularly during periods of inflation. Only the Commercial Bank of Syria is permitted to provide commercial banking services. The Commercial Bank, as the sole legal trader of foreign currencies, also effectively controls all foreign trade and all foreign currency transactions. In addition to monopolizing the exchange of foreign currencies, the Syrian government maintains one of the last remaining fixed, multiple exchange rate systems in the world, employing three different rates depending on the nature of the transaction. This inefficient system undoubtedly contributes to alternative methods of transferring value outside the state controlled banking system. There are reports that such transactions occur with the tacit approval, if not involvement, of Syrian government officials. A large percentage of Lebanon’s banking services involve Syrian accounts.
In April 2001, Syria enacted new laws on both legalizing private banking (Law No. 28) and establishing rules on banking secrecy (Law 29). However, no private bank has yet been granted permission to open. Much still needs to be done to fundamentally restructure the banking sector, particularly in terms of either suspending or amending existing regulations that would prohibit a newly-licensed private bank from operating fully. The Syrian government continues to work on detailed regulations that will govern the operation of private banks.
Reportedly, the Syrian government is aware that with the liberalization of its banking sector, measures to prevent such activity must be firmly in place. Therefore, it is preparing draft money laundering legislation that may be passed sometime in 2003. The details of this draft legislation are as yet unclear.
Syria is a party to the 1988 UN Drug Convention. Syria has not signed the UN International Convention for the Suppression of the Financing of Terrorism.
As a first step in crafting an effective anti-money laundering program, Syria should approve comprehensive anti-money laundering and anti-terrorism finance legislation that adheres to world standards. Syria should also be aware that money laundering can easily by-pass financial institutions and take enforcement measures to address these vulnerabilities.
Taiwan. Taiwan’s modern financial sector and its role as a hub for international trade make it attractive to money laundering. Its location astride international shipping lanes makes it vulnerable to transnational crimes such as narcotics-trafficking and smuggling. The use of alternative remittance systems or “underground banking” is a money laundering vulnerability. There is a significant volume of informal financial activity through unregulated non-bank channels. According to suspicious activity reports (SARs) filed by financial institutions on Taiwan, the predicate crimes linked to SARs include: financial crimes, corruption, narcotics, and other general crimes, in that order.
Taiwan’s anti-money laundering legislation is embodied in the Money Laundering Control Act (MLCA) of April 23, 1997. Its major provisions include a list of predicate offenses for money laundering, customer identification and record keeping requirements, disclosure of suspicious transactions, international cooperation, and the creation of a Financial Intelligence Unit, the Money Laundering Prevention Center (MLPC). In October 2002, the Executive Yuan approved draft legislation to amend the MLCA and forwarded it to the Legislative Yuan for approval. Among the amendments are provisions for the freezing of assets related to money laundering and terrorism, and for the creation of a system for sharing forfeited assets with domestic and foreign enforcement agencies. The legislation also expands the list of financial institutions to include pawnshops, travel agents, car dealers, and real estate brokers. Other amendments call for stiffer penalties for major or recidivist money launderers, the lifting of immunity from prosecution of conspiring family members or cohabitants, and the introduction of a currency transaction reporting (CTR) requirement for cash transactions. Financial institutions currently have an electronic system in place to identify and record transactions that exceed NT $1 million ($30,000); the amendments require financial institutions to report CTRs to an as yet unidentified agency (likely the MLPC). The CTR threshold amount has not yet been determined but will be in the range of NT $1-1½ million ($30,000-45,000).
According to statistics published by the MLPC, of the 791 SARs filed in 2001, 28 percent were referred to law enforcement authorities for investigation, 22 percent were under review, and 50 percent were archived with no further action. According to the MLPC, authorities on Taiwan prosecuted 179 individuals in 38 cases for money laundering during 1997-2001. In addition, in 2001 the MLPC provided information to assist 46 domestic and 20 international investigations.
The authorities on Taiwan are actively involved in countering the financing of terrorism. The Bureau of Monetary Affairs (BOMA) has circulated to all domestic and foreign financial institutions in Taiwan the names of individuals and entities included on the UN 1267 Sanctions Committee’s consolidated list. Terrorist financing is not explicitly criminalized, but in accordance with UN Security Council Resolution 1373, the MLCA was amended to allow the freezing of accounts suspected of being linked to terrorism. Under current law the ability of authorities on Taiwan to identify, freeze and seize terrorist-related financial assets is limited, although legislative amendments are pending. At present, authorities on Taiwan must post a bond before freezing or seizing financial assets. No targeted assets have been identified to date.
Alternative remittance systems, or underground banks, are considered to be operating in violation of Banking Law Article 29. Authorities on Taiwan consider these entities unregulated financial institutions, although pending legislation would bring them under the regulatory umbrella. Authorities on Taiwan do not believe that charitable and non-profit organizations in Taiwan are being used as conduits for the financing of terrorism. Taiwan is, however, investigating a number of foreign-owned and operated commercial enterprises that handle remittances by guest workers to their home countries.
A mutual legal assistance agreement between the American Institute in Taiwan (AIT) and the Taipei Economic and Cultural Representative Office in the United States (TECRO) entered into force in March 2002. It provides a basis for the law enforcement agencies of the territories represented by AIT and TECRO to cooperate in investigations and prosecutions for narcotics-trafficking, money laundering (including the financing of terrorism), and other financial crimes. Although Taiwan is not a UN member and cannot be a party to the 1988 UN Drug Convention, the authorities on Taiwan have passed and implemented laws in compliance with the goals and objectives of the Convention. Taiwan is a founding member of the Asia/Pacific Group on Money Laundering (APG) and actively participates in the Group’s meetings. The MLPC is a member of the Egmont Group.
Over the past five years Taiwan has created and implemented an anti-money laundering regime within international standards. The APG’s May 2001 Mutual Evaluation Report on Taiwan recommended a number of improvements to its anti-money laundering program. The MLCA amendments, introduced in 2002, address a number of these recommendations, especially in the area of asset forfeiture. The authorities on Taiwan should adopt these proposed amendments to continue to strengthen the existing anti-money laundering regime. The authorities on Taiwan should also criminalize the support and financing of terrorism. The authorities on Taiwan should also enact legislation that would result in the issuance of regulations regarding alternate remittance systems.
Tajikistan. Tajikistan is not a financial center, and its underdeveloped banking sector does not make it attractive for money laundering. However, with average monthly income in the country near ten U.S. dollars, the temptation to become involved in narcotics-related transactions remains high for many segments of the society. Further, as the Government of Tajikistan (GOT) continues to pursue financial sector reform, measures to counter money laundering will grow in importance. There are indications that some small-scale money laundering takes place in the country, mostly through the purchase and subsequent import of goods and properties. Trade based money laundering is commonly used in the region.
Tajikistan has criminalized money laundering; the Criminal Code specifies fines ranging from approximately $700 to $4,000 (the fines are based on the national minimum wage, currently four Somoni per month or about $1.30) and a maximum prison term of ten years for the use or masking of funds derived from illegal activities. Tajik law also provides for the seizure of assets used in or derived from narcotics-related activity.
Tajik authorities have been cooperative with U.S. efforts to trace and halt terrorist-related funds, and Tajikistan has signed, but has not yet become a party to, the UN International Convention for the Suppression of the Financing of Terrorism.
Tajikistan is a party to the 1988 UN Drug Convention and the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Tajikistan has not yet enacted terrorist financing legislation.
Tanzania. Tanzania is a regional trade center. Police and government officials confirm that Tanzania is vulnerable to money laundering due to poor anti-money laundering controls. Similarly, a weak financial sector and an under-trained, under-funded law enforcement apparatus make such crimes difficult to track and prosecute. Officials have noted that some real estate and used car businesses are used for money laundering purposes. Government officials have also cited drug trafficking and the emerging casino industry as areas of concern for money laundering. The prevalence of money laundering and hawala, and the threat of terrorist organizations, on the unregulated island of Zanzibar make it an area of concern. Officials indicate that money laundering schemes in Zanzibar generally take the form of foreign investment in the tourist industry and bulk cash smuggling.
The Proceeds of Crime Act of 1991 criminalizes narcotics-related money laundering. However, the Act does not adequately define money laundering, and it has only been used to prosecute corruption cases. The law obliges financial institutions to maintain records of transactions exceeding 10,000 shillings (approximately $10) for a period of 10 years. If the institution has reasonable grounds to believe that a transaction relates to money laundering, it may communicate this information to the police for investigation, although such reporting is not required. Financial institution employees are legally protected from liability stemming from reporting suspicious transactions.
In November 2002, Parliament approved the Prevention of Terrorism Act, which the President signed into law on December 14. The Act criminalizes terrorist financing. It also requires all financial institutions to inform the government each quarter of whether any of their assets or any transactions may be associated with a terrorist group, although the implementing regulations for this provision have not yet been drafted. Under the Act, the government may seize assets associated with terrorist groups.
On November 11, 2002, the Parliament ratified the UN International Convention for the Suppression of the Financing of Terrorism, although the Government of Tanzania (GOT) has not yet deposited its instruments of ratification with the UN. Tanzania is a party to the 1988 UN Drug Convention. Tanzania is a member of the East and Southern Africa Anti-Money Laundering Group (ESAAMLG), which was founded in 1999. The GOT continues to play a leading role in the operation of this FATF-style regional body and has detailed personnel to the ESAAMLG Secretariat, located in donated office space in Dar es Salaam. In March 2002, Tanzania hosted the biannual ESAAMLG plenary, and will host it again in March 2003. Tanzania has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally.
Consonant with its commitment to supporting the ESAAMLG, Tanzania should enact comprehensive money laundering legislation that would apply to all serious crimes and include mandatory customer identification. The legislation should also require reporting of suspicious transaction reports to a Financial Intelligence Unit (FIU), which would be empowered to share information with other FIUs and foreign law enforcement agencies.
Thailand. Thailand’s location makes it a major risk for money laundering, as it is a transit country for Southeast Asian narcotics. Northern Thailand forms part of the Golden Triangle with Burma and Laos. Although Thailand has taken significant steps toward reducing the production of illicit narcotics, it still serves as a major narcotics-trafficking route for the Golden Triangle, because of its good transportation infrastructure and international connections. Smuggling of narcotics and contraband and evasion of customs duty are significant problems. Thailand is also a major production, transit and distribution country for counterfeit goods. Drug traffickers use Thailand’s banking system to hide and move their proceeds. The underground banking system is also widely in use as a money laundering method. Money is transported in bulk from the United States to other Asian countries, and ultimately moved to Thailand. Gambling dens and underground lotteries account for a significant portion of Thailand’s underground economy, and remain attractive mechanisms for money laundering. Thailand financial institutions and gem industry are also vulnerable to misuse by terrorist organizations and their supporters. Corruption remains a major problem and several high profile investigations were launched in 2002 concerning the laundering of the proceeds of corruption by public officials.
Thailand’s anti-money laundering legislation, the Anti-Money Laundering Act (AMLA) B.E. 2542 (1999) criminalizes money laundering for the following seven predicate offenses: narcotics-trafficking, trafficking in women or children for sexual purposes, fraud, financial institution fraud, , public corruption, customs evasion, extortion, and blackmail. The AMLA requires customer identification, record keeping, and the reporting of large and suspicious transactions, and provides, as well, for the civil forfeiture of property involved in a money laundering offense. Financial institutions are also required to keep customer identification and specific transaction records for a period of five years from the date the account was closed, or from the date the transaction occurred, whichever is longer. Reporting individuals (banks and others) who cooperate with law enforcement entities are protected. Thailand does not have secrecy laws that prevent disclosure of client and ownership information of bank accounts to supervisors and law enforcement authorities. The AMLA gives the anti-money laundering office the authority to compel a financial institution to disclose such information.
The AMLA created the, Anti-Money Laundering Office (AMLO) which became fully operational in 2001. AMLO is Thailand’s financial intelligence unit. AMLO receives, analyzes, and processes suspicious and large transaction reports as required by the AMLA. Between 1,000 and 1,200 suspicious transactions are reported each month on a regular basis. In addition, AMLO has the responsibility for investigating money laundering for civil forfeiture purposes and has additional responsibility for the custody, management, and disposal of seized and forfeited property. The AMLO is also tasked with providing training to the public and private sectors concerning the provisions of the AMLA. The law also creates the Transaction Committee which operates within AMLO to review and approve disclosure requests to financial institutions and asset restraint/seizure requests. The AMLA also established the Money Laundering Control Board, which is comprised of ministerial level officials and agency heads and serves as an advisory board that meets periodically to set national policy on money laundering issues and propose the relevant ministerial regulations.
The anti-money laundering controls apply to financial institutions and the Bureau of Land. The Stock Exchange of Thailand (SET) requires securities dealers to have know-your-customer procedures, however, the SET does not do any anti-money laundering compliance checks during its reviews. There are no anti-money laundering regulations for the insurance industry. Currency exchange dealers are required to be licensed, however, there are no anti-money laundering regulations for exchange businesses.
The Bank of Thailand (BOT) regulates financial institutions in Thailand, however, bank examiners are prohibited, except under limited circumstances, from examining the financial transactions of a private individual. This prohibition acts as an impediment to the BOT’s auditing a financial institution’s compliance with the AMLA or BOT regulations. Besides this lack of power to conduct transactional testing, BOT does not examine its financial institutions for anti-money laundering compliance. BOT and AMLO have agreed to jointly undertake this effort which should commence in 2003.
Financial institutions (such as banks, finance companies, savings cooperatives, etc.), land registration offices, and persons who act as solicitors for investors are required to report significant cash, property, and suspicious transactions. Reporting requirements for most financial transactions (including purchases of securities and insurance) exceeding 2 million baht (approximately $50,000) and property transactions exceeding 5 million baht (approximately $125,000) have been in place since October 2000. However, in December 2002, a proposal was made to lower the threshold for reporting cash transactions to 500,000 baht ($12,000). The proposal is not yet effective. The various land offices are also required to report on any transaction involving property of 5 million Thai baht, or greater, or a cash payment of 2 million Thai baht, or greater, for the purchase of real property.
Licenses were first granted to Thai and foreign financial institutions to establish Bangkok International Banking Facilities (BIBFs), in March 1993. BIBFs may perform a number of financial and investment banking services but can only raise funds offshore (through deposits and borrowing) for lending in Thailand or offshore. The United Nations Drug Control Program and the World Bank listed BIBFs as potentially vulnerable to money laundering activities, because they serve as transit points for funds. Thailand’s 44 BIBFs are now subject to AMLA.
The Royal Thai Government (RTG) recently proposed legislation to establish a new agency, the Special Investigation Department (SID). If the law is passed, it is likely SID will have responsibility for investigating most major financial crimes, including money laundering.
Thailand has not yet criminalized the financing of terrorism. Legislation to make terrorism a serious criminal offense, criminalize terrorist financing, and make it a predicate offense under AMLA is pending approval by the Thai parliament. The RTG issued instructions to all authorities to comply with UN Security Council Resolutions 1267, 1269, 1333, 1373, and 1390, including the freezing of funds or financial resources belonging to the Taliban and the al-Qaida network. To date, Thailand has not identified, frozen and/or seized assets linked to individuals and entities included on the UN 1267 Sanctions Committee consolidated list. The only action taken regarding alternative remittance systems is the general provisions of the AMLA, that make it a crime to transfer, or receive a transfer, that represents the proceeds of a predicate criminal offense.
The U.S.-Thai Mutual Legal Assistance Treaty entered into force in 1993. Thailand also has mutual legal assistance agreements with the United Kingdom, Canada, China PRC, France, and Norway. Numerous bilateral agreements are pending, as well as memoranda of understanding between the Anti-Money Laundering Office and financial intelligence units in other nations. AMLO expects to sign a number of agreements in March 2003 when Thailand hosts the 2nd Pacific Rim Conference on Money Laundering and Financial Crimes. Thailand is a member of the Asia/Pacific Group on Money Laundering (APG). In December 2000, Thailand signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally and is studying its domestic laws to determine what implementing legislation is required. In June 2001, Thailand became a member of the Egmont Group of financial intelligence units. Thailand is a party to the 1988 UN Vienna Convention. The RTG has signed, but not ratified, the UN International Convention for the Suppression of the Financing of Terrorism.
The Royal Thai Government should continue to implement its anti-money laundering program but until the RTG provides a viable mechanism for its financial institutions to be examined for compliance with the AMLA, Thailand’s anti-money laundering regime will not comport with international standards. The RTG should require the SET to include anti-money laundering compliance checks during its reviews. The RTG should develop and implement anti-money laundering regulations for exchange businesses and should take additional measures to address alternative remittance systems to further strengthen its anti-money laundering regime against crime, particularly by expanding its predicate offenses to include a broader base of serious financial crimes, such as arms/weapons trafficking, alien smuggling, and environmental crimes, as well as making structuring a criminal offense. Thailand continues to suffer problems with asset management and disposition due in part to a lack of resources. This lack of resources could be addressed through the creation of an Asset Forfeiture Fund which could make funds available for money laundering and asset forfeiture investigations. The RTG should create such a fund. Thailand’s lack of anti-terrorist financing legislation renders its financial institutions vulnerable to misuse by terrorist organizations and their supporters. The RTG should pass legislation criminalizing terrorist financing and ratify the International Convention for the Suppression of the Financing of Terrorism.
Togo. Togo’s poor financial infrastructure makes it an unlikely venue for money laundering through its financial institutions. Its porous borders, however, make it a transshipment point in the regional and sub-regional trade in narcotics. Togo’s 1998 drug law criminalizes narcotics-related money laundering and penalizes offenses with up to 20 years in prison. However, there have never been any arrests for money laundering. Financial institutions are required to monitor and report monetary transactions above a threshold appropriate to the local economic situation, and must maintain records of such transactions and supply them to government authorities on request. Financial institutions are legally protected in respect to their cooperation with law enforcement authorities. Due diligence legislation applies to bankers and other professionals, although no arrests have been made for violations of this law.
The Government of Togo (GOT) has the legal authority to seize assets associated with drug trafficking. In 2001, President Eyadema created the national Anti-Corruption Commission to combat corruption and money laundering.
Terrorist financing is a criminal offense in Togo. The GOT has circulated to Togolese financial institutions the names of suspected terrorists and terrorist organizations listed on the UN 1267/1390 consolidated sanctions list and on additional lists supplied by the U.S. Government. The GOT closely regulates charities and other non-governmental organizations.
The Central Bank of West African States (BCEAO), based in Dakar, is the Central Bank for the countries in the West African Economic and Monetary Union (WAEMU): Benin, Burkina Faso, Guinea-Bissau, Cote d’Ivoire, Mali, Niger, Senegal, and Togo, all of which use the French-backed CFA franc currency. All bank deposits over approximately $7,700 made in BCEAO member countries must be reported to the BCEAO, along with customer identification information. In September 2002, the WAEMU Council of Ministers, which oversees the BCEAO, issued a directive requesting that each member country set up a national committee under their Minister of Finance to deal with financial information as it relates to money laundering. The BCEAO would be in charge of coordinating such committees. Each member country is now responsible for putting legislation in place to implement this directive, and the legislation is expected to be harmonized regionally.
The WAEMU Council of Ministers issued another directive in September 2002 requesting member countries to pass legislation requiring banks to freeze the accounts of any persons or organizations targeted by the UNSCR 1267/1390 consolidated list.
In 2000, the Economic Community of West African States (ECOWAS) established the Intergovernmental Group for Action Against Money Laundering (GIABA), based in Dakar, Senegal. In November 2002, GIABA hosted an anti-money laundering seminar for representatives of 14 ECOWAS members, including Togo. In July 2002 Togo participated in the 2002 West African Joint Operation Conference (WAJO) that promotes regional law enforcement cooperation against narcotics-trafficking, terrorism, and money laundering.
Togo is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Togo ratified the UN International Convention for the Suppression of the Financing of Terrorism on February 14, 2002.
Togo should criminalize money laundering for all serious crimes.
Trinidad and Tobago. Trinidad and Tobago has a well-developed and modern banking sector, and is an increasingly significant regional financial center. Consequently, the country suffers increasingly financial crimes, mostly in the form of counterfeiting and credit card fraud. It is likely that money laundering takes place in investment firms, credit unions, banks, insurance companies, casinos, and some retail businesses. Importers under-invoicing imported goods for possible money laundering purposes is a concern as well. In December 2001, a senior customs official was assassinated outside his home. The official was instrumental in investigating allegations of fraud, corruption and under-valuation of goods by customs employees. A police investigation is ongoing.
The Proceeds of Crime Act of 2000 (POCA) expanded money laundering predicate offenses to include all serious crimes, and instituted reporting requirements for suspicious transactions. Failure to comply with POCA’s record keeping and reporting requirements can result in a fine of 250,000 TT (approximately $40,000) and imprisonment for two years for summary conviction, and a fine of 3,000,000 TT (approximately $500,000) and seven years imprisonment for conviction on indictment. Upon summary conviction for money laundering, an offender can be liable for a fine of 25,000,000 TT (approximately $4,000,000) and 25 years imprisonment. Furthermore, under the POCA, any officer who aids and abets the money laundering activities of an institution can be convicted of money laundering even if the institution itself has not been prosecuted or convicted. The POCA also enables the courts to seize the proceeds of all serious crimes, although no profits or property have been seized under the Act. Under POCA and the 1987 Prevention of Corruption Act, a former Minister of Finance has been charged, along with others, with offenses ranging from corruption and money laundering to misbehavior in public office and aiding and abetting the same. The Government of Trinidad and Tobago (GOTT) has legislation in place that allows it to trace, freeze, and seize assets, including intangible assets such as bank accounts. Authorities may seize legitimate businesses if they are used to launder drug money. The GOTT has circulated to its financial institutions the 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, al-Qaida, the Taliban, along with the list of Specially Designated Global Terrorists designated by the United States pursuant to E.O. 13224 (on terrorist financing) and the relevant EU lists. GOTT customs regulations require that any sum above $5,000 (in currency or monetary instruments) entering or leaving the country be declared. Cash above $10,000 may be seized, with judicial approval, pending determination of its legitimate source. The GOTT does not have legislation that specifically authorizes the sharing of forfeited assets with other countries, but has done so in the past on a case-by-case basis through bilateral agreements.
The GOTT has approved a UNDCP plan that involves drafting updated guidelines for anti-money laundering legislation, exchange of information, record keeping, independent regulatory structures, suspicious transaction, reporting, know your customer requirements, and international cooperation.
The Central Bank has set money laundering guidelines, including due diligence provisions that apply to all financial institutions subject to the 1993 Financial Institutions Act. These include banks, finance companies, leasing corporations, merchant banks, mortgage institutions, unit trusts, credit card businesses, and financial services businesses. Credit unions and exchange houses are not subject to the guidelines.
The GOTT has an inter-ministerial counternarcotics/crime task force that investigates narcotics-trafficking and related money laundering.
The U.S. Internal Revenue Service is providing technical assistance to the Trinidad and Tobago Bureau of Inland Revenue to assist them in developing a comprehensive criminal investigations system that would be targeted to reducing corruption and enforcing the criminal statutes concerning tax administration and related financial crimes. This is being done in order to achieve compliance with the GOTT’s Income Tax Act.
The GOTT has not become a signatory to the UN International Convention for the Suppression of the Financing of Terrorism, nor is the GOTT deemed to have implemented its principles in accordance with it’s own FATF self-assessment. There has not yet been any identified evidence of terrorist financing in Trinidad and Tobago.
Trinidad and Tobago is a party to the 1988 UN Drug Convention. Trinidad and Tobago is also a member of the CFATF, which is headquartered in Port of Spain. It underwent a second round CFATF mutual evaluation in 2002, and the report has been endorsed by CFATF’s Council of Ministers. Trinidad and Tobago is also a member of the OAS Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering. In 1999, an MLAT with the United States entered into force. In 2000, the U.S. and GOTT signed a joint statement on law enforcement cooperation, which pledges in part to expand cooperation on the detection and prosecution of money laundering and related criminal activities.
The GOTT should pass anti-terrorist financing legislation that will provide the authority to identify, freeze and seize terrorist assets. The GOTT should also continue its efforts to improve its ability to criminally investigate money laundering.
Tunisia. There is little public information about money laundering in Tunisia. Although it is an offshore financial center, it is not a regional financial center and the government keeps a close hand on the management of the economy. However, the lack of a money laundering law makes Tunisia vulnerable to money laundering. The Ministry of Finance and the Central Bank regulate 12 offshore banks. The Central Bank regularly conducts surprise audits of accounts and transactions of offshore banks. The Ministries of Commerce and Industry and Energy regulate approximately 1,200 offshore manufacturing companies. The Ministry of Commerce also regulates 300 offshore trading companies. The offshore companies may be 100 percent foreign owned. Anonymous directors are not permitted, and the names of all directors and companies must be listed when the company is organized or when there is a change in directorship. Trading companies, as a rule, operate by matching up third country supply and demand and brokering trade deals, with no goods ever entering or leaving Tunisia. The government closely monitors offshore manufacturing and tightly limits foreign ownership of Tunisian companies.
There is no limit on the amount of foreign currency that may be brought into the country, but amounts over 1,000 Tunisian dinars or its equivalent must be declared (approximately $750). There are limits on the amount of gold that may be brought into the country. In December 2002, the legislature discussed tightening gold import regulations in light of an emerging parallel gold market.
Tunisia has no specific counter-terrorist financing law, but in November 2001, Tunisia signed the UN International Convention for the Suppression of the Financing of Terrorism. Tunisia is a party to the 1988 UN Drug Convention, and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally.
Tunisia should pass a comprehensive anti-money laundering law as the first step in developing a viable anti-money laundering program. Tunisia should also criminalize terrorist financing.
Turkey. Turkey is an important regional financial center for Central Asia and the Middle East and continues to be a major transit route for Southwest Asian opiates moving to Europe. However, local narcotics-trafficking organizations are reportedly responsible for only a small portion of the total of funds laundered in Turkey. A substantial percentage of money laundering that takes place in Turkey appears to involve tax evasion. Money laundering takes place in both banks and non-bank financial institutions. Traditional money laundering methods in Turkey involve the cross-border smuggling of currency, bank transfers into and out of the country, and the purchase of high value items such as real estate, gold and luxury automobiles. Turkey is not an offshore financial center and does not have secrecy laws that prevent disclosure of client and ownership information to bank supervisors and law enforcement officials. Since the financial crisis of 2000, the Turkish Government has taken over 19 of Turkey’s 81 banks, and has significantly tightened oversight of the banking system through an independent regulatory authority.
Turkey criminalized money laundering in 1996 for a wide range of predicate offenses, including narcotics-related crimes, smuggling of arms and antiquities, terrorism, counterfeiting, and trafficking in human organs and in women. The Council of Ministers subsequently passed a set of regulations that mandate the filing of suspicious transaction reports (STRs), and require customer identification and the maintenance of records for five years. These regulations apply to banks and a wide range of non-bank financial institutions, including insurance firms and jewelry dealers. However, the number of STRs being filed is only about 100 per month, a very low number, even taking into consideration the fact that the Turkish economy is a cash-based one. A possible reason for this is the lack of safe harbor protection for bankers and other filers of STRs. Turkish officials indicated in August 2002 that the GOT has drafted a bill that will provide such protection.
Turkey also has in place a system for identifying, tracing, freezing and seizing narcotics-related assets, although Turkish law allows for only criminal forfeiture.
The GOT broadened the definition of money laundering in 2001 through adoption of three conventions of the Council of Europe (CE): the CE Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds of Crime; and the CE Criminal Law Convention on Corruption. By becoming a party to these conventions, the Turkish Government agreed to include proceeds of all serious crimes in the definition of money laundering, and to specify corruption as a predicate offense for money laundering. As of December 2002, the GOT had submitted to the Turkish Parliament a draft law that would add bribery to the list of predicate offenses for money laundering.
In July 2001, the Ministry of Finance issued a circular of banking regulations requiring all banks, including the Central Bank, securities companies, and post office banks, to record tax identity information for all customers opening new accounts, applying for checkbooks, or cashing checks. Tax identity disclosure will also be obligatory for cash transfers exceeding $4,000. The circular also required exchange offices to sign contracts with their clients and to record tax identity information for all transactions over $3,000. Financial institutions will have to obtain tax identity information before cashing customers’ securities. And non-interest bearing entities such as Islamic financial institutions are required to record tax identity information for all transactions.
The Ministry of Finance also issued a circular mandating that a tax identity number be used in all financial transactions as of September 1, 2001. The circular applies to all Turkish banks and to branches of foreign banks operating in Turkey, as well as other financial entities. The new requirements are intended to increase the government’s ability to track suspicious financial transactions.
The 1996 anti-money laundering law established the Financial Crimes Investigation Board (MASAK), which is part of the Ministry of Finance, which receives, analyzes and refers STRs for investigation. MASAK serves as Turkey’s financial intelligence unit (FIU). MASAK has a pivotal role between the financial community, on the one hand, and Turkish law enforcement, investigators and judiciary, on the other. In 2002, MASAK received a grant from the European Union to set up a new database system that will give it direct online access to all Turkish government databases. In 1997, the GOT established the Financial Crimes Investigative Board (FCIB). Since that time, the FCIB has pursued more than 500 money laundering cases. Of those, 59 have been prosecuted, with only one case resulting in a conviction. Most of the cases involve non-narcotic criminal actions or tax evasion; roughly 30 percent are narcotics related. It is believed that Turkish-based traffickers collect and transfer money to pay narcotic suppliers in Pakistan and Afghanistan, primarily by using money exchanges in Istanbul. The exchanges in turn wire transfer the funds through Turkish banks to accounts in Dubai and other locations in the Gulf. The money or value is then transferred, often through alternative remittance systems, to narcotics suppliers in Pakistan and Afghanistan.
Turkey cooperates closely with the United States and its neighbors to support the development of a regional anti-crime center in the Balkans under the Southeast Europe Cooperation Initiative (SECI). Turkey and the United States have a MLAT and cooperate closely on narcotics and money laundering investigations.
Turkey is a party to the 1988 UN Drug Convention and is a member of the Financial Action Task Force. MASAK is an active member of the Egmont Group. In December 2000 Turkey signed, but has not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally.
Turkey has traditionally taken a strong stance against terrorism. In May of 2002, Turkey became a party to the UN International Convention for the Suppression of Terrorist Bombings. In February 2002, MASAK issued General Communique No. 3 that detailed a new type of suspicious transaction report to be filed by financial institutions in cases of terrorist financing. Turkey also became a party to the UN International Convention for Suppression of the Financing of Terrorism on June 28, 2002. The GOT has the authority to identify and freeze the assets of terrorist individuals and groups designated by UN 1267 Sanctions Committee, and it froze such assets in several cases during 2002. Although Turkey has not specifically criminalized the financing of terrorism, there are various laws that have provisions which can be used to punish the financing of terrorism. In particular, Article 169 of the Turkish Penal Code prohibits assistance in any form to a criminal organization and any organization which acts to influence public services, media, proceedings of bids, concessions and licenses; to gain votes by using or threatening violence; to commit crimes by implicitly or explicitly intimidating and cowing people is illegal under the provisions of the Law No. 4422 on the Prevention of Benefit-Oriented Criminal Organizations.
Turkey has demonstrated a commitment to fight money laundering and terrorist financing. The GOT should enact its safe harbor bill to protect the filers of STRS, which may result in increased filings. Tax evasion remains a severe problem in Turkey and is directly linked to money laundering. Turkey’s 2001 initiative on tax identity numbers should enhance its ability to prosecute tax evaders. Turkey should also regulate and investigate alternative remittance networks for to thwart misuse by terrorist organizations or their supporters.
Turkmenistan. Turkmenistan has only a few international banks and a small, underdeveloped domestic financial sector. Turkmenistan’s economy is primarily cash-based. Due to the presence of narcotics-trafficking and organized criminal groups, the country’s several foreign-owned hotels and casinos could be vulnerable to financial fraud and money laundering. In addition, the national currency, the manat, has an accepted black market exchange rate that is four times the official rate. These rates create conditions that are favorable to money laundering. Corruption in Turkmenistan is also a source of concern due to the low salaries and broad general powers of Turkmen law enforcement officials. The Government of Turkmenistan did not report any suspected cases of money laundering in 2002.
Article 242 of the Criminal Code imposes liability for the laundering of criminal proceeds. Financial and other transactions using criminal proceeds are punishable by a fine or up to two years imprisonment. Presidential Resolution 0210/02-2 of 1995 gives the Central Bank authority over all international financial transactions. Under this resolution, any entity making an electronic transfer of funds to an account abroad must provide documentation that establishes the source of the funds.
Turkmenistan is a party to the 1988 UN Drug Convention.
Turkmenistan should criminalize terrorist financing and develop a viable anti-money laundering regime.
Turks and Caicos. The Turks and Caicos Islands (TCI) is a Caribbean overseas territory of the United Kingdom (UK). TCI is comprised of two island groups and forms the southeastern end of the Bahamas archipelago. The U.S. dollar is the currency in use. TCI has a significant offshore center, particularly with regard to insurance and international business companies (IBCs). Its location has made it a transshipment point for narcotics-traffickers. The TCI is vulnerable to money laundering because of a large offshore financial services sector as well as because of bank and corporate secrecy laws and Internet gaming activities.
The TCI’s offshore sector has eight banks (five of which also deal with onshore clientele), approximately 2,500 insurance companies, 1,000 trusts, and 13,000 “exempt companies” that are IBCs, including those formed by the Enron Corporation. The Financial Services Commission (FSC) licenses and supervises banks, trusts, insurance companies, and company managers; it also licenses IBCs and acts as the Company Registry for the TCI. The Financial Services Commission employs a staff of 14 and conducts limited on-site inspections. The FSC became a statutory body under the Financial Services Commission Ordinance 2001 and became operational in March 2002, and now reports directly to the Governor.
The offshore sector offers “shelf company” IBCs, and all IBCs are permitted to issue bearer shares; however, the Companies (Amendment) Ordinance 2001 requires that bearer shares be immobilized by depositing them, along with information on the share owners, with a defined custodian. This applies to all new shares issued and will be phased in for existing bearer shares within two years. Trust legislation allows establishment of asset protection trusts inoculating assets from civil adjudication by foreign governments; however, the Superintendent of Trustees has investigative powers and may assist overseas regulators.
The 1998 Proceeds of Crime Ordinance criminalized money laundering related to all crimes and established extensive asset forfeiture provisions and “safe harbor” protection for good faith compliance with reporting requirements. The Law also established a Money Laundering Reporting Authority (MLRA), chaired by the Attorney General, to receive, analyze, and disseminate financial disclosures such as suspicious activity reports. Its members also include the following individuals or their designees: Collector of Customs, the Superintendent of the FSC, the Commissioner of Police, and the Superintendent of the Criminal Investigation Department. The MLRA is authorized to disclose information it receives to domestic law enforcement and foreign governments.
The Proceeds of Crime (Money Laundering) Regulations came into force January 14, 2000. The Money Laundering Regulations place additional requirements on the financial sector such as identification of customers, retention of records for a minimum of five years, training staff on money laundering prevention and detection, and development of internal procedures in order to ensure proper reporting of suspicious transactions. The Money Laundering Regulations apply to banking, insurance, trustees, and mutual funds. Although the customer identification requirements only apply to accounts opened after the Regulations came into force, TCI officials have indicated that banks would be required to conduct due diligence on previously existing accounts by December 2005.
In 1999, the FSC, acting as the secretary for the MLRA, issued non-statutory Guidance Notes to the financial sector, in order to help educate the industry regarding money laundering and the TCI’s anti-money laundering requirements. Additionally, it provided practical guidance on recognizing suspicious transactions. The Guidance Notes instruct institutions to send SARs to either the Royal Turks & Caicos Police Force or the FSC. Officials forward all suspicious activity reports (SARS) to the Financial Crimes Unit (FCU) of the Royal Turks and Caicos Islands Police Force, which analyzes and investigates financial disclosures. The FCU also acts as TCI’s Financial Intelligence Unit. As of mid-2001, the FCU had received and begun investigating nine SARs.
As with the other United Kingdom Caribbean overseas territories, the Turks and Caicos underwent an evaluation of its financial regulations in 2000, co-sponsored by the local and British governments. The report noted several deficiencies and the government has moved to address most but not all of them. The report noted the need for increased on-site examinations by supervisory authorities, which the government acknowledged, but which still remains a concern. An Amendment to the Banking Ordinance was introduced in February 2002 to remedy deficiencies outlined in the report relating to notification of the changes of beneficial owners, and increased access of bank records to the FSC, but the Ordinance has not yet been enacted. No legislation has yet been introduced to remedy the deficiencies noted in the report with respect to the Superintendent’s lack of access to the client files of Company Service and Trust providers, nor is there legislation that clarifies how the Internet gaming sector is to be supervised with respect to anti-money laundering compliance.
The TCI cooperates with foreign governments—in particular, the United States and Canada—on law enforcement issues including narcotics-trafficking and money laundering. The FCU also shares information with other law enforcement and regulatory authorities inside and outside of the TCI. The new Overseas Regulatory Authority (Assistance) Ordinance 2001, allows the TCI to further assist foreign regulatory agencies. This assistance includes search and seizure powers and the power to compel the production of documents.
The TCI is a member of the Caribbean Financial Action Task Force, and is subject to the 1988 UN Drug Convention. The Mutual Legal Assistance Treaty between the United States and the United Kingdom concerning the Cayman Islands was extended to the TCI in November 1990.
The Turks and Caicos have put in place a comprehensive system to combat money laundering with the relevant legislative framework and an established Financial Intelligence Unit. The TCI should move forward with by criminalizing the financing of terrorists and terrorism, and enhancing its on-site supervision program. TCI should expand recent efforts to cooperate with foreign law enforcement and administrative authorities, and join the Egmont Group in order to further ensure criminals do not abuse the TCI’s financial sector.
The FSC has made steady progress in developing its regulatory capability and has some experienced senior staff. However, the current regulatory structure is not fully in accordance with international standards. Much progress has been made in enhancing the regulatory framework, with a considerable volume of new legislation passed, but TCI should continue its efforts.
Uganda. Uganda is not a regional money laundering center. Ugandan law enforcement agencies suspect that Uganda’s banks and non-bank financial sector are used to launder money, but thus far have been unable to prove their suspicions because of the country’s inadequate legal framework. Foreign exchange bureaus and alternative remittance systems are widely used in Uganda and are essentially unregulated.
In 2001, Uganda criminalized narcotics-related money laundering. The Bank of Uganda has issued “Know Your Customer” guidelines; however, it does not have the authority to penalize non-compliance. Uganda lacks a comprehensive anti-money laundering regime.
Uganda established an interagency Anti-Money Laundering Committee in 2000, which was tasked with drafting an anti-money laundering law based on FATF principles. In August 2002, the Committee produced a draft law based on UN models, international standards and South Africa’s anti-money laundering law. The draft law, which at the end of 2002 was undergoing comment and revision, contains provisions relating to suspicious transaction reporting, record keeping, legal protection for those who cooperate with law enforcement, the regulation of non-bank financial institutions, international cooperation, and asset forfeiture. As of December 2002, the issue of criminalizing money laundering for all serious crimes through the draft law was still undecided. Uganda is also working on a bill that would provide for an offshore banking sector.
Uganda criminalized terrorist financing in the Anti-Terrorism Act, which was enacted on June 7, 2002.
Uganda has signed the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) MOU and has assumed the rotating chairmanship of ESAAMLG for 2003. Uganda is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the United Nations Convention against Transnational Organized Crime, which is not yet in force internationally. Uganda has signed, but not yet become a party to, the UN International Convention for the Suppression of the Financing of Terrorism.
Uganda should enact a comprehensive anti-money laundering regime that criminalizes money laundering for all serious crimes.
Ukraine. The lack of a comprehensive anti-money laundering system seriously impedes Ukraine’s ability to combat money laundering and other financial crime. High level and widespread corruption, organized crime, smuggling and tax evasion continue to plague Ukraine’s economy. Transparency International has rated Ukraine 2.4, on a scale where 10 means “highly clean.” Ukraine’s former Prime Minister, Pavlo Lazarenko, is in a U.S. prison awaiting trial on charges that he laundered over $100 million, which he allegedly obtained illegally while serving as Prime Minister. Ukraine has provided assistance to the United States in connection with this prosecution.
As a member of the Council of Europe, Ukraine underwent a mutual evaluation by that group’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (Moneyval, formerly PC-R-EV) in May 2000. Although Ukraine criminalized drug money laundering in 1995, the mutual evaluation report was highly critical of Ukraine, noting significant deficiencies throughout the law enforcement, legal, and financial sectors. Paramount among the noted deficiencies was the “absence of a comprehensive anti-money laundering preventive law.”
Effective September 1, 2001, the Government of Ukraine (GOU) criminalized non-drug money laundering in the Criminal Code of Ukraine. Provisions in the criminal code also address drug-related money laundering offenses and provide for the confiscation of proceeds generated by criminal activities. The GOU enacted the “Act on Banks and Banking Activities” (Act) of January 2001, which imposes counter-money laundering measures upon banking institutions. The Act prohibits banks from opening accounts for anonymous persons, requires the reporting of large transactions and suspicious transactions to state authorities, and provides for the lifting of bank secrecy pursuant to an order of a court, prosecutor, or specific state body.
In August 2001, “The Law on Financial Services and State Regulation of the Market of Financial Services” was signed. The law establishes some regulatory controls over non-bank financial institutions that manage insurance, pension accounts, financial loans, or “any other financial services involving savings and money from individuals.” Specifically, the law defines financial “institutions” and “services,” imposes record keeping requirements on covered entities, and identifies the responsibilities of regulatory agencies. The law created a Committee on Supervising Financial Operations and Markets, which, with the National Bank of Ukraine and the State Commission on Securities and Stock Market, has the primary responsibility for regulating financial services markets.
When the FATF, in September 2001, placed Ukraine on the list of Non-Cooperative Countries and Territories (NCCT) in the fight against money laundering, its report noted that Ukraine lacked (1) a complete set of anti-money laundering laws; (2) an efficient mandatory system for reporting suspicious transactions to a Financial Intelligence Unit (FIU); (3) adequate customer identification requirements; and (4) adequate resources at present to combat money laundering. Following the FATF action, FinCEN, the U.S. Financial Intelligence Unit, issued an advisory to all U.S. financial institutions instructing them to “give enhanced scrutiny” to all transactions involving Ukraine.
On December 10, 2001, the Presidential Decree “Concerning the Establishment of a Financial Monitoring Department” mandated the creation of the Financial Monitoring Department (FMD) by January 1, 2002, to function as an FIU. Under the terms of this decree, the FMD is an independent authority that operates under the Cabinet of Ministers. Under the current law the FMD becomes the Authorized Agency designed to receive and analyze financial information from first line financial institutions. With the new legislation (effective six months after signing), the FMD will have more authority and guidelines for operation.
On November 28, 2002, President Kuchma signed into law an anti-money laundering package “On Prevention and Counteraction to the Legalization (Laundering) of the Proceeds from Crime.” The law calls for customer identification, reporting of suspicious and unusual transactions to an “Authorized Agency,” and five years of record keeping. It also mandates the establishment of anti-money laundering procedures in first-line financial institutions such as banks; stock, securities, and commodity brokers; and insurance companies, among other entities. Non-cash transactions in amounts equal to or greater than 300,000 hryvnyas (approximately $55,000) and cash transactions equal to or greater than 100,000 hryvnyas (approximately $18,500) are to be monitored. Any transaction that is suspected of being connected to terrorist activity is to be reported to the appropriate authorities immediately. Corresponding changes to the Criminal Code to establish a money laundering offense in conformity with this law have yet to occur.
The GOU has cooperated with USG efforts to track and freeze the financial assets of terrorists and terrorist organizations. The National Bank of Ukraine (NBU), State Tax Administration, Ministry of Finance, and State Security Service (SBU) are fully aware of Executive Order (E.O.) 13224 and subsequent updates and addenda to the lists of terrorists and terrorist organizations. All agencies have tracked data that was provided, and have exchanged information. The NBU has issued orders to banks to freeze accounts of individuals or organizations listed in the E.O. and later lists. There are, however, problems (which the Ukrainians themselves recognize) of coordination among agencies, and serious gaps in legislation and regulation. Many of the difficulties are directly related to what the FATF had already noted, and the GOU is working to address these issues. The GOU has also taken appropriate steps to implement UN Security Council resolutions relevant to fighting terrorism. The Cabinet of Ministers, on December 22, 1999, issued a resolution ordering agencies and banks to freeze Taliban funds as specified in UNSCR 1267. A Cabinet of Ministers resolution, on April 11, 2001, instructed the NBU to order all banks to comply with UNSCR 1333. In response to these measures, the NBU sent letters to regional departments and commercial banks to execute all applicable provisions of UNSCRs 1267 and 1333.
Ukraine is a party to the 1988 UN Drug Convention as well as the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime, which came into force with respect to Ukraine in January 1998. The U.S.-Ukraine Treaty on Mutual Legal Assistance in Criminal Matters was signed in 1998 and entered into force in February 2001. A bilateral Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital, which provides for the exchange of information in administrative, civil and criminal matters, is also in force. Ukraine has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. In January 2002, the European Convention on the Suppression of Terrorism was signed. Ukraine ratified the UN International Convention for Suppression of the Financing of Terrorism in December 2002.
FATF gave Ukraine until October 2002 to enact comprehensive, effective anti-money laundering legislation, or it would face the possibility of countermeasures from the FATF member countries. At its September 2002 plenum, FATF extended this deadline until December 15. Nevertheless, Ukraine had not responded satisfactorily to its listing by FATF. On December 20, the FATF determined that Ukraine’s statute did not meet international standards and announced that FATF members would impose countermeasures on Ukraine. Under Section 311 of the USA PATRIOT Act, the United States has designated Ukraine as a jurisdiction that is a primary money laundering concern and has announced possible countermeasures.
By passing its legislation, Ukraine had hoped to forestall the countermeasures threatened by FATF. The FATF Europe Review Group’s report to the FATF Plenary, however, highlighted a number of shortcomings and ambiguities, which make the law ineffective. Just one example is Article 8, which states unequivocally that information containing bank secrecy information may not be shared with anyone. This is in direct conflict with Article 13, which mandates turning over relevant materials to the appropriate law enforcement authorities.
Ukraine must demonstrate its political will to combat money laundering by strengthening and clarifying its newly adopted law. It must adopt appropriate regulations, amend its Criminal Code, and criminalize terrorist financing. Additionally, GOU should implement mandatory reporting of suspicious and unusual transactions to the FMD, and allow the FMD to forward cases to the appropriate authorities.
United Arab Emirates. The United Arab Emirates (UAE) is a major financial and trading center in the Gulf region of the Middle East and is located at the crossroads of major narcotics smuggling routes. It has growing ties with financial centers in Europe, Asia, southern Africa, and North America. The financial sector is modern and outward looking. Currently, the UAE financial system has 20 national banks (with 311 branches), 27 foreign banks (with 110 branches), two investment banks, five finance companies, five investment companies and 45 representative offices of foreign banks. There are 100 money exchanges (with 113 branches) operating in the country, along with 45 other financial intermediaries (brokerages) and eight banking, financial, and investment consultation establishments and companies.
The UAE’s robust economic development and liberal business environment have attracted a massive influx of people and capital. Approximately 70 percent of the UAE population is comprised of non-nationals. Over 14 million people passed through Dubai’s airport in 2000, and 50 million are projected by the year 2010. The UAE, like all countries in the region, is a cash-intensive society. In addition, Dubai is the regional gold center with integrated gold trading ties between Europe and South Asia. Gold is often manipulated by money launderers around the world via trade or as part of alternative remittance systems such as the South Asia-based hawala system of transferring funds. All of these factors suggest that the UAE is at high risk for money laundering. Due to the volume of goods passing through the UAE, the Gulf Arabs’ traditional role as business brokers, and lax customs control, the UAE is particularly vulnerable to trade-related money laundering.
In January 2002, the President of the United Arab Emirates promulgated Law No. 4 criminalizing all forms of money laundering activities. All persons, financial institutions, and other commercial and economic establishments will be criminally liable for the offense of money laundering. Such offenses are punishable by imprisonment (up to seven years) and steep fines.
The UAE, and in particular Dubai, is a major international hawala and currency exchange center. The fact that hawala is an undocumented and non-transparent system, and is highly resilient in response to enforcement and regulatory efforts, makes it difficult to control and a highly lucrative mechanism for terrorist and criminal exploitation. The UAE has begun to make progress in publicly accepting its vulnerability and involvement vis-à-vis hawala.
The UAE hosted an International Conference on Hawala in May 2002, which was attended by over 300 delegates including government officials, executives of supervisory institutions, banking experts, and law enforcement officials from 58 countries. The conference concluded with the issuance of “The Abu Dhabi Declaration on Hawala,” which calls for the establishment of a sound mechanism to regulate hawala. The Central Bank of the UAE drafted a system for registering and supervising the hawaladars (the hawala brokers). The Board of Directors of the Central Bank approved the system, and it is being implemented. Advertisements are published in the local press calling on hawaladars to register at the Central Bank and receive a certificate—free of charge—with minimum red tape. They are then required to provide details of remitters and beneficiaries on a special spreadsheet, and deposit such sheets at the Central Bank. They are also required to report suspicious transfers.
The supervision of the UAE banking and financial sector falls under the authority of the Central Bank. The Central Bank issues instructions and recommendations as deemed appropriate and is permitted to take any necessary measure to ensure the integrity of the UAE’s financial system. The Central Bank issues licenses to financial institutions under its supervision and may impose administrative sanctions for compliance violations.
UAE anti-money laundering measures can be found in a series of rules and regulations issued by the Central Bank, and thus, are generally applicable to those financial entities that fall under its supervision. There are a number of circulars issued by the Central Bank requiring customer identification and providing for a basic suspicious transaction-reporting obligation. Current regulations require that all cash transactions exceeding 200,000 dirhams ($54,500) be reported. When suspicious activity is reported from a financial institution, the Central Bank is able to freeze suspect funds, make appropriate inquiries, and coordinate with law enforcement officials.
In July 2000, the UAE established the National Anti-Money Laundering Committee, under the Chairmanship of the Central Bank’s Governor, with representatives from the Ministries of Interior, Justice, Finance, and Economy, the National Customs Board, the Secretary General of the Municipalities, the Federation of the Chambers of Commerce, and five major banks and money exchange houses (as observers). It has overall responsibility for coordinating anti-money laundering policy.
Following a review of current practices by the Committee, in November 2000 the Central Bank issued Circular 24/2000, which consolidates and expands anti-money laundering requirements for the financial sector. It is applicable to all banks, money exchanges, finance companies, and other financial institutions operating in the UAE. The Circular provides the procedures to be followed for the identification of natural and juridical persons, the types of documents to be presented, and rules on what customer records must be maintained on file at the institution. Other provisions of Circular 24/2000 call for customer records to be maintained for a minimum of five years and further require that they be periodically updated as long as the account is open.
With implementation of Law 4/2002 came the establishment of the Anti-Money Laundering and Suspicious Case Unit (AMLSCU), which is located within the Central Bank. Financial institutions under the supervision of the Central Bank are required to report suspicious transactions to the AMLSCU, which is charged with examining them and coordinating the release of information with law enforcement and judicial authorities. It has the authority to request information from foreign regulatory authorities in carrying out its preliminary investigation of suspicious transaction reports. Officials indicate that exchanges with foreign Financial Intelligence Units are possible, provided the exchanges are conducted on a basis of reciprocity. The AMLSCU, which is a member of the Egmont Group, is exploring areas of information sharing with other Financial Intelligence Units. AMLSCU has provided information relating to investigations carried out by international authorities.
The National Anti-Money Laundering Committee issued a Cautionary Notice in the local press to make the general public aware of the possibilities through which terrorist financing could be transacted and has urged avoidance of such possibilities. UAE has extended full support and cooperation to the UN and U.S. authorities in their efforts to track the accounts of terrorists. Under UNSCR 1267/1390, UAE has frozen accounts of certain organizations and individuals with amounts equal to approximately $3 million.
Four known money laundering cases involving foreign nationals have been referred to courts. Some cases ended in convictions.
The government monitors registered charities and requires the organizations to keep records of donations and beneficiaries. The Ministry of Labor and Social Affairs regulates charities and charitable organizations in UAE.
The UAE is noted for its growing free trade zones (FTZs). There are well over a hundred multinational companies located in the FTZs with thousands of individual trading companies. The FTZs permit 100 percent foreign ownership, no import duties, full repatriation of capital and profits, no taxation, and easily obtainable licenses. Companies located in the free trade zones are treated as being offshore or outside the UAE for legal purposes.
The UAE is a party to the 1988 UN Drug Convention, and it has entered into a series of bilateral agreements on mutual legal assistance. The UAE is a member of the Gulf Cooperation Council, which is a member of the Financial Action Task Force (FATF). The UAE has been generally receptive to U.S. Government overtures to cooperate on money laundering issues, and has welcomed money laundering-related training and visits by U.S. officials.
The United States and the UAE continue to share information on exchanging records in connection with terrorist financing and other money laundering cases on an ad hoc basis. The AMLSCU has conducted more than 55 workshops in 2002 jointly with U.S., German, UK, and other international banking authorities.
Following the September 11 terrorist attacks in the United States and revelations that terrorists had moved funds through the UAE, Emirati authorities acted to address potential vulnerabilities, and in close concert with the United States, to freeze the funds of groups with terrorist links. The UAE Government has demonstrated that it recognizes the need to implement an effective anti-money laundering system to protect the nation’s security and has begun constructing a far-reaching anti-money laundering program. However, there remain areas requiring further action. The UAE should criminalize terrorist financing to ensure that its financial institutions are not misused by terrorist organizations or their supporters. The government should continue with its efforts to examine trade-related and alternative remittance money laundering vulnerabilities. There is currently an over-reliance on suspicious transaction reports to generate money laundering investigations. Law enforcement and customs officials should begin to take the initiative to recognize money laundering activity and proactively develop cases.
United Kingdom. The United Kingdom (UK) plays a leading role in European and world finance and remains attractive to money launderers because of the size, sophistication, and reputation of its financial markets. Although drugs are still the major source of illegal proceeds for money laundering, the proceeds of other offenses, such as financial fraud and the smuggling of goods, have become increasingly important. The past few years have witnessed the movement of cash placement away from High Street banks and mainstream financial institutions. Criminals continue to use bureaux de change (small tourist-type currency exchanges), cash smuggling in and out of the UK, professional money launderers (including solicitors and accountants), and the purchase of high-value assets as disguises for illegally obtained money.
The UK has implemented the provisions of the European Union’s Directive on the prevention of the use of the financial system for the purpose of money laundering and the Financial Action Task Force (FATF) Forty Recommendations on Money Laundering. Narcotics-related money laundering has been a criminal offense in the UK since 1986. The laundering of proceeds from all other crimes is criminalized by subsequent legislation. Banks and non-bank financial institutions in the UK must report suspicious transactions.
Bank supervision falls under the Financial Services Authority (FSA). The FSA’s primary responsibilities are in areas relating to the safety and soundness of the institutions in its jurisdiction. The FSA also plays an important part in the fight against money laundering through its continued involvement in the authorization of banks, and investigations of money laundering activities involving banks. The FSA administers a civil-fines regime and has prosecutorial powers. The FSA has the power to make regulatory rules with respect to money laundering, and to enforce those rules with a range of disciplinary measures (including fines) if the institutions fail to comply.
The UK’s banking sector provides accounts to residents and non-residents, who can open accounts through private banking activities or various intermediaries that often advertise on the Internet, and also offer various offshore services. Private banking constitutes a significant portion of the British banking industry. Both resident and nonresident accounts are subject to the same reporting and record keeping requirements. Individuals typically open non-resident accounts for a tax advantage or for investment purposes.
In November 2001, money laundering regulations were extended to money service bureaus (e.g., bureaux de change, money transmission companies). The UK Government plans to bring more areas of the financial services industry into the regulated sector, making them subject to suspicious transactions reporting requirements. These areas of the industry would include attorneys, solicitors, real estate agents, and dealers in high value goods. Sectors of the betting and gaming industry that are not currently regulated are being encouraged to establish their own codes of practice, including a requirement to disclose suspicious transactions.
On July 24, 2002, the Proceeds of Crime Act 2002 was enacted, and it did not become effective until January 1, 2003. The legislation enhances the efficiency of the forfeiture process, and increases the recovered amount of illegally obtained assets. The Act consolidates existing laws on forfeiture and money laundering into a single piece of legislation and perhaps most importantly, creates civil asset forfeiture system for the proceeds of unlawful conduct. It also creates the Assets Recovery Agency (ARA), to enhance the financial investigators’ power to request information from any bank about whether it holds an account for a particular person. The Act provides for confiscation orders related to people who benefit from criminal conduct, and for restraint orders to prohibit dealing with property; and allows the recovery of property that is, or represents, property obtained through unlawful conduct, or that is intended to be used in unlawful conduct.
Further, the Act gives standing to overseas requests and orders concerning property believed to be the proceeds of criminal conduct. The Act also provides the ARA with a national standard for training investigators, and gives greater powers of seizure at a lower standard of proof. Additionally, it creates for the regulated sector a new imprisonable offense of failing to disclose suspicious transactions in respect to all crime, not just narcotics- or terrorism-related crimes, as was the case previously. Along with the Proceeds of Crime Act of 2002 came an expansion of investigative powers relative to large movements of cash in the United Kingdom. In light of this, Her Majesty’s (HM) Customs has increased its national priorities to include investigating the movement of cash through money exchange houses and identifying unlicensed money remitters.
Suspicious transaction reports (STRs) are filed with the Economic Crime Bureau (ECB) of the National Criminal Intelligence Service (NCIS). The NCIS serves as the UK’s Financial Intelligence Unit (FIU). The ECB analyzes reports, develops intelligence, and passes information to police forces and Her Majesty’s Customs and Excise for investigation. In 2001, the ECB received approximately 32,000 STRs. The ECB estimates it will receive roughly 65,000 STRs in 2002.
The Terrorism (United Nations Measures) Order 2001 makes it an offense for any individual, without a license from the Treasury, to make any funds for financial or related services available, directly or indirectly, to, or for the benefit of, a person who commits, attempts to commit, facilitates or participates in the commission of acts of terrorism. The Order also makes it an offense for a bank or building society to fail to disclose to the Treasury a suspicion that a customer or entity, with whom the institution has had dealings since October 10, 2001, is attempting to participate in acts of terrorism. The Anti-Terrorism, Crime, and Security Act 2001 provides for the freezing of assets.
As a direct result of the events of September 11, 2001, the ECB established a separate Terrorist Finance Team (TFT) to maximize the effect of reports from the regulated sector. The TFT chairs a law enforcement group to provide outreach to the financial industry concerning requirements and typologies. The operational unit that responds to the work and intelligence development of the TFT has seen a threefold increase in staffing levels directly due to the amount of work that is being produced. The Metropolitan Police responded to the growing emphasis on terrorist financing by expanding the focus and strength of their specialist financial unit dedicated to this area of investigations. This unit is now called the National Terrorist Financing Investigative Unit (NTFIU).
On November 19, 2002, Chancellor Gordon Brown ordered financial institutions in the UK to freeze funds belonging to the Benevolence International Foundation (BIF). BIF’s Chief Executive, Enaam Arnaout, a Syrian-born U.S. citizen, was recently indicted in the United States for running a racketeering enterprise, conspiracy to launder money, money laundering, wire and mail fraud, and providing material support to organizations, including Usama Bin Ladin’s terror network.
The UK cooperates with foreign law enforcement agencies investigating narcotics-related financial crimes. The UK is a party to the 1988 UN Drug Convention and is a member of FATF and the European Union. In January 2000, the UK signed the UN International Convention for the Suppression of the Financing of Terrorism and later ratified the Convention on March 7, 2001. In December 2000, the UK signed, but has not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. The NCIS is an active member of the Egmont Group and has information sharing arrangements in place with the FIUs of the United States, Belgium, France, and Australia. The Mutual Legal Assistance Treaty (MLAT) between the UK and the United States has been in force since 1996. The United and UK recently negotiated an asset sharing agreement that is merely awaiting signature by the appropriate parties. The UK also has an MLAT with the Bahamas. Additionally, there is an MOU between the U.S. Customs Service and HM Customs and Excise.
The UK should continue the strong enforcement of its comprehensive anti-money laundering program and its active participation in international organizations to combat the domestic and global threat of money laundering.
Uruguay. In the past, Uruguay’s strict bank secrecy laws, liberal currency exchange regulations, and overall economic stability made it vulnerable to money laundering, although its extent and exact nature were unknown. In 2002, however, banking scandals and mismanagement, along with massive withdrawals of Argentine deposits led to a near collapse of the Uruguayan banking system, and an end to Uruguay’s role as a regional financial center. This probably serves to greatly diminish the attractiveness of Uruguayan financial institutions to money launderers in the foreseeable future. Over the last five years, the Government of Uruguay (GOU) has instituted several legislative and regulatory reforms in connection with the further consolidation of its anti-money laundering program. In May 2001, it enacted Law 17,343, which extended the predicate offenses for money laundering beyond narcotics-trafficking and corruption to include terrorism, smuggling (above the threshold of $20,000); illegal trafficking in weapons, explosives and ammunition; trafficking in human organs, tissues or medications; trafficking in human beings; extortion; kidnapping; bribery; trafficking in nuclear and toxic substances; and illegal trafficking in animals or antiques. The courts have the power to seize and later confiscate property, products or financial instruments linked to money laundering activities.
The deputy chief of staff of the President works with the National Drug Board, which is the senior authority directing anti-money laundering policy. The Center for Training on Money Laundering serves as a forum for discussion and advice on policy as well as allowing private sector input. The Financial Information and Analysis Unit (UIAF), which works with Central Bank personnel, acts as a Financial Intelligence Unit, receiving, analyzing, and remitting to judicial authorities suspicious transaction reports. The Ministry of Finance and Economics, the Ministry of the Interior (via the police force), and the Ministry of Defense (via the Naval Prefecture) also participate in anti-money laundering efforts. The private sector has also developed self-regulatory measures against money laundering such as the Codes of Conduct approved by the Association of Banks and the Chamber of Financial Entities (in 1997), the Association of Exchange Houses (2001), and the Securities Market (2002).
According to GAFISUD, Uruguay’s laws and regulations meet most of the FATF 40 Recommendations on Money Laundering. Money laundering is considered a crime separate from underlying crimes such as narcotics-trafficking, administrative corruption, terrorism or smuggling, which are formally listed in the legal statutes. The GOU can confiscate or preventively impound assets, proceeds or instruments used or intended to be used in money laundering crimes. However, real estate ownership is not registered in the name of the titleholder, which makes tracking money laundering in this important sector difficult, particularly in the partially foreign-owned tourist industry around Punta del Este. Safeguarding the financial sector from money laundering activities is a priority for the GOU. A series of Central Bank regulations require banks (including offshore), currency exchange houses, and stockbrokers to implement anti-money laundering policies, including the recording in internal databases transactions over $10,000, and the reporting of suspicious transactions. In addition, the insurance and reinsurance sector, stock market, and currency exchange houses must know and thoroughly identify their customers, and report suspicious financial transactions to UIAF. The UIAF was created in December 2000, within the Superintendency of Financial Intermediation Institutions, to coordinate all anti-money laundering efforts. The UIAF, receives, analyzes, and remits to the judicial authorities, when appropriate, suspicious transaction reports. The Central Bank Circular 1722 that created the UIAF also generally provides UIAF the ability to respond to requests for international cooperation.
The insurance sectors are further required to maintain a registry of “relevant” transactions, such as payments of insurance premiums of $10,000 or more, while stock and investment fund administrators must maintain a registry of individuals and entities exchanging currency or other valuables in amount greater than $10,000. There are twelve offshore banks and six offshore mutual fund companies. The offshore banks are subject to the same laws and regulations as local banks, and are required to be licensed by the GOU—a process involving background checks on license applicants. There are no records of the number of Uruguayan offshore firms or shell companies, although, a large number are believed to exist. Offshore trusts are not allowed. Bearer shares may not be used in banks and institutions under the authority of the Central Bank, and any share transactions must be authorized by the Central Bank.
Uruguay remains active in international anti-money laundering efforts. It is a party to the 1988 UN Drug Convention. Uruguay is a member of the Financial Action Task Force for South America (GAFISUD) and the deputy chief of staff of the President, has been named President of the GAFISUD for 2003. Uruguay is also a member of the OAS Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering. The USG and the GOU are parties to an extradition treaty and a mutual legal assistance treaty that entered into force in 1984 and 1994, respectively. Uruguay has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Uruguay has also signed, but not yet ratified, the UN International Convention for the Suppression of the Financing of Terrorism.
The GOU should take steps necessary to bring it into compliance with the FATF Special Eight Recommendations on Terrorist Financing. Effective implementation and enforcement of these anti-money laundering measures must remain a priority for the GOU in order to eliminate the potential for money laundering and terrorist financing activities throughout its financial sector.
Uzbekistan. Uzbekistan is not considered an important regional financial center and does not have a developed financial system. Reportedly, Uzbek citizens and residents attempt to avoid using the official banking system for transactions, except when required by law. There is little trust in current financial controls. In Uzbekistan, the majority of the population hold savings in the form of cash dollars stored at home. There is a significant black market for smuggled goods in Uzbekistan. Since the Government of Uzbekistan (GOU) imposed a restrictive trade and import regime in mid-2002, the smuggling of consumer goods increased dramatically. Many Uzbek citizens make a living by shuttle-trading goods from neighboring countries, Iran, the Middle East, India, Korea, Europe, and the United States. The basically un-reported and un-monitored trade is very susceptible to trade-based money laundering. It is thought that narcotics traffickers exchange their proceeds on the black market, allowing small-scale business people access to drug dollars. As in neighboring countries, narcotics can also act as a commodity, and they are frequently bartered or traded for desired goods. Illicit proceeds are often carried across Uzbekistan’s borders for deposit in other countries’ banking systems, such as in Kazakhstan, Russia, or the United Arab Emirates.
Foreign exchange controls formally limit the availability of foreign currency in the economy. The controls also inadvertently encourage the use of alternate remittance systems. Cash proceeds of crime denominated in the local currency, the soum, can easily be converted into other currencies on the black market. Residents and non-residents may bring the equivalent of $10,000 into the country tax-free. Amounts in excess of this limit are assessed a one percent duty. Non-residents may take out as much currency as they brought into the country. However, residents are limited to the equivalent of $1,500. Nonetheless, foreign currency is readily available to criminals, via the thriving black market.
There appears to be little money laundering through formal financial institutions in Uzbekistan in large part due to the extremely high degree of supervision and control exercised by the Central Bank of Uzbekistan, the Ministry of Finance, and the state-owned and controlled banks. The GOU has anti-money laundering legislation. Banks are required to know, record and report the identity of customers engaging in significant transactions, including the recording of large currency transactions at thresholds appropriate to Uzbekistan’s economic situation. All transactions involving sums greater than 4.5 million soum ($4,000 at the black market rate) must be tracked and reported to the authorities. Institutions must report suspicious transactions immediately, via phone call and follow up memorandum to the Central Bank of Uzbekistan. Non-bank institutions such as jewelry stores and auto dealers are not required to report suspicious transactions. Banks are required to maintain records for only two years, generally not an adequate period to reconstruct suspect transactions.
Article 41 of the Law on Narcotic Drugs and Psychotropic substances (1999) stipulates that any institution may be closed for performing a financial transaction for the purpose of legalizing (laundering) proceeds derived from illicit traffic in narcotic drugs and psychotropic substances. Penalties for money laundering are from five to ten years imprisonment. Article 243 of the Criminal Code imposes penalties for the legalization of proceeds derived from criminal activity, i.e. five to ten years of imprisonment. This article also defines the act of money laundering. It includes transfer, conversion, exchange, as well as concealing of origin, true nature, source, location, disposition, movement and rights with respect to the assets derived from criminal activity as punishable acts.
In accordance with Uzbekistan’s Code of Criminal Procedure, investigation of money laundering offenses falls under the jurisdiction of the Ministry of Internal Affairs. The Department of Investigation of Economic Crimes within the Ministry conducts investigations of all types of economic offenses. There are also specialized structures within the National Security Service and the Department on Combating Economic Crimes and Corruption in the Office of the Prosecutor-General, which are also authorized to conduct investigation of, inter alia, money laundering offenses.
Uzbekistan’s Law Number 167 “On Fighting Terrorism”, of 15 December, 2000, criminalizes terrorist financing. The law is designed to provide for the security of individuals, society, and the state from terrorism; protection of territorial integrity and state sovereignty; preserving civil peace; and preventing ethnic strife. The law names the National Security Service (NSS), the Ministry of Internal Affairs (MVD) the Committee on the Protection of State Borders, the State Customs Committee, the Ministry of Defense and the Ministry for Emergency Situations as responsible for implementing the anti-terrorist legislation. The law names the NSS as the coordinator for government agencies fighting terrorism.
The GOU has the authority to identify, freeze, and seize terrorist assets. The banking community, which is entirely state controlled and, with few exceptions, state-owned, generally cooperates with efforts to trace funds and seize accounts. Uzbekistan is a party to the UN International Convention for the Suppression of the Financing of Terrorism. The GOU has blocked terrorist assets.
Uzbekistan is a party to the UN 1988 Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally.
Vanuatu. Vanuatu’s offshore sector is vulnerable to money laundering, as it has historically maintained strict secrecy provisions that have the effect of preventing law enforcement agencies from identifying the beneficial owners of offshore entities registered in the sector. Due to allegations of money laundering, a few United States-based banks announced in December 1999 that they would no longer process U.S. dollar transactions to or from Vanuatu. The Government of Vanuatu (GOV) responded to these concerns by introducing reforms designed to strengthen domestic and offshore financial regulation.
Vanuatu’s financial sector includes five licensed banks (that carry on domestic and offshore business) and 60 credit unions, regulated by the Reserve Bank of Vanuatu. The Financial Services Commission (FSC) regulates the offshore sector that includes 55 offshore banks and approximately 2,500 “international companies” (i.e., international business companies or IBCs), as well as offshore trusts and captive insurance companies. IBCs may be registered using bearer shares, shielding the identity and assets of beneficial owners of these entities. Secrecy provisions protect all information regarding IBCs and provide penal sanctions for unauthorized disclosure of information. These secrecy provisions, along with the ease and low cost of incorporation, make IBCs ideal mechanisms for money laundering and other financial crimes.
The Serious Offenses (Confiscation of Proceeds) Act 1989 criminalizes the laundering of proceeds from all serious crimes and provides for seizure of criminal assets and confiscation after a conviction. The Financial Transaction Recording Act of 2000 requires financial institutions to identify customers and beneficial owners when establishing business relations or account accommodations. Regulatory agencies in Vanuatu have instituted stricter procedures for issuance of offshore banking licenses, and continue to review the status of previously issued licenses. This legislation requires all financial institutions, both domestic and offshore, to report suspicious transactions and to maintain records of all transactions for six years, including the identities of the parties involved. Safe harbor provisions are provided under this legislation to all suspicious transactions reported in good faith.
The Financial Transaction Reporting Act 2000 provides for the establishment of a Financial Intelligence Unit (FIU) within the State Law Office. The FIU receives suspicious transaction reports filed by financial institutions and distributes them to the Public Prosecutor’s Office, the Reserve Bank of Vanuatu, the Vanuatu Police Force, the Vanuatu Financial Services Commission, and law enforcement agencies or supervisory bodies outside Vanuatu. The FIU also issues guidelines to, and provides training programs for, financial institutions regarding record-keeping for transactions and reporting obligations. The Act also regulates how such information can be shared with law enforcement agencies investigating financial crimes. Financial institutions within Vanuatu must establish and maintain internal procedures to combat financial crime.
Every financial institution is required to keep records of all transactions. Five key pieces of information are required to be kept for every financial transaction: the nature of the transaction, the amount of the transaction, the currency in which it was denominated, the date the transaction was conducted, and the parties to the transaction. These records must be kept for a period of six years after the completion of the transaction.
Vanuatu passed the Mutual Assistance in Criminal Matters Act in December 2002 for the purpose of facilitating the provision of international assistance in criminal matters for the taking of evidence, search and seizure proceedings, forfeiture or confiscation of property and restraining of dealings in property that may be subject to forfeiture or seizure.. The Attorney General possesses the authority to grant requests for assistance, and may require government agencies to assist in the collection of information pursuant to the request.
Additionally, in December 2002, Vanuatu passed the Proceeds of Crime Act of 2002. The act criminalizes the financing of terrorism. The E-Business Act No. 25 of 2000 and the Interactive Gaming Act No. 16 of 2000 regulate e-commerce. Section 5 of the E-Business legislation permits the establishment of a Vanuatu-based website where business can be conducted without residency, directors, shareholders, or a registered office. Reportedly, the E-Business Act requires online operations to maintain stringent customer identification and record-keeping requirements, as well as reporting suspicious transactions. The Financial Transaction Reporting Act of 2000 applies to e-commerce or businesses by defining any company listed under the Vanuatu Interactive Gaming Act 2000 as a financial institution.
Vanuatu is a member of the Asia/Pacific Group on Money Laundering, the Offshore Group of Banking Supervisors, the Commonwealth Secretariat, and the Pacific Island Forum. The Financial Intelligence Unit became a member of The Egmont Group in June 2002. Vanuatu has not signed the UN International Convention for the Suppression of the Financing of Terrorism or the Convention against Transnational Organized Crime, which is not yet in force internationally. Vanuatu is not a party to the 1988 UN Drug Convention. The Financial Action Task Force reviewed Vanuatu in 2000 and determined not to designate Vanuatu as non-cooperative in the fight against money laundering.
Vanuatu should immobilize bearer shares and require complete identification of the beneficial ownership of IBCs and implement all provisions of its newly enacted Proceeds of Crime Act.
Venezuela. Venezuela is not considered a regional financial center, nor does it have an offshore financial sector. The relatively small but modern banking system (71 financial institutions of which 58 are classified as banks) primarily serves the domestic market. Venezuela’s proximity to drug-source countries, weaknesses in the anti-money laundering system, and corruption, continue to make it a prime target for money laundering. The main source of money laundering in Venezuela stems from proceeds generated by Colombia’s cocaine and heroin trafficking organizations and anecdotal evidence suggests that some money is laundered through the real estate market in its Margarita Island free trade zone.
The 1993 Organic Drug Law provides the only legal mechanism for the investigation and prosecution of money laundering crimes. Under this law, a direct connection between the illegal drugs and the proceeds must be proven to establish a money laundering offense. The Government of Venezuela (GOV) freezes assets of individuals charged in international drug trade or money laundering cases directly related to narcotics-trafficking. If a conviction is obtained, the frozen assets are turned over to the Ministry of Finance for use in drug demand reduction programs. After the introduction of a new Code of Criminal Procedure in 1999, responsibility for initiating these actions shifted from judges to prosecutors. Due to prosecutorial unfamiliarity with the new accusatory judicial system as well as assuming the burden of tens of thousands of backlogged cases, the number of cases resulting in seizure of trafficker assets has decreased.
To expand the predicate offenses for money laundering beyond activities involving the illicit drug trade, the GOV introduced the Organic Law against Organized Crime bill. Under this bill money laundering is made a separate, autonomous offense, with no drug nexus required, and those who cannot establish the legitimacy of possessed or transferred funds and who have awareness of the illegitimate origins of those funds would be guilty of money laundering. The bill broadens assets forfeiture and sharing provisions, and provides law enforcement with stronger investigative powers by authorizing the use of modern investigative techniques such as the use of undercover agents. The bill is in its final reading in the National Assembly, but over the past six years similar legislation was never ultimately passed and the current Organized Crime bill, after years of effort, has still not been passed or enacted.
Since 1997, the Superintendence of Banks and Other Financial Institutions (SBIF) has implemented controls to prevent and investigate money laundering, including stricter customer identification requirements and the reporting of currency transactions and suspicious activity. These controls apply to all banks (commercial, investment, mortgage, private), savings and loan institutions, currency exchange houses, money remitters, money market funds, capitalization companies, and frontier foreign currency dealers.
The institutions are also required to report currency transactions of more than $10,000 (or local currency equivalent), and suspicious transactions to a National Financial Intelligence Unit (UNIF) created in 1998 under the SBIF. The UNIF analyzes suspicious activity reports (SARs) and refers those deemed appropriate for further investigation to the Office of the Public Prosecutor, which subsequently opens and oversees the criminal investigation. Since 1998, the UNIF has received 8,545 SARs. The UNIF is a member of the Egmont Group (since 1999) and has signed bilateral information exchange agreements with counterparts worldwide. The Venezuelan Constitution guarantees the right to bank privacy and confidentiality, but in cases under investigation by the UNIF, the Superintendence of Bank and Other Financial Institutions, or the Office of the Prosecutor, or by order of the Judge of Control, bank secrecy may be waived. Comprehensive financial and law enforcement information is available to the UNIF.
The Venezuelan Association of Currency Exchange Houses (AVCC), which counts all but one of the country’s money exchange companies among its membership, voluntarily complies with the same reporting standards as those required of banks including the reporting of suspicious transactions and has conducted a number or training initiatives for its members. The AVCC also drafted and distributed an extensive operations manual entitled “System for the Prevention and Control of the Serious Crime of Money Laundering.” Each currency exchange house in the country has and employs systems to electronically transmit transaction reports to SBIF.
Lacking the legal basis to employ modern investigative techniques, with appropriate legal safeguards, Venezuelan law enforcement authorities find it difficult, if not impossible to investigate and prosecute sophisticated criminal organizations and complex crimes such as money laundering. Indeed, there have only been a few money laundering convictions in Venezuela and all of them are narcotics related. On June 20, 2002, two Venezuelan citizens were sentenced to 15 and 25 years, respectively, for drug-related money laundering. This builds upon the single arrest and prosecution of one Venezuelan citizen in 2001, who was sentenced to 20 years in prison.
Current Venezuelan law does not specifically mention crimes of terrorism. The Organized Crime Bill would rectify this by defining terrorist activities and establishing punishments of up to 20 years in prison. The Bill’s expanded definition of money laundering would also make it possible to prosecute those engaged in terrorism financing and to freeze and seize their assets.
Venezuela participates in the Organization of American States Inter-American Commission on Drug Abuse Control (OAS/CICAD) Experts Group to Control Money Laundering, the Caribbean Financial Action Task Force (CFATF), and the Multilateral Working Group against the Black Market Peso Exchange System. Venezuela is a party to the 1988 UN Drug Convention and has signed and ratified the UN Convention against Transnational Organized Crime, which is not yet in force internationally. This Convention was ratified by the National Assembly, made into a Law of the Republica Bolivariana of Venezuela on December 15, 2000, and published in the Official Gazette No. 37.357 on January 2002. On November 16, 2001, the GOV signed, but has not yet become a party to, the UN International Convention for the Suppression of the Financing of Terrorism.
The GOV continues to share money laundering information with U.S. law enforcement authorities under the 1990 anti-drug money laundering agreement. The information shared has supported U.S. domestic operations, resulting in the seizure of significant amounts of money and several arrests in the United States.
The GOV should enact measures such as the criminalization of the financing of terrorists and terrorism and institute measures to be able to expeditiously freeze terrorist assets, in order to implement the FATF Special Eight Recommendations on Terrorist Financing. The GOV should enact the Organic Law Against Organized Crime to provide law enforcement and judicial authorities the much-needed tools for the effective investigation and prosecution of money laundering and other financial crimes.
Vietnam. Vietnam is not an important regional financial center. The Vietnamese banking sector is underdeveloped and the Government of Vietnam (GVN) controls the flow of all U.S. dollars in official channels. The nature of the banking system makes it unlikely that major money laundering or terrorist financing is currently occurring in financial institutions. The “drug economy” exists in Vietnam’s informal financial system. Vietnam has a large “shadow economy” in which U.S. dollars and gold are the preferred currency. Due to the limited size of Vietnam’s banking system and currency exchange controls, even legitimate businesses carry on transactions in this “shadow economy.” In addition, Vietnamese regularly transfer money though gold shops and other informal mechanisms to remit or receive funds from overseas. Officially, expatriate remittances account for one billion U.S. dollars and unofficially the number may be more than double that amount. There is speculation that a percentage of intra-familial transactions in this alternative remittance system may result from narcotics proceeds.
Vietnam does not yet have a separate law on money laundering or terrorist financing. However, Article 251 of the Amended Penal Code criminalizes money laundering. The Counter-narcotics Law, which took effect June 1, 2001, makes two narrow references to money laundering in relation to drug offenses: it prohibits the “legalizing” (i.e. laundering) of monies and/or property acquired by committing drug offenses (article 3.5); and, it gives the Ministry of Public Security’s specialized counternarcotics agency the authority to require disclosure of financial and banking records when there is a suspected violation of the law. However, the implementing regulations have not yet been promulgated. The State Bank of Vietnam, which has the lead on countering terrorist financing, can also request the disclosure of information when it believes that a transaction might fall within this category. Furthermore, the State Bank requires banks to report suspicious transactions of any kind.
The World Bank is working with the GVN on draft banking legislation. This legislation may also include a section on money laundering. The GVN is also working with international agencies to increase its banking supervision capabilities.
The GVN is a party to the UN International Convention for the Suppression of the Financing of Terrorism. The GVN should pass separate terrorist financing legislation if it is not included in the current anti-money laundering draft legislation that is expected to cover all serious crimes. The GVN should also establish cross border currency controls and regulate the use of gold as an alternative remittance system.
Yemen. Yemen has no anti-money laundering legislation. Though the extent of money laundering is not known, the lack of legislation and the prevalence of hawala make Yemen vulnerable to money laundering. Yemen’s banking sector is relatively small with 14 commercial banks, including three Islamic banks. The Central Bank of Yemen (CBY) supervises the country’s banks. Local banks accounted for approximately 62 percent of the total banking activities, while foreign banks covered the other 38 percent.
In April 2002, the CBY issued Circular 22008, informing banks and financial institutions that they must verify the legality of all proceeds deposited in or passing through the Yemeni banking system. The circular stipulates that financial institutions must positively identify the place of residence of all persons and businesses that establish relationships with them. The circular also requires that banks verify the identity of persons or entities that wish to transfer more than $10,000 through banks at which they have no accounts. The same provision applies to beneficiaries of such transfers. Banks must also take every precaution when transactions appear suspicious, and report such activities to the CBY. The circular was distributed to the banks along with a copy of the Basel Committee’s “Customer Due Diligence for Banks,” concerning “Know Your Customer” procedures.
At the end of 2002, the parliament was in the process of enacting anti-money laundering legislation. The governor of the CBY has prepared a primary draft that has been presented to the bankers’ association and other financial bodies for recommendations. The proposed anti-money laundering law – which has been also reviewed and approved by the Ministry of Legal Affairs – criminalizes money laundering for a wide range of crimes including narcotics offenses, kidnapping, embezzlement, bribery, fraud, tax evasion, illegal arms trading, and money theft, and imposes penalties of three to five years’ imprisonment. There is no specific legislation relating to counter-terrorist financing in Yemen. But terrorism is covered in various pieces of legislation that treat terrorism and its financing as serious crimes.
The proposed law requires banks, financial institutions, and precious commodity dealers to verify the identity of persons and entities that want to open accounts or deal with them, keep records of transactions for up to ten years and report suspicious transactions. In addition the draft law requires that reports be submitted to an information-gathering unit within the CBY. The unit will act as the Financial Intelligence Unit (FIU), which in turn will report to an Anti-Money Laundering Committee (AMLC). Under the proposed law the AMLC – which will have representatives from the Ministries of Finance, Justice, Interior, and Industry and Commerce, the CBY, and the Board of Banks – is authorized to issue regulations and guidelines and provide training workshops related to combating money laundering efforts.
The proposed law grants the AMLC the right to exchange information with foreign entities. The head of the committee can ask local judicial authorities to enforce foreign court verdicts based on reciprocity. Also, the proposed law will permit the extradition of criminals in accordance with international treaties or bilateral agreements. CBY states that although the law is expected to pass in 2003, banks have begun applying its money laundering combating provisions in anticipation of its passage.
In response to UNSCR 1267/1390 and Yemen’s Council of Ministers directives, CBY issued a number of circulars to all banks operating in Yemen directing them to freeze accounts of 144 persons, companies, and organizations, and to report any finding to CBY. As a result, one account was immediately frozen with a balance equal to $33.
A law was passed in 2001 governing charitable organizations. This law entrusted the Ministry of Pensions and Social Affairs with overseeing their activities. The law imposes penalties of fines and/or imprisonment on any society or its members for carrying out activities or spending funds for other than the stated purpose for which the society in question was established.
Yemen is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Yemen is a member of the Arab Convention for the Suppression of Terrorism.
Although the Government of Yemen has made some attempts to improve the country’s domestic anti-money laundering program and to cooperate internationally with criminal investigations, serious deficiencies remain. As a crucial first step to address these deficiencies, Yemen should pass, implement, and enforce the proposed anti-money laundering legislation. This would constitute a significant step toward meeting international standards. Yemen should also enact specific legislation with respect to the financing of terrorism and terrorists.
Yugoslavia, Federal Republic of. Narcotics-trafficking, smuggling, money laundering, and other criminal activities are continuing at a noticeable level in the Federal Republic of Yugoslavia. Yugoslavia is a transit country for illegal drugs moving along the Balkan route from Asia to Europe and the Americas. Yugoslav officials maintain that the majority of criminal proceeds from drug trafficking laundered in Yugoslavia are derived from illegal activities of the Kosovar Narco-Mafia. Since 1999, the Government of Yugoslavia has had no jurisdiction over Kosovo, based on UNSCR 1244, so Yugoslav authorities must rely on cooperation with UNMIK police and KFOR to combat these activities. Officials estimate that up to half of all financial transactions in Yugoslavia may be connected with money laundering.
In 2002, Yugoslavia decided to divide into a looser confederation of Serbia and Montenegro. This has had an impact in some ways on the laws and regulations on corruption and money laundering. Montenegro has decided to use the euro as its standard of currency, while Serbia has stayed with the dinar. In early 2003, a new constitutional charter will be ratified and implemented that will re-define relations between Serbia and Montenegro. When this charter becomes effective, it will affect ministries and departments currently under federal jurisdiction, and transfer them to or establish them in the governments of the respective states.
The year 2002 saw Yugoslavia, and then Serbia, concentrate on removing restrictions on current account transactions to enable the dinar to be declared convertible. It was proposed that Yugoslav individuals be allowed to transfer up to 5,000 euros each in cash abroad and Yugoslav companies be able to provide advance hard-currency payments for imports from abroad, borrow abroad, and make hard-currency repayments on loans. However, the government also determined that all transfers abroad must be strictly monitored to guard against money laundering. In addition, some restrictions remain: individuals may not borrow, open accounts, or buy real estate abroad, and companies cannot lend or invest abroad.
The Yugoslav Federal Assembly adopted an Anti-Money Laundering Law in September 2001. In March 2002, Yugoslavia divided into Serbia and Montenegro, and the law that went into effect became the law for the Serbia portion of Yugoslavia. The Serb Law came into effect in July 2002 and brings Serbia into line with the FATF Forty Recommendations. The law defines money laundering to mean depositing, or introducing into the financial system in any manner, money that has been acquired through illegal activity. This includes money derived from the gray market economy and arms and narcotics-trafficking. Among the entities required to take actions and measures aimed at uncovering and preventing money laundering under the law are: commercial and savings banks, other financial credit institutions, the postal savings bank, the post office, commercial enterprises, all government entities, the National Bank of Yugoslavia and its clearing and payments department, foreign exchange bureaus, casinos, pawnshops, stock exchanges, and national lottery organizers.
The covered entities are required to identify persons opening an account “or establishing any other kind of lasting business cooperation with the client” and report on every transaction exceeding 600,000 dinars (about $10,000). Criminal penalties for money laundering violations range from six months to five years in prison, while civil penalties range from 45,000 to 450,000 dinars ($750 to $7,500) per offense. This law, when taken with the penal code and criminal procedure law, provides for the temporary seizing and permanent confiscation of assets derived from or used for criminal activities. It also authorizes the government to revoke business licenses and ban business activities of legal entities and natural persons involved in criminal activities.
The anti-money laundering law also provides for the establishment of a Financial Intelligence Unit (FIU). The Serb FIU, called the Federal Commission for the Prevention of Money Laundering (FCPML), became operational in July 2002, as mandated by the law. The Commission functions as an administrative unit. Currently, the staff of the FCPML numbers 18, but it expects to hire another ten analysts when the unit is transferred from federal jurisdiction to that of the Serbian Finance Ministry, probably in Spring 2003.
The Republic of Montenegro also prepared a law against money laundering, which is expected to be adopted in early 2003 and when effective will compel covered entities to report transactions meeting or exceeding 15,000 euros, the EU standard. As interim measures in 2002, Montenegro amended its penal code to criminalize money laundering and enable the government to seize and confiscate assets involved in criminal activity. In addition, the Central Bank began to require financial institutions to report suspicious transactions, establish anti-money laundering programs and train personnel in relevant matters. The Republic of Montenegro also required offshore banks to re-register, post a $1 million Eurobond, and establish themselves as regular banks. No offshore institutions have done this, and Montenegro considers them to be dissolved.
The new law, when effective, is expected to bring Montenegrin standards into line with the European Convention definition of money laundering as well as the FATF Forty Recommendations. Under the law, covered entities include all banks, savings-credit unions, any legal entities that have been entirely or partially financed from state funds, investment and pension funds and other financial institutions, post offices, telecommunication companies, other companies and unions, the Privatization Council, insurance companies, stock exchanges and other financial institutions authorized to perform operations related to securities, offshore companies, exchange offices, pawnbrokers, gambling houses, bookmakers, slot machine clubs, and organizers of all lotteries and games of chance. Like the Serb law, the Montenegrin law also provides for the establishment of an FIU, known as the Office for the Prevention of Money Laundering. The FIU, to be housed in the Ministry of Finance, will function as an administrative unit.
In March 2002, Article 234 of the Law on Criminal Procedure was introduced, which authorizes an investigating judge to order financial institutions to release information about business and personal accounts at the request of a state prosecutor. This law is expected to give more power to the state to detect terrorism financing because the information can be obtained faster and with less bureaucracy.
The Government of Yugoslavia also submitted a Bill on the Amendment of the Criminal Law that would sanction terrorist financing as a separate offense in line with the UN International Convention for the Suppression of the Financing of Terrorism, which Yugoslavia signed on November 12, 2001 and became a party to on October 10, 2002. The law has yet to be adopted, however.
Also proposed by Serbia but yet to be signed is a special counter-terrorism law that will upgrade legislative and institutional frameworks for combating terrorism. It takes its cue from the successes of other countries and is intended to bring Serbia into compliance with UNSCR 1373. Among the FCPML’s duties is to work on fighting terrorism and terrorism financing. The FCPML is currently tracing the names on the E.O. 13224 asset freeze list. Under discussion is the idea of having a separate department within FCPML specifically charged with combating terrorism financing. The Montenegrin FIU will also track terrorism financing as well as money laundering.
Yugoslavia is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime, which is not yet in force internationally. In 2002, Yugoslavia ratified the Council of Europe Convention on the Laundering, Search, Seizure, and Confiscation of the Proceeds of Crime, and participated in bilateral and multilateral fora to improve its analytical and seizure capabilities. Yugoslavia established a Belgrade office of Interpol to contribute to the fight against trafficking and terrorism. The Serbian and Montenegrin finance ministers joined finance ministers from Albania, Bulgaria, Croatia, Macedonia, and Republika Srpska in establishing a regional group to fight (among other economic corruption problems) money laundering.
FCPML has bilateral agreements on cooperation and information exchange with Macedonia, and expects to enter into agreements with Russia, Slovenia, Romania, and Bosnia-Herzegovina shortly. Yugoslavia also has mutual assistance agreements signed with over 20 other countries. Although there is no legislation to authorize the sharing of confiscated assets with other countries, and none is under consideration at this time. There is also no prohibition against it—leaving Serbia free to enter bilateral agreements.
Yugoslavia or its constituent parts should criminalize terrorist financing. Yugoslavia or its constituent parts still need to implement domestic legislation to support the international conventions signed in 2002. Laws should also be amended to enable the freezing and seizing of funds kept within the country by persons or entities located outside of it who have connections with international terrorist or narcotics activities. Both jurisdictions within Yugoslavia should participate in international fora that offer training and technical assistance for police, customs, and judiciary officials involved with combating transnational organized crime.
Zambia. Zambia is not a major financial center. Law enforcement officials report that cash smuggling may be occurring in connection with the trade in illicit diamonds.
The Drug Enforcement Commission has the responsibility for investigating money laundering offenses. In 2001, the National Assembly passed the Prohibition and Prevention of Money Laundering Bill, which makes money laundering a criminal offense, stiffens penalties for financial crimes, and increases the investigative and prosecutorial powers of the Drug Enforcement Commission. The law also requires financial institutions to report suspicious transactions to regulators and to retain transaction records for ten years. The law authorizes investigators to seize assets related to money laundering. The Minister of Home Affairs has reported that there are plans to form an anti-money laundering authority, which will enforce the Prevention of Money Laundering Act No. 14 of 2001.
Although Zambia participates in meetings of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), Zambia has not formally joined the group.
Zambia is not a signatory to the UN International Convention for the Suppression of the Financing of Terrorism or the UN Convention against Transnational Organized Crime, which is not yet in force internationally. Zambia is a party to the 1988 UN Drug Convention.
Zambia should create a Financial Intelligence Unit, criminalize terrorist financing and sign the ESAAMLG Memorandum of Understanding.
Zimbabwe. Zimbabwe is not a regional financial center and is not considered to be at significant risk for money laundering.
Zimbabwe’s Anti-Money Laundering Act criminalizes narcotics-related money laundering. In October 2002, the Government of Zimbabwe submitted the Anti-Money Laundering and Proceeds of Crime Bill to Parliament. The bill would require banks to maintain records sufficient to reconstruct individual transactions for at least six years. The bill would also mandate a prison sentence of up to five years for a money laundering conviction.
Zimbabwe is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the United Nations Convention against Transnational Organized Crime, which is not yet in force internationally.
Zimbabwe should enact a comprehensive anti-money laundering regime that criminalizes terrorist financing and money laundering for all serious crimes. Zimbabwe should join the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), the FATF-style regional body. Zimbabwe should also sign the UN International Convention for the Suppression of the Financing of Terrorism.
I. Ratification and implementation of UN instrumentsEach country should take immediate steps to ratify and to implement fully the 1999 United Nations International Convention for the Suppression of the Financing of Terrorism.
Countries should also immediately implement the United Nations resolutions relating to the prevention and suppression of the financing of terrorist acts, particularly United Nations Security Council Resolution 1373.
II. Criminalizing the financing of terrorism and associated money launderingEach country should criminalize the financing of terrorism, terrorist acts and terrorist organizations. Countries should ensure that such offenses are designated as money laundering predicate offenses.
III. Freezing and confiscating terrorist assetsEach country should implement measures to freeze without delay funds or other assets of terrorists, those who finance terrorism and terrorist organizations in accordance with the United Nations resolutions relating to the prevention and suppression of the financing of terrorist acts.
Each country should also adopt and implement measures, including legislative ones, which would enable the competent authorities to seize and confiscate property that is the proceeds of, or used in, or intended or allocated for use in, the financing of terrorism, terrorist acts or terrorist organizations.
IV. Reporting suspicious transactions related to terrorismIf financial institutions, or other businesses or entities subject to anti-money laundering obligations, suspect or have reasonable grounds to suspect that funds are linked or related to, or are to be used for terrorism, terrorist acts or by terrorist organizations, they should be required to report promptly their suspicions to the competent authorities.
V. International co-operationEach country should afford another country, on the basis of a treaty, arrangement or other mechanism for mutual legal assistance or information exchange, the greatest possible measure of assistance in connection with criminal, civil enforcement, and administrative investigations, inquiries and proceedings relating to the financing of terrorism, terrorist acts and terrorist organizations.
Countries should also take all possible measures to ensure that they do not provide safe havens for individuals charged with the financing of terrorism, terrorist acts or terrorist organizations, and should have procedures in place to extradite, where possible, such individuals.
VI. Alternative remittanceEach country should take measures to ensure that persons or legal entities, including agents, that provide a service for the transmission of money or value, including transmission through an informal money or value transfer system or network, should be licensed or registered and subject to all the FATF Recommendations that apply to banks and non-bank financial institutions. Each country should ensure that persons or legal entities that carry out this service illegally are subject to administrative, civil or criminal sanctions.
VII. Wire transfersCountries should take measures to require financial institutions, including money remitters, to include accurate and meaningful originator information (name, address and account number) on funds transfers and related messages that are sent, and the information should remain with the transfer or related message through the payment chain.
Countries should take measures to ensure that financial institutions, including money remitters, conduct enhanced scrutiny of and monitor for suspicious activity funds transfers which do not contain complete originator information (name, address and account number).
VIII. Nonprofit organizationsCountries should review the adequacy of laws and regulations that relate to entities that can be abused for the financing of terrorism. Non-profit organizations are particularly vulnerable, and countries should ensure that they cannot be misused:
(i) by terrorist organizations posing as legitimate entities;
(ii) to exploit legitimate entities as conduits for terrorist financing, including for the purpose of escaping asset freezing measures; and
(iii) to conceal or obscure the clandestine diversion of funds intended for legitimate purposes to terrorist organizations.
Regardless of the adequacy of resources, many of the OFCs have attracted a large non-resident customer base by intentionally offering a combination of accommodating legislation, services and products that by definition are designed to protect the anonymity of the client, while providing the client relief from home-country regulators and law enforcement. At least 90 percent of all jurisdictions offering offshore financial services restrict access to the offshore sector to non-residents, thereby creating a highly confidential and under-regulated parallel financial system within their own borders. Many jurisdictions with OFCs conduct financial transactions only in currencies other than the local currency. The vast majority of OFCs also differ from onshore jurisdictions in their regulatory regimes and legal frameworks. Many OFCs lack political will and/or resources to implement the stringent regulatory and supervisory regimes found in developed onshore jurisdictions. In the majority of OFCs, banks are not required to adhere to a wide range of regulations normally imposed on onshore banks; in some not even a physical presence is required. In most OFCs, non-bank financial industries, such as the insurance and securities industries, are subject to even less, if any, regulation than is the banking sector.
In many OFCs, a bank can be formed, registered and its ownership placed in the hands of nominee directors via the Internet. However formed, there are few, if any, disclosure requirements, bank transactions are often free of exchange and interest rate restrictions, minimal or no capital reserve requirements are in place and transactions are mostly tax-free. Some OFCs permit the licensing and registration of “shell banks”—generally understood as banks that exist on paper only and do not have a physical presence in any jurisdiction. Of the more than 4,000 offshore banks thought to exist, the number that are shell banks remains unknown.
A principal attraction of the OFCs is the frequent existence of legal frameworks designed to obscure the identity of the beneficial owner, to promote regulatory and supervisory arbitrage, and to provide mitigation or evasion of home-country tax regimes. Some of these OFCs offer the ability to form and maintain the confidentiality of a variety of international business companies (IBCs) and “exempt” companies, trusts, investment funds and insurance companies, many with nominee directors, nominee officeholders and nominee shareholders. When combined with the use of bearer shares (shares that do not name the owner and ownership is based on physical possession) and “mini-trusts” (instruments used to further insulate the beneficial owner while bridging the ownership and management of the corporate entity), IBCs can present impenetrable barriers to law enforcement.
This lack of transparency and the ability to engage in regulatory arbitrage, coupled with a concomitant reluctance or refusal of many OFCs to cooperate with regulators and law enforcement officials from other jurisdictions, attract those with both legitimate and illegitimate purposes. Narcotics-traffickers, terrorist organizations and their supporters, money launderers, tax evaders and other criminals have found the OFCs a particularly inviting venue in which to conduct and conceal their activities. With the advent of the Internet and other technological advances, funds can be transferred around the globe instantaneously, providing further opportunities to engage in the placement and layering of illicitly gained funds.
Post September 11, there is also a growing concern that terrorists and other criminals are increasingly enlisting the services of unethical lawyers, accountants and other professionals to help them discover and manipulate new money laundering and terrorist financing opportunities afforded by the new technologies and the newer, less economically developed OFCs. The attraction of establishing an offshore financial services market for small states is a dependable source of income that in some instances exceeds 50 percent of a jurisdiction’s GDP.
Other practices found in some OFCs cause additional problems for law enforcement. One such practice, well advertised on the Internet, is the selling of “economic citizenship”—a practice that, if improperly controlled, can enable individuals suspected of committing crimes to purchase citizenship in an OFC jurisdiction that may not have an extradition agreement with the purchaser’s original home country. Purchasers of economic citizenships can change their names to go along with their new passports, creating yet another impediment to law enforcement. During 2002, two Caribbean Basin OFCs, Dominica and St. Kitts & Nevis, ld inadequately controlled economic citizenships. In the Pacific region, only Nauru sold improperly controlled economic citizenships. The Marshall Islands abolished this practice several years ago; however, the government has not yet been able to recover all the unauthorized passports.
Internet gaming executed via the use of credit cards and offshore banks represents yet another powerful vehicle for criminals to launder funds from illicit sources as well as to evade taxes. Advertised on the Internet as being located primarily in the Caribbean Basin, virtual casinos can be extremely profitable for governments that sell the licenses, but exert inadequate controls, and likely share in the operator’s profits. Costa Rica licenses more Internet gambling and sports betting sites than any country in the Western Hemisphere. Reportedly, 70 such sites are currently registered in Costa Rica as compared to three sites three years ago. These sites represent a particularly difficult problem for law enforcement, as the Internet server frequently is located in a country other than the country that has licensed the website.
While many of the OFCs have been undertaking reforms to their regulatory systems and have demonstrated a growing willingness to share information with foreign law enforcement and regulatory agencies, issues of transparency still remain. Shell banks, IBCs and other corporate entities with nominee directors, trusts, bearer shares and the lack of transparency associated with them need resolution in the short-term, whether offered onshore or offshore. In a time when terrorist organizations have the capacity to disrupt global political stability, all international financial standard-setters have an obligation to move quickly to resolve these issues. The USA PATRIOT Act that prohibits transactions (directly or indirectly) between U.S. financial institutions and shell banks is but a first step in the right direction.
Explanatory Notes—Offshore Financial Services Table Public information regarding offshore financial centers (OFCs) can be difficult to obtain. Industry publications, discussions with regulators of the OFCs, foreign government finance officials, embassy reports, analyses from United States Government (USG) agencies, international organizations, and secondary sources provided the data for the table.
Excluded are jurisdictions that provide low or no taxes to individuals but offer no other services or products normally associated with the offshore financial service sector. Also excluded are jurisdictions that have established OFCs but for which the USG has little or no information regarding the operations of the OFC. Within most categories presented on the table, the designations Y and N are used to denote the existence (Y) or the non-existence (N) of the entity or service in a specific jurisdiction. Where there is no information regarding specific categories, or available information is inconclusive, the corresponding cells on the chart are left blank. In some categories, symbols other than, or in addition to, a Y or N are used. Explanations for additional symbols are provided below.
Explanations of the categories themselves are either provided in the preceding text, are considered to be self-evident, or are provided below.
Category Designations—Offshore Financial Services Table The number is provided if known. A Y indicates that although a jurisdiction that offers offshore financial services (OFC) licenses offshore banks, the number of such banks is not known. An N indicates that no offshore banks are known to be licensed in the jurisdiction. A blank cell indicates no or inconclusive information regarding whether offshore banks are offered within the OFC.
Trust and Management Companies: These are companies that provide fiduciary services, as well as serving as marketing agents, representatives, lawyers, accountants, trustees, nominee shareholders, directors, and officers of international business companies.
International Business Companies (IBCs) & Restricted Companies: Numbers are provided when known and public; in many cases, the numbers are significantly underreported. A P indicates that the jurisdiction does not publicize the number of IBCs registered within it.
Bearer Shares: Share certificates can be issued without the name of the beneficial owner. A Y indicates that the OFC offers bearer shares; an N indicates that it does not; and a blank cell indicates that the USG does not know if bearer shares are offered within the OFC.
Asset Protection Trusts (APTs): Trusts that protect assets from civil judgment. A Y indicates that the OFC offers APTs; an N indicates that it does not; and a blank cell indicates no or inconclusive information regarding whether APTs are offered within the OFC.
Insurance and Re-insurance Company Formation: A Y indicates that the OFC allows formation of insurance and re-insurance companies; an N indicates that it does not; and a blank cell indicates no or inconclusive information regarding whether insurance and re-insurance companies are allowed within the OFC.
Sells “Economic Citizenship”: A Y indicates that the OFC sells economic citizenships; an N indicates that it does not; and a blank cell indicates no or inconclusive information regarding whether the OFC sells economic citizenships. An S indicates that an OFC has suspended or ceased sales in 2001.
Internet Gaming: Licenses granted by jurisdictions that enable grantees to establish “virtual casinos” on the Internet, in which customers can pay via credit card. A Y indicates that the OFC licenses Internet gaming; an N indicates that it does not; and a blank cell indicates no or inconclusive information regarding whether Internet gaming is offered within the OFC.
Criminalized Drug Money Laundering: A D indicates that the OFC has a law criminalizing narcotics-related money laundering only. A BD indicates that crimes other than those related to narcotics are considered to be predicate crimes for money laundering in the OFC. An N indicates that there is no legislation criminalizing money laundering in the OFC.
Financial Action Task Force (FATF) Non-Cooperative Exercise: This column provides the FATF finding. NC indicates the jurisdiction was determined to be non-cooperative; R indicates that the jurisdiction was reviewed and was not identified as non-cooperative; a blank cell indicates that the jurisdiction was not reviewed. RM indicates that FATF removed the jurisdiction from the NCCT list.
Membership in International Organizations: This cell lists the multinational organizations that have been formed to combat money laundering and/or to establish a sound supervisory regime in which the OFC participates.
Go back to Part 1 of this report.