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U.S. Department of State

Diplomacy in Action

2009 INCSR: Country Reports - Moldova through Singapore

Bureau of International Narcotics and Law Enforcement Affairs
February 27, 2009



Moldova is not considered an important regional financial center. The Government of Moldova (GOM) monitors money flows through “right-bank” Moldova (the territory it controls), but does not exercise control over the breakaway region of Transnistria. Though unrecognized, Transnistria is a de facto independent region located along the Dniester River between Moldova and Ukraine. Transnistrian authorities do not submit to GOM financial controls and maintain an independent banking system not licensed by the National Bank of Moldova (NBM). Moldovan per capita incomes are the lowest in Europe. Criminal proceeds laundered in Moldova derive primarily from tax evasion, contraband smuggling, foreign criminal activity, and, to a lesser extent, domestic criminal activity and corruption. Human trafficking also may be a source of proceeds laundered in Moldova. Money laundering proceeds are controlled by small, poorly-organized domestic criminal groups. These small groups are, in turn, supervised by larger and better-organized foreign crime syndicates from Russia, Ukraine, Turkey and Israel, among others.

Money laundering has occurred in the banking system and through exchange houses in Moldova; and in the offshore financial centers and throughout the region in Transnistria. The amount of money laundering occurring via alternative remittance systems reportedly is not significant. The number of financial crimes unrelated to money laundering, such as bank fraud, embezzlement, corruption, and forgery of bankcards, especially through international offshore zones, has decreased. Criminal cases in 2008 involved the forgery and misuse of bankcards. Although the number of financial crimes has not increased, investigations have revealed a diversification of financial and economic-related crimes.

Although a significant black market exists in Moldova, especially smuggling of goods at the Moldovan-Ukrainian border alongside Transnistria, narcotics proceeds are not a significant funding source of this market. Contraband smuggling generates funds that are laundered through the banking system. Often funds are first laundered through Transnistrian banks, transferred to Moldovan institutions, and then moved to other countries.

Moldova is not considered an offshore financial center. The Moldovan financial system has 16 banks, including five banks fully or majority-owned by foreigners, that are regulated in the same manner as Moldovan commercial banks. Offshore banks are not permitted to operate in Moldova. Shell companies are not allowed by law, although they exist on a de facto basis. Nominee directors and trustees are prohibited. Internet gaming sites exist, although no statistics are currently available on the number of sites in operation. Internet gaming is subject to the same regulations as domestic casinos. Currently six casinos, two national lottery companies and four sport gambling facilities are licensed and legally operating.

Moldova currently has six free trade zones (FTZs), some of which are infrequently used. Goods from abroad are imported to the FTZs and resold without payment of customs duties to the country of origin or to Moldova. The goods are then exported to other countries with documentation indicating Moldovan origin. According to Moldova’s financial intelligence unit (FIU), the Service for Preventing and Combating Money Laundering and Terrorism Financing (SPCSB), through September 30, 2008, no reports have been filed alleging the FTZs have been used in trade-based money laundering schemes or for terrorist financing. A GOM agency, the Free Trade Zone Administration (FTZA), supervises the FTZs. Companies operating in FTZs also are subject to inspections, controls, and investigations by inspectors from the Customs Service and the Center for Combating Economic Crime and Corruption (CCECC).

Money laundering is a separate criminal offense under Article 243 of the Moldovan Criminal Code and under the Law on Preventing and Combating Money Laundering and Terrorism No.190-XVI, (the AML/CTF Law), passed on July 26, 2007. The legislation takes an “all serious crimes” approach. Serious crimes are defined as those punishable by a fine of 500 to 1,000 conventional units (approximately $1,000 to $1,900) or by imprisonment of up to five years. The fine or imprisonment may be accompanied by a prohibition to hold certain positions or to practice a certain activity for a period of two to five years.

In early 2007, the President proposed draft amendments to the tax code and other financial regulations aimed at “liberalizing the economy.” On April 27, the Parliament adopted tax-code amendments intended to regulate Moldova’s informal economy, forgive tax debts and stimulate investments. Of particular concern was a capital-amnesty provision allowing individuals and legal entities to legalize previously undeclared cash and noncash assets, including real estate and stocks. Additionally, those taking advantage of the amnesty would be under no obligation to declare the origins of their declared assets. The law also stipulates that transaction information can not be shared with the CCECC or the Moldovan Tax Inspectorate. Most worrisome, the legislation exempts declared assets from Moldova’s fiscal, customs and existing money laundering and terrorist financing legislation.

Following recommendations from the international community, on July 20, 2007, the Moldovan Parliament adopted Law 2298, a package of tax-code reforms, which includes amendments to the capital-amnesty law. The amendment closes loopholes in the capital-amnesty law, eliminating explicitly the exemption of amnesty-related transactions from Moldova’s anti-money laundering laws. A week later, Parliament separately adopted the new AML/CTF Law. Since the passage of these laws, GOM authorities have issued numerous regulations, decisions, and laws that are related to the tax-amnesty/capital-legalization law and the AML/CTF Law. On August 15, 2007, the NBM issued two decisions focusing on the activity of financial institutions related to capital legalization and the transfer or export from the Republic of Moldova of legalized funds by individuals.

Article 12 of the AML/CTF Law regulates the limitations of bank secrecy. Thus, information obtained from reporting entities can be used only with the purpose of preventing money laundering and terrorist financing. The forwarding of information regarding clients or ownership information to the CCECC, criminal investigative authorities, prosecutorial entities, or to the courts in an effort to prevent or combat money laundering activities is not classified as disclosure of commercial bank or professional secrets, as long as the forwarding of information is carried out in accordance with legal provisions.

The CCECC, which has the authority to investigate money laundering and terrorist financing, supervises and examines all banks and nonbanking financial institutions for compliance with anti-money laundering/counterterrorist financing (AML/CTF) laws and regulations. Under the AML/CTF Law, the NBM supervises banks, exchange houses, and representatives of foreign banks. A July 2007 amendment to Law No. 192, on the Securities Commission, merges into one agency, the National Commission on Financial Markets (NCFM), three institutions dealing with oversight of financial markets—the National Commission on Securities, the Inspectorate for Supervision of Insurance Companies and Retirement Funds, and the National Service for Supervision of Citizen’s Savings and Lending Associations. The NCFM’s jurisdiction includes nonbanking financial entities, such as institutions issuing securities, investors, the National Bureau of Insurance of Vehicles of Moldova, members of saving and lending associations, and clients of micro-financing organizations. Additionally, the NCFM oversees professional participants in the nonbanking financial sector that carry out activities in the following fields: the securities market, insurance market, micro-financing, private pension funds, mortgage organizations, and credit-history bureaus. The Licensing Chamber checks the compliance of companies applying for business licenses, and specifically oversees casinos and gaming facilities.

Banks, exchange houses, stock brokerages, casinos, insurance companies, lawyers, notaries, accountants, lotteries, and institutions organizing or displaying lotteries are required to record and report the identity of customers engaging in significant transactions. The reporting entities are obligated to report suspicious transactions to the FIU within 24 hours. In addition, single transactions or multiple transactions undertaken in 30 calendar days that exceed MDL 500,000 (approximately $50,000) must be reported to the FIU. The AML/CTF Law also requires financial institutions to maintain records and documentation (including business correspondence) of accounts and account holders for a period of at least seven years after the termination of business relations or the closing of the account.

The SPCSB, Moldova’s FIU, is a quasi-independent unit within the CCECC. Decree No. 111 of September 15, 2003, establishes the SPCSB as a law enforcement style FIU, with multiple responsibilities, including the collection, administration, and analysis of transaction reports. It also conducts criminal investigations and has regulatory authority to develop draft laws. During 2008, the FIU’s staff increased by five additional employees, expanding the staff to 19 inspectors. The director of the FIU reports the unit is now better staffed, with 25 employees being an eventual long-term staffing goal. FIU staff went through extensive training in 2008. Although housed within the CCECC building, a secure door separates its offices from other CCECC employees. The heads of the FIU and the CCECC maintain that other CCECC employees have no access to records collected by the FIU. However, the leadership of the FIU is ultimately under the supervision of the director of the CCECC. Since the FIU has become a member of the Egmont Group, the CCECC has allotted additional funds for upgrading and enhancing FIU facilities as well as for training its staff. While the CCECC budget covers the base financial needs of the FIU, the FIU is also supported technically and financially by international organizations. The head of the FIU reports that the unit is adequately staffed, with low turnover, good working conditions and newly renovated offices.

In an attempt to strengthen the capacities of Moldova’s FIU, the European Commission and the Council of Europe have been working extensively with the CCECC and the Moldovan FIU. The project, which began in August 2006, is a three year program which has as its specific objective the strengthening of Moldova’s anticorruption and AML/CTF regime.

The CCECC and the FIU are the lead agencies responsible for investigating financial crimes, including money laundering. Other agencies that share jurisdiction over the investigation of financial crimes include the Prosecutor General’s Office (PGO), the Ministry of Interior (MOI) and the Customs Service. The Security and Intelligence Service (SIS) investigates terrorist financing. The FIU has formed a task force with the PGO, the MOI, the Customs Service, the NBM, the NCFM, the SIS, and the Ministry of Information Development to share information and discuss investigations. The FIU has signed interagency agreements with other agencies and ministries with databases to exchange information. In 2008, the FIU reported it has been granted access to almost all governmental databases and information systems. In 2008, the FIU improved existing mechanisms on exchange of information at the national and international levels.

In the first nine months of 2008, the FIU received reports on approximately five million financial transactions, of which 16,000 were considered suspicious, a substantial but unexplained decrease from the nine million total reports and the 165,199 suspicious reports in 2007. Also, the total number of suspicious transactions is misleading, since GOM officials categorize all transactions involving Transnistria as suspicious. The FIU indicated ten percent—12 percent of the 16,000 suspicious transactions concern Transnistria.

In 2008, the FIU initiated six criminal cases related to financial fraud; none of these cases carried direct money laundering charges. The FIU identified two major types of criminal activity in 2006 and 2007: in the first instance, criminals used financial transactions that appeared to be legitimate to launder criminal proceeds; and, in the second instance, criminals used the FTZs to create illegal profits by reducing the value of imported goods. In the first nine months of 2008, the FIU imposed fines and sanctions totaling $300,000. The FIU reports there were no arrests of individuals for money laundering violations during the first nine months of 2008. Late in 2007, a Moldovan court tried a criminal case charging the defendant with money laundering violations. The defendant was found guilty and sentenced to 15 years’ imprisonment. In 2008, the FIU and CCECC had made no arrests nor pursued any prosecutions involving terrorist financing. Based on the volume of reports received by the FIU, the number of arrests and prosecutions appears to be very low. No explanation was provided for the lack of prosecutions and convictions.

Law No. 1569 of December 2002, on the transportation of currency, stipulates that persons are obliged to report in writing to Moldovan customs officials the amount of currency they are transporting when that amount exceeds 10,000 euros (approximately $13,500). If the amount of outbound currency is more than 10,000 euros (approximately $13,500), the carrier of the currency has to report the outbound currency in a special declaration form provided by customs officials at the border. In addition to the special declaration, the currency carrier must provide documents detailing the source of the money and a special permission for outbound cash currency transportation issued by a duly authorized bank or the NBM. The Customs Service operates a special database that includes all declarations which is shared with other governmental agencies, including the FIU.

The Moldovan Criminal Code provides for the seizure and confiscation of assets related to all serious crimes, including terrorist financing. The provisions may be applied to goods belonging to persons who knowingly accepted goods acquired illegally, even when the state declines to prosecute. However, it remains unclear whether asset forfeiture may be invoked against those unwittingly involved in or tied to an illegal activity. If it can be shown that the assets were used in the commission of a crime or result from a crime, they can be confiscated. Legitimate businesses can be seized if they were used to launder drug money, support terrorist activity, or are otherwise related to other criminal proceeds. The Criminal Code allows for civil as well as criminal forfeiture.

The PGO has expressed its willingness to pursue an initiative to amend the Constitution to allow a more effective use of asset forfeiture. The Constitution currently incorporates a presumption that any property owned by an individual was legally acquired. This presumption has acted to inhibit the use of the existing asset forfeiture laws. However, the initiative has not progressed in 2008, likely because both executive and legislative branches have other higher priorities on their agendas.

To the extent of their jurisdictions, the FIU, CCECC, Tax Inspectorate, Customs Service, prosecutor’s offices and Bailiff’s offices are responsible for tracing, seizing and freezing assets. Assets seized by law enforcement are incorporated into the state budget, not a separate fund. In the first nine months of 2008, the FIU issued decisions freezing and seizing assets totaling MDL 3 million (approximately $300,000).

The banking community generally cooperates with enforcement efforts by the FIU and the CCECC to trace funds and seize or freeze bank accounts. However, the GOM currently lacks adequate resources, training, and experience to trace and seize assets effectively. The GOM does not have a national system for freezing terrorist assets. The GOM has no separate law providing for the sharing with other countries of assets seized from narcotics and other serious crimes. However, nothing in the current legal structure would prohibit such activity.

Article 279 of the Moldovan Criminal Code criminalizes terrorist financing, defining it as a “serious crime.” Moldova regulates efforts to combat terrorist financing in the Law on Combating Terrorism, enacted on November 12, 2001. Article 2 defines terrorist financing, and Article 8/1 authorizes suspension of terrorist and terrorist-related financial operations. This statute is separate from the AML/CTF Law, which contains other relevant provisions.

In 2008, the CCECC issued a decree on actions to be taken to enforce the provisions of the AML/CTF Law. The CCECC decree lists entities worthy of particular focus, given possible money laundering or terrorist financing concerns. These entities include countries that may produce narcotics; countries that do not have legal provisions against money laundering and terrorist financing; countries with a high crime rate and corruption; countries operating offshore centers; and persons, groups, and entities identified as participating in terrorist activities. The decree was developed on the basis of Moldova’s national interests and U.S. and UN lists of designated terrorists. To date, the Moldovan authorities have not frozen, seized, or forfeited assets related to terrorism or terrorist financing. Reportedly, no indigenous alternative remittance systems exist in Moldova, although the use of cash couriers is common. No special measures have been taken to investigate misuse of charitable or nonprofit entities.

In December 2006, the GOM signed a $24,700,000 Threshold Country Program with the Millennium Challenge Corporation that focuses on anticorruption measures. The GOM requested funding to address areas of persistent corruption including the judiciary, health care system, tax, customs and law enforcement. Moldova is listed as 109 out of 180 countries in Transparency International’s 2008 Corruption Perception Index.

The GOM has no bilateral agreement with the United States for the exchange of information regarding money laundering, terrorism, or terrorist financing investigations and proceedings. However, Moldovan authorities continue to solicit USG assistance on individual cases and cooperate with U.S. law enforcement personnel when presented with requests for information or assistance. The FIU has entered into bilateral agreements to exchange information with the FIUs of Albania, Belarus, Bulgaria, Croatia, Estonia, Georgia, Indonesia, Korea, Lebanon, Lithuania, Macedonia, Netherlands, Romania, Russia, and Ukraine. Moldova has signed an agreement with Commonwealth of Independent States (CIS) member states for the exchange of information on criminal matters, including money laundering.

Moldova is a party to the 1988 UN Drug Convention, the UN Convention for the Suppression of the Financing of Terrorism, the UN Convention against Transnational Organized Crime and the UN Convention against Corruption. On May 20, 2008, the FIU became a member of the Egmont Group. In 2004, the CCECC was accepted as an observer at the Eurasian Group on Combating Money Laundering and Financing of Terrorism, a Financial Action Task Force-style regional body (FSRB). Moldova is a member of the Council of Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a FSRB. Moldova underwent an evaluation by MONEYVAL in 2007. The evaluation was largely unfavorable. Moldova is scheduled to undergo its next MONEYVAL evaluation in 2010.

The Government of Moldova should continue to enhance its existing AML/CTF regime. The GOM should ensure the FIU, law enforcement agencies and prosecutors have sufficient resources, capacity, and tools to adequately analyze and investigate suspected cases of money laundering and terrorist financing. Moldova should improve the mechanisms for sharing information and forfeiting assets, including clarifying if unwitting third parties are subject to the forfeiture provisions. Border and anti-smuggling enforcement should be considered as top priorities in light of the potentially destabilizing effects of continued international organized criminal activity. The GOM should continue the momentum of its anticorruption efforts.


The second-smallest country in Europe, the Principality of Monaco is known for its tradition of bank secrecy, network of casinos, and favorable tax regime. Money laundering offenses relate mainly to offenses committed abroad. Russian organized crime and the Italian mafia allegedly have laundered money in Monaco. Reportedly, the Principality does not face ordinary forms of organized crime. Existing crime does not seem to generate significant illegal proceeds, with the exception of fraud and offenses under the “Law on Checks.” Monaco remains on an Organization for Economic Cooperation and Development (OECD) list of “noncooperative” countries in terms of provision of tax information.

Monaco has a population of approximately 32,000, of whom fewer than 7,000 are Monegasque nationals. Monaco’s approximately 60 banks and financial institutions hold more than 300,000 accounts and manage total assets of about 70 billion euros (approximately $102,800,000,000). Approximately 85 percent of the banking customers are nonresident. The high prices for land throughout the Principality result in a real estate sector of considerable import. There are five casinos run by the Société des Bains de Mer, in which the state holds a majority interest.

The Council of Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a Financial Action Task Force (FATF)-style regional body, conducted an evaluation of the Monegasque anti-money laundering and counterterrorist financing (AML/CTF) system in 2007. That report identifies a variety of problems with the Monegasque approach, notably with respect to customer due diligence, designated nonfinancial businesses and professions, and the scope of suspicious transaction reporting. These items remain subject to comment.

Money laundering in Monaco is a crime under Act 1.162 of July 7, 1993, “On the Participation of Financial Institutions in the Fight against Money Laundering,” and Section 218-3 of the Criminal Code, amended by Act 1.253 of July 12, 2002, “Relating to the Participation of Financial Undertakings in Countering Money Laundering and the Financing of Terrorism.” On November 9, 2006, Section 218-3 of the Criminal Code was modified to adopt an “all crimes” approach to money laundering.

Prior approval is required to engage in any economic activity in Monaco, regardless of its nature. The Monegasque authorities issue approvals based on the type of business to be engaged in, the location, and the length of time authorized. This approval is personal and may not be re-assigned. Any change in the terms requires the issuance of a new approval.

Monaco’s banking sector is linked to the French banking sector through the Franco-Monegasque Exchange Control Convention, signed in 1945 and supplemented periodically, most recently in 2001. Through this convention, Monaco operates under the banking legislation and regulations issued by the French Banking and Financial Regulations Committee, including Article 57 of France’s 1984 law regarding banking secrecy. The majority of entities in Monaco’s banking sector concentrate on portfolio management and private banking. Subsidiaries of foreign banks operating in Monaco may withhold customer information from their parent banks.

Although the French Banking Commission supervises Monegasque credit institutions, Monaco shoulders the responsibility for legislating and enforcing measures to counter money laundering and terrorist financing. The Finance Counselor, located within the Government Council, is responsible for AML/CTF policy and program implementation.

Banking laws do not allow anonymous accounts, but the Government of Monaco (GOM) does permit the existence of alias accounts, which allow account owners to use pseudonyms in lieu of their real names. Cashiers do not know the clients, but the banks know the identities of the customers and retain client identification information. Article 8 of Sovereign Order 632 of August 2006 clarifies the circumstances under which pseudonyms can be used by banks.

Monaco’s AML legislation, as amended, requires banks, insurance companies, stockbrokers, corporate service providers, portfolio managers, some trustees, and institutions within the offshore sector to report suspicious transactions to Monaco’s financial intelligence unit (FIU), 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. The law imposes a five to ten-year jail sentence for anyone convicted of using illicit funds to purchase property, which itself is subject to confiscation. Act 1.162, as amended, institutes procedural requirements regarding internal compliance, client identification, and retention and maintenance of records. Sovereign Order 16.615 of January 2005 and Sovereign Order 631 of August 2006 mandate additional customer identification measures. Designated nonfinancial businesses and professions, such as lawyers, notaries, accountants, real estate brokers, and dealers in precious metals and stones, are not subject to reporting or record keeping requirements.

Offshore companies are subject to the same due diligence and suspicious transaction reporting (STR) obligations as banking institutions, and Monegasque authorities conduct on-site audits. Act 1.253 strengthens the “know your client” obligations for casinos and obliges companies responsible for the management and administration of foreign entities not only to report suspicions to Monaco’s FIU, but also to implement internal AML/CTF procedures. The FIU monitors these activities.

Monaco’s FIU, the Service d’Information et de Controle sur les Circuits Financiers (SICCFIN), receives STRs, analyzes them, and forwards them to the prosecutor when they relate to drug-trafficking, organized crime, terrorism, terrorist organizations, or the funding thereof. A 2007 Sovereign Order allows SICCFIN to propose legal or regulatory changes in the areas of money laundering, terrorist financing, and corruption. SICCFIN also supervises the implementation of AML legislation. Under Article 4 of Law 1.162, SICCFIN may suspend a transaction for 12 hours and advise the judicial authorities to investigate. In 2006, SICCFIN received 395 STRs. In 2007, SICCFIN received 381 STRs, about 55 percent of which were submitted by banks and other financial institutions. SICCFIN received 66 requests for financial information from other FIUs in 2007.

Investigations and prosecutions are handled by the two-officer Money Laundering Unit (Unite de Lutte au Blanchiment) within the police. The Organized Crime Group (Groupe de Repression du Banditisme) may also handle cases. Seven police officers have been designated to work on money laundering cases. Four prosecutions for money laundering have taken place in Monaco, resulting in three convictions.

Monaco’s legislation allows for the confiscation of property of illicit origin as well as a percentage of co-mingled illegally acquired and legitimate property. Authorities must obtain a court order to confiscate assets. Confiscation of property related to money laundering is restricted to the offenses listed in the Criminal Code. Authorities have seized assets exceeding 11.7 million euros (approximately $17,000,000) in value as of year-end 2006. Monaco and the United States signed an asset sharing agreement in March 2007.

In July and August 2002, the GOM passed Act 1.253 and promulgated two Sovereign Orders intended to implement UNSCR 1373 by outlawing terrorism and its financing. Monaco passed additional Sovereign Orders in April and August of that year, importing into Monegasque law the obligations of the UN Convention for the Suppression of the Financing of Terrorism. In 2006, Monaco further amended domestic law to implement these obligations. Monaco has not, however, conducted any TF investigations or prosecutions to date.

Monaco has also enacted domestic measures providing a legal basis for the freezing of terrorist funds. While the legal framework, to a certain extent, provides for the imposition of international sanctions and penalties under criminal law in the event of noncompliance, the mechanism does not apply to persons, groups, or entities within the EU. Monaco also lacks specific mechanisms for examining and acting on freezing procedures initiated by other countries.

The Securities Regulatory Commissions of Monaco and France signed a memorandum of understanding (MOU) in March 2002 on the sharing of information between the two bodies. The GOM considers this MOU an important tool to combat financial crime, particularly money laundering.

In November 2008, the GOM hosted a joint meeting of the FATF and MONEYVAL to discuss money laundering and terrorist financing typologies. Monaco characterized this conference as part of the “pro-active policy” implemented over the last few years to combat these activities.

Monaco has concluded 15 extradition treaties with various countries. To date, there have been no extraditions on the grounds of money laundering, although the GOM has extradited criminals guilty of other offenses, mainly to Russia. SICCFIN has signed information exchange agreements with over 20 foreign FIUs.

Monaco is a member of MONEYVAL, and SICCFIN is a member of the Egmont Group. Monaco is a party to the 1988 UN Drug Convention, the UN Convention for the Suppression of the Financing of Terrorism, and the UN Convention against Transnational Organized Crime. The GOM has neither signed nor ratified the UN Convention against Corruption.

The Government of Monaco should amend its legislation to implement full corporate criminal liability. The Principality should continue to enhance its AML and confiscation regimes by fully applying its AML/CTF reporting, customer identification, and record keeping requirements to all trustees and gaming houses. More broadly, the GOM should extend AML/CTF regulations to cover designated nonfinancial businesses and professions. SICCFIN should have the authority to forward reports and disseminate information to law enforcement and foreign FIUs even when the report or information obtained does not relate specifically to drug-trafficking, organized crime, or terrorist activity or financing. Monaco should become a party to the UN Convention against Corruption.


Morocco is not a regional financial center, but money laundering is a concern due to its narcotics trade, vast informal sector, trafficking in persons, and large level of remittances from Moroccans living abroad. According to the 2008 World Drug Report by the United Nations Office on Drugs and Crime (UNODC), Morocco remains the world’s principal producer and exporter of cannabis resin. Credible estimates of Morocco’s informal financial sector range between 17 and 40 percent of GDP. In 2007, remittances from Moroccans living abroad increased by 15 percent over their level in 2006, and totaled more than $7 billion, approximately nine percent of GDP. Although the true extent of the money laundering problem in the country is unknown, conditions exist for it to occur.

In the past few years, the Kingdom of Morocco has taken a series of steps to address the problem, most notably the enactment of a comprehensive anti-money laundering (AML) bill in May 2007 and the planned establishment of a Financial Intelligence Unit, expected to become operational in Rabat in early 2009. The predominant use of cash, informal value transfer systems and remittances from abroad all help fuel Morocco’s informal sector. Bulk cash smuggling is also a problem. There are unverified reports of trade-based money laundering, including under-and over-invoicing and the purchase of smuggled goods. Most businesses are cash-based with little invoicing or paper trail. Cash-based transactions in connection with cannabis trafficking are of particular concern. According to the UNODC, Morocco remains the world’s principal producer of cannabis, with revenues estimated at over $13 billion annually. While some of the narcotics proceeds are laundered in Morocco, most proceeds are thought to be laundered in Europe.

Unregulated money exchanges remain a problem in Morocco and were a prime impetus for Morocco’s recent AML legislation. Although the legislation targets previously unregulated cash transfers, the country’s vast informal sector creates conditions for this practice to continue. While the Moroccan banking sector is a regional leader, only three in ten Moroccans use banks. The sector 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 Economy and Finance and the Central Bank—Bank Al Maghrib—that monitors and regulates the banking system. A separate Foreign Exchange Office regulates international transactions.

Since 2003, Morocco has taken a series of steps to tighten its AML controls. In December 2003, the Central Bank issued Memorandum No. 36, in advance of pending AML legislation that instructed banks and other financial institutions under its control to conduct internal analysis and investigations into financial transactions. The measures called for the reporting of suspicious transactions, retention of suspicious activity reports, and mandated “know your customer” procedures. In 2007, Morocco’s AML efforts took a significant step forward with parliamentary passage and promulgation of a comprehensive AML law, which draws heavily from FATF recommendations. The law requires the reporting of suspicious financial transactions by all responsible parties, both public and private, who in the exercise of their work, carry out or advise on the movement of funds possibly related to drug trafficking, human trafficking, arms trafficking, corruption, terrorism, tax evasion, or forgery. The Bank al-Maghrib and the Ministry of Economy and Finance embarked on a major campaign to publicize the law in 2007, but delays in promulgating the decrees to implement the legislation meant that the Financial Intelligence Unit (FIU) did not become operational in 2008. The government has set a new goal of January 2009 for establishment of the FIU. There were no prosecutions for money laundering in Morocco in 2008.

Morocco has a free trade zone in Tangier, with customs exemptions for goods manufactured in the zone for export abroad. There have been no reports of trade-based money laundering schemes or terrorist financing activities using the Tangier free zone or the zone’s offshore banks, which are regulated by an interagency commission chaired by the Ministry of Finance.

While there have been no verified reports of international or domestic terrorist networks using the Moroccan narcotics trade to finance terrorist organizations and operations in Morocco, investigations into the Ansar Al Mahdi and Al Qaeda in the Islamic Maghreb (AQIM) terrorist organizations are ongoing. At least two suspects arrested as part of the Ansar Al Mahdi cell were accused of providing financing to the cell.

Morocco has a relatively effective system for disseminating United Nations Security Council Resolution (UNSCR) terrorist freeze lists to the financial sector and law enforcement. Morocco has provided detailed and timely reports requested by the UNSCR 1267 Sanctions Committee and some accounts have been administratively frozen. In 1993, a mutual legal assistance treaty between Morocco and the United States entered into force.

Morocco is a party to the 1988 UN Drug Convention, the UN Convention for the Suppression of Financing of Terrorism, the UN Convention against Transnational Organized Crime, and the UN Convention against Corruption. Morocco is a charter member of the Middle East and North Africa Financial Action Task Force (MENAFATF).

In June 2003, Morocco adopted a comprehensive counterterrorism bill. This bill provided the legal basis for lifting bank secrecy to obtain information on suspected terrorists, allowed suspect accounts to be frozen, and permitted the prosecution of terrorist finance-related crimes. The law also provided for the seizure and confiscation of terrorist assets, and called for increased international cooperation with regard to foreign requests for freezing assets of suspected terrorist entities. The counterterrorism law brought Morocco into compliance with UNSCR 1373 requirements for the criminalization of the financing of terrorism. Other AML controls include legislation prohibiting anonymous bank accounts and foreign currency controls that require declarations to be filed when transporting currency across the border. Although Morocco criminalized terror finance (TF) in 2003, according to MENAFATF, “the Moroccan definition of TF is narrow, since it does not criminalize the act of using funds by a terrorist organization or by a terrorist.”

The Government of Morocco should continue to implement anti-money laundering/counterterrorist financing (AML/CTF) programs and policies that adhere to world standards, including a viable FIU that receives, analyzes, and disseminates financial intelligence. The informal economy is very significant in Morocco and authorities are likely to face major challenges as the new AML regime is implemented. Police and customs authorities, in particular, should enhance their ability to recognize money laundering methodologies, including trade-based laundering and informal value transfer systems.

The Netherlands

The Netherlands is a major financial center and consequently an attractive venue for laundering funds generated from illicit activities. These activities are often related to the sale of cocaine, cannabis, or synthetic and designer drugs (such as ecstasy). Several Dutch financial institutions engage in international business transactions involving large amounts of United States currency. However, there are no indications that significant amounts of U.S. dollar transactions conducted by financial institutions in the Netherlands stem from illicit activity. Financial fraud is believed to generate a considerable portion of domestic money laundering and there is evidence of trade-based money laundering. There are no indications of syndicate-type structures in organized crime or money laundering, and there is virtually no black market for smuggled goods in the Netherlands. Although under the Schengen Accord there are no formal controls on national borders within the EU, the Dutch authorities run special operations in the border areas with Germany and Belgium to keep smuggling to a minimum. Reportedly, money laundering amounts to 18.5 billion euros (approximately $25,000,000,000) annually, equivalent to three percent of Dutch GDP. The Netherlands is not an offshore financial center nor are there any free trade zones in the Netherlands.

In 1994, the Government of the Netherlands (GON) criminalized money laundering related to all crimes. In December 2001, the GON enacted legislation specifically criminalizing facilitating, encouraging, or engaging in money laundering. This eases the public prosecutor’s burden of proof regarding the criminal origins of proceeds: under the law, the public prosecutor only needs to prove that the proceeds “apparently” originated from a crime. This application of the law was confirmed by a Dutch Supreme Court case in 2004. Self-laundering also is covered.

The Netherlands has an “all offenses” regime for predicate offenses of money laundering. The penalty for “deliberate acts” of money laundering is a maximum of four years’ imprisonment and a maximum fine of 45,000 euros (approximately $55,400), while “liable acts” of money laundering (by people who do not know first-hand of the criminal nature of the money’s origin but should have reason to suspect it) are subject to a maximum imprisonment of one year and a fine no greater than 45,000 euros (approximately $55,400). Habitual money launderers may be punished with a maximum imprisonment of six years and a maximum fine of 45,000 euros (approximately $55,400); and those convicted also may have their professional licenses revoked. In addition to criminal prosecution for money laundering offenses, money laundering suspects also can be charged with participation in a criminal organization (Article 140 of the Penal Code), violations of the financial regulatory acts, violations of the Sanctions Act, or noncompliance with the obligation to declare unusual transactions according to the Economic Offenses Act.

In June 2008, the Netherlands Court of Audit (Algemene Rekenkamer, similar to the U.S. General Accountability Office) published its investigation of the GON’s policy for combating money laundering and terrorist financing. The report criticizes the Ministries of Interior, Finance, and Justice for: lack of information sharing among them; too little use of asset seizure powers; limited financial crime expertise and capacity within law enforcement; and light supervision of notaries, lawyers, and accountants. The ministries agreed in large part with these conclusions and are taking steps to address them.

The GON’s 2008 “National Threat Assessment on Organized Crime,” submitted to Parliament in November 2008, concludes that the Netherlands is attractive to money launderers, particularly through real estate investments. The GON is preparing to exert stricter control on the property sector. A new strategy in 2009 should see tax authorities, financial investigators, and police collaborate more closely on this type of fraud.

The Netherlands has comprehensive anti-money laundering (AML) legislation. The new Prevention of Money Laundering and Financing of Terrorism Act (WWFT) came into force on August 1, 2008. The law incorporates the previous separate acts on identification and reporting (the Services Identification Act and the Disclosure Act). The new law institutes a more risk-based approach. Institutions assess the risk associated with certain clients, products, and transactions. Under the new legislation, institutions also are obliged to verify the identity of a transaction’s ultimate beneficial owners.

Banks, bureaux de change, casinos, financing companies, commercial dealers of high-value goods, notaries, lawyers, real estate agents/intermediaries, accountants, business economic consultants, independent legal advisers, tax advisors, trust companies, other providers of trust-related services, life insurance companies, securities firms, stock brokers, and credit card companies in the Netherlands are required to report cash transactions over certain thresholds (varying from 2,000 to 25,000 euros or approximately $2,700 to $34,000), as well as any less substantial transaction that appears unusual (applying a broader standard than “suspicious”) to the Netherlands’ financial intelligence unit (FIU-NL).

A November 2005 National Directive on money laundering crimes mandates a financial investigation in every serious crime case, sets guidelines for determining when to prosecute for money laundering and provides technical explanations of money laundering offenses, case law, and the use of financial intelligence. Revised indicators determine when an unusual transaction report (UTR) must be filed. The indicators reflect a partial shift from a rule-based to a risk-based system and are aimed at reducing the administrative costs of reporting unusual transactions without limiting the preventive nature of the reporting system. Amendments to the Dutch legislation expand supervision authority and institute punitive damages. The revised legislation, which became effective on May 1, 2006, also incorporates a terrorist financing indicator in the reporting system.

The GON has developed a policy program to combat serious types of crimes—specifically financial-economic crime, cybercrime and organized crime. The financial-economic crime category includes fraud, money laundering and corruption. The GON intends to implement an extensive package of measures to reinforce existing procedures to combat all aspects of financial crime.

Financial institutions are required by law to maintain records necessary to reconstruct financial transactions for five years after termination of the relationship. 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. All institutions subject to the reporting and identification requirements, and their employees, are specifically protected by law from criminal or civil liability related to cooperation with law enforcement or bank supervisory authorities. The Money Transfer and Exchange Offices Act, passed in June 2001, 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 must be identified and all transactions totaling more than 2,000 euros (approximately $2,700) must be reported to FIU-NL. Sharing of information by Dutch supervisors does not require formal agreements or memoranda of understanding (MOUs).

The FIU-NL is a hybrid administrative-law enforcement unit that in 2006 combined the original administrative FIU, Meldpunt Ongebruikelijke Transacties, or Office for the Disclosure of Unusual Transactions (MOT), with its police counterpart, the Office of Operational Support of the National Public Prosecutor (BLOM). When MOT and BLOM merged, the resulting entity was integrated within the National Police (KLPD). The FIU-NL not only provides an administrative function that receives, analyzes, and disseminates the UTRs and currency transaction reports filed by banks, financial institutions and other reporting entities; it also provides a police function that serves as a point of contact for law enforcement. It forwards suspicious transaction reports (STRs) with preliminary investigative information to the Police Investigation Service.

Obliged entities that fail to file reports with FIU-NL can be sanctioned in two ways. One of the four supervisory bodies, depending on the entity, may impose an administrative fine of up to 32,670 euros (approximately $44,100), depending on the size of the entity. The Dutch Tax Administration supervises commercial dealers; the Bureau Financieel Toezicht or Office for Financial Oversight (BFT) supervises notaries, lawyers, real estate agents, and accountants; the Dutch Central Bank supervises trust companies, casinos, banks, bureaux de change, and insurance companies; and the Authority for Financial Markets supervises clearinghouses, brokers, and securities firms. The public prosecutor may fine nonreporting entities 11,250 euros (approximately $15,200), or penalize individuals failing to report with prison terms of up to two years. Under the Services Identification Act, now incorporated in the WWFT, those subject to reporting obligations must identify their clients, including the identity of beneficial owners, either at the time of the transaction or prior to the transaction, before providing financial services.

Virtually every UTR that is registered by FIU-NL is received electronically through its secure website. The total number of suspicious transactions increased 32 percent from 2006 to 2007. According to FIU-NL, the number of transactions possibly involving terrorist financing doubled from 2006 to 2007. In 2006, FIU-NL received 172,865 UTRs and forwarded 34,531 STRs to the criminal investigative services, totaling over 0.9 billion euros (approximately $1,215,000,000). In 2007, FIU-NL received 214,040 UTRs and forwarded 45,656 STRs. In 2007, the STRs totaled approximately 1.1 billion euros (approximately $ 1,480,000,000). The average amount per suspicious transaction dropped from 26,870 euros (approximately $36,275) in 2006 to 24,000 euros (approximately $32,400) in 2007. This decrease was a direct result of greater use of subjective indicators by reporting institutions. Unusual transaction reports filed on the basis of subjective indicators usually involve smaller amounts than reports filed on the basis of objective indicators. In 2006, 89 percent of UTRs were in euros, eight percent in other European currencies, and three percent involved U.S. dollars.

The number of reports related to money transfers increased in 2007 for the third consecutive year. Money transfer bureaus account for 90 percent of the total volume of suspicious transactions, but only nine percent of the value. The largest number of outgoing suspicious money flows went to Suriname (5,368 money transfers). The greatest total value of suspicious money transfers went to Turkey, over 9 million euros (approximately $12,150,000).

It is noteworthy that most incoming money transfers to the Netherlands are in amounts greater than 2,000 euros (approximately $2,700) except for the money transfers from the United States. Seventy percent of unusual reports of money transfers originating from the United States are lower than the 2,000 euro (approximately $2,700) reporting threshold.

The retention period for suspicious transactions is ten years. To facilitate the forwarding of STRs, FIU-NL has an electronic network called Intranet Suspicious Transactions (IST). Fully automated matches of data from the police databases are included with the UTR data forwarded to enforcement agencies. On January 1, 2003, the former MOT and BLOM organizations together created a special unit (the MBA unit) to analyze data generated from the IST. Under the new FIU-NL structure, the MBA continues to analyze IST data and forwards reports to the police. Since the money laundering detection system also covers areas outside the financial sector, the system is used for detecting and tracing terrorist financing activity. FIU-NL provides the AML division of Europol with STRs, and Europol applies the same analysis tools as the FIU.

In 2007, the notary sector supervisor, BFT, reported that seven notaries allegedly violated AML rules, but due to client confidentiality, the names of the notary firms were not released. Reportedly, the firms facilitated quick transfers of property ownership and received cash payments above the reporting threshold and failed to report. BFT investigators found 124 suspicious cases in 2007 where notaries refused to disclose transactions, and 192 such cases in 2006. In the face of mounting criticism, notary firms are becoming more willing to reveal privileged attorney-client information.

In June 2007, the Netherlands implemented EU regulation 1889/2005 which requires natural persons to declare when they enter or depart the EU carrying 10,000 euros (approximately $13,500) or more in cash. The declarations must be made to Customs. The Dutch Tax and Customs Administration makes all these declarations available to FIU-NL. In 2007, 77 percent of the 770 reported declarations concerned the import of cash and 23 percent the export of cash. Fifty-nine percent of import declarations involved euros and 31 percent U.S. dollars. Fifty-seven percent of export declarations involved euros and 37 percent U.S. dollars. Other declarations involved 32 different currencies.

The Dutch use specially trained dogs at ports and airports to identify cash smugglers. In 2006, these trained dogs found four million euros (approximately $5,400,000) in passenger luggage at Schiphol airport. In February 2008, Dutch authorities arrested three people at Schiphol airport as they attempted to smuggle 630,000 euros (approximately $850,500) out of the Netherlands. In 2008, the Fiscal Information and Investigation Service—Economic Investigation Service (FIOD-ECD) directed operations against trade-based schemes. U.S. law enforcement agencies in the Netherlands have coordinated with Dutch authorities on a trade-based fraud case.

In 2006, the Public Prosecution Office served a summons to suspects of money laundering offenses in 593 cases. Three hundred sixty-nine cases resulted in money-laundering convictions, 36 cases resulted in acquittals, 68 cases were settled with the Public Prosecution Office, 92 cases were dismissed and the others are still pending in court. In 2007, the Public Prosecution Office served a summons to suspects of money laundering offenses in 756 cases. One hundred ninety-six cases resulted in money-laundering convictions, 17 cases resulted in acquittals, 15 cases were settled with the Public Prosecution Office, 70 cases were dismissed and over 400 are still pending in court.

The Netherlands Court of Audit reported in June 2008 that 63 percent of money laundering cases referred to the Office of Public Prosecution resulted in a conviction. One money laundering acquittal in 2008 drew particular attention. In March, an appeals court overturned the 2006 convictions of the former chief executive officer and chief financial officer of bankrupt airline Air Holland. The two had been accused of laundering proceeds from cocaine sales.

The Netherlands has enacted legislation governing asset forfeiture. The 1992 Asset Seizure and Confiscation Act enables authorities to confiscate assets that are illicitly obtained or otherwise connected to criminal acts. The GON amended the legislation in 2003 to improve and strengthen the options for identifying, freezing, and seizing criminal assets. The police and several special investigation services are responsible for enforcement in this area. These entities have adequate powers and resources to trace and seize assets. All law enforcement investigations into serious crime may integrate asset seizure.

Authorities may seize any tangible assets, such as real estate or other conveyances that were purchased directly with proceeds tracked to illegal activities. Both moveable property and claims are subject to confiscation. Assets can be seized as a value-based confiscation. Legislation defines property for the purpose of confiscation as “any object and any property right” and provides for the seizure of additional assets controlled by a drug-trafficker. Proceeds from narcotics asset seizures and forfeitures are deposited in the general fund of the Ministry of Finance.

To facilitate the confiscation of criminal assets, the GON has instituted special court procedures that enable law enforcement to continue financial investigations to prepare confiscation orders after the underlying crimes have been successfully adjudicated. All police and investigative services in the field of organized crime rely on the real time assistance of financial detectives and accountants, as well as on the assistance of the Proceeds of Crime Office (BOOM), a special bureau advising the Office of the Public Prosecutor in international and complex seizure and confiscation cases. The regular Public Prosecutor’s offices are in charge of cases in which under 100,000 euros (approximately $135,000) in assets are seized; BOOM is in charge of cases in which over 100,000 euros (approximately $135,000) in assets are seized. To further international cooperation in this area, BOOM played a leading role in the creation of an informal international network of asset recovery specialists aiming to exchange information and share expertise. Known as the Camden Asset Recovery Network (CARIN), this network was established in The Hague in September 2004.

Statistics provided by the Office of the Public Prosecutor show that the assets seized in 2007 amounted to 23.6 million euros (approximately $31,860,000). Although the total amount remained low, this was a substantial increase over the 17.0 million euros (approximately $22,950,000) seized in 2006 and 17.5 million euros (approximately $23,625,000) in 2005. The United States and the GON have had an asset-sharing agreement in place since 1994. The Netherlands also has an asset-sharing treaty with the United Kingdom, and an agreement with Luxembourg.

In practice, Dutch public prosecutors move to seize assets in only a small proportion of money laundering cases. This is due to a shortage of trained financial investigators and a compartmentalized approach where the financial analysts and operational drug investigation teams often do not act in unison. Increasing seizures of criminal assets is a priority. In 2009, the GON will submit new legislation to make asset forfeiture more robust. The aim is to strengthen the authorities’ ability to seize assets after a confiscation measure has been imposed in a case. The police and Public Prosecutor will be allowed to use broader investigative techniques with a court’s consent. The GON also intends to take additional measures to make asset forfeiture more efficient. Competent authorities will receive more powers and resources. BOOM is already expanding. In the near future BOOM will also function as the point of contact for international cases concerning confiscation and seizure, thereby enhancing the sharing of information and best practices.

Terrorist financing is a crime in the Netherlands. In August 2004, the Act on Terrorist Crimes became effective. The Act makes conspiracy to commit a terrorist act a criminal offense. In 2004, the government created a National Counterterrorism Coordinator’s Office to streamline and enhance Dutch counterterrorism efforts.

UN resolutions and EU regulations form a direct part of the national legislation on sanctions in the Netherlands. The 1977 “Sanction Provision for the Duty to Report on Terrorism,” (Sanctions Law 1977) was amended in June 2002 to implement European Union (EU) Regulation 2580/2001. UNSCR 1373 is implemented through Council Regulation 2580/01; listing is through the EU-wide 931Working Party that replaced the previous informal EU “clearinghouse” with more formal mechanisms. The Netherlands does not require a collective EU decision to identify, freeze, and seize assets suspected of being linked to terrorism nationally. In these cases, the Minister of Foreign Affairs and the Minister of Finance make the decision to execute the asset freeze. Decisions take place within three days after a target is identified. Authorities have used this instrument several times in recent years. In three cases, national action followed as soon as possible after action on the EU level. In one case, the entity was included in the UN 1267 list and thus included in the EU list; in two others, the Netherlands successfully nominated the entity/individual for inclusion in the autonomous EU list.

The ministerial decree that provides authority to the Netherlands to identify, freeze, and seize terrorist finance assets also requires financial institutions to report to FIU-NL all attempted or completed transactions involving persons, groups, and entities that have been linked, either domestically or internationally, with terrorism. Any terrorist crime automatically qualifies as a predicate offense under the Netherlands “all offenses” regime for predicate offenses of money laundering. Involvement in financial transactions with suspected terrorists and terrorist organizations listed on the UN 1267 Sanctions Committee’s consolidated list or designated by the EU has been made a criminal offense. UNSCR 1267/1390 is implemented through Council Regulation 881/02. In the Netherlands, Sanctions Law 1977 also addresses this requirement parallel to the regulation.

The 2004 Act on Terrorist Offenses introduces Article 140A of the Criminal Code, which criminalizes participation in a terrorist organization, and defines participation as membership or providing provision of monetary or other material support. Article 140A carries a maximum penalty of fifteen years’ imprisonment for participation in, and life imprisonment for leadership of, a terrorist organization. Nine individuals were convicted in March 2006 on charges of membership in a terrorist organization. Legislation expanding the use of special investigative techniques was enacted in February 2007.

UTRs filed by the financial sector act as the first step against the abuse of religious organizations, foundations and charitable institutions for terrorist financing. No individual or legal entity using the financial system (including churches and other religious institutions) is exempt from the client identification requirement. Financial institutions also must inquire about the identity of the ultimate beneficial owners. The second step, provided by Dutch civil law, requires registration of all active foundations with the Chambers of Commerce. Each foundation’s formal statutes (creation of the foundation must be certified by a notary of law) must be submitted to the Chambers. Charitable institutions also register with, and report to, the tax authorities to qualify for favorable tax treatment. Approximately 15,000 organizations (and their managements) are registered in this way. The organizations must file their statutes, showing their purpose and mode of operation, and submit annual reports. Samples are taken for auditing. Finally, many Dutch charities are registered with or monitored by private “watchdog” organizations or self-regulatory bodies, the most important of which is the Central Bureau for Fund Raising. In April 2005, the GON approved a plan to improve Dutch efforts to fight fraud, money laundering, and terrorist financing by replacing the current initial screening of founders of private and public-limited partnerships and foundations with an ongoing screening system. Following a series of legal and technical delays, the GON will introduce the new system in January 2010.

Certain groups of immigrants use informal banks to send money to their relatives in their countries of origin. Indicators point to the misuse of these informal banks for criminal purposes, including a small number of informal bankers deliberately engaging in money laundering transactions and cross-border transfers of criminal money. Initial research by the Dutch police and FIOD/ECD indicates the number of informal banks and hawaladars in the Netherlands is rising. The GON has implemented improved procedures for tracing and prosecuting unlicensed informal or hawala-type activity, with the Dutch Central Bank, FIOD/ECD, the interagency Financial Expertise Center, and the Police playing coordinating and central roles. Approximately 20 to 30 hawaladars are registered in the Netherlands as money service bureaus. Despite these efforts to constrict illegal hawala activity, Dutch officials estimate that substantial sums of money still flow through illegal operations. In Amsterdam, a special police unit investigates underground banks. These investigations have resulted in the disruption of several large money laundering operations.

The United States enjoys strong cooperation with the Netherlands in fighting international crime, including money laundering. A mutual legal assistance treaty (MLAT) between the Netherlands and the United States has been in force since 1983. The Netherlands also has ratified the bilateral implementing instruments for the U.S.-EU MLAT and extradition treaties. The U.S.-EU MLAT is expected to come into force in 2009. One provision included in the U.S.-EU legal assistance agreement will facilitate the exchange of information on bank accounts. The Dutch Ministry of Justice and the Dutch National Police work together with U.S. law enforcement authorities in the Netherlands on operational money laundering initiatives. Although U.S. requests for operational assistance via the mutual legal assistance treaty often are not approved in a timely manner, Dutch officials indicate their Justice Ministry may be able to “streamline” certain aspects of the approval process.

The GON is a member of the Financial Action Task Force (FATF) and the Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a FATF-style regional body (FSRB). The Netherlands was a founding member of the CARIN asset-recovery network, and participates in the Caribbean Financial Action Task Force, a FSRB, as a Cooperating and Supporting Nation. The FIU-NL is a member of the Egmont Group. The Netherlands is a party to the 1988 UN Drug Convention, the UN Convention for the Suppression of the Financing of Terrorism, the UN Convention against Corruption, and the UN Convention against Transnational Organized Crime.

The Government of the Netherlands should continue its shift to the risk-based approach throughout its regulatory and anti-money laundering/counterterrorist financing (AML/CTF) regime. The GON should devote more resources toward getting better data and a better understanding of alternative remittance systems in the Netherlands, and channel more investigative resources toward tracing these systems. The GON should focus on confiscation of criminal assets, stronger supervision of notaries and other nonbank facilitators of money laundering, and better coordination across ministries. The Netherlands should take steps to increase the expertise within its enforcement authorities to handle more serious and complex cases. Additionally, the GON should continue its active participation in international AML/CTF fora and its assistance to jurisdictions with nascent or developing AML/CTF regimes.

Netherlands Antilles

The Netherlands Antilles is considered a regional financial center and a transshipment point for drugs from South America bound for the United States and Europe. The Netherlands Antilles is comprised of the islands of Curacao, Bonaire, Dutch Saint Maarten, Saba, and Saint Eustatius. Though a part of the Kingdom of the Netherlands, the Netherlands Antilles has semi- autonomous control over its internal affairs. The Kingdom retains authority over defense, foreign affairs, final judicial review, human rights and good governance. The Government of the Netherlands Antilles (GONA) is located in Willemstad, the capital of Curacao, which is also the financial center for the five islands. Money laundering is primarily related to proceeds from illegal narcotics. Money laundering organizations can take advantage of banking secrecy and use off-shore banking and incorporation systems, economic zone areas, and resort/casino complexes to place, layer and launder drug proceeds. The GONA Ministry of Finance is considering the feasibility of developing an Islamic finance sector in an effort to remain a top international financial center. A significant offshore sector and loosely regulated free trade zones, as well as narcotics trafficking and a lack of border control between Saint Maarten (the Dutch side of the island) and St. Martin (the French side), create opportunities for money launderers in the Netherlands Antilles.

The Netherlands Antilles’ banking sector consists of seven local general banks, 14 investment institutions, one subsidiary of a foreign general bank, two branches of foreign general banks, 12 credit unions, six specialized credit unions, one savings bank, four savings and credit funds, 15 consolidated international banks, 18 nonconsolidated international banks, and 22 pension funds. The laws and regulations on bank supervision provide that international banks must have a physical presence and maintain records on the island. There are multiple insurance companies, including three subsidiaries of foreign life insurance companies, seven branches of foreign life insurance companies, six subsidiaries of foreign nonlife insurance companies, six branches of foreign insurance companies, and six independent insurance companies. In addition, there are two captive life insurance companies, 13 captive nonlife insurance companies, and four professional reinsurance companies.

The Netherlands Antilles has an offshore financial sector with 84 trust service companies providing financial and administrative services to an international clientele, which includes offshore companies, mutual funds, and international finance companies. As of September 2007, there were a total of 14,191 offshore companies registered with the Chamber of Commerce in the Netherlands Antilles, as is required by law. International corporations may be registered using bearer shares. The practice of the financial sector in the Netherlands Antilles is for either the bank or the company service providers to maintain copies of bearer share certificates for international corporations, which include information on the beneficial owner(s). The Netherlands Antilles also permits Internet gaming companies to be licensed on the islands. There are currently four-operator member and nine non-operator member licensed Internet gaming companies.

Money laundering is a criminal offense in the Netherlands Antilles under the 1993 National Ordinance on the penalization of money laundering (O.G. 1993, no. 52), as amended by a 2001 National Ordinance (O.G. 2001, no. 77). This legislation establishes that prosecutors do not need to prove that a suspected money launderer also committed an underlying crime to obtain a money laundering conviction. Structuring or “smurfing” is a relatively common occurrence in the Netherlands Antilles, but does not represent high-level money laundering activity, which is accomplished almost exclusively through wire transfers between the Netherlands and the Netherlands Antilles.

The Central Bank of the Netherlands Antilles supervises all banking and credit institutions, including banks for local and international business, specialized credit institutions, savings banks, credit unions, credit funds, and pension funds. The Central Bank also supervises insurance companies, insurance brokers, mutual funds and administrators of these funds, and company service providers, all of which must be licensed by the Central Bank. The Central Bank has issued anti-money laundering guidelines for banks, insurance companies, pension funds, money transfer services, financial administrators, and company service providers. The guidelines also specifically include terrorist financing indicators. Entities under supervision must submit an annual statement of compliance. The Central Bank has provided training to different sectors on the guidelines and established the Financial Integrity Unit to monitor corporate governance and market behavior.

Both bank and nonbank financial institutions, such as company service providers and insurance companies, are required by law to report suspicious transactions to the financial intelligence unit (FIU), the Meldpunt Ongebruikelijke Transacties (MOTNA) established under the Ministry of Finance in 1997 pursuant to Article 2 of the National Ordinance Reporting Unusual Transactions. Obligated entities are also required to report all transactions over NAF 250,000 (approximately $142,000). Banks are required to maintain records for ten years and all other financial intermediaries must maintain records for five years. The GONA is currently amending its legislation to add designated nonfinancial businesses and professions as reporting entities, including lawyers, accountants, notaries, jewelers and real estate agents. It is expected the legislation will be passed in 2009, and MOT NA will be designated as the Supervisory Authority for this sector.

The National Ordinance Obligation to Report Cross-Frontier Money Transportations requires, as of May 2002, everyone entering or leaving one of the island territories of the Netherlands Antilles to report the transport of NAF 20,000 (approximately $11,300) or more, in cash or bearer instruments to Customs officials. This provision also applies to those entering or leaving who are demonstrably traveling together and who jointly carry with them money exceeding NAF 20,000. The declaration must include origin and destination. Violators may be fined up to NAF 250,000 (approximately $142,000) and/or face one year in prison. All cash declaration and smuggling reports are entered into the customs’ database and are sent to the financial intelligence unit (FIU) and entered into its database.

In February 2001, the GONA approved proposed amendments to the free zone law to allow e-commerce activities into these areas (National Ordinance Economic Zone no.18, 2001) and renamed these areas Economic Zones (e-zones.) It is no longer necessary for goods to be physically present within the zone. Seven areas within the Netherlands Antilles qualify as e-zones, five of which are designated for e-commerce. The remaining two e-zones, located at the Curacao airport and harbor, are designated for goods. Trade based money laundering from one of two e-zones in the Netherlands Antilles is a well known and preferred method of laundering in the region. Bulk cash smuggling is a continuing problem due to the close proximity of the Netherlands Antilles to Venezuela and Colombia. There have been limited seizures of several thousand dollar increments throughout the past year which intelligence reflects were en route to South America or inbound to one of the e-zone facilities. Law enforcement intervention is very difficult due to host nation laws that apply to the e-zones and tend to exclude law enforcement efforts inside the zone. “Know your customer” practices, while widely publicized by law enforcement, are not required by any statue or rule of business. In many cases, establishing a front company to carry out these endeavors is practiced. These zones are minimally regulated; however, administrators and businesses in the zones have indicated an interest in receiving guidance on detecting unusual transactions. There is not a significant black market for smuggled goods.

In 2000, the GONA enacted the National Ordinance on Freezing, Seizing and Forfeiture of Assets Derived from Crime. The law allows the prosecutor to seize the proceeds of any crime proven in court. Civil forfeiture is not permitted. The GONA enacted legislation in 2002 allowing a judge or prosecutor to freeze assets related to the Taliban and Usama Bin Laden, as well as all persons and companies connected with them. 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 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.

In 2008, the GONA issued the National Ordinance on the Penalization of Terrorism, Terrorism Financing and Money Laundering (O.G. 2008, no. 46) which became effective as of June 2008. A financial institution that carries out a transaction, knowing that the funds or property involved are owned or controlled by terrorist or terrorist organizations, or that the transaction is linked to, or likely to be used in, terrorist activity, is committing a criminal offense. Such an offense may exist regardless of whether the assets involved in the transaction were the proceeds of criminal activity or were derived from lawful activity but intended for use in support of terrorism. In June 2008, the GONA approved an amendment to the Penal Code to cover terrorism and the funding of terrorist activities related to money laundering. The penalty is four to 20 years imprisonment and a maximum fine of $600,000.

MOT NA is an administrative FIU with no criminal investigative responsibilities. The FIU collects and analyzes data, has access to all records and databases of all governmental entities with law enforcement powers, refers all transactions suspected of being related to money laundering and/or terrorist financing to the Central Police and Prosecutor, prepares reports on money laundering trends and renders annual reports and strategies to the Ministers of Finance and Justice. MOT NA annually receives approximately between 11,000-12,000 suspicious transaction reports (statistics for 2008 were not available). The MOT NA currently has a staff of nine, and is engaged in increasing the effectiveness and efficiency of its reporting system. Progress has been reported in automating suspicious activity reporting. Additionally, the MOT NA has issued a manual for casinos on how to file reports and has started to install software in casinos that will allow reports to be submitted electronically. The Government of the Netherlands plans to provide technical support to the MOT NA to improve their analytical capabilities with regard to terrorist financing.

Netherlands Antilles’ law allows the exchange of information between the MOT NA and foreign FIUs by means of memoranda of understanding (MOU) and by treaty. The MOT NA’s policy is to answer requests within 48 hours of receipt. A tax information exchange agreement (TIEA) between the Kingdom of the Netherlands (KON) and the United States with regard to the Netherlands Antilles, signed in 2002, entered into force in March 2007. The Mutual Legal Assistance Treaty between the KON and the United States applies to the Netherlands Antilles; however, the treaty is not applicable to requests for assistance relating to fiscal offenses addressed to the Netherlands Antilles. The U.S.-KON Agreement Regarding Mutual Cooperation in the Tracing, Freezing, Seizure and Forfeiture of Proceeds and Instrumentalities of Crime and the Sharing of Forfeited Assets also applies to the Netherlands Antilles.

The MOT NA is a member of the Egmont Group. The Netherlands Antilles is a member of the Caribbean Financial Action Task Force (CFATF), and as part of the Kingdom of the Netherlands, participates in the Financial Action Task Force (FATF). In November 2009, the Netherlands Antilles will assume the chair of CFATF. The Netherlands Antilles is also a member of the Offshore Group of Banking Supervisors. The Kingdom of the Netherlands has extended its ratification of the 1988 UN Drug Convention to the Netherlands Antilles. The Kingdom of the Netherlands became a party to the UN International Convention for the Suppression of the Financing of Terrorism in 2002. In accordance with Netherlands Antilles’ law, which stipulates that all the legislation must be in place prior to ratification, the GONA is preparing legislation to enable the Netherlands to extend ratification of the Convention to the Netherlands Antilles. Likewise, the Kingdom of the Netherlands has not yet extended ratification of the UN Convention against Transnational Organized Crime or the UN Convention against Corruption to the Netherlands Antilles.

The Government of the Netherlands Antilles has demonstrated a commitment to combating money laundering. The Netherlands Antilles should continue its focus on increasing regulation and supervision of the offshore sector and free trade zones, as well as pursuing money laundering investigations and prosecutions. The GONA should ensure that anti-money laundering regulations and reporting requirements are extended to designated nonfinancial businesses and professions. The Netherlands Antilles should work to fully develop its capacity to investigate and prosecute money laundering and terrorist financing cases.


Nicaragua is not a regional financial center or a major drug producing country. However, it continues to serve as a significant transshipment point for South American cocaine and heroin destined for the United States and Europe. There is evidence that the narcotics trade is increasingly linked to arms trafficking. This situation, combined with weak rule of law, judicial corruption, the politicization of the public prosecutor’s office and the Supreme Court, as well as insufficient funding for law enforcement institutions, makes Nicaragua’s financial system an attractive jurisdiction for money laundering. Nicaragua’s location—with access to both the Atlantic and the Pacific Oceans, porous border crossings to its north (Honduras) and south (Costa Rica), and a sparsely inhabited and underdeveloped Atlantic Coast area—makes it an area heavily used by transnational organized crime groups, including human and drug trafficking organizations. These groups also benefit from Nicaragua’s weak legal system and its ineffective fight against financial crimes, money laundering, human trafficking, and the financing of terrorism. Nicaraguan officials have expressed concern that, as neighboring countries have tightened their anti-money laundering laws, established financial intelligence units (FIUs), and taken other enforcement actions, more illicit money has moved into the vulnerable Nicaraguan financial system. Additionally, the continued politicization of the Nicaraguan judicial system and the willingness of the current administration to use the financial regulatory system as a tool to attack political adversaries seriously undermine the integrity of the anti-money laundering and overall law-enforcement regimes in Nicaragua.

The Government of Nicaragua (GON) does not permit direct offshore banking operations, but it does permit such operations through nationally chartered entities. Bank and company bearer shares are permitted. Nicaragua has a substantial gambling industry that remains largely unregulated. Two competing casino regulation bills are currently in the National Assembly; the main difference between the bills is whether the existing tax authority will have regulatory power or whether an independent institution will be established for that purpose. The Nicaraguan government has shown little interest in either of these bills, both of which are languishing in the National Assembly. The tax authority, however, has successfully implemented regulations to tax the casino industry. There are no Internet gaming sites in Nicaragua.

There is a sizeable international component to Nicaragua’s financial sector. A number of foreign institutions have recently bought significant shares of Nicaraguan financial institutions, including GE Consumer Finance and HSBC, which purchased Banistmo, a Panamanian bank, and now operates as HSBC in Nicaragua. Most large Nicaraguan banks already maintain correspondence relationships with Panamanian institutions. In 2008, Citibank finalized the purchase of Banco Uno, a retail bank with a large consumer credit unit. The recent completion of several Free Trade Agreements (FTAs)—including the Central America-Dominican Republic-United States FTA (CAFTA-DR), as well as bilateral FTAs with Taiwan, Mexico, the Dominican Republic, and Panama—also suggests growing involvement of Nicaraguan financial institutions with international partners and clients.

As of February 2008, a total of 121 companies operated in 32 designated free trade zones (FTZs), or “industrial parks” as they are called in Nicaragua, employing 89,000 workers and generating exports of $1.1 billion. The National Free Trade Zone Commission (CNZF), a government agency, regulates all FTZs and the companies located in them. The Nicaraguan Customs Agency also monitors all FTZ imports and exports. Reportedly, while there is no indication that these FTZs are being used in trade-based money laundering schemes or by the financiers of terrorism, a June 2007 inspection by U.S. Customs agents uncovered evidence of transshipments of Chinese-made apparel.

A new criminal code came into force in June 2008; this new code aims to bring Nicaragua’s anti-money laundering and counterterrorist financing regime into greater compliance with international standards set by the Financial Action Task Force (FATF). The new code criminalizes terrorist financing, bulk cash smuggling, and money laundering beyond drug-related offenses; expands legal protection for the financial sector; and defines crimes against the banking and financial system. While passage of the new criminal code is a positive move forward for the GON, it will likely take a longer period of time before all aspects of the penal code are implemented in a uniform manner in the Nicaraguan justice system. Further, the new code reduces the penalty for money laundering to a recommended maximum sentence of five years.

While adoption of the new criminal code demonstrates a commitment to thwart the financing of terrorism, money laundering, and other financial crimes, other factors—including limited resources, corruption (including in the judiciary), and the lack of political will in some sectors continue to complicate efforts to counteract these criminal activities. Nicaragua’s lack of an FIU also fundamentally limits the extent to which the GON can effectively combat money laundering and other financial crimes. However, in 2008, the GON investigated four money laundering cases—three through the Attorney General’s Office and one through the Office of the Prosecutor General. Also, in 2008 the National Prosecutor’s Office prosecuted three cases of cash smuggling involving a total of $195,610.

Law 285 (posted in 1999) requires all financial institutions under the supervision of the Superintendent of Banks and Other Financial Institutions (SIBOIF), including stock exchanges and insurance companies, to report cash deposits over $10,000 and suspicious transactions to the SIBOIF and to keep records for five years. The SIBOIF then forwards reports to the Commission of Financial Analysis (CAF). All financial institutions not supervised by SIBOIF, including attorneys, notaries, accountants, and real estate agents, are required to report suspicious transactions directly to the CAF. All persons entering or leaving Nicaragua are also required to declare the transportation of currency in excess of $10,000 or its equivalent in foreign currency. However, cash smuggling is only considered a customs violation under Nicaraguan law. Bank officials are held responsible for all of their institution’s actions, including failure to report money laundering, and sanctions may be imposed on financial institutions and professionals of the financial sector, including internal auditors, who do not develop anti-money laundering programs or do not report to the appropriate authorities suspicious and unusual transactions that may be linked to money laundering, as required by the anti-money laundering law.

The SIBOIF is considered to be an independent and reputable financial institution regulator. The position of the Superintendent does not enjoy legal immunity, exposing the Superintendent to lawsuits from regulated institutions. Similarly, officers in financial institutions charged with reporting suspicious transactions to the SIBOIF are not legally protected with regard to their cooperation. Given the corruption in the judicial system, this exposure can limit the willingness of SIBOIF to make “unpopular” decisions; however, the institution’s financial experts have reached out to the Nicaraguan National Police (NNP) to work with them. The SIBOIF has regularly fined banks for not reporting suspicious transactions. The willingness of the SIBOIF and NNP to investigate financial crimes, and a substantial level of cooperation between the Attorney General’s Office and the NNP on financial crimes and money laundering issues, has resulted in greater adherence by banks to the reporting requirements contained in Law 285.

On paper, the CAF is comprised of representatives from various elements of law enforcement and banking regulators and is responsible for detecting money laundering trends, coordinating with other agencies and reporting its findings to Nicaragua’s National Anti-Drug Council. But the CAF does not analyze the information received, and is not considered to be a professional or independent unit. It is ineffective due to an insufficient budget, the politicization of its leadership, and a lack of fully dedicated, trained personnel, equipment and strategic goals. All of its members have primary responsibilities at their parent institutions, which take precedence over CAF duties. The CAF is headed by the National Prosecutor, who receives the reports from banks and decides whether to refer them to the NNP for further investigation. In 2008, the Caribbean Financial Action Task Force (CFATF) visited Nicaragua to assess the GON’s anti-money laundering regime, with a specific focus on the activities of the CAF. CFATF is scheduled to release this assessment by summer 2009.

The NNP’s Economic Crimes Unit and the Office of the National Prosecutor are in charge of investigating financial crimes, including money laundering and terrorist financing. The Office of the National Prosecutor is in the process of creating its own Economic Crimes Unit to work in tandem with the NNP. The unit has been conducting investigations into money laundering and drug related crimes since March 2007 and has worked closely with the offices of both the Attorney General and the Prosecutor General.

During 2008, Embassy Managua continued to support Nicaraguan National Assembly efforts to enact legislation creating an independent FIU. These efforts included bringing a delegation of Nicaraguan legislators, law enforcement officials, and economic policy experts to participate in anti-money laundering meetings and consultations with regional FIU representatives on the possibility of creating a Nicaraguan FIU. Nicaraguan legislators have expressed a strong and continuing commitment to ensure that the FIU legislation will create an independent unit compliant with Egmont Group standards, with an additional focus on incorporating regulatory safeguards against political tampering with the proposed new unit.

Through five SIBOIF administrative decrees, the GON also has the authority to identify, freeze, and seize terrorist-related assets, but has not yet identified any such active cases. Reportedly, there are no hawala or other similar alternative remittance systems operating in Nicaragua, and the GON has not detected any use of gold, precious metals or charitable organizations to disguise transactions related to terrorist financing. However, there are informal “cash and carry” networks for delivering remittances from abroad that may be indicative of money laundering. The NNP is currently investigating possible instances of money laundering involving cash remittances from Europe.

An emerging issue of concern is the current administration’s politically motivated accusations that international and Nicaraguan NGOs, particularly those involved in pro-democracy activities, are complicit in money laundering schemes. Despite the lack of formal criminal charges, the Prosecutor’s Office has worked with the NNP to raid and seize the financial records of several pro-democracy and civil society NGOs. Administration officials specifically pointed to the assignment of sub-grants by certain NGOs to other organizations as evidence of possible money laundering activity. Under the current Nicaraguan penal code, however, an activity can only be considered money laundering if the original source of funding is illicit or unknown. As the NGOs in question receive their funding in a transparent manner from donor governments and other established international groups, many observers argue that this attempt to apply money laundering statutes to the groups is an illegitimate application of the law.

There are more than 300 microfinance institutions (MFI) in Nicaragua, serving more than 300,000 clients and handling at least $400 million. MFIs in Nicaragua dominate the informal economy and manage a significant portion of the remittances. Over half of this market is handled by five institutions that have now converted into formal banks. While the five MFIs that are now formal banks are regulated by the SIBOIF, the others are currently unregulated. These institutions are, however, still subject to the reporting requirements in Law 285 and to financial crimes listed in the current criminal code. Any crimes committed fall under the jurisdiction of the NNP’s Economic Crimes Unit and the National Prosecutor’s Office.

Nicaragua is a party to the 1988 UN Drug Convention, the UN International Convention on the Suppression of the Financing of Terrorism, the UN Convention against Transnational Organized Crime, and the UN Convention against Corruption. The GON has also ratified the Inter-American Convention on Mutual Legal Assistance in Criminal Matters and the Inter-American Convention against Terrorism. Nicaragua is a member of the Money Laundering Experts Working Group of the Organization of American States Inter-American Drug Abuse Control Commission (OAS/CICAD), and the Caribbean Financial Action Task Force (CFATF). is the only country in Central America, and one of few countries in the Americas, that does not have a functional FIU. Due to continued corruption in the Nicaraguan judiciary, the United States ceased direct assistance to the Nicaraguan Supreme Court.

The GON has made some progress in its efforts to combat financial crime by expanding the predicate offenses for money laundering beyond narcotics trafficking and criminalizing terrorist financing. The GON should continue recent progress by taking the necessary steps to fully implement the new criminal code. Nicaragua should also redouble its efforts to create an effective FIU; this would enable it to share financial information with other FIUs globally. Nicaragua should also develop a more effective method of cooperating and exchanging information with foreign law enforcement agencies. The GON should take steps to immobilize all bearer shares and prohibit further issuance. The GON would also benefit from concentrating its financial crime investigation efforts on entities and institutions that are known to be involved in criminal behavior, and should halt its political interference in the operations of the financial regulatory and law enforcement agencies, as well as with NGOs for which there is no evidence laundering money. These actions, coupled with increased enforcement of existing legislation and implementing regulations, would significantly strengthen the country’s anti-money laundering and counterterrorist financing regime, and could help bring Nicaragua closer to compliance with relevant international anti-money laundering and counterterrorist financing standards and controls.


Nigeria is a major drug trans-shipment point and a significant center for criminal financial activity. Individuals and criminal organizations have taken advantage of the country’s location, porous borders, weak laws, systemic corruption, lack of enforcement, and poor socioeconomic conditions to launder the proceeds of crime. Proceeds from drug trafficking, illegal oil bunkering, bribery and embezzlement, contraband smuggling, theft, and financial crimes such as bank fraud, real estate fraud, and identity theft constitute major sources of illicit proceeds in Nigeria. Advance fee fraud, as also known as “419” fraud in reference to the fraud section in Nigeria’s criminal code, is a lucrative financial crime that generates hundreds of millions of illicit dollars annually. Money laundering in Nigeria takes many forms, including investment in real estate; wire transfers to offshore banks; political party financing; deposit in foreign bank accounts; use of professional services, such as lawyers, accountants, and investment advisers; and cash smuggling. Nigerian criminal enterprises are adept at devising ways to subvert international and domestic law enforcement efforts and evade detection. Recent dismissal and reassignment of experienced financial crimes law enforcement personnel call into question government commitment to combating financial crime and corruption in Nigeria, which continues to be plagued by these crimes.

In December 2002, Nigeria passed an amendment to the 1995 Money Laundering Act extending the scope of the law to cover proceeds from predicate offenses other than narcotics trafficking. In 2004, the National Assembly repealed the 1995 Money Laundering Act as amended and passed the Money Laundering (Prohibition) Act, which applies to the proceeds of all financial crimes. Nigeria also passed an amendment to the 1991 Banking and Other Financial Institutions (BOFI) Act expanding coverage to stock brokerage firms and foreign currency exchange facilities, giving the Central Bank of Nigeria (CBN) greater power to deny bank licenses, and allowing the CBN to freeze suspicious accounts. A third piece of legislation, the 2004 Economic and Financial Crimes Commission (Establishment) Act, established the Economic and Financial Crimes Commission (EFCC), the body that investigates and prosecutes money laundering and other financial crimes, and coordinates information sharing. Violation of the Act carries a penalty of up to life imprisonment. Amendments to the 2004 EFCC Act gave the EFCC the authority to investigate and prosecute money laundering, expanded the number of EFCC board members, enabled EFCC police members to bear arms, and banned interim court appeals that hinder the trial court process.

Nigeria also employs the 1995 Foreign Exchange (Monetary and Miscellaneous Provisions) Act. This legislation enhanced the CBN’s power under the BOFI to deny bank licenses and freeze suspicious accounts. It also strengthened financial institutions by requiring more stringent monitoring of accounts, removing a threshold for suspicious transactions, and lengthening the period for retention of records.

Money laundering controls apply to banks and other financial institutions, including stock brokerages and currency exchange houses, as well as designated nonfinancial businesses and professions (DNFBPs). These institutions include dealers in jewelry, cars and luxury goods, chartered accountants, audit firms, tax consultants, clearing and settlement companies, legal practitioners, hotels, casinos, supermarkets and other businesses that the Federal Ministry of Commerce (FMC) designates as a money laundering risk. Nigeria has no bank secrecy laws that prevent the disclosure of client and ownership information by domestic financial services companies to bank regulatory and law enforcement authorities.

In May 2006, the Financial Action Task Force visited Nigeria to conduct an evaluation of the revisions made to the government’s anti-money laundering (AML) regime. The FATF recognized that the Government of Nigeria (GON) had remedied the major deficiencies in its AML regime and removed Nigeria from its noncooperative countries and territories (NCCT) list. In 2008, the Intergovernmental Task Force against Money Laundering in West Africa (GIABA), conducted, discussed and adopted Nigeria’s mutual evaluation.

According to the mutual evaluation report (MER), significant legal gaps exist in Nigeria’s AML/CTF regime. In addition, Nigerian authorities have not issued clear guidance to financial institutions, resulting in deficiencies related to customer due diligence, beneficial ownership, record keeping, and reporting requirements. The MER also noted that the FIU’s powers under the EFCC are ambiguous, and its statistics on suspicious transaction reports (STRs) and currency transaction reports (CTRs) are inconsistent.

The primary institutions dealing with money laundering and financial crimes are the EFCC, the Nigerian Financial Intelligence Unit (NFIU), the Independent Corrupt Practices Commission (ICPC), and Special Control Unit against Money Laundering (SCUML). The NFIU, established in 2005, derives its powers from the Money Laundering (Prohibition) Act of 2004 and the EFCC Act. Housed within the EFCC, it is the central agency for the collection, analysis and dissemination of information on money laundering and terrorist financing. The NFIU is a significant component of the EFCC, complementing the EFCC’s directorate of investigations. It does not carry out its own investigations. The Money Laundering (Prohibitions) Act, Section 6, requires STRs to be submitted by financial institutions and designated nonfinancial businesses and professions, and gives the NFIU the authority to receive them. The NFIU also receives reports involving the transfer to or from a foreign country of funds or securities exceeding U.S. $10,000 in value. All financial institutions and designated nonfinancial institutions are required by law to furnish the NFIU with details of these financial transactions.

The NFIU fulfills a crucial role in receiving and analyzing STRs. The NFIU has access to records and databases of all government and financial institutions, and it has entered into memoranda of understandings (MOUs) on information sharing with several other FIUs. The NFIU is a member of the Egmont Group.

Since its inception in April 2004, the EFCC has held the mandate and the capacity to effectively investigate and prosecute financial crimes, including money laundering and terrorist financing. The EFCC also coordinates agencies’ efforts in pursuing financial crime investigations. The EFCC has the authority to prevent the use of charitable and nonprofit entities as money laundering vehicles, although it has not reported any cases involving these entities.

The EFCC previously succeeded in investigating and prosecuting financial crime. Its assault on high-level corruption resulted in the agency receiving the support of the international community as well as the ire of corrupt officials. The EFCC has put forth efforts to enact new laws and to conduct a vigorous public enlightenment campaign, resulting in prosecutions for crimes such as bank fraud and counterfeiting. It has recovered or seized assets from people guilty of fraud both inside and outside of Nigeria, including a syndicate that included highly placed government officials who were defrauding the Federal Inland Revenue Service (FIRS). Several influential individuals have been arrested and are currently awaiting trial. EFCC members also embarked upon a campaign to identify and prosecute former government officials. Some EFCC members have been killed for their efforts to expose and enforce the laws against corruption and financial crime.

In its first 5 years of existence, the EFCC successfully prosecuted 121 cases involving advanced fee fraud (“419”) scams, seized over $5 billion in cash and property, and repatriated over $4.6 million to U.S. entities. From October 2007 through September 2008, the EFCC reported 3 money laundering convictions, with 9 pending cases against politically exposed persons and other pending cases related to fraud against U.S. entities. It also reported 87 “419” convictions during that period. The EFCC facilitated the return of fraud proceeds totaling $1.6 million by a prominent Nigerian bank to U.S. entities.

However, in 2008, the EFCC faced significant challenges in fulfilling its mandate to fight financial crimes and money laundering. Senior leadership changes (including the heads of both the EFCC and the NFIU) and the reassignment of key personnel have raised serious concerns about the agency’s current capacity and direction. Many of the reassigned personnel had spent years developing substantial skills and experience in investigating and prosecuting money laundering and financial crimes. New personnel reportedly have little experience in conducting the type of rigorous investigations required for complex financial crimes. These developments have cast doubt on the Government’s commitment to fight financial crime as well as corruption.

In addition to the EFCC, the National Drug Law Enforcement Agency (NDLEA), the ICPC, and the Criminal Investigation Department of the Nigeria Police Force (NPF/CID) have the authority to investigate financial crimes. Many observers, however, believe that the Nigerian Police Force is incapable of handling financial crimes because of corruption and poor institutional capacity.

The Corrupt Practices and Other Related Offences Act established the ICPC in June 2000. The ICPC is primarily charged with receiving and investigating reports of corruption among Nigeria’s large government sector work force and prosecuting offenders where necessary. However, according to its chairman, ICPC’s focus has been public information campaigns, not investigations and prosecutions. The agency is independent but effectively lacks support from other government structures and is insufficiently funded. ICPC has anticorruption and transparency units (ACTU) in almost every Federal agency to deal with official misconduct and malfeasance by public servants. If an ACTU determines that there has been criminal behavior, it refers the case to ICPC for prosecution. The ACTUs and the ICPC investigators and prosecutors are under-trained and the agency has been increasingly relying on private lawyers to try cases under contract. The ICPC has recorded 15 convictions in the 8 years it has been operating.

Due to Nigeria’s primarily cash-based economy, 90 percent of money laundering activity reportedly takes place in the informal sector. The Special Control Unit Against Money Laundering (SCUML), is a special unit in the Ministry of Commerce which monitors, supervises, and regulates the activities of businesses and professions outside of the formal financial sector thought to pose a money laundering risk. Oversight by the Ministry of Commerce, however, has reportedly not been rigorous or effective. Consequently the EFCC decided to fund SCUML and second some of its employees to that agency in an effort to rapidly improve investigative and enforcement capacity. In addition, the EFCC facilitated the inauguration of a Designated Non-Financial Institution (DNFI) Advisory Council which serves as a formal platform for partnership between SCUML as the regulator and the heads of the DNFI Self Regulatory Organizations (SROs), including some Civil Society Organizations (CSOs). The EFCC and SCUML have collaborated on efforts to strengthen the Chief Compliance Officers Forum, which EFCC/NFIU facilitated.

While the NDLEA has the authority to handle narcotics-related cases, it does not have adequate resources to trace, seize, and freeze assets. Cases of this nature are usually referred to the EFCC. Depending on the nature of the case, the tracing, seizing, and freezing of assets may be executed by the EFCC, NDLEA, NPF, or the ICPC. The proceeds from seizures and forfeitures pass to the federal government, and the GON uses a portion of the recovered sums to provide restitution to the victims of the criminal acts. The banking community cooperates with law enforcement to trace funds and seize or freeze bank accounts.

Section 20 of the 2004 EFCC Act provides for the forfeiture of assets and properties to the federal government after a money laundering conviction. Foreign assets are also subject to forfeiture. The properties subject to forfeiture are set forth in EFCC Act Sections 24-26, and include any real or personal property representing the gross receipts a person obtains directly as a result of the violation of the act, or traceable to such receipts. They also include any property representing the proceeds of an offense under the laws of a foreign country within which the offense or activity would be punishable for more than one year. All means of conveyance, including aircraft, vehicles, or vessels used or intended to be used to transport or facilitate the transportation, sale, receipt, possession or concealment of the economic or financial crimes is likewise subject to forfeiture. Forfeiture is possible only as part of a criminal prosecution. There is no comparable law providing for civil forfeiture independent of a criminal prosecution, but the EFCC has established a committee to draft legislation to address this deficiency.

Nigeria has attempted to criminalize the financing of terrorism through Section 15 of the EFCC Act. The EFCC has authority under the Act to identify, freeze, seize, and forfeit terrorist finance-related assets; however, implementation of the existing framework has revealed some practical challenges. The EFCC Act does not provide a comprehensive framework for criminalizing and pursuing the full range of terrorist financing as defined by international standards. The Act does not criminalize terrorist financing, nor does it reference terrorist financing as a predicate offence for money laundering. A comprehensive bill for the prevention of terrorism is currently before the National Assembly. If passed, it would be Nigeria’s first autonomous anti-terrorism law.

The CBN circular (BSD/13/2006) from August 2006 requires all financial institutions to forward STRs where the suspicious and unusual transactions include potential financing of terrorism to the FIU. Nigerian financial institutions periodically receive the UNSCR 1267 Sanctions Committee’s consolidated list and have detected one case of terrorist financing within the banking system. Prosecution of that case is currently pending.

Nigeria is a party to the 1988 UN Drug Convention, the UN Convention against Transnational Organized Crime, the UN Convention for the Suppression of the Financing of Terrorism, and the UN Convention against Corruption. Nigeria ranked 121 out of 180 countries in Transparency International’s 2008 Corruption Perceptions Index, moving up from 147 in 2007.

The United States and Nigeria have a Mutual Legal Assistance Treaty, 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. Nigeria has also signed bilateral agreements for information exchange relating to money laundering with South Africa, the United Kingdom, and all Commonwealth and Economic Community of West African States (ECOWAS) countries. Nigeria is a member of GIABA, a FATF-style regional body.

The Government of Nigeria (GON) should ensure the autonomy and independence of the EFCC and NFIU from political pressure. In particular, EFCC needs to produce more effective results through prosecutions and enforcement actions in financial crimes and corruption investigations. The GON should also strengthen SCUML’s authority to supervise designated nonfinancial businesses and professions. Nigeria should ensure that the Police Force has the capacity to function as an investigative partner in financial crime cases, as well as work to eradicate any corruption that might exist within that and other law enforcement bodies. Nigeria should re-invigorate its anticorruption program and support the EFCC, as well as the ICPC, in their mandates to investigate and prosecute corrupt government officials and individuals. The GON should consider establishing a special court with specific jurisdiction and trained judges to handle financial crimes. Nigeria should enact a law providing for nonconviction-based forfeiture, ensure full implementation of its AML regime, and promote respect for the rule of law. Nigerian authorities should work toward a regime capable of thwarting money laundering and terrorist financing; and work toward full compliance with all relevant international standards, eliminating its remaining AML shortcomings. Authorities should work toward the passage of the comprehensive anti-terrorism bill in the National Assembly. The GON should continue to engage with the FATF, GIABA and other international organizations.


Pakistan is not considered a regional or offshore financial center; however, financial crimes related to narcotics trafficking, terrorism, smuggling, tax evasion, corruption and fraud are significant problems. Pakistan is a major drug-transit country. The abuse of the charitable sector, smuggling, trade-based money laundering, hawala-hundi, and physical cross-border cash transfers are the common methods used to launder money and finance terrorism in Pakistan. Pakistani criminal networks play a central role in the transshipment of narcotics and smuggled goods from Afghanistan to international markets.

Pakistan does not have firm control of its borders with Afghanistan, Iran and China, facilitating the flow of smuggled goods through the Federally Administered Tribal Areas (FATA) and Baluchistan. Some goods such as foodstuffs, electronics, building materials, and other products transiting Pakistan duty-free under the Afghan Transit Trade Agreement are sold illegally in Pakistan. Counterfeit goods generate substantial illicit proceeds that are laundered. Private unregulated charities are also a major source of illicit funds for international terrorist networks. Some madrassas have been used as training grounds for terrorists and for terrorist funding. The lack of control of madrassas, similar to the lack of control of Islamic charities, allows terrorist and jihadist organizations to receive financial support under the guise of support of Islamic education.

Money laundering and terrorist financing are often accomplished in Pakistan via the alternative remittance system called hundi or hawala. This system is also widely used by the Pakistani people for informal banking purposes, although controls have been significantly tightened since 2002. In June 2004, the State Bank of Pakistan (SBP) required all hawala operators (“hawaladars”) to register as authorized foreign exchange dealers and to meet minimum capital requirements. Despite the State Bank of Pakistan’s efforts, unlicensed hawaladars still operate illegally in parts of the country (particularly Peshawar and Karachi), and authorities have taken little action to identify and enforce the regulations prohibiting nonregistered hawaladars. Most illicit funds are transacted through these unlicensed operators. Fraudulent invoicing is typical in hawala countervaluation schemes. However, legitimate remittances from the roughly five million Pakistani expatriates residing abroad, sent via the hawala system prior to 2001, now flow mostly through the formal banking sector and have increased significantly to $6.45 billion in fiscal years 2007-08. At least four moneychangers, including a CEO of a leading foreign exchange company, were arrested on November 8, 2008 by Pakistan's Federal Investigation Agency (FIA) for smuggling and illegal cross border transfer of foreign exchange. According to FIA sources, a case was registered against the moneychangers under the Foreign Exchange Regulations Act of 1947, which does not specify severe penalties for such crimes. FIA sources estimate that foreign exchange sent out of the country could be in the millions of dollars.

Pakistan has established a number of Export Processing Zones (EPZs) in all four of the country’s provinces. Although no evidence has emerged of EPZs being used in money laundering, inaccurate invoicing is common in the region and could be used by entities operating out of these zones. In 2007, the Directorate General of Customs Intelligence (DGCI) investigated a well-known Pakistani business group involved with trade-based money laundering. The business over-invoiced the value and quantity of the exports of garments and textiles to Dubai and Saudi Arabia. The chairman of the business group and his partners held 49 percent shares in the Dubai-based company that imported many of the goods. The investigation also revealed that the business group used hawala to transfer large amounts of money and value through a prominent foreign exchange company based in Karachi. From 2001-2007, the value of the trade consignments totaled U.S. $330 million. In fiscal year 2007-2008, no cases of trade-based money laundering were reported.

Pakistan became a member of the Asia/Pacific Group on Money Laundering (APG) in 2000, therefore accepting the APG requirement that members develop, pass and implement anti-money laundering and counterterrorist financing legislation and other measures based on accepted international standards. A high-level APG delegation visited Pakistan in early July 2007 to discuss Pakistan’s long-delayed passage of comprehensive anti-money legislation. At its July plenary, APG members agreed that unless Pakistan enacts and proclaims into force consolidated AML legislation or issues a Presidential Ordinance prior to December 31, 2007, Pakistan’s membership could be suspended. On September 8, 2007 former President Musharraf signed an AML Ordinance to implement the long-awaited AML bill. While creating this ordinance averted suspension of membership in the APG, Pakistan still has considerable work ahead to meet international standards, especially the core Financial Action Task Force (FATF) recommendations related to the criminalization of money laundering and suspicious transaction reporting.

Some of the weaknesses identified in the AML Ordinance include the following: Not all of the FATF designated categories of offenses (e.g., smuggling, racketeering, trafficking in persons, sexual exploitation, arms trafficking, and environmental crime) are covered as predicate offenses. The intent and knowledge requirement required to prove the offense of money laundering is not consistent with the standards set out in the Vienna and Palermo Conventions. Only the concealment of criminal proceeds is an offense, not the transfer of legitimate money to promote criminal activity. The definition of what constitutes a suspicious transaction is not adequate as it does not cover cases where an individual “suspects” or “has reason to suspect” that funds are the proceeds of criminal activity. The Ordinance also does not contain any specific requirement to report transactions in relation to terrorist financing. The forfeiture procedures set forth in the law are cumbersome and will inhibit the successful seizure and confiscation of property involved in offenses. Additionally, the reporting structure of the Financial Monitoring Unit may affect its independence and effectiveness.

The AML Ordinance established a National Executive Committee (NEC), which is charged with coordinating Pakistan’s AML/CTF efforts. The NEC is made up of representatives from the Ministries of Finance, Interior, Foreign Affairs, and Law as well as the SBP, the Securities and Exchange Commission of Pakistan (SECP), and the Financial Monitoring Unit. The NEC established a sub committee to review and recommend changes to the AML Ordinance. In anticipation of an APG mutual evaluation scheduled for early 2009, the GOP has reportedly revised the AML Ordinance to bring it into compliance with the FATF standards. The Cabinet has approved the revised ordinance and the GOP now plans to present it to the Parliament for approval; however the text of the Ordinance has not been made public.

In 2008 the FATF issued two statements concerning Pakistan’s AML/CTFregime. On February 28, 2008 the FATF acknowledged Pakistan’s progress in adopting AML legislation but advised financial institutions to be aware of the remaining deficiencies in Pakistan’s AML/CTF system, which constitute vulnerability in the international financial system. On October 16, 2008, the FATF issued a second statement reaffirming its position.

The AML Ordinance formally established a Financial Monitoring Unit (FMU) as Pakistan’s financial intelligence unit (FIU), within the SBP to receive, analyze, and disseminate suspicious transaction reports. However, it is subject to the supervision and control of the General Committee, comprised of several Government of Pakistan (GOP) cabinet secretaries, thus limiting its independence. Because Pakistan lacks a central repository for the reporting of suspicious transaction reports and the absence of provisions to protect institutions from liability for reporting, very few suspicious transactions have been reported or analyzed. From July 2007 through June2008, 130 suspicious transactions were reported to the State Bank by various banks and seven were referred to law enforcement agencies for investigation. The FMU has 15 staff members.

Several law enforcement agencies are responsible for enforcing financial crimes laws. The National Accountability Bureau (NAB), the Anti-Narcotics Force (ANF), the Federal Investigative Agency (FIA), and the Directorate of Customs Intelligence and Investigations (CII)—re-designated as the “Directorate General, Intelligence & Investigations” (FBR)—all oversee Pakistan’s financial enforcement efforts. The FIU has also established a Special Investigation Group to investigate terrorism and terrorism financing. In addition to the 2007 Anti-Money Laundering Ordinance, major laws in these areas include: The Anti-Terrorism Act of 1997, which defines the crime of terrorist finance and establishes jurisdiction and punishments; the National Accountability Ordinance of 1999, which requires financial institutions to report corruption related suspicious transactions to the NAB and establishes accountability courts; and the Control of Narcotics Substances Act of 1997 which criminalizes acts of money laundering associated with drug offenses and requires the reporting of narcotics related suspicious transactions. The present government has formed a committee to review the NAB ordinance (and the continuing viability of the NAB itself); however, the review process is still incomplete. The NAB, FIA, ANF and Customs have the ability to seize assets, whereas the SBP has the ability to freeze assets. The ANF shares information about seized narcotics assets and the number of arrests with the USG.

Pakistan has also adopted measures to strengthen its financial regulations and improve the reporting requirements for the financial sector to reduce its susceptibility to money laundering and terrorist financing. The SBP and the SECP are the country’s primary financial regulators. They have established AML units to enhance financial sector oversight. However, these units often lack defined jurisdiction and adequate resources to effectively supervise the financial sector on AML/CTF controls. The SBP has introduced regulations on AML that are generally consistent with the FATF recommendations in the areas of “know your customer” and enhanced due diligence procedures, record retention, the prohibition of shell banks, and the reporting of suspicious transactions. The Securities and Exchange Commission of Pakistan, which has regulatory oversight for nonbank financial institutions, has also applied “know your customer” regulations to stock exchanges, trusts, and other nonbank financial institutions. However, there is no designated AML/CTF supervisor for designated nonfinancial businesses and professions.

Pakistan has specifically criminalized various forms of terrorist financing under the Anti-Terrorism Act (ATA) of 1997. Sections 11H-K provide that a person commits an offence if he is involved in fund raising, uses and possesses property, or is involved in a funding arrangement intending that such money or other property should be used, or has reasonable cause to suspect that they may be used, for the purpose of terrorism. Pakistan has the ability to freeze bank accounts and property held by terrorist individuals and entities. The ATA of 1997 also allows the government to proscribe a fund, entity, or individual on the grounds that it is involved with terrorism. This done, the government may order the freezing of its accounts. Section 11B of the ATA specifies that an organization is proscribed or listed if the GOP has reason to believe that it is involved with terrorism.

Pakistan has issued freezing orders for terrorists’ funds and property in accordance with UN Security Council Resolutions 1267 and 1373. The SBP circulates to its financial institutions the list of individuals and entities that have been included on the UN 1267 Sanctions Committee’s consolidated list. Since 2001, a total of PKR 752 million (approximately $9.6 million) has been frozen under UN Security Council Resolutions 1267 and 1373. However, there have been some deficiencies concerning the timeliness and thoroughness of the asset freezing. There are sometimes delays in the transmission of information about asset freezing to relevant agencies such as the Finance Ministry and the SBP, which reduces the effectiveness of the implementation of these resolutions. The State Bank, however, maintains that as soon as it receives the information about these resolutions, it instructs banks to freeze these assets.

The Bank's most recent freeze orders have involved Jamatt ud Dawa (JUD), the organization connected with the November 2008 Mumbai attacks. The JUD is a reinvention of the Lashkar-e-Taiba (LeT), which originally was designated as a terrorist organization by the United States in December 2001, was banned by Pakistan in January 2002, and added to the UNSCR 1267 list in 2005. The reinvention as JUD was a specific effort by the group to avoid sanctions, but in December 2008, the UNSC added additional JUD aliases to its 1267 list, listed four members of LeT to its 1267 list for targeted sanctions and added aliases for Al Rashid and Al Akhtar Trusts, which raise funds for LeT. JUD continues to use LeT's vast network of mosques, hospitals, clinics, madrassas and fundraising offices throughout Pakistan to raise money and recruit on behalf of LET

A Charities Registration Act has been under consideration by the Ministry of Welfare for some time. It was sent to the Economic Affairs Division of the Ministry of Finance, which returned the draft text with their comments to the Ministry of Social Welfare. The Ministry of Social Welfare will now forward the bill to the Ministry of Law for review. The bill will then require approval by the cabinet and National Assembly, unless issued as a Presidential Ordinance by the President. Under this bill, charities would have to prove the identity of their directors and open their financial statements to government scrutiny. Currently, charities can register under one of a dozen different acts, some dating back to the middle of the nineteenth century. The Ministry of Social Welfare hopes that when the new legislation is enacted, it will be better able to monitor suspicious charities and ensure that they have no links to designated terrorists or terrorist organizations.

Current efforts to crack down on the flow of illicit funds via charitable organizations are limited to closure of the charity. There is little follow-up on suspect individuals associated with charities in question, thus allowing them to operate freely under alternate names. The court system has also failed to affirm Pakistan’s international obligations and maintain closure of UN-proscribed charitable organizations. In one such case, a provincial court in Karachi permitted a charity to continue operating in the face of a closure order, provided the charity in question only engage in humanitarian operations. The GOP failed to aggressively appeal this court decision.

Reportedly, bulk cash couriers are the major source of funding for terrorist activities. According to the Pakistan Central Board of Revenue, cash smuggling is an offense punishable by up to five years in prison. The SBP legally allows individuals to carry up to $10,000 in dollars or the foreign currency equivalent. In tracking the cross border movement of currency, Pakistan currently has reporting requirements only for the exportation of currency not the importation of currency. Therefore, Pakistan is only partially in compliance with FATF’s Special Recommendation IX, as they have no declaration or disclosure system for incoming currency. Officials are able to ask anyone entering Pakistan if they are bringing in any currency. There are joint counters at international airports staffed by the SBP and Customs to monitor the transportation of foreign currency. As a result of cash courier training, their efforts to stop and seize the illicit cross-border movement of cash have increased. For example, during 2008 authorities made a number of significant cash seizures at the international airports in Karachi, Lahore, and Peshawar as well as land border crossings.

Pakistan is party to the 1988 UN Drug Convention and the UN Convention against Corruption. Pakistan has signed but not ratified the UN Convention against Transnational Crime, and is not a party to the UN Convention for the Suppression of the Financing of Terrorism. Pakistan does not have a mutual legal assistance treaty with the United States. Pakistan is ranked 134 of 180 countries monitored in Transparency International’s 2008 Corruption Perception Index.

Although the Government of Pakistan adopted a long-awaited AML Ordinance by presidential decree after years of delay and stall tactics, the ordinance does not meet international standards. Proposed revisions to the AML Ordinance designed to incorporate APG recommendations and correct deficiencies have now been put forward by the government, but the precise content and effect of those revisions remains closely held by the government, and is as of yet unknown. The Pakistani parliament must still pass the revised ordinance. Pakistan’s Financial Monitoring Unit (FMU) needs to be strengthened and should be given operational autonomy rather than be subject to the supervision and control of the General Committee, which is comprised of political ministers. The GOP should also issue implementing regulations to consolidate and de-conflict the reporting obligations of suspicious transactions contained in various laws and regulations. Regular suspicious-transaction reporting, to include those that deal with terror financing, must become institutionalized as a banking practice, and the FMU must develop collection and analytical capacity. Pakistani law enforcement should not, however, become dependent on these reports to initiate investigations; rather, law enforcement authorities should be proactive in pursuing money laundering in their field investigations. In light of the role that private charities have played in terrorist financing, Pakistan must work quickly to conduct outreach, supervise, and monitor charitable organizations and activities, and close those charitable organizations that finance terrorism. In accordance with FATF Special Recommendation IX, Pakistan should implement and enforce cross-border currency reporting requirements and focus greater efforts in identifying and targeting illicit cash couriers. Pakistan should also become a party to the UN Convention against Transnational Organized Crime and the UN Convention for the Suppression of Terrorist Financing.


Palau is an archipelago of more than 300 islands in the Western Pacific with a population of 19,907 (more than 3,500 of which are foreign guest workers) and per capita GDP of approximately $8,412 (a large percentage of which comes from international financial assistance).

Upon its independence in 1994, the Republic of Palau entered the Compact of Free Association with the United States. The U.S. dollar is the legal tender used by the country, though it is not the official currency of Palau. Palau is not a major financial center. Nor does it offer offshore financial services. There are no offshore banks, securities brokers/dealers or casinos in Palau. Palauan authorities believe that drug trafficking, human trafficking, and prostitution is the primary sources of illegal proceeds that are laundered.

In January 2005, Palau prosecuted its first ever case under the Money Laundering and Proceeds of Crimes Act (MLPCA) of 2001 against a foreign national engaged in a large prostitution operation. The defendant was convicted on all three counts as well as a variety of other counts. Subsequently, Palau has prosecuted three more money laundering cases obtaining convictions in two of the cases. Two of the cases involved domestic proceeds of crime, while one of the cases involved criminal conduct both within and outside of Palau.

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 Law Review Task Force that recommended financial control legislation to the Olbill Era Kelulau (OEK), the national bicameral legislature, in 2001. Following that, Palau took several steps toward addressing financial security through banking regulation and supervision and putting in place 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 (MLPCA) of 2001 criminalized money laundering and created a financial intelligence unit. Two years after the introduction of proposed amendments, an amended MLPCA was signed into law on December 19, 2007. The report of the mutual evaluation (MER) of Palau, conducted in 2008 jointly by the IMF and the Asia/Pacific Group on Money Laundering (APG) of which Palau has been a member since 2002, noted that deficiencies that the amended MLPCA does not cover the AML/CTF preventive measures in a satisfactory manner. Significant deficiencies remain in the areas of customer due diligence (CDD), record keeping, monitoring of transactions, and supervision. The Financial Institutions Commission (FIC) is the AML/CTF supervisor, but it does not have the resources to ensure AML/CTF compliance nor to issue any regulations. The designated nonfinancial businesses and professions (DNFBPs) operating in Palau are not covered by the MLPCA. The MER also noted that amended MLPCA did not increase the number of predicate crimes for money laundering to include the minimum 20 predicate crimes prescribed by the Financial Action Task Force (FATF). The Pacific Anti-Money Laundering Program’s (PALP) Legal Mentor will continue to assist Palau in addressing legal and regulatory deficiencies relating to Palau’s anti-money laundering regime.

The original act did not establish requirements for the recording of cash and bearer securities transactions of U.S. $10,000 and above, and only required the reportage of suspicious transactions in excess of U.S. $10,000. The MLPCA did mandate that records be kept for five years from the date of the transaction. All such transactions (domestic and international) are required to go through a credit or financial institution licensed under the laws of the Republic of 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 be confirmed, the transaction must cease immediately.

The amended MLPCA, in addition to generally tightening up the original law, now sets higher standards for record keeping, requires the recording of cash and bearer securities transactions in excess of U.S. $10,000, removes the dollar threshold on suspicious transactions and requires “alternative remittance systems” to be licensed and maintain records of all transactions in excess of U.S. $1,000. The amendment also requires currency transactions over U.S. $5,000 to be effected by wire transfer and also authorizes the Financial Institutions Commission (FIC) to conduct random compliance audits on credit or financial institutions. Palau also monitors cross border transportation of currency through a declaration form requiring travelers to declare U.S. $10,000 or more.

The MLPCA defines offenses of money laundering as: 1) conversion or transfer of property for the purpose of concealing its illegal origin; 2) concealing or disguising the illegal nature, source, location, disposition, or ownership of property; and 3) acquisition, possession, or control of property by any person who knows that the property constitutes the proceeds of crime as defined in the law. The law provides for penalties of a fine not less than U.S. $5,000, nor more than double the amount the convicted individual laundered or attempted to launder, whichever is greater, or imprisonment of not more than 10 years, or both. Corporate entities or their agents are subject to a fine double that specified for individuals. The law protects individuals who report suspicious transactions.

The Financial Institutions Act of 2001 established the Financial Institutions Commission (FIC), an independent regulatory agency, which is responsible for licensing, supervising and regulating financial institutions, defined as banks and security brokers and dealers in Palau. An amendment intended to strengthen the supervisory powers of the FIC and promote greater financial stability within Palau’s banking sector passed its first reading in the Senate in January 2005. The Senate Committee on Ways and Means and Financial Matters did not report out the bill until December 2006 when it merely referred it back to the Committee for further study. This amendment still has not become law. The insurance industry is not currently regulated by the FIC. Most insurance companies in Palau are companies registered in the U.S. or the U.S. Territory of Guam.

The Free Trade Zone Act of 2003 created the Ngardmau Free Trade Zone (NFTZ). A public corporation, Ngardmau Free Trade Zone Authority, was established to oversee the development of the NFTZ. The Authority also issues licenses for businesses to operate within the free trade zone. Businesses licensed to operate within the free trade zone will not be subject to the requirements of the Foreign Investment Act and will be exempt from certain import and export taxes. No development has taken place within the area designated for the free trade zone and the NFTZ directors continue to search for developers and investors.

Currently there are seven licensed banks in Palau, the majority ownership of which is primarily foreign. The three largest retail banks—Bank of Hawaii, Bank of Guam and BankPacific are all branches of American banks. In addition there are three banks chartered in Palau (Asia Pacific Commercial Bank, First Fidelity Bank and Palau Construction Bank) and one chartered in Taiwan (First Commercial Bank.)

On November 7, 2006, the FIC closed the second largest and the only locally owned bank, Pacific Savings Bank (PSB), for illiquidity and insolvency. The Receiver and the Attorney General filed a number of civil and criminal actions against former bank managers and insiders. An additional five to ten cases are currently being prepared. Investigations and litigation, though hampered by lack of resources, continue.

In October 2008, the Office of the Attorney General charged a Palauan and Taiwan businessmen for violations of foreign investment law, tax law, and money laundering. The Taiwan businessman operated three businesses listed under the name of his Palauan partner. Investigation into the records and confiscated receipts from the three companies suggest that income was grossly underreported over several years. A judge has issued an order to freeze bank accounts of the Taiwan businessman. The judge also ordered that no capital shall be removed and no financial transaction to be conducted.

With the legal framework now being made more robust, the weakest link in Palau’s money laundering prevention regime is the paucity of human and fiscal resources. Palau has an Anti-Money Laundering Working Group comprised of the Office of the President, the FIC, the Office of the Attorney General, Customs, the FIU, Immigration, and the Bureau of Public Safety. However, the operations of the government’s Financial Intelligence Unit (FIU) has been severely restricted by a lack of dedicated human resources and no dedicated budget. In December 2008, the Palauan government agreed to allocate a budget for a full time Director of the FIU. The FIU, will still be under the FIC, is responsible for receiving, analyzing, and processing suspicious transaction reports, and disseminating the reports as necessary. In addition, the FIU is responsible for tracing, seizing, and freezing assets. To accomplish this with the limited manpower available a multi-agency SAR review team was organized with the assistance of the PALP mentor to jointly review information collected by the FIU to identify and initiate investigations. The multi-agency approach has enabled the FIU to function given its limitations of manpower and funding and has fostered information sharing and joint investigations between the relevant law enforcement agencies. Another impediment to enforcement is the lack of implementing regulations to ensure compliance with the amended MLPCA. Regulations have been drafted to address these deficiencies identified in the MER and are expected to be passed in 2009.

Palau has enacted several legislative mechanisms to foster international cooperation. The Mutual Assistance in Criminal Matters Act (MACA), passed in June 2001, enables authorities to cooperate with other jurisdictions in criminal enforcement actions related to money laundering and to share 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. Under the Compact of Free Association with the United States, a full range of law enforcement cooperation is authorized and in 2004 Palau was able to assist the Department of Justice in money laundering investigation by securing evidence critical to the case and freezing the suspected funds. Palau has also entered into an MOU with Taiwan and the Philippines for mutual sharing of information and interagency cooperation in relation to financial crimes and money laundering.

In 2004 the President also sent the Cash Courier Disclosure Act, drafted by the Palau Anti-Money Laundering Working Group, to the legislature. The bill, intended to strengthen the FIC, was signed into law in May 2007. The law mandates a written declaration with the Division of Customs for $10,000 or more in cash or negotiable instruments that is transported in or out of the country. An administrative penalty of 5 percent of the amount of the currency transported may be assessed for failure to file a declaration; the civil penalty against any person shall not exceed twice the amount of the currency being illegally transported. Penalties for entities shall equal two times the fines specified for natural persons. Entities found guilty of three or more offenses within a five-year period may be banned from business activities for a minimum of five years, or ordered to close permanently; such judgments will be publicized in the press. The Cash Courier Disclosure Act included an amendment for the Attorney General to bring civil suit against entities or persons who attempt to or engage in banking business, the brokerage or dealing of securities, without a valid license from the FIC. A person who commits the offense shall be penalized at least $25,000; corporate entities are fined an amount equal to two times the fine for a natural person, or the amount of gross profit realized by the entity for the two years prior to the offense, whichever is greater. Such entities may be banned from business activities for a minimum of five years, or ordered to close permanently, such judgment to be publicized in the press. The PALP Law Enforcement resident mentor has trained and worked with Palau Customs, Police and Airport Security to identify potential bulk cash smugglers and the methods they employ. Since the passage of the Cash Courier Disclosure Act, Palau Customs/Security have identified and made six separate bulk cash currency seizures of nearly $100,000 at the airport in 2008.

Palau is a party to the UN Convention for the Suppression of the Financing of Terrorism. The Counter-Terrorism Act of 2007 (CTA includes provisions for the freezing of assets of entities and persons designated by the United Nations as terrorists or terrorist organizations, provisions for the regulation of nonprofit entities to prevent abuses by criminal organizations and terrorists, and provisions for criminalizing the financing of terrorism. The Counter-Terrorism Act specifically addresses Palau’s obligation under UN Security Council Resolution 1373. However, the 2008 MER stated that Palau’s legislation does not adequately address provisional measures of seizing of evidence and property and the freezing of capital and financial transactions related to the financing of terrorism. Palau is not a party to the 1988 UN Drug Convention, the UN Convention against Corruption, or the UN Convention against Transnational Organized Crime.

Under Palau law, donations over U.S. $5,000 to any nonprofit organization are to be recorded. The organization must maintain the record for 3 years and must provide it to the FIU upon request. Donations over U.S. $10,000 are to be reported to the Office of the Attorney General and FIU. Any suspicious donations are also to be reported to the Office of the Attorney General and FIU. Penalties for violations are: a fine not to exceed U.S. $10,000; a temporary ban on operations for up to 2 years; or the dissolution of the organization.

The Government of Palau (GOP) has taken several steps toward enacting a legal framework by which to combat money laundering. The GOP should circulate the UNSCR 1267 Sanctions Committee Consolidated list of terrorist entities. The GOP should provide more resources to its FIU, to ensure that it can fulfill its mission. The GOP should extend its excellent monitoring of airport to all its border points of entry and exit to protect against the smuggling of bulk cash, narcotics and other contraband and should implement all aspects of the legal reforms already in place. Palau should also address the deficiencies noted in its recent mutual evaluation report to ensure that it continues to make progress in developing a viable anti-money laundering/counterterrorist financing regime that comports with international standards. Palau should also become a party to the 1988 UN Drug Convention, the UN Convention against Corruption and the UN Convention against Transnational Organized Crime


Panama is an important regional financial center and has had one of the fastest growing economies in the Western Hemisphere over the past 15 years. GDP growth was 11 percent in 2007, 9.2 percent in 2008, and projected by the United Nations to be 4.5 percent in 2009. However, the very factors that have contributed to Panama’s economic growth and sophistication in the banking and commercial sectors—the large number of offshore banks and shell companies, the presence of the world’s second-largest free trade zone, the spectacular growth in ports and maritime industries, and the use of the U.S. dollar as the official currency—also provide an effective infrastructure for significant money laundering activity. The majority of money laundering activity in Panama is narcotics-related or the result of transshipment or smuggled, pirated, and counterfeit goods through Panama’s major free trade zone, the Colon Free zone (CFZ). The funds generated from illegal activity are susceptible to being laundered through a wide variety of methods, including the Panamanian banking system, Panamanian casinos, bulk cash shipments, pre-paid telephone cards, debit cards, insurance companies, real estate projects and agents, and merchandise. Panama’s vulnerability to money laundering is exacerbated by the government’s lack of adequate enforcement, personnel, and resources devoted to anti-money laundering and combating the financing of terrorism (AML/CTF), as well as the sheer volume of economic transactions, a significant portion of which is in cash).

Panama’s economic and geographic proximity to drug-related activity from Colombia, Venezuela, and Mexico, as well as weak capacity within the Government of Panama (GOP), makes Panama a natural location for money laundering. The principal source of laundered money is derived from the sale in the United States and Europe of cocaine produced in Colombia. Panama’s land border with Colombia is approximately 60 miles of unguarded dense jungle. Sea and air law enforcement of its borders is often ineffective.

Panama, particularly in the CFZ, also suffers from substantial transshipment of smuggled or pirated goods, including counterfeit apparel, pharmaceuticals, and pirated DVDs. In 2008 alone, the CFZ imported and exported over $18 billion in goods and the CFZ is the world’s second largest free trade zone after Hong Kong. The CFZ currently has over 2,786 businesses, 25 bank branches (including money center banks such as Citibank and HSBC), employs approximately 29,100 people, and continues to expand. The large volume of international business within the CFZ provides a possible environment for money laundering by individuals raising or moving funds on behalf of terrorist groups. Exacerbating the vulnerabilities of the CFZ is a legal staff of only three attorneys to oversee transshipment, smuggling of goods, counterfeit products and intellectual property violations issues.

The CFZ offers a unique set of advantages that promote business activities, including exemption from Panamanian taxes and the associated financial controls; serving as a one-stop shop for importing, financing, and shipping goods; serving as a showroom for East Asian goods; providing rapid transfer of goods with three ports along with a road, railroad, and canal to ports and airports on the Pacific; and offering cheap financing in a large financial sector that uses U.S. dollars. Criminal merchants and customers are able to use these legitimate advantages to facilitate money laundering activities. Highlighting the challenges of enforcement in the face of large trade volumes is the case of Ricardo Traad, the former Administrator of Panamanian Maritime Service (akin to the U.S. Coast Guard), who was arrested in 2007 for, among other things, money laundering and narcotics trafficking. In addition to the CFZ, Panama also had fifteen export processing zones at the end of 2007 and the ports of Panama handle over four million twenty-foot equivalent units (TEUs) of container traffic per year.

Panama is an offshore financial center that includes offshore banks and various forms of shell companies that have been used by a wide range of criminal groups globally for money laundering. The Panamanian Superintendent of Banks licenses offshore banks and the Public Registry facilitates the formation of offshore corporations. Business licenses may be obtained through a newly created online system. The Superintendent of Banks requires a list of a bank’s shareholders as part of the licensing process. The onshore and offshore registration of corporations is also handled by the Public Registry.

As of September 2008, Panamas had 90 commercial banks, two official banks, 15 local banks of general license, 28 foreign banks of general license, 33 banks of international license, and 14 representative offices. Of the 90 commercial banks in Panama, 73 are specifically either non-Panamanian or are designed to service offshore clients. Approximately 46,178 and 40,825 new offshore corporations were registered in Panama during 2007 and through October 2008, respectively. Panama also has a thriving financial and legal services industry directed at providing offshore tax planning, estate planning, and trust organization services. Panama does not tax individuals or companies on non-Panamanian sources of income and maintains neither exchange controls nor restrictions on capital flows. Further, there is no requirement to disclose the beneficial owners of any corporation or trust. Bearer shares are permitted for corporations, and nominee directors and trustees are allowed by law. Panama regulates gaming activities in-country, but does not regulate Internet gaming sites.

Panama’s construction sector, which is growing at double-digit rates, is an emerging industry of concern for money laundering. It has been fueled by a booming domestic economy along with an influx of foreigners, particularly Colombians, Venezuelans, North Americans, and Europeans. The construction sector in Panama often pays employees and suppliers in cash, which increases its attractiveness to money launderers. For instance, the developer of one residential project (Resort Paraiso Las Perlas on Isla Chapera in the Gulf of Panama), Jose Nelson Urrego Cardenas, was arrested in 2007 on drug money laundering charges. The slowdown in the Panamanian construction sector due to the global slowdown indicates, however, that the construction sector may be primarily based upon legitimate commerce.

Panama has a comprehensive legal framework to detect, prevent, and combat money laundering and terrorist financing, and provides excellent cooperation with U.S. law enforcement agencies in combating drug trafficking, money laundering and financial crimes. The GOP identified the combating of money laundering as one of five goals in its five-year National Drug Control Strategy, issued in 2002, and commits the GOP to devoting $ 2.3 million to anti-money laundering projects, the largest being institutional development of the GOP’s financial intelligence unit (FIU), the Unidad de Análisis Financiero (UAF).

Money laundering is a criminal offense in Panama. Law 14 (Article 284) of May 17, 2007, amends the Penal Code by expanding the predicate offenses for money laundering beyond narcotics 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 14 establishes a five to 12 year prison sentence, plus possible fines. Additionally, the Panamanian Legislative Assembly approved the Financial Crimes Bill (Law No. 45 of June 4, 2003), establishing criminal penalties of up to ten years in prison and fines of up to $1 million for financial crimes that undermine public trust in the banking system, the financial services sector, or the stock market. The legislation criminalizes a wide range of activities related to financial intermediation, including illicit transfers of monies, accounting fraud, insider trading, and the submission of fraudulent data to supervisory authorities. Law No. 1 of 2004 also adds crimes against intellectual property as a predicate offense for money laundering.

Panama’s Law 16 of 1982, Article 389, and Law 50 of 2003, Article 264, both criminalize the financing of terrorism as contemplated by UN Security Council Resolution 1373. Decree No. 22 of June 2003, gave the “Presidential High Level Commission against Narcotics Related Money Laundering” responsibility for combating terrorist financing. Law No. 50 of July 2003 criminalizes terrorist financing and gives the UAF responsibility for prevention of this crime. By means of Law No. 22 of May 2002, the GOP adopted the UN Convention for the Suppression of the Financing of Terrorism. Panama also circulates to its financial institutions the list of individuals and entities included on the UN 1267 Sanctions Committee consolidated list.

Under Panamanian customs regulations, any individual bringing cash in excess of $10,000 into Panama must declare such monies at the point of entry. If such monies are not declared, they are confiscated and are presumed to relate to money laundering.

Under Panamanian law and regulations, financial institutions (banks, trust companies, money exchangers, credit unions, savings and loans associations, stock exchanges and brokerage firms, and investment administrators) must adhere to “know your customer” (KYC) practices for identification of customers, exercise of due diligence, and retention of transaction records. Executive Decree No. 52 of April 30, 2008, referred to as the “New Banking Law,” states that banks and other supervised entities are obliged to establish policies, procedures, and controls on the prevention of money laundering, terrorist financing, and related crimes. Financial institutions must also examine every cash (or cash equivalent) transaction in excess of $10,000 or a series of transactions that in the aggregate exceed $10,000 in any given week, as well as any transaction, regardless of its amount, that could be related to money laundering activity.

The Superintendent of Banks supervises and examines financial institutions for compliance with anti-money laundering and combating the financing laws and regulations, including for compliance with KYC policies on banks and other supervised entities. There are no differing regulations governing onshore and offshore corporations. Panamanian trust companies are required to identify to the Superintendent of Banks the beneficial owners of trusts. Panamanian law provides for the dissemination of information related to trusts to appropriate administrative and judicial authorities.

Financial institutions must report currency transactions in excess of $10,000 and suspicious financial transactions to the UAF. Panamanian law protects reporting individuals (banks and others) from civil and criminal suits with respect to providing information required by law. Casinos, CFZ businesses through the CFZ Administration, pawnshops, the national lottery, real estate agencies and developers, and insurance and reinsurance companies also report to the UAF currency transactions that exceed $10,000. Financial institutions are prohibited from informing their client or third parties that they have transmitted any information regarding such transactions to the UAF. Panamanian law requires all financial institutions to maintain for five years records concerning their anti-money laundering procedures, including information regarding their customers and any information derived as part of the KYC regulations or suspicious transactions reports relating to customer identification.

AML/CTF controls are applied to numerous nonbanking financial institutions in Panama. Article 248 of 2000 requires indigenous alternative remittance systems, such as hawala operations, to adhere to the reporting requirement for cash transactions. The Ministry of Commerce and Industry is responsible for supervising money remittance houses, financing companies, real estate promoters and agents, pawnshops, and companies located in enterprise processing zones. Executive Decree 524 promulgated on October 31, 2005 (amended by Executive Decree 627 of 2006), establishes a procedure to regulate, supervise and control nongovernmental organizations, including charities. The preamble to Executive Decree 524 mentions Law 50 of 2003 and the need to regulate such organizations to combat terrorism and prevent terrorist financing. Press reports, however, have questioned the degree to which the nongovernmental organizations are complying with their reporting and registration requirements.

The Panamanian Autonomous Cooperative Institute supervises savings and loan cooperatives. It has established a specialized unit for the supervision of loans and credit cooperatives regarding compliance with Law 42. The National Securities Commission supervises securities firms, stockbrokers, stock exchanges and investment managers. The commission carries out various training sessions and workshops for its personnel and related entities. The National Lottery of Public Welfare supervises activity related to the sale of lottery tickets and payments of winnings. The Gaming Commission supervises casinos, horse tracks and other establishments dedicated to betting and games of chance. The Superintendence of Insurance supervises insurance companies, reinsurance companies, and insurance brokers. The CFZ Administration supervises the companies and activity within the CFZ and has actively sought to address CFZ vulnerabilities to illicit behavior, such as money laundering. The CFZ Administration mandates the training of representatives of all CFZ businesses in money laundering and counterterrorist financing laws. Noncompliance with these laws can result in fines of up to $1 million. The CFZ Administration also issues a procedures manual for all CFZ businesses, outlining their responsibilities regarding the prevention of money laundering.

The GOP established the UAF in 1995. The UAF is the agency responsible for receiving and analyzing financial data and transactions received from financial and other institutions (public or private), including reports of suspicious activity which may be related to money laundering or terrorist financing. The UAF falls under the jurisdiction of the GOP’s Council for Security and National Defense within the Ministry of the Presidency. Among its stated purposes is preventing the laundering of funds derived from narcotics trafficking, but it does not have criminal investigative responsibilities. The UAF’s staff is comprised of personnel specialized in finance, law, and data processing. UAF personnel also participate with regulators drafting legislation.

The UAF has no online access to information of financial institutions unless such information is requested in writing. The only exception is with the Asociación Panameña de Crédito—(APC—the Panamanian Credit Association) for credit records. There is a formal mechanism in place to share information domestically. UAF has online access with other GOP entities such as the public registry, traffic department, electoral tribunal, and immigration movements as well as Customs travelers’ declarations. Executive Decree No. 163 authorizes the UAF to share information with FIUs of other countries, subject to entering into a memorandum of understanding or other information exchange agreement. The UAF has signed more than 43 memoranda of understanding with FIUs from other countries, including the U.S. Financial Crimes Enforcement Network (FinCEN). The UAF also has online access to financial information with foreign analogs through the Egmont Secure Web.

Other UAF duties include maintaining statistics on the movement of cash within the country believed to be related to money laundering or terrorist financing, sharing information with the FIUs of other countries, and assisting the Attorney General’s and Bank Superintendent’s offices with their investigations relating to money laundering and terrorist financing. The UAF also works with other GOP agencies to identify new methods of money laundering and participates in the training of financial and nonfinancial sector employees in detecting and preventing money laundering. During 2008, the UAF trained 1,128 individuals from 31 institutions, including the Gaming Board, the Bar Association, the Ministry of Commerce, the Judicial Branch, credit unions, banks, remittances houses, insurance companies and CFZ businesses.

The UAF consists of approximately 20 to 25 employees. During 2007, the UAF reinforced the analysis department with two new accountants, a financial analyst, and a lawyer. Also, the statistics and typology departments have newly trained personnel. Despite these additions, the UAF is overworked and lacks adequate resources. After the UAF reviews the cash transaction reports (CTRs) and suspicious transaction reports (STRs) and gathers any other relevant information from reporting institutions and other government agencies, the UAF provides information related to possible money laundering or terrorist financing to the Office of the Attorney General for investigation. Money laundering cases involving narcotics are handled by the Drug Prosecutor’s Office within the Office of the Attorney General. The Directorate of Judicial Investigations (similar in function to the U.S. Federal Bureau of Investigation) provides expert assistance to the prosecutors. The UAF routinely transfers cases to the financial investigations unit of the Directorate of Judicial Investigations.

Panamanian Customs continued a program at Tocumen International Airport to deter currency smuggling by seizing and forfeiting all undeclared funds in excess of $10,000 from arriving passengers. However, the entry of Customs currency declaration information into the UAF database has yet to occur, although discussed since 2002. In 2008, ICE and Customs authorities in Panama conducted joint interdiction operations in furtherance of ICE’s Operation Firewall. Operation Firewall is a comprehensive law enforcement effort focusing on the interdiction and investigation of bulk cash being smuggled around the world. The operations, conducted at Tocumen International Airport, resulted in twelve currency seizures totaling over $670,000.

From January to October 2008, the UAF investigated 1071 STRs (792 from banks, 242 from remittances houses, one from casinos, 14 from credit unions, 11 from financial institutions, three from government, and eight from stocks brokerages). As of July 2008, 151 of these reports were sent to the Attorney General’s Office for further action and 104 were found with no merit. The UAF carried out 167 information requests through the Egmont Group and 151 judicial assistances through June 2008. Data on the total amount of cash transactions for 2008 are not yet available; however, the number and amount of cash transactions are expected to be at record levels due to high GDP and CFZ growth rates. Through October 2008, the UAF received 317,665 CTRs and the total cash amount reported during the first ten months of 2008 was approximately $8.3 billion.

Through October 2008, the Financial Fraud Prosecutor’s office investigated 332 cases related to financial crimes. These included credit card fraud (261), bankruptcy (7), money laundering (4) and financial crimes (60). During the same time period the Special Drug Prosecutor Office reported 79 drug-related to money laundering arrests, as opposed to 48 through all of 2006.

Panamanian Law 38 of August 10, 2007, provides for the seizure of assets derived from criminal activity. Upon an arrest, assets are frozen and seized. The assets are released upon a judge’s order to the defendant in the event of a dismissal of charges or acquittal. In the event of a conviction, assets derived from money laundering activity related to narcotics trafficking are delivered to the National Commission for the Study and Prevention of Narcotics Related Crimes (CONAPRED) for administration and distribution among various GOP agencies. Seized perishable assets may be sold and the proceeds deposited in a custodial account with the National Bank. Panamanian law provides for criminal forfeiture, but not civil forfeiture.

Responsibility for tracing, seizing and freezing assets lies principally with the Drug Prosecutor’s Office of the Attorney General’s Office. There are two offices in Panama province, one in each of the other provinces and one delegate in Darien province. The GOP typically enforces seizure and forfeiture laws fully in drug trafficking and money laundering cases. The banking sector is required by law to cooperate with the seizure and freezing of assets, and generally cooperates with law enforcement.

Although Panama does not have an independent national system or mechanism for freezing terrorist assets other than its current legislation, the Government of Panama does have dedicated financial crime positions to work these issues. Panama has not enacted any law for sharing seized assets with other governments. The Panama Public Force (PPF) and the judicial system have limited resources to deter terrorists, due to insufficient personnel and lack of expertise in handling complex international investigations. On January 18, 2003, the GOP entered into a border security cooperation agreement with Colombia, and also increased funds to the PPF to help secure the frontier.

Panama is a party to the 1988 UN Drug Convention, the UN Convention for the Suppression of the Financing of Terrorism, the UN Convention against Transnational Organized Crime, and the UN Convention against Corruption. Panama is a signatory to 11 of the UN terrorism conventions and protocols. Panama is a member of the Organization of American States Inter-American Drug Abuse Control Commission (OAS/CICAD), and is a member of the Caribbean Financial Action Task Force (CFATF). Panama is also a member of the Offshore Group of Banking Supervisors, and the UAF is a member of the Egmont Group. Panama has hosted international conferences on money laundering. On August 9-10, 2007, the First International Congress on Handling Fraud and Corruption in the hemisphere was held in Panama which also included discussions on money laundering detection and prevention. The Banking Association/UAF/and other GOP entities organized the XII Hemispheric Congress on Prevention of Money Laundering and Combating the Financing of Terrorism August 2008

Panama and the United States have a Mutual Legal Assistance Treaty that entered into force in 1995. In March 2007, USG and GOP agencies cooperated in the largest maritime cocaine seizure known to have ever occurred. The seized vessel contained approximately 20 tons of cocaine, with an estimated market value of approximately $500 million. Authorities stopped the vessel “Gatun” off the Pacific coast of Panama.

Panama is involved in several other AML/CTF efforts. With support from the Inter-American Development Bank (IDB), the Government of Panama (GOP) is implementing a “Program for the Improvement of the Transparency and Integrity of the Financial System.” The Program is targeted, through enhanced communication and information flow, training programs, and technology, at strengthening the capabilities of government institutions responsible for preventing and combating financial crimes and terrorist financing activities. Overall, 1,500 employees from 14 institutions have benefited from this training, including representatives of the private sector, stock markets, credit unions, bank compliance officials, and others. In addition, with the help of this program, Panama has launched an educational campaign to prevent money laundering and terrorist financing. The program began in 2002 and is intended to raise citizens’ awareness of these crimes.

The GOP also created, within the Ministry of Foreign Affairs, the Department of Analysis and Study of Terrorist Activities. This department is tasked with working with the United Nations and the Organization of American States to investigate transnational issues, including money laundering. Panama has an implementation plan for compliance with the FATF Forty Recommendations on Money Laundering and Nine Special Recommendations on Terrorist Financing.

The GOP should continue its commendable efforts to enhance Panama’s ability to prevent, detect, investigate, and prosecute financial crimes, including money laundering and terrorist financing. . The staff of the UAF, CFZ Administration, and GOP law enforcement entities should improve the level of enforcement, personnel, and resources devoted to AML/CTF, including successful prosecution of AML/CTF cases. As a member of CFATF, the GOP is committed to adhere to all FATF Recommendations, as well as those relating to the transparency of beneficial owners of all companies, including international business companies (IBCS). The issuance of bearer shares are of concern and the GOP should take adequate steps (such as immobilization) to assure that these instruments are not used for money laundering. The GOP should also enable the UAF and law enforcement users of the Public Registry’s website to search by company officers names. The GOP should continue to implement transparency promoting computer systems that shine a light on CFZ commercial and financial transactions. Additionally, the GOP should devote more resources to ensuring that its CFZ does not serve to enable trade-based money laundering.


Paraguay is a principal money laundering center and major drug transit country involving the banking and nonbanking financial sectors. A multi-billion dollar contraband trade occurs in the border region shared with Argentina and Brazil, called the Tri-Border Area, and facilitates much of the money laundering in Paraguay. While the Government of Paraguay (GOP) suspects that proceeds from narcotics trafficking are often laundered in the country, it is difficult to determine what percentage of the total amount of laundered funds is generated from narcotics sales. Weak controls in the financial sector, open borders, bearer shares, casinos, a plethora of exchange houses, lax or non-enforcement of cross border transportation of currency and negotiable instruments, and minimal enforcement activity for financial crimes allow money launderers, possible terrorist financiers, and transnational criminal syndicates to take advantage of Paraguay’s financial system.

Ciudad del Este (CDE), on Paraguay’s border with Brazil and Argentina, represents the heart of Paraguay’s underground or “informal” economy. The area is well known for arms and narcotics trafficking and violations of intellectual property rights—and the illicit proceeds from these crimes are a source of laundered funds. A wide variety of counterfeit goods, including cigarettes, CDs, DVDs, and computer software, are imported from Asia and transported across the border into Brazil, with a smaller amount remaining in Paraguay for sale in the local economy. Some former government officials have been accused of involvement in the smuggling of contraband or pirated goods. Although there are ongoing criminal investigations, to date there have been few convictions for smuggling contraband or pirated goods.

Paraguay is particularly vulnerable to money laundering, as little personal background information is required to open a bank account or to conduct financial transactions. Paraguay is also an attractive financial center for neighboring countries, particularly Brazil. Foreign banks are registered in Paraguay and nonresidents are allowed to hold bank accounts, but current regulations forbid banks from advertising or seeking deposits from outside the country. While offshore banking in Paraguay is illegal, bearer shares are permitted—exposing the country to money laundering risk. A 2008 International Monetary Fund review of the GOP’s anti-money laundering controls noted that a significant portion of corporations issue bearer shares and that no measures are in place to ensure that such entities are not being misused for money laundering. While casinos exist, offshore casinos do not, and Internet gambling is marginal, largely due to limited Internet connectivity throughout the country. Shell companies and trust funds structures are legal but seldom used and uncommon in the financial system. At present, the financial sector seems to lack the depth and sophistication to use these structures.

The nonbank financial sector operates in a weak regulatory environment with limited supervision. Credit unions or “cooperatives” are one of the main nonbank agents in the economy, rapidly growing in membership and representing over 20 percent of deposits and 33 percent of loans in the financial system. The organization responsible for regulating and supervising credit unions, the National Institute of Cooperatives (INCOOP), is an independent body that provides regulatory and supervisory guidelines, but lacks the capacity to enforce compliance. Exchange houses are another nonbank sector where enforcement of compliance requirements remains limited. By law, exchange houses need to register with the Central Bank. The Central Bank has the authority to intervene, close, and seize the assets of illegal exchange houses, and the Attorney General’s office has the responsibility to enforce anti-money laundering laws. However, it is estimated that in CDE alone there are more than 100 illegal exchange houses. Unregistered exchange houses are highly susceptible to money laundering activity, and in CDE they are associated with laundering funds from illicit activity.

In July 2008, President Duarte Frutos signed a new penal code that includes enhanced legislation on money laundering. Under the new penal code money laundering is an autonomous crime, punishable by a prison term of up to five years. The new code establishes predicate offenses for money laundering but does not require a conviction for the predicate offense before initiating money laundering charges. The new code also allows the state to charge financial sector officials who negligently permit money laundering to occur. Implementation of the new penal code is expected for mid-2009 to allow time for judge and prosecutor training.

Another bill amending Paraguay’s criminal procedure code is expected in 2009. The proposed amendments to the criminal procedure code would move Paraguay toward a more accusatory system. The reforms would allow criminal investigations to occur without advance notice of the investigation to the subject or the defense attorney, lengthen statutes of limitation, and allow for confrontation and cross examination of witnesses.

Paraguay does not have laws that criminalize terrorist financing or would provide authorities to freeze, seize, or forfeit assets related to the financing of terrorism. Efforts to include such statutes in the new penal code failed. The Ministry of Industry and Commerce’s (MIC) Secretariat to Combat Money Laundering (SEPRELAD) is working on a revised draft of the anti-terrorism finance bill to present to Congress in early 2009. The Egmont Group notified Paraguay about the need to comply with its international commitments regarding anti-terrorism finance legislation. If Paraguay does not show reasonable progress in enacting anti-terrorism finance legislation it could face suspension from the Egmont Group in 2009, which could then be followed ultimately by expulsion.

Other challenges slow Paraguay’s progress in combating money laundering. Paraguay added three financial crimes prosecutors in 2007, bringing the total number to 11, but prosecutors still face resource constraints that limit their ability to investigate and prosecute financial crimes. New criteria were issued in 2005 for the selection of judges, prosecutors and public defenders; however, the process remains one that is largely based on politics, nepotism and influence peddling. Now that the new anti-money laundering legislation has been passed as part of the new penal code, it is critical to Paraguay’s future prosecutorial successes that judges and prosecutors enhance their knowledge regarding the successful prosecution and adjudication of money laundering cases.

There are no effective controls or laws that regulate the amount of currency that can be brought into or out of Paraguay. Cross-border reporting requirements are limited to customs declaration forms issued by airlines at the time of entry into Paraguay. Persons transporting $10,000 into or out of Paraguay are required to file a customs report, but these reports are not collected or checked. Customs operations at the airports or land ports of entry provide no control of cross-border cash movements. The nonbank financial sector (particularly exchange houses) is used to move illicit proceeds both from within and outside of Paraguay into the U.S. banking system.

Most high-priced goods are paid for in U.S. dollars, and cross-border bulk cash smuggling is a major concern. Large sums of dollars generated from normal commercial activity and suspected illicit commercial activity are transported physically from Paraguay through Uruguay and Brazil to banking centers in the United States. The GOP is only beginning to recognize and address the problem of the international transportation of currency and monetary instruments derived from illegal sources.

Bank secrecy laws in Paraguay do not prevent banks and financial institutions from disclosing information to bank supervisors and law enforcement entities. Bankers and others, however, are protected under the anti-money laundering law with respect to their cooperation with law enforcement agencies. Banks, finance companies, insurance companies, exchange houses, stock exchanges and securities dealers, investment companies, trust companies, mutual and pension funds administrators, credit and consumer cooperatives, gaming entities, real estate brokers, nongovernmental organizations, pawn shops, and dealers in precious stones, metals, art, and antiques are required to know and record the identity of customers engaging in significant currency transactions. These entities must also report suspicious activities to Paraguay’s financial intelligence unit (FIU), the Unidad de Análisis Financiera (UAF) within SEPRELAD. The Superintendence of Banks enforces these reporting obligations for banks, but they are not enforced for other financial institutions. In November 2007, the MIC issued new regulations that define reporting requirements and sanctions for noncompliance for the insurance industry and credit unions.

The government of Paraguay made significant efforts to strengthen SEPRELAD. Former Central Bank president Gabriel Gonzalez managed SEPRELAD until early August 2008. Director Gonzalez’s efforts improved SEPRELAD’s response time and operational structure, eliminating the backlog of suspicious activity reports (SARs). He also hired and trained additional UAF staff, strengthening the unit’s analytical capacity. President Fernando Lugo’s new administration designated in mid-August Oscar Boidanich, a banking supervision and anti-money laundering veteran from the Central Bank, as SEPRELAD’s new Director. Director Boidanich has worked to improve the quality of reported information in the SARs, and streamlined the information exchange processes with reporting institutions. In three months, SEPRELAD processed 276 SARs and sent 22 cases to the Attorney General’s office, which represents a 20 percent increase over the same period in previous years.

SEPRELAD is hampered by a lack of effective inter-agency cooperation, as there is no formal mechanism for sharing sensitive information. Pursuant to a money-laundering vulnerability assessment performed in mid-2008 by the South America Financial Action Task Force (GAFISUD) and the International Monetary Fund (IMF), Director Boidanich is seeking to modify SEPRELAD’s organizational structure to make it an independent secretariat with administrative and logistical support from the Central Bank with the aim of improving information-sharing mechanisms among the government’s law enforcement agencies. SEPRELAD has drafted a bill, not yet pending before Congress, which would make it an independent secretariat reporting directly to the president. SEPRELAD is also seeking to strengthen its relationships with international counterpart financial intelligence units. Though Paraguay had long been in arrears with GAFISUD, it fully paid its outstanding dues in early 2008 and included the annual payment into its future budget requests. Paraguay has taken some measures to tackle illicit commerce and trade in the informal economy and to develop strategies to implement a formal, diversified economy.

Paraguay submitted a proposal for a second phase of the Millennium Challenge Corporation’s Threshold Program to address corruption problems of impunity and informality, both of which hamper law enforcement efforts and contribute to money laundering. The Ministry of Industry and Commerce’s Specialized Technical Unit (UTE), working in close coordination with the Attorney General’s Trademarks and Intellectual Property Unit, seized $55 million worth of pirated goods during the first ten months of 2008. In cooperation with the U.S. Department of Homeland Security’s Immigration and Customs Enforcement (ICE), the GOP continues to operate a Trade Transparency Unit (TTU) that examines discrepancies in trade data that could be indicative of customs or tax fraud, trade-based money laundering, or the financing of terrorism

Under current laws, enforcement agencies in Paraguay have limited authority to seize or forfeit assets of suspected money launderers. In most cases, assets seized or forfeited are limited to transport vehicles, such as planes and cars, and normally do not include bank accounts. However, law enforcement authorities may not auction off these assets until a defendant is convicted. At best, they can establish a “preventative seizure” (which has the same effect as freezing) against assets of persons under investigation for a crime in which the state risks loss of revenue from furtherance of a criminal act, such as tax evasion. However, in those cases the limit of the seizure is set as the amount of the suspect’s liability to the government. In the past few years, Paraguay’s anti-narcotics agency, SENAD, has been permitted on a temporary basis to use assets seized in pending cases, but SENAD cannot fully use such assets because the law does not permit the assets to be maintained or repaired. New asset forfeiture legislation is required to make improvements in this regard.

The law enforcement agencies have no authority to freeze, seize, or forfeit assets related to the financing of terrorism, which is not a criminal offense under Paraguayan law. The current law also does not provide any measures for thwarting the misuse of charitable or nonprofit entities that could be used as conduits for the financing of terrorism. However, the Ministry of Foreign Affairs provides the Central Bank and other government entities with the names of suspected terrorists on the UNSCR 1267 Sanctions Committee list.

The GOP has been slow to recognize terrorist financing within its borders. In December 2006, the U.S. Department of Treasury designated nine individuals and two companies operating in the Tri-Border Area as entities that provide financial and logistical support to Hezbollah. The nine individuals have all provided financial support and other services for Specially Designated Global Terrorist Assad Ahmad Barakat, who was designated by the U.S. Treasury in June 2004 for his support to Hezbollah leadership. The two companies, Galeria Page and Casa Hamze, are located in Ciudad del Este and are used to generate or move terrorist funds. The GOP publicly disagrees with the designations, stating that the U.S. has not provided any new information that would prove terrorist financing activity occurs in the Tri-Border Area.

In spite of limitations in prosecuting suspected terrorist financiers such as Assad Ahmad Barakat and Kassem Hijazi, who were charged with tax evasion rather than terrorist financing or money laundering, the GOP is making improvements in its ability to successfully investigate and prosecute some money laundering cases. Leoncio Mareco was sentenced to 20 years in prison on August 14, 2007, for drug trafficking and money laundering. His wife, Zulma Rios de Mareco, was sentenced to 10 years in prison for money laundering. According to GOP authorities, the General Attorney’s office has processed 40 money laundering cases, 15 of which resulted in convictions. These cases reinforce the fact that convictions are possible, although difficult, under the current legal framework.

Paraguay and the United States do not have a mutual legal assistance agreement; however, Paraguay is a party to the Inter-American Convention on Mutual Legal Assistance in Criminal Matters. Paraguay is a party to the 1988 UN Drug Convention, the UN Convention for the Suppression of the Financing of Terrorism, the UN Convention against Corruption, and the UN Convention against Transnational Organized Crime. Paraguay is a member of the “3 Plus 1” Security Group with the United States and the Tri-Border Area countries. Paraguay is a member of GAFISUD, and SEPRELAD is a member of the Egmont Group.

The GOP took a number of positive steps in 2008 to combat money laundering, particularly with the passage of the new penal code and the money laundering convictions. However, it should continue to pursue other initiatives to increase its effectiveness in combating money laundering and terrorist financing. The GOP should enact legislation and issue regulations that comport with all international standards relating to its poorly regulated financial sector, and that enable law enforcement authorities to more effectively investigate and prosecute money laundering and terrorist financing cases. Paraguay should take steps to ensure that the penal and procedural code reforms are expeditiously approved and implemented, allowing for a more effective anti-money laundering regime. Paraguay does not have a counterterrorism law or a law criminalizing terrorist financing, and it should take steps as quickly as possible to ensure that comprehensive counterterrorism and counterterrorist financing legislation is introduced and adopted. It should also take the necessary steps to ensure that its TTU is comprised of vetted employees from all relevant agencies, including SEPRELAD. Further reforms in the selection of, and accountability by, judges, prosecutors and public defenders are needed, as are reforms to the customs agency to allow for increased inspections and interdictions at ports of entry and to develop strategies targeting the physical movement of bulk cash. Additionally, Paraguay should reform its asset forfeiture regime, including the management of seized and forfeited assets.


Peru is not a major regional financial center, nor is it an offshore financial center. Peru is the world’s second largest producer of cocaine. Although no reliable figures exist regarding the exact size of the narcotics market in Peru, estimates indicate that the cocaine trade generates approximately two billion dollars annually, which is approximately 1.6 percent of Peru’s gross domestic product. As a result, money laundering is believed to occur on a significant scale to integrate these illegal proceeds into the Peruvian economy. The most common methods of money laundering in Peru involve real estate sales, business investments, and high interest loans. Other vulnerabilities to money laundering include Peru’s cash-based and heavily-dollarized economy, pervasive corruption, and the lack of effective regulatory supervision of nonfinancial businesses and professions, such as casinos and informal remittance and wire transfer services.

Money laundering has historically been facilitated by a number of factors, primarily Peru’s cash-based economy. Peru’s economy is heavily dependent upon the U.S. dollar. Approximately 60 percent of the economy is informal and approximately 65 percent is dollarized, allowing traffickers to handle large bulk shipments of U.S. currency with minimal complications. Currently, the Government of Peru (GOP) maintains no restrictions on the amount of foreign currency an individual can exchange or hold in a personal account, and until recently, there were no controls on bulk cash shipments coming into Peru. According to Peru’s financial intelligence unit (FIU), the Unidad de Inteligencia Financiera (UIF), approximately 37 percent of money laundering cases have connections to criminal activity stemming from the drug trade.

Corruption remains an issue of serious concern in Peru. It is estimated that 15 percent of the public budget is lost due to corruption. Most recently, the Peruvian National Police Anti-Drug Directorate (DIRANDRO) arrested the Mayor of Pucallpa and 13 others on charges of money laundering drug trafficking proceeds through commercial enterprises. The nearly year-long investigation conducted by the police was assisted with reports from the UIF showing imbalances in the Mayor’s business earnings. The Mayor owns a number of businesses in the region, which are now under asset seizure proceedings. The Mayor was formally indicted in October. Also, a number of former government officials, most from the 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 Switzerland. The Peruvian Attorney General, a Special Prosecutor, the office of the Superintendent of Banks and Insurance, and the Peruvian Congress have conducted numerous investigations, some of which are ongoing, involving dozens of former GOP officials. In December 2007, Supreme Decree No. 085 created the National Office for Anti-Corruption (ONA). An anticorruption czar was appointed to a term of three years. In August 2008, however, the government closed the National Office for Anti-Corruption and transferred its responsibilities to the Comptroller’s office.

Law 27.765 of 2002 criminalizes money laundering in Peru and expands the predicate offenses for money laundering to include the laundering of assets related to all serious crimes, such as narcotics trafficking, terrorism, corruption, trafficking of persons, and kidnapping. There does not have to be a conviction relating to the predicate offense. Rather, it must only be established that the predicate offense occurred and that the proceeds of crime from that offense were laundered. The law’s brevity and lack of implementing regulations, however, limits its effectiveness in obtaining convictions.

Law 27.765 also revises the penalties for money laundering in Peru. Instead of a life sentence for the crime of laundering money, Law 27.765 sets prison terms of up to 15 years for convicted launderers, with a minimum sentence of 25 years for cases linked to narcotics trafficking, terrorism, and laundering through banks or financial institutions. In addition, revisions to the Penal Code criminalize “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 impose a three to six year sentence for failure to file suspicious transaction reports.

Law 29009, enacted in April 2007, granted temporarily to the Executive branch the power to legislate in the areas of illegal drug trafficking, money laundering, terrorism, kidnapping, extortion, and organized crime. The Executive branch enacted eleven legislative decrees prior to the law’s expiration in July 2007 that strengthened the capacity of the National Police, the Public Ministry, and Executive branch to combat organized crime. Terrorism is considered a particular and long-standing problem in Peru, which is home to the terrorist organization Shining Path. Although the Shining Path has been designated by the United States as a foreign terrorist organization, 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 and a final judicial decision is then needed to dispose of or use such assets. Peru also has not yet taken any known actions to thwart the misuse of charitable or nonprofit entities that can be used as conduits for the financing of terrorism. Nongovernmental organizations are obliged to report the origins of their funds, according to UIF regulations.

Additionally, terrorism has not yet been specifically and fully established as a crime under Peruvian legislation in a manner that would conform to international standards. The only reference to terrorism as a crime is in Executive Order 25.475, which establishes the punishment of any form of collaboration with terrorism, including economic collaboration. There are several bills pending in the Peruvian Congress concerning the correct definition of the crime of terrorist financing.

The UIF began operations in June 2003 and now has approximately 60 employees. In June 2007, the UIF was incorporated into the Office of the Superintendent of Banks and Insurance and a new director was appointed. As Peru’s financial intelligence unit, the UIF is the government entity responsible for receiving, analyzing and disseminating suspicious transaction reports (STRs) filed by obligated entities. The entities obligated to report suspicious transactions to the UIF within 30 days include banks, financial institutions, insurance companies, stock funds and brokers, the stock and commodities exchanges, credit and debit card companies, money exchange houses, mail and courier services, travel and tourism agencies, hotels and restaurants, notaries, the customs agency, casinos, auto dealers, construction or real estate firms, notary publics, and dealers in precious stones and metals. Currently, obligated entities must hand-deliver STRs to the UIF. However, the UIF is in the transition from paper submission to automation of STR filing. Automation is supposed to be ready during the first quarter of 2009, and obligated entities will be required to implement it within three months. The UIF received 1,554 STRs in 2007 and 2,379 in 2008.

Obligated entities must also maintain reports on large cash transactions. Individual cash transactions exceeding $10,000 or transactions totaling $50,000 in one month must be maintained in internal databases for a minimum of five years and made available to the UIF upon request. Nonfinancial institutions, such as exchange houses, casinos, lotteries or others, must report individual transactions over $1,000 or monthly transactions over $5,000. Individuals or entities transporting more than $10,000 in currency or monetary instruments into or out of Peru must file reports with the customs agency, and the UIF may have access to those reports upon request. Any cash transactions that appear suspicious must be reported to the UIF and the UIF is authorized to sanction persons and entities for failure to report suspicious transactions or large cash transactions, or the transportation of currency or monetary instruments. These reporting requirements, however, are not being strictly enforced by the responsible GOP entities.

The UIF does not automatically receive currency transactions reports (CTRs) or reports on the international transportation of currency or monetary instruments. CTRs are maintained in internal registries within the obligated entities, and reports on the international transportation of currency or monetary instruments are maintained by the customs agency. If the UIF receives a STR and determines that the STR warrants further analysis, it contacts the covered entity that filed the report for additional background information-including any CTRs that may have been filed-and/or the customs agency to determine if the subject of the STR had reported the transportation of currency or monetary instruments. Some requests for reports of transactions over $10,000—such as deposits into savings accounts—are protected under the constitution by bank secrecy provisions and require an order from the Public Ministry or SUNAT, the tax authority. A period of 15 to 30 days is required to lift the bank secrecy restrictions. The Superintendent of Banks and Insurance (SBS) has the authority to request protected information under the bank secrecy provisions. However, it is not clear with the incorporation of the UIF under the SBS, whether the Superintendent may legally provide this information directly to the UIF. All other types of cash transaction reports, however, may be requested directly from the reporting institution.

Law 28.306 of 2004 mandates that obligated entities also report suspicious transactions related to terrorist financing, and expands the UIF’s functions to include the ability to analyze reports related to terrorist financing. In July 2006, the GOP issued Supreme Decree 018-2006-JUS to better implement Law 28.306. The decree also introduces the specific legal framework for the supervision of obligated entities with regard to combating terrorist financing.

Law 28.306 establishes regulatory responsibilities for the UIF. Most obligated entities fall under the supervision of the SBS (banks, the insurance sector, financial institutions), the Peruvian Securities and Exchange Commission (securities, bonds), and the Ministry of Tourism (casinos). All entities that are not supervised by these three regulatory bodies, such as auto dealers, construction and real estate firms, fall under the supervision of the UIF. Under Supreme Decree 018-2006-JUS, the UIF may participate in the on-site inspections of obligated entities performed by the supervisory body. The UIF may also conduct the on-site inspections of the obligated entities that do not fall under the supervision of another regulatory body, as is the case with notaries and money exchange houses. The UIF can also request that a supervisor review an obligated entity that is not under its supervision. Supreme Decree 018-2006-JUS contains instructions for supervisors with prior UIF approval to establish which obligated entities must have a full-time compliance official (depending on each entity’s size, patrimony, and other factors), and allows supervisors to exclude entities with certain characteristics from maintaining currency transaction reports.

In spite of the expanded regulatory responsibilities of the UIF, some obligated entities remain unsupervised. For instance, the SBS only regulates money remittances that are done through special fund-transfer businesses (ETFs) that do more than 680,000 soles (approximately $200,000) in transfers per year, and remittances conducted through postal or courier services are supervised by the Ministry of Transportation and Communications. As a result, informal remittance businesses, including travel agencies and small wire transfer businesses, are not supervised. There is also difficulty in regulating casinos, as roughly 60 percent of that sector is informal. An assessment of the gaming industry conducted by GOP and U.S. officials in 2004 identified alarming deficiencies in oversight and described an industry that is vulnerable to being used to launder large volumes of cash. Approximately 580 slot houses operate in Peru, with less than 65 percent or so paying taxes. Estimates indicate that less than 42 percent of the actual income earned is being reported. This billion-dollar cash industry continues to operate with little supervision.

To assist with its analytical functions, the UIF may request information from such government entities as the National Superintendence for Tax Administration, Customs, the Securities and Exchange Commission, the Public Records Office, the Public or Private Risk Information Centers, and the National Identification Registry and Vital Statistics Office, among others. However, the UIF can only share information with other agencies—including foreign entities—if there is a joint investigation underway. The UIF disseminates STRs and other reports that require further investigation or prosecution to the Public Ministry.

Within the counternarcotics section of the Public Ministry, two specialized prosecutors are responsible for dealing with money laundering cases. The UIF sent 123 suspected cases stemming from STRs to the Public Ministry for investigation in 2008. To date, there has not been a money laundering conviction in Peru. Convictions tend to be for lesser offenses such as tax evasion.

In addition to being able to request any additional information from the UIF in their investigations, the Public Ministry may also request the assistance of the Directorate of Counter-Narcotics (DINANDRO) of the Peruvian National Police. Under Law 28.306, DINANDRO and the UIF may collaborate on investigations, although each agency must go through the Public Ministry to do so. DINANDRO may provide the UIF with intelligence for the cases the UIF is analyzing, while DINANDRO provides the Public Ministry with assistance on cases that have been sent to the Public Ministry by the UIF.

The Financial Investigative Office of DINANDRO has seized numerous properties over the last several years, but few were turned over to the police to support counternarcotics efforts. While Peruvian law does provide for asset forfeiture in money laundering cases, and these funds can be used in part to finance the UIF, no clear mechanism exists to distribute seized assets among government agencies. The Garcia Administration included an asset forfeiture law in a package of organized crime legislation presented to the Peruvian Congress in July 2007. The law went into force in November 2007.

Legislative Decree No. 992, published on July 22, 2007, established the procedure for loss of dominion, which refers to the extinction of the rights and/or titles of assets derived from illicit sources, in favor of the GOP, without any compensation of any nature. Likewise, through Legislative Decree No. 635, the penal code was modified to provide more comprehensively for seizure of assets, money, earnings, or other products or proceeds of crime.

Peru is a party to the 1988 UN Drug Convention, the UN Convention against Transnational Organized Crime, the UN Convention against Corruption, and the UN Convention for the Suppression of Financing Terrorism. The GOP is a member of the Organization of American States and participates in the Inter-American Drug Abuse Control Commission (OAS/CICAD) Money Laundering Experts Working Group. Peru also is a member of the Financial Action Task Force for South America (GAFISUD) and underwent its third GAFISUD mutual evaluation in July 2008. The UIF is a member of the Egmont Group of financial intelligence units. Although an extradition treaty between the United States and the GOP entered into force in 2003, there is no mutual legal assistance treaty or agreement between the two countries.

Although recent efforts to combat corruption and the issuance of Executive Order 25.475, which punishes terrorism-related collaboration, is a welcome step forward, the GOP nevertheless faces several notable challenges to strengthen its anti-money laundering and counterterrorist financing regime and ultimately conform to international standards. Peru should pass legislation that criminalizes terrorist financing as well as legislation that allows for administrative and judicial blocking of terrorist assets. Bank secrecy should be lifted to allow the UIF to have access to certain CTRs in a timely fashion. There are a number of bills under review in the Peruvian Congress that would lift bank secrecy provisions for the UIF in matters pertaining to money laundering and terrorist financing and the GOP should ensure their expedient passage. Peru would benefit from expanded supervision and regulation of financial institutions and designated nonfinancial businesses and professions, and the GOP should permit Peru’s UIF to work directly with law enforcement agencies. Anti-corruption efforts in Peru should also be a priority. In addressing these issues, the GOP would strengthen its ability to combat money laundering and terrorist financing.


Although the Philippines is not a regional financial center, the illegal drug trade in the Philippines has evolved into a billion dollar industry. The Philippines continues to experience an increase in foreign organized criminal activity from China, Hong Kong, and Taiwan. Insurgency groups operating in the Philippines partially fund their activities through local crime, the trafficking of narcotics and arms, and engage in money laundering through ties to organized crime. The proceeds of corrupt activities by government officials are also a source of laundered funds. Smuggling continues to be a major problem. The Federation of Philippine Industries estimates that lost government revenue from uncollected taxes on smuggled items is over $2 billion annually, including substantial losses from illegal imported fuel and automobiles. Remittances and bulk cash smuggling are also channels of money laundering. The Philippines has a large expatriate community.

The Government of the Republic of the Philippines (GOP) initially established its AML/CTF regime by passing the Anti-Money Laundering Act (AMLA) of 2001. The GOP enacted Implementing Rules and Regulation for the AMLA in April 2002. The AMLA, as amended, criminalizes money laundering, an offense defined as a crime whereby the proceeds of an unlawful activity are transacted thereby making them appear to have originated from legitimate sources. It imposes penalties that include a term of imprisonment of up to 14 years and a fine no less than 3,000,000 pesos (approximately $63,400) but no more than twice the value of proceeds or property involved in the offense. The Act also imposes customer identification, customer due diligence, record keeping, and reporting requirements on banks, trusts, and other institutions regulated by the Bangko Sentral ng Pilipinas (BSP) or Central Bank, as well as insurance companies, and other entities under the supervision or regulation of the Insurance Commission, securities dealers, foreign exchange dealers, money remitters, and dealers in valuable objects or cash substitutes regulated by the Securities and Exchange Commission (SEC).

The GOP amended the AMLA in 2003 to correct certain inadequacies identified by the Financial Action Task force. The amendments included lowering the threshold amount for covered transactions (cash or other cash equivalent monetary instrument) from 4,000,000 pesos to 500,000 pesos (approximately $85,000 to $10,600); expanded financial institution reporting requirements to include the reporting of suspicious transactions regardless of amount; authorized the Central Bank to examine any particular deposit or investment with any bank or nonbank financial institution in the course of a period or special examination (in accordance with the rules of examination of the Central Bank); ensure institutional compliance with the Anti-Money Laundering Act; and deleted the prohibitions against the Anti-Money Laundering Council’s examining particular deposits or investments opened or created before the Act.

The original AMLA established the Anti-Money Laundering Council (AMLC) as the country’s financial intelligence unit (FIU). The Council is composed of the Governor of the Central Bank, the Commissioner of Insurance Commission, and the Chairman of the Securities and Exchange Commission. By law, the AMLC is an independent agency responsible for receiving, maintaining, analyzing, evaluating covered and suspicious transactions and investigating reports for possible criminal activity. It provides advice and assistance to relevant authorities and issued relevant publications. The AMLC completed the first phase of its information technology upgrades in 2004. This allowed AMLC to electronically receive, store and search “covered transaction reports” (CTRs) filed by regulated institutions. By the end of 2008, the AMLC had received more than 17,915 suspicious transactions reports (STRs), and 133,367,756 CTRs. The AMLC is a member of the Egmont Group.

On February 28, 2007, the AMLC entered into a Memorandum of Understanding with the Central Bank setting forth the procedures for improved information exchange, compliance and enforcement policies.

AMLC’s role goes beyond traditional FIU responsibilities and includes the investigation and assisting the Office of the Solicitor General in the handling of civil forfeiture cases. AMLC has the ability to institute civil actions for forfeiture of monetary instruments or property involved in any unlawful activity defined in the AMLA, as amended. No prior criminal charge or conviction for an unlawful activity or money laundering offense is necessary for a commencement of an action or resolution of a petition for civil forfeiture. To freeze assets allegedly connected to money laundering, the AMLC must establish probable cause that the funds relate to an unlawful activity enumerated in the Act. The Court of Appeals then may freeze a bank account for 20 days. Through the end of 2007, funds amounting to almost 1.4 billion Philippine pesos (approximately $30 million) have been frozen by the AMLC, including funds frozen at the request of the UN Security Council, the United States, and other foreign governments. It has also received 66 official requests for anti-terrorism action, many concerning groups on the UNSCR 1267 Sanction Committee’s consolidated list.

The AMLC is required to secure a court order to examine bank records related to the unlawful activities enumerated in the AMLA, as amended, except in instances where the unlawful activity is a serious offense such as kidnapping for ransom, drugs and terrorism-related activities.

A Supreme Court of the Philippine’s decision to suspend certain inquiries into suspicious transactions will have significant adverse consequences for Philippines law enforcement in extending international cooperation to its partners. As it stands, the AMLC will have to prematurely divulge to account holders the fact of the investigation and the basis for inspecting the bank records. This will result in providing criminals both with an advance notice of proceedings and progress of the investigation, and as well as the identities of persons cooperating with law enforcement. Aside from jeopardizing the investigation by tipping them off, it will also afford the criminal an opportunity to do shelter assets making the tracing of the funds virtually impossible.


The Philippines has no comprehensive legislation pertaining to civil and criminal forfeiture. Various government authorities, including the Bureau of Customs and the Philippine National Police, have the ability to temporarily seize property obtained in connection with criminal activity. Money and property must be included in the indictment, however, to permit forfeiture.

In December 2005, the Supreme Court issued the Rule of Procedure in Cases of Civil Forfeiture, Asset Preservation and Freezing of Monetary Instrument, Property, or Proceeds Representing, Involving, or Relating to an Unlawful Activity or Money Laundering Offense under the AMLA, as amended. The Rule also contains direction to the AMLC and the Court of Appeals on the issuance of freeze orders for assets under investigation, eliminating confusion arising from the amendment to the AMLA in 2003.

As of December 2007, there have been 107 money laundering, civil forfeiture, and related cases in the Philippines court system that involved AMLC investigations or prosecutions, including 37 for money laundering, 20 for civil forfeiture, and the rest pertaining to freeze orders and bank inquiries. The Philippines had its first conviction for a money laundering offense in early 2006.

Under the AMLA, as amended, covered institutions and their officers and employees, shall not be deemed to have violated Republic Act No. 1405, as amended (Law on Secrecy of Bank Deposits); Republic Act No. 6426, as amended; Republic Act No. 8791 and other similar laws, when reporting covered or suspicious transactions. Further, no administrative, criminal or civil proceedings shall lie against any person for having made a covered or suspicious transaction report in the regular performance of his duties and in good faith.

Covered institutions must maintain and store records of transactions for a period of five years from the dates of transactions. With respect to closed accounts, the records on customer identification, account files and business correspondence shall be preserved and safely stored for at least five years from the dates when they were closed.

The AMLC and the supervising authorities such as the Central Bank, Securities and Exchange Commission and the Insurance Commission monitor compliance with the AMLA provisions by banks and other financial institutions identified as covered institutions. They have mechanisms in place to ensure that the financial community is adhering to reporting and other AMLA requirements. To enhance on-going monitoring and reporting of covered and possible suspicious transactions, the BSP issued Circular No. 495 dated 20 September 2005 which requires all universal and commercial banks to adopt an electronic money laundering transaction monitoring system which, at a minimum, shall detect and raise to the bank’s attention, transactions and/or accounts that qualify either as “covered transactions” or “suspicious transactions” as defined under Sections 3(b) and 3(b-1), respectively, of the AMLA, as amended.

The AMLC continues to work to bring the numerous foreign exchange offices in the country under its purview. The BSP issued Circular No. 471 dated 24 January 2005 to bring the registration and operations of foreign exchange dealers and remittance agents under the jurisdiction and authority of the BSP and to subject them to the AMLA, as amended. To obtain a license, one of the requirements is that dealers must attend an AML/CTF training course conducted by the AMLC. As of the beginning of 2008, only 4,144 of the estimated 15,000 exchange dealers and remittance agents have registered. There are still several sectors operating outside of AMLC control.

Although the AMLA specifically covers exchange houses, insurance companies, and securities brokers, it does not cover designated nonfinancial business and professions except trust companies. The AMLC requires automobile dealers and vendors of construction equipment, which are emerging money laundering methodologies, to report suspicious transactions to the AMLC.

On 15 March 2007 the Central Bank issued Circular No. 564 establishing guidelines governing the acceptance of valid identification cards including the AMLA’s “two-ID requirement” for conducting financial transactions with banks and nonbank institutions. This was later amended by Circular No. 608 issued by the BSP on 20 June 2008, relaxing the customer identification requirement to be imposed by banks and other institutions under BSP supervision or regulation. Currently, one identification card issued by an official authority as defined in BSP Circular No. 608, is sufficient.

Casinos are regulated by the Philippine Amusement and Gaming Corporation (PAGCOR) pursuant to P.D. No. 1869. The Cagayan Economic Zone Authority (CEZA) is likewise granted by Republic Act No. 7922 the authority to license casinos. Both PAGCOR and CEZA are under the supervision of the Office of the President (OP). The OP, in its letter dated 10 December 2007, advised the AMLC that a legislative amendment is required as the law did not define casinos as covered institutions.

There is an increasing recognition that the 15 casinos nationwide offer abundant opportunity for money laundering, especially with many of these casinos catering to international clientele arriving by charter flights from around Asia. Several of these gambling facilities are located near small provincial international airports that may have less rigid enforcement procedures and standards for cash smuggling. At present, there are no offshore casinos in the Philippines, though the country is a growing location for Internet gaming sites that target overseas audiences in the region. PAGCOR has agreed to voluntarily submit reports on suspicious activities of casino operators or its patrons.

As of March 2008, there are 76,512 nonstock, nonprofit organizations (NPOs) registered with the Securities and Exchange Commission (SEC). These NPOs do not fall under the requirements of the AMLA, as amended. All nonstock and nonprofit organizations registered with the Securities and Exchange Commission (SEC) are required to annually submit General information Sheets and Audited Financial Statements. Because of their ability to circumvent the usual documentation and reporting requirements imposed on banks for financial transfers, NGOs could be used as conduits for terrorist financing without detection. The AMLC is aware of the problem and is working with the SEC to bring charitable and not-for-profit entities under regulations for covered institutions. To promote transparency, SEC Circular 8 issued in June 2006 revised regulations on the registrations, operations, and audit of foundations. In July 2007, the AMLC initiated the organization of a Technical Working Group (TWG) on the Non-Profit Organization, which conducted a survey on the NPO sector. There are regular meetings among NPOs providing for a venue to discuss measures for the effective prevention of money laundering and terrorist financing within the NPO environment.

There are seven offshore banking units (OBUs), which account for less than three percent (3 percent) of total banking system assets in the country. The Central Bank regulates onshore banking and exercises regulatory supervision over OBUs, and requires OBUs to meet reporting provisions and other banking rules and regulations. In addition to registering with the SEC, financial institutions must obtain certification to operate from the Central Bank subject to relatively stringent standards that make it difficult to establish shell companies in financial services of this nature. For example, a financial institution operating an OBU must be physically present in the Philippines. Anonymous directors and trustees are not allowed.

Despite the efforts of authorities to publicize regulations and enforce penalties, cash smuggling remains a major concern for the Philippines. Although there is no limit on the amount of foreign currency that an individual or entity can bring or take out of the country, any amount in excess of the equivalent of $10,000 of cash or negotiable instruments must be declared upon arrival or departure. However, based on the actual amount of foreign currency exchanged and expended, authorities realize there is systematic abuse of the currency declaration requirements and a large amount of unreported cash entering the Philippines.

The problem of cash smuggling is exacerbated by the large volume of foreign currency remitted to the Philippines by Overseas Filipino Workers (OFW). In 2007, the amount of remitted funds exceeded $14 billion or approximately 11 percent of the GDP. The Central Bank estimates that an additional $2-3 billion is remitted outside the formal banking system. Most of these funds are brought in person by OFWs or by designated individuals on their return home and not through an alternative remittance system such as hawala or an unofficial “door-to-door” delivery system. Since most of these funds enter the country in smaller quantities than $10,000, there is no declaration requirement and the amounts are difficult to calculate. The Philippines encouraged banks to set up offices in remitting countries and facilities for fund remittances, especially in the United States, to help reduce the expense of remitting funds. OFWs also use informal value transfer systems.

The Philippines is a member of the Asia/Pacific Group on Money Laundering (APG). The APG conducted a comprehensive peer review of AMLC in September 2008 and subsequently provided 45-pages of recommendations for improvement. Prominent APG concerns include the exclusion of PAGCOR from the scope of current anti-money laundering legislation, and 2008 court rulings that expanded the scope of bank privacy laws to an extent that inhibits investigations of fraud and corruption. The Philippine legislature is now considering an amendment to the Anti-Money Laundering Act of 2001 to address these issues.

A mutual legal assistance treaty between the Philippines and the United States has been in force since 1996. The Philippines is a party to the 1988 UN Drug Convention, the UN Convention against Transnational Organized Crime, the UN Convention against Corruption and the UN Convention for the Suppression of the Financing of Terrorism. The Philippines is listed 141 out of 180 countries surveyed by Transparency International’s 2008 International Corruption Perception Index.

The Anti-Money Laundering Council must obtain a court order to freeze assets of terrorists and terrorist organizations placed on the UN 1267 Sanctions Committee’s consolidated list and the list of Specially Designated Global Terrorists Designated by the United Sates pursuant to E.O. 13224 and actions by other foreign governments. In 2007, the GOP enacted an anti-terrorism law that defines and criminalizes terrorism. The Human Security Act which went into effect on July 15, 2007 criminalizes terrorism and conspiracy to commit terrorism; penalizes an offender on the basis of participation; empowers Philippine law enforcement to use special investigative techniques; allows inquiries into bank accounts; authorizes freezes and forfeitures of terrorist related funds and assets; and creates an Anti-Terrorism Council comprised of cabinet members and support agencies.

While there is no crime of terrorist financing a person who finances the commission of terrorism may be prosecuted, not as a financier of terrorism but as a terrorist either as a principal by inducement pursuant to Article 17 of the Revised Penal Code or as an accomplice pursuant to Section 5 of the Human Security Act

The Financial Action Task Force removed the Government of the Republic of the Philippines from its list of Non-Cooperative Countries and Territories in 2005 due to the progress the Government of the Philippines had made in remedying the deficiencies that resulted in its being placed on the list in 2001.

Since 2005, the Government of the Philippines (GOP) has continued to make progress enhancing and implementing its amended anti-money laundering regime. The Central Bank should be empowered to levy administrative penalties against covered entities in the financial community that do not comply with reporting requirements. Accountants should be required to report CTRs and STRs. Casinos should be fully regulated and supervised for AML/CTF procedures and required to file STRs. To become a more effective FIU, the AMLC should expeditiously revise its structure and separate its analysts and investigators into separate divisions. The GOP should enact comprehensive legislation regarding freezing and forfeiture of assets that would empower the AMLC to issue administrative freezing orders to avoid funds being withdrawn before a court order is issued. The GOP does have a civil asset forfeiture regime; however, the asset forfeiture fund should allow law enforcement agencies to draw on the fund to augment their budgets for investigative purposes. Such a fund would benefit the AMLC and enable it to purchase needed equipment. The AMLC should separate its analytical and investigative responsibilities and establish a separate investigative division that would focus its attention on dismantling money laundering and terrorist financing operations. In addition, law enforcement should be able to scrutinize financial records as an investigative measure on an ex parte basis when notice to the account holder might prejudice the ability of the government to successfully prosecute the money laundering or forfeiture case, including enabling a suspected criminal to take action to secrete or transfer assets.


Poland lies directly along one of the main routes between the former Soviet Union republics and Western Europe used by narcotics-traffickers and organized crime groups. According to Polish Government estimates, narcotics trafficking, organized crime activity, auto theft, smuggling, extortion, counterfeiting, burglary, and other crimes generate criminal proceeds in the range of $3,000,000,000 to $5,000,000,000 each year. According to the Government of Poland (GOP), fuel smuggling, by which local companies and organized crime groups seek to avoid excise taxes by forging gasoline delivery documents, is a major source of laundered proceeds. With regard to economic crime, the largest volume of illegal income is connected with lost customs duties and taxes. Money laundering through trade in scrap metal and recyclable material is a growing trend. It is also believed that some money laundered in Poland originates in Russia or other countries of the former Soviet Union. The GOP estimates the unregistered or gray economy, used primarily for tax evasion, may be as high as 13 percent of Poland’s $620,000,000,000 gross domestic product (GDP). The GOP believes the black economy comprises only one percent of GDP.

Reportedly, some of Poland’s banks serve as transit points for the transfer of criminal proceeds. As of June 2007, 51 commercial banks and 584 “cooperative banks” primarily serving the rural and agricultural community were licensed to operate. The GOP considers the nation’s banks, insurance companies, brokerage houses, and casinos to be important venues of money laundering. The Finance Ministry maintains the effectiveness of actions against money laundering involving transfer of money to so-called tax havens is limited. Poland’s entry into the European Union (EU) in May 2004 and into the Schengen zone in December 2007 has increased its ability to control its eastern borders, thereby allowing Poland to become more effective in its efforts to combat all types of crime, including narcotics trafficking and organized crime.

In 2006, the Council of Europe’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a Financial Action Task Force (FATF)-style regional body, conducted its third round mutual evaluation of Poland. The report shows Poland to be noncompliant with international standards regarding customer due diligence (CDD). Polish legislation still lacks many important provisions regarding customer identification procedures when starting a business relationship, verification of identification data, and ongoing or enhanced CDD. There is no prohibition on the opening of an account when satisfactory CDD cannot be completed. Nor is there a requirement to terminate a customer relationship when the financial institution cannot complete CDD.

As of June 2008, the European Commission (EC) was pursuing an infringement action against Poland for failing to adopt and implement the Third EU Anti-Money Laundering Directive into national law by the mandated deadline. In January 2009, the EC made the decision to refer Poland to the European Court of Justice over its non-implementation of this Directive, which requires members to update their AML regimes to comport with the most up-to-date standards, particularly with regard to regulation and terrorism financing.

The Criminal Code criminalizes money laundering for all serious crimes. Article 299 of the Criminal Code addresses self-laundering and criminalizes tipping off. The Polish Code of Criminal Procedure, Article 237, allows for certain special investigative measures (SIM). Although money laundering investigations are not specifically discussed in relation to SIM, the organized crime provisions might apply in some cases. Although Poland’s definition of money laundering is largely compliant with international standards, it still lacks some important components. For instance, some of the legislative provisions need further clarification regarding certain elements (conversion, acquisition, possession, and use) of money laundering. In addition, more emphasis is needed on third party laundering and clarifying the evidence required to establish the underlying predicate criminal offense.

Poland’s anti-money laundering (AML) regime begins in November 1992, when the President of the National Bank of Poland issues an order instructing banks how to deal with money entering the financial system through illegal sources. The August 1997 Banking Act and 1998 Resolution of the Banking Supervisory Commission add customer identification requirements and institute a threshold reporting requirement.

The November 2000 Act on Counteracting Introduction into Financial Circulation of Property Values Derived from Illegal or Undisclosed Sources and on Counteracting the Financing of Terrorism, as amended, further improves Poland’s ability to combat money laundering. This law, which the GOP has updated to improve its operational effectiveness, increases penalties for money laundering and contains safe harbor provisions that exempt financial institution employees from normal restrictions on the disclosure of confidential banking information. Parliament further amended the law to broaden the definition of money laundering to include assets originating from illegal or undisclosed sources. Several additional amendments to the 2000 money laundering law expand the scope of institutions subject to identity verification, record keeping, and suspicious transaction reporting requirements. Entities subject to the reporting requirements include banks, the National Depository for Securities, post offices, auction houses, antique shops, brokerages, casinos, insurance companies, investment and pension funds, leasing firms, private currency exchange offices, real estate agencies, notaries public, lawyers, legal counselors, auditors, and charities, as well as the National Bank of Poland in its functions of selling numismatic items, purchasing gold, and exchanging damaged banknotes.

The law requires casinos to report the purchase of chips worth 1,000 euros (approximately $1,350) or more. In addition to requiring that obligated entities notify the financial intelligence unit (FIU) of all transactions exceeding 15,000 euros (approximately $20,250), covered institutions also must file suspicious transaction reports (STRs), regardless of the size of the transaction. Polish law also requires financial institutions to put internal AML procedures into effect, a process overseen by the FIU.

The Polish Bar mounted a challenge against certain provisions of the legislation, and submitted a motion to the Constitutional Tribunal to determine the consistency of various regulations with ten articles of the Polish Constitution. On July 2, 2007, the Constitutional Tribunal issued a ruling that lawyers are allowed to refrain from notifying the relevant authorities of suspicious transactions when they provide legal assistance to and determine the legal status of a client.

The “Act on Counteracting Money Laundering and Terrorism Financing” underwent numerous revisions in 2008. The draft legislation has been submitted to Parliament, and it is expected to become law in early 2009. The legislation will enhance existing AML legislation.

As of June 15, 2007, travelers entering Poland from a non-EU country or traveling to a non-EU country with 10,000 euros (approximately $13,500) or more must declare their cash or monetary instruments in writing. Poland’s customs law requires travelers to complete and present a customs and currency declaration if they are transporting more than the threshold amount upon entry. In December 2007, the new Schengen countries, including Poland, were enveloped within EU borders. Land border controls between EU member states disappeared on December 20, 2007, and airport controls in March 2008.

The 2000 AML law provides for the creation of a FIU, the Department of Financial Information (DFI), within the Ministry of Finance, to collect and analyze large cash and suspicious transactions and perform regulatory work. The vast majority of required notifications to the DFI come through the electronic reporting system. Only some small institutions lacking the equipment to use the electronic system submit notifications on paper. Although the new system is an important tool for Poland’s AML regime, the efficient processing and analysis of the large number of reports sent to the DFI is a challenge for the understaffed FIU. To help improve the FIU’s efficiency, the DFI continues to work on a specialized IT program that will support complex data analysis and improve the FIU’s ability to handle the increasing number of reports it receives.

In 2007, the DFI received a total of 18,115 STRs. The number of STRs submitted by cooperative entities rose to 648, an increase of 22 percent from the previous year; 69 percent of these came from the Agricultural Property Agency and from fiscal offices. Altogether, the DFI analyzed 10,776 STRs.

As a result of its analysis, in 2007, the DFI initiated 1,358 analytical proceedings connected with suspicious financial transactions. The proceedings generally concerned illegal or fictitious trade in fuels and/or scrap metal (165), trade in funds originating from fraud and/or obtained under false pretenses (122), trade in funds originating from unauthorized access to bank accounts (14), transactions by nonresidents (46), and transfers of money related to fictitious invoicing, real-estate funds, and securities. The DFI demanded the suspension of just one transaction for PLN 230,000 (approximately $79,000) and the freezing of 97 accounts worth an estimated PLN 30 million (approximately $10,300,000). The DFI also froze 58 accounts on its own initiative worth an estimated PLN 7.1 million (approximately $2,400,000).

Altogether, the DFI submitted 190 notifications to the Public Prosecutor’s Office under Article 299 of the Criminal Code, representing an estimated PLN 775 million (approximately $337,000,000) in transactions. Of these, 116 resulted in initial investigative proceedings. In 2007, 176 of the 296 money laundering cases initiated by the Public Prosecutor’s Office were based on information received from the DFI. The cases resulted in 82 indictments against 288 persons. The courts returned 36 guilty verdicts and convicted 55 individuals on charges of money laundering. The total value of all seized property was approximately PLN 40.5 million (approximately $14,000,000).

In addition to the Prosecutor’s Office, the DFI also cooperates with several domestic law enforcement agencies, including the Central Investigative Bureau (CBS), a police unit; the Internal Security Agency (ABW), which investigates the most serious money laundering cases; and the Central Anti-Corruption Office (CBA). Coordination and information exchange between the DFI and law enforcement entities has improved, especially with regard to the suspicious transaction information the DFI forwards to the National Prosecutor’s Office. The DFI and the National Prosecutor’s Office have signed a cooperation agreement calling for the creation of a computer-based system to facilitate information exchange between the two institutions. Work on the development of this new system is currently underway.

In 2006, DFI conducted an assessment of the effectiveness of Poland’s AML reporting system. According to the DFI’s 2006 annual report, the analysis identified three main threats to efficiency of the system: disproportionate reporting among Poland’s 16 provinces (three provinces had extremely high reporting rates); delays in prosecutorial handling of DFI notifications; and inadequate use of the DFI by the full range of domestic agencies in Poland (76 percent of all queries to the DFI were from the Prosecutor’s office).

The DFI now conducts all training online via e-learning, which is available to all obligated institutions and cooperative entities. In 2007, 2,074 representatives from obligated institutions and 116 employees of cooperative institutions participated in the electronic learning course, a two-week course consisting of nine lessons. The course finishes with an online test and certificate of completion.

The DFI exchanges information with its foreign counterparts. The United States, United Kingdom, Ukraine, Russia, Cyprus, and Belgium are among its most active information-sharing partners. In 2007, DFI sent official information requests to foreign FIUs on 175 cases concerning 308 national and foreign entities suspected of money laundering. Foreign FIUs sent 111 information requests concerning 460 national and foreign entities to the DFI.

The DFI has the authority to put a suspicious transaction on hold for 48 hours. The Public Prosecutor then has the right to suspend the transaction for an additional three months, pending a court decision. Article 45 of the criminal code reverses the burden of proof so that an alleged perpetrator must prove his assets have a legal source; otherwise, the assets are presumed to be related to the crime and the government can seize them. Both the Ministry of Justice and the DFI reportedly desire more aggressive asset forfeiture regulations. However, lingering political sensitivities reportedly hamper approval of stringent asset seizure laws.

Poland is not compliant with international standards with regard to the criminalization of terrorist financing. Poland has not yet criminalized terrorist financing as is required by UNSCR 1373, arguing that all possible terrorist activities are already illegal and serve as predicate offenses for money laundering and terrorist financing investigations. Under current provisions, it is unclear how Poland could directly prosecute the funding of a terrorist or terrorist organization; it is only addressed through conspiracy or aiding and abetting terrorism. No terrorist financing prosecutions have yet been undertaken or cases brought before the court. The Ministry of Justice prepared a draft of amendments to the criminal code that would criminalize terrorist financing as well as elements of all terrorism-related activity, but withdrew the draft in 2007, before it had been approved by the Council of Ministers.

The GOP has created an office of counterterrorist operations within the National Police, which coordinates and supervises regional counterterrorism units and trains local police in counterterrorism measures. In 2008, the Polish Ministry of Interior and Administration created a national Anti-Terrorist Center (CAT), which became operational in October 2008. CAT is a 20-person team, responsible for coordinating efforts of the police, the army, and the Civil Security Services. They are to secure Poland’s borders and prevent terrorism in the country. The CAT has the authority to immediately mobilize police forces and the army. Poland has also created its own terrorist watch list of entities suspected of involvement in terrorist financing. The list contains the names of suspected terrorists and terrorist organizations listed on the UN 1267 Sanctions Committee’s consolidated list, the names of Specially Designated Global Terrorists designated by the U.S. pursuant to Executive Order 13224, and the names designated by the EU under its relevant authorities. All obligated institutions must verify their customers are not included on the watch list. In the event a covered institution discovers a possible terrorist link, the DFI has the right to suspend suspicious transactions and accounts. In 2007, the DFI worked on seven terrorist financing cases involving 77 subjects. Upon completion of its analysis, the DFI forwarded 14 reports to the ABW for further analysis. The cases related to transactions involving large amounts of cash being sent to Poland as well as numerous noncash transfers involving terrorist groups or parties from a country supporting terrorism.

A Mutual Legal Assistance Treaty (MLAT) between the United States and Poland came into force in 1999. In addition, Poland has signed bilateral MLATs with Sweden, Finland, Ukraine, Lithuania, Latvia, Estonia, Germany, Greece, and Hungary. Polish law requires the DFI to have memoranda of understanding (MOUs) with other international competent authorities before it can participate in information exchanges. The DFI has been diligent in executing MOUs with its counterparts in other countries, including two in 2007 (Albania and Montenegro) and one in 2008 (Mexico), for a total of 39 MOUs. The MOU between the Polish FIU and the U.S. FIU was signed in fall 2003.

Poland is a member of MONEYVAL. The DFI is a member of the Egmont Group and is enrolled in FIU.NET, the EU-sponsored information exchange network for FIUs. All information exchanged between the DFI and its counterparts in other EU states takes place via FIU.NET or the Egmont Secure Web system. Poland is a party to the 1988 UN Drug Convention, the UN Convention for the Suppression of the Financing of Terrorism, the UN Convention against Transnational Organized Crime, and the UN Convention against Corruption.

Over the past several years, the Government of Poland has worked to implement a comprehensive AML regime that meets international standards. However, work remains, as Poland’s AML regime remains noncompliant with various FATF standards. Most significantly, Poland must criminalize terrorist financing. The GOP should review and clarify its definition of money laundering to bring it in line with international standards. Poland must also strengthen AML regulations pertaining to customer due diligence obligations, DNFBPs, nonprofit organizations, politically exposed persons, cross-border correspondent banking, and suspicious transaction reporting as it pertains to terrorist financing. Poland should ensure promulgating regulations for compliance with the Third Money Laundering Directive are fully effective. The GOP should promote additional capacity building in the private sector and continue to improve communication and coordination between the DFI and relevant law enforcement agencies. The Code of Criminal Procedure also should be amended to specifically allow the use of special investigative measures in money laundering investigations, which would assist law enforcement in its efforts to attain a better record of prosecutions and convictions.


Portugal is an entry point for narcotics transiting into Europe, and officials of the Government of Portugal (GOP) indicate the majority of money laundered in Portugal is narcotics-related. Currency exchanges, wire transfers, and real estate purchases are used for laundering criminal proceeds.

Portugal has a comprehensive anti-money laundering and counterterrorist financing (AML/CTF) regime that criminalizes the laundering of proceeds of serious offenses, including terrorism, arms trafficking, kidnapping, and corruption. Article 11 of Law 59/2007, dated September 4, 2007, defines money laundering, expands the list of crimes related to money laundering, and makes legal entities criminally accountable. In April 2008, Portugal enacted Law 25/2008, which made a series of enhancements to the AML/CTF system.

The three principal regulatory agencies for supervision of the financial sector in Portugal are the BoP, the Portuguese Insurance Institute, and the Portuguese Securities Market Commission. Law 11/2004 broadened the GOP’s AML regime. Law 11/2004 mandates suspicious transaction reporting by credit institutions, investment companies, life insurance companies, traders in high-value goods (e.g., precious stones, aircraft), and numerous other entities. Portugal employs an all-crimes approach to the predicate offense. “Tipping off” is prohibited and obliged entities making disclosures in good faith enjoy liability protection. Law 49/2008 consolidated criminal investigative responsibilities for money laundering and terrorist finance under the Judicial Police’s authority to facilitate more centralized investigations.

If an obliged entity has knowledge of a transaction likely to be related to a money laundering offense, it must inform the GOP, which may order the entity not to complete the transaction. If stopping the transaction is impossible or potentially detrimental to law enforcement efforts, the government also may allow the transaction to proceed but require the entity to provide complete transaction details.

All financial institutions must identify their customers, maintain records for a minimum of ten years, and demand written proof from customers regarding the origins and beneficiaries of transactions that exceed 12,500 euros (approximately $16,533). Nonfinancial sectors 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 activities. Law 25/2008 of April 2008 included new enhanced due diligence requirements for entities dealing with politically exposed persons (PEPs).

Decree-Law 295/2003 of November 2003 sets out reporting requirements for the cross-border transportation of cash, nonmanufactured gold, and certain negotiable financial instruments, such as travelers’ checks. When a person travels across the Portuguese border with more than 12,500 euros worth of such assets, the traveler must declare the assets to Portuguese customs officials. With Decree-Law 61/2007, Portugal requires all individuals to declare currency valued at 10,000 euros (approximately $14,600) or greater when entering or exiting Portugal from outside the European Community. The law also requires that authorities gather and exchange information at the national and international levels.

The 2006 Financial Action Task Force (FATF) mutual evaluation report (MER) noted that Portugal’s mechanism for determining beneficial ownership does not fully comply with FATF standards. The National Registry of Legal Persons does not include all information to reveal the beneficial owners of legal persons. Instructions and regulatory standards set forth by the Bank of Portugal (BoP) and the Portuguese Insurance Institute (ISP) house the requirements for obliged entities to identify beneficial owners, as opposed to being stipulated by law. The Securities Market Commission (CMVM) regulations also do not explicitly comply with requirements regarding the identification of the beneficial owners of legal persons.

The November 2003 law also revised and tightened the legal framework for gold and foreign currency exchange transactions, subjecting them to a reporting requirement for transactions exceeding 12,500 Euros (approximately $16,533). Beyond the requirements to report large transactions, foreign exchange bureaus have no special requirements to report suspicious transactions. The law does, however, give the GOP the authority to investigate suspicious transactions without notifying targets of the investigation.

Rules require companies to have at least one bank account and, for companies with more than 20 employees, to conduct their business through bank transfers, checks, and direct debits rather than cash. Tax authorities may lift secrecy rules without authorization from the target of an investigation. The concept behind these rules is mainly to help the GOP investigate tax evasion, but authorities may use them to facilitate enforcement of other financial crimes as well.

The Portuguese Securities Market Commission issued Regulation 7/2005, entering into force on January 1, 2006, requiring financial intermediaries to submit detailed annual Control and Supervision Reports to the Commission by June 30 of the following year. Regulation 2/2006 entered into force on May 26, 2006. These Regulations amended and updated Regulation 12/2000 on Financial Intermediaries.

The Gambling Inspectorate General, the Economic Activities Inspectorate General, the Registries and Notaries General Directorate, the National Association for Certified Public Accountants and the Association for Assistant Accountants, the Bar Association, and the Chamber of Solicitors monitor and enforce the reporting requirements of designated nonfinancial businesses and professions, including casinos, realtors, dealers in precious metals and stones, accountants, notaries, statutory auditors, registry officials, attorneys and solicitors. Although Internet gaming is widely available, accessing Internet gaming sites is illegal in Portugal and there are no known casinos or gaming websites whose Internet service providers are headquartered in Portugal.

Decree-Law 304/2002 of December 13, 2002, established Portugal’s financial intelligence unit (FIU), known as Unidade de Informação Financeira (UIF), or the Financial Information Unit. It operates independently as a department of the Portuguese Judicial Police (Polícia Judiciária). The 28 persons comprising UIF are responsible for gathering, centralizing, processing, and publishing information pertaining to investigations of money laundering, tax crimes, and with Law 25/2008, terrorist financing. It also facilitates cooperation and coordination with other judicial and supervising authorities but.has no regulatory authority in the area of AML/CTF issues. In 2007, the UIF received 724 STRs. The FIU also received over 15,000 other reports, primarily from the General Inspectorate for Gaming. At the international level, the UIF coordinates with other FIUs.

Between 2002 and 2005, sixteen persons were convicted of money laundering receiving penalties ranging from one year to eight and one-half years’ imprisonment. During 2007, Portuguese authorities pursued 95 investigations and 25 prosecutions, and obtained four convictions for money laundering. During the first six months of 2008, Portugal saw 46 investigations, 26 prosecutions, and 14 convictions for money laundering.

Portuguese laws provide for the confiscation of assets connected to money laundering and authorize the Judicial Police to trace illicitly obtained assets (including those passing through casinos and lotteries), even if the predicate offense occurs outside of Portugal. Police may request files of individuals under investigation and, with a court order, can obtain and use audio and videotape as evidence in court. The law allows the Public Prosecutor to request a lien on the assets of individuals under prosecution in order to facilitate asset seizures related to narcotics and weapons trafficking, terrorism, and money laundering. Between January and September of 2007, the UIF seized or confiscated approximately 32.4 million euros (approximately U.S. $47.3 million).

Law 5/2002 partially shifted the burden of proof in cases of criminal asset forfeiture from the government to the defendant; an individual must prove that he or she did not obtain the assets in question as a result of criminal activity. According to the 2006 FATF MER, however, a defendant must show a legitimate source of the assets only after conviction. The law defines criminal assets as those owned by an individual at the time of indictment and thereafter. The law also presumes that assets transferred by an individual to a third party within the previous five years still belong to the individual in question, unless proven otherwise. In drug-related cases, Portugal has comprehensive legal procedures that enable it to cooperate with foreign jurisdictions and share seized assets.

Law 52/2003 defines terrorist acts and organizations and criminalizes the transfer of funds related to the commission of terrorist acts. It also addresses the criminal liability of legal persons for terrorism financing. However, the legislation does not extend customer due diligence requirements to suspected association with terrorism financing. And while the broadly worded law covers both illicit and licit funds that support a terrorist act or organization, it does not extend coverage to the provision of funds to an individual terrorist. Portugal has created a Terrorist Financing Task Force that includes the Ministries of Finance and Justice, the Judicial Police, the Security and Intelligence Service, the Bank of Portugal, and the Portuguese Insurance Institution. Names of individuals and entities included on the United Nations Security Council Resolution 1267 Committee’s consolidated list, or that the United States or EU have linked to terrorism, are passed to private sector entities through the BoP, the Stock Exchange Commission, and the Portuguese Insurance Institution. In practice, however, the actual seizure of assets would only occur once the EU’s clearinghouse process agrees to the EU-wide seizure of assets of terrorists and terrorist-linked groups. Although Portugal does not have an administrative procedure to freeze assets independently of the relevant EU directive, judicial procedure exists for the Public Prosecutor to open a special inquiry and to freeze assets at the request of a foreign country. To date, no significant assets have been identified or seized. The FATF MER refers to “deficiencies in scope and time” relating to the freezing of terrorism-related funds.

The Madeira 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 groups, similar to international business corporations, account for approximately 6,500 companies registered in Madeira. 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. There is no indication that the MIBC has been used for money laundering or terrorist financing.

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. Companies submit applications to the BoP for notification or authorization. The law allows establishment of “external branches” that conduct operations exclusively with nonresidents or other Madeiran offshore entities, and “international branches” that conduct both offshore and domestic business. Although Madeira has some local autonomy, Portuguese and EU legislative rules regulate its offshore sector, and the competent oversight authorities supervise it. Exchange of information agreements contained in double taxation treaties allow for the disclosure of information relating to narcotics or weapons trafficking. Laws prohibit bearer shares.

Portugal is a member of the FATF. Portugal is a party to the 1988 UN Drug Convention, the UN Convention against Transnational Organized Crime, the UN Convention for the Suppression of the Financing of Terrorism, and the UN Convention against Corruption. Portugal’s FIU is a member of the Egmont Group. According to the FATF MER, Portugal has undertaken many mutual legal assistance obligations, especially with regard to identification, seizure and confiscation of assets.

The Government of Portugal has implemented a comprehensive and effective regime to combat money laundering and spent the last decade honing its ability to investigate and prosecute money laundering cases, and extending its reach to terrorist financing. Legislative measures have consolidated the anti-money laundering legal framework, imposing on financial and nonfinancial institutions obligations to prevent the use of the financial system for the purpose of money laundering. The GOP continued to implement these measures in 2008 to effectively combat money laundering and terrorist financing. The GOP should work to correct identified deficiencies in its asset freezing and forfeiture regime, improve its mechanisms to determine beneficial owners, and amend the terrorism financing law to make it applicable to individuals.


Supported by energy-driven double-digit economic growth in recent years, Qatar is an increasingly important banking and financial services center in the Gulf. Despite the growth of the banking sector and increasing options for financial services, Qatar still has a cash-intensive economy. Traditionally, Qatar has had a low rate of general and financial crime, although crime rates have increased in recent years and the financial sector’s expansion could make it an increasingly appealing target for criminals. Moreover, there are several trends which make Qatar increasingly vulnerable to money laundering including: the large number of expatriate laborers who send remittances to their home countries; the growth in trade; liberalization and growth in the real estate sector; increase in the price of precious metals; uneven corporate oversight; and, an apparent lack of financial crimes enforcement.

Qatar is a member of the Middle East and North Africa Financial Action Task Force (MENA-FATF). In mid-2008, the International Monetary Fund (IMF) released a detailed assessment report on Qatar’s anti-money laundering / counterterrorist finance (AML/CTF) regime. The report was adopted by both MENA-FATF and the FATF.

Compared against FATF’s 40 recommendations on money laundering the report found Qatar compliant on two, largely compliant on eight, partially compliant on twenty, and noncompliant on ten. For the nine special recommendations on terrorist finance, the IMF team judged Qatar as partially compliant with two, largely compliant with one, and noncompliant on six.

The Government of Qatar (GOQ) welcomed the IMF assessment and stated that it is “acutely aware of the risks attendant on a rapidly growing financial sector.” The government also signaled its intention to continue developing an AML/CTF framework that is in high-level compliance with the FATF 40 plus 9 recommendations. Qatari authorities are currently drafting a new AML/CTF law and regulatory measures, implementing further supervisory measures, and creating a central committee on training to implement a comprehensive training program for all financial institutions and authorities with AML/CTF responsibilities.

The Qatar Central Bank (QCB) exercises primary regulatory authority over the financial sector. There are 18 licensed banks, including three Islamic banks and a specialized bank—the Qatar Industrial Development Bank. Qatar has 20 exchange houses, three investment companies and two commercial finance companies. Unlike most business sectors in Qatar, the Qatar Financial Center (QFC) allows major international financial institutions and corporations to set up offices with 100 percent foreign ownership. There are currently 96 firms authorized to operate in the QFC, representing a spectrum of banks, investment companies, insurance houses, and related professional services. QFC firms are limited to providing services to wholesale clients, except for insurance companies that can provide services to both wholesale and retail clients. The QFC has a separate, independent regulatory authority, the QFC Regulatory Authority. The QFC regulatory regime uses international standards. There are plans underway to create a unified regulatory authority for the country, though it remains unclear when the necessary legislation and oversight board will be in place, and also how Gulf Cooperation Council plans for a unified currency and central banking system by 2010 will affect Qatar’s regulatory plans.

Qatar’s anti-money laundering and counterterrorist financing (AML/CTF) legal framework is based on Law (28) of 2002 which criminalized money laundering as amended by Decree Law (21) 2003 and Law (3) of 2004 on Combating Terrorism which criminalizes terrorist financing in a limited way. The laws’ effectiveness has yet to be tested, as there have been no prosecutions for money laundering or terrorist financing crimes since enactment. Authorities have investigated terrorist activity in Qatar but no measures were taken to investigate their funding. Khalifa Muhammad Turki al-Subaiy, a Qatar-based terrorist financier and facilitator, was convicted in January 2008 in absentia by the Bahraini High Criminal Court for financing terrorism and other related charges. He was subsequently arrested in Qatar where he served his six-month prison sentence from March-September 2008. On October 10, 2008, al-Subaiy was added to the UN 1267 Committee list of individuals subject to targeted sanctions.

According to Article 28 of the Anti-Money Laundering Law, money laundering offenses involve the acquisition, holding, disposing of, managing, keeping, exchanging, depositing, investing, transferring, or converting of funds from illegal proceeds. The AML law imposes fines and penalties of imprisonment of five to seven years. The AML law expands the powers of confiscation 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. Article two includes any activities related to terrorist financing. Article 12 authorizes the Central Bank Governor to freeze suspicious accounts for up to ten days and to inform the Public Prosecutor within three days of any action taken. The Public Prosecutor may renew or nullify the freeze order for a period of up to three months. The AML law explicitly provides for both personal and corporate liability for money laundering. The AML law requires all financial institutions to report suspicious transactions to the Financial Information Unit and retain records for up to 15 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 the GOQ to extradite convicted criminals in accordance with international or bilateral treaties.

According to the IMF evaluation, Qatar’s AML law is only partially compliant with the FATF 40 plus 9 recommendations as the effectiveness is not evidenced, it does not cover acts conducted with a view to conceal the true nature, location, disposition, movement or ownership or rights with respect to proceeds, it does not cover required predicate offenses, and it does not give authorities jurisdiction over predicate offenses that were entirely committed in another country, even if there is dual criminality.

The QFC law provides that Qatari criminal laws apply in the QFC, including those Qatari laws criminalizing money laundering and the financing of terrorism. In addition, the QFC has implemented its own anti-money laundering regulations and corresponding rules. The QFC Regulatory Authority is responsible for supervising QFC firms’ compliance with QFC AML requirements. In April 2008 it issued modifications to its AML rulebook to strengthen some measures, including requiring firms to consider making a suspicious activity report if a customer fails to undergo due diligence. The revised rules also required intensified monitoring of QFC subsidiaries or branches that may be operating in other jurisdictions.

The Anti-Money Laundering Law established an interagency committee to oversee and coordinate money laundering combating efforts. The National Anti-Money Laundering and Terrorism Financing Committee is chaired by the Deputy Governor of the QCB and includes members from the Qatar Central Bank, financial intelligence unit (FIU), Ministries of Interior, Labor and Social Affairs, Business and Trade, Finance, Justice, Customs and Ports Authority and the State Security Bureau.

In February 2004, the GOQ passed the Combating Terrorism Law. According to Article Four of the law, any individual or entity that provides financial or logistical support, or raises money for activities considered terrorist crimes, is subject to punishment. The punishments are listed in Article Two of the law, which include the death penalty, life imprisonment, and 10 or 15 year jail sentences depending on the crime.

Qatar has a National Counterterrorism Committee to review the consolidated UN 1267 terrorist designation lists and to recommend any necessary actions against individuals or entities found in Qatar. The committee is chaired by the Minister of State for Interior Affairs and includes the FIU and various law enforcement representatives. The committee and the Central Bank circulate to financial institutions the individuals and entities included on the UN 1267 Sanctions Committee’s consolidated list, but have thus far not identified or frozen any related assets. The IMF assessment found that overall the dissemination process is too limited and infrequent to be fully effective.

In October 2004, the GOQ established a financial intelligence unit known as the Qatar Financial Information Unit (QFIU). The FIU is responsible for receiving and reviewing all suspicious and financial transaction reports, identifying transactions and financial activities of concern, ensuring that all government ministries and agencies have procedures and standards to ensure proper oversight of financial transactions, and recommending actions to be taken if suspicious transactions or financial activities of concern are identified. The FIU also obtains additional information from the banks and other government ministries. Suspicious transaction reports (STRs) are now sent to the FIU by hardcopy or electronically, but the FIU is developing an all-electronic system with bank compliance offices that should speed the reporting process.

The QCB, Public Prosecutor and the Criminal Investigation Division (CID) of the Ministry of the Interior work together with the FIU to investigate and prosecute money laundering and terrorism finance cases. The FIU also coordinates closely with the Doha Securities Market (DSM) to establish procedures and standards to monitor all financial activities that occur in Qatar’s stock market. The FIU coordinates with the different regulatory agencies in Qatar. For example, the FIU works closely with the QFC Regulatory Authority to ensure that QFC firms, and specifically their Money Laundering Reporting Officers, understand and implement appropriate AML and counterterrorist finance policies and procedures.

The Qatari FIU became a member of the Egmont Group in 2005. The IMF assessment found the QFIU “largely compliant” but found problems with the legal basis for establishing the FIU, poor quality of STR analysis, insufficient staff, no guidance on filing STRs issued by the FIU, inadequate protection of information and facility, and no periodic review of the AML-CTF system’s effectiveness. Additionally, there is no obligation in legislation for suspicious transactions related to terrorist financing to be reported.

In December 2004, the QCB installed a central reporting system. The FIU uses this system to monitor suspicious transactions reports and analyze trends. All accounts must be opened in person. Banks are required to know their customers; the banking system is considered open in that in addition to Qatari citizens and legal foreign residents, nonresidents can open an account based on a reliable recommendation from his or her primary bank. The IMF found that preventive measures for financial institutions in the domestic sector fall short of addressing a vast majority of international customer due diligence standards. For example, the current obligations do not prohibit the opening of anonymous accounts or accounts in fictitious names. Hawala transactions are prohibited by law in Qatar, though informal remittance systems do exist and the largely undocumented nature of these networks makes it difficult to judge prospective money laundering activity.

Qatar’s domestic supervisory authorities, with the exception of the insurance supervisor, were judged by the IMF to possess adequate authority and powers to supervise financial institutions and ensure compliance with AML/CTF laws and regulations. The team found, however, that in practice AML/CTF inspections were inadequate, and none of the authorities had ever imposed sanctions on the institutions they supervise for noncompliance. In mid-2008, the Central Bank created an AML/CTF unit to oversee the local banking sector and liaise with compliance officers to ensure regulations were being implemented. The IMF reported that the QFC legal and regulatory framework for AML/CTF appears to be in line with the FATF standard, though the center’s recent establishment and limited number of firms made it difficult for assessors to evaluate the effectiveness of the framework.

Regarding Iran-related terrorism and proliferation transactions, the Central Bank ordered financial institutions to freeze any assets of entities listed in UNSCRs 1737, 1747, and 1803, and prohibits them from carrying out any transactions with listed entities. However, Iran’s Bank Saderat—an entity of concern in UNSCR 1803—was allowed to open a second branch in Doha in June 2008.

Law No. 13 from 2004 established The Qatar Authority for Charitable Activities (QACA), which monitors all charitable activity in and outside of Qatar. Only officially registered organizations can collect and disperse money for charitable purposes. There are five officially registered charities in Qatar: Qatar Charity, the Sheikh Eid Bin Mohammad Al Thani Charitable Association, the Qatari Red Crescent, the Jassim Bin Jaber Bin Mohammad Al Thani Charitable Association, and Reach Out to Asia (ROTA). Two additional charities are in the process of being registered. The Secretary General of the Authority approves all international fund transfers by the charities. The Authority reports to the cabinet via the Ministry of Labor and Social Affairs and has primary responsibility for monitoring overseas charitable, development, and humanitarian projects that were previously under the oversight of several government agencies. The IMF assessment found that domestic measures to prevent abuse of nonprofits go beyond FATF recommendations, and the QACA appears to ensure effective implementation of the requirements in place.

Overseas charitable activities must be undertaken in collaboration with a nongovernmental organization (NGO) that is legally registered in the receiving country. The Authority has a seven-member team that travels to project sites to evaluate projects and audit their finances. The Authority prepares an annual report on the status of all projects and submits the report to relevant ministries. The Authority also regulates domestic charity collection. Article 18 of the law provides penalties of up to a year in prison, a fine of 50,000 Qatari riyals (approximately $13,750), and confiscation of the money involved for “anyone who collects donations, or transfers money outside the country, bestows or accepts loans or grants or donations or bequests or endowments” outside of the Authority’s purview. The Ministry of Islamic Endowments (Awqaf) collects Islamic charitable contributions (zakat) through official collection points and administers disbursement of funds to the needy.

Qatar separates the authorities in charge of investigations and the legal authorities in charge of the judgment of criminal offenses. Qatar has designated a number of competent authorities to investigate and prosecute money laundering and terrorist financing offenses. The authorities in charge of AML/CTF investigations operate independently. Investigations are mainly the responsibility of four separate authorities: 1) the Economic Crimes Prevention Division (ECPD) within the Ministry of Interior (MOI); 2) the Public Prosecutor’s Office (PPO); 3) the State Security Bureau (SSB); and 4) the Customs. The competent authorities are able to obtain documents and information for use in investigations, prosecutions, and related actions. However, the various agencies do not appear to be sufficiently structured, funded, and resourced to effectively carry out their functions. There is a lack of AML/CTF investigations, prosecutions, and convictions.

Qatar does not have mandatory cross-border currency reporting requirements. In suspicious cases, Customs officials are given authority to require travelers to fill out forms declaring cash currency or other negotiable financial instruments in their possession. Officials then forward the traveler’s information to the FIU for evaluation. The IMF judged that the current system is neither implemented nor effective.

The GOQ is a party to the 1988 UN Drug Convention. The Cabinet has approved Qatar’s accession to the UN Convention for the Suppression of the Financing of Terrorism and the government is finalizing necessary documentation to formally accede to the convention. Qatar is not a party to the UN Convention against Corruption. The Amir approved Qatar’s accession to the UN Convention against Transnational Organized Crime and Qatar’s permanent delegation to the United Nations will submit the approval document to the UN Secretary General.

The Government of Qatar should continue to implement AML/CTF policies and procedures that adhere to world standards, particularly the recommendations of the IMF review of Qatar. Per FATF Special Recommendation nine, Qatar should initiate and enforce in-bound and out-bound cross-border currency reporting requirements. The GOQ should enhance training for law enforcement, prosecutors, and customs authorities so that they can improve their capabilities in recognizing and pursuing various forms of terrorist financing, money laundering and other financial crimes. Qatar should become a party to the UN Convention for the Suppression of the Financing of Terrorism and the UN Convention against Transnational Organized Crime.


Romania’s geographical location makes it a natural transit country for trafficking in narcotics, arms, stolen vehicles, and persons by transnational organized criminal elements. As such, the nation is vulnerable to financial activities associated with such crimes, including money laundering. Trans-border smuggling of counterfeit goods, tax fraud, and fraudulent claims in relation to consumer lending are additional types of financial crimes prevalent in Romania. Romania also has one of the highest rates of cybercrime and online credit card fraud in the world. Recent studies have found Romanian servers to be the second largest source (13 percent) of cybercrime transactions worldwide. Although a majority of their victims reside in the United States, Romanian cyber-criminals are increasingly targeting victims elsewhere in Europe as well as in Romania itself.

Laundered money comes primarily from international crime syndicates who conduct their criminal activity in Romania and subsequently launder their illicit proceeds through illegitimate front companies. Another source of laundered money is the proceeds of illegally smuggled goods such as cigarettes, alcohol, gasoline, and other dutiable commodities. Corruption in Romania’s customs and border control authorities coupled with corruption in several neighboring Eastern European countries also facilitates money laundering.

Romania’s Law No. 21/99, On the Prevention and Punishment of Money Laundering, criminalizes money laundering and requires customer identification, record keeping, suspicious transaction reporting, and currency transaction reporting for transactions (including wire transfers) over 10,000 euros (approximately $13,500). In 2008, this threshold is increased to 15,000 euros (approximately $20,250) by Government of Romania (GOR) Emergency Ordinance 53/2008. The list of entities covered by Law No. 21/99 includes banks, nonbank financial institutions, attorneys, accountants, and notaries. The Law on the Prevention and Sanctioning of Money Laundering (Law 656/2002) expands the list of predicate offenses to include all crimes and expands the number and types of entities subject to anti-money laundering (AML) regulations. The additional entities include art dealers, travel agents, privatization agents, postal officials, money service businesses, and real estate agents. Although nonbank financial institutions are covered under Romania’s AML laws, regulatory supervision of this sector is weak and not as rigorous as that imposed on banks. Romania also has criminalized tipping off. Romanian law permits the disclosure of client and ownership information to bank supervisors and law enforcement authorities. Safe harbor provisions protect banking officials when they cooperate with law enforcement. In 2003, Romania instituted an anticorruption plan and passed a law criminalizing organized crime.

In keeping with international standards, Romania has taken steps to strengthen its know your customer (KYC) identification requirements. The National Bank of Romania’s (BNR) 2003 Norm No. 3, “Know Your Customer,” strengthens information disclosure requirements for incoming and outgoing wire transfers by requiring banks to include information about the originator’s name, address, and account. It also strengthens correspondent banking practices by requiring banks to undertake proper due diligence measures before entering into international correspondent relations, and prohibiting them from opening correspondent accounts with shell banks. In 2006, the BNR widened the scope of its KYC norms by extending their application to all other nonbanking financial institutions falling under its supervision. The Insurance Supervision Commission has instituted similar regulations for the insurance industry. Despite these enhancements to existing regulations, Romania is still deficient in implementing customer due diligence (CDD) requirements, as noted during the 2007 mutual evaluation by the Council of Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a Financial Action Task Force (FATF)-style regional body. Romanian law still has no explicit definition of beneficial ownership. In addition, the requirement to take reasonable measures to verify the identity of the beneficial owner, as required by international standards, has not yet been adequately implemented.

In 2005, Romania modified its money laundering legislation with Law 230/2005. This law provides a uniform approach to combating and preventing money laundering and terrorist financing. The modified law establishes a suspicious transaction reporting (STR) requirement for transactions linked to terrorist financing. The reporting requirement, however, is incomplete in its current form, and needs to be further developed in order to fully comply with FATF standards.

In 2006, Romania made further changes to its laws. These changes increase fines to match the inflation rate, allow the use of undercover investigators, and permit the submission of reports from the financial intelligence unit (FIU) to the General Prosecutor’s Office (GPO) in an unclassified manner. The changes also provide for confiscation of goods used in or resulting from money laundering activities, and increase the length of time that bank accounts may be frozen from ten days to one month.

The GOR passed two new laws in 2008. The new legislation amends Law 656/2002 to provide stricter definitions for “real end-user,” “transactions that seem to be inter-connected,” “fictitious bank,” and the “external transfer” concept. The laws also clarify the process whereby the FIU issues feedback to reporting entities, includes simplified and supplementary KYC measures, and contains prohibitions on operating anonymous accounts or conducting business relations with a fictitious bank. Finally, the new legislation clarifies that the BNR is the competent supervisory authority for all credit/lending institutions in terms of reporting, while the FIU has this authority for any other entity carrying out money transfers. The law also establishes new requirements for monthly reporting by the National Customs Authority to the FIU of all available data regarding cross-border cash declarations. The FIU’s Governing Board has issued regulations implementing KYC standards for nonfinancial reporting entities (casinos, notaries, real estate brokers). These norms bring previously unsupervised entities under supervision for compliance with AML regulations. In addition to the FIU, Romanian state institutions, including the BNR and the National Securities Commission have been quick to apply these new laws by issuing implementing regulations.

Romania’s FIU, the National Office for the Prevention and Control of Money Laundering, was established in 1999. All obliged entities must submit their currency transaction reports (CTRs) and STRs to the FIU. The FIU oversees the implementation of AML guidelines for the financial sector and works to ensure that all domestic financial institutions covered by the law receive adequate training. The FIU also is authorized to participate in inspections and controls in conjunction with supervisory authorities. In the first ten months of 2007, the FIU carried out 189 on-site inspections in cooperation with the Financial Guard or other supervisory authorities, an increase from the 109 inspections for the same period in 2006.

To further its attempt to enhance supervision of entities that are not formally supervised for AML compliance by another agency, the FIU’s Governing Board issued a decision in January 2008, outlining procedures for carrying out its supervisory authorities over nonfinancial reporting entities such as casinos, real estate brokers, and nongovernmental organizations (NGOs). Using these new procedures, the FIU, in the first nine months of 2008, conducted off-site supervision inspections of 1,329 firms in the gaming industry, 990 real estate brokers, and 3,282 NGOs. During this same time period, the FIU conducted on-site inspections of 167 other reporting entities, of which 112 were penalized with fines totaling RON 235,000 (approximately $81,000). An additional 128 warnings were issued. Out of the 167 on-site inspections, 127 were carried out solely by the FIU, three jointly with the BNR, and 37 jointly with the Financial Guard.

During the first nine months of 2008, the FIU received 61,372 CTRs, a substantial increase from the 10,747 CTRs received in the first ten months of 2007. During the same period in 2008, the FIU received 1,452 STRs, down from 1,542 reports during the same period in 2007, and 2,218 STRs in 2006. The FIU received 6,402 reports of cross-border transfers during the first nine months of 2008, compared with 6,511 reports during the same period in 2007. The majority of these reports were submitted by credit institutions, casinos, public notaries, and money transfer agencies. Financial investment institutions, nonbanking financial institutions, fiscal consultants, insurance and re-insurance companies, real estate brokerage firms, individual and corporate retailers, NGOs, and lawyers were among other entities also submitting reports. Also during the first nine months of 2008, the FIU received 352 notifications concerning suspicions of money laundering and terrorist financing from agencies as varied as the BNR, the Insurance Supervision Commission, the Ministry of Economy and Finance, and the Financial Guard.

After reviewing and analyzing the submitted reports, the FIU forwards its findings to the appropriate government agency for follow-up investigation. During the first nine months of 2008, the FIU completed 965 cases: 496 (489 money laundering/seven terrorist financing) of those cases were forwarded.

Since its establishment, the FIU has faced numerous political and operational challenges, including low staffing levels as well as criminal charges of corruption against a former FIU official. The FIU also has been criticized by the GPO for forwarding poor quality reports to prosecutors. Consequently, coordination between the FIU and law enforcement has often suffered. In its 2007 evaluation of Romania, MONEYVAL cites the existence of a backlog of STRs still needing analysis. Despite these setbacks, the FIU is working to improve its operations and is currently seeking to place an emphasis on quality rather than quantity when analyzing suspicious transactions. The FIU believes the number of indictments and eventual convictions will increase over time as a greater emphasis is placed on the quality of reports produced as opposed to the quantity of reports forwarded to the GPO. The FIU has improved the timeliness and quality of its analysis and case reporting. However, investigations have resulted in only a handful of successful prosecutions to date.

Throughout 2008, the FIU has sought to bolster cooperation with the GPO, as well as the BNR, National Anti-Drug Agency, Ministry of Interior, National Magistracy Institute, and Ministry of Foreign Affairs. In July 2008, the FIU organized a national conference to highlight Romania’s full harmonization with European Union (EU) legislation. In addition, the FIU is partnering with the EU through a PHARE (Poland-Hungary Assistance for Reconstruction of the Economy) project. This project has several components: development of a secured IT data transfer system; establishment of a case management system; purchase of accredited hardware and software; and creation of a system for data recovery in case of disasters. The FIU is also working on another AML development program with Poland through an EU Twinning project.

Efforts to prosecute cases have been hampered by the lack of specialization and technical knowledge of financial crimes within the judiciary. Despite a low number of convictions, coordination between law enforcement and the justice system continues to improve. In the first nine months of 2008, the Directorate for the Investigation of Organized Crime and Terrorism Offenses (DIICOT), a division of the GPO, indicted 41 defendants in five cases involving money laundering. Funds and goods totaling 50 million Euros (approximately $65,500,000) have been seized or frozen. Of the 41 indicted, eight defendants have been placed under preventive arrest. During the first nine months of 2008, DIICOT opened criminal investigations on 112 files involving suspicion of money laundering.

In response to the events of September 11, 2001, Romania passed a number of legislative measures designed to criminalize acts contributing to terrorism. Emergency Ordinance 141, passed in October 2001, provides that the production or acquisition of means or instruments, with intent to commit terrorist acts, are offenses of exactly the same level as terrorist acts themselves. These offenses are punishable with imprisonment ranging from five to 20 years. The Supreme Defense Council of the Country has adopted a National Security Strategy, which includes the 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 GPO, the BNR, and the FIU. The GOR also has set up an inter-ministerial committee to investigate the potential use of the Romanian financial system by terrorist organizations. A revised Criminal Procedure Code entered into force in July 2003, containing provisions for authorizing wiretaps, and intercepting and recording telephone calls in money laundering and terrorist financing cases.

Romanian law has some limited provisions for asset forfeiture in the Law on Combating Corruption, No. 78/2000, and the Law on Prevention and Combat of Tax Evasion, No. 241, introduced in July 2005. The GOR, and particularly the BNR, has been cooperative in seeking to identify and freeze terrorist assets. Emergency Ordinance 159, passed in late 2001, includes provisions 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 GOR Emergency Ordinance 153 strengthens the government’s ability to carry out its obligations under UNSCR 1373, including the identification, freezing, and seizure of terrorist funds or assets. Legislative changes in 2005 extend the length of time a suspect account may be frozen. The FIU is now authorized to suspend accounts suspected of money laundering activity for three working days, as opposed to the previous two-day limit. In addition, once the case is sent to the GPO, it may further extend the period by four working days instead of the previously allowed three working days.

Law 535/2004 on preventing and combating terrorism abrogates some of the previous government ordinances and incorporates many of their provisions. The law includes a chapter on combating the financing of terrorism by prohibiting financial and banking transactions with persons included on international terrorist lists, and requiring authorization for transactions conducted with entities suspected of terrorist activities in Romania.

The BNR receives lists of individuals and terrorist organizations provided by the United States, the UNSCR 1267 Sanctions Committee, and the EU, and it circulates these to banks and financial institutions. The law on terrorism provides for the forfeiture of assets used by or provided to terrorist entities, together with finances resulting from terrorist activity. To date, no terrorist financing arrests, seizures, or prosecutions have been reported.

The FIU is aware of the potential misuse of charitable or nonprofit entities as conduits for terrorist financing. In 2007, the FIU conducted two training events with charitable foundations and associations on preventing and combating money laundering and terrorist financing. The FIU has drafted guidelines concerning reporting entities’ obligations in this respect and has published them on its website.

The GOR recognizes the link between organized crime and terrorism. Romania is a member of and host country for the headquarters of the Southeast European Cooperative Initiative’s (SECI) Center for Combating Trans-border Crime, a regional center that focuses on intelligence sharing related to criminal activities, including terrorism. Romania also participates in a number of regional initiatives to combat terrorism. Romania has worked within the South East Europe Security Cooperation Steering Group (SEEGROUP), a working body of the NATO initiative for Southeast Europe to coordinate counterterrorist measures undertaken by the states of southeastern Europe. The Romanian and Bulgarian Interior Ministers have signed an inter-governmental agreement to cooperate in the fight against organized crime, drug smuggling, and terrorism.

The FIU is a member of the Egmont Group, and the GOR is a member of MONEYVAL. The most recent MONEYVAL mutual evaluation of Romania, conducted in May 2007, was adopted at the group’s plenary in July 2008. Its final report, published in October 2008, concludes that Romania made significant progress since its previous evaluation in 2003. Taking into account the report recommendations, Romanian institutions with specific duties will carry out an action plan to implement the recommendations, with results to be discussed by MONEYVAL in 2009.

A Mutual Legal Assistance Treaty between the United States and Romania entered into force in October 2001. The GOR 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, the UN Convention against Corruption, the UN Convention against Transnational Organized Crime and the UN Convention for the Suppression of the Financing of Terrorism. The FIU has signed 42 bilateral memoranda of understanding with Egmont Group member FIUs. Romania’s FIU shares information internationally and is a member of the FIU.Net network. In the first nine months of 2008, Romania’s FIU sent 328 data requests to FIUs abroad and received 83 similar requests from external FIU partners. Romania’s FIU received 15 data requests from abroad regarding suspicions of terrorist financing. However, no actual operations suspected of terrorist financing have been identified.

While Romania’s AML legislation and regulations will soon be compliant with many FATF Recommendations, implementation has moved at a slower pace. With the conclusion of the Romanian capital account liberalization in 2006, the risk of money laundering through nonbank entities has been on the rise. The Government of Romania should continue its efforts to ensure that nonbank financial institutions are adequately supervised. Additionally, the knowledge level of the sector should be increased regarding its reporting and record keeping responsibilities and the identification of suspicious transactions. The GOR should continue to improve communication between reporting and monitoring entities, as well as between prosecutors and the FIU. The GPO should continue to place a high priority on money laundering cases. Romania should improve implementation of existing procedures for the timely freezing, seizure, and forfeiture of criminal or terrorist-related assets. Romania should continue to make progress in combating corruption in commerce and government. The GOR should enact and implement legislation to subject NGOs and charitable organizations to reporting requirements.


As the world’s geographically largest country, Russia has worked towards creating a liberal market economy. Although it is a regional financial center, its financial system does not attract a significant number of depositors. However, due to rapid economic growth in various sectors, the number of depositors has been increasing steadily. Experts believe that most of the illicit funds flowing through Russia derive from domestic criminal activity, including evasion of tax and customs duties, fraud, public corruption, and smuggling. Russian authorities recently described more than 120 money laundering typologies used in Russia, including account fraud, front companies and identity fraud, multiple transactions through a network of off-shore firms, back-to-back loans, and disguising illegal proceeds as gains of gambling activities. Criminals invest and launder their proceeds in real estate and security instruments, or use them to buy luxury consumer goods. Criminal elements from Russia and neighboring countries continue to use Russia’s financial system to launder money because of their familiarity with the language, culture, and economic system. Despite making progress in combating financial crimes, Russia remains vulnerable to such activities because of its vast natural resource wealth and associated large-scale financial transactions, the pervasiveness of organized crime, the heavy direct and indirect role of the state in the economy, and an admitted high level of corruption. Other vulnerabilities include porous borders, Russia’s role as a geographic gateway to Europe and Asia, a weak banking system that attracts little public confidence, and under-funding of regulatory and law enforcement agencies, which contributes to both corruption and lack of regulatory and law enforcement capacity. Russia’s financial intelligence unit (FIU) estimates that Russian citizens may have laundered as much as U.S. $370 billion in 2008.

The Russian Federation has a legislative and regulatory framework in place to pursue and prosecute financial crimes, including money laundering and terrorist financing. Russia’s anti-money laundering and counterterrorist financing (AML/CTF) regime underwent a joint evaluation by the Financial Action Task Force (FATF) and two of the FATF-style regional bodies, the Eurasian Group on Combating Money Laundering and the Financing of Terrorism (EAG) and the Council of Europe’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL) in the fourth quarter of 2007. The three plenary bodies adopted the mutual evaluation report (MER) in June and July 2008.

Russia takes an “all crimes” approach to money laundering predicate offenses, and criminalizes money laundering by articles 174 of the Criminal Code (CC) (money laundering), 174.1 CC (self-laundering) and 175 CC (acquisition of property obtained by crime). The elements in these provisions are consistent with the requirements of the Vienna and Palermo Conventions. According to the 2008 MER, Russia is largely compliant with the FATF recommendations on criminalization of money laundering and has progressively improved implementation of its AML regime. Russia has criminalized self- laundering and the acquisition of property obtained by crime. The maximum criminal penalty for natural persons convicted of money laundering or financing terrorism is 10 years in prison in addition to applicable fines

Although legal persons are not subject to criminal liability, Russian law provides for corporate and administrative liability for legal persons.

Various regulatory bodies ensure compliance with Russia’s AML/CTF laws. The Central Bank of Russia (CBR) supervises credit institutions; the Federal Insurance Supervision Service (FISS) oversees the insurance sector and the Federal Service for Financial Markets (FSFM) regulates entities managing nongovernmental pension and investment funds, as well as professional participants in the securities sector. The Assay Chamber (under the Ministry of Finance) supervises entities engaged in trade in precious metals and stones. The Federal Financial Monitoring Service (FFMS, also known as Rosfinmonitoring) regulates real estate and leasing companies, pawnshops, payment acceptance and money transfer services, and participants in the gaming industry. The Federal Service of Supervision in the sphere of Mass Communications, Communications and Protections of Cultural Heritage, also known as Roscommunication or ROSCOM, is the supervisory body for Russia Post, including the Russia Post’s compliance with the AML/CTF Law. The Federal Registration Service (ROSREG) is responsible for registration of real estate ownership (land registry), political parties and public associations (and other related state registers) and other legal entities, except for commercial entities that register with the Federal Tax Service (FTS). The FTS exercises supervision over currency operations and lotteries under the authority of the Ministry of Finance (MoF). While the supervision carried out by the Bank of Russia is thorough and effective, the MER indicated that the authorities do not adequately inspect the securities and insurance sectors, nor do supervisors have adequate sanctions powers to correct compliance shortcomings.

The legal framework for customer due diligence is set out in a variety of legal documents. The AML Law (Law 115-FZ), introduced in 2001, obliges banking and nonbanking financial institutions to monitor and report certain types of transactions, maintain records, and identify their beneficiary customers. According to RF 115-FZ, institutions legally required to report include banks, credit organizations, securities market professionals, insurance and leasing companies, the federal postal service, jewelry and precious metals merchants, betting shops, and companies managing investment and nongovernmental pension funds. Other obliged entities include real estate agents, lawyers and notaries, and persons rendering legal or accounting services that involve certain transactions. The law also requires banks to identify customers before providing natural or legal persons with financial services. However, while banks are explicitly prohibited from opening anonymous accounts, there is no specific provision that prohibits them from maintaining existing accounts under fictitious names. The CBR has issued guidelines regarding AML practices within credit institutions, including “know your customer” (KYC) and bank due diligence programs. Banks must obtain information regarding individuals, legal entities and the beneficial owners of corporate entities and retain it for a minimum of five years from the date of the termination of the business relationship. Banks must also adopt internal compliance rules and procedures and appoint compliance officers. According to the MER, record keeping requirements are generally comprehensive and are largely compliant with FATF recommendations. Particular areas of concern involve the uneven approach among financial institutions to identification of the beneficial owner and inconsistent requirements in performing ongoing due diligence.

Except for attempted transactions by occasional customers, financial institutions must report all suspicious transactions relating to money laundering. Financial institutions are also required to file a Suspicious Transaction Report (STR) if there is a suspicion of financing of terrorism. In addition, financial institutions are required to report certain large value transactions (equal to or exceeding RUB 600,000) to the FIU. Financial institutions that fail to meet large value or suspicious transaction reporting requirements face possible license revocation or liquidation through civil proceedings. The maximum criminal penalty for natural persons convicted of money laundering or financing terrorism is 10 years in prison, in addition to applicable fines.


All obligated financial institutions must monitor and report to the government any transaction that equals or exceeds 600,000 rubles (approximately $22,700) and involves or relates to cash payments, remittances, bank deposits, gaming, pawn shop operations, precious stones and metals transactions, payments under life insurance policies, or persons domiciled in countries determined by the Russian Government to be deficient in AML/CTF. Obligated institutions must also report real estate transactions valued at 3,000,000 rubles (approximately $115,400) or more. Financial institutions must develop criteria for determining suspicious transactions and report such transactions to the FIU in a timely fashion. All transactions involving an entity or person included on the Russian government’s list of those involved in extremist activities or terrorism must be reported to the FIU annually.

Under Order 1317-U, Russian financial institutions must inform the CBR when it establishes correspondent relationships with nonresident banks operating in offshore zones (as defined by the Russian Federation in Annex 1 of this Order). The CBR recommends that financial institutions apply enhanced due diligence to transactions with nonresident institutions. Foreign banks may only open subsidiary operations on the territory of Russia and may not open branches. The CBR must authorize the establishment of a subsidiary operation, and these subsidiaries must be subject to domestic Russian supervisory authorities. Russian banks must obtain CBR approval to open operations abroad.

According to the Law No. 395-I “On Banks and Banking Activities,” credit institutions must identify and inform the CBR of all appointments of individuals to senior management positions and to the managing and supervisory boards. Russian law prohibits the appointment of anonymous parties or proxy individuals to a credit institution’s managing or supervisory board. The CBR has the authority to deny the appointment of a senior official if the official does not meet “fit and proper” requirements established by the CBR, but Russia has not taken legal steps to provide supervisors the power to prevent criminals from controlling financial institutions.

Article 8 of Law 115-FZ provided for the 2001 establishment of Rosfinmonitoring. As the FIU, it is the cornerstone of the country’s AML/CTF regime. It is the central policy coordinating body for AML/CTF issues, as well as the designated authority for collecting, processing, analyzing and disseminating STRs and other AML/CTF-related reports. Established as an independent government authority in 2001, Rosfinmonitoring moved directly under the Office of the Prime Minister in September 2007. It enjoys full operational autonomy.

Rosfinmonitoring has the authority to gather information regarding the activities of reporting entities. Nearly all financial institutions submit reports to the FIU via encrypted software provided by Rosfinmonitoring. The FIU maintains the national AML/CTF database that contains more than 14 million reports. Rosfinmonitoring receives approximately 30,000 transaction reports daily. It provides information and analysis to the appropriate law enforcement authorities for further investigation, including the Economic Crimes Unit of the Ministry of Interior (MVD) for criminal matters, the Federal Drug Control Service (FSKN) for narcotics-related activity, or the Federal Security Service (FSB) for terrorism-related cases. As an administrative unit, it has no law enforcement or investigative powers.

The head of Rosfinmonitoring chairs an Interagency Commission on Money Laundering, which is responsible for monitoring and coordinating the government’s activity on money laundering and terrorist financing. Twelve ministries and government departments sit on the Commission.

Rosfinmonitoring has regional offices in all federal districts, with headquarters located in Moscow. Its headquarters has established a sophisticated information technology infrastructure that enables the regional offices to analyze STRs, use the national AML database and submit cases for dissemination to headquarters. The FIU demands high professional standards of its employees, and uses internal control systems to protect information from unauthorized access by the staff. The only shortcoming detected by the FATF evaluation team was a high number of staff vacancies, especially in the analytical and supervisory departments. The regional offices also coordinate the efforts of the CBR and other supervisory agencies to implement AML/CTF regulations.

Between January 1 and the end of October 2008, the Interior Ministry registered 7,816 crimes involving money laundering. Interior Ministry official reports show that 5,802 of the cases went to trial. Both Rosfinmonitoring and MVD report that the number of STRs for the year roughly equaled those of 2007 and credit increased cooperation among law enforcement agencies for the number of cases brought to trial.

With its legislative and enforcement mechanisms in place, Russia has begun to prosecute high-level money laundering cases. As of December 1, 2008, the CBR revoked the licenses of 25 banks for failing to observe banking regulations. Of these, 20 banks lost their licenses for violating Russia’s AML laws. The CBR’s initiative to prohibit individuals convicted of money laundering from serving in leadership positions in the banking community—a cause championed by Andrey Kozlov, the First Deputy Chairman of the CBR who was assassinated in 2006—remains pending.

Russian legislation provides for the tracking, seizure and forfeiture of all criminal proceeds, not just those linked to narcotics-trafficking. Russian law also provides law enforcement bodies the authority to use investigative techniques such as search, seizure, and the identification, freezing, seizing, and confiscation of funds or other assets. Authorities can compel individuals to produce documents related to criminal activity, including money laundering. Investigators and prosecutors can apply to the court to freeze or seize property obtained as the result of crime, although there are some exceptions in the law restricting seizure of property identified as a primary residence. Law enforcement agencies have the power to identify and trace property that is, or may become, subject to confiscation or is suspected of being the proceeds of crime or terrorist financing. Since January 1, 2007, Russia has been using two instruments for confiscations: the Code of Criminal Procedure (CCP) Article 81, and the Criminal Code (CC) Articles 104.1 and 104.2. Both articles 81 and 104.1 provide for the confiscation of instruments, equipment or other means of committing an offense or intended to be used to commit a crime.

Russia criminalized terrorist financing in article 205.1 CC27, which targets any support or contribution to terrorist activity, including the financing of terrorism. The terrorist financing offense covers the provision and collection (“raising”) of funds. Russia’s treatment of the criminalization of terrorist financing comports with international law, with the exception of its failure to cover the theft of nuclear material, as required by UN Convention.

Russia has established a system for freezing terrorist assets to comply with United Nations Security Council Resolutions (UNSCRs) 1267 and 1373 and subsequent resolutions. Russia maintains both a domestic and international terrorist list. Supervisors disseminate these lists of designated terrorist entities to all reporting institutions, and authorities freeze all assets of terrorists or terrorist organizations listed in UNSCR 1267, as well as all assets belonging to persons and organizations owned or controlled by them. Assets of UN-listed (international) terrorists remain frozen until there is a de-listing by the UN. Russian authorities also identify and designate entities and individuals in accordance with AML/CTF law and regulations, and include them on the Russian domestic list. Designation on the domestic terrorist list subjects a listed entity to a temporary asset freeze. According to the AML/CTF law, financial institutions must freeze transactions suspected of involvement in terrorism finance for up to two days and report the transaction to the FIU. Rosfinmonitoring may extend the freeze by an additional five days. A court order is required to extend the freeze beyond seven days.

Rosfinmonitoring reports that it is monitoring 1,300 entities suspected of financing terrorism, including over 900 Russian citizens, 170 Russian organizations, and over 200 foreign entities. At the request of the General Prosecutor’s Office, the Russian Supreme Court has, to date, authorized an official list of 17 terrorist organizations. Russia also relies on bilateral agreements to designate entities mutually determined to be involved in extremist or terrorist activity.

In accordance with international agreements, Russia recognizes rulings of foreign courts relating to the confiscation of proceeds from crime within its territory and can transfer the confiscated proceeds of crime to the foreign state whose court issued the confiscation order.

The United States and Russia signed a Mutual Legal Assistance Treaty in 1999, which entered into force on January 31, 2002. Although Russia has assisted the U.S. in investigating cases involving terrorist financing, Russia and the U.S. continue to have differing opinions regarding the purpose of the UN 1267 Sanctions Committee’s designation process. These political differences have hampered bilateral cooperation in this forum. U.S. law enforcement agencies exchange operational information with their Russian counterparts on a regular basis.

Russia is a party to the 1988 UN Drug Convention, the UN Convention against Transnational Organized Crime, the UN Convention for the Suppression of the Financing of Terrorism, and the UN Convention against Corruption. Russia is a member of the FATF, MONEYVAL, and EAG, which it also co-founded. The EAG Secretariat is located in Moscow. Rosfinmonitoring has established the International Training and Methodological Center of Financial Monitoring (ITMCFM) that exists to provide technical assistance, primarily in the form of staff training for FIUs and other interested ministries and agencies involved in AML/CTF efforts in the region. The ITMCFM also conducts research on AML/CTF issues and provides direct technical assistance to EAG members. As Chair of the EAG, Russia’s FIU continues to play a strong leadership role in the region. Rosfinmonitoring is a member of the Egmont Group and has signed cooperation agreements with the FIUs of 24 countries, including the United States.

Through aggressive enactment and implementation of comprehensive AML/CTF legislation, the Government of Russia (GOR) has established legal and enforcement frameworks to deal with money laundering and terrorist financing. Russia has also contributed to improving the region’s capacity for countering money laundering and terrorist financing. Nevertheless, serious vulnerabilities remain. Russia is home to some of the world’s most sophisticated perpetrators of fraud and money laundering, who rely heavily on electronic and Internet-related means. Although Russia is increasing its money laundering prosecutions, considering the acknowledged level of organized crime and corruption in the country, Russia should continue to aggressively pursue this offense. To prevent endemic corruption and deficiencies in the business environment from undermining Russia’s efforts to establish a well-functioning anti-money laundering and counterterrorism finance regime, Russia should examine and implement measures to bring down the high levels of corruption in both the public and private sectors and increase transparency in the financial sector. Russia has an incomplete legal framework with regard to politically exposed persons (PEPs), and authorities should strengthen it by addressing the shortcomings and pursuing effective implementation as soon as possible. Russia should criminalize insider trading and market manipulation. Where AML/CTF awareness is low, primarily outside the formal financial sector, authorities should issue guidance for filing STRs, in particular STRs related to terrorist financing. Russia should also improve federal oversight of shell companies and scrutinize more closely those banks that do not carry out traditional banking activities. Russia should commit adequate resources to its regulatory and law enforcement entities to enable them to fulfill their responsibilities. The GOR should also ensure that its institutions have the resources, both human and financial, to implement the law. Finally, Russia should continue to play a leadership role through sustained involvement in the regional and international bodies focusing on AML/CTF regime implementation.


Samoa does not have major organized crime, fraud, or drug problems. The most common crimes that generate revenue within the jurisdiction are primarily the result of low-level fraud and theft. However, according to law enforcement intelligence sources, criminal organizations based in Hawaii and California are involved in the trafficking of cocaine, MDMA and crystal methamphetamine into the island nations including Samoa. Additionally, South American and Australian based organizations use the South Pacific islands as transshipment locations for cocaine being shipped from South America into Australia and New Zealand.

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. The Government of Samoa (GOS) initially enacted the Money Laundering Prevention Act in 2000 that was repealed and replaced by the new Money Laundering Prevention Act 2007. This law criminalizes money laundering associated with numerous crimes sets measures for the prevention of money laundering and requires related financial supervision. Under the Act, a conviction for a money laundering offense is punishable by a fine not to exceed Western Samoa Tala (WST) one million (approximately U.S. $354,000), a term of imprisonment not to exceed seven years, or both. This penalty is not found in the 2007 Act itself, but derives from the separate Proceeds of Crime Act of 2007, which includes specific penalties for money laundering.

The Act requires financial institutions to report transactions considered suspicious to the Samoa Financial Intelligence Unit (FIU) established by the Money Laundering Prevention Authority (MLPA) presently under the auspices of the Governor of the Central Bank. The FIU receives and analyzes disclosures from either a local financial or government institution or agency (either domestic or of a foreign state). If it establishes reasonable grounds to suspect that a transaction is suspicious, it may disclose the report to an appropriate local or foreign government or law enforcement agency. A Money Laundering Prevention Task Force (MLPTF) was established in 2007, which meets quarterly, under the new Act to advise or make recommendations to the MLPA. The task force consists of heads from the Central Bank, Attorney General, Police Force, Samoa International Finance Authority (SIFA), Ministry of the Prime Minister and FIU. More importantly, the MLPTF is tasked to ensure close liaison and cooperation and coordination between various GOS departments and corporations. In ensuring this, the task force established a Memorandum of Understanding (MOU) between the FIU and all members of the Task Force with respect to formal exchange and sharing of relevant information to counter money laundering offenses and terrorist financing activities. In 2003, the GOS established under the authority of the Ministry of the Prime Minister an independent and permanent Transnational Crime Unit (TCU). The TCU is staffed by personnel from the Samoa Police Service, Immigration Division of the Ministry of the Prime Minister and Division of Customs. The TCU is responsible for intelligence gathering and analysis and investigating transnational crimes, including money laundering, terrorist financing and the smuggling of narcotics and people.

Further, the Act requires financial institutions to establish and maintain with appropriate backup or recovery all business transactions records and correspondence records for a minimum of five years, and to identify and verify a customer’s identity when establishing a business relationship; when there is a suspicion of a Money Laundering offense or terrorist financing; or when there is doubt about the veracity or adequacy of the customer identification, or verification, documentation, or information previously obtained.

Section 31 of the Act requires that all financial institutions have an obligation to appoint a compliance officer responsible for ensuring compliance with the Act, and to establish and maintain procedures and systems to implement customer identification requirements, implement record keeping, retention, and reporting requirements and to make its officers and employees aware of procedures, policies and audit systems. Each financial institution is also required to train its officers, employees and agents to recognize suspicious transactions. A financial institution required to be audited must incorporate compliance with the MLPA 2007 as part of its audit to be confirmed by the auditor. Currency reporting at the border requires any person leaving or entering Samoa with more than $20,000 or other prescribed amount in cash or negotiable bearer instruments (in Samoan currency or equivalent foreign currency) either on their person or in their personal luggage to report this to the FIU.

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 SIFA, and the MLPA regulate the financial system. There are four locally incorporated commercial banks, supervised by the Central Bank. The SIFA 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 jurisdiction with six 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 six offshore banks, Samoa currently has 27,039 international business corporations (IBCs) four international insurance companies, seven trustee companies, and 182 international trusts. Section 19 of the International Banking Act requires the directors and Chief Executive to be “fit and proper” and prohibits any person from applying to be a director, manager, or officer of an offshore bank who has been sentenced for an offense involving dishonesty. The prohibition is also reflected in the application forms and personal questionnaire that are completed by prospective applicants that detail the licensing requirements for offshore banks. The application forms list the required supporting documentation for proposed directors of a bank. These include references from a lawyer, accountant, and a bank, police clearances, curriculum vitae, certified copies of passports, and personal statements of assets and liabilities (if also a beneficial owner). The Inspector of International Banks must be satisfied with all supporting documentation that a proposed director is “fit and proper” in terms of his integrity, competence and solvency, which is defined in section 3 of the Act.

International cooperation can occur in several ways under the provisions of three pieces of legislation: the Money Laundering Prevention Act 2007, the Proceeds of Crime Act 2007, and Mutual Assistance in Criminal Matters Act 2007. All cooperation under the MLPA is through the FIU under the new Money Laundering Prevention Act 2007, which allows exchange of information not only on a national but also on an international basis between the FIU and other domestic law enforcement and regulatory agencies. Under the Proceeds of Crime Act 2007, a foreign State can request assistance to issue a restraining order in respect of a foreign serious offense. The Attorney General under the Mutual Assistance in Criminal Matters Act 2007 can authorize the giving of assistance to a foreign state. Assistance to a foreign state can be in the form of locating or identifying persons or providing evidence or producing documents or other articles in Samoa. In 2002, Samoa enacted the Prevention and Suppression of Terrorism Act. The Act defines and criminalizes terrorist offenses, including offenses dealing specifically with the financing of terrorist activities. The combined effect of the Money Laundering Prevention Act of 2007 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 Islands Forum. In August 2004, Samoa hosted the annual plenary of the Pacific Islands Forum. Samoa has not signed the 1988 UN Drug Convention or the UN Convention against Transnational Organized Crime. However, Samoa became a party to the UN International Convention for the Suppression of the Financing of Terrorism in 2002. The FIU and the Ministry of Foreign Affairs and Trade do issue and provide to all financial institutions governed under the Money Laundering Prevention Act 2007, an update list concerning Al-Qaida and the Taliban, and Associated Individuals and Entities in pursuant to the United Nations Security Council Resolution 1267. Financial institutions are required to check their records of customers, names and accounts and to take immediate actions to freeze or confiscate funds and promptly advise the FIU.

The FIU within the Central Bank has continued to strengthen its anti-money laundering regime as evident in the new Money Laundering Prevention Act 2007. The new Act is explicitly mandates that all financial institutions conduct customer due diligence and prohibit any transactions where there is no satisfactory evidence of a customers identity. A financial institution is obliged to keep records of all business transaction records and related correspondence, records of a customer’s identity, and of all reports made to the FIU, and any enquiries made to it by the FIU on money laundering and terrorist financing matters. Anonymous accounts are strictly prohibited, and transactions are required to be monitored by financial institutions. The scope of record keeping by financial institutions (like banks and money transmission service providers) is extended to include accurate originator information and other related messages made via electronic fund transfers. The Government of Samoa (GOS) has made progress in developing its anti-money laundering/counterterrorist finance regime in 2007 by enacting the Money Laundering Prevention Act. The GOS should ensure that financial institutions submit suspicious transaction reports (STRs) to the FIU and that the FIU forwards any STR worthy of investigation to law enforcement for possible prosecution. The GOS should effectively regulate its offshore financial sector by ensuring that the names of the actual beneficial owners of international business companies and banks are on a registry accessible to law enforcement. The GOS should ensure that the UNSCR 1267 Sanctions Committee Consolidated and U.S. lists are circulated and an effective asset forfeiture regime is established and implemented. The GOS should adhere to the Financial Action Task Force’s 9 Special Recommendations on Terrorist Financing. In particular, Samoa should take steps to implement Special Recommendation IX on cash couriers and ensure that its entry and exit points are not used for either the transshipment of narcotics, the sale of imported narcotics, or the funds derived from either illicit activity.

Saudi Arabia

The Kingdom of Saudi Arabia is a growing financial center in the Gulf Region of the Middle East. However, there is no indication that narcotics-related money laundering currently is vulnerability in the country. Saudi Arabia is neither a major center within the region for financial crimes nor an offshore financial center. Saudi officials acknowledge difficulty in following the money trail due to the preference for cash transactions in the country. Money laundering and terrorist financing are known to originate from Saudi criminal enterprises, private individuals, and Saudi-based charities. There is an absence of official criminal statistics, but reportedly, there was no significant increase in financial crimes during 2008. It is believed the proceeds of crime from stolen cars and counterfeit goods are substantial. All eleven commercial banks in Saudi Arabia operate as standard “Western-style” financial institutions and are under the supervision of the central bank, the Saudi Arabian Monetary Agency (SAMA). In 2003, Saudi Arabia approved a new Anti-Money Laundering Law that contains criminal penalties for money laundering and terrorist financing. The law bans conducting commercial or financial transactions with persons or entities using pseudonyms or acting anonymously; requires financial institutions to maintain records of transactions for a minimum of ten years; adopts precautionary measures to uncover and prevent money laundering operations; requires banks and financial institutions to report suspicious transactions; authorizes government prosecutors to investigate money laundering and terrorist financing; and, allows for the exchange of information and judicial actions against money laundering operations with countries with which Saudi Arabia has official agreements.

In May 2003, SAMA issued updated anti-money laundering and counterterrorist finance guidelines for the Saudi banking system in accordance with the Financial Action Task Force’s (FATF) 40 Recommendations on Money Laundering and the Nine Special Recommendations on Terrorist Financing. The guidelines require that banks have mechanisms to monitor all types of “Specially Designated Nationals” as listed by SAMA; that fund transfer systems be capable of detecting specially designated nationals; that banks strictly adhere to SAMA circulars on opening accounts and dealing with charity and donation collection; and that banks be able to provide the remitter’s identifying information for all outgoing transfers. The guidelines also require banks to use software to profile customers to detect unusual transaction patterns; establish a monitoring threshold of 100,000 Saudi Riyals (approximately $26,700) and develop internal control systems and compliance systems. SAMA also issued “know- your-customer” guidelines, requiring banks to freeze accounts of customers who do not provide updated account information. Saudi law prohibits nonresident individuals or corporations from opening bank accounts in Saudi Arabia without the specific authorization of SAMA. There are no bank secrecy laws that prevent financial institutions from reporting client and ownership information to bank supervisors and law enforcement authorities. There is money laundering training for bank employees, prosecutors, judges, customs officers and other government officials. Financial institutions in Saudi Arabia are required to maintain records of significant transactions in order to respond quickly to government requests. Anti-money laundering and countering the financing of terrorism (AML/CTF) controls are applied to nonbank financial institutions and designated nonfinancial businesses and professions.

In 2005, the Government of Saudi Arabia (GOSA) established the Saudi Arabia Financial Investigation Unit (SAFIU), which acts as the country’s financial intelligence unit (FIU) within the Ministry of Interior. Saudi banks are required to have anti-money laundering units with specialized staff to work with SAMA, the SAFIU and law enforcement authorities. All banks are also required to file suspicious transaction reports (STRs) with the SAFIU. The SAFIU collects and analyzes STRs and other available information and makes referrals to the Bureau of Investigation and Prosecution, the Mabahith (the Saudi Security Service), and the Public Security Agency for further investigation and prosecution.

The FIU performs analytical duties relating to financial crimes and also has law-enforcement and regulatory responsibilities. The FIU has access to databases of other government and financial institution entities. Statistics for suspicious transaction reporting and other forms of financial intelligence are not available. The SAFIU is not a member of the Egmont Group.

Hawala and money service businesses outside banks and licensed money changers are illegal in Saudi Arabia. Some instances of money laundering and terrorist finance in Saudi Arabia have involved hawala. 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 to create fast, efficient, high quality, and cost-effective fund transfer systems that have proven capable of attracting customers accustomed to using hawala. An important advantage for the authorities in combating potential money laundering and terrorist financing in this system is that the senders and recipients of fund transfers through this formal financial sector are required to clearly identify themselves. In 2005, in an effort to further regulate the more than $16 billion in annual remittances that leave Saudi Arabia, SAMA consolidated the eight largest moneychangers into a single bank, Bank Al-Bilad.

In June 2007 the GOSA enacted stricter regulations on the cross-border movement of money, precious metals, and jewels. Money and gold in excess of 60,000 Saudi riyals (approximately $16,000) must be declared upon entry and exit from the country using official Customs forms. However, the implementation and effectiveness of these procedures remains in question. Cash declarations as well as smuggling reports are entered into a database; however, this information currently is not shared with other governments.

The new 2007 regulations also stipulate that whoever is convicted of money laundering will be imprisoned for up to ten years and fined up to five million Saudi riyals (approximately $1,333,300). The regulations also state, “Whoever funds terrorists or terror organizations is considered to be committing a crime of money laundering.”

Saudi individual donors and unregulated charities have been a major source of financing to extremist and terrorist groups over the past 25 years. However, the Final Report of the National Commission on Terrorist Attacks Upon the United States, known as The 9/11 Commission, found no evidence that either the Saudi Government, as an institution, or senior Saudi Government officials individually, funded al-Qaida.

Contributions to charities in Saudi Arabia usually consist of Zakat, which refers to an Islamic religious duty with specified humanitarian purposes. In 2002, Saudi Arabia announced its intention to establish a National Commission for Relief and Charitable Work Abroad, commonly known as the Charities Commission, a mechanism that would oversee all private charitable activities abroad. Until the Charities Commission is established, no Saudi charity can send funds abroad. As of late 2008, the proposal was still under review by a committee of Saudi officials; however, the GOSA stated that the Commission should be fully functional by the end of 2009. As required by regulations in effect for over 20 years, domestic charities in Saudi Arabia are licensed, registered, audited, and supervised by the Ministry of Social Affairs. In addition to domestic charities are larger Saudi-based entities referred to “multilateral organizations” that engage in a range of domestic and international charitable and educational activities. These organizations, such as the International Islamic Relief Organization and the World Assembly of Muslim Youth, largely operate outside of the strict Saudi restrictions covering domestic charities. The Ministry has engaged outside accounting firms to perform annual audits of charities’ financial records and has established an electronic database to track the operations of such charities. New banking rules implemented in 2003 that apply to all charities include stipulations that they can be only opened in Saudi riyals; must adhere to enhanced identification requirements; must utilize one main consolidated account; and must make payments only by checks payable to the first beneficiary, which then must be deposited in a Saudi bank. Regulations also forbid charities from using ATM and credit cards for charitable purposes, from making cash contributions, and making money transfers outside of Saudi Arabia.

In June 2008 the U.S. Department of the Treasury designated the Al Haramain Islamic Foundation (AHF), including its headquarters in Saudi Arabia, for having provided financial and material support to al-Qaida. Previously, the GOSA joined the United States in designating several branch offices of AHF and, due to actions by Saudi authorities, AHF had largely been precluded from operating in its own name. Despite these efforts, AHF leadership attempted to reconstitute the operations of the organization, and parts of the organization continued to operate. AHF is one of the world’s largest Wahhabi affiliated Islamic charities. AHG has long been aligned with many of the activities of the Muslim Brotherhood, with chapters in Western Europe, the Balkans, the United States, and Canada.

SAMA is responsible for the tracing, freezing, and seizing of assets related to financial crimes. The banking community cooperates with SAMA regarding the tracing of funds as well as seizing and freezing of bank accounts. Existing laws on asset seizure and forfeiture are enforced by SAMA; however, there are currently no laws that allow the sharing of seized assets with other governments. The GOSA has been partially complaint with obligations under UN Security Council resolutions (UNSCR) on terrorist financing. SAMA circulates to all financial institutions under its supervision the names of suspected terrorists and terrorist organizations on the UNSCR 1267 Sanctions Committee’s consolidated list.

There are no free trade zones for manufacturing, although there are bonded transit areas for the trans-shipment of goods not entering the country.

Saudi Arabia participates in the activities of the FATF through its membership in the Gulf Cooperation Council (GCC), and as a member of the Middle East and North Africa Financial Action Task Force (MENAFATF). Saudi Arabia will be undergoing a second FATF mutual evaluation in February 2009. Saudi Arabia is a party the 1988 UN Drug Convention, the UN Convention against Transnational Organized Crime, and the UN Convention for the Suppression of the Financing of Terrorism. Saudi Arabia has signed but not ratified the UN Convention against Corruption.

The Government of Saudi Arabia is taking steps towards enforcing its anti-money laundering/counterterrorist finance laws, regulations, and guidelines. However, Saudi Arabia continues to be a significant jurisdictional source for terrorist financing worldwide. The GOSA continues to take aggressive action to target direct threats to the Kingdom, but could do more to target Saudi-based support for extremism outside of Saudi’s borders. Saudi authorities should hold terrorist financiers publicly accountable through prosecutions and full implementation of UNSC obligations. The GOSA also needs to take concrete steps to establish a charities oversight mechanism that also overseas “multilateral organizations” and enhances its oversight and control of Saudi entities with overseas operations. Charitable donations in the form of gold, precious stones and other gifts should be scrutinized. There is still an over-reliance on suspicious transaction reporting to generate money laundering investigations. Law enforcement agencies should take the initiative and proactively generate leads and investigations, and be able to follow the financial trails wherever they lead. The public dissemination of statistics regarding predicate offenses and money laundering prosecutions would facilitate the evaluation and design of enhancements to the judicial aspects of its AML system. Saudi Arabia should become a party to the UN Convention against Corruption.


A regional financial center with a largely cash-based economy, Senegal is vulnerable to money laundering. Reportedly, most money laundering involves domestically generated proceeds from corruption and embezzlement. In 2008, authorities discovered significant amounts of irregular and inappropriate budget expenditure. Also of concern are criminal figures who launder and invest their personal and their organization’s proceeds from the growing West Africa narcotics trade. There is also evidence of increasing criminal activity by foreigners, such as narcotics trafficking by Latin American groups and trafficking in persons involving Pakistanis.

Dakar’s active real estate market is largely financed by cash. Property ownership and transfer are not transparent. The building boom and high property prices suggest that there is an increasing amount of funds with uncertain origin circulating in Senegal. The growing presence of hawala or other informal cash transfer networks and the increasing number of used imported vehicles also suggest the existence of both money laundering and illicit cash couriers. Trade-based money laundering (TBML) is centered in the region of Touba, a largely autonomous and unregulated free-trade zone under the jurisdiction of the Mouride religious authority. Touba reportedly receives between $550 and $800 million per year in funds repatriated by networks of Senegalese traders and vendors abroad. Other areas of concern include the transportation of cash, gold and gems through Senegal’s airport and across its porous borders, and real estate investment in the Petite Cote south of Dakar.

Seventeen commercial banks operate alongside thriving micro credit and informal sectors. The Government of Senegal (GOS) is attempting to discourage its civil servants from using cash by depositing salaries into formal bank accounts, and the Banking Association has undertaken a publicity campaign to encourage the populace to use the formal banking system. Western Union, Money Gram and Money Express are associated with banks and compete with Senegal’s widespread informal remittance systems, including hawala networks and cash couriers. Small-scale, unregulated and unlicensed currency exchange operations are common, especially outside urban centers. The Banque de l’Habitat du Senegal (BHS), a Senegalese bank, has affiliates licensed as money remitters in the United States. New York State authorities have brought enforcement action against BHS New York for failing to comply with anti-money laundering (AML) regulations.

The Central Bank of West African States (BCEAO), based in Dakar, is the Central Bank for the eight countries in the West African Economic and Monetary Union (WAEMU or l’UEMOA), including Senegal, and uses the CFA franc currency. The Commission Bancaire (CB), the BCEAO division responsible for bank inspections, is based in Abidjan. The CB supervises and regulates banks within the WAEMU, but does not execute a full AML examination during its standard banking compliance examinations. Senegal has no offshore banking sector.

Senegal’s currency control and reporting requirements are not uniform and are reportedly laxly enforced. Nonresidents on entry must declare any currency they are transporting from outside the “zone franc” greater than one million CFA (approximately $2,000). They must also declare monetary instruments denominated in cash in any amount. When departing Senegal, nonresidents must declare any currency from outside the franc zone greater than approximately $1,000 and all monetary instruments from foreign entities. The law does not require residents to declare currency on entry; on exit, they must declare amounts any foreign currency and any monetary instruments greater than approximately $4,000. All declarations must be in writing. There is no publicity regarding currency declaration requirements at major points of entry. Customs authorities are primarily concerned with the importation of dutiable goods. Other authorities with different mandates, and which do not implement currency controls, patrol land border crossings

The legal basis for Senegal’s anti-money laundering/counterterrorist financing (AML/CTF) framework is “la Loi Uniforme Relative a la Lutte Contre le Blanchiment de Capitaux” No. 2004-09 of February 6, 2004, or the Anti-Money Laundering Uniform Law (Uniform Law). As the common law passed by the members of l’UEMOA/WAEMU, all member states are bound to enact and implement the legislation. Among the union, Senegal was the first country to have the AML legal framework in place. Senegal has an “all crimes” approach to money laundering. Self launderers may be prosecuted and the law does not require a conviction for the predicate offense. Intent may be inferred from objective factual circumstances. Criminal liability applies to all legal persons as well as natural persons.

The legislation lacks certain compliance provisions for nonfinancial institutions. The Uniform AML law requires banks and other financial institutions to know their customers and record and report the identity of any individual or entity engaged in significant transactions, including the recording of large currency transactions. Banks monitor and record the origin of any deposit higher than 5 million CFA (approximately $10,000) for a single individual account and 20 to 50 million CFA (approximately $40,000 to 100,000) for any business account. Commercial banks in Senegal are improving their internal controls and enhancing their “know your customer” (KYC) requirements. The law also contains safe harbor provisions for individuals who file reports.

Cellule Nationale de Traitement des Informations Financieres (CENTIF), Senegal’s financial intelligence unit (FIU) became operational in August 2005. The FIU currently has a staff of 28, including six appointed members: the President of the FIU, who by law is chosen from the Ministry of Economy and Finance, and five others detailed from the Customs Service, the BCEAO, the Judicial Police, and the Ministry of Justice. Senegal’s FIU is working to improve its operational abilities and raise the awareness of the threat of money laundering in Senegal. CENTIF has provided outreach and training for obliged entities to familiarize themselves with the legal requirements and to improve the quality and variety of STRs that the FIU receives. Senegal’s FIU has applied for membership in the Egmont Group.

The police, gendarmerie and Ministry of Justice’s judicial police are technically responsible for investigating money laundering and terrorist financing. However, in reality, CENTIF reportedly retains its information and tasks law enforcement entities to investigate or retrieve information for its cases. CENTIF reportedly does not share or disseminate information or financial intelligence to law enforcement. In 2008, CENTIF received 58 suspicious transaction reports (STRs), mostly from banks, and referred 30 cases, which include transactions from both Senegalese and foreigners, to the Prosecutor General. In turn, the Prosecutor General passed 10 cases directly to the investigating judge. No cases have been concluded, although authorities have made commitments to pursue judicial actions. Official statistics regarding the prosecution of financial crimes are unavailable. There has been only one known conviction for money laundering since 2005, which led to the confiscation of a private villa.

The Uniform Law provides for the freezing, seizing, and confiscation of property by judicial order. In addition, the FIU can order the suspension of the execution of a financial transaction for 48 hours. The BCEAO can also order the freezing of funds held by banks. The Uniform Law allows explicitly for criminal forfeiture. There is no provision for civil forfeiture. The FATF-style regional body (FSRB) for the 15 members of the Economic Community of Western African States (ECOWAS) known as the Intergovernmental Action Group Against Money Laundering in West Africa (GIABA) has also drafted a uniform law regarding seizure and confiscation, which it hopes that all of its member states will enact.

The BCEAO has released a Directive against Terrorist Financing that advises member states that they must enact a law against terrorist financing; the BCEAO law is a Uniform Law to be adopted by all WAEMU/l’UEMOA members in a manner similar to that of the AML law. Like the AML law, the terrorist financing law is a penal law, and each national assembly must enact enabling legislation to adopt it. In 2008, Senegal’s Council of Ministers approved this l’UEMOA/WAEMU CTF uniform law, and it currently awaits adoption by the National Assembly. Reportedly, when the law is placed on the agenda, it should pass quickly; however, the Assembly has not yet put it on the agenda. The CENTIF hoped to have the law passed prior to its February presentation to the Egmont Group regarding its application for membership.

Although Senegal has not passed a law criminalizing the financing of terrorism, it amended its penal code in March 2007 to incorporate the United National Security Council Resolution (UNSCR) requirements for terrorist financing. In July 2007, l’UEMOA/WAEMU released guidance on terrorist financing for the sub-region alongside Directive No. 04/2007/CM/l’UEMOA, obliging member states to pass domestic CTF legislation. The BCEAO and the FIU circulate the UN 1267 Sanctions Committee consolidated list to commercial financial institutions. To date, Senegalese authorities have not identified any designated entities. The l’UEMOA/WAEMU Council of Ministers issued a directive in September 2002 requiring banks to freeze the assets of any entities designated by the Sanctions Committee.

Senegal has entered into bilateral criminal mutual assistance agreements with France, Tunisia, Morocco, Mali, The Gambia, Guinea Bissau, and Cape Verde. Multilateral ECOWAS treaties address extradition and legal assistance among the member countries. Under the Uniform Law, the FIU may share information freely with other l’UEMOA/WAEMU FIUs. All WAEMUs countries have FIUs, except Guinea Bissau. CENTIF has signed a Memorandum of Understanding (MOU) for information exchange with the FIUs of Belgium, Nigeria, Algeria and Lebanon, and is working on other accords. CENTIF is open to information exchange on the basis of reciprocity and shares information with the FIUs belonging to the Egmont Group without the requirement of a MOU. The Senegalese government and law enforcement agencies are generally willing to cooperate with United States law enforcement agencies. The Government of Senegal (GOS) has also worked on international anti-crime operations with INTERPOL, Spanish, and Italian authorities.

Senegal is a party to the 1988 UN Drug Convention, the UN Convention against Transnational Organized Crime, the 1999 UN International Convention for the Suppression of the Financing of Terrorism, and the UN Convention against Corruption. Senegal is a member of GIABA and underwent a mutual evaluation by that body. GIABA discussed and adopted the mutual evaluation report in May 2008.

The Government of Senegal should continue to work with its partners in GIABA, l’UEMOA/WAEMU and ECOWAS to develop a comprehensive anti-money laundering and counterterrorist financing regime. Senegal should work on achieving transparency in its financial and real estate sectors, and continue to encourage the populace to use the formal banking system, steering them away from cash transactions. Senegal should continue to battle corruption and increase the frequency, transparency, and effectiveness of financial reviews and audits of financial institutions. Senegal should lead its regional partners in the fight against AML/CTF and establish better uniform control of cross-border flow of currency and other bearer-negotiable instruments for both residents and nonresidents. Senegalese law enforcement and customs authorities need to develop their expertise in identifying and investigating both traditional money laundering and money laundering within the informal economy. CENTIF should perform more outreach to obliged nonbank financial institutions to ensure a better understanding of STRs, when to file them and the information they should contain. CENTIF, law enforcement and Ministry of Justice authorities should work together to coordinate roles and responsibilities with regard to case investigation and assembly, and develop a deeper interagency understanding of money laundering and terrorist financing. Senegal should amend its AML legislation to address the remaining shortcomings, and criminalize terrorist financing.


Serbia is not a regional financial center. At the crossroads of Europe and on the major trade corridor known as the “Balkan route,” Serbia confronts narcotics-trafficking, smuggling of persons, drugs, weapons and pirated goods, money laundering, and other criminal activities. Corruption and organized crime also continue to be significant problems in Serbia. Serbia continues to be a significant black market for smuggled goods. Illegal proceeds are generated from drug-trafficking, corruption, tax evasion and organized crime, as well as other types of crimes. Proceeds from illegal activities are invested in all forms of real estate. Trade-based money laundering, in the form of over- and under-invoicing, is commonly used to launder money. There are reports the purchase of some private and state-owned companies was linked to money laundering activity.

A significant volume of money flows to Cyprus, reportedly as payment for goods and services. The records maintained by various government entities vary significantly on the volume and value of imports from Cyprus. According to Government of the Republic of Serbia (GOS) officials, much of the difference is due to payments made to accounts in Cyprus for goods, such as Russian oil, that actually originate in a third jurisdiction. Banks in Macedonia, Hungary, Switzerland, Austria and China have emerged as destinations for laundered funds.

There are 34 banks in Serbia. Twenty are foreign majority owned, six are majority owned by domestic legal entities and eight are state majority owned. Foreign majority ownership accounts for approximately 75 percent of total bank assets in Serbia. There is no provision in the banking law that allows the establishment of offshore banks, shell companies or trusts. Reportedly, there is no official evidence of any alternative remittance systems operating in the country; however, there is anecdotal evidence. Nor is there evidence of financial institutions engaging in currency transactions involving international narcotics-trafficking proceeds. Serbia has three designated, operating free trade zones established to attract investment by providing tax-free areas to companies. These companies are subject to the same supervision as other businesses in the country.

In September 2005, Serbia codified an expanded definition of money laundering in Article 231 of the Penal Code. This legislation gives police and prosecutors more flexibility to pursue money laundering charges, as the law broadens the scope of money laundering and aims to conform to international standards. The penalty for money laundering is a maximum of ten years imprisonment. Under this law and attendant procedure, money laundering falls into the serious crime category and permits the use of Mutual Legal Assistance (MLA) procedures to obtain information from abroad.

On November 28, 2005, Serbia adopted a revised anti-money laundering law (AMLL), replacing the July 2002 Law on the Prevention of Money Laundering. The revised AMLL expands the number of entities required to collect certain information and file currency transaction reports (CTRs) with the financial intelligence unit (FIU) for all cash transactions over EUR 15,000 (approximately $20,250), or the dinar equivalent. Suspicious transactions in any amount must be reported to the FIU. The law also expands those sectors subject to reporting and record keeping requirements. Banks, attorneys, auditors, tax advisors and accountants, currency exchanges, insurance companies, casinos, securities brokers, dealers in high value goods, real estate agencies and travel agents are required to comply with the AMLL provisions. Required records must be maintained for five years. These entities are protected with respect to their cooperation with law enforcement entities. In addition to reporting to the FIU, the AMLL also requires obligated entities and individuals to monitor customers’ accounts when they suspect money laundering. The AMLL also eliminates a previous provision limiting prosecution to crimes committed within Serbian territory

The Law on Foreign Exchange Operations, adopted in 2006, criminalizes the use of false or inflated invoices or documents to facilitate the transfer of funds out of the country. This law was enacted in part to counter the perceived problem of import-export fraud and trade-based money laundering. According to the law, residents and nonresidents are obliged to declare to customs authorities all currency (foreign or dinars), or securities in amounts exceeding EUR 5,000 (approximately $6,750) being transported across the border.

Among the pending legislative initiatives necessary for Serbia to be fully compliant with international standards is the GOS Anti Money Laundering and Terrorism Financing Bill, extending financial reporting requirements to terrorist financing and expanding all current AMLL requirements to nonbank financial institutions. In September 2008, the GOS proposed this bill to the Parliament.

In September 2008, the GOS adopted the National Strategy Against Money Laundering and Terrorist Financing. The Strategy sets out specific goals and objectives in legislation, operational matters and training.

In October 2008, the Parliament enacted a new Anti-Corruption Agency Law that, among other provisions, establishes an anticorruption agency and sets reporting and political party funding requirements. At the same time, it also enacted the Law on the Amendments and the Addenda of the Law on Financing Political Parties, improving the reporting obligations and procedure.

Also in October 2008, the Parliament of Serbia adopted the Law on Criminal Liability of Legal Entities, providing for criminal liability of legal persons for money laundering and terrorist financing.

The National Bank of Serbia (NBS) has supervisory authority over banks, currency exchanges, insurance and leasing companies. The NBS has issued regulations requiring banks to have compliance and know-your-customer (KYC) programs in place and to identify the beneficial owners of new accounts. In June 2006, the NBS expanded its customer identification and record keeping rules by adopting new regulations mandating enhanced due diligence procedures for certain high risk customers and politically exposed persons. Similar regulations have been adopted for insurance companies. The Law on Banks includes a provision allowing the NBS to revoke a bank’s license for activities related to, among other things, money laundering and terrorist financing. To date, the NBS has not used this revocation authority. The legal framework is in place, but the NBS is still building the capacities needed for effective anti-money laundering (AML) compliance supervision through training and staff development.

The Securities Commission (SC) supervises broker-dealers and investment funds. The Law on Investment Funds and the Law on Securities and Other Financial Instruments Market, both enacted in 2006, provide the SC with the authority to “examine” the source of investment capital during licensing procedures. The SC is also charged with monitoring its obligors’ compliance with the AML laws. Regulations to implement this authority are being developed.

In 2004, a new law was enacted that revises gaming rules, and the Administration for Games of Chance was established on January 1, 2005. The law rescinds all outstanding gaming establishment licenses and requires existing casinos to reapply for new licenses. It also sets a maximum of ten casino licenses for issuance. As of the end of 2008, only two casinos had been issued new licenses. Yet, casinos continue to operate all over the country in apparent violation of the new law. The gaming supervisory authority has not been provided with adequate resources (five of the ten authorized staff), and the political will to enforce the law is weak.

Since the GOS introduced a value-added tax (VAT) in 2005, several criminal schemes have been investigated. Serbia’s Tax Administration lacks the audit and investigative capacity and resources to adequately investigate the large number of suspicious transactions that are forwarded by Serbia’s FIU. In addition, current tax law sets a low threshold for auditing purposes and has increased the burden on the Tax Administration. This creates a situation where criminals can spend and invest illegal proceeds freely with little fear of challenge by the tax authorities or other law enforcement agencies.

The Administration for the Prevention of Money Laundering serves as Serbia’s FIU with the status of an administrative body under the Ministry of Finance. The FIU has its own line item operating budget. The FIU has filled 24 of its 35 authorized positions. In accordance with the AMLL, the FIU developed listings of suspicious activity red flags for banks, currency exchange offices, insurance companies, securities brokers and leasing companies. The FIU has the authority to freeze transactions for a maximum of 72 hours and to order the monitoring of an account for up to three months following a freezing order. The FIU has signed memoranda of understanding (MOU) on the exchange of information with the NBS, Customs and the Tax Administration.

The FIU received 2,034 suspicious transaction reports (STRs) in 2007 and 2,087 through November 5, 2008. Virtually all of the STRs received by the FIU have been filed by commercial banks. Currency exchange offices have filed only seven STRs, all prior to 2004. The FIU opened 46 cases in 2007 and 31 through November 5, 2008. Prosecutors’ offices have assigned AML liaison officers to ensure information sharing with the FIU.

A total of six criminal charges were submitted for money laundering violations in 2007. In late 2008, the public prosecutor’s office reports 66 persons suspected of money laundering, with 33 requests for investigation and 27 issued and pending indictments. To date, there have been three convictions. In October 2008, Serbian police arrested an organized group of 25 people who are suspected of laundering money through phantom and unregistered companies. The group is suspected to have earned over 3 million euro (approximately $4,050,000) in money laundering operations over the last two years.

Despite its attempts to gain law enforcement authority, Serbian Customs has not succeeded in doing this to date. Although Customs has investigative and intelligence functions, investigations for all cases to be prosecuted are turned over to the MOI. In addition, Serbian capability to monitor Danube traffic remains minimal.

The difficulty of convicting a suspect of money laundering without a conviction for the predicate crime and the unwillingness of the courts to accept circumstantial evidence to support money laundering or tax evasion charges is hampering law enforcement and prosecutors in following the movement and investment of illegal proceeds and effectively using the AML laws. The most common predicate crime is “abuse of office.” The Suppression of Organized Crime Service (SOCS) of the Ministry of Interior houses an Anti-Money Laundering Section to better focus financial investigations.

In August 2005, the GOS established the Permanent Coordinating Group (PCG), an interagency working group originally tasked with developing a plan to implement the recommendations of the Financial Action Task Force-style regional body MONEYVAL’s second-round evaluation conducted in October 2003. The PCG includes representatives from the FIU, Tax Administration, Customs Authority, Ministries of Interior and Justice, the Supreme Court, State Prosecutor’s Office, the Securities Commission, and the NBS. Subgroups have been tasked with drafting amendments to the AMLL and with estimating the budget necessary to effectively implement the proposed new anti-money laundering/counterterrorist financing law when it is enacted. The PCG and the working groups meet intermittently as required for completing specific tasks. Most recently, the group has been meeting to develop guidance for supervisory bodies and financial institutions to help them implement a risk-based approach to anti-money laundering/counterterrorist financing. The government still needs better, more consistent interagency coordination to improve information sharing, record keeping and statistics.

In October 2008, the Parliament adopted its first ever Asset Forfeiture Law, stipulating the agencies in charge of detection of the proceeds of crime, process of seizure and the management of seized assets. This law also changes the burden of proof, making a convicted criminal be responsible for proving the legal origin of his assets. It also provides for international cooperation. Under the law, assets derived from criminal activity or suspected of involvement in terrorist financing can be seized upon conviction for an offense. The law defines the conditions, procedure and management of the seized criminal proceeds.

The FIU is charged with enforcing the UNSCR 1267 provisions regarding suspected terrorist lists. A draft law on terrorist financing, now pending Parliamentary approval, will apply all provisions of the AMLL to terrorist financing, require reporting to the FIU of transactions suspected to be terrorist financing and will create mechanisms for freezing, seizing and confiscation of suspected terrorist assets based on UNSCR provisions. Although the FIU routinely provides the UN list of suspected terrorist organizations to the banking community, examinations for suspect accounts have revealed no evidence of terrorist financing within the banking system. The SOCS, the Special Anti-Terrorist Unit (SAJ), and Gendarmerie, in the Ministry of Interior, are the law enforcement bodies responsible for planning and conducting the most complex anti-terrorism operations. SOCS cooperates and shares information with its counterpart agencies in countries bordering Serbia. Although Serbia has criminalized terrorist financing, the freezing, seizing and confiscation of terrorists’ assets in accordance with UN Security Council resolutions still lacks a legal basis, pending enactment of the draft legislation.

Serbia has no laws governing its cooperation with other governments related to narcotics, terrorism, or terrorist financing. Bases for cooperation include participation in Interpol, bilateral and multi-lateral cooperation agreements, and agreements concerning international legal assistance. There are no laws governing the sharing of confiscated assets with other countries, nor is any legislation under consideration.

Serbia does not have a mutual legal assistance arrangement with the United States, but information exchange via a letter rogatory is standard. The 1902 extradition treaty between the Republic of Serbia and the United States remains in force. The treaty allows the Serbian government to extradite non-Serbs to the United States. The GOS has bilateral agreements on mutual legal assistance with 31 countries. The GOS is an active member of MONEYVAL, and Serbia is scheduled for a mutual evaluation by MONEYVAL in 2009. The FIU is a member of the Egmont Group and actively participates in information exchanges with counterpart FIUs, including FinCEN. The Serbian FIU has also signed information sharing MOUs with Macedonia, Romania, Belgium, Slovenia, Montenegro, Albania, Georgia, Ukraine, Bulgaria, Croatia, and Bosnia and Herzegovina. Serbia is a party to the1988 UN Drug Convention, the UN Convention against Corruption and the UN Convention against Transnational Organized Crime. The GOS also is a party to the UN Convention for the Suppression of the Financing of Terrorism, although domestic implementation procedures do not provide the framework for full application.

The Government of Serbia should continue to work toward eliminating the abuses of office and culture of corruption that enable money laundering and financial crimes. The Parliament of Serbia should enact its pending legislative initiatives, including the Government Bill on Anti Money Laundering and Terrorism Financing, extending financial reporting requirements to suspected terrorist financing. The GOS should adopt regulations and bylaws to implement all reporting and record keeping requirements of the current AMLL applicable to covered nonbank financial institutions. The GOS should enforce regulations pertaining to money service businesses and obligated nonfinancial businesses and professions. The supervisory scheme should be completed, and implementing regulations should be binding for the securities sector. The National Bank and other supervisory bodies as well as investigative agencies, prosecutors and judges need enhanced capability and additional resources. The gaming laws should be fully enforced and the supervisory authority provided with adequate resources and authority. Rather than address specific tasks as an ad hoc group, the PCG should meet on a regular basis to discuss issues and projects, and work to improve interagency coordination in such areas as information sharing, record keeping and statistics. Serbia should take steps to ensure Customs has the authority and resources to investigate pertinent cases leading to prosecutions and to effectively police its Danube border.


Seychelles is a not a major financial center. The existence of a developed offshore financial sector, however, makes the country vulnerable to money laundering. The Government of Seychelles (GOS), in efforts to diversify its economy beyond tourism, developed an offshore financial sector to increase foreign exchange earnings and actively markets itself as an offshore financial and business center that allows the registration of nonresident companies. As of January 2008, there were 43,456 registered international business companies (IBCs) and 211 trusts that pay no taxes in Seychelles, and are not subject to foreign exchange controls. The Seychelles International Business Authority (SIBA), a body with board members from both the government and the private sector, registers, licenses and regulates offshore activities. The SIBA licenses and registers agents who carry out due diligence tests when registering new companies in the Seychelles offshore sector. The SIBA also regulates the activities, which are mainly geared towards exports, of the Seychelles International Trade Zone,

In addition to IBCs and trusts, Seychelles permits offshore insurance companies, mutual funds, and offshore banking. In November 2006, under the Mutual Funds Act, the Securities Act and the Insurance Act, the GOS established the Non-Bank Financial Services Authority to regulate these sectors. Three offshore insurance companies have been licensed: one for captive insurance and two for general insurance. Seychelles has two offshore banks: Barclays Bank (Offshore Unit) and BMI Offshore Bank. BMI Offshore Bank is a joint venture between the Bahrain-based BMI Bank and the locally incorporated Nouvobanq, the largest bank in Seychelles. The International Corporate Service Providers Act 2003, designed to regulate all activities of corporate and trustee service providers, entered into force in 2004.

In its 2007-2017 Strategic Plan, the Seychelles Government proposes to facilitate the development of the financial services sector as a third pillar of the economy. It plans to achieve this through actively promoting Seychelles as an internationally recognized offshore jurisdiction, with emphasis on IBCs, mutual funds, special license companies and insurance companies.

In an attempt to build on the success of the financial services sector and to maintain investors’ confidence, the 1995 Securities Act and the 1997 Mutual Funds Act were amended in 2007 and 2008 respectively. The 2007 Securities Act aims at instilling confidence in investors by licensing and regulating all securities-related activities and by providing internationally accepted guidelines to which participants must adhere. The Act establishes fines against insider trading, price rigging, market manipulation, and fraudulent transactions. The Act also establishes the Seychelles Stock Exchange, which will be regulated by the Securities and Financial Markets Division of the Central Bank. The 2008 Mutual and Hedge Funds Act extends the authorities’ power to obtain periodical audits, enter and search premises of licensed operators, and ensure that activities conform to international standards.

In June 2008, the Central Bank of Seychelles issued guidelines (The Fit and Proper Guidelines) outlining relevant licensing criteria under the Securities Act, the Insurance Act and the Mutual Funds Act.

In 1996, the GOS enacted the Anti-Money Laundering Act (AMLA), which criminalized the laundering of funds from all serious crimes, required covered financial institutions and individuals to report suspicious transactions to the Central Bank, which now houses the financial intelligence unit (FIU), and established safe harbor protection for individuals and institutions filing such reports. The AMLA also imposed record keeping and customer identification requirements for financial institutions, and provided for the forfeiture of the proceeds of crime.

In May 2006, the Anti-Money Laundering Act 2006 came into force. This legislation replaced the 1996 AMLA and addresses many of the deficiencies previously cited by a 2004 IMF assessment. The 2006 AMLA applies the same money laundering controls, including the obligation to submit suspicious transaction reports (STRs), to the same entities as the 1996 law, but also applies to nonbank financial institutions, such as exchange houses, stock brokerages, insurance agencies, lawyers, notaries, accountants, and estate agents. Offshore banks are specifically addressed by the 2006 AMLA. The gaming sector is also obliged to file STRs. Although Internet gaming is an obligated sector, no offshore casinos or Internet gaming sites are licensed to operate in Seychelles and the law does not explicitly state that offshore gaming is covered in an identical manner. The 2006 AMLA discusses record-keeping and institutional protocol requirements, sets a maximum delay of two working days to file an STR, criminalizes tipping off, and sets safe harbor provisions. The new law also requires reporting entities to take “reasonable measures” to ascertain the purpose of any transaction in excess of Seychelles rupees 100,000 (approximately U.S. $6,250), or, in the case of cash transactions, rupees 50,000 (approximately U.S. $3,125), and the origin and destination of the funds involved in the transaction. However, it leaves open exceptions for “an existing and regular business relationship with a person who has already produced satisfactory evidence of identity”; for “an occasional transaction under rupees 50,000” (approximately U.S. $3,125); and in other cases “as may be prescribed.”

Under the 2006 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 a 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. Money laundering is sanctioned by imprisonment for up to fifteen years and/or rupees 3,000,000 (approximately U.S. $375,000) in penalties. Of 68 investigations to date, eleven were closed due to lack of evidence. In three cases, the suspects had left Seychelles, and in three others the suspects had died. The remaining 51 cases were still pending investigation as of December 2008. There have been no arrests or prosecutions for money laundering or terrorist financing since 1998.

In July 2008, the Anti-Money Laundering (Amendment) Bill was introduced in the National Assembly. The proposed amendment provides for an expanded definition of the crime of money laundering, which provides for offenses committed outside of Seychelles. It also provides for a civil standard of proof to determine the connection between the predicate offense and the money laundering offense. In specified circumstances, the suspect must prove that assets were obtained legally; otherwise, authorities will presume the assets were derived from criminal conduct.

The Financial Institutions Act of 2004 imposes more stringent rules on banking operations and brings the Seychelles’ regulatory framework closer to compliance with international standards. The law aims to ensure greater transparency in financial transactions by regulating the financial activities of both domestic and offshore banks. Among other provisions, the law requires that banks change their auditors every five years. Auditors must notify the Central Bank if they uncover criminal activity such as money laundering in the course of an audit. There is no cross-border currency-reporting requirement.

The Financial Intelligence Unit (FIU) was established within the Central Bank of Seychelles under Section 16 of the 2006 AMLA. The FIU is the focal point for receiving and analyzing reports of transactions suspected to be related to money laundering or the financing of terrorism, and disseminating the analysis to the appropriate law enforcement and supervisory agencies in Seychelles. To support these core functions, the FIU is authorized to collect pertinent information and request additional information from reporting entities, law enforcement and supervisory bodies. The law provides for the FIU to have a proactive targeting section to research trends and developments in money laundering and terrorist financing. The FIU also performs examinations of the reporting entities and, in concert with regulators, issues guidance related to customer identification, identification of suspicious transactions, and record keeping and reporting obligations. In 2007 the FIU updated a set of guidelines on anti-money laundering/counterterrorist financing (AML/CTF), for the reporting entities in accordance with the requirements of the AMLA 2006. In December 2006, the Seychelles Government established a National Anti-Money Laundering Committee to better coordinate the efforts of the various law enforcement agencies in combating financial crimes. The Committee is chaired by the FIU, and comprises representatives of the Police, the Attorney General’s Office, Customs, Immigration, the Seychelles Licensing Authority, and the Seychelles International Business Authority.

The FIU cannot freeze or confiscate property but may get a court order to effect an asset freeze. The courts have the authority to freeze or confiscate money or property. Judges in the Supreme Court have the authority to restrain a target from moving or disposing of his or her assets, and will do so if a law enforcement officer requests it and the Court is “satisfied that there are reasonable grounds” for doing so. The Court also has the authority to determine the length of time for the restraint order and, as needed, the disposition of assets. If the target violates the order, he or she becomes subject to financial penalties. Law enforcement may seize property subject to this order to prevent it from being disposed of or moved contrary to the order. The Court is also authorized to order the forfeiture of assets.

In 2004, the GOS enacted the Prevention of Terrorism Bill. The legislation specifically recognizes the government’s authority to identify, freeze, and seize assets related to terrorist financing. The 2006 AMLA broadened the legal AML requirements, applying the law to suspected terrorist financing transactions. Assets used in the commission of a terrorist act can be seized and legitimate businesses can be seized if used to launder drug money, support terrorist activity, or support other criminal activities. Both civil and criminal forfeiture are allowed under current legislation.

The Mutual Assistance in Criminal Matters Act of 1995 empowers the Seychelles Central Authority to provide assistance to another jurisdiction in connection with a request to conduct searches and seizures relating to serious offenses under the law of the requesting state. The Prevention of Terrorism Act extends the authority of the GOS to include the freezing and seizing of terrorism-related assets upon the request of a foreign state. To date, no such assets have been identified, frozen, or seized.

Seychelles is a party to the 1988 UN Drug Convention, the UN Convention Against Corruption, the UN Convention against Transnational Organized Crime, and the UN International Convention for the Suppression of the Financing of Terrorism. Seychelles circulates to relevant authorities the updated lists of names of suspected terrorists and terrorist organizations on the UNSCR 1267 Sanctions Committee’s consolidated list and the list of Specially Designated Global Terrorists designated by the U.S. pursuant to E.O. 13224.

The Government of Seychelles is a member of the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG), a Financial Action Task Force-style regional body. Seychelles underwent a mutual evaluation conducted by ESAAMLG in November 2006. This exercise entailed a review of Seychelles’ AML/CTF regime and covered their legal, financial and law enforcement framework and implementation. The ESAAMLG plenary adopted the report at its August 2008 plenary session. Due to the delay in the report, and the number of changes that the Seychelles has undergone since 2006, the plenary agreed to allow Seychelles to attach a narrative of Seychelles’ AML/CTF improvements since the on-site evaluation.

Seychelles should expand its anti-money laundering efforts by prohibiting bearer shares and clarifying its law regarding the complete identification of beneficial owners. The GOS should also amend the AMLA to state explicitly that all offshore activity is regulated in the same manner and to the same degree as onshore. Seychelles should continue to work with its FIU to ensure it has the training and resources needed for outreach, analysis and dissemination, and comports with the membership criteria of the Egmont Group of FIUs. The GOS should also consider codifying the ability to freeze assets rather than issuing restraining orders, and developing a currency-reporting requirement for border entry. Seychelles should participate more actively in ESAAMLG, and address the remaining shortcomings as outlined in the mutual evaluation report.

Sierra Leone

Sierra Leone has a cash-based economy and is not a regional financial center. Government of Sierra Leone (GOSL) officials hypothesize that money laundering activities are pervasive, particularly in the diamond sector. Although there have been some attempts at tighter regulation, monitoring, and enforcement, in some areas significant diamond smuggling still exists. Drug smuggling is also a problem in Sierra Leone, as evidenced by the seizure of a plane in July 2008, carrying cocaine worth $54 million at an airport outside Freetown. Real estate and car dealerships are also sectors vulnerable to money laundering activities. Loose oversight of financial institutions, weak regulations, pervasive corruption, and a widespread informal money-exchange and remittance system contribute to an atmosphere conducive to money laundering. Authorities attempted in 2008 to strengthen oversight and regulatory frameworks, including in the mushrooming financial sector,

The President signed the Anti-Money Laundering Act (AMLA) in July 2005. The AMLA incorporates international standards, mandating suspicious activity reporting, setting safe harbor provisions, requiring know your customer (KYC) procedures and identification of beneficial owner, as well as mandating five-year record-keeping. There is a currency reporting requirement for deposits larger than 25 million leones (approximately $8,330) and no minimum for suspicious transaction reporting. The law requires that international financial transfers over $10,000 go through formal financial institution channels. The AMLA calls for cross-border currency reporting requirements for cash or securities in excess of $10,000. The law designates the Governor of the Bank of Sierra Leone as the national Anti-Money Laundering Authority.

The AMLA applies to Sierra Leone’s financial sector institutions, including depository and credit institutions, money transmission and remittance service businesses, insurance brokers, investment banks, securities and stock brokerage houses, and currency exchange houses. In 2008, the Bank of Sierra Leone held a stakeholder conference, which all local banks attended, to establish guidelines for money laundering prevention. The law is also applicable to designated nonfinancial businesses and professions such as casinos, realtors, dealers in precious metals and stones, notaries, legal practitioners, and accountants.

A financial intelligence unit (FIU) exists but lacks the capacity to effectively monitor and regulate financial institution operations. The FIU’s role is to receive and analyze financial information and intelligence, including suspicious transaction reports (STRs), and disseminate information regarding potential cases to law enforcement agencies for investigation. The AMLA charges the Central Intelligence Security Unit (CISU) and the Attorney General’s Office with investigating reports made by the FIU, but CISU cannot undertake a complete investigations or effect arrests. The Attorney General’s Office has neither investigative nor arrest powers in its mandate. Though, in theory, the Sierra Leone Police (SLP), National Revenue Authority, or Anti-Corruption Commission could be tasked by either entity with investigating reported money laundering crimes, it is not clear if this happens in practice. Limited resources hamper law enforcement efforts in all arenas. Lack of training on this subject is also a considerable hindrance to prosecutions. No financial institutions provided a suspicious transaction report this year; nor have there been any prosecutions under the AMLA in 2008, The AMLA empowers the courts to freeze assets for seventy-two hours if a suspect has been charged with money laundering or if a charge is imminent. Upon a conviction for money laundering, all property is treated as illicit proceeds and can be forfeited unless the defendant can prove that possession of some or all of the property was obtained through legal means. The AMLA also provides the basis for mutual assistance and international cooperation.

Sierra Leone is a member of the Groupe Intergouvernemental d’Action contre le Blanchiment d’Argent en Afrique de l’Ouest (GIABA), a Financial Action Task Force-style regional body (FSRB) and is obliged to uphold and proliferate the AML/CTF standards instituted by that body. Sierra Leone’s mutual evaluation was adopted by the GIABA plenary in June 2007. The evaluation, which was conducted by the World Bank on GIABA’s behalf, noted particular areas of concern. These concerns included substantive shortcomings in the AMLA; the lack of implementation of the AMLA, in particular the failure to establish an operational FIU; limited financial sector supervision by the Bank of Sierra Leone (BSL) of AML/CTF preventive measures; and the lack of institutional mechanisms for the implementation of UNSCRs 1267 and 1373.

The GOSL is currently reviewing the AMLA with stakeholders, and has drafted an amended law for passage in 2009. The proposed revision includes provisions criminalizing the financing of terrorism. The revised law would also assign an appropriate law enforcement agency, such as the Sierra Leone Police (SLP), primary responsibility for money laundering and terrorism financing investigations, and increase the penalties for money laundering, The World Bank and GIABA have both provided input on the revision process to ensure that the law will meet international standards and guidelines.

Sierra Leone is a party to the 1988 UN Drug Convention and the UN International Convention for the Suppression of the Financing of Terrorism. It has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. Sierra Leone is a party to the UN Convention against Corruption.

Although the Government of Sierra Leone is aware that attention and action are required in this area and has enacted anti-money laundering legislation, it remains to be effectively implemented. Proposed revisions to the law should correct deficiencies in the original act, and include provisions for combating the financing of terrorism. Authorities should ensure that the revised law is harmonized with other relevant legislation, including the revised Anti-Corruption Act (2008), National Drug Control Act (2008), and Anti-Terrorism Act. The GOSL should ensure its penalties for counterterrorist financing are significant. The GOSL should also ensure the regular distribution to financial institutions of the UNSCR 1267 Sanctions Committee’s consolidated list, and implement and enforce provisions for immediate freezing of assets based on the list.

The GOSL should increase the level of awareness and understanding of money laundering issues and allocate the necessary human, technical, and financial resources to implement such a program. Sierra Leone’s FIU should work to build capacity by increasing its resources and striving to organize itself and perform according to international standards. Sierra Leone should continue its efforts to counter the smuggling of diamonds and narcotics, and regulate sectors in which money laundering is known or thought to be pervasive. Sierra Leone should continue to take steps to combat corruption at all levels of commerce and government. The GOSL needs to ratify the UN Convention against Transnational Organized Crime.


As a significant international financial and investment center and, in particular, as a major offshore financial center, Singapore is vulnerable to money launderers. Stringent bank secrecy laws and the lack of routine currency reporting requirements make Singapore a potentially attractive destination for drug traffickers, transnational criminals, terrorist organizations and their supporters seeking to launder money. There are terror finance risks. The authorities have taken action against Jemaah Islamiyah and its members and have identified and frozen terrorist assets held in Singapore. Structural gaps remain in financial regulations that may hamper efforts to control these crimes. Financial crimes enforcement needs strengthening. To address some of these deficiencies, Singapore is implementing legal and regulatory changes to better align itself with the Financial Action Task Force’s (FATF) revised recommendations on anti-money laundering (AML) and counterterrorist financing (CTF).

In September 2007, FATF conducted its Mutual Evaluation of Singapore’s AML/CTF regime. The FATF published its findings in February 2008 that Singapore was compliant or largely compliant with most of the FATF Recommendations. The mutual evaluation report noted that, although Singapore’s “institutional efforts to improve feedback to financial institutions, enhance supervisory oversight and step up training has resulted in a significant overall strengthening of Singapore’s AML/CTF regime, there are remaining concerns about effectiveness of the money laundering offence and the new cross-border declaration system, the requirements applicable to designated nonfinancial businesses and professions (DNFBPs), and the availability of beneficial ownership information in relation to legal persons and arrangements.” The Government of Singapore (GOS) intends to address some of the shortcomings by paying more attention to the DFBPs that are susceptible to money laundering risk. The review of the DNFBPs will include the issuing of AML regulations for casino operators and junket promoters.

Singapore’s Corruption, Drug Trafficking, and Other Serious Crimes (Confiscation of Benefits) Act (CDSA) has undergone many revisions, with the latest occurring in February 2008. The key amendments added several new categories to its “Schedule of Serious Offenses.” The CDSA criminalizes the laundering of proceeds from narcotics transactions and other predicate offenses; including ones committed overseas that would be serious offenses if committed in Singapore. Included among the new offenses are crimes associated with terrorist financing, illicit arms trafficking, counterfeiting and piracy of products, environmental crime, computer crime, insider trading, rigging commodities and securities markets, transnational organized crime, maritime offences, pyramid selling, importation and exportation of radioactive materials/irradiating apparatus, customs offences, falsification or use of false Singapore passports under the Passports Act and terrorist bombings under the Terrorism (Suppression of Bombings) Act 2007. With an eye on Singapore’s two new multibillion-dollar casinos slated to be operational in 2009, the list also addresses a number of gambling-related crimes. However, tax and fiscal offenses are still absent from the expanded list.

The Financial Investigation Branch (FIB), located within the Financial Investigation Division of CAD, is the lead money laundering enforcement agency within the Singapore Police Force (SPFC). The work of the FIB is complemented by its sister unit in the SPF, the Proceeds of Crime Unit (PCU). The Central Narcotics Bureau (CNB) is also authorized to investigate ML offences, and has established its own specialist investigative unit (the FIT) to investigate money laundering offences that are related to drug trafficking. Officers of the FIB, PCU and the SPF are empowered to exercise comprehensive investigative powers, including powers of search, and seizure of evidence in relation to money laundering, terrorist finance, or related predicate offenses. According to the FATF Mutual evaluation, the enforcement regime for investigating money laundering has not been effectively implemented, as is illustrated by the low number of money laundering investigations (approximately 46 as of mid 2007).

Singapore has a sizeable offshore financial sector. As of November 2008, there were 114 commercial banks in operation, including six local and 26 foreign-owned full banks, 40 offshore banks, and 42 wholesale banks. All offshore and wholesale banks are foreign-owned. Singapore does not permit shell banks in either the domestic or offshore sectors. The Monetary Authority of Singapore (MAS), a semi-autonomous entity under the Prime Minister’s Office, serves as Singapore’s central bank and financial sector regulator, particularly with respect to Singapore’s AML/CTF efforts. MAS performs extensive prudential and regulatory checks on all applications for banking licenses, including whether banks are under adequate home country banking supervision. Banks must have clearly identified directors. Unlicensed banking transactions are illegal.

Singapore has increasingly become a center for offshore private banking and asset management. Total assets under management in Singapore grew 32 percent between 2006 and 2007 to Singapore $1.173 trillion (approximately $814 billion), according to MAS.

Beginning in 2000, MAS began issuing a series of regulatory guidelines (“Notices”) requiring banks to apply “know your customer” standards, adopt internal policies for staff compliance and cooperate with Singapore enforcement agencies on money laundering cases. Similar guidelines exist for securities dealers and other financial service providers. Banks must obtain documentation such as passports or identity cards from all individual customers to verify names, permanent contact addresses, dates of births and nationalities. Banks must also check 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. They 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. Similar guidelines and notices exist for finance companies, merchant banks, life insurers, brokers, securities dealers, investment advisors, futures brokers and advisors, trust companies, approved trustees, and money changers and remitters.

Singapore recently revised its AML/CTF regulations for banks and other financial institutions. MAS issued new or revised AML/CTF regulations (in the form of “Notices” and “Guidelines”) for banks and other financial institutions, most of which took effect March 1, 2007. Affected institutions include banks, finance companies, merchant banks, moneychangers and remitters, life insurers, capital market intermediaries, and financial advisers. New reporting requirements for originator information on cross-border wire transfers took effect July 1, 2007. The relevant regulations further align certain parts of Singapore’s AML/CTF regime more closely with FATF recommendations and specifically address CTF concerns for the first time. Among the recently implemented regulations are new provisions that would proscribe banks from entering into, or continuing, correspondent banking relationships with shell banks; clarify and strengthen procedures for customer due diligence (CDD), including adoption of a risk-based approach; mandate enhanced CDD for foreign politically exposed persons; and additional suspicious transaction reporting requirements. In 2007, Singapore increased the maximum penalty for financial institutions that fail to comply with AML/CTF regulations from Singapore $100,000 (approximately $67,000) to Singapore $1 million ($670,000). The Act also empowers MAS to prosecute financial institution managers in cases where noncompliance is attributable to their consent, connivance or neglect. MAS is considering new regulations for holders of stored value facilities (SVF) to limit the risk of their use for illicit purposes.

In addition to banks that offer trust, nominee, and fiduciary accounts, Singapore has 12 trust companies. All banks and trust companies, whether domestic or offshore, are subject to the same regulation, record-keeping, and reporting requirements, including for money laundering and suspicious transactions. In August 2005, Singapore introduced regulations under the Trust Companies Act (enacted in January 2005 to replace the Singapore Trustees Act) that mandated licensing of trust companies and MAS approval for appointments of managers and directors. MAS issued revised regulations that took effect April 1, 2007 that require approved trustees and trust companies to complete all mandated CDD procedures before they can establish relations with customers. Other financial institutions are allowed to establish relations with customers before completing all CDD-related measures.

Singapore amended its Moneylenders Act in April 2006 to require moneylenders under investigation to provide relevant information or documents. The Act imposes new penalties for giving false or misleading information and for obstructing entry and inspection of suspected premises. Singapore is considering further amendments to strengthen the Act’s AML/CTF provisions.

Singapore has issued additional regulations and guidelines governing DNFBPs. The Internal Revenue Authority of Singapore issued AML/CTF guidelines for real estate agents in July 2007. The Law Society of Singapore in August 2007 amended its Legal Profession (Professional Conduct) Rules to strengthen its AML guidelines. Among its provisions, the new rules prohibit attorneys from acting on the behalf of anonymous clients to open or maintain bank accounts or to hold cash or cash instruments.

In April 2005, Singapore lifted its ban on casinos, paving the way for development of two integrated resorts scheduled to open in 2009. Combined total investment in the resorts is estimated to exceed $5 billion. In June 2006, Singapore implemented the Casino Control Act. The Act establishes the Casino Regulatory Authority of Singapore, which will administer the system of controls and procedures for casino operators, including certain cash reporting requirements. Internet gaming sites are illegal in Singapore, under the Common Gaming Houses Act. Payment service providers in Singapore could be prosecuted for an offence when they knowingly provide services that assist an Internet gambling website. Therefore, banks in Singapore have the ability to block credit card payments to Internet casinos with the assistance of credit card companies. Real estate agents, dealers in precious metals and stones, accountants, and trust service providers (other than trust companies) and company service providers do not have AML/CTF obligations with regard to customer due diligence and record keeping.

A person who wishes to engage in for-profit business in Singapore, whether local or foreign, must register under the Companies Act. Every Singapore-incorporated company is required to have at least two directors, one of whom must be resident in Singapore, and one or more company secretaries who must be resident in Singapore. There is no nationality requirement. A company incorporated in Singapore has the same status and powers as a natural person. Bearer shares are not permitted.

Financial institutions must report suspicious transactions and positively identify customers engaging in large currency transactions and are required to maintain adequate records. Since November 1, 2007, Singapore requires in-bound and out-bound travelers to report cash and bearer-negotiable instruments in excess of Singapore $30,000 (approximately $20,000), in accordance with FATF Special Recommendation Nine. Violators are subject to a fine of up to Singapore $50,000 (approximately $33,000) and/or a maximum prison sentence of three years.

The Singapore Police’s Suspicious Transaction Reporting Office (STRO) has served as the country’s Financial Intelligence Unit (FIU) since January 2000. Procedural regulations and bank secrecy laws limit STRO’s ability to provide information relating to financial crimes. In December 2004, STRO concluded a Memorandum of Understanding (MOU) concerning the exchange of financial intelligence with its U.S. counterpart, FinCEN. STRO has also signed MOUs with counterparts in Australia, Belgium, Brazil, Canada, Greece, Hong Kong, Italy, Japan, Mexico and the United Kingdom. To improve its suspicious transaction reporting, STRO has developed a computerized system to allow electronic online submission of STRs, as well as the dissemination of AML/CTF material. It plans to encourage all financial institutions and relevant professions to participate in this system.

Singapore is an important participant in the regional effort to stop terrorist financing in Southeast Asia. The Terrorism (Suppression of Financing) Act that took effect in January 2003 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 terrorist financing offense, must immediately inform the police. The Act gives the authorities the power to freeze and seize terrorist assets.

The International Monetary Fund/World Bank assessment of Singapore’s financial sector published in April 2004 concluded that, because Singapore is a party to the UN Convention for the Suppression of the Financing of Terrorism, the country imposes few restrictions on intergovernmental terrorist financing-related mutual legal assistance, even in the absence of a Mutual Legal Assistance Treaty. However, the IMF urged Singapore to improve its mutual legal assistance for other offenses, noting serious limitations on assistance through the provision of bank records, search and seizure of evidence, restraints on the proceeds of crime, and the enforcement of foreign confiscation orders.

Based on regulations issued in 2002, MAS has broad powers to direct financial institutions to comply with international obligations related to terrorist financing. The regulations bar banks and financial institutions from providing resources and services of any kind that will benefit terrorists or terrorist financing. Financial institutions must notify the MAS immediately if they have in their possession, custody or control any property belonging to designated terrorists or any information on transactions involving terrorists’ funds. The regulations apply to all branches and offices of any financial institutions incorporated in Singapore or incorporated outside of Singapore, but located in Singapore. The regulations are periodically updated to include names of suspected terrorists and terrorist organizations listed on the UN 1267 Sanctions Committee’s consolidated list.

Singapore’s approximately 870,000 foreign guest workers are the main users of alternative remittance systems. As of November 2008, there were 372 moneychangers and 86 remittance agents. All must be licensed and are subject to the Money-Changing and Remittance Businesses Act (MCRBA), which includes requirements for record keeping and the filing of suspicious transaction reports. Firms must submit a financial statement every three months and report the largest amount transmitted on a single day. They must also provide information concerning their business and overseas partners. Unlicensed informal networks, such as hawala, are illegal. In August 2005, Singapore amended the MCRBA to apply certain AML/CTF regulations to remittance licensees and moneychangers engaged in inward remittance transactions. The Act eliminated sole proprietorships and required all remittance agents to incorporate under the Companies Act with a minimum paid-up capital of Singapore $100,000 (approximately $65,000). In July 2007, MAS issued regulations that require licensees to establish the identity of all customers. MAS must approve any non face-to-face transactions.

Singapore has five free trade zones (FTZs), four for seaborne cargo and one for airfreight, regulated under the Free Trade Zone Act. The FTZs may be used for storage, repackaging of import and export cargo, assembly and other manufacturing activities approved by the Director General of Customs in conjunction with the Ministry of Finance.

Charities in Singapore are subject to extensive government regulation, including close oversight and reporting requirements, and restrictions that limit the amount of funding that can be transferred out of Singapore. Singapore had approximately 1900 registered charities as at end 2007. All charities must register with the Commissioner of Charities that reports to the Minister for Community Development, Youth and Sports. Charities must submit governing documents outlining their objectives and particulars of all trustees. The Commissioner of Charities has the power to investigate charities, search and seize records, restrict the transactions into which the charity can enter, suspend 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.

Changes to the Charities (Registration of Charities) Regulations that came into effect in May 2007 authorize the Commissioner to deregister charities deemed to be engaged in activities that run counter to the public interest. Singapore has also implemented tighter rules under the Charities Act that govern public fund-raising by charities, effective May 1, 2007. Charities authorized to receive tax-deductible donations are required to disclose the amount of funds raised in excess of Singapore $1 million (approximately $670,000), expenses incurred, and planned use of funds. Under the Charities (Fund-raising Appeals for Foreign Charitable Purposes) Regulations (1994), any charity or person that wishes to conduct or participate in any fund-raising for any foreign charitable purpose must apply for a permit. The applicant must demonstrate that at least 80 percent of the funds raised will be used in Singapore, although the Commissioner of Charities has discretion to allow for a lower percentage. Permit holders are subject to additional record-keeping and reporting requirements, including details on every item of expenditure, amounts transferred to persons outside Singapore, and names of recipients. The government issued 27 permits in 2007 and 66 permits as of November 2008 related to fundraising for foreign charitable purposes. There are no restrictions or direct reporting requirements on foreign donations to charities in Singapore.

To regulate law enforcement cooperation and facilitate information exchange, Singapore enacted the Mutual Assistance in Criminal Matters Act (MACMA) in March 2000. Parliament amended the MACMA in February 2006 to allow the government to respond to requests for assistance even in the absence of a bilateral treaty, MOU or other agreement with Singapore. The MACMA provides for international cooperation on any of the 292 predicate “serious offenses” listed under the CDSA. In September 2008, the government introduced an amendment to the Terrorism (Suppression of Financing) Act to allow the government to respond to requests for extradition even in the absence of an extradition treaty for all terrorism financing offences.

In November 2000, 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 (Drug Designation Agreement or DDA). This was the first agreement concluded pursuant to the MACMA. The DDA, which came into force in early 2001, facilitates the exchange of banking and corporate information on drug money laundering suspects and targets, including access to bank records. It also entails reciprocal honoring of seizure/forfeiture warrants. This agreement applies only to narcotics cases, and does not cover non-narcotics related money laundering, terrorist financing, or financial fraud.

In May 2003, Singapore issued a regulation pursuant to the MACMA and the Terrorism Act that enables the government to provide legal assistance to the United States and the United Kingdom in matters related to terrorist financing offenses. Singapore concluded mutual legal assistance agreements with Hong Kong in 2003, India in 2005, and Laos in 2007. Singapore is a party to the ASEAN Treaty on Mutual Legal Assistance in Criminal Matters along with Malaysia, Vietnam, Brunei, Cambodia, Indonesia, Laos, the Philippines, Thailand, and Burma. The treaty will come into effect after ratification by the respective governments. Singapore, Malaysia, Laos, Vietnam and Brunei have ratified thus far.

In addition to the UN Convention for the Suppression of the Financing of Terrorism, Singapore is also a party to the 1988 UN Drug Convention and the UN Convention against Transnational Organized Crime. It has signed, but not ratified, the UN Convention against Corruption. In addition to FATF, Singapore is a member of the Asia/Pacific Group (APG) on Money Laundering, the Egmont Group, and the Offshore Group of Banking Supervisors.

Singapore should continue close monitoring of its domestic and offshore financial sectors. The government should add tax and fiscal offenses to its schedule of serious offenses. The government should also act quickly to rectify the weaknesses identified in the FATF Mutual Evaluation Report to strengthen its AML/CTF enforcement abilities. The conclusion of broad mutual legal assistance agreements is also important to further Singapore’s ability to work internationally to counter money laundering and terrorist financing. Singapore should lift its rigid bank secrecy restrictions to enhance its law enforcement cooperation in areas such as information sharing and to conform to international standards and best practices. Singapore should also strictly enforce border controls and give greater attention to trade-based money laundering. Singapore should become a party to the UN Convention against Corruption.

Country Reports - Slovak Republic through Zimbabwe

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