Slovakia’s geographic, economic, and legal environment with respect to money laundering are not atypical of a changing central European economy. Its geographical location makes it a transit country for trafficking in drugs, people, and a variety of commodities. The statistics on money laundering cases investigated by Slovak law enforcement authorities since 2004 indicate the most frequent predicate offense for money laundering is motor vehicle theft. According to data from reporting entities, in 2007, the most commonly reported forms of suspicious activity were Internet fraud involving funds originating in the United States; phishing involving funds originating in Germany, Switzerland, the United Kingdom and the United States; use of tax havens and offshore companies for transfers of funds; and trafficking in nonferrous metals and investment gold.
The Penal Code criminalizes money laundering through Section 233 (legalization of income from criminal activity), which depending on the circumstances of the crime, calls for sentences of two to 20 years’ imprisonment. The Penal Code also criminalizes other criminal offenses such as creating, contriving to create, or supporting a terrorist group (Section 297) as well as the offense of terrorism (Section 419). One area lacking in the Slovak Penal Code or in an autonomous law is the criminal liability of legal persons.
The Penal Code (Act No. 300/2005 Coll., as amended) and the Code of Criminal Procedure (Act No. 301/20005 Coll., as amended), effective since January 2006, introduce several changes to the criminal legislation. These changes result in stricter sentences for most criminal offenses and seek to make criminal procedure more efficient in order to ensure a more effective protection of the rights and interests of legal and natural persons. Slovak legislation does not specifically list the predicate offenses for money laundering. The criminal offense of money laundering can be prosecuted if criminal prosecution is already pending for a predicate criminal offense.
The Code of Criminal Procedure provides law enforcement and judicial authorities effective instruments that can be used to combat money laundering, such as seizure of cash (Section 95) or of registered securities (Section 96). The Code also makes it possible to secure the claims of injured parties (Section 50) and to hand down sentences involving the property of sentenced persons, such as forfeiture of property (Section 428).
Slovakia’s anti-money laundering (AML) legislation has evolved substantially since 1994 when it adopted its first AML law, Act No. 249/1994 Coll. Since 1994, Act No. 249/1994 Coll. has undergone two revisions, first in 2000, and most recently in 2008. The 2008 changes became effective in September and were codified as Act No. 297/2008 Coll., “On the Protection Against Legalization of Income from Criminal Activity and Protection Against the Financing of Terrorism.” The 2008 law defines basic notions such as “legalization” (Section 2), “terrorist financing” (Section 3), and “unusual transaction” (Section 4). It also includes more precise definitions of “reporting entities” (Section 5) and “politically exposed person” (Section 6); and contains separate provisions on lawyers and notaries (Section 22); and auditors, accountants and tax advisors (Section 23). With regard to safe harbour provisions, the 2008 law includes enhanced protection from threats by third parties or by persons involved in unusual transactions for employees who report unusual transactions. The law also introduces the possibility of exchanging information on unusual transactions between reporting entities and obligates reporting entities to prepare anti-money laundering/counterterrorist financing (AML/CTF) compliance programs, setting out mandatory components of such programs. The 2008 law also enumerates for reporting entities certain unusual transactions relating to money laundering and terrorist financing.
Act No. 297/2008 Coll. sets out the detailed conditions for performing customer due diligence (Section 10), simplified due diligence (Section 11) and enhanced due diligence (Section 12). Reporting entities have a duty to perform customer due diligence that includes, in particular, client identification and verification as well as identification of the beneficial owner in the case of legal persons or property associations. For corporations, it includes the identification of ownership and management structure if the customer enters into a business relationship, envisages or performs an unusual transaction irrespective of its value, or performs an occasional transaction with a value of at least EUR 15,000 (approximately $20,250) outside of a business relationship, regardless of whether the transaction is carried out as a single transaction or as several consecutive transactions which are or could be linked. The law uses a risk-based approach to specify customer due diligence obligations, including exemptions from due diligence obligations, and enhanced due diligence for “higher-risk customers.” Reporting entities are entitled to ask customers to provide information and documents necessary for due diligence purposes. The 2008 law also provides the basis for exemption of financial activities conducted on an occasional or very limited basis.
Reporting entities are obliged to give special attention to business relationships and transactions with persons from or in countries that do not apply, or insufficiently apply, the Financial Action Task Force (FATF) Recommendations, and to perform enhanced customer diligence in such cases. Under Act No. 297/2008 Coll., reporting entities must meet this obligation in the case of cross-border correspondent banking relationships with credit institutions from non-European Union (EU) member states by obtaining information from publicly accessible sources about the respondent credit institution.
As a result of 2001 amendments to the Slovak Civil Code, the Government of Slovakia (GOS) ordered all banks to stop offering anonymous accounts. All existing owners of anonymous accounts were required to disclose their identity to the bank and close the anonymous account by December 31, 2003. Owners of accounts that were still open could withdraw money for a three-year non-interest bearing grace period. The GOS confiscated all account balances remaining after January 1, 2007, and deposited them in a fund administered by the Ministry of Finance, where they will be available for collection by the account holder until January 1, 2012. As of January 1, 2007, bearer passbook accounts ceased to exist.
The Slovak Republic adopted Regulation 1781/2006 of the European Parliament and of the Council of November 15, 2006, to require that wire transfer originator data accompany transfers of funds.
The Slovak Financial Intelligence Unit (SFIU) was established in 1996 and is currently within the structure of the Police Corps Presidium’s Bureau for Combating Organized Crime (BCOC). The BCOC deals with all forms of organized crime, including drugs, money laundering, and human trafficking. The BCOC has four regional sections (Bratislava, West, Center, and East). The SFIU is the fifth section of the BCOC, with nation-wide authority. The SFIU has four departments: the Unusual Transactions Department, the Obliged Entities Supervision Department, the International Cooperation Department, and the Property Checks Department. The SFIU, as the organization responsible for combating money laundering and terrorist financing within the meaning of Act No. 297/2008 Coll., receives and evaluates suspicious transaction reports (STRs), gathers additional information, and refers cases of suspected money laundering to regional financial police departments, other law enforcement authorities or tax administrators, as appropriate.
The Obliged Entities Supervision Department of the SFIU is the only supervisory body vested with the authority to assess the AML/CTF compliance of covered entities, including designated nonfinancial businesses and professions (DNFBPs). In case of noncompliance, the SFIU imposes fines or initiates the withdrawal of the authorization to perform entrepreneurial or other gainful activity. In an effort to promote effective application of Act No. 297/2008 Coll., the SFIU is providing training stressing the importance of strengthening internal compliance programs to reporting entities through associations and professional organizations. According to the SFIU, there are approximately 100,000 reporting entities in Slovakia. In 2007, the Department carried out 45 checks on reporting entities and imposed total fines of SKK 1,080,000 (approximately $48,000). In the first half of 2008, the Department conducted 28 checks of reporting entities and imposed fines totaling SKK 325,000 (approximately $14,400). Only banks and insurance agencies are submitting reports on a regular basis, with the securities sectors submitting reports irregularly. In 2006, the SFIU received one report from an exchange office. Sporadic compliance by DNFBPs was observed in 2007, with three reports received from tax advisors, two from lawyers, and one from a real estate agency. As of November 24, 2008, the SFIU received two reports from executors, five from notaries, and one from an auditor. No reports have yet been received from a casino.
In 2006, the SFIU received 1,571 STRs totaling SKK 22,120,760 (approximately $983,000). Based on these reports, 26 cases were referred to law enforcement authorities, 108 to regional financial police departments, 438 to tax administrators, and 84 to financial intelligence units (FIUs) abroad.
In 2007, the SFIU received 1,943 STRs totaling SKK 18,913,584 (approximately $840,000). Based on these reports, 12 cases were referred to law enforcement authorities, 194 to regional financial police departments or other specialized departments, 582 to tax administrators, and 125 to foreign FIUs.
As of October 29, 2008, the SFIU received 1,814 STRs totaling SKK 21,535,397 (approximately $957,000). Based on these reports, nine cases were referred to law enforcement authorities, 248 to regional financial police departments or other specialized departments, 399 to tax administrators, and 161 to foreign FIUs.
According to statistical overviews published by the General Prosecution Office of the Slovak Republic, six persons were subject to criminal proceedings in Slovakia in 2006 for the offense of money laundering pursuant to Section 233; only one of these individuals has been convicted. In 2007, criminal proceedings were conducted against six persons, one of whom was convicted. Statistics for 2008 are not yet available. Measures adopted at the SFIU level through the President of the Police Force seek to increase the transparency and degree of detail of statistical data gathered by the Police Force, incorporating into the criminal file data obtained as feedback from prosecution authorities and courts. It is anticipated these measures will effectively implement Act No. 297/2008 Coll., which obliges the Police Force to keep aggregate statistics on the number of persons sentenced for money laundering and on the value of seized, forfeited or confiscated assets.
Reporting entities have a duty to halt the execution of unusual transactions for a maximum of 48 hours either on the basis of their own finding or upon written request from the SFIU. If the investigation confirms the suspicion of a criminal offense, the SFIU refers the matter to the relevant law enforcement authority; in such cases, the reporting entity has a duty to halt the execution of the transaction for another 24 hours. Reporting of an unusual transaction does not exempt the reporting entity from its obligation to report the suspected criminal offense to law enforcement authorities. Should any damage be caused as a result of reporting or halting an unusual transaction, damage compensation is paid by the state.
Slovak law mandates forfeiture of the proceeds of crime. It does not, however, allow for forfeiture from third-party beneficiaries. The Office of the Public Prosecutor may order the seizure of accounts during the pre-trial proceedings stage, and can order the use of information technology for enhanced investigations under Articles 79c, 88 and 88e of the Criminal Procedure Code. In 2006, a new Confiscation Law became effective, strengthening the government’s ability to seize assets gained through criminal activity. Effective January 1, 2006, Act No. 650/2005 Coll. gives Slovakian authorities the power to execute a seizure order on property within the territory of the Slovak Republic even if the order was issued by a judicial authority of another member state of the EU.
The Law on Proving the Origin of Property came into force on September 1, 2005. According to this law, an undocumented increase in property exceeding an amount 200 times the minimum monthly wage must be scrutinized. The police must investigate allegations of illegally acquired property and report their findings to the Office of the Public Prosecutor, which may then order the property confiscated. The law was challenged in Parliament on the grounds that its retroactivity and shifting of the burden of proof to the suspect are in conflict with the Constitution of the Slovak Republic. The Constitutional Court suspended application of the law on October 6, 2005. On September 3, 2008, the Constitutional Court issued a finding which determined the law is not in conformity with the Constitution of the Slovak Republic. The National Council of the Slovak Republic has a six-month time limit to repeal the law; alternatively, it may adopt a new law replacing the existing one. The existing law will automatically become null and void if neither of these measures is taken.
The Penal Code does not yet define terrorist financing, per se, as an autonomous criminal offense. Section 3 of Act No. 297/2008 Coll. defines the financing of terrorism as the supply or collection of funds with the intent to use them or with the knowledge of the intent to use them in the commission of the criminal offense of creating, contriving to create or supporting a terrorist group, or the criminal offense of terrorism, or other criminal offenses referred to in Section 3(1)(b) of the law.
All competent authorities in the Slovak Republic have full authority to freeze or confiscate terrorist assets consistent with UNSCR 1373. The GOS has agreed to immediately freeze all accounts owned by entities included on the UNSCR 1267 Sanctions Committee Consolidated List of terrorist entities, the EU’s consolidated lists, and those provided by the United States under Executive Order 13224. The GOS posts the lists online but does not distribute them. Reporting entities are responsible for checking the website and reporting any matches they find. In the event a reporting entity were to identify a terrorism-related account, the SFIU could suspend any related financial transaction for up to 48 hours, and then gather evidence to freeze the account and seize assets.
The reporting obligation regarding terrorist financing is laid down in Act No. 297/2008 Coll. Although the SFIU has not received any STRs with the specific suspicion of terrorist financing, the SFIU assessed the reports received in the period of 2006–2008 for possible links to terrorist organizations or suspicions of terrorist financing, and referred the relevant information to the Department for Combating Terrorism within the BCOC. The SFIU searched mainly for transfers of funds involving persons or companies originating or having a seat in areas with a high risk of links to terrorist organizations. In 2006, the SFIU referred information on 14 cases; in 2007, 27 cases; and through August 2008, ten cases.
The SFIU is a member of the Egmont Group. The SFIU has signed nine memoranda of understanding (with Slovenia, Canada, Belgium, Czech Republic, Poland, Monaco, Australia, Ukraine and Albania), two cooperation protocols (with Czech Republic and Ukraine) and two cooperation agreements (with Russia and Romania). Slovak law does not, however, require that the SFIU sign a memorandum of understanding to be able to fully cooperate with FIUs in other countries.
Slovakia 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 FATF-style regional body. The third round mutual evaluation report by MONEYVAL was adopted in September 2006, and Slovakia is scheduled to undergo its fourth round mutual evaluation in 2009. Slovakia 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.
While the Government of Slovakia has made progress over the past year, several areas of its AML/CTF regime still require further work. The competent authorities should ensure the wording of Section 252 of the Penal Code clearly defines the property and proceeds of crime. Slovakia should also provide capacity enhancing materials to DNFBPs and improve supervision of these entities to ensure they meet their obligations under the law. Slovakia should implement formal AML/CTF supervision of currency exchange houses. Slovak authorities should encourage and enable police to pursue money laundering and financial crime even when it does not involve organized crime activities. The GOS should provide adequate resources to ensure the FIU, law enforcement, and prosecutorial agencies receive adequate funding and training, as well as maintain adequate staff, to effectively perform their various responsibilities; the FIU in particular needs staffing commensurate with its responsibilities. The GOS should work to enhance cooperation and coordination among these agencies and other competent authorities. Authorities should adopt criminal, civil, or administrative sanctions for money laundering in relation to legal persons. The GOS should consider amending its confiscation and forfeiture regime to provide for asset forfeiture from third-party beneficial owners. The Slovak government should proactively provide the lists of individuals linked with terrorism by the UN, the EU, and the United States to reporting entities, and thus, introduce stricter procedures for combating terrorist financing. The GOS also should codify reporting obligations for nonprofit organizations and charities. Competent authorities should amend the Penal Code to criminalize terrorist financing.
South Africa’s position as the major financial center in the region, its relatively sophisticated banking and financial sector, and its large, cash-based market, make it a vulnerable target for transnational and domestic crime syndicates. The largest quantity of illicit proceeds laundered in the country are proceeds from the narcotics trade. Proceeds from fraud, theft, corruption, currency speculation, illicit dealings, theft of precious metals and diamonds, small arms, human trafficking, stolen cars, and smuggling are also laundered. Most criminal organizations are also involved in legitimate business operations. There is a significant black market for smuggled and stolen goods. In addition to South African criminal organizations, observers note the operations of Nigerian, Pakistani, Andean and Indian drug traffickers, Chinese triads, Taiwanese groups, Lebanese trading syndicates, and the Russian mafia. The fact that a high number of international crime groups operate in South Africa and a lack of money laundering prosecutions reported indicate that South Africa remains vulnerable to all-source money laundering.
South Africa is not an offshore financial center, nor does it have free trade zones. It does, however, operate Industrial Development Zones (IDZs). Imports and exports that are involved in manufacturing or processing in the zones are duty-free, provided that the finished product is exported. South Africa maintains IDZs in Port Elizabeth, East London, Richards Bay, and Johannesburg International Airport. The South African Revenue Service (SARS) monitors the customs control of these zones.
SARS requires all visitors carrying cash to declare the amount upon arrival in South Africa. All South African citizens and residents leaving the country with cash must declare amounts in excess of 175,000 rand ($17,500) for individuals, or 250,000 rand ($25,000) for families. Although South Africa has not explicitly criminalized bulk cash smuggling, failing to declare currency carries a penalty. Smuggling and reportedly lax border enforcement pose major vulnerabilities for South Africa.
The Proceeds of Crime Act (No. 76 of 1996) originally criminalized money laundering for all serious crimes. South Africa replaced this act with the Prevention of Organized Crime Act (No. 121 of 1998), which confirms the criminal character of money laundering, mandates the reporting of suspicious transactions, and contains “safe harbor” provisions. Violation of this act carries a fine of up to 100 million rand ($10 million) or imprisonment for up to 30 years.
The Financial Intelligence Centre Act (FICA) requires a wide range of financial institutions and businesses to identify customers, maintain records of transactions for at least five years, appoint compliance officers to train employees to comply with the law, and report transactions of a suspicious or unusual nature. Both the Prevention of Organized Crime Act and the FICA contain criminal and civil forfeiture provisions. Regulators include the South African Reserve Bank and the Financial Services Board. Regulated businesses include banks, life insurance companies, foreign exchange dealers, casinos, and real estate agents. Additional amendments to the FICA became law on August 27, 2008. The amendments strengthen the ability of regulators to supervise private sector compliance with FICA mandates and obligations. They also enhance the financial intelligence unit’s (FIU) power to oversee overall FICA compliance and coordinate with regulators. The amendments strengthen the power of the FIU and regulators to conduct inspections, request information, and impose financial administrative sanctions. In addition to the FIU, South Africa has a Money Laundering Advisory Council (MLAC) to advise the Minister of Finance on policies and measures to combat money laundering.
Conforming to the money laundering regime has been expensive for banks, which have re-registered customers, given AML training to employees, expanded their internal compliance offices, and taken other steps to comply with the law. Many banks state that the reporting requirements hamper their efforts to attract new customers. For example, if customers have never traveled outside the country, they may not have supporting documentation (driver’s license or passport) to properly satisfy the due diligence requirements. Retroactive due diligence requirements mean those account holders who do not present identifying documents in person risk having their accounts frozen. After the September 2006 implementation of the requirements, financial institutions blocked transactions with accounts owned by still-unidentified persons. In part due to the stricter banking requirements, but also because of the cash-driven nature of the South African economy, South Africans, particularly the Muslim and Indian communities, often use alternative remittance systems that bypass the formal financial sector. Hawala networks in South Africa have direct ties to both South Asia and the Middle East. Currently, South Africa does not require alternative remittance providers or participants to report cash transactions within the country.
Regulations require suspicious transaction reports to be sent to the South African FIU, called the Financial Intelligence Centre (FIC). The FIC, in operation since 2003, gathers and analyzes financial intelligence for law enforcement authorities to use in pursuit of money laundering and other financial crimes, and acts as a centralized repository of information and statistics on money laundering. It also coordinates policy and anti-money laundering efforts. If the FIC has reasonable grounds to suspect that a transaction involves the proceeds of criminal activities, it forwards the transactional information to the investigative and prosecutorial authorities. When there is a suspicion of terrorist financing, the FIC will forward the relevant information to the National Intelligence Agency. There are no bank secrecy laws in effect that prevent the disclosure of ownership information to bank supervisors and law enforcement authorities.
From March 2007 through March 2008, the FIC received 24,580 suspicious transaction reports (STRs), an increase of fifteen percent from the previous year’s 21,466 STRs. Ninety-one percent of the reports came from financial institutions, with the remainder generated by casinos, coin dealers, accountants, attorneys, and other reporting entities. The FIC referred 999 STRs, with transactions valued at more than 2.03 billion rand ($200 million), to law enforcement and/or intelligence agencies for further investigation. The FIC and banking officials report that the quality of the STRs is steadily improving, as bank personnel receive AML training and as institutions install and refine AML software and other detection systems. Between 2007 and 2008, the FIC joined regulators in conducting 212 on-site anti-money laundering/counterterrorist financing (AML/CTF) compliance reviews of casinos, foreign exchange dealers, insurance companies, and other institutions. The FIC also conducted 27 independent compliance reviews.
Information is not available on the number of STRs resulting in criminal investigations. However, the number of money laundering and terrorist finance investigations, prosecutions, and convictions is reportedly very low. The corruption case filed against ANC President Jacob Zuma in December 2006 included money-laundering charges, but a High Court dismissed the indictment in September 2008 because of procedural flaws unrelated to the money-laundering charges. The case is now under appeal. In February 2008, Graham Maddock, the financial director of scandal-plagued Fidentia Group, pled guilty to, inter alia, money-laundering charges and violations of the FICA, marking the first successful prosecution of a FICA violation. While progress has been made regarding criminal enforcement of AML/CTF violations, the low number of cases prosecuted suggests possible problems in reporting, analysis, and investigations. Many investigators and prosecutors appear to focus on predicate offenses, which indicates they may lack familiarity with money laundering offenses or see no reason to add money laundering charges to cases.
In 2005, the Protection of Constitutional Democracy Against Terrorist and Related Activities Act came into effect. The Act criminalizes terrorist activity and terrorist financing and gave the government investigative and asset seizure powers in cases of suspected terrorist activity. The Act requires financial institutions to report suspected terrorist activity to the FIC. The Act also applies to charitable and nonprofit organizations operating in South Africa. The FIC distributes the list of individuals and entities included on the United Nations (UN) 1267 Sanctions Committee’s consolidated list.
South Africa cooperates with the United States in exchanging information related to money laundering and terrorist financing. The two nations have a mutual legal assistance treaty and a bilateral extradition treaty (litigation regarding the status of the extradition treaty is now before the South African Constitutional Court). In June 2003, South Africa became the first African nation to be admitted into the Financial Action Task Force (FATF), and held the FATF Presidency for the period June 2005-June 2006. At the end of 2008, South Africa underwent a mutual evaluation which is scheduled for discussion and adoption by that body in 2009. South Africa is also a member of the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG), a FATF-style regional body. The FIC is a member of the Egmont Group. South Africa 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.
The South African Government should fully implement FATF Special Recommendation IX, including the establishment of controls for cross-border currency movements. South Africa should increase steps to bolster border enforcement and examine trade-based money laundering. It should also regulate and investigate the country’s alternative remittance systems, and further examine their use and vulnerability to exploitation by money launderers and terrorist financiers. Authorities should ensure that FIC analysts and law enforcement look beyond STR reporting to initiate money laundering investigations. Law enforcement and customs officials should follow the money and value trails during the course of their investigations to determine if money laundering has occurred. South Africa should also continue to enforce AML regulations within the casino industry. It should fully implement the new law against terrorist activity and terrorist financing. South Africa should publish the annual number of money laundering and terrorist financing investigations, prosecutions, and convictions.
Spain is a major European center of money laundering activities as well as a major gateway for illicit narcotics. Drug proceeds from other regions enter Spain as well, particularly proceeds from Afghan hashish entering from Morocco, cocaine entering from Latin America, and heroin entering from Turkey. There are no known currency transactions of significance involving large amounts of U.S. currency and/or direct narcotics proceeds from U.S. sales.
Tax evasion in internal markets and the smuggling of goods along the coastline also continue to be sources of illicit funds in Spain. The smuggling of electronics and tobacco from Gibraltar remains an ongoing problem. Passengers traveling from Spain to Latin America reportedly smuggle sizeable sums of bulk cash. Additional money laundering activities found in Spain include Colombian companies purchasing goods in Asia and selling them legally at stores run by drug cartels in Europe. Credit card balances are paid in Spanish banks for charges made in Latin America, and money deposited in Spanish banks is withdrawn in Colombia through ATM networks.
An unknown percentage of drug-trafficking proceeds are invested in Spanish real estate, particularly in the once-booming coastal areas in the south and east of the country. Up to thirty percent of the 500 euro notes in use in Europe are reported to be in circulation in Spain, directly linked to the purchase of real estate to launder money. In the past year however, Spain’s tax authority has cracked down on fraudulent activity involving these large bank notes and as a result the number of 500 euro notes has decreased to October 2006 levels of 110 million euros (approximately $148,500,000).
Throughout 2008, Spanish authorities conducted numerous anti-money laundering (AML) and counterterrorist financing (CTF) operations that resulted in arrests. On June 10, Spanish authorities arrested eight Algerian nationals reportedly linked to terrorist financing activities of al-Qaida in the Islamic Maghreb (AQIM). These arrests were made under “Operation Submarine”, an operation which led to other arrests throughout the year of Algerian nationals linked to the same cell. On June 17, Spanish authorities dismantled an international criminal organization accused of money laundering and cocaine smuggling operations, arresting 21 individuals including nationals of Spain, Colombia, Peru, and Romania. On September 19, Spanish national police arrested nine people in the northern Basque region suspected of participating in a money laundering ring, sending to Latin America more than 32 million euros (approximately $43,200,000) since 2006.
The Financial Action Task Force (FATF) 2006 Mutual Evaluation Report (MER) noted shortcomings in the areas of customer due diligence, beneficial ownership of legal persons, and the use of bearer shares which have yet to be completely corrected.
Spanish authorities recognize the presence of alternative remittance systems. Informal nonbank outlets such as “locutorios” (communication centers that often offer wire transfer services) are used to move money in and out of Spain by making small international transfers for members of the immigrant community. Spanish regulators also note the presence of hawala networks in the Islamic community.
Spain is not considered to be an offshore financial center and does not operate any free trade zones. Spanish law states that an entity can perform banking activity if its registered office, administration, and management reside within Spanish territory. Spanish law does not prohibit financial institutions from entering into banking relationships with shell banks, but there are no shell banks in Spain. Financial institutions have no requirement to determine whether a correspondent financial institution in a foreign country allows accounts used by shell banks. Offshore casinos and Internet gaming sites are forbidden, but online casinos often run from servers located outside of Spanish territory. In this instance, regulation can only occur through mutual judicial assistance or international agreements.
Although there was little AML/CTF legislative activity in 2008, the Government of Spain (GOS) has passed and enacted legislation designed to help eliminate and prosecute financial crimes. Money laundering is criminalized by Article 301 of the Penal Code, added in 1988 when laundering the proceeds from narcotics-trafficking was made a criminal offense. Individuals in fiduciary institutions can be held liable if their institutions have been used to commit financial crimes; a 1991 amendment made such persons culpable for both fraudulent acts and negligence connected with money laundering. The law was expanded in 1995 to cover all serious crimes that require a prison sentence greater than three years. Amendments to the code, which took effect in 2004, make all forms of money laundering financial crimes. Any property, of any value, can form the basis for a money laundering offense, and a conviction or a prosecution for a predicate offense is not necessary to prosecute or obtain a conviction for money laundering. Spanish authorities can also prosecute money laundering based on a predicate offense in another country, if the predicate offense would be a crime in Spain.
Law 19/2003 obliges financial institutions to make monthly reports on large transactions. Banks are required to report all international transfers greater than 50,000 euros (approximately $67,500). The law also requires the declaration and reporting of internal transfers of funds greater than 100,000 euros (approximately $135,000). Individuals traveling internationally are required to report the importation or exportation of currency greater than 10,000 euros (approximately $13,500). Foreign exchange and money remittance entities must report transactions above 5,000 euros (approximately $6,750). Authorities also require the reporting of transactions exceeding 50,000 euros (approximately $67,500) from or with persons in countries or territories considered to be tax havens. Law 19/2003 allows the seizure of up to 100 percent of the currency if illegal activity under financial crimes ordinances can be proven. Spanish authorities claim they have seen a drop in cash couriers since the law’s enactment in July 2003. When the money has not been declared and cannot be connected to criminal activity, authorities may seize it until the origin of the funds is proven.
Money laundering controls apply to most entities active in the financial system, including banks, mutual savings associations, credit companies, insurance companies, financial advisers, brokerage and securities firms, pension fund managers, collective investment schemes, postal services, currency exchange outlets, and individuals and unofficial financial institutions exchanging or transmitting money. Most categories of designated nonfinancial businesses and professions (DNFBPs) are subject to the same core obligations as the financial sector. The list of DNFBPs includes realty agents; dealers in precious metals, stones, antiques and art; legal advisors and lawyers; accountants; auditors; notaries; and casinos.
The financial sector is required to identify customers, keep records of transactions, and report suspicious transactions. Spanish financial institutions are required by law to maintain fiscal information for five years and mercantile records for six years. Financial institutions are required to monitor transactions and report anything they deem unusual or potentially problematic. Reporting entities are required to examine and commit to writing the results of an examination of any transaction, irrespective of amount, which by its nature may be linked to laundering of proceeds. Law 12/2003 reaffirms the obligation of reporting suspicious activities. Reporting entities are required to report each suspicious transaction to the financial intelligence unit (FIU). Financial institutions also have an obligation to undertake systematic reporting of unusual transactions and those exceeding the currency threshold, including physical movements of cash, travelers’ checks, and other bearer instruments/checks drawn on credit institutions above 50,000 euros (approximately $67,500).
Article 4 of Law 19/1993 and Article 15 of Royal Decree (RD) 925/1995 contain safe harbor provisions. Financial institutions and their staffs are legally protected from any breach of restrictions on disclosure of information when reporting suspicious transactions. Reporting units must also take appropriate steps to conceal the identity of employees or managers making suspicious transaction reports (STRs).
Anonymous accounts and accounts in fictitious names are precluded by Spanish legislation. Bearer shares are permitted in Spain, although they are not as prevalent as they have been in the past. Spanish authorities have taken steps to neutralize them since 1998, ensuring that mere possession cannot serve as proof of ownership. However, they still exist, and the FATF MER cited the requirements to determine the beneficial owner as “inadequate.”
Law 19/1993 and RD 925/1995 establish the Executive Service of the Commission for the Prevention of Money Laundering (SEPBLAC) as Spain’s FIU. Its primary mission is to receive, analyze, and disseminate suspicious and unusual transaction reports from financial institutions and DNFBPs. SEPBLAC has primary responsibility for any investigation in money laundering cases. SEPBLAC also has supervisory and inspection functions and is directly responsible for the supervision of a large number of regulated institutions; for example, it directly supervises the AML procedures of banks and financial institutions. SEPBLAC thus has memoranda of understanding with the Bank of Spain, the National Securities Market Commission, and the Director General of Insurance and Pension Funds, to coordinate with the regulators that supervise their respective sectors.
SEPBLAC supports the work of the Commission for the Prevention of Money Laundering (CPBC or “Commission”) which coordinates policy in the fight against money laundering in Spain. The Commission is an interdepartmental body chaired by the Second Vice President and Minister for Economic Affairs, with participation from the heads of agencies involved in the prevention of money laundering. These agencies include the National Drug Plan Office, the Ministry of Economy, Federal Prosecutors (Fiscalia), Customs, Spanish National Police, Civil Guard, CNMV (equivalent to the U.S. Securities and Exchange Commission), Treasury, Bank of Spain, and the Director General of Insurance and Pension Funds. Within the Ministry of Economy and Finance, the Sub Directorate General of Inspection and Control of Movements (Sub Directorate General) serves as the Commission’s Secretariat as well as Spain’s FATF representative office. The Sub Directorate General is responsible for preparing draft rules and regulations and implementing financial sanctions in accordance with Law 19/1993.
The Bank of Spain is responsible for appointing SEPBLAC’s director, raising concerns regarding the FIU’s independence. Additionally, the FIU’s supervisory capabilities continue to be hampered by its limited resources. In SEPBLAC’s annual report, the organization acknowledged these weaknesses and expressed a desire to work to address these issues.
SEPBLAC has access to the records and databases of other government entities and financial institutions. It also has formal mechanisms in place to share information domestically and with other FIUs. SEPBLAC has been a member of the Egmont Group since 1995. In 2007, SEPBLAC received 2,783 STRs, up from 2,251 in 2006. SEPBLAC received 590 requests for information from other FIUs in 2007 and made 193 requests to Egmont members.
Any member of the Commission may request an investigation. However, at certain stages of the investigative process, obtaining account files can be time-consuming. The National Police and Anticorruption Police informed the FATF evaluation team that they receive too many reports, and the reports they do receive are not adequate to serve as the basis for an investigation.
The Sub Directorate General has the responsibility to carry out penalties following investigation and a guilty verdict by a court. Sanctions can include closure, fines, account freezes, or seizures of assets. Law 19/2003 allows seizures of assets of third parties in criminal transactions and a seizure of real estate in an amount equivalent to the illegal profit.
Individuals and companies must declare the amount, origin, and destination of incoming and outgoing funds. Cash smuggling reports are shared between host government agencies. Provisional measures and confiscation provisions apply to persons smuggling cash or monetary instruments that are related to money laundering or terrorist financing. Gold, precious metals, and precious stones are considered to be merchandise and are subject to customs legislation. Failing to file a declaration for such goods may constitute a case of smuggling and would fall under the responsibility of the customs authorities.
All legal charities are placed on a register maintained by the Ministry of Justice. Responsibility for policing registered charities lies with the Ministry of Public Administration. If a charity fails to comply with the requirements, sanctions or other criminal charges may be levied.
The Penal Code provides for two types of confiscation: generic (Article 127) and specific, for drug-trafficking offenses (Article 374). Article 127 of the Penal Code allows for broad confiscation authority by applying it to all crimes or summary offenses under the Code. The effects and instruments used to commit the offense, and the profits derived from the offense can all be confiscated. Article 127 also provides for the confiscation of property intended for use in the commission of any crime or offense. It also applies to property that is derived directly or indirectly from proceeds of crime, regardless of whether the property is held or owned by a criminal defendant or by a third party. Article 374 of the Penal Code calls for the confiscation of goods acquired through drug trafficking-related crimes and of any profit obtained. This allows for the confiscation of instruments and effects used for illegal drug dealing, as well as the goods or proceeds obtained from the illicit traffic.
A judge may impose provisional measures concerning seizures related to any type of offense by virtue of the code of criminal procedure. Effects may be seized and stored by the judicial authorities at the beginning of an investigation. The Fund of Seized Goods of Narcotics Traffickers, established under the National Drug Plan, receives seized assets. The proceeds from the funds are divided, with equal amounts going to drug treatment programs and to a foundation that supports officers fighting narcotics-trafficking. The division of assets from seizures involving more than one country depends on the relationship with the country in question. European Union (EU) working groups determine how to divide the proceeds for member countries. Outside of the EU, bilateral commissions are formed with countries that are members of FATF, FATF-style regional bodies (FSRBs), and the Egmont Group, to coordinate the division of seized assets. With other countries, negotiations are conducted on an ad hoc basis.
The banking community cooperates with enforcement efforts to trace funds and seize or freeze bank accounts. The law is unclear as to whether or not civil forfeitures are allowed. The GOS enforces existing drug-related seizure and forfeiture laws. The GOS has adequate police powers and resources to trace, seize, and freeze assets. Spain disseminates limited statistics on money laundering and terrorist financing investigations, prosecutions and convictions as well as on property frozen, seized and confiscated.
A small percentage of the money laundered in Spain is believed to be used for terrorist financing. It is primarily money from the extortion of businesses in the Basque region that is moved through the financial system and used to finance the Basque terrorist group ETA. After ETA announced the end of its cease-fire in June of 2007, reports of extortion against businesses located in the Basque and Navarra regions increased greatly. According to media reports, the estimated amount of money ETA successfully extorts is upwards of 900,000 euros (approximately $1,215,000) annually. Spain has long been dedicated to fighting terrorist organizations, including ETA, GRAPO, and more recently, al-Qaida. Spanish law enforcement entities have identified several methods of terrorist financing: donations to finance nonprofit organizations (including ETA and Islamic groups); establishment of publishing companies that print and distribute books or periodicals for the purposes of propaganda, which then serve as a means for depositing funds obtained through kidnapping or extortion; fraudulent tax and subvention collections; the establishment of “cultural associations” used to facilitate the opening of accounts and provide a cover for terrorist financing activity; and alternative remittance system transfers.
Crimes of terrorism are defined in Article 571 of the Penal Code, and penalties are set forth in Articles 572 and 574. Sanctions range from ten to thirty years’ imprisonment with longer terms if the terrorist actions were directed against government officials. On March 6, 2001, Spain’s Council of Ministers adopted a decision requesting the implementation of UNSCR 1373 in the Spanish legal framework. EU Council Regulation (EC) 881/2002 obliges covered countries such as Spain to execute UNSCR 1373. Terrorist financing issues are governed by a separate code of law and commission, the Commission of Vigilance of Terrorist Finance Activities (CVAFT). This commission was created under Law 12/2003 on the Prevention and Blocking of the Financing of Terrorism. Law 12/2003, when implemented, will give the GOS the ability to freeze funds without going through the traditional judicial procedures, which some consider inefficient and burdensome, and will allow the GOS more latitude to freeze any type of financial flow so as to prevent the funds from being used to commit terrorist acts. However, the current GOS Administration has not enacted implementing regulations, and it appears there is no political will to do so. As with all EU countries, the obligation to freeze assets under UNSCR 1267 has also been implemented through the Council. Spain regularly circulates to its financial institutions the list of individuals and entities that have been included on the UN 1267 Sanctions Committee consolidated list. There were six actions taken against individuals or entities in 2005 under 1267 and/or 1373, for a total value of 83.75 euros (approximately $106). No assets associated with entities listed by the UN 1267 Sanctions Committee were reported to be in Spain in 2008.
Spain is a member of the FATF and co-chairs the FATF Terrorist Finance Working Group. Spain is also involved with FSRBs as an observer to the South American Financial Action Task Force and a cooperating and supporting nation to the Caribbean Financial Action Task Force. Spain is a major provider of AML/CTF assistance in Latin America. SEPBLAC is a member of the Egmont Group and currently chairs the Outreach Committee Working Group. Spain participates in the FIU.Net project for information exchange among European FIUs.
Spain actively collaborates with Europol, supplying and exchanging information on terrorist groups. In 2008, U.S. law enforcement agencies also reported excellent cooperation with their Spanish counterparts. Spanish media gave prominent coverage to the cooperation between the U.S. Drug Enforcement Administration (DEA) and Spanish law enforcement authorities that led to the August 12 joint DEA and Spanish National Police drug raid which resulted in the seizure of 1,400 kilos of cocaine and the arrest of six Colombian and Venezuelan nationals. In September 2007, Spanish police arrested two Pakistani men who were indicted in the U.S. on money laundering charges following a joint counterterrorism investigation with the Federal Bureau of Investigation. The investigation found evidence that more than 1 million euros (approximately $1,400,000) flowed from the drug trade and other criminal actions to terrorist groups. In September 2008, Agents from U.S. Immigration and Customs Enforcement (ICE) and officers from U.S. Customs and Border Protection (CBP) conducted a seven day joint bulk currency interdiction operation with Spanish Customs authorities. The operation, Hands Across the World (HAW), is an initiative targeting Bulk Cash Smuggling (BCS) worldwide. HAW was developed to fight BCS via real time intelligence sharing (including cash seizure/declaration data) between international law enforcement partners. The operation resulted in 13 seizures of U.S. and foreign currency totaling over $900,000.
The GOS has signed criminal mutual legal assistance agreements with Argentina, Australia, Canada, Chile, the Dominican Republic, Mexico, Morocco, Uruguay, and the United States. Spain’s mutual legal assistance treaty with the United States has been in effect since 1993 and provides for sharing of seized assets “to the extent permitted by (domestic) laws.” Spain has also entered into bilateral agreements for cooperation and information exchange on money laundering issues with 14 countries around the world, as well as with the United States. SEPBLAC has bilateral agreements for cooperation and information exchange on money laundering issues with more than 25 FIUs around the world.
Spain 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 scale of money laundering and the sophisticated methods used by criminals represent a major threat to Spain. The Government of Spain should review the resources available for industry supervision, and ensure that SEPBLAC has the independence and resources it needs to effectively discharge the duties entrusted to it. The GOS should work to close the loopholes in the areas of customer due diligence, beneficial ownership of legal persons, and the continued use of bearer shares. Spain should also work to implement Law 12/2003, which will greatly enhance Spain’s capacity to combat terrorist financing. The GOS should clarify whether its laws allow civil asset forfeiture. Spain should maintain and disseminate statistics on investigations, prosecutions and convictions, including the amounts and values of assets frozen or confiscated. Spain should continue its efforts to actively participate in international fora and to assist jurisdictions with nascent or developing AML/CTF regimes.
St. Kitts and Nevis
St. Kitts and Nevis is a federation composed of two islands in the Eastern Caribbean. The federation is at major risk for corruption and money laundering due to the high volume of narcotics-trafficking activity through and around the island, and the presence of known traffickers on the islands. The growth of its offshore sector and an inadequately regulated economic citizenship program further contribute to the federation’s money laundering vulnerabilities.
The Ministry of Finance oversees St. Kitts and Nevis’ Citizenship by Investment Program. An individual may qualify for citizenship with a $350,000 minimum investment in real estate. In addition, the Government of St. Kitts and Nevis (GOSKN) created the Sugar Industry Diversification Foundation (SIDF), after the closure of the federation’s sugar industry, as a special approved project for the purposes of citizenship by investment. To be eligible, an applicant must make a contribution ranging from $200,000 to $400,000 (based on the number of the applicant’s dependents). The GOSKN requires applicants to make a source of funds declaration and provide evidence supporting the declaration. According to the GOSKN, the Ministry of Finance oversees the Citizenship Investment Program and has established a Citizenship Processing Unit to manage the screening and application process.
As a federation, there is anti-money laundering (AML), counterterrorist financing (CTF), and offshore legislation governing both St. Kitts and Nevis. However, each island has the authority to organize its own financial structure. With most of the offshore financial activity concentrated in Nevis, it has developed its own offshore legislation independently. As of October 2008, Nevis has one offshore bank, 109 licensed insurance companies, 13,257 international business companies (IBCs), 4,495 limited liability companies (LLCs), 1,001 international trusts, 70 multiform foundations (used for estate planning, charity financing, and special investment holding arrangements), and 40 registered agents. Figures from 2007 indicate St. Kitts has 1,592 exempt companies and foundations, nine exempt partnerships, 23 exempt trusts, 70 captive insurance companies, five trust service providers, 28 corporate service providers, and four licensed Internet gaming companies. Internet gaming entities must apply for a license as an IBC.
Bearer shares are permitted provided that bearer share certificates are retained in the safe custody of authorized persons or financial institutions authorized by the Minister of Finance as approved custodians. Legislation requires certain identifying information to be maintained about bearer certificates, including the name and address of the bearer as well as the certificate’s beneficial owner. All authorized custodians are required by law to obtain proper documents on shareholders or beneficial owners before incorporating exempt or other offshore companies. This information is not publicly available but is only available to the regulator and other authorized persons.
The GOSKN licenses offshore banks and businesses. The GOSKN states that extensive background checks on all proposed licensees are conducted by a third party on behalf of the GOSKN before a license is granted. By law, all offshore bank licensees are required to have a physical presence in the federation; shell banks are not permitted. The Eastern Caribbean Central Bank (ECCB) has direct responsibility for regulating and supervising the offshore bank in Nevis, as it does for the entire domestic sector of St. Kitts and Nevis, and for making recommendations regarding approval of offshore bank licenses. Under Section 10(8) of the Nevis Offshore Banking Ordinance, 1996, as amended in 2002, the ECCB is required to review all applications for licenses and report its findings to the Minister of Finance prior to consideration of the application.
The Proceeds of Crime Act No. 16 of 2000 (POCA) criminalizes money laundering for serious offenses (defined to include more than drug offenses), and imposes penalties ranging from imprisonment to monetary fines. The POCA overrides secrecy provisions that may have constituted obstacles to administrative and judicial authorities’ ability to access information with respect to account holders or beneficial owners. The POCA was amended in April 2008 to include dealers in precious stones and metal in the list of regulated businesses for purposes of anti-money laundering/counterterrorist financing (AML/CTF). The POCA was amended in July 2008 to make money laundering an extraditable offence. The Money Services Business Bill 2008 seeks to provide for the licensing and regulation of the business of the transmission of money or monetary value in any form, which includes check cashing; currency exchange; and the issuance, sale or redemption of money orders or traveler’s checks as well as the business of operating as an agent or franchise holder of any of these businesses.
The St. Kitts and Nevis Gaming Board is responsible for ensuring compliance by casinos. The Financial Services Commission (FSC) is the primary regulatory body for financial services in the federation and has the authority to cooperate with foreign counterparts on supervisory issues. Separate regulators for St. Kitts and Nevis carry out the actual supervision of institutions on behalf of the FSC, including AML examinations. Nevis seeks to consolidate its regulatory regime to a single unit, which would regulate all financial services businesses in Nevis, as of January 2009. This would expand supervision to credit unions, local insurance companies, and money transfer agencies. Nevis also seeks to establish a risk-based supervision program and will conduct risk assessments on all licensees, as well as establish a risk-based supervision schedule for onsite and offsite monitoring. The FSC has issued guidance notes on the prevention of money laundering, pursuant to the Anti-Money Laundering Regulations 2001. Regulations require financial institutions to identify their customers, maintain a record of transactions for up to five years, report suspicious transactions, and establish AML training programs. In July 2008, the GOSKN issued amended Anti-Money Laundering Regulations and Guidance Notes. The Regulations and Guidance Notes update and apply a risk-based approach to regulation and guidance, to include CTF measures; identification procedures for one-off transactions; and enhanced due diligence. A person who fails to comply with the requirements of these Regulations or Guidance Notes is liable on summary conviction to a fine not exceeding $50,000. In the case of a continuing offense, an additional fine of $5,000 per day is applicable for each day the infringement continues after such conviction.
The Financial Intelligence Unit Act No. 15 of 2000 (FIUA) authorizes the creation of a financial intelligence unit (FIU). The FIU began operations in 2001 and receives, collects, and investigates suspicious activity reports (SARs). All financial institutions, including nonbank financial institutions, are required by law to report suspicious transactions. AML regulations and the FIUA provide protection to reporting entities and employees, officers, owners, or representatives who forward SARs to the FIU. Tipping off is prohibited. The FIU has direct and indirect access to the records of other government entities via memorandums of understanding with domestic agencies. There is also indirect access to the records at financial institutions. The FIUA contains provisions for sharing information both domestically and with other foreign law enforcement agencies.
In 2008, the FIU received 352 SARs (triple the amount in 2007) with 98 referred to law enforcement for appropriate action. The FIU attributes this increase to efforts to increase awareness and educate entities of their reporting obligations. The GOSKN did not report any action taken on these referrals. The Royal St. Kitts and Nevis Police Force is responsible for investigating financial crimes, but does not have adequate staff or training to effectively execute its mandate.
The POCA limits and monitors the international transportation of currency and monetary instruments. Any person importing into or exporting from St. Kitts and Nevis a value exceeding $10,000 or its equivalent in Eastern Caribbean Currency needs to declare it through Customs. In addition, the Customs Control and Management Act criminalizes bulk cash smuggling. Customs and police share cash smuggling reports.
The Anti-Terrorism Act No. 21 of 2002 (ATA) provides the FIU and Director of Public Prosecutions the authority to identify, freeze, and/or forfeit terrorist finance-related assets. However, the law only allows for criminal forfeiture. Civil forfeiture is considered unconstitutional. Under the POCA, legitimate businesses can be seized by the FIU if proven to be connected to money laundering activities. The FIU and the Director of Public Prosecutions are responsible for tracing, seizing, and freezing assets. The FIU can freeze an individual’s bank account for a period not exceeding five days in the absence of a court order. The freeze orders obtained via the court at times ascribe an expiration of six months or more. Also under the POCA, there is a forfeiture fund under the administration and control of the Financial Secretary in St. Kitts and the Permanent Secretary in the Ministry of Finance in Nevis.
The ATA criminalizes terrorist financing and implements various UN conventions against terrorism. The GOSKN circulates to its financial institutions the names of individuals and entities included on the UN 1267 Sanctions Committee’s lists. The GOSKN has some existing controls that apply to alternative remittance systems, but has undertaken no initiatives that apply directly to the potential terrorist misuse of charitable and nonprofit entities. To date, no terrorist related funds have been identified.
The GOSKN has drafted the Non-Governmental Organization Bill and has had a first reading in the National Assembly. The main objective of the Bill is to regulate the operation of nongovernmental organizations (NGOs), including charities, and to stipulate that the registration of a NGO shall be refused if the entity or its proposed directors are involved or materially concerned in fraud, organized crime, money laundering or terrorist activities. The Bill also sets reporting standards intended to act as a monitoring mechanism for NGOs. It is anticipated the Bill will be passed before the end of 2008. All monies and proceeds from the sale of property forfeited or confiscated are placed in the fund to be used for AML activities in both St. Kitts and Nevis. Between 2001 and 2006, the GOSKN froze approximately $2,000,000 in assets, of which $1,000,000 was forfeited. No assets were seized in 2007 or 2008. In 2008, $154,000 was forfeited.
St. Kitts and Nevis is a member of the Caribbean Financial Action Task Force (CFATF), a Financial Action Task Force-style regional body, and underwent a mutual evaluation in 2008, the results of which are still pending. The mutual evaluation report will be presented at the CFATF Plenary in May 2009. St. Kitts and Nevis is also a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering (OAS/CICAD). The FIU is a member of the Egmont Group. St. Kitts and Nevis 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. St. Kitts and Nevis is not a party to the UN Convention against Corruption.
A Mutual Legal Assistance Treaty (MLAT) between the St. Kitts and Nevis and the United States entered into force in 2000. Past requests from the United States under the MLAT have not always been treated with appropriate responsiveness. . More recently, relations have improved, and there are efforts by the Director of Public Prosecutions office to remedy the previous deficiencies in the system. As a result of a refusal on the part of the GOSKN to remit over $1,000,000 in securities fraud proceeds arising out of a prosecution in the Southern District of California, the U.S. filed an action against the U.S. correspondent account of the Bank of Nevis under the USA PATRIOT Act in 2008. Recently, a judge in Nevis recognized the U.S. court-appointed SEC Receiver as an appropriate entity to receive the fraud proceeds from the Bank of Nevis, and, as a result, as long as there is not a reversal of that decision, the U.S. action may be settled.
Bank secrecy laws, the allowance of anonymous accounts, and the lack of transparency of beneficial ownership of legal entities makes Nevis, in particular, a haven for criminals to conceal their proceeds. To address remaining vulnerabilities, St. Kitts and Nevis should devote sufficient resources to effectively implement its AML/CTF regime, giving particular attention to its offshore financial sector. It is also vital that St. Kitts and Nevis determine the exact number of Internet gaming companies present on the islands and provide the necessary oversight of these entities. As part of operating an offshore financial center, the Government of St. Kitts and Nevis needs to provide adequate resources and capacity to law enforcement agencies to effectively investigate money laundering cases. The GOSKN should provide for close supervision of its economic citizenship programs or else consider their discontinuance. Additionally, Nevis should expand its supervision program to credit unions, local insurance companies, and money transfer agencies. If it has not already done so, the GOSKN should enact its pending Money Services Business Bill 2008, to provide for licensing and supervision of money services businesses. To strengthen its legal framework against money laundering, St. Kitts and Nevis should move expeditiously to become a party to the UN Convention against Corruption.
St. Lucia has developed an offshore financial service center that is vulnerable to money laundering. Transshipment of narcotics (cocaine and marijuana), unregulated money remittance businesses, cash smuggling, and bank fraud, such as counterfeit U.S. checks and identity theft, are among the other primary sources for laundered funds in St. Lucia.
Currently, St. Lucia has six offshore banks, 2,851 international business companies (IBCs), nine mutual funds, 29 international insurance companies, 66 trust companies, three mutual fund administrators, 15 registered agents, five registered trustees (service providers), and 30 domestic financial institutions. The number of IBCs reflects a 49 percent increase since 2006, though no information on the number of IBCs has been reported for 2008. Shell companies are not permitted. The Government of St. Lucia (GOSL) also has one free trade zone where investors may establish businesses and conduct trade and commerce within the free trade zone or between the free trade zone and foreign countries. There are no casinos or Internet gaming sites in St. Lucia, and the GOSL does not plan to consider the establishment of gaming enterprises.
Money laundering in St. Lucia is a crime under the 1993 Proceeds of Crime Act and the Money Laundering (Prevention) Act (MLPA) of 2003, which supersedes the Money Laundering (Prevention) Act of 1999 and the Financial Intelligence Authority Act of 2002. The MLPA criminalizes the laundering of proceeds with respect to numerous predicate offenses, including narcotics and firearms trafficking, abduction, blackmail, counterfeiting, extortion, forgery, corruption, fraud, prostitution, trafficking in persons, tax evasion, terrorism, gambling, illegal deposit taking and robbery. The MLPA mandates suspicious transaction reporting requirements and imposes record keeping requirements. In addition, the MLPA imposes a duty on financial institutions to take reasonable measures to establish the identity of customers, and requires accounts to be maintained in the true name of the holder. It also requires an institution to take reasonable measures to identify the underlying beneficial owner when an agent, trustee or nominee operates an account. These obligations apply to domestic and offshore financial institutions, including banks, building societies, financial services providers, credit unions, trust companies, and insurance companies. The Financial Services Supervision Unit has issued detailed guidance notes to implement the MLPA. Currently, steps are also being taken to implement legislation to regulate money remitters.
In 1999, the GOSL enacted a comprehensive inventory of offshore legislation, consisting of the International Business Companies (IBC) Act, the Registered Agent and Trustee Licensing Act, the International Trusts Act, the International Insurance Act, the Mutual Funds Act, and the International Banks Act. An IBC may be incorporated under the IBC Act. Only a person licensed under the Registered Agent and Trustee Licensing Act as a licensee may apply to the Registrar of IBCs to incorporate and register a company as an IBC. IBCs intending to engage in banking, insurance or a mutual funds business may not be registered without the approval of the Minister responsible for international financial services. An IBC may be struck off the register on the grounds of carrying on business against the public interest.
The Committee on Financial Services, established in 2001, is designed to safeguard St. Lucia’s financial services sector. The Committee is composed of, among others, the Minister of Finance, the Attorney General, the Solicitor General, the Director of Public Prosecutions, the Director of Financial Services, the Registrar of Business Companies, the Commissioner of Police, the Deputy Permanent Secretary of the Ministry of Commerce, the police officer in charge of the Special Branch, and the Comptroller of Inland Revenue. The GOSL has implemented administrative procedures for an integrated regulatory unit to supervise the currently regulated onshore and offshore financial institutions; however, the unit is not yet fully functional. The Eastern Caribbean Central Bank regulates St. Lucia’s domestic banking sector.
The MLPA authorizes the establishment of St. Lucia’s financial intelligence unit (FIU), which became operational in October 2003. The FIU is responsible for receiving, analyzing and disseminating suspicious transaction reports (STRs) from obligated financial institutions, and has regulatory authority to monitor compliance with anti-money laundering requirements. The FIU also is able to compel the production of information necessary to investigate possible offenses under the 1993 Proceeds of Crime Act and the MLPA. Failure to provide information to the FIU is a crime punishable by a fine or up to ten years imprisonment. The FIU has access to relevant records and databases of all St. Lucian government entities and financial institutions, and is permitted by law to share information with foreign FIUs. However, no formal agreement exists for sharing information domestically and with other FIUs. In 2008, the FIU received 56 STRs, two of which were referred to law enforcement agencies for further investigation. There are no recorded cases of money laundering within St. Lucia’s banking sector for 2008.
Customs laws criminalize cash smuggling, and customs officials are aware of cash courier problems. Cash smuggling reports are shared with the FIU, police, Director of Public Prosecutions and the Attorney General.
Under current legislation, instruments of crime, such as conveyances, farms, and bank accounts, can be seized by the FIU. Substitute assets also can be seized. The legislation also applies to legitimate businesses if used to launder drug money, support terrorist activity, or if otherwise used in a crime. There is no legislation for civil forfeiture or sharing of narcotics assets. If the individual or business is not charged, then assets must be released within seven days. In 2008, $50,000 was frozen, while $350,000 was frozen in previous years.
The GOSL has not criminalized terrorist financing. However, St. Lucia circulates to financial institutions lists of terrorists and terrorist organizations on the UN 1267 Sanctions Committee’s consolidated list and the list of Specially Designated Global Terrorists designated by the United States pursuant to Executive Order 13224. The GOSL has the legislative power to freeze, seize and forfeit terrorist finance-related assets. To date, no accounts associated with terrorists or terrorist entities have been found in St. Lucia. The GOSL has not taken any specific initiatives focused on the misuse of charitable and nonprofit entities.
The GOSL has been cooperative with the USG in financial crimes investigations. In February 2000, St. Lucia and the United States brought into force a Mutual Legal Assistance Treaty.
The GOSL is a party to the 1988 UN Drug Convention; has signed, but not yet ratified, the UN Convention against Transnational Organized Crime; and is not a party to the UN Convention for the Suppression of the Financing of Terrorism or the UN Convention against Corruption. St. Lucia is a member of the Caribbean Financial Action Task Force, a Financial Action Task Force-style regional body, whose recent mutual evaluation report was made available in November 2008. The GOSL is also a member of the OAS Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering. St. Lucia’s FIU is not a member of the Egmont Group.
The Government of St. Lucia should move expeditiously to criminalize terrorist financing. It also should enhance and implement its anti-money laundering legislation and programs by regulating money remitters, considering the adoption of civil forfeiture legislation and ensuring that its FIU meets the Egmont Group standards. Efforts to increase transparency within the island’s offshore financial services sector should be continued. St. Lucia should also criminalize self-laundering and implement risk-based assessment procedures as well as consider requirements for reporting large monetary transactions to the FIU. The GOSL should intensify its efforts to investigate, prosecute, and sentence money launderers and those involved in other financial crimes, and should permit extradition in cases of money laundering and terrorist financing. St. Lucia should use its asset seizure and forfeiture regimes, and provide for asset sharing with other governments. Saint Lucia should become a party to the UN Convention for the Suppression of the Financing of Terrorism, the UN Convention against Transnational Organized Crime, and the UN Convention against Corruption.
St. Vincent and the Grenadines
St. Vincent and the Grenadines (SVG) remains vulnerable to money laundering and other financial crimes as a result of drug-trafficking and its offshore financial sector. Money laundering is principally affiliated with the production and trafficking of marijuana in SVG, as well as the trafficking of other narcotics from South America. Money laundering occurs in various financial institutions such as domestic and offshore banks and money remitters. There has been a slight increase in fraud and the use of counterfeit instruments over the last year, such as tendering counterfeit checks or cash.
The domestic financial sector includes two commercial banks, a development bank, two savings and loan banks, a building society, nine insurance companies, ten credit unions, and two money remitters. The offshore sector includes six offshore banks, 8,498 international business corporations (IBCs), 13 offshore insurance companies, nine mutual funds, 19 registered agents, and 138 international trusts. There are no offshore casinos, and no Internet gaming licenses have been issued. There are no free trade zones in SVG. The Government of St. Vincent and the Grenadines (GOSVG) eliminated its economic citizenship program in 2001.
No physical presence is required for offshore sector entities and businesses, with the exception of offshore banks. Nominee directors are not mandatory except when an IBC is formed to carry on banking business. Bearer shares are permitted for IBCs but not for banks. The International Business Companies (Amendment) Act No. 26 and 44 of 2002 was enacted to immobilize bearer shares and requires registration and custody of bearer share certificates by a registered agent who must also keep a record of each bearer certificate issued or deposited in its custody. The record must contain pertinent information relating to the company issuing the shares, the number of the share certificate, and identity of the beneficial owner. The Offshore Finance Inspector has the ability to access the name or title of a customer account and confidential information about a customer that is in the possession of a license.
The Proceeds of Crime and Money Laundering (Prevention) Act 2001 (PCMLPA) criminalizes money laundering, and requires financial institutions and other regulated businesses to report suspicious transactions. Reporting is required for all suspicious activities regardless of the transaction amount. In 2005, the PCMLPA was amended to expand the definition to include an all offenses approach and to extend the scope of sections relating to the seizure, detention, and forfeiture of cash. The Proceeds of Crime (Money Laundering) Regulations establish mandatory record keeping rules and customer identification requirements. Financial institutions are required to maintain all records relating to transactions for a minimum of seven years.
The Eastern Caribbean Central Bank (ECCB) supervises SVG’s domestic banks. The International Banks (Amendment) Act No. 30 of 2002 provides the ECCB with enhanced authority to review and make recommendations regarding approval of offshore bank license applications, and to directly supervise the offshore banks in conjunction with the International Financial Services Authority (IFSA). The agreement includes provisions for joint on-site inspections to evaluate the financial soundness and anti-money laundering programs of offshore banks. However, in March 2008, an amendment to the International Bank Act was passed in Parliament. The amendment reduces the involvement of the ECCB in the supervision of the offshore banking sector. The IFSA continues independently to supervise and regulate other offshore sector entities; however, its staff exercises only rudimentary controls over these institutions. The GOSVG has strengthened the structure and staffing of the IFSA to regulate offshore insurance and mutual funds. The Exchange of Information Act No. 29 of 2002 authorizes and facilitates the exchange of information among regulatory bodies.
Customers are required to complete a source of funds declaration for any cash transaction over 10,000 East Caribbean dollars (XCD) (approximately $3,700). It is not mandatory to report other noncash transactions exceeding 10,000 XCD (approximately $3,700). Incoming travelers are required to declare currency over 10,000 XCD (approximately $3,700) on a customs declaration form, reintroduced in 2003.
The Financial Intelligence Unit Act No. 38 of 2001 (FIU Act) establishes the GOSVG’s Financial Intelligence Unit (FIU). Operational as of 2002, the FIU has the mandate to receive, analyze, and investigate financial intelligence, and prosecute money laundering cases. Suspicious activity related to drug-trafficking is forwarded to the Narcotics Unit for further investigation, and activity related to fraud is forwarded to the Criminal Investigation Division. The FIU also has the ability to obtain production orders and stop/freeze orders. The FIU staff includes the director, financial investigators, legal officers, and administrative officers. As of November 2008, the FIU received 425 suspicious activity reports for the year, almost triple that of 2007. In December 2008, a suspect was arrested and charged under the Proceeds of Crime and Money Laundering Act. The charges relate to $1,700,000 which, in whole or in part, directly represent his proceeds of criminal conduct discovered within a harbor in St. Vincent on board a yacht owned by the suspect. Two other individuals, the operators of the vessel, were charged in April 2008, when the funds were discovered. The suspect’s arrest is a major milestone for law enforcement in St. Vincent, as the first arrest under the Act.
The FIU is the main entity responsible for supervising and examining financial institutions for compliance with anti-money laundering and counterterrorist financing (AML/CTF) laws and regulations. The function is also performed by the IFSA and the ECCB. Money laundering controls also apply to nonbanking financial institutions and intermediaries, which the FIU monitors for compliance. Reporting entities that are fully cooperative with the FIU are protected by law. An amendment to the FIU Act permits the sharing of information even at the investigative or intelligence stage. The FIU does not have direct access to the records or databases of other government entities. Generally, records are still kept in physical form and must be retrieved manually.
Existing anti-money laundering legislation allows for the criminal forfeiture of intangible as well as tangible property. Drug-trafficking offenses may also be liable to the forfeiture provisions pursuant to the Drug (Prevention and Misuse) Act and the Criminal Code. There is no period of time during which the assets must be released. Frozen assets are confiscated by the FIU upon conviction of the defendant. Proceeds from asset seizures and forfeitures are placed by the FIU into the Confiscated Assets Fund established by the PCMLPA. Legitimate businesses can also be seized if used to launder drug money, support terrorist activity, or are otherwise used in a crime. A civil forfeiture bill has been drafted and is currently before the National Anti-Money Laundering Committee (NAMLC) for its approval. In 2008, approximately $1,158,000 in assets and $729,000 in cash was frozen or seized. Of this amount, approximately $23,000 was forfeited.
In 2006, the GOSVG enacted the United Nations (Anti-Terrorism Measures) (Amendment) Act 2006, Act. No.13 (UNATMA). The UNATMA criminalizes terrorist financing and imposes a legal obligation on financial institutions and relevant businesses to report suspicious transactions relating to terrorism and terrorist financing to the FIU. The GOSVG circulates lists of terrorists and terrorist entities to all financial institutions in SVG. To date, no accounts associated with terrorists have been found. The GOSVG has not undertaken any specific initiatives focused on the misuse of charitable and nonprofit entities.
An updated extradition treaty and a Mutual Legal Assistance Treaty between the United States and the GOSVG entered into force in 1999. The FIU executes the Mutual Legal Assistance Treaty requests. A member of the Caribbean Financial Action Task Force (CFATF), a Financial Action Task Force-style regional body, the GOSVG was scheduled to undergo its second mutual evaluation in early 2008, but this was postponed. It is anticipated the evaluation will occur in 2009. The GOSVG is also a member of the Organization of American States Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering, and the FIU is a member of the Egmont Group. St. Vincent and the Grenadines is a party to the 1988 UN Drug Convention and the UN Convention for the Suppression of the Financing of Terrorism. St. Vincent and the Grenadines has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. St. Vincent and the Grenadines is not a party to the UN Convention against Corruption.
The Government of St. Vincent and the Grenadines has strengthened its AML/CTF regime through legislation and the establishment of an effective FIU. The GOSVG should continue to ensure this legislation is fully implemented, and the FIU has access to all necessary information. The GOSVG should insist the beneficial owners of IBCs are known and listed in a registry available to law enforcement, immobilize all bearer shares, and properly supervise and regulate all aspects of its offshore sector. The GOSVG should continue to provide training and devote resources to increase the cooperation among its regulatory, law enforcement, and FIU personnel in AML/CTF operations and investigations. To ensure timely and effective information sharing, the GOSVG would be well served by computerization of its record keeping systems. Passage of civil forfeiture legislation and broader use of special investigative techniques should be pursued to strengthen the government’s anti-money laundering efforts. St. Vincent and the Grenadines should also become a party to the UN Convention against Transnational Organized Crime and the UN Convention against Corruption.
Suriname is not a regional financial center. Narcotics-related money laundering is closely linked to transnational criminal activity related to the transshipment of cocaine to the United States, Europe, and Africa. Domestic drug trafficking organizations and organized crime, with links to international groups, are thought to control much of the money laundering proceeds, which are “invested” in casinos, real estate, and private sector businesses. Additionally, money laundering occurs as a result of poorly regulated private sector activities, such as casinos and car dealerships, the nonbanking financial system (including money exchange businesses or “cambios”), and a variety of other means, including construction, the sale of gold purchased with illicit money, the purchase and sale of real estate, and the manipulation of commercial bank accounts.
Suriname is not an offshore financial center and has no free trade zones. There is a gold economy in the interior mining region of the country. Suriname has a significant informal economy, the majority of which is not linked to money laundering proceeds. Offshore banks and shell companies are not permitted in Suriname.
A package of legislation passed in 2002 included the criminalization of money laundering. The legislation, “Reporting of Unusual Transactions in the Provision of Services,” addresses multiple issues related to all types of money laundering, including criminalizing money laundering, reporting of unusual transactions, and requiring service providers to request identification from each customer making a transaction. The legislation applies to both banking and nonbanking financial institutions.
The Central Bank of Suriname (CBS) is the sole monitoring authority for commercial banks; in that capacity the CBS supervises and examines financial institutions for compliance with anti money laundering legislation. The CBS is adequately staffed and trained for this purpose. Banking and nonbanking institutions are also required to report suspicious transactions to the Financial Intelligence Unit (FIU), which is under the authority of the Attorney General’s Office.
Suriname’s legislation requires that service providers confirm the identities of individual or corporate clients before completing requested services, and retain photocopies of identity documents and all other relevant documents pertaining to national and international transactions for a period of seven years.
Financial institutions are required to report suspicious transactions. In accordance with international standards, objective and subjective indicators have been approved to identify unusual transactions. An unusual transaction is defined as any transaction that deviates from the usual account, as well as any customer activities that are not “normal” daily banking business. Reporting is mandatory if financial transactions are above a certain threshold; however, sanctions for noncompliance are currently not enforced. The thresholds for financial institutions range from U.S. $5,000 for money-transfer offices to U.S. $10,000 for banks, insurance companies, money exchange offices, and savings and credit unions. Thresholds for nonbanking financial institutions and “natural legal persons” are U.S. $5,000 for casinos, U.S. $10,000 for dealers of precious metals and stones, and U.S. $25,000 for notaries, accountants, lawyers, and car dealerships.
The legislation includes a due diligence section that holds individual bankers responsible if their institution launders money and ensures confidentiality to bankers and others with respect to their cooperation with law enforcement officials.
Suriname’s money laundering legislation provides for the establishment of the FIU. The FIU is an administrative body that performs analytical duties. Its responsibilities entail requesting, analyzing, and reporting to the Attorney General’s Office information on unusual transactions or unusual transaction patterns that may constitute money laundering. If necessary, the FIU may request access to the records of other government entities. Bureaucracy and the lack of financial and human resources have made it difficult for the FIU to perform. Although the law requires financial institutions, nonbank financial institutions, and natural legal persons who provide financial services to report unusual transactions to the FIU, only approximately 130 entities in Suriname are registered with the FIU and have received information regarding Suriname’s money laundering legislation. The FIU continues to have difficulty registering providers in certain sectors, and authorities reported that not all of Suriname’s jewelers, notaries, credit unions, “cambios,” casinos, or car dealers are aware of or in compliance with the requirements of the money laundering legislation. Furthermore, authorities expressed concern that service providers such as accountants, lawyers, and real estate brokers, are increasingly being hired by money launderers and should receive training in order to recognize and prevent money laundering. The only entities in full compliance with the law are the banking sector and the money-transfer offices. The FIU is not adequately staffed to both monitor unusual transactions and conduct outreach activities to ensure that all sectors are aware of and in compliance with the law to report unusual transactions. The number of unusual transaction reports reported to the FIU in 2008 was not available but government officials stated that there had been an approximate 20 percent increase in the number of reports in 2008 as compared to reports in 2007. The number of these reports that were investigated by law enforcement agencies was not available.
The Police Fraud Department and the Special Investigative Techniques section (BOT) of the Police Force are responsible for investigating financial crimes. To facilitate interagency coordination, Suriname has an Anti-Money Laundering Project Team, which consists of representatives from the FIU, Judicial Police, the Attorney General’s Office, and the judiciary.
Suriname’s anti-money laundering regime also includes a Financial Investigation Team (FOT) under the authority of the Judicial Police. The FOT is the body responsible for investigating all suspicious transactions identified by the FIU. Upon making a determination that an unusual activity report is indeed suspicious and sufficient to initiate an investigation, the FIU refers the matter to the Attorney General’s Office. If the Attorney General’s Office concurs with the determination, it directs the FOT to conduct an investigation. Prosecutors use evidence collected from FOT investigations to build legal cases. However, the FOT also suffers from a lack of personnel and resources that have rendered it largely ineffective over the past year. The 2004 sentencing of an individual to seven years imprisonment for intentional money laundering and for attempting to export a small amount of cocaine remains the most significant and longest money laundering sentence to date. Resource constraints and a severe shortage of judges are proving to be a limiting factor in expanding this success. Through the year, four new judges (two permanent and two substitutes) were sworn in; it remains to be seen if the expansion of the judges’ corps will partially redress the problem.
There were two arrests and one prosecution for money laundering. In March 2008, two suspects were arrested on charges of money laundering after they were arrested carrying approximately U.S. $ 190,600. One of the suspects was still under prosecution at year’s end, while the other, a government employee, was released without court charges and returned to his official duties.
In August 2008, a man originating from Sierra Leone, but residing in Suriname, was arrested for attempting to travel on a stolen passport. After his arrest, investigations led to seizure of his bank statements, which contained “thousands of U.S. dollars.” The suspect could not properly explain the source of these funds. The Attorney General’s Office was preparing charges against the suspect at year’s end.
The appeal on the case involving De Surinaamse Bank President Siegmund Proeve, former Bank President Edward Muller, Procurement Officer Patrick Bhagwandin, and Canadian Dorsett Group staffer Jeffrey Clague continued in 2008. In August 2007, Proeve and Muller had been sentenced to six months imprisonment for the illegal transfer of approximately U.S. $14.5 million in casino profits to foreign countries between 1998 and 2003. The defendants were charged with transferring funds without the permission of the Foreign Exchange Commission, and for the transfer of amounts over U.S. $10,000 without reporting it to the Central Bank. Bagwandin was sentenced to a conditional three-month imprisonment, and Claque was sentenced to six months. The bank was fined U.S. $358,000. In October 2008, the Appeals Court reversed the ruling on Clague because he had not been properly served. The court is scheduled on December 15 to hand down a decision on whether or not Clague was legally required to submit capital lease documentation for the money transfers. The prosecution has asked the court to fine the DSB Bank 100,000 SRD (U.S. $35,714) and sentence Proeve and Muller to 12 months imprisonment.
The trial involving former Minister of Trade and Industry, Siegfried Gilds, continued at year’s end. Gilds, who resigned his position after the Attorney General announced he was under investigation for laundering money and membership in a criminal organization, is alleged to have laundered close to $1.27 million between 2003 and 2005.
An amendment to the criminal code enacted in 2003 allows authorities to confiscate illegally obtained proceeds and assets obtained partly or completely through criminal offenses; however, assets cannot be converted to cash or disposed of until the case is settled. New assets forfeiture legislation, which would make this possible, is under consideration in Parliament. There are no provisions for civil forfeiture, and there is no legal mechanism that designates the proceeds gained by the sale of forfeited goods to be used directly for law enforcement efforts. There is no entity for the management and disposition of assets seized and forfeited for narcotics-related money laundering offenses.
Suriname does have legislation that allows the authorities to freeze assets of those suspected of money laundering. The Police Fraud Department and the Special Investigative Techniques section (BOT) of the Police Force are responsible for investigating financial crimes and seizing assets. Assets may be confiscated pending the outcome of the trial, but cannot be liquidated until after the court’s final verdict.
The government has not criminalized the financing of terrorism as required by the UN International Convention for the Suppression of the Financing of Terrorism, UN Security Council Resolution 1373, and FATF Special Recommendation Number 9. The Central Bank of Suriname circulates to commercial banks the names of individuals/entities that are designated by the United Nations 1267 Sanctions Committee list as associates of Al-Qaeda, the Taliban, or Usama bin Laden. The government has not adopted laws or regulations that allow for the exchange of records with the United States on investigations and proceedings related to terrorism and terrorist financing.
Suriname does not recognize indigenous alternative remittance systems. There are no known cases of charitable or nonprofit entities serving as conduits for financing terrorism in Suriname.
Statutory requirements limit the international transportation of currency and monetary instruments; amounts in excess of U.S. $10,000 must be reported to authorities before entering or leaving Suriname. In addition, any person who wishes to take money in excess of U.S. $10,000 out of the country must notify the Immigration Police. The Central Bank of Suriname also requires that all transactions in excess of U.S. $10,000 be reported. The GOS has not taken any strong action against cross-border cash smuggling and the extent of this smuggling is unknown. There is little publicly posted information at the borders or at the international airport on the requirement to report the transport of currency or monetary instruments in excess of U.S. $10,000. There is no database of cash declaration or smuggling reports.
Suriname has bilateral treaties and cooperation agreements with the United States on narcotics trafficking, and with Colombia, France and the Netherlands Antilles on transnational organized crime. There has been some cooperation with the United States on civil cases under U.S. jurisdiction. In January 2006, Suriname, the Netherlands Antilles, and Aruba signed a Mutual Legal Assistance Agreement allowing for direct law enforcement and judicial cooperation between the countries, making it no longer necessary for the process to be first routed through The Hague. Parties to the Agreement, which covers cooperation with regard to drug trafficking, trafficking in persons, and organized crime, had a follow-up meeting in March 2007 and expanded the cooperation to include information sharing on transnational crime and financial crimes. On the basis of a Memorandum of Understanding (MOU), Suriname shares information regarding money laundering with the FIU in the Netherlands. Another MOU was concluded with the Netherlands Antilles in October 2007.
Suriname is party to the 1988 UN Drug Convention, but has not implemented legislation regarding precursor chemical control provisions to bring itself into full conformity with the Convention. Suriname is a party to the UN Convention against Transnational Organized Crime but not a party to the UN Convention against Corruption. Draft legislation to become a party to the UN Convention for the Suppression of the Financing of Terrorism has been prepared by the Ministry of Justice and Police, and is awaiting the Council of Ministers’ approval. Suriname is a member of the Caribbean Financial Action Task Force (CFATF) and the OAS Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering. Suriname’s FIU is not a member of the Egmont Group. In 2006, a joint team from the FIUs of Canada and the United States visited Suriname and agreed to sponsor Suriname’s FIU in the Egmont membership process. The two organizations proposed steps to be taken by Suriname to qualify for the Egmont application process. A crucial step recommended is the formal criminalization of terrorist financing, which is a requirement for all new members of the Egmont Group.
The Government of Suriname should pass legislation to criminalize terrorist financing. Recent convictions have demonstrated the ability and willingness of the GOS to combat money laundering. However, the GOS should take steps to further enhance its anti-money laundering regime to conform to international standards. Suriname should devote the necessary resources to effectively investigate and prosecute money laundering cases. The GOS should consider implementing provisions for civil forfeiture, and create a program for the management and disposition of seized and forfeited assets. The GOS should bolster the capacity of the FIU with the necessary personnel and financial resources, and implement reforms to permit the FIU to qualify as a member of the Egmont Group. Suriname should become a party to the UN Convention against Corruption and to the UN Convention for the Suppression of the Financing of Terrorism, and pass the necessary laws to conform to its obligations under the 1988 UN Drug Convention.
Switzerland is a major international financial center. Reporting indicates that criminals attempt to launder illegal proceeds in Switzerland from a wide range of criminal activities conducted worldwide. These illegal activities include, but are not limited to, financial crimes, narcotics trafficking, arms trafficking, organized crime, terrorist financing and corruption. Although both Swiss and foreign individuals or entities launder money in Switzerland, foreign narcotics trafficking organizations, often based in the Balkans, Eastern Europe, or South America, dominate the narcotics-related money laundering operations in Switzerland. The country’s central geographic location; relative political, social, and monetary stability; the range and sophistication of financial services it provides; and its long tradition of bank secrecy—first codified in 1934—not only contribute to Switzerland’s success as a major international financial center, but also expose Switzerland to potential money laundering activity.
Given the size of the Swiss banking industry in the overall economy (with 330 banks and a large number of nonbank financial intermediaries comprising 11.8 percent of GDP, 5.9 percent of total employment, and 11.4 percent of total domestic revenues), Swiss authorities are aware of the vulnerabilities and have taken steps to mitigate them. For example, Switzerland automatically waives its bank secrecy laws in cases of suspected money laundering and fraud. Thus, while reference to Swiss bank accounts was once frequent in fraud and corruption cases linked to foreign government officials and heads-of-state, such cases are less common today. Swiss banks routinely screen the accounts of politically exposed persons (PEPs) for indications of illicit money transfers, making use of specialized computer software programs to monitor for suspicious activities. Examples of public figures that have been the subject of Swiss money laundering allegations or investigations include a former Kyrgyz Republic President, a former Russian Minister of Atomic Energy, the Nigerian dictator Sani Abacha, former Pakistani Prime Minister Benazir Bhutto, and former Haitian President Jean-Claude Duvalier. These individuals used Swiss bank accounts under the names of related family members to move national assets to Switzerland for personal use.
Switzerland’s banking industry offers the same account services for both residents and nonresidents. Many Swiss banks offer certain well-regulated offshore services, including permitting nonresidents to form offshore companies to conduct business, which can be used for tax reduction purposes. However, Swiss commercial law does not recognize any offshore mechanism per se and its provisions apply equally to residents and nonresidents. The stock company and the limited liability company are two standard forms of incorporation offered by Swiss commercial law. All financial intermediaries must verify the identity of the beneficial owner of the stock company and must know any change regarding the beneficial owner. Stock companies may issue bearer shares, but limited liability companies may not.
Switzerland has duty free zones. Customs authorities supervise the admission into and the removal of goods from customs warehouses. Warehoused goods may only undergo manipulations necessary for their maintenance, such as repacking, splitting, sorting, mixing, sampling and removal of the external packaging. Any further manipulation is subject to authorization. Goods may not be manufactured in the duty free zones. Swiss law has full force in the duty free zones. Export laws on strategic goods, war material, and medicinal products, as well as laws relating to anti-money laundering prohibitions, all apply.
Switzerland has no legal reporting requirement for cash imported into or exported out of the country. Because there are no laws meeting the international standards for declaration of currency and monetary instruments, Swiss authorities cannot effectively initiate bulk cash investigations.
Switzerland ranks third in the highly profitable global artwork trading market, exporting $1.8 billion of artwork in 2007—an increase of 41percent over the previous year. Because of the size of the Swiss art market, organized crime groups have attempted in the past to transfer stolen art or to use art to launder criminal funds via Switzerland. The United States is by far Switzerland’s most important trading partner in this area, having purchased $576 million worth of works of art in 2007. This sum represents 31 percent of total artwork imports. The 2003 Cultural Property Transfer Act, implemented in June 2005, codifies in Swiss law elements of the 1970 United Nations Educational, Scientific, and Cultural Organization (UNESCO) Convention. This measure increases from five to thirty years the time period during which stolen pieces of art may be confiscated from those who purchased them in good faith. The law also allows police forces to search bonded warehouses and art galleries.
Switzerland has comprehensive anti-money laundering (AML) legislation in place, criminalizing money laundering and making banks and other financial intermediaries subject to strict know-your-customer (KYC) and reporting requirements. However, Swiss law does not recognize certain types of criminal offenses as predicate offenses for money laundering, including illegal trafficking in migrants, counterfeiting and pirating of products, smuggling, insider trading, and market manipulation. The fact that not all predicate crimes are covered under the money laundering laws increases the vulnerability of Switzerland’s financial sector to criminal exploitation. In June 2007 the Swiss government submitted a draft bill to Parliament extending the scope of the Money Laundering Act to address shortcomings identified in the Financial Action Task Force (FATF) mutual evaluation report (MER) for Switzerland. The adoption of AML regulations planned for 2009 will make these crimes predicate offenses.
Swiss money laundering laws and regulations apply to both banks and nonbank financial institutions. The Federal Banking Commission, the Federal Office of Private Insurance, and the Swiss Federal Gaming Board serve as primary oversight authorities for a number of financial intermediaries, including banks, securities dealers, insurance institutions, and casinos. Other financial intermediaries are either directly supervised by Money Laundering Control Authority (MLCA) of the Federal Finance Department or by an accredited self-regulatory organization (SRO), which the entity must join. SROs are authorized by the Swiss government to oversee implementation of AML measures by their members. The SROs must be independent of the management of the intermediaries they supervise and must enforce compliance with due diligence obligations. Noncompliance can result in a fine or a revoked license. About 6,000 financial intermediaries are associated with SROs; the majority of these are financial management companies.
The Swiss Federal Banking Commission revised its AML regulations in 2002, and they became effective in 2003. These regulations, aimed at the banking and securities industries, codify a risk-based approach to suspicious transactions and client identification and install a global know-your-customer risk management program for all banks, including those with branches and subsidiaries abroad. Consistent with this approach, financial intermediaries must conduct additional due diligence in the case of higher-risk business relationships. The regulations require increased due diligence in the cases of politically exposed persons (PEPs), ensuring that decisions to commence relationships with such persons be undertaken by at least one member of the senior executive body of a financial institution. All provisions apply to correspondent banking relationships as well. Swiss banks may not maintain business relationships with shell banks, but there is no requirement that banks ensure that foreign clients do not authorize shell banks to access their accounts in Swiss banks.
The 2002 Banking Commission regulations mandate that all cross-border wire transfers must contain identifying details about the funds’ remitters, though banks and other covered entities may omit such information for “legitimate reasons.” However, the MER states that Switzerland lacks specific provisions requiring intermediary financial institutions to keep the necessary information on the ordering customer.
In June 2007, the Swiss Parliament approved a new financial market regulation bill aimed at creating a new regulator to boost the image of Switzerland’s financial market by combining the activities of three existing watchdog groups. The Federal Financial Market Supervisory Authority (FINMA) groups together the regulatory work of the Federal Banking Commission, the Federal Office of Private Insurance and the Money Laundering Control Authority. The FINMA became operational in January 2009, and will investigate suspected cases of money laundering and corruption.
Other types of designated nonfinancial businesses and professions (DNFBPs) required to report suspicious transactions to the Swiss FIU include attorneys, commodities and precious metals traders, asset managers and investment advisers, distributors of investment funds, securities traders, and credit card companies.
The Money Laundering Reporting Office (MROS), part of the Federal Office of Police (FedPol), is Switzerland’s FIU and functions as a relay and filtration point between financial intermediaries and other law enforcement agencies. According to the Money Laundering Act, MROS receives, processes, and analyzes STRs, and disseminates them to law enforcement agencies. MROS cannot obtain additional information from reporting entities after receiving an STR. As an administrative FIU, MROS does not have any investigative powers of its own. From an operational standpoint, Swiss authorities claim that MROS has reached full capability, and that its experienced and efficient team has been able to keep average processing time to 2.5 days per STR.
MROS received 795 STRs in 2007, the most it has received since 2004. MROS forwarded seventy-nine percent of these STRs to law enforcement. The banking sector saw a 37 percent increase in the number of STRs submitted by its institutions. Of the total number of STRs, banks submitted 62 percent of STRs, followed by payment services with 29 percent of STR submissions, and money transmitters with 20 percent. The proportion of STRs that money transmitters submitted in 2007was half of that of previous years. According to Swiss authorities, one reason for the decrease in STRs from money transmitters was Swiss authorities’ success interdicting various scams. While the DNFBP sectors submitted more STRs in 2007 than in 2006, their impact on the total reporting volume is relatively minor.
As was the case in the previous year, “fraud” was by far the most frequently suspected predicate offence (33 percent). In 2007, 6 STRs were related to terrorist finance, slightly fewer than the 8 STRs reported in 2006. After careful scrutiny, MROS forwarded only three of the six STRs to the Federal Prosecutor’s Office, which later found that these also did not merit the initiation of criminal proceedings.
MROS has drawn criticism from fellow Egmont Group members that claim that MROS does not meet Egmont’s definition that an FIU must have a formal legal basis to process STRs related to terrorist financing. However, Swiss law already refers to the MROS as a national reporting office for all matters relating to the fight against terrorist financing. Because the Egmont Group still requires a formal legal basis for the MROS to meet all of the prerequisites for membership, Switzerland must amend Article 9-1 of the Anti-Money Laundering Act as proposed in the Federal Council’s draft bill. If the procedure fails, the Swiss Justice Minister warned Parliament in October, the Egmont Group could suspend or cancel MROS’ membership by April 2009.
Under the 2002 Efficiency Bill, the Swiss Attorney General has authority to prosecute crimes addressed by Article 340 of the Swiss Penal Code, which covers money laundering offenses. The law confers on the Federal Police and Attorney General’s Office the authority to take over cases that have international dimensions, involve several cantons, or which deal with money laundering, organized crime, corruption, and white collar crime. Additional legislation increased the personnel and financing of the criminal police section of the Federal Police Office, which led to prosecutors’ increased effectiveness pursuing organized crime, money laundering and corruption.
Switzerland has implemented legislation for identifying, tracing, freezing, seizing, and forfeiting assets. If financial institutions believe that assets derive from criminal activity, they must freeze the assets immediately until a prosecutor decides on further action. Under Swiss law, suspect assets may be frozen for up to five days while a prosecutor investigates the suspicious activity. Switzerland cooperates with the United States to trace and seize assets, and has shared large amounts of seized assets with the United States and other governments.
Switzerland has returned a total of $1.6 billion in illegal PEP assets to home countries. Most prominently, Switzerland returned $684 million in assets deposited by Ferdinand Marcos to the Philippines and $700 million in assets deposited by Sani Abacha to Nigeria. Historically, Switzerland has required court rulings in both Switzerland and the PEP’s home country before returning the assets, but in Abacha’s case, Switzerland returned the assets without a judgment from Nigeria. The Swiss government has indicated that two PEP cases, that of $6 million in assets deposited by Jean-Claude Duvalier of Haiti, and $8 million deposited by Mobuto Sese Seko of Congo, have been pending since 1986 and 1997, respectively. In October, Switzerland asked the Democratic Republic of Congo to provide judicial cooperation so that the money would not be returned to the Mobuto family.
The Swiss government has found it difficult occasionally to repatriate stolen financial assets to their countries of origin. Swiss authorities recognize the difficulties involved in obtaining court rulings from states without efficiently functioning judicial systems and point out that countries often fail to file legal assistance requests with Switzerland, or that internal politics of the requesting country has disrupted the legal proceedings. Switzerland is also considering how to work with countries which are unable, due to insufficient funds, to cooperate with the Swiss system of judicial review.
The Government of Switzerland (GOS) has worked closely with the USG on numerous money laundering cases. Swiss legislation permits “spontaneous transmittal,” a process allowing the Swiss investigating magistrate to signal to foreign law enforcement authorities the existence of evidence regarding suspicious bank accounts in Switzerland. Six percent of the 1,510 foreign judicial assistance requests originated from the U.S. However, Swiss privacy laws make it extremely difficult for bank officials and Swiss police to divulge financial crime information to U.S. authorities absent a Mutual Legal Assistance Treaty (MLAT) request or Letters Rogatory.
Revisions to the Swiss Penal Code regarding terrorist financing entered into force on October 1, 2003. Article 260 of the Penal Code provides for a maximum sentence of five years’ imprisonment for terrorist financing. Article 100 of the Penal Code, also added in 2003, extends criminal liability for terrorist financing to include companies. However, the Swiss Penal Code currently criminalizes the financing of an act of criminal violence, not the financing of an individual, independent of a particular act.
Swiss authorities regularly request that banks and nonbank financial intermediaries check their records and accounts against lists of persons and entities with links to terrorism. The entities must report accounts of these individuals and entities to the Ministry of Justice as suspicious. Along with the U.S. and UN lists, the Swiss Economic and Finance Ministries have drawn up their own list of individuals and entities they believe to be connected with international terrorism or its financing.
Swiss authorities have thus far blocked about 48 accounts totaling SFr. 25.5 million (approximately $20,648,360) from individuals or companies linked to individuals or entities listed pursuant to relevant UN resolutions. The Swiss Attorney General also separately froze 41 accounts representing about SFr. 25 million (approximately $22,943,800) on the grounds that they were related to terrorist financing, but the extent to which these funds overlap with the UN consolidated list has yet to be determined. As of October 2008, The State Secretariat for Economic Affairs (SECO) advised that 35 bank accounts totaling Sfr. 20 million (approximately $17,363,000) relating to Al-Qaeda and the Taliban remained frozen.
The last major investigation undertaken by the Federal Attorney General’s Office on terrorism financing targeting the OFAC-listed Saudi Sheikh Yassin Kadi ended up as a defeat for Switzerland. In December 2007, authorities made the decision to abandon the prosecution, six years and two months after they began investigating the Saudi businessman whom the United States accused of supporting Al-Qaeda. As a result, the Swiss Attorney General is expected to unfreeze some 20 million francs (approximately $17,363,000) in several Swiss bank accounts.
Swiss authorities cooperate with counterpart bodies from other countries. Switzerland has a mutual legal assistance treaty in place with the United States, and Swiss law allows authorities to furnish information to U.S. regulatory agencies, provided it is kept confidential and used for law enforcement purposes. Switzerland is a member of the Financial Action Task Force (FATF), and its FIU is a member of the Egmont Group.
Switzerland is a party to the UN Convention for the Suppression of the Financing of Terrorism, the 1988 UN Drug Convention, and the UN Convention against Transnational Organized Crime. Switzerland has signed but not ratified the UN Convention against Corruption.
The Government of Switzerland (GOS) has been trying to correct the country’s image as a haven for illicit banking services. The Swiss believe that their system of self-regulation, which incorporates a “culture of cooperation” between regulators and banks, equals or exceeds that of other countries. The Swiss strategy is to avert large risks by addressing them at the account-opening phase, where due diligence and know-your-customer procedures address the issues, rather than relying on an early-warning system on all filed transactions. The GOS should address the shortcomings identified in the FATF MER, including deficiencies in correspondent banking regulations and beneficial owner identification requirements. Switzerland should pass the enhanced regulations as planned, which will increase the number of predicate offenses for money laundering. Switzerland should enact and implement cross-border currency reporting requirements. Switzerland should also ratify the United Nations Convention against Corruption. The GOS should outlaw bearer shares completely, and implement effective AML legislation and rules that monitor and regulate money service businesses and the DNFBP sectors, including ensuring that the competent authorities have the resources to conduct outreach and complete their regulatory missions. Switzerland should ensure that FINMA has the proper resources to execute its work. Switzerland should also continue to explore measures regarding, and its work assisting, countries needing assistance for legal cooperation.
Syria is not an important regional or offshore financial center, due primarily to its still underdeveloped private banking sector and the fact that the Syrian pound is not a fully convertible currency. Despite rapid growth in the banking sector since 2004, industry experts estimate that only eight percent of Syria’s population of nearly 20 million people actually uses banking services. Consequently, some 70 percent of all business transactions are still conducted in cash. Additionally, there continue to be significant money laundering and terrorist financing vulnerabilities in Syria’s financial and nonbank financial sectors that have not been addressed by legislation or other government action. Syria’s black market moneychangers are not adequately regulated and the country’s borders remain porous. Regional hawala networks are intertwined with smuggling and trade-based money laundering and raise significant concerns, including involvement in the financing of terrorism. The most significant indigenous money laundering threat involves Syria’s political and business elite, whose corruption and extra-legal activities continue unabated. The U.S. Department of State has designated Syria as a State Sponsor of Terrorism.
The Syrian banking sector is dominated by the state-owned Commercial Bank of Syria (CBS), which holds approximately 75 percent of all deposits and controls most of the country’s foreign currency reserves. With growing competition from private banks, CBS and the country’s four other specialized public banks—the Agricultural Cooperative Bank, the Industrial Bank, the Real Estate Bank, and the People’s Credit Bank—have begun offering a broader range of retail services to private customers. However, these state-owned banks still retain a monopoly on all government banking business, and account for some 80 percent of all bank branches nationwide.
In May 2004, the U.S. Department of the Treasury designated CBS, along with its subsidiary, the Syrian Lebanese Commercial Bank, as a financial institution of “primary money laundering concern,” pursuant to Section 311 of The USA PATRIOT Act. This designation resulted from reports related to CBS’s vulnerability to exploitation by criminal and/or terrorist enterprises, and has been used by terrorists or persons associated with terrorist organizations, as a conduit for the laundering of proceeds generated from the illicit sale of Iraqi oil. In April 2006, the U.S. Treasury promulgated a final rule, based on the 2004 designation, prohibiting U.S. financial institutions from maintaining or opening correspondent accounts with CBS or its Syrian Lebanese Commercial Bank subsidiary. These prohibitions also apply to foreign intermediary banks that have correspondent relationships with U.S. financial institutions and with CBS or its subsidiary.
The Government of Syria (GOS) began taking steps to develop a limited private banking sector in April 2001, with Law No. 28, which legalized private banking, and Law No. 29, which established rules on bank secrecy. Under Law No. 28, subsidiary branches of private foreign banks are required to have 51 percent Syrian ownership to be licensed in Syria. Bank of Syria and Overseas, a subsidiary of Lebanon’s BLOM Bank, was the first private bank to open in Syria in January 2004. There are seven private, traditional banks in Syria, including Bank of Syria and Overseas (BSOM), Banque BEMO Saudi Fransi (French), the International Bank for Trade and Finance, Bank Audi, the Arab Bank, Byblos Bank, and Syria Gulf Bank. Four more traditional, private banks—the Bank of Jordan, the Orient Bank, Fransa Bank and Qatar National Bank—have obtained the necessary licenses and are expected to begin operations in Syria in 2009. In May 2005 a new law was enacted to allow for the establishment of Islamic banking. Al-Sham Islamic Bank began operations in August 2007. Additionally, Syria International Islamic Bank (IIB) opened its doors in September 2008. Al-Baraka Islamic Bank was also officially licensed in 2007.
By mid-2008, the Syrian banking sector reported assets totaling $34.3 billion and held deposits totaling $19.9 billion. Syrian banks are playing an increasing role in providing the business sector with foreign currency to finance imports and as a source of credit for businesses and individuals. However, the sector’s development is hampered by the continuing lack of human expertise in finance, insufficient automation and communication infrastructure, regulations that limit Syrian banks’ ability to make money on their liquidity, and restrictions on foreign currency transactions.
There are eight free trade zones in Syria, which are serviced mostly by subsidiaries of Lebanese banks, including Bank du Liban et d’Autre Mer, Banque Europeenne Pour le Moyen-Orient Sal, Bank of Beirut and Arab Countries, Bank Societee Generale, Fransa Bank, Societee du Banques Arabes, and Basra International Bank. In December 2007, the Central Bank of Syria ordered that these banks either cease operations or begin operating as branches of domestic (Syrian) banks within a period of six months. The Central Bank claimed that the move was necessary to standardize operating regulations for all banks across Syria. All free zone banks complied and operate as majority Syrian-owned subsidiaries of their parent banks. Four additional public free zones are planned for the cities of Homs, Dayr al Zur, Idleb, and the Port of Tartous. The Al-Ya’rubiyeh free zone in al-Hasakeh province, near the northeastern Syrian-Iraqi border, was officially inaugurated in December 2007.
In recent years, both China and Iran announced plans to build free zones in Syria, although Iran later dropped this idea in favor of pursuing a preferential trade agreement with Syria. China’s free zone in Adra, however, was officially inaugurated in July 2008 and is expected to provide roughly 200 Chinese companies with a regional gateway for their goods. The volume of goods entering the free zones is estimated to be in the billions of dollars and is growing, especially with increasing demand for automobiles and automotive parts, which enter the zones free of customs tariffs before being imported into Syria. While all industries and financial institutions in the free zones must be registered with the General Organization for Free Zones, which is part of the Ministry of Economy and Trade, the Syrian General Directorate of Customs continues to lack strong procedures to check country of origin certification or the resources to adequately monitor goods that enter Syria through the zones. The importation and distribution of counterfeit goods are a concern. There are also continuing reports of Syrians using the free zones to import and export arms and other goods in violation of USG sanctions under the Syrian Accountability and Lebanese Sovereignty Restoration Act of 2003.
Legislation approved in the last few years provides the Central Bank of Syria with new authority to supervise the banking sector and investigate financial crimes. In September 2003, the GOS passed Decree 59, which criminalized money laundering and created an Anti-Money Laundering Commission (Commission) in May 2004. In response to international pressure to improve its anti-money laundering and counterterrorist financing (AML/CTF) regulations, the GOS passed Decree 33 in May 2005, which criminalized the act of terrorist financing and strengthened the Commission empowering it to act as a Financial Intelligence Unit (FIU). The Decree finalized the Commission’s composition to include the Governor of the Central Bank, a Supreme Court Judge, the Deputy Minister of Finance, the Deputy Governor for Banking Affairs, and the GOS’s Legal Advisor, and will include the Chairman of the Syrian Stock Market once the market is operational. However, the 2006 Middle East and North Africa Financial Action Task Force (MENAFATF) Mutual Evaluation rated the FIU as partially compliant, citing the lack of outreach to financial institutions and banks regarding the reporting of suspicious transaction reports, issues with budgetary independence, weak information protection controls, and overall efficiency.
Decree 33 provides the Commission with a relatively broad definition of what constitutes a crime of money laundering, but one that does not fully meet international standards set by the FATF. The definition includes acts that attempt to conceal the proceeds of criminal activities, the act of knowingly helping a criminal launder funds, and the possession of money or property that resulted from the laundering of criminal proceeds. In addition, the law specifically lists thirteen crimes that are covered under the AML legislation, including narcotics offenses, fraud, and the theft of material for weapons of mass destruction. Terrorist financing is not considered a predicate offense for money laundering crime or otherwise punishable under Decree 33. The act of terrorist financing criminalized by Decree 33 also fails to cover the intention that funds should be used or the knowledge that funds are to be used, in full or in part, by a terrorist organization or an individual terrorist in accordance with international standards.
Under Decree 33, banks and nonfinancial institutions are required to file reports with the Commission for transactions over the equivalent of $10,000, as well as suspicious transaction reports (STRs) regardless of amount. However, there is no obligation for financial institutions to report STRs related to terrorist financing or attempts to conduct suspicious transactions. Institutions are also required to use “know your customer” (KYC) procedures to follow up on their customers every three years and maintain records on closed accounts for five years. The chairmen of Syria’s private banks continue to report that they are employing internationally recognized KYC procedures to screen transactions and also employ their own investigators to check suspicious accounts. Nonbank financial institutions must also file STRs with the Commission, but many of them continue to be unfamiliar with the requirements of the law. The Commission has organized workshops for these institutions over the past three years, but more time is needed for the information to penetrate the market.
Once a STR has been filed, the Commission has the authority to conduct financial investigations, waive bank secrecy on specific accounts to gather additional information, share information with the police and judicial authorities, and direct the police to carry out a criminal investigation. In addition, Decree 33 empowers the Governor of the Central Bank, who is the chairman of the Commission, to share information and sign Memoranda of Understanding (MOUs) with foreign FIUs. In November 2005, the Prime Minister announced that the Commission had completed an internal reorganization, creating four specialized units to: oversee financial investigations; share information with other GOS entities including customs, police and the judiciary; produce AML/CTF guidelines and verify their implementation; and develop a financial crimes database.
While a STR is being investigated, the Commission can freeze accounts of suspected money launderers for a nonrenewable period of up to eighteen days. The law also stipulates the sanctions for convicted money launderers, including a three to six-year of imprisonment and a fine that is equal to or double the amount of money laundered. Further, the law allows the GOS to confiscate the money and assets of the convicted money launderer. The Commission circulates among its private and public banks the names of suspected terrorists and terrorist organizations listed on the UNSCR 1267 Sanction Committee’s consolidated list. It has taken action to freeze the assets of designated individuals, but has not frozen the assets of any Syrian citizens in 2008.
In 2008, the Commission investigated 137 cases involving suspicious transactions, 18 of which were forwarded by foreign jurisdictions. Twenty of these cases were referred to the criminal court system for prosecution. Over the past four years, the Commission has investigated 493 cases and referred 78 of them to the criminal court system. To date, all criminal cases remain pending, and there have been no convictions. Most Syrian judges are not yet familiar with the evidentiary requirements of the law. Furthermore, the slow pace of the Syrian legal system and political sensitivities delay quick adjudication of these issues. The Commission itself continues to be seriously hampered by human resource constraints, although it has increased its staff from six in 2005 to ten in 2008, and hopes to expand to 30 by the end of 2009. Nevertheless, a lack of local expertise—further undermined by a lack of political will—continues to impede effective implementation of existing AML/CTF regulations in Syria.
The GOS has not updated its laws regarding charitable organizations to include strong AML/CTF language. A promised updated draft law is still pending. The GOS decided at the end of 2004 to restrict charitable organizations to only distributing nonfinancial assistance, but the current laws do not require organizations to submit detailed financial information or information on their donors. While the Commission says that it is seeking to increase cooperation with the Ministry of Social Affairs and Labor, which is supposed to approve all charitable transactions, this remains a largely unregulated area.
Although Decree 33 provides the Central Bank with the legal basis to combat money laundering, most Syrians still do not maintain bank accounts or use checks, credit cards, or ATM machines. The Syrian economy remains primarily cash-based. Syrians use moneychangers, some of whom also act as hawaladars, for many financial transactions. Estimates of the volume of business conducted in the black market by Syrian moneychangers range between $15-$70 million per day. (The GOS admits that it does not know the amount of money that is in circulation.) The GOS has begun issuing new regulations to entice people to use the banking sector, including offering high interest certificates of deposit and allowing Syrians to access more foreign currency from banks when they are traveling abroad. In 2006, the GOS passed a Moneychangers Law requiring that moneychangers be licensed. However, there were significant delays in the issuance of implementation instructions. To date, 25 moneychangers have applied for licensing, and just ten are now operating legally. The Commission does have the authority to monitor the sector under Decree 33, but the GOS has not yet begun investigating illegal money-changing operations. Consequently, hawaladars in Syria’s black market remain a source of concern for money laundering and terrorist financing.
While the GOS maintains strict controls on the amount of money that individuals can take with them out of the country, there is a high incidence of cash smuggling across the Lebanese, Iraqi, and Jordanian borders. Most of the smuggling involves the Syrian pound, as a market for Syrian currency exists among expatriate workers and tourists in Lebanon, Jordan, and the Gulf countries. U.S. dollars are also commonly smuggled in the region. Some of the smuggling may involve the proceeds of narcotics and other criminal activity. In addition to cash smuggling, there also is a high rate of commodity smuggling, particularly of diesel fuel, prompted by individuals buying diesel domestically at the low subsidized rate and selling it for much higher prices in neighboring countries. The regional smuggling of stolen cars, counterfeit goods and cigarettes are also areas of concern. There are reports that some smuggling is occurring with the knowledge of or perhaps even under the authority of the Syrian security services.
The General Directorate of Customs lacks the necessary staff and financial resources to effectively handle the problem of smuggling. And while it has started to enact some limited reforms, including the computerization of border outposts and government agencies, problems of information-sharing remain. In September 2006, the Minister of Finance issued a decision stipulating the establishment of a unit specializing in AML/CTF within the General Directorate of Customs. Customs also lacks the infrastructure to effectively monitor or control even the legitimate movement of currency across its borders. The Commission and Customs have reportedly implemented a form asking individuals to voluntarily declare currency when entering or exiting the country, although consistency of implementation and any action resulting from enforcement are unknown. These shortfalls pose terrorist financing and money laundering vulnerabilities through trade-based money laundering and cash-based smuggling.
The Syrian FIU is a member of the Egmont Group of FIUs. In 2008, the Commission signed cooperation agreements and memoranda of understanding with the FIUs of Turkey and the Ukraine. These memoranda covered money laundering and terrorism financing. Syria is a member of the MENAFATF.
Syria and the United States do not have a mutual legal assistance agreement in place. Syria is a party to the 1988 UN Drug Convention and in April 2005, it became a party to the International Convention on the Suppression of the Financing of Terrorism. It has signed, but not yet ratified, both the UN Convention against Transnational Organized Crime and the UN Convention against Corruption. Syria is ranked 147 out of 180 countries on Transparency International’s 2008 Corruption Perception Index.
While the Government of Syria has made modest progress in implementing AML/CTF regulations that govern its formal financial sector, the continuing lack of transparency of the state-owned banks and their vulnerability to political influence reveals an absence of political will to address AML/CTF in the largest part of the banking sector. In addition, nonbank financial institutions and the black market continue to be vulnerable to money laundering and terrorist financing. To build confidence in Syria’s intentions, the Central Bank should be granted independence and supervisory authority over the entire sector. To enhance the implementation of Syria’s AML/CTF legislation and private sector internal controls, the GOS should strengthen and train its FIU and should also grant it a degree of independence. Additionally, Syria should continue to modify its AML/CTF legislation and enabling regulations so that they adhere to international standards. The General Directorate of Customs, the Central Bank, and the judicial system in particular continue to lack the resources and the political will to effectively implement AML/CTF measures. Although the GOS has stated its intention to create the technical foundation through which different government agencies could share information about financial crimes, this mechanism still does not exist. Syria’s shortfalls in its anti-terrorist financing controls poses grave threats given that U.S. designated foreign terrorist organizations, including HAMAS, Palestinian Islamic Jihad (PIJ), the Popular Front for the Liberation of Palestine (PLFP), and the Popular Front for the Liberation of Palestine-General Command (PFLP-GC), among others, all have offices in Damascus and operate within Syria’s borders. Syria’s provision of safe haven for these groups poses significant terrorist financing risks to both the Syrian and regional financial sectors. It remains doubtful that the GOS has the political will to punish terrorist financing or to address the corruption that exists at the highest levels of government and business. All of these issues remain obstacles to developing a comprehensive and effective AML/CTF regime in Syria. Syria should become a party to the UN Convention against Transnational Organized Crime and the UN Convention against Corruption.
Taiwan’s modern financial sector and its role as a hub for international trade make it susceptible to money laundering. Taiwan’s location astride international shipping lanes makes it vulnerable to transnational crimes, such as narcotics trafficking, trade fraud, and smuggling. There has traditionally been a significant volume of informal financial activity through unregulated nonbank channels, but in recent years Taiwan has taken steps to shift much of this activity into official, regulated financial channels. In November 2008 China and Taiwan reached an agreement to facilitate direct remittances across the Taiwan Strait. Taiwan will now allow direct remittances from China as of February 16, 2009. For remittances to China, Taiwan is allowing a growing number of postal savings outlets to provide this service. Most illegal or unregulated financial activities are related to tax evasion, fraud, or intellectual property violations. According to suspicious activity reports (SARs) filed by financial institutions on Taiwan, the predicate crimes most commonly linked to SAR reporting include financial crimes, corruption, and other general crimes.
Taiwan’s anti-money laundering legislation is embodied in the Money Laundering Control Act (MLCA) of April 23, 1997, which was amended in 2003, 2007, and 2008. Its major provisions include a list of predicate offenses for money laundering, customer identification and record keeping requirements, disclosure of suspicious transactions, international cooperation, and the creation of a financial intelligence unit (FIU), the Money Laundering Prevention Center (MLPC).
The MLPC, a law enforcement-style FIU, is located within the Ministry of Justice Investigation Bureau (MJIB). The FIU receives, analyzes, and disseminates suspicious transaction reports, currency transaction reports and cross-border currency movement declaration reports. The MLPC also assists other law enforcement authorities to investigate money laundering and terrorist financing cases. MLPC staff has law enforcement status.
The 2003 amendment expanded the list of predicate crimes for money laundering, widened the range of institutions subject to suspicious transaction reporting, and mandated compulsory reporting to the MLPC of significant currency transactions in excess of New Taiwan dollars (NT $) 1 million (approximately U.S. $29,600). The Asia/Pacific Group on Money conducted a mutual evaluation of Taiwan in 2007. Following the recommendation of the mutual evaluation report (MER), in November 2008 the Financial Supervisory Commission changed the requirements to include transactions in excess of NT$500,000 ($14,800) to be reported. These amounts are comparable to levels for Singapore and Hong Kong. In 2007, the MLPC received 1,190,753 currency transaction reports. The 2003 amendments further expanded the scope of reporting entities beyond traditional financial institutions to include: automobile dealers, jewelers, boat and aviation dealers, real estate brokers, credit cooperatives, consulting companies, insurance companies, and securities dealers.
In July 2007, the MLCA was amended to expand its coverage to include a new agricultural bank, trust companies, and newly licensed currency exchanges as well as hotels, jewelry stores, postal offices, temples, and bus/railway stations, essentially all entities that may be involved in currency exchange. The list of predicate offenses was expanded to include offenses against the Public Procurement Law, Bills Finance Management Law, Insurance Law, Financial Holding Company Law, Trust Law, Credit Cooperative Association Law, and Agriculture Financing Law. The number of agencies with money laundering responsibilities was expanded from the Ministry of Justice, the Ministry of Transportation and Communication, and the Ministry of Finance to include also the Financial Supervisory Commission (established in July 2004), the Ministry of Economic Affairs, the Council of Agriculture (supervising a new agriculture bank and the credit departments of farmers’ and fishermen’s associations), and Taiwan’s Central Bank (monitoring currency exchanges). The amended law also authorized Taiwan agencies to share information obtained from the MLCA with law enforcement agencies in countries that have signed a mutual legal assistance agreement (MLAA) with Taiwan and on a reciprocal basis with other countries. Following the MER recommendations the MCLA was again amended in June 2008 to include embezzlement from business firms in the list of major crimes subject to money laundering regulation.
Taiwan established a single financial regulator, the Financial Supervisory Commission (FSC) on July 1, 2004. The FSC consolidates the functions of regulatory monitoring for the banking, securities, futures and insurance industries, and also conducts financial examinations across these sectors. In mid-December 2005, the FSC began an incentive program for the public to provide information on financial crimes. The reward for information on a financial case with fines of NT $10 million (approximately $290,000) or at least a one-year sentence is up to NT $500,000 (approximately $14,800). The reward for information on a case with a fine of between NT $2 million and $10 million (approximately $58,000 and $290,000) or less than a one-year sentence is up to NT $200,000 (approximately $5,900).
Two new articles added to the 2003 amendments to the MLCA grant prosecutors and judges the power to freeze assets related to suspicious transactions and give law enforcement more powers related to asset forfeiture and the sharing of confiscated assets. The 2007 amendment to the MLCA permits the freezing of proceeds of money laundering for up to one year. In terms of reporting requirements, financial institutions are required to identify, record, and report the identities of customers engaging in significant or suspicious transactions. There is no threshold amount specified for filing suspicious transaction reports. The time limit for reporting cash transactions of over NT $1 million (approximately $29,600) is five business days. Banks are barred from informing customers (“tipping off”) that a STR has been filed. Reports of suspicious transactions must be submitted to the MLPC within 10 business days. In 2007, the MLPC received 1,741 STRs and 31 of them resulted in prosecutions based on the MLCA. Of these 31 cases, nineteen are related to financial crimes, four to corruption, one to narcotics, and seven to other miscellaneous crimes. This represents a significant drop from prior years due to a change in the MLCA in mid 2007, which called for only cases involving amounts in excess of NT$ 1 million (approximately $29,600) to be handled under the MLCA. The rest are handled under other laws. A total number of 1,190, 755 Cash Transaction reports (CTRS) were filed by financial institutions in 2007. Additionally, as recommended in the MER, the threshold for occasional cash transactions that triggers a Customer Due Diligence (CDD) obligation and CTR obligation was lowered from NT$1 million (approximately $29,600) to NT$ 500,000 (approximately $ 14,800)
As recommended in the MER, Taiwan Customs was required to start reporting foreign currencies and negotiable securities, including bearer shares, carried by passengers in excess of U.S. $10,000. The number of such cases reported to the MLPC in 2007 was 5,157, including 2,654 outbound involving NT$6,928.4 million (U.S. $210 million) and 2,503 inbound involving NT$6,460 million (U.S. $196 million). Customs also became a member of the Customs Asia Pacific Enforcement Reporting System and has signed MOUs with counterparts in the U.S., Australia, and the Philippines for sharing customs information.
Institutions are also required to maintain records necessary to reconstruct significant transactions. Bank secrecy laws are overridden by anti-money laundering legislation, allowing the MLPC to access all relevant financial account information. Financial institutions are held responsible if they do not report suspicious transactions. In May 2004, the Ministry of Finance issued instructions requiring banks to demand two types of identification and to retain photocopies of the identification presented when bank accounts are opened on behalf of a third party, to prove the true identity of the account holder. Individual bankers can be fined NT $200,000 to $1 million (approximately U.S. $6,060 to $30,300) for not following the provisions of the MLPA. Starting in August 2006, the Financial Supervisory Commission required banking institutions to collect, verify and store information about any banking customer who makes any single cash or electronic remittance above NT $30,000 (approximately U.S. $ 890).
All foreign financial institutions and offshore banking units follow the same regulations as domestic financial entities. Offshore banks, international businesses, and shell companies must comply with the disclosure regulations from the Central Bank, the Banking Bureau of the Financial Supervisory Commission, and MLPC. These supervisory agencies conduct background checks on applicants for banking and business licenses. Offshore casinos and Internet gambling sites are illegal. According to the Central Bank, as of September 2008, Taiwan hosted 31 local branches of foreign banks, one trust and investment company, and 63 offshore banking units.
On January 5, 2006, legislation was ratified to allow expansion of offshore banking unit (OBU) operations to the same scope as Domestic Business Units (DBU). This was done to assist China-based Taiwan businesspeople in financing their business operations. DBUs engaging in cross-strait financial business must follow the regulations of the “Act Governing Relations between Peoples of the Taiwan Area and the Mainland Area” and “Regulations Governing Approval of Banks to Engage in Financial Activities between the Taiwan Area and the Mainland Area.” The Competent Authority,” as referred to in these Regulations, is the Financial Supervisory Commission (FSC).
Taiwan prosecuted 31 cases involving money laundering in 2007, compared with 689 cases involving financial crimes in 2006. Among the 31 cases, nineteen involved unregistered stock trading, credit card theft, currency counterfeiting or fraud. Among the twelve other money laundering cases, four were corruption-related and one was drug-related. In July 2007, the MCLA was amended so that only cases involving amounts exceeding NT $5 million (approximately $148,000) were covered under the MLCA, while the rest were handled in accordance with other laws. The number of indicted subjects in 2007 was 122 persons. Figures are not yet available for 2008.
To comply with Financial Action Task Force (FATF) Special Recommendation Nine on bulk cash smuggling, the July 2007 legislation required individuals to report currency transported into or out of Taiwan in excess of NT $60,000 (approximately $1,780), U.S. $10,000 in foreign currency, 20,000 Chinese Yuan (approximately $2,930), or gold worth more than $20,000. When foreign currency in excess of NT $500,000 (approximately $14,800) is transferred into or out of Taiwan via the Taiwan banking system, the transfer must be reported to the Central Bank, though there is no requirement for Central Bank approval prior to the transaction. Prior approval is required, however, for exchanges between New Taiwan dollars and foreign currency when the amount exceeds $5 million for an individual resident or $50 million for a corporate entity. Those who transfer funds over NT $30,000 (approximately $890) at any bank in Taiwan must produce a photo ID, and the bank must record the name, ID number and telephone number of the client.
Prior INSCR reports indicated that a “Counter-Terrorism Action Law” had been pending with the Legislative Yuan since 2003 which would explicitly designate the financing of terrorism as a major crime and give law enforcement agencies broad powers to seize suspected terrorist assets without a criminal case. In emergencies, they could also freeze assets for up to three days without a court order. The current administration, which came into office in 2008, has put forward new legislation which would provide less sweeping police powers. Financing of terrorist activities in Taiwan is already a criminal office under Taiwan law, but the draft law would extend the law to explicitly criminalize financing and money laundering in support of such activities overseas.
Although Taiwan does not criminalize terrorist financing as an autonomous offense, under the MLCA Taiwan officials currently have the authority to freeze and/or seize terrorist-related financial assets. Under the Act, the prosecutor in a criminal case can initiate freezing assets, or without criminal charges, the freezing/seizure can be done in response to a request made under a treaty or international agreement. The Banking Bureau of the FSC circulates the names of individuals and entities included on the UN 1267 Sanctions Committee’s consolidated list, as well as names designated by the U.S. Treasury, to all domestic and foreign financial institutions and relevant government agencies. Banks are required to file a report on cash remittances if either of the parties involved are on a terrorist list. Although, as noted above, Taiwan does not yet have the authority to confiscate the assets, the MLCA was amended to allow the freezing of accounts suspected of being linked to terrorism.
Alternative remittance systems, or underground banks, are considered to be operating in violation of Banking Law Article 29. Authorities in Taiwan consider these entities to be unregulated financial institutions. Foreign labor employment brokers, after obtaining a permit from the Central Bank, are authorized to act on the behalf of foreign workers to use banks to remit income earned by foreign workers to their home countries. These brokers may not start the remittance services before they obtain a bank guarantee for the involved funds. They are required to sign and retain a standard remittance service contract with foreign workers and establish remittance records for each contracting foreign worker. There were 39 foreign labor employment brokers as of October 2008. If brokers accept money in Taiwan dollars for delivery overseas in another currency, they are violating Taiwan law. It is illegal for retail outlets to accept money in Taiwan dollars and remit it overseas. Violators are subject to a maximum of three years in prison, and/or forfeiture of the remittance, and/or a fine equal to the remittance amount.
Authorities in Taiwan do not believe that charitable and nonprofit organizations in Taiwan are being used as conduits for financing terrorism. Such organizations are required to register with the government and, like any other individual or corporate entity, are checked against a list of names designated by the United Nations or the U.S. Treasury as being involved in terrorist financing activities. The Ministry of Interior (MOI) is in charge of overseeing foundations and charities. Every three years the MOI assigns public accountants to audit the financial statements and also has management specialists assess the overall operations of nationally-chartered foundations.
Article 3 of Taiwan’s Free Trade Zone Establishment and Management Act defines a Free Trade Zone (FTZ) as a controlled district of an international airport or an international seaport approved by the Executive Yuan. The FTZ coordination committee, formed by the Executive Yuan, has the responsibility of reviewing and examining the development policy of the FTZ, the demarcation and designation of FTZs, and inter-FTZ coordination.
There are five FTZs in Taiwan, all of which have opened since 2004, including the Taipei Free Trade Zone, the Taichung Free Trade Zone, the Keelung Free Trade Zone, the Kaohsiung Free Trade Zone, and the Taoyuan Air Cargo Free Trade Zone. These FTZs were designated with different functions, so that Keelung and Taipei FTZs focus on international logistics; Taoyuan FTZ on high value-added industries; Taichung FTZ on warehousing, transshipment and processing of cargo; and Kaohsiung FTZ on mature industrial clusters. According to the Center for Economic Deregulation and Innovation (CEDI) under the Council for Economic Planning & Development, as of November 2007 there were thirteen shipping and logistics companies listed in the Kaohsiung Free Trade Zone, 21 logistics companies in Taichung Free Trade Zone, five logistics and shipping companies in Keelung Free Trade Zone, two logistics companies in Taipei Free Trade Zone, and ten logistics and shipping companies and 24 manufacturers in Taoyuan Air Cargo Free Trade Zone. Shipments through these FTZs in 2007 surged 289 percent to NT$ 59.9 billion (approximately $1.7 billion), and the value of shipments in the first nine months of 2008 was NT$ 86.6 billion ($2.57 billion). While these increases are in indeed sizeable, this accounts for only 0.65 percent of Taiwan’s two-way trade in the same period.
There is no indication that FTZs in Taiwan are being used in trade-based money laundering schemes or by the financiers of terrorism. According to Article 14 of the Free Trade Establishment and Management Act, any enterprise applying to operate within an FTZ shall apply to the management authorities of the particular FTZ by submitting a business operation plan, the written operational procedures for inventory control, customs clearance, and accounting operations, together with relevant required documents. Financial institutions may apply to establish a branch office inside the FTZ and conduct foreign exchange business, in accordance with the Banking Law of the ROC, Securities and Exchange Law, Statute Governing Foreign Exchange, and the Central Bank of China Act.
According to Taiwan’s Banking Law and Securities Trading Law, in order for a financial institution to conduct foreign currency operations, Taiwan’s Central Bank must first grant approval. The financial institution must then submit an application to port authorities to establish an offshore banking unit (OBU) in the free-trade zone. No financial entity has yet applied to establish such an OBU in any of the five free trade zones. An offshore banking unit may operate a related business under the Offshore Banking Act, but cannot conduct any domestic financial, economic, or commercial transaction in New Taiwan Dollars.
Taiwan has promulgated drug-related asset seizure and forfeiture regulations that stipulate that—in accordance with treaties or international agreements—Taiwan’s Ministry of Justice shall share seized assets with foreign official agencies, private institutions, or international parties that provide Taiwan with assistance in investigations or enforcement. Assets of drug traffickers, including instruments of crime and intangible property, can be seized along with legitimate businesses used to launder money. The injured parties can be compensated with seized assets. Between January 2007- June 2008, drug-related seizures totaled NT $18,300,000 (approximately $543,150)—a dramatic increase from the NT $1,100,000 (approximately $32,650) the previous year. The Ministry of Justice distributes other seized assets to the prosecutor’s office, police or other anti-money laundering agencies. The law does not allow for civil forfeiture. A mutual legal assistance agreement between the American Institute in Taiwan (AIT) and the Taipei Economic and Cultural Representative Office in the United States (TECRO) entered into force in March 2002. It provides a basis for Taiwan and U.S. law enforcement agencies to cooperate in investigations and prosecutions for narcotics trafficking, money laundering (including the financing of terrorism), and other financial crimes.
Although Taiwan is not a UN member and, therefore, cannot be a party to the 1988 UN Drug Convention, the authorities in Taiwan have passed and implemented laws in compliance with the goals and objectives of the Convention. Similarly, Taiwan cannot be a party to the UN International Convention for the Suppression of the Financing of Terrorism, but it has agreed unilaterally to abide by its provisions. Taiwan is a founding member of the Asia/Pacific Group on Money Laundering (APG). The MLPC is a member of the Egmont Group of financial intelligence units.
Taiwan continues to improve and implement an anti-money laundering regime that largely comports with international standards. Taiwan should pass legislation currently before the Legislative Yuan to criminalize terrorism and terrorist financing as an autonomous crime. It should exert more authority over its nonprofit organizations. The MLCA amendments of 2003, 2007, and 2008 address a number of vulnerabilities, especially in the area of asset forfeiture. The authorities on Taiwan should continue to strengthen the existing anti-money laundering regime as they implement the new measures. Taiwan should abolish all shell companies and prohibit new shell companies of any type from being established. Taiwan should enhance implementation of legislation regarding alternate remittance systems and Taiwan law enforcement should enhance investigations of underground finance and its links to trade fraud and trade-based money laundering.
While not an important regional financial center, Tanzania is vulnerable to money laundering. Tanzania’s location at the crossroads of southern, central and eastern Africa leave it particularly vulnerable to activities that generate illicit revenue, such as smuggling, and the trafficking of narcotics, arms, and humans. The likely sources of illicit funds are Asia and the Middle East and, to a lesser extent, Europe. Such transactions rarely include significant amounts of U.S. currency. Money laundering is more likely to occur in the informal financial sector and in nonfinancial sectors than in the undeveloped formal sector. Real estate and used car businesses appear to be vulnerable trade industries involved in money laundering. Criminals use front companies, including hawaladars and bureaux de change, to launder funds. The use of front companies to launder money is especially common on the island of Zanzibar, where few federal regulations apply. Officials indicate that money laundering schemes in Zanzibar generally take the form of foreign investment in the tourist industry and bulk cash smuggling.
There are no indications that Tanzania’s two free trade zones are being used in trade-based money laundering schemes or by financiers of terrorism. The Anti-Money Laundering Act, 2006 (AML Act) criminalizes cross-border cash smuggling.
The AML Act created a financial intelligence unit (FIU) as an extra-ministerial department of the Ministry of Finance. The government published implementing regulations in September 2007. The AML Act empowers the FIU to receive and share information with foreign FIUs and other comparable bodies. At present, the FIU has a small core staff comprised of a Commissioner, an analyst, an information technology expert, and two support staff. Current plans call for the recruitment of three additional staff members. The FIU has established an office, but has not begun analyzing suspicious transactions. It has applied for membership in the Egmont Group.
The AML Act and regulations apply to all “reporting persons”, which includes banks and financial institutions, cash dealers, accountants, real estate agents, dealers in precious stones, customs officers, auctioneers, and legal professionals handling real estate or funds. Reporting persons must obtain detailed information from all customers, maintain specific identification procedures, and report suspicious and unusual transactions to the FIU within 24 hours of the transaction. The AML Act governs all serious crimes, including those relating to both narcotics and terrorism. The FIU has developed a sensitization and outreach program to ensure that obliged institutions are aware of their reporting requirements under the AML Act. The FIU held two sensitization workshops targeting Tanzania’s insurance and banking communities in July 2008.
The 2002 Prevention of Terrorism Act criminalizes terrorist financing. It requires all financial institutions to inform the government each quarter of a calendar year of any assets or transactions that may be associated with a terrorist group. However, the implementing regulations for this provision have not yet been drafted. Under the Act, the government may seize assets associated with terrorist groups. The Bank of Tanzania circulates to Tanzanian financial institutions the names of suspected terrorists and terrorist organizations on the United Nations Security Council Resolution (UNSCR) 1267 Sanction Committee’s consolidated list, but by the end of 2008, no assets had been frozen under this provision. It is not clear whether Tanzania has the investigative capacity to identify and seize related assets.
Tanzania has cooperated with the U.S. in investigating and combating terrorism. There are no specific laws allowing Tanzania to exchange records with the U.S. on narcotics transactions or narcotics-related money laundering.
Tanzania is a member of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), a Financial Action Task Force-style regional body, and the Secretariat is located in Dar-Es-Salaam. ESAAMLG conducted a mutual evaluation of Tanzania in November 2008, which is scheduled for discussion and adoption in 2009. Tanzania 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. In 2008, Tanzania was listed as 102 of 180 countries in Transparency International’s Corruption Perceptions Index.
The Government of Tanzania (GOT) has made improvements in its compliance with international AML standards. The GOT should focus its efforts on practical implementation of the AML Act, including dedicating the resources necessary to build an effective FIU. The FIU should continue its efforts to hire additional staff to ensure that financial institutions are adequately supervised, to inform them of their reporting and record-keeping responsibilities, and to train the financial sector to identify suspicious transactions. Authorities should ensure that the Prevention of Terrorism Act comports with international standards and that that the GOT implements all provisions in the law. The GOT should also improve its cross-border cash declaration regime. Tanzania should examine vulnerabilities that it has not yet addressed, in particular the inherent vulnerabilities of alternative remittance systems and trade, and any additional weaknesses posed by less-regulated Zanzibar.
Thailand is a centrally located, developed Southeast Asian country surrounded by economically less vibrant neighbors along an extremely porous border. Thailand is vulnerable to money laundering from its own underground economy as well as many categories of cross-border crime, including illicit narcotics and other contraband smuggling. The Thai black market includes a wide range of pirated and smuggled goods, from counterfeit medicines to luxury automobiles. Money launderers and traffickers use banks, as well as nonbank financial institutions and businesses to move the profits of narcotics trafficking and other criminal enterprises. The amount of opium and heroin produced in the Golden Triangle region of Burma, Laos and Thailand has decreased over the past decade as enforcement has escalated and drug traffickers have shifted to importing and distributing methamphetamine tablets as the main drug of choice for domestic Thai consumption. Thailand is a significant destination and source country for international migrant smuggling and trafficking in persons, a production and distribution center for counterfeit consumer goods and, increasingly, a center for the production and sale of fraudulent travel documents. Illegal gambling, underground lotteries, and prostitution are all problems. Underground finance and remittance systems are used to launder illicit proceeds.
Thailand’s anti-money laundering legislation, the 1999 Anti-Money Laundering Act (AMLA) and subsequent amendments, criminalize money laundering for the following nine offenses: narcotics trafficking, trafficking in women or children for sexual purposes, fraud, financial institution fraud, public corruption, customs evasion and extortion, public fraud and blackmail, terrorist activity, and illegal gambling. It also criminalizes organizing, without prior permission, otherwise licit gambling activities that include more than 100 players, or involve money in excess of bt10 million (approximately $287,000). In 2003, a Royal Thai Government (RTG) decree under constitutional authority established terrorism as a criminal offense, and in April 2004, the parliament endorsed that decree as a legal act.
Despite the inclusion of a new predicate offense, the current list of predicate offenses in the AMLA does not meet international best practices standards consistent with the first and second recommendations of the Financial Action Task Force (FATF) 40 Recommendations, which apply the crime of money laundering to all serious offenses or with the minimum list of acceptable designated categories of offenses. Additionally, the definition of “property involved in an offense” in the AMLA is limited to proceeds of predicate offenses and does not extend to instrumentalities of a predicate offense or a money laundering offense.
In November 2007, the National Legislative Assembly (NLA) of the then military government (October 2006—January 2008) approved an amendment that gave law enforcement officers power to tackle seven additional offenses by freezing assets of organizations or individuals suspected of gaining from abuse of natural resources, foreign exchange, share sales, gambling, arms sales, fraudulent bidding on state projects and excise tax fraud. Although a positive step, the list remains deficient under international standards as it excludes, among other crimes, migrant smuggling, counterfeiting, and intellectual property rights offenses.
The AMLA also created the Anti-Money Laundering Office (AMLO), which among other functions serves as Thailand’s financial intelligence unit (FIU). AMLO became fully operational in 2001. When first established, AMLO reported directly to the Prime Minister. In October 2002, pursuant to a reorganization of the executive branch and following criticisms that AMLO had been politicized, AMLO was designated as an independent agency under the Minister of Justice. As mandated by the AMLA, AMLO analyzes reports of suspicious and large transactions and is responsible for investigating money laundering cases for civil forfeiture, as well as for the custody and disposal of seized and forfeited property. In addition, AMLO is also tasked with providing training to the public and private sectors concerning the AMLA. AMLO has received 47,216 suspicious transaction reports and has disseminated 148 reports within AMLO and to other agencies.
Under the amendments to the AMLA promulgated in February 2008, an anti-money laundering fund was created to help implement supporting activities and enhance cooperation with other domestic and international jurisdictions. The AMLA also established the Anti-Money Laundering Board, comprised of ministerial-level officials and agency heads. This body serves as a periodic advisory board meeting to set national policy on money laundering issues, to propose relevant ministerial regulations, and to monitor and evaluate enforcement of the AMLA. The law also created the transaction committee, to which the AML board appoints individuals from the following independent entities: the judiciary, the court of justice, the auditor general, the national human rights committee, and the attorney committee. A chairman of the committee is elected among the designated committee members while the Secretary General of AMLO serves as the committee secretary. The committee operates within AMLO to review and approve disclosure requests to financial institutions and government related agencies, as well as asset restraint and seizure requests. Under the amended AMLA, the committee has the power to arrest individuals who commit a predicate offense in order to record his/her statement as preliminary evidence before transferring the person to a police investigator. This must be done within 24 hours. The amended AMLA also gives the committee authority to watchdog the independence and neutrality of the AMLO.
AMLO, the Bank of Thailand (BOT), the Securities and Exchange Commission and the Department of Special Investigation are responsible for investigating financial crimes. During 2007, AMLO prosecuted 83 civil asset forfeiture cases and seized financial assets in the amount of Bt 134.4 million (approximately $3.9 million). The Ministry of Justice houses the Department of Special Investigations (DSI), a criminal Investigative agency separate from the Royal Thai Police (RTP). DSI has responsibility for investigating money laundering (as distinct from civil asset forfeiture actions carried out by AMLO), and for many of the money laundering predicates defined by the AMLA, including terrorism. The DSI, AMLO, and the RTP all have authority to identify, freeze, and/or forfeit terrorist finance related assets. However, the RTP’s skills with regard to white-collar crime of all descriptions remains very low, while DSI has yet to measure up to its mandate and remains in need of considerable capacity building.
AMLO shares information with other Thai law enforcement agencies. For example, it has a memorandum of understanding with Royal Thai Customs which requires the agency to share information and evidence of smuggling and customs evasion involving goods or cash that exceed Bt 1 million (approximately $29,000).
The AMLA requires customer identification, record keeping, and the reporting of large and suspicious transactions, as well as providing for the civil forfeiture of property involved in a money laundering offenses. Under the requirement, financial institutions are required to keep customer identification and specific transaction records for a period of five years from the date an account was closed, or from the date a final transaction occurred, whichever is longer. Individuals and institutions cooperating with law enforcement entities can be protected from liability. In October 2008, the cabinet proposed to the parliament that the range of businesses which have to follow the reporting/identification requirements be broadened to include jewelry and gold shops, automobiles, rental/purchase of businesses or car dealers, real-estate agents/brokers, and antiques shops. In August 2008, the Bank of Thailand re-issued notification to financial institutions (Thai and foreign commercial banks, finance companies and asset management companies) to adopt “know your customer” (KYC) and customer due diligence (CDD) procedures in order to be in line with international best practices under the FATF recommendations on anti-money laundering and combating the financing of terrorism (AML/CTF). While there is no immediate penalty for noncompliance, the Thai central bank takes note of those institutions that do not comply when making decisions regarding them.
Thailand does not have stand-alone secrecy laws. However, the new Consolidated Financial Act in 2008 has a provision providing for bank secrecy to prevent disclosure of client financial information. The new act includes some exceptions, including investigation by a financial regulator and any memorandum for understanding committed with other domestic and overseas regulatory agencies on financial institutions or financial transaction. Therefore, financial institutions must disclose their client and ownership information to AMLO upon demand.
The Bank of Thailand, Securities and Exchange Commission (SEC), and AMLO are empowered to supervise and examine financial Institutions for compliance with anti-money laundering/counterterrorist financial laws and regulations. In an effort to eliminate impediments on the power to examine the financial transactions of private individuals, the BOT has amended existing financial laws by introducing the new Financial Institutions Business Act (FIBA) which combines two financial Institution acts (the commercial banking act B.E. 2505 (ad 1962) and The Act on the Undertaking of Finance Business, Securities Business and Credit Fancier Business, B.E. 2522 (ad 1979). The new FIBA became effective on August 3, 2008. The BOT has been working closely with AMLO to train officers in conducting compliance audits. Further, AMLO intends to establish on-site and off-site audit teams with assistance from the BOT. The main purpose is to provide consultation to institutions that face difficulty in complying with Thai legislation and regulation. No penalties are imposed even when mistaken practices are discovered. Such visits are also intended to help financial institutions become accustomed to the operation of these joint responsibilities of both the AMLO and the BOT.
Anti-money laundering controls are also enforced by other Royal Thai government regulatory agencies; including the Office of the Insurance Commission, an independent body under the Ministry of Finance which was created in 2007 from the old Department of Insurance under the Ministry of Commerce. Financial institutions that are required to report suspicious activities are broadly defined by the new AMLA as any business or juristic person undertaking banking or nonbanking business, including finance and mortgage finance (“credit financier”) businesses, securities firms, insurance businesses, saving cooperative companies, and asset management companies. Land registration offices are also required to report any transaction involving property of bt5 million (approximately $143,000) or greater, or a cash payment of bt2 million (approximately $57,000) or greater, for the purchase of real property but only when a financial institution is not involved in the transaction.
The exchange control act of B.E. 2485 (1942), amended in 1984, states that unlimited amounts of foreign currencies may be brought into Thailand. However, the Ministry of Finance issued a regulation effective October 28, 2007 which requires any person who brings foreign currencies in excess of the equivalent of $20,000 into or out of the country to make a declaration with Thai customs, which in turn reports to the Ministry of Finance. In July 2008, the Bank of Thailand notified all financial Institutions of their reporting obligations under the new regulation
Over the course of 2007 and 2008 the Ministry of Finance and the Bank of Thailand agreed in general to relax regulations on capital movement in order to increase flexibility for Thai businesses in managing their foreign currency needs. Pursuant to that goal any person who obtains foreign currency through the exchange of Thai baht, or by borrowing from financial institutions, can now deposit such currency in Thai financial institutions in amounts up to $1 million for individuals and $100 million for juristic persons. The new regulation also increases the limit for remittances in foreign currencies, up to $1 million per year by Thai residents to overseas destinations (the limit can be up to $5 million per year for purchasing property overseas). There is no restriction on the amount of Thai currency (baht) that may be brought into the country. A person traveling to Thailand’s bordering countries, including Vietnam, is allowed to take Thai baht with them up to bt500,000 (approximately $14,300). To all other countries they may take up to bt50,000 (approximately $1,430) without authorization.
Thailand is not an offshore financial center nor does it host offshore banks, shell companies, or trusts. Licenses were first granted to Thai and foreign financial institutions to establish Bangkok International Banking Facilities (BIBFs) in March 1993. However after the United Nations Drug Control Program and the World Bank listed BIBFs as potentially vulnerable to money laundering activities, the Thai government called in BIBF licenses during 2006, citing the BOT’s “one presence” policy requiring all financial institutions to upgrade their status to full banks, branches, or subsidiaries, or else exit the market. In October 2006 the last BIBF license was returned to the Bank of Thailand and currently none are operating in the country.
The stock exchange of Thailand requires securities dealers to have “know your customer” procedures, although the set does not check anti-money laundering compliance during its reviews. The Office of Insurance Commission is responsible for the supervision of insurance companies, which are covered under the AMLA definition of a financial institution, but there are no anti-money laundering regulations for the insurance industry. Similarly, the Cooperative Promotion Department (CPD) is responsible for the supervision of credit cooperatives, which are required under the cooperatives act to register with the CPD. Currently 6,117 cooperatives are registered with 1,263 thrift and credit cooperatives engaged in financial business. Thrift and credit cooperatives receive deposits and provide loans to members and come under the definition of a financial institution. As with the securities and insurance sectors, no anti-money laundering compliance mechanisms are in place. Thai authorities have recognized these issues and the expressed the need to address them.
Financial institutions (such as banks, finance companies, savings cooperatives, etc.), land registration offices, and investment advisors or persons who act as solicitors for investors are required to report significant cash, property, and suspicious transactions. Reporting requirements for most financial transaction (including purchases of securities and insurance) exceeding bt2 million (approximately $57,000), and property transactions exceeding bt5 million (approximately $143,600), have been in place since October 2000.
Thailand acknowledges the existence of alternative remittance systems that circumvent financial institutions. There is a general provision in the AMLA that makes it a crime to transfer or receive a transfer from the proceeds of specified criminal offenses, including terrorism. Remittance and money transfer agents, including informal remittance businesses, require a license from the Ministry of Finance, which must be renewed annually. Guidelines issued by the Ministry of Finance and the BOT in 2004 provide for onsite inspections of money changers and money transfer agents by the BOT before licenses may be granted. The BOT also consults with AMLO on the applicant’s possible criminal history and AML record. Both moneychangers and remittance agents are required to report suspicious financial transactions to AMLO. Licensed agents are subject to monthly transaction reporting on every transaction and are subject to a five year record maintenance requirements well as to onsite inspections. There are approximately 558 authorized moneychangers and 1,202 remittance agents in Thailand.
Money changers frequently act as illegal remittance agents. In 2004 the Bank of Thailand limited the amount money changers may sell to an individual customer at a maximum of $5,000. Customers must present a passport or other travel document as identification. There is no limit on buying foreign currencies, nor is there an overall annual transaction volume or amount limit. For remittance agents, the BOT limits the daily maximum amount of foreign currency that may be sold to an individual customer to the equivalent of $2,000, and requires a customer to present supporting documents indicating the reason for the transfer. There is no limit on receiving foreign currencies from persons overseas or on payment in baht to recipients In Thailand.
Money and property derived from commission of a predicate offense, from aiding or abetting the commission of a predicate offense, or derived from the sale, distribution, transfer, or returns of such money or assets may be seized under section 3 of the AMLA. AMLO, through the transaction committee, is responsible for tracing, freezing, and seizing assets. The AMLA makes no provision for substitute seizures if authorities cannot prove a relationship between the asset and the predicate offense. Overall, the banking community cooperates with AMLO’s efforts to trace funds and seize or freeze bank accounts. BOT does not have regulations that give it explicit authorization to control charitable donations, but works with AMLO to monitor these transactions under the Exchange Control Act of 1942.
In October 2007 the Thai prime minister endorsed a cabinet decision to abolish an incentive system that had gone into effect three years earlier under the “Office of Prime Minister’s Regulation on Payment of Incentives and Rewards in Proceedings against Assets under the Anti-Money Laundering Act.” Under this now-defunct rewards system, AMLO investigators and their supervisors, as well as other investigative agencies, were eligible to receive personal commissions on the property that they seized. The United States and other countries and international organizations including UNODC, criticized this system on the grounds that it threatened the integrity of its AML regime and created a conflict of interest by giving law enforcement officers a direct financial stake in the outcome of forfeiture cases. The United States additionally halted training and other assistance to AMLO while the rewards practice remained in place. The 2007 order contains a controversial grandfather clause which allows reward payments to continue in cases already approved before the effective termination date of the system.
Thailand is a party to the 1988 UN Drug Convention and the UN Convention for the Suppression of the Financing of Terrorism. It has signed, but not ratified the UN Convention against Transnational Organized Crime and the UN Convention against Corruption. The Royal Thai Government (RTG) has issued instructions to all authorities to comply with UNSCR 1267; including freezing funds or financial resources belonging to suspected terrorists and terrorist organizations listed by UN 1267 Sanctions Committee. To date, Thailand has not identified, frozen, or seized any assets linked to individuals or entities included on the UNSCR 1267 Sanctions Committees’ consolidated list. However, AMLO has identified suspicious transaction reports derived from financial institutions and has initiated cases that they believed may have involved terrorist activities using nongovernmental or nonprofit organizations as a front.
Thailand has mutual legal assistance treaties (MLATS) with 10 countries, including the United States, and is party to the regional ASEAN Mutual Legal Assistance Agreement. AMLO has Memoranda of Understanding (MOU) on money laundering cooperation with 35 other financial intelligence units. It also actively exchanges information with nations with which it has not entered into an MOU, including the United States, Singapore, and Canada. In 2008, AMLO responded to 62 requests for information from foreign FIUs. Thailand cooperates with United States and other nation’s law enforcement authorities on a range of money laundering and illicit narcotics related investigations. Thailand is a member of the Asia/Pacific Group on Money Laundering (APG), a FATF-style regional body, and the Egmont Group.
During the past several years, the Royal Thai Government has shown its commitment to the adoption of AML/CTF international best practices. While many improvements have already been identified and adopted by Thai agencies, there are still important pending actions including the passage of key bills, regulations, or measures which will help augment the current AML/CTF regime in Thailand. Nonbank financial institutions and businesses such as gold shops, jewelry stores and car dealers should be subject to suspicious transaction reporting requirement without regard to a monetary threshold. The insurance and securities sectors should institute AML compliance programs. Besides onsite consultation, AMLO should also undertake audits of financial institutions to ensure compliance with requirements of AMLA and AMLO regulations. Until the RTG provides a viable mechanism for all of its financial institutions to be examined for compliance with the AMLA, Thailand’s anti-money laundering regime will not fully comport with international standards. In addition, the RTG should develop and implement anti-money laundering regulations for exchange businesses and should take additional measures to address the vulnerabilities presented by alternative remittance systems. The Royal Thai Government should become a party to the UN convention against Transnational Organized and to the UN Convention against Corruption.
Trinidad and Tobago
Trinidad and Tobago (T&T) has a well-developed and modern banking sector that makes it an increasingly significant regional financial center. Currently, the country does not offer offshore banking, and the government is working to launch an international financial center. Drug-trafficking, illegal arms sales and fraud continue to be the most prevalent sources of laundered funds. The authorities consider illicit drug-trafficking to be the primary predicate offense with regard to money laundering. Criminal assets laundered in T&T are primarily derived from domestic criminal activity as well as from the activity of nationals involved in crime abroad. While there is no significant black market for smuggled goods in T&T, drug money continues to support the importation of illegal arms at a rate that is suspected to be growing. According to information from financial institutions and legal analysts, financial crimes in general are increasing, particularly those involving the use of fraudulent checks, wire transfers, and related instruments in the banking sector. T&T’s financial institutions are not known to engage in currency transactions involving international drug-trafficking proceeds that significantly affect the United States. There is no indication the government itself or government officials encourage, facilitate or engage in money laundering.
Despite the increasing number of crimes and the desire to become an international financial center, the Government of Trinidad & Tobago (GOTT) has made no significant improvement to its anti-money laundering (AML) regime since late 2005, when a mutual evaluation conducted by the Caribbean Financial Action Task Force (CFATF), a Financial Action Task Force (FATF)-style regional body, found T&T noncompliant with most FATF Recommendations and in full compliance with only one.
There are six free trade zones (FTZs) in Trinidad and Tobago where exporting of services and manufactured products, and re-exportation of manufactured products take place. There is no evidence the FTZs are involved in money laundering schemes, and companies operating in the FTZs are required to submit tax returns quarterly and audited financial statements yearly. Companies must present proof of legitimacy and are subject to background checks prior to being allowed to operate in the FTZs.
The Proceeds of Crime Act of 2000 (POCA) defines money laundering and related crimes as serious offenses. The POCA requires financial institutions to actively report suspicious transactions and to maintain records necessary to reconstruct transactions for a number of years. Secrecy laws are limited to standard client confidentiality provisions. There are no measures for sharing of information between financial institutions due to a lack of legislation. Any existing requirements promoting correspondent banking are only applicable to those financial institutions supervised by the Central Bank of Trinidad & Tobago (CBTT). Under the POCA, any officer who aids and abets the money laundering activities of an institution can be convicted of money laundering. Additionally, the POCA protects individuals who cooperate in money laundering law enforcement investigations. The POCA also enables the courts to seize the proceeds of all serious crimes. However, for money laundering offenses, the POCA only recognizes property as being the proceeds of crime when a person has been convicted of a predicate offense. To date, only one property has been seized under the Act.
The CBTT has set AML guidelines, including due diligence provisions that apply to all financial institutions subject to the 1993 Financial Institutions Act. These include banks, finance companies, leasing corporations, merchant banks, mortgage institutions, unit trusts, financial services businesses and financial intermediaries. Credit unions are not subject to the CBTT’s regulation; legislation to correct this flaw has been under consideration for several years. In 2004, the CBTT updated its guidelines, setting new minimum standards for compliance with existing regulations that incorporate the basic tenets of the FATF Forty Recommendations and the Nine Special Recommendations. However, continuing deficiencies preclude satisfactory customer due diligence in practice.
There is no indication the GOTT has adopted a risk-based approach to combating money laundering and terrorist financing at the national level. According to the CFATF, no risk assessment has been done to identify and measure vulnerability in the country. The CBTT does use a risk assessment approach with regard to its supervisory functions in evaluating individual institutions. It also has advised its supervised institutions to implement risk-based systems with regard to money laundering issues.
GOTT customs regulations require that currency or monetary instruments totaling more than approximately $10,000 be declared upon entering or leaving the country. GOTT Customs may restrain cash for 96 hours, longer with judicial approval, pending the determination of their source. The Financial Investigations Unit (FIU), housed in the Ministry of National Security, maintains a database of these transactions and analyzes them for evidence of money laundering.
For the period of January—September 2008, GOTT officials reported 417 financial investigations stemming from 13,632 suspicious activity reports. The GOTT received 20 foreign intelligence requests and 101 requests from local institutions. Full year data is not available. Enforcement of suspicious activity reporting remains weak. Most designated institutions have never submitted a report to the authorities, either through lack of suspicious activity or lack of awareness of the requirement. In 2004, the GOTT established a Tax Fraud Investigations unit within its Inland Revenue Division to address tax evasion and nonreported or underreported income that may be derived from money laundering activities.
A 2004 investigation of fraud indicated that during the bidding for and construction of the new Piarco airport, a number of individuals may have committed wire fraud and bank fraud from 1996 to 2001. As a result, in August 2006, two Trinidadian businessmen, other businessmen and two Trinidadian companies were indicted by a U.S. grand jury for a money laundering conspiracy. At year end 2008, the courts continue to hear this case and related corruption charges against others.
The GOTT has a number of pieces of legislation in place that allows it to trace, freeze, and seize assets, including intangible assets such as bank accounts. Authorities also may seize legitimate businesses if they are used to launder drug money. However, the GOTT can only restrain assets through due process at the level of the High Court—it cannot freeze assets “without undue delay,” or on a police investigation warrant. The law only allows for forfeiture of assets in criminal cases, not in civil cases. The GOTT does not have legislation that specifically authorizes the sharing of forfeited assets with other countries, but has done so in the past on a case-by-case basis through bilateral agreements. In 2008, no assets were restrained or confiscated by the High Courts.
Legal loopholes exist that allow traffickers and supporters or financiers of terrorists or terrorist organizations to shield their assets. These include the absence of regulations to prohibit the establishment of shell banks, the ability of attorneys to operate accounts in their clients’ names, the absence of suspicious transaction reporting requirements for attorneys and accountants, and legal rules that prevent courts from confiscating assets received after a defendant’s sentencing.
The GOTT enacted its Anti-Terrorism Act in September 2005. The GOTT is developing regulations to implement this act, specifically with regard to monitoring financial activities, including alternative remittance systems or donations to suspect organizations. The GOTT has circulated to its financial institutions the names of individuals and entities linked to Usama Bin Laden, al-Qaida, or the Taliban included on the UN 1267 Sanctions Committee’s consolidated list. The GOTT has also circulated the United States’ list of Specially Designated Global Terrorists and other similar EU lists. There has not yet been any identified evidence of terrorist financing in T&T.
In 1999, a Mutual Legal Assistance Treaty (MLAT) with the United States entered into force, and in 2000, the United States and GOTT signed a joint statement on law enforcement cooperation. This statement pledges, in part, to expand cooperation on the detection and prosecution of money laundering and related criminal activities. While there is no institutionalized procedure in place with the USG for the exchange of crime and terrorism-related information, the GOTT has cooperated regularly with the USG and other governments’ law enforcement agencies on issues involving illegal drug-trafficking, terrorism, terrorist financing and other crime investigations.
Trinidad and Tobago is a party to the 1988 UN Drug Convention, the UN Convention against Corruption, and the UN Convention against Transnational Organized Crime. It has not yet signed the UN Convention for the Suppression of the Financing of Terrorism, although this convention is referenced in the Anti-Terrorism Act. Trinidad and Tobago is a member of the CFATF, which is headquartered in Port of Spain. Trinidad and Tobago is also a member of the Organization of American States Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering (OAS/CICAD).
The major concern in Trinidad and Tobago is a lack of comprehensive anti-money laundering/counterterrorist financing (AML/CTF) legislation, including necessary enforcement regulations. The existing laws are not in accordance with international standards and are ineffective in that there have been no AML convictions in six years. Currently, there are three proposed pieces of legislation, the POCA Amendment, the FIU Act, and the Financial Obligations Regulations, that should address many of the FATF Recommendations. Nevertheless, due to T&T’s legislation process, no significant advance in passing and implementing these laws was realized in 2008. T&T should enact the pending legislation and amend existing legislation, as necessary to bring it in line with international standards. In addition, the Government of Trinidad and Tobago should take steps to address the insufficiency of customer due diligence practices. The GOTT should ensure a comprehensive AML/CTF framework compliant with FATF Recommendations is in place before launching its proposed international financial center. Trinidad and Tobago should move expeditiously to become a party to the UN Convention for the Suppression of the Financing of Terrorism
Turkey is an important regional financial center, particularly for Central Asia and the Caucasus, as well as for the Middle East and Eastern Europe. It continues to be a major transit route for Southwest Asian opiates moving to Europe. However, narcotics-trafficking is only one source of the total funds laundered in Turkey. Other significant sources of laundered funds include invoice fraud and tax evasion, and to a lesser extent, smuggling, counterfeit goods, forgery, robbery, and kidnapping. Terrorist financing and terrorist organizations with suspected involvement in narcotics-trafficking and other illicit activities are also present in Turkey. Money laundering takes place in banks, nonbank financial institutions, and the underground economy. Informed observers estimate as much as 40 to 50 percent of the economic activity is derived from unregistered businesses. Money laundering methods in Turkey include: the large-scale cross-border smuggling of currency; bank transfers into and out of the country; trade fraud; and the purchase of high-value items such as real estate, gold, and luxury automobiles. Turkish-based traffickers transfer money and sometimes gold via couriers, the underground banking system, and bank transfers to pay narcotics suppliers in Pakistan or Afghanistan. Funds are often transferred to accounts in the United Arab Emirates, Pakistan, and other Middle Eastern countries.
In 2005, the Government of Turkey (GOT) passed a tax administration reform law, with the goal of improving tax collection. The GOT is working on additional reforms to combat the unregistered economy and move these businesses onto the tax rolls. In October 2008, as a measure against the global liquidity crunch, the Government submitted a draft bill to the Parliament seeking to encourage the transfer back to Turkey of funds held in off-shore accounts as of October 1, 2008. There has been some concern that this legislation will result in the relaxation of some anti money laundering and counterterrorist financing (AML/CTF) measures, however, GOT officials say this proposal will provide a one-time amnesty for a limited period only for tax evasion and export invoice fraud, but no other offenses.
Alternative remittance systems are illegal in Turkey, and only banks and authorized money transfer companies are permitted to transfer funds. Trade-based money laundering, fraud, and underground value transfer systems also are used to avoid taxes and government scrutiny. There are 21 free trade zones operating in Turkey. The GOT closely controls access to the free trade zones. Turkey is not an offshore financial center.
Turkey first criminalizes money laundering through the Law on Prevention of Money Laundering (Law 4208 of November 19, 1996). Under the law, whoever commits a money laundering offense faces a sentence of two to five years in prison, and is subject to a fine of double the amount of the money laundered, plus asset forfeiture provisions. The Council of Ministers subsequently passed a set of regulations that require the filing of suspicious transaction reports (STRs), know-your-customer (KYC) provisions, and bank maintenance of transaction records for five years.
Prior to the enactment of a new Criminal Code (Law 5237 of June 1, 2005), Turkey’s anti-money laundering (AML) law contained a list of specific predicate offenses. The present code defines money laundering predicate offenses as all offenses for which the punishment is imprisonment for one year or more. In 2006, the GOT enacted additional anti-money laundering legislation, the Prevention of Laundering Proceeds of Crime Law of October 18, 2006 (Law 5549), a new criminal law, and a new criminal procedures law.
Under a 2007 Ministry of Finance (MOF) banking regulation circular, all banks and regulated financial institutions, including the Central Bank, securities companies, post office banks, and Islamic financial houses are required to record tax identity information for all customers opening new accounts, applying for checking accounts, or cashing checks. The circular also requires exchange offices to sign contracts with their clients. The MOF also mandates that a tax identity number be used in all financial transactions. The requirements are intended to increase the GOT’s ability to track suspicious financial transactions. According to Article 5 of the anti-money laundering law, public institutions, individuals, and corporate bodies must submit information and documents as well as adequate supporting information upon the request of Turkey’s Financial Crimes Investigation Board (MASAK) or other authorities specified in Article 3 of the law. Individuals and corporate bodies from whom information and documents are requested may not withhold the requested items by claiming privacy protection. Despite the increase in information collected for new accounts and transactions, customer due diligence (CDD) and other preventive measures have not yet been fully implemented, and Turkey has not adopted a risk-based regulatory approach. There are no requirements for ongoing CDD and only limited requirements for the collection of beneficial ownership information. There is no requirement for financial institutions to exercise enhanced due diligence on business relationships or transactions with suspicious persons, including persons from or in countries which do not sufficiently apply the FATF recommendations
A new Banking Law was enacted in 2005 to strengthen bank supervision. The Banking Regulatory and Supervisory Agency (BRSA) conducts periodic anti-money laundering and compliance reviews under the authority delegated by MASAK.
Turkey does not have foreign exchange restrictions. With limited exceptions, banks and special finance institutions must inform authorities within 30 days about transfers abroad exceeding $50,000 (approximately 77,500 new Turkish liras) or its equivalent in foreign currency notes (including transfers from foreign exchange deposits). Travelers may take up to $5,000 (approximately 7,750 new Turkish liras) or its equivalent in foreign currency notes out of the country. Turkey does have cross-border currency reporting requirements, and the law gives Customs officials the authority to sequester valuables of travelers who make false or misleading declarations and impose fines for such declarations.
MASAK was established as part of the MOF by the 1996 AML law and became operational in 1997. As Turkey’s Financial Intelligence Unit (FIU), MASAK receives, analyzes, and refers STRs for investigation. MASAK has three functions: regulatory, financial intelligence, and investigative. MASAK plays a pivotal role between the financial and law enforcement communities.
The laws explicitly provide safe harbor protection to the filers of STRs. The laws also cover a range of entities subject to reporting requirements, to include several designated nonfinancial businesses and professions (DNFBPs), such as art dealers, insurance companies, lotteries, vehicle sales outlets, antique dealers, pension funds, exchange houses, jewelry stores, notaries, sports clubs, and real estate companies. While the legislation has been improved to require reporting from a wide range of industries and entities, most STRs continue to be submitted by banks.
The number of STRs filed has been relatively low, even taking into consideration the fact that many commercial transactions are conducted in cash. In 2007, 2,946 STRs were filed, of which 144 were linked to terrorist financing activities. Submissions in 2007 were more than double the 1,140 filed in 2006. The safe harbor provision is one reason for this increase. In 2005 and 2004, the levels of STR filings were 352 and 288, respectively. Despite the increase in filings of STRs, these numbers still represent a very low level of overall reporting, given the relatively large size and high level of development of the Turkish financial sector. STR reporting by nonbank entities is increasing but is still a small fraction of STRs. In 2007, there were 40 STRs from brokerage houses and three STRs from insurance companies.
With the passage of several new pieces of legislation, the Government of Turkey took steps in 2006 and 2007 to strengthen its AML/CTF regime. The GOT now faces the challenge of aggressively implementing these laws. In 2007, the GOT established a High Coordination Council on Financial Crimes, which consists of representatives of MASAK, the MOF, the Capital Markets Board, and the Central Bank. The aim of this council is to improve coordination among the agencies to combat financial crimes and support the work of MASAK. MASAK is working on improving its automation to be able to access banks’ and other financial institutions’ data bases, in order to accelerate the review process and to enable it to refer cases more quickly to prosecutors.
The law gives MASAK the authority to instruct a number of inspection bodies (such as bank examiners, financial inspectors, or tax inspectors) to initiate an investigation if MASAK has reason to suspect financial crimes. Likewise, MASAK can refer suspicious cases to the public prosecutor and the public prosecutor can ask MASAK to conduct a preliminary investigation prior to referring a case to the police for criminal investigation. In January 2007, a regulation on money laundering crime was enacted enhancing MASAK’s authority to combat these crimes. In 2007, MASAK increased its efforts to train specialists in law enforcement units and judicial authorities on money-laundering and terrorist financing, with a goal to increase the number of money laundering and terrorist financing of prosecutions.
According to MASAK statistics, as of December 31, 2007 it had pursued 2,274 money laundering investigations since its 1996 inception. Between 2003 and 2007, there were 1,424 money laundering files, of which 338 were referred for further investigation with evidence of predicate offense, but only ten cases resulted in convictions. Moreover, all of the convictions are reportedly under appeal. There is a lack of specialization and understanding of AML/CTF provisions among relevant authorities, which has contributed to the high number of acquittals in money laundering cases. As of December 31, 2007, 47.4 percent of the cases referred to prosecutors were narcotics related. In 2007, the GOT opened 22 money laundering cases, of which five resulted in a conviction.
Turkey has a system for identifying, tracing, freezing, and seizing assets that are not related to terrorism, although the law allows only for their criminal, but not administrative, forfeiture. Article 7 of the AML law provides for the confiscation of all property and assets (including derived income or returns) that are the proceeds of a money laundering predicate offense (recently expanded to include crimes punishable by one year imprisonment) after conviction. The law allows for the confiscation of the instrumentalities of money laundering and the equivalent value of direct proceeds that could not be seized. In addition to the AML law, Articles 54 and 55 of the Criminal Code provide for post-conviction seizure and confiscation of the proceeds of crimes. The defendant, however, must own the property subject to forfeiture. Legitimate businesses can be seized if used to launder drug money or support terrorist activity, or are related to other criminal proceeds. Property or its value that is confiscated is transferred to the Treasury.
The GOT enforces existing drug-related asset seizure and forfeiture laws. MASAK, prosecutors, Turkish National Police, and the courts are the government entities responsible for tracing, seizing and freezing assets. According to Article 9 of the AML law, the Court of Peace—a minor arbitration court for petty offenses—has the authority to issue an order to freeze funds held in banks and nonbank financial institutions as well as other assets, and to hold the assets in custody during the preliminary investigation. During the trial phase, the presiding court has freezing authority. Public prosecutors may freeze assets in cases where it is necessary to avoid delay. The Public Prosecutor’s Office notifies the Court of Peace about the decision within 24 hours. The Court of Peace has 24 hours to decide whether to approve the action. There is no time limit on freezes. There is no specific provision in Turkish law for the sharing of seized assets with other countries; however the United States and Turkey shared seized assets in one narcotics case.
Financing of terrorism is criminalized for the first time in July 2006 by Law 5532, which amends the existing Anti-Terror Law (3713). Law 5549 includes significant provisions to prevent money laundering and terrorist financing. However, deficiencies in the scope and detail of the terrorist financing offense are noted in the 2007 FATF evaluation. Specifically, the law’s coverage currently is limited to acts committed by members of organizations against the Turkish Republic by force and violence using terror, intimidation, oppression or threat. This means the collection, donation and movement of funds by terrorist organizations would not be prohibited if the funds could not be linked to a specific domestic terrorist act. Because the law also does not include a requirement for reporting suspicious transactions related to terrorist financing, the GOT issued a General Communiqué of Suspicious Transaction Reporting Regarding Terrorist Financing, which entered into force in November 2007. Turkey issued additional regulations to combat terrorist financing in January 2008, within the context of the money laundering legislation adopted in 2006. The regulation entered into force in April 2008.
MASAK’s General Communiqué No. 3, dated February 2002, requires that a special type of STR be filed by financial institutions in cases of suspected terrorist financing. However, until the amendments to the criminal code were enacted in June 2006, terrorist financing was not explicitly defined as a criminal offense under Turkish law. Various laws exist with provisions that can be used to punish the financing of terrorism. These include Articles 220, 314 and 315 of the Turkish penal code, which prohibit assistance in any form to a criminal organization or to any organization that uses or threatens violence to influence public services; media; proceedings of bids, concessions, and licenses; or to gain votes.
Although the names of suspected terrorists and terrorist organizations on the UNSCR 1267 Sanctions Committee consolidated list, as well as U.S.-designated names, are routinely distributed to financial institutions and appropriate Turkish agencies, Turkey has not taken sufficient steps to implement an effective regime to combat terrorist financing, especially as it relates to UNSCRs 1267 and 1373. For example, while the GOT has implemented UNSCR 1267, it has failed to establish punishment or sanctions for institutions that fail to observe a freezing order, and it has not established procedures for delisting entities or unfreezing funds. Additionally, the GOT has not taken steps that would allow it to freeze the assets of entities designated by other jurisdictions, as required under UNSCR 1373.
Another area of vulnerability regarding terrorist financing is the GOT’s supervision of nonprofit organizations. The nonprofit sector is well regulated, but it is not audited on a regular basis for CTF vulnerabilities and does not receive adequate AML/CTF outreach and guidance from the GOT. The General Director of Foundations (GDF) issues licenses for charitable foundations and oversees them. However, there are a limited number of auditors to cover more than 70,000 institutions. The Ministry of Interior regulates charitable nongovernmental associations (NGOs). The GDF, as part of the Ministry of Interior, keeps central registries of the charitable organizations it regulates. It also requires charities to verify and prove their funding sources and to have bylaws. Charitable organizations are required to submit periodic financial reports to the regulators. The regulators and the police closely monitor monies received from outside Turkey. The police also monitor NGOs for links to terrorist groups.
In the months after 9/11, the Council of Ministers decreed (2482/2001) all funds and financial assets of individuals and organizations included on the UNSCR 1267 Sanctions Committee’s consolidated list be frozen. However, the tools available at that time under Turkish law for locating, freezing, seizing, and confiscating terrorist assets were cumbersome, limited, and ineffective. In late 2001, the Council of Ministers froze the funds of one individual accused of financing terror in Turkey. A series of appeals and conflicting rulings by various courts prolonged the application of these provisions until 2007, but eventually the courts upheld the first application of the freezing authority. The assets of two listed individuals continue to be frozen under the 1267 designations. Changes in law relating to MASAK, the Turkish criminal code, and the anti-terrorism law give more authority to seize and freeze assets quickly and make the Turkish system more compliant with international standards. According to MASAK statistics, no assets linked to terrorist organizations or terrorist activities were frozen in 2007.
The GOT cooperates closely with the United States and with its neighbors in the Southeast Europe Cooperation Initiative (SECI). Turkey and the United States have a Mutual Legal Assistance Treaty (MLAT) and cooperate closely on narcotics and money laundering investigations. Turkey is a member of the FATF. Since 1998, MASAK has been a member of the Egmont Group. Turkey is a party to the 1988 UN Drug Convention, the UN Convention for Suppression of the Financing of Terrorism, the UN Convention against Transnational Organized Crime, and the UN Convention against Corruption.
While AML legislation has been strengthened and expanded from what previously existed, many provisions have not been tested, prosecution and convictions remain low, and penalties for money laundering offenses remain insufficient. Moreover, there appears to be an over-reliance on STRs to initiate money laundering investigations. To better investigate and prosecute such cases, law enforcement and judicial authorities should enhance their capacity on AML/CTF issues. Law enforcement and Customs authorities should be able to follow money and value trails during the course of their investigations, and should not be required to turn that portion of the investigation over to MASAK. MASAK should ask for expert help from the Turkish National Police or prosecution offices to fulfill its mandate to investigate promptly preliminary indications of money laundering. The GOT also should regulate and investigate remittance networks to thwart their potential misuse by terrorist organizations or their supporters. The GOT should fully implement the provisions of UNSCRs 1267 and 1373, and should consider expanding its narrow legal definition of terrorism. The GOT must also strengthen its oversight of foundations and charities, which currently receive only cursory overview and auditing. Turkey should take steps to improve the CDD procedures and other preventative measures, as well as adopt a risk-based approach to AML/CTF. The GOT should improve supervision and regulation of DNFBPs covered by the 2006 legislation.
Turks and Caicos
The Turks and Caicos Islands (TCI) is an overseas territory of the United Kingdom (UK) comprised of over 40 different islands and forms the southeastern end of the Bahamas archipelago. The country’s geographic location has made it a transshipment point for narcotics traffickers. The TCI is vulnerable to money laundering due to its significant offshore financial services sector, drug trafficking and notable deficiencies in its anti-money laundering and counterterrorist financing regime. Perceptions of public corruption continue. Based upon a recommendation of the UK Overseas Territories Report, TCI established a commission of inquiry in July 2008 to probe public corruption by TCI’s past and present members of the House of Assembly. In addition, the UK is sending two administrators to provide direction and management of all government funds in the territory.
The TCI’s well developed financial and designated nonfinancial sectors are comprised of approximately eight banks; seven money remitters, one casino, 67 real estate agents, ten jewelers, 35 lawyers, 26 accountants, 41 corporate service providers, 19 professional trustees, and 2,500 insurance companies. As of July 2007, 14,746 “exempt companies” or International Business Companies (IBCs) were of record with the Companies Registry. IBCs are permitted to issue bearer shares. The Companies (Amendment) Ordinance 2001 requires that bearer shares be immobilized by depositing them, along with information on the share owners, with a defined licensed custodian. IBCs are required to keep a register of its members and to file a list of members and the shares held by each member with the Companies Register annually. Trust legislation allows establishment of asset protection trusts insulating assets from civil adjudication by foreign governments; however, the Superintendent of Trustees has investigative powers and may assist overseas regulators. As such, TCI remains something of a “tax haven” for foreign criminals seeking to evade domestic tax reporting requirements.
The Financial Services Commission (FSC) licenses and supervises banks, money transmitters, mutual funds and funds administrators, investment dealers, trust companies, insurance companies and agents, and company service providers. It also licenses IBCs and acts as the Company Registry for the TCI. The FSC conducts on-site and off-site examinations to determine compliance with TCI laws and regulations and has the ability to issue sanctions for noncompliance. The FSC subscribes to a risk based approach, and regulations and guidelines require financial institutions to adopt a risk based approach to their internal controls and procedures. The Financial Services Commission has a staff of 21, including four regulators. The FSC became a statutory body under the Financial Services Commission Ordinance 2001 and preserved under the Financial Services Commission Ordinance 2007. It reports directly to the Governor, as well as to the Minister of Finance.
The 1998 Proceeds of Crime Ordinance (PCO) criminalizes money laundering related to all crimes and provides “safe harbor” protection for good faith compliance with reporting requirements. The PCO also establishes a Money Laundering Reporting Authority (MLRA) to receive, analyze and disseminate financial disclosures such as suspicious activity reports (SARs). The Proceeds of Crime Ordinance 2007 (POCO) consolidates pre-existing provisions and updates legislation related to money laundering. The POCO criminalizes money laundering; provides for the confiscation of the proceeds of crime; permits civil forfeiture; enhances the powers of the MLRA; requires financial institutions to report suspicious activity to the MLRA; and gives the Supreme Court the power to make a number of orders to assist the police in money laundering investigations.
Chaired by the Attorney General, the MLRA is also comprised of the Collector of Customs, the Managing Director of the FSC and the Head of the Financial Crimes Unit (FCU), the Commissioner of Police, and the Superintendent of the Criminal Investigation Department. The Financial Crimes Unit (FCU) of the Royal Turks and Caicos Islands Police is the designated financial intelligence unit (FIU) of the Turks and Caicos and as such manages the responsibilities of the MLRA. The FCU is comprised of five officers. In addition to receiving, analyzing, and investigating SARs, the FCU is also responsible for investigating large cash seizures, local drug traffickers and other serious financial crimes. For 2007, the FCU received 25 SARs (no statistics were available for 2008). The FCU is authorized to disclose information it receives to domestic law enforcement and foreign governments and does not require a memorandum of understanding (MOU) in order to exchange information. The FCI should have more operational independence, provide more guidance and feedback to financial institutions, and release periodic reports on its statistics.
The POCO, the Anti-Money Laundering Regulations (AMLR) (revisions) 2007 and the Anti-Money Laundering and Prevention of Terrorist Financing Code (the Code) 2007 impose obligations on the regulated financial sector to put in place and implement procedures to prevent money laundering. The AMLR place additional requirements on the financial sector such as identification of customers, mandates retention of records, training of staff on money laundering prevention and detection, and development of internal procedures to ensure proper reporting of suspicious transactions. The POCO and the AMLR also apply and impose obligations on certain other relevant businesses specified in the AMLR including dealers in high value goods, dealers in precious metals and stones, real estate agents, casinos, accountant and lawyers. The Code, as guidance, applies to regulated entities licensed and regulated by the FSC and to designated nonfinancial businesses and professions. The Money Transmitters Services Bill was introduced to Parliament and is expected to be passed in 2009. This legislation will fully bring money transmitters under the TCI’s anti-money laundering (AML) and counterterrorist financing (CTF) regime.
The AMLR prohibits regulated financial institutions from having a correspondent relationship with shell banks. The Code covers customer due diligence (CDD) requirements and requires financial institutions to pay attention to unusual and large transactions. However, the requirement to conduct CDD on customers carrying out occasional wire transfers is not covered by the AMLR and the Code. Furthermore, the AMLR does not address enhanced due diligence, as there is no requirement to take additional steps in high risk scenarios such as transactions involving politically exposed persons. The Code stipulates that records must be kept for five years; however, requirements to maintain adequate records are not clearly specified in enforceable legislation and regulations. Therefore, record retention is essentially done on a voluntary basis. Anonymous accounts are permitted.
The POCO provides for criminal and civil asset forfeiture. The Court and prosecutorial authorities are able to make confiscation and forfeiture orders once a person has been convicted of an indictable offense and proven that they have benefited from criminal conduct. Civil forfeiture does not require an individual to be convicted of an offense. The POCO also provides for production and freeze orders to identify, trace, and restrain assets where a money laundering investigation has been initiated or where money laundering proceedings have begun. However, TCI has no domestic provisions for coordinating restraint and confiscation actions with other countries, and no provisions for sharing of confiscated assets, although it does cooperate informally with other countries in confiscation matters.
Travelers entering or leaving the TCI with more than $10,000 must make a declaration to Customs officials. There is no provision for the restraint of cash by Customs Officers when a false declaration is made. An MOU between Customs and the Police (which includes the FCU) permits the exchange of seizure information.
As a UK territory, the TCI is subject to the United Kingdom Terrorism (United Nations Measure) (Overseas Territories) Order 2001, al-Qaida and Taliban (United Nations Measure) (Overseas Territories) Order 2002, and the Anti-Terrorism (Financial and Other Measures) (Overseas Territories) Order 2002. Financial institutions are required to file quarterly reports indicating whether or not they are in possession of terrorist property. AML/CTF requirements do not apply to charities and nonprofit organizations. To date, the FCU has not received any SARs related to terrorism financing.
The TCI cooperates with foreign governments—in particular, the United States and Canada—on law enforcement issues, including narcotics trafficking and money laundering. The FCU also shares information with other law enforcement and regulatory authorities inside and outside of the TCI. The Overseas Regulatory Authority (Assistance) Ordinance 2001, allows the TCI to further assist foreign regulatory agencies. This assistance includes search and seizure powers and the power to compel the production of documents. However TCI should implement domestic provisions which allow for the enforcement of foreign restraining and confiscation orders, and the sharing of assets confiscated as a result of such cooperation.
The 1988 UN Drug Convention applies to the TCI by extension. The FIU became a member of the Egmont Group in 2008. The Mutual Legal Assistance Treaty between the United States and the United Kingdom concerning the Cayman Islands was extended to the TCI in November 1990. The TCI does not have a Tax Information Exchange Agreement with the United States. The TCI is a member of the Caribbean Financial Action Task Force (CFATF), a FATF-style regional body and underwent a mutual evaluation that was finalized in December 2008. The evaluation noted improvements to the TCI’s AML/CTF regime, as well as significant deficiencies including the following: The TCI needs to define and make arrangements to circulate designated terrorist lists to financial institutions and provide guidance to meet necessary obligations in this regard; the Code does not address guidelines for reporting entities in relation to their obligation to freeze terrorist assets; except for trust and company service providers, there is not effective AML/CTF framework in place for designated nonfinancial businesses and professionals; there are no requirements for financial institutions to perform enhanced due diligence for higher risk categories of customer, business relationships or transactions; there are no measures in place to cover domestic, cross-border, and nonroutine wire transfers; the FCU does not produce any reports or provide information regarding their activities or trends and typologies; and the FCU has not provided guidance to financial institutions and other reporting entities regarding the reporting of STRs.
In March 2008, the United Kingdom published The Foreign and Commonwealth Office: Managing Risk in the Overseas Territories. In terms of AML/CTF, the Foreign and Commonwealth Office indicated that regulatory standards in most Territories are not up to those of the Crown Dependencies of Jersey, Guernsey, and the Isle of Man) and that a lack of capacity has reduced the ability of Territories to investigate and prosecute money laundering. The report particularly noted that capacity limitations in the offshore financial sector have limited Territories’ ability to investigate suspicious activity reports, and, in the case of the TCI resources are inadequate to keep up with increasingly sophisticated international standards and products in offshore financial services. The report noted that only the Cayman Islands has, so far achieved successful prosecutions of local participants for offshore money laundering offenses. There has not been any money laundering convictions in TCI since 2002.
The Government of the Turks and Caicos Islands with one of the largest and most developed offshore sectors should correct all the deficiencies noted in the CFATF mutual evaluation to be in full accordance with international standards; extend existing regulations to all sectors, bringing all obligated entities under the supervision of a regulatory body, enhance customer due diligence requirements to close existing loopholes, clearly specifying requirements to maintain adequate records in enforceable legislation and regulations, and bolster its on-site supervision program. The TCI should expand efforts to cooperate with foreign law enforcement and administrative authorities. The FCU should conduct awareness training that includes providing guidance on the procedures for reporting STRs including reporting timeframes. The TCI should work to fully develop its capacity to investigate and prosecute money laundering and terrorist financing cases. And the TCI should provide adequate resources and authorities to provide supervisory oversight of its offshore sector to further ensure criminal or terrorist organizations do not abuse the Turks and Caicos Islands’ financial sector.
Corruption, organized crime, prostitution, smuggling, tax evasion, and trafficking in persons, drugs and arms continue to be sources of laundered funds in Ukraine. As of November 1, 2008, Ukraine has 184 licensed banks, two of which are state-owned. There are no offshore financial centers or facilities under Ukraine’s jurisdiction.
In January 2001, the Government of Ukraine (GOU) enacted the “Act on Banks and Banking Activities,” which introduces some anti-money laundering (AML) requirements for banking institutions. The Act prohibits banks from opening accounts for anonymous persons, requires the reporting of large transactions and suspicious transactions to state authorities, and provides for the lifting of bank secrecy pursuant to an order of a court, prosecutor, or specific state body. In August 2001, the President signed the “Law on Financial Services and State Regulation of the Market of Financial Services.” This law establishes regulatory control over nonbank financial institutions that manage insurance, pension accounts, financial loans, or “any other financial services involving savings and money from individuals.” The law provides definitions for “financial institutions” and “services,” imposes record keeping requirements on obligated entities, and identifies the responsibilities of regulatory agencies. The law establishes the State Commission on Regulation of Financial Services Markets (SCFM), which, along with the National Bank of Ukraine (NBU) and the State Commission on Securities and the Stock Exchange, has responsibility for regulating financial services markets.
The Financial Action Task Force (FATF) placed Ukraine on the list of noncooperating countries and territories (NCCT) in September 2001. Following substantial efforts to adopt appropriate legislation and institute an enforcement regime, FATF removed Ukraine from all monitoring 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 FATF-style regional body (FSRB), conducted a third-round evaluation of Ukraine in September 2008, with a report due for release in March 2009.
The Criminal Code of Ukraine has separate provisions criminalizing drug-related and nondrug-related money laundering. Amendments to the Code adopted in January 2003 include willful blindness provisions and expand the scope of predicate crimes for money laundering to include any action punishable under the Criminal Code with imprisonment of three years or more, excluding certain specified actions.
On November 28, 2002, the President signed into law Ukrainian Law No. 249-IV, an AML package entitled “On Prevention and Counteraction of the Legalization (Laundering) of the Proceeds from Crime” (the Basic AML Law). The Basic AML Law establishes a two-tiered system of financial monitoring consisting of initial financial monitoring (i.e., obligated entities that carry out financial transactions) and state financial monitoring (i.e., government agencies charged with regulation and supervision of the financial institutions). Overall regulatory authority is vested in the SCFM, in accordance with Article 4 of the Basic AML law.
To correct deficiencies in the Basic AML Law, legislation enacted in February 2003 requires banks and other financial service providers to implement AML compliance programs, conduct due diligence to identify beneficial account owners prior to opening an account or conducting certain transactions, report suspicious transactions to the SCFM and maintain records on suspicious transactions and the people carrying them out for a period of five years. The legislation includes a “safe harbor” provision that protects reporting institutions from liability for cooperating with law enforcement agencies. In August 2003, the State Commission established the State Register of financial institutions, and by March 2007, the State Register contained information on 1,956 nonbank financial institutions.
Since November 2004, the GOU has made several efforts to pass a set of amendments to the AML laws in order to bring Ukraine’s regime into compliance with FATF’s revised Forty plus Nine recommendations. The Rada, or Parliament, twice rejected the government’s draft in 2005. The government subsequently redrafted the law, narrowing its scope to the FATF recommendations, and omitting provisions introducing a new SCFM authority and other bureaucratic changes that had drawn opposition in the Parliament. The redrafted law passed in the second reading in June 2007, but was ultimately derailed by the lengthy political crisis of 2007.
In 2008, a new Parliament reintroduced the draft law, now entitled “On Amending Some Legislative Acts of Ukraine on Prevention to Legalization (Laundering) of the Proceeds from Crime and Terrorist Financing.” On September 25, 2008, Parliament adopted the draft on the first reading. The main thrust of this new draft law is to broaden the types of entities and professionals that are subject to financial monitoring. The draft law will add lawyers and law firms, real estate firms, auditors, notaries, traders in precious metals, post offices (which can make money transfers), companies running lotteries, consulting companies and some other professionals to the list of obligated entities. The law will impose an affirmative obligation to report transactions that could be used for terrorist financing. The monitoring and regulation would be performed by the SCFM, along with the Ministries of Finance, Justice, Economy, and Transportation & Communication. The draft also provides some new mechanisms for stopping certain transactions believed to be tied to money laundering. The head of the SCFM claims the draft law is consistent with the 2003 FATF Forty plus Nine Recommendations. However, the law contains provisions that, while not formally in violation of FATF recommendations, do not fully address corruption issues. For example, the provision on financial monitoring of “politically exposed persons” applies only to international/foreign political persons and not to Ukrainian officials. The American Chamber of Commerce in Ukraine also has voiced concerns about the draft to Ukrainian authorities, arguing that it would greatly increase the authority of the SCFM without protecting the rights of the institutions subject to monitoring, and impose requirements on entities that are beyond the ability of such entities to fulfill.
It is unknown whether this session of the Rada will address the above draft law. It is not yet on Parliament’s official agenda.
In 2004, authorities reduced the monetary threshold for compulsory financial monitoring from Ukrainian hryvnias (UAH) 300,000 (approximately $40,000) for cashless payments and UAH 100,000 (approximately $13,333) for cash payments, to UAH 80,000 (approximately $10,666) for payments using either method. The compulsory reporting threshold exists only if the transaction also meets one or more suspicious activity indicators as set forth by law. Any transaction suspected of being connected to terrorist activity must be reported to the appropriate authorities immediately.
Beginning in August 2005, as a result of amendments to the “Resolution on the Adoption of Instructions Regarding Movement of Currency, Precious Metals, Payment Documents, and Other Banking Documents over the Customs Border of Ukraine,” travelers must declare cross-border transportation of cash sums exceeding $3,000, and name the origin of funds exceeding $10,000. Cash smuggling is substantial in Ukraine, although it is reportedly more related to unauthorized capital flight than to criminal proceeds or terrorist funding.
In 2005, the GOU sought to combat smuggling and corruption by reducing import duties, introducing new procedures for the Customs Service, and implementing transparent procedures for the privatization of state enterprises. Ukraine’s 2005 budget eliminated the tax and customs duty privileges available in 11 Special Economic Zones (SEZs) and nine Priority Development Territories (PDTs) that operated within Ukraine, which had been associated with rampant evasion of customs duties and taxes. In late 2006, the government registered with the Parliament a draft law to restore tax and customs privileges for businesses operating in the SEZs. Additionally, a new draft Tax Code, also registered in Parliament, envisages tax and customs privileges for the zones. These drafts have remained in Parliament for some time, but have not been acted upon. Although legislation implementing this policy decision has not yet passed the Parliament, the GOU asserts the draft legislation includes provisions to avoid past problems associated with the zones.
Earlier AML laws are amended by Law 3163-IV, enacted in January 2006. Under the new law, the entities obligated to conduct initial financial monitoring must be able to provide proof they are fulfilling all Know Your Customer (KYC) identification requirements. The law also grants state agencies enhanced authority to exchange information internationally, improves rules on bank organization, and implements a screening requirement at the level of financial institutions. On September 14, 2006, Ukraine enacted amendments to the “Law on Banks and Banking” that require all banks to be formed as open joint-stock companies or as cooperatives. This measure strengthens disclosure requirements on the identity of the beneficial owners of banks. These amendments apply to all newly formed banks and provide a three-year period for existing banks to comply.
The SCFM, Ukraine’s FIU, was established on December 10, 2001 by the Presidential Decree “Concerning the Establishment of a Financial Monitoring Department.” The SCFM became operational on June 12, 2003. At that time, the SCFM was an independent authority administratively subordinate to the Ministry of Finance and the sole agency authorized to receive and analyze financial information from financial institutions. Effective January 1, 2005, Ukraine’s Rada granted the SCFM the status of a central executive agency, subordinate to the Cabinet of Ministers rather than to the Ministry of Finance. The November 28, 2002 law “On Money Laundering Prevention,” specifically states the SCFM is to operate free from political influences. However, a draft law “On the Opposition,” which was submitted to the Parliament in early 2007, specifies that the parliamentary opposition could assign persons to certain leadership jobs in a number of state agencies, including the SCFM. Specifically, the draft law reserves the jobs of the director and two of the four deputy directors for nomination by the political opposition in the Parliament. Parliament adopted the draft in the first reading in 2007, but took no action on the draft in 2008. The law, if enacted, could free the FIU from the undue influence of one political party but could also contradict the November 2002, Law on Money Laundering Prevention by bringing the political process into play when making appointments to the affected positions. The director of the SCFM was replaced in February 2008, shortly after a new government came to power, but observers in Ukraine did not conclude that step was primarily politically motivated.
As of December 1, 2008, the SCFM has 25 local branches in Ukraine’s regions. The SCFM is an administrative agency with no investigative or arrest authority. It is authorized to collect suspicious transaction reports (STRs) and analyze suspicious transactions, including those related to terrorist financing, and to transfer financial intelligence information to competent law enforcement authorities for investigation. The SCFM identifies possible cases for investigation by the Ministry of Interior, Tax Agency, State Security Agency and Prosecutor General’s Office (PGO). The SCFM has processed, analyzed, and developed cases reportedly to the point of establishing the equivalent of probable cause prior to referral to law enforcement. The SCFM also has the authority to approve interagency agreements and exchange intelligence on financial transactions involving money laundering or terrorist financing with other FIUs. As of December 2008, the SCFM has signed memoranda of understanding (MOUs) with the FIUs of forty countries. It has become a regional leader with regard to the volume of case information exchanged with counterpart FIUs.
In 2007, the SCFM received 264,688 transaction reports, which include STRs and automatic threshold reports. The majority of these were submitted by banks. The SCFM designated approximately 25 percent of these for “active research” and sent 520 separate cases to law enforcement agencies. Of these cases, the SCFM referred 47 to the PGO, 169 to the State Tax Administration, 145 to the Ministry for Internal Affairs, and 159 to the State Security Service of Ukraine. As a result of subsequent investigation of these cases, law enforcement agencies initiated 271 formal criminal investigations (a 65 percent increase over the previous year), and submitted indictments in 40 of those cases (a five-fold increase). Between 2003 and 2007, 596 formal criminal investigations were opened, and indictments submitted in 60 of these cases. Convictions have been obtained in 28 of these cases. Although the reporting system is effective and the SCFM has generated a substantial number of cases, it did not lead to a significant number of convictions until 2007. From 2003-2006 there were convictions in only three cases, while in 2007, the number of cases jumped to 25.
Many observers believe the low prosecution and conviction rates are caused by reluctance at the PGO to follow up on the cases referred by the SCFM and by a lack of prosecutorial specialization. Local prosecutors may close money laundering investigations and cases prematurely or arbitrarily, possibly because of lack of sufficient manpower or resources, corruption, a weak understanding of money laundering crimes, or a belief that other types of crimes should take priority over money laundering.
Ukraine has been working with the European Commission and Council of Europe to increase its capacity to fight money laundering and terrorist financing since 2003. The ongoing Council of Europe project, which runs through April 2009, is focused on three areas: getting Ukraine’s legislative framework up to international standards; enhancing the human capacities of key institutions and agencies; and developing the organizational and technical infrastructure of the system.
Ukraine has a general asset forfeiture regime, but this is largely an inappropriate and ineffective relic of Soviet-era legislation. Article 59 of the Ukrainian Criminal Code provides for the mandatory seizure of all or a part of the property of any person convicted for grave or particularly grave offenses, as defined in the code, regardless of whether this property bore any relation to the crime of conviction. With respect to money laundering, Article 209 allows for the forfeiture of criminally obtained money and other property. However, Ukraine lacks any functional regime for locating or seizing forfeitable assets. In particular, Ukraine lacks legislation allowing in rem forfeiture or the seizure of corporate assets, has no specialized asset forfeiture prosecutors or officials, and lacks any entity to administer forfeited assets. The GOU has drafted legislation aimed at improving the asset forfeiture regime and bringing it into compliance with international standards. The draft law has been completed by the Ministry of Justice, and is currently awaiting approval by the Cabinet of Ministers, for submission to Parliament.
On December 10, 2003, the Cabinet of Ministers issued Decree No. 1896, establishing a Unified State Information System of Prevention and Counteraction of Money Laundering and Terrorism Financing. The system provides the SCFM with unobstructed access to the databases of 12 ministries and agencies, including the Ministry of Internal Affairs, Ministry of Economy, Ministry of Finance, State Tax Administration, State Security Service, State Customs Administration, State Property Fund, State Statistics Administration, Border Guard Service, Securities Commission, Financial Services Commission, and Control and Revision Department. The system became fully operational in December 2006. The SCFM leadership states it has unfettered access to all relevant information in the data bases of the aforementioned agencies.
The SCFM acknowledges the existence and use of alternative remittance systems in Ukraine, and its personnel have attended seminars and exchanged information about such systems. In 2007, the Security Service of Ukraine published a report signaling that hawala might be on the rise in Ukraine due to a large number of Ukrainians working abroad and the growth of foreign communities in Ukraine. The SCFM and security agencies monitor charitable organizations and other nonprofit entities that might be used to finance terrorism.
Law 3163-IV, which entered into force on January 1, 2006, enhances Ukraine’s ability to exchange information internationally and places greater obligations on banks to combat terrorist financing. This law requires banks to adopt procedures to screen parties to all transactions using a SCFM-issued list of beneficiaries of, or parties to, terrorist financing. Banks must freeze assets for two days and immediately inform the FIU and law enforcement bodies whenever a party to a transaction appears on the list. The FIU can extend the freeze to five days. Banks developed their screening capabilities subsequent to implementation of the law. On October 25, 2006, the Cabinet of Ministers approved the SCFM’s list, drawn from three sources: the United Nations 1267 Sanctions Committee’s consolidated list; information from the Ukrainian Security Service on individuals and entities suspected of violating article 258 of the Ukrainian Criminal Code concerning terrorism; and the lists compiled by those countries that have bilateral agreements with Ukraine on mutual recognition of terrorist designations. On September 21, 2006, the Rada enacted revisions to Article 258 of the Criminal Code, adding Article 258-4 which explicitly criminalizes terrorist financing. The revised text mandates imprisonment from three to eight years for financing, material provision, or provision of arms with the aim of supporting terrorism. The revisions also amend the criminal procedure code to empower the State Security Service (SBU) with primary responsibility for investigating terrorist financing.
The GOU has cooperated with U.S. efforts to track and freeze the financial assets of terrorists and terrorist organizations. The NBU, the SCFM, the Securities Exchange Commission, the State Tax Administration, the SBU, and the Ministries of Finance, Internal Affairs, and Foreign Affairs are informed about the U.S. designation of suspected terrorists and terrorist organizations under Executive Order 13224 and other U.S. authorities. Through their regulatory agencies, banks and nonbank financial services also receive these U.S. designations and are instructed to report any transactions involving designated individuals or entities.
The U.S.-Ukraine Treaty on Mutual Legal Assistance in Criminal Matters was signed in 1998 and entered into force in February 2001. A bilateral Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, which provides for the exchange of information in administrative, civil, and criminal matters, is also in force.
Ukraine 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. Ukraine has signed, but not yet ratified, the UN Convention against Corruption. Ukraine is a member of MONEYVAL and also an observer and technical assistance donor to the Eurasian Group on Combating Money Laundering and the Financing of Terrorism (EAG), another FSRB. The SCFM is a member of the Egmont Group. It hosted working level meetings of the Egmont Group in Ukraine in October 2007.
Ukraine has strengthened and clarified its legislation and, with the SCFM, the NBU, and other actors in the financial and legal sectors, the Government of Ukraine has established a comprehensive AML regime. However, Ukraine’s ability to implement this regime through consistent successful criminal prosecutions has yet to be proven. Ukraine should carefully review its pending draft laws to ensure they are in accordance not only with the language, but with the intent of international standards, and will not compromise the integrity of the FIU or any other supervisory bodies. Once such a review has been completed Ukraine should adopt the draft laws to bring noncovered entities within the scope of the anti-money laundering/counterterrorist financing laws. The GOU also should consider carefully the consequences of reestablishing tax and customs privileges that have been abused in the past. The GOU should take steps to improve implementation of its anti-money laundering/counterterrorist financing regime. The PGO should address the deficiencies of that office, such as a lack of specialization and limited professional experience with money laundering. Law enforcement agencies should give higher priority to investigating and prosecuting money laundering cases. Both law enforcement officers and the judiciary need a better understanding of the theoretical and practical aspects of investigating and prosecuting money laundering cases. Ukraine also should ratify the UN Convention against Corruption, and more aggressively address public corruption by investigating, prosecuting and convicting corrupt public officials.
United Arab Emirates
The United Arab Emirates (UAE) is an important financial center in the Gulf region. Dubai, in particular, is a major international banking and trading center. Although the financial sector is modern and progressive, the UAE remains a largely cash-based society. The country also has a growing offshore financial free zone. The UAE’s robust economic development, political stability, and liberal business environment have attracted a massive influx of people, goods, and capital, which may leave the country susceptible to possible money laundering activities. The UAE is susceptible to money laundering due to its geographic location as the primary transportation and trading hub for the Gulf States, East Africa, and South Asia; longstanding trade relations with Iran; its expanding trade ties with the countries of the former Soviet Union; and lagging relative transparency in its corporate environment.
The potential for money laundering is exacerbated by the large number of resident expatriates (roughly 80—85 percent of total population) who send remittances to their homelands. Given the country’s proximity to Afghanistan, where most of the world’s opium is produced, narcotics traffickers are increasingly reported to be attracted to the UAE’s financial and trade centers. Other money laundering vulnerabilities in the UAE include hawala, trade fraud, smuggling, the real estate boom, and the misuse of the international gold and diamond trade.
The Central Bank is responsible for supervising the UAE’s financial sectors, which include banks, exchange houses, and investment companies. It is authorized to issue licenses and impose administrative sanctions for compliance violations. The Central Bank also has the authority to issue instructions and recommendations to financial institutions as it deems appropriate and to take any measures as necessary to ensure the integrity of the UAE’s financial system. Following the September 11, 2001 terrorist attacks in the United States, and amid revelations that terrorists had moved funds through the UAE, the Emirates’ authorities acted swiftly to address potential vulnerabilities. In close concert with the United States, the UAE imposed a freeze on the funds of groups with terrorist links, including the Al-Barakat organization, which was headquartered in Dubai. Both national and emirate-level officials have gone on record as recognizing the threat money laundering activities in the UAE pose to the nation’s reputation and security. Since 2001, the UAE Government (UAEG) has taken steps to better monitor cash flows through the UAE financial system and to cooperate with international efforts to combat terrorist financing.
The UAE has enacted the Anti-Money Laundering Law No. 4/2002, and the Anti-Terrorism Law No. 1/2004. Both pieces of legislation, in addition to the Cyber Crimes Law No. 2/2006, serve as the foundation for the country’s anti-money laundering and counterterrorist financing (AML/CTF) efforts. Law No. 4 of 2002 criminalizes all forms of money laundering activities. The law calls for stringent reporting requirements for wire transfers exceeding 2000 dirhams (approximately $545) and currency imports above 40,000 dirhams (approximately $10,900). The law imposes criminal penalties for money laundering that includes up to seven years in prison plus a fine of up to 300,000 dirhams (approximately $81,700), as well as a seizure of assets upon conviction. The law also provides safe harbor provisions for reporting officers.
Prior to the passage of the Anti-Money Laundering Law, the National Anti-Money Laundering Committee (NAMLC) was established in July 2000 to coordinate the UAE’s anti-money laundering policy. The NAMLC was later codified as a legal entity by Law No. 4/2002, and is chaired by the Governor of the Central Bank. Members of the NAMLC include representatives from the Ministries of Interior, Justice, Finance, and Economy, the National Customs Board, Secretary General of the Municipalities, Federation of the Chambers of Commerce, and five major banks and money exchange houses, as observers.
Administrative Regulation No. 24/2000 provides guidelines to financial institutions for monitoring money laundering activity. This regulation requires banks, money exchange houses, finance companies, and any other financial institutions operating in the UAE to follow strict “know your customer” guidelines. Financial institutions must verify the customer’s identity and maintain transaction details (i.e., name and address of originator and beneficiary) for all exchange house transactions over the equivalent of $545 and for all non-account holder bank transactions over $10,900. The regulation delineates the procedures to be followed for the identification of natural and juridical persons, the types of documents to be presented, and rules on what customer records must be maintained on file at the institution. Other provisions of Regulation 24/2000 call for customer records to be maintained for a minimum of five years and further require that they be periodically updated as long as the account is open. In 2008, the UAE Central Bank issued a circular instructing banks and exchange houses to obtain certain identity and transaction information for all cash exchange transactions over $545 and outlining additional procedures for bank transfers in excess of $953. In July 2004, the UAE government strengthened its legal authority to combat terrorism and terrorist financing by passing Federal Law Number No. 1/2004. The Law specifically criminalizes the funding of terrorist activities and terrorist organizations. It sets stiff penalties for the crimes covered, including life imprisonment and the death penalty. It also provides for asset seizure or forfeiture. Under the law, founders of terrorist organizations face up to life imprisonment. The law also penalizes the illegal manufacture, import, or transport of “nonconventional weapons” and their components that are intended for use in a terrorist activity.
Article 12 provides that raising or transferring money with the “aim or with the knowledge” that some or all of this money will be used to fund terrorist acts is punishable by “life or temporary imprisonment,” regardless whether the terrorist acts occur. Law No. 1/2004 grants the Attorney General (or his deputies) the authority to order the review of information related to the accounts, assets, deposits, transfer, or property movements on which the Attorney General has “sufficient evidence to believe” are related to the funding or committing of a terror activity as defined in the law. In 2008, the UAE Ministry of Justice issued two circulars instructing lawyers and federal court clerks to report to the UAE Anti-Money Laundering and Suspicious Case Unit (the financial intelligence unit) any commercial or financial agreements suspected of links to terrorism, terrorist finance or terrorist organizations.
The law also provides for asset seizure and confiscation. Article 31 gives the Attorney General the authority to seize or freeze assets until the investigation is completed. Article 32 confirms the Central Bank’s authority to freeze accounts for up to seven days if it suspects that the funds will be used to fund or commit any of the crimes listed in the law. The law also allows the right of appeal to “the competent court” of any asset freeze under the law. The court will rule on the complaint within 14 days of receiving the complaint. Law No. 1/2004 also established the “National Anti-Terror Committee” (NATC) to serve as the government’s interagency liaison with respect to implementing the United Nations Security Council Resolutions (UNSCR) on terrorism, and sharing information with its foreign counterparts as well as with the United Nations. Representatives from Ministries of Foreign Affairs, Interior, Justice, and Defense; Central Bank; State Security Department; and Federal Customs Authority comprise the NATC.
The Central Bank also states that it circulates an updated UNSCR 1267 Sanctions Committee’s consolidated list of suspected terrorists and terrorist organizations to all the financial institutions under its supervision. In 2007, the UAE took steps toward fulfillment of its UN nonproliferation obligations. On August 31, 2007 the UAE issued Law No. 13 of 2007 on export and import controls; the law is currently under amendment. With regard to the UAE’s UNSCR 1737 and 1747 commitments, the UAE Central Bank has ordered banks and other financial institutions to freeze accounts or deposits of designated entities. It also has ordered financial institutions to cease transfers on behalf of designated entities and to refrain from entering into new commitments for grants, financial assistance, and concession loans to the Iranian Government.
The Anti-Money Laundering and Suspicious Case Unit (AMLSCU) was established in 2002 as the UAE’s financial intelligence unit (FIU), and was housed within the Central Bank. In addition to receiving Suspicious Transaction Reports (STRs), the AMLSCU is authorized to send information requests to foreign regulatory authorities to conduct its preliminary investigations based on suspicious transaction report data. The AMLSCU joined the Egmont Group in June 2002. The AMLSCU reports that it has issued a total of 42 freeze orders in response to STRs between December 2000 (prior to the establishment of the FIU) and October 2006. The 2008 MENAFATF Mutual Evaluation of the UAE noted that STR reporting requirements warranted additional clarity with regard to the level of suspicion of money laundering activity needed to require filing a report with the FIU. The result was that, as of 2006, the latest year for which the Central Bank would supply figures, less than 500 STRs were filed by a relatively small number of core banks. The mutual evaluation team considered this number low for the UAE’s level of financial activity.
International Monetary Fund (IMF) conducted an assessment of the UAE financial system in 2007. The report concluded that the government of the UAE is in the midst of implementing an important agenda for further strengthening the country’s banking system and its prudential and regulatory oversight. The report contains no information on the UAE compliance with the FATF’s 40 plus 9 recommendations. In August 2008, the UAE Central Bank Governor announced that the UAE had implemented 80 percent of the measures demanded by IMF.
It is unclear how many money laundering prosecutions have taken place in the UAE in 2008. However, there were two high profile money laundering cases in the UAE during the 2006/2007 timeframe and another major case in 2008. In November 2007, the Sharjah Appeals Court upheld a verdict sentencing seven men to five years in prison for money laundering. An Abu Dhabi court also sentenced two of the individuals to life imprisonment for drug trafficking and the rest to ten year sentences for drug trafficking. The individuals were arrested in 2006 for attempting to smuggle 2.5 tons of hashish from Pakistan to Holland, via Sri Lanka, the UK, and Belgium. UAE authorities worked with law enforcement officials in the respective countries to track the shipment. In October 2007, the Dubai police referred 48 suspects to the Public Prosecutors on charges of money laundering and abetting drug trafficking. In June 2008, the Dubai Attorney General referred a Dutch and an Arab national to the Dubai Court of Misdemeanors for allegedly laundering 60 million dirhams (approximately $16.33 million) in drug trafficking proceeds through two front companies in Dubai. It should be noted that the investigations related to many of the high profile money laundering cases have been carried out by the small Anti Money Laundering Unit of the Dubai Police rather than by the AMLSCU.
Several amendments were made to the Central Bank Regulations 24/2000 in July 2006. First, the regulations added the term “terrorist financing” to any references made to the term “money laundering.” Second, the regulations required financial institutions to freeze transactions that they believe may be destined for funding terrorism, terrorist organizations, or for terrorist purposes. The regulations also require financial institutions to notify the AMLSCU in writing of such transactions “in case of any doubt.” Finally, enhanced due diligence requirements for charities were promulgated, requiring banks to obtain a certificate from the Minister of Social Affairs before opening or maintaining any charitable organization-type account.
In 2006, the UAE enacted Law No. 2/2006 of the Cyber Crimes. Article 19 of the law criminalized the electronic transfer of money or property through the Internet in which the true sources of such assets are either concealed or linked to criminal proceeds. Violations are punishable by up to seven years imprisonment and fines ranging from $8,170 to $54,500. Article 21 of the law outlaws the use of the Internet to finance terrorist activities, promote terrorist ideology, disseminate information on explosives, or to facilitate contact with terrorist leaders. Any violation of Article 21 is punishable by up to 5 years imprisonment.
Hawala is where money laundering activity is likely more prevalent due to the largely undocumented nature of this informal remittance system. Dubai is a regional hawala center. Hawala is an attractive mechanism for terrorist and criminal exploitation due to its lack of transparency to law enforcement and regulators and the highly resilient nature of the system. In 2003, the Central Bank issued new regulations to help improve the oversight of hawala, including registration of hawala brokers (hawaladars). The new regulations required hawaladars to submit the names and addresses of all originators and beneficiaries of funds and to file suspicious transaction reports on a monthly or quarterly basis. However, since the inception of the program, there reportedly have not been any suspicious reports filed by hawaladars.
As of April 2008, the Central Bank had registered 265 hawaladars, with an additional 104 applicants working to complete their registration requirements. Once registered, the Central Bank conducts one-on-one training sessions with each registered hawaladar to ensure that dealers understand the record-keeping and reporting obligations. The registered hawaladars are required to use an account they open at the Central Bank to process their transactions. Currently, there is no accurate estimate of the total number of UAE-based hawala brokers, and there is no penalty for failure of hawaladars to register with the Central Bank. Officials argue that the registration program is still in the initial phase of determining the magnitude of the industry.
The UAE has not set any limits on the amount of cash that can be imported into or exported from the country. No reporting requirements exist for cash exports. However, the Central Bank requires that any cash imports over the equivalent $10,900 must be declared to Customs; otherwise undeclared cash may be seized upon attempted entry into the country. All cash forfeiture cases are handled at the judicial level because there are no administrative procedures to handle forfeited cash. Still, enforcement mechanisms are lax. Customs officials, police, and judicial authorities tend to not regard large cash imports as potentially suspicious or criminal type activities, arguing that the UAE is a cash-based economy, and it is not unusual for people to carry significant sums of cash.
Dubai remains the center of the UAE’s burgeoning diamond trade, although new facilities are springing up in the Emirate of Ras Al Khaimah as interest spreads in the lucrative business. The UAE has been a participant in the Kimberley Process Certification Scheme for Rough Diamonds since November 2002, and began certifying rough diamonds exported from the UAE on January 1, 2003. Law No. 13 of 2004 regulates supervision of Import/Export and Transit of Rough Diamonds. Article 5 of the law prohibits the import of rough diamonds, unless they are accompanied by a Kimberley Process certificate and in a sealed, tamper resistant container.
The Dubai Diamond Exchange (DDE), a subsidiary of the Dubai Multi Commodities Center (DMCC), is a quasi-governmental organization charged with issuing Kimberley Process (KP) certificates in the UAE. Prior to January 1, 2003, the DMCC circulated a sample UAE certificate to all KP participant states and embarked on a public relations campaign to familiarize the then estimated 50 diamond traders operating in Dubai with the new KP requirements. There are more than 300 firms involved in diamond trading in Dubai. Under the KP regulations, UAE Customs is the sole point of entry for both rough and finished diamonds to the UAE. Customs officials are authorized to delay or even confiscate those diamonds entering the UAE that do not have the proper certificates.
In October 2008, Dubai International Airport customs officials detained an African woman who had uncut diamonds valued at over $ 1 million concealed on her body. In 2006, Russian customs officials reportedly apprehended an air passenger from Dubai after he tried to smuggle 2.5 kilos of diamonds into the country. There are also reports that diamonds are increasingly being used as a medium to provide counter valuation in hawala transfers, particularly between Dubai and Mumbai.
The former head of the Dubai Diamond Exchange implemented enhanced monitoring measures in compliance with the Moscow Resolution on Cote d’Ivoire of November 2005, but two suspect diamond shipments of questionable provenance released by the DDE in 2006 and 2007 indicate continuing weaknesses in the process. The UN Group of Experts on Cote d’Ivoire, visiting Dubai in May 2007, raised with the DDE the release in September 2006 and January 2007, respectively, of two shipments of diamonds with suspect Ghanaian certificates of origin. In both cases the World Diamond Council was requested to verify the origin of the diamonds. In the first instance the Working Group of Diamond Experts concluded that the assessed diamonds bore characteristics unknown in Ghanaian diamonds, but possibly consistent with stones from Guyana or Brazil. In the second case, the diamonds were released before the WDC’s final report was released. The UN Group of Experts on Cote d’Ivoire also reported that individuals in Dubai’s Gold Land stated that they had in their possession large quantities of African diamonds without Kimberley Process certification.
In May 2008, the UAE and Russia signed an executive plan for enforcement of the Anti-Crime Cooperation Agreement, which was inked between the two countries in September 2007. The plan called for cooperation and information exchange in the fields of counterterrorism, prevention of organized crimes, money laundering, financial crimes, crimes associated with transport, smuggling of drugs and other forms of dangerous crimes.
The Securities and Commodities Authority (SCA) supervises the country’s two stock markets. In February 2004, the SCA issued anti-money laundering guidelines to all brokers that included identity verification instructions for new customer accounts, a reporting requirement for cash transactions above U.S. $10,900, and a minimum five-year record keeping requirement for all customer account information. The SCA also instructed brokers to file suspicious transaction reports with the SCA for initial analysis before they are forwarded to the AMLSCU for further action.
The UAE’s real estate market continues to grow with the various emirates following Dubai’s model of opening up some property ownership to expatriates. Dubai’s real estate market grew significantly in 2008, with a slump later in the year due to the global economic downturn. The sector is susceptible to money laundering abuse. In 2002, Dubai began to allow three real estate companies to sell “freehold” properties to noncitizens. Since then, several other emirates have followed suit. For instance, Abu Dhabi has passed a property law, which provides for a type of lease-hold ownership for noncitizens. In addition, citizens of GCC countries have the right to purchase and trade land within designated investment areas, while other expatriates are permitted to invest in real estate properties for a 99-year leasehold basis. Due to the intense interest in and reported cash purchases of such properties, the potential for money laundering has become of increased concern to the UAE Government. As a result, developers have stopped accepting cash purchases for these properties. The UAE does not have a central database to show registered property owners within the UAE, which encumbers international money laundering investigations.
Since the September 11, 2001 terrorist attacks, the UAE Government (UAEG) has been more sensitive to regulating charitable organizations and accounting for funds transfers abroad. In 2002, the UAEG mandated that all licensed charities interested in transferring funds overseas must do so via one of three umbrella organizations: the Red Crescent Authority, the Zayed Charitable Foundation, or the Muhammad Bin Rashid Charitable Trust. These three quasi-governmental bodies are in a position to ensure that overseas financial transfers go to legitimate parties. As an additional step, the UAEG has contacted the governments in numerous aid receiving countries to compile a list of recognized acceptable recipients for UAE charitable assistance.
Charities are regulated by the UAE Ministry of Social Affairs, which is responsible for licensing and monitoring registered charities in these emirates. The Ministry also requires these charities to keep records of all donations and beneficiaries, and to submit financial reports annually. Charities in Dubai are licensed and monitored by the Dubai Department of Islamic Affairs and Charitable Activities. Some charities, however, particularly those located in the Northern Emirates, are only registered with their local emirate authority and not the federal Ministry. In July 2006, Regulation 24/2000 was amended, requiring charities from all emirates to obtain a certificate from the Minister of Social Affairs before being permitted to open or maintain bank accounts in the UAE. This amendment effectively required that all charities must be registered federally and no longer at just the emirate level. In November 2006, the UAE hosted a United Kingdom/Gulf Cooperation Council conference on charities, and made a proposal to hold biannual meetings going forward with the UK and GCC on charities oversight.
The UAE has both free trade zones (FTZs) and one financial free zone (FFZ). The number of FTZs is growing, with 37 operating in the UAE. Every emirate except Abu Dhabi has at least one functioning FTZ. The free trade zones are monitored by the local emirate rather than federal authorities.
There are over 5,000 multinational companies located in the FTZs, and thousands more individual trading companies. The FTZs permit 100 percent foreign ownership, no import duties, full repatriation of capital and profits, no taxation, and easily obtainable licenses. Companies located in the free trade zones are considered offshore or foreign entities for legal purposes. However, UAE law prohibits the establishments of shell companies and trusts, and does not permit nonresidents to open bank accounts in the UAE. The larger FTZs in Dubai (such as Jebel Ali free zone) are well-regulated. Although some trade-based money laundering undoubtedly occurs in the large FTZs, a higher potential for financial crime exists in some of the smaller FTZs located in the northern emirates.
In March 2004, the UAEG passed Federal Law No. 8, regarding the Financial Free Zones (FFZs) (Law No. 8/2004). Although the new law exempts FFZs and their activities from UAE civil, and commercial laws, FFZs and their operations are still subject to federal criminal laws including the Anti-Money Laundering Law (Law No. 4/2002) and the Anti-Terror Law (Law No. 1/2004). As a result of Law 8/2004 and a subsequent federal decree, the UAE’s first financial free zone (FFZ), known as the Dubai International Financial Center (DIFC), was established in September 2004. By September 2005, the DIFC had opened its securities market, the Dubai International Financial Exchange (DIFX).
Law No. 8/2004 limits the issuance of licenses for banking activities in the FFZs to branches of companies, joint companies, and wholly owned subsidiaries provided that they “enjoy a strong financial position and systems and controls, and are managed by persons with expertise and knowledge of such activity.” The law prohibits companies licensed in the FFZ from dealing in UAE currency (i.e., dirham), or taking “deposits from the state’s markets.” Further, the law stipulates that the licensing standards of companies “shall not be less than those applicable in the state.” The law empowers the Emirates Stocks and Commodities Authority to approve the listing of any company listed on any UAE stock market in the financial free zone, as well as the licensing of any UAE stock broker. Insurance activities conducted in the FFZ are limited by law to reinsurance contracts only. The law further gives competent authorities in the Federal Government the power to inspect financial free zones and submit their findings to the UAE cabinet.
In 2007 the Cabinet issued Resolution No. 28 that provided implementing regulations for financial free zones. The regulations specify that FFZs submit their semi-annual reports on activities and compliance to the UAE Cabinet. The regulations also spell out that inspections of FFZs will be carried out by cabinet resolution through a ministerial committee. These inspections will be carried out in cooperation with the FFZs. Results will be referred to the cabinet for action. The Regulation also instructs the FFZs to enter into Memorandums of Understanding (MOUs) with relevant authorities, such as the Central Bank, the Ministry of Economy, the Securities and Commodities Authority, and the Insurance Authority, for the purposes of better coordination, cooperation, and control.
DIFC regulations provide for an independent regulatory body, namely the Dubai Financial Services Authority (DFSA), to report its findings directly to the office of the Dubai ruler and an independent Commercial Court. According to DFSA regulators, the DFSA due diligence process is a risk-based assessment that examines a firm’s competence, financial soundness, and integrity. Prior to the inauguration of the DIFC in 2004, several observers called into question the independence of the DFSA as a result of the high profile firings of the chief regulator and the head of the regulatory council (i.e., the supervisory authority). Subsequent to the firings, Dubai passed laws that gave the DFSA more regulatory independence from the DIFC, although these laws have not yet been tested. The DFSA, who modeled its regulatory regime after the United Kingdom, is the sole authority responsible for issuing licenses to those firms providing financial services in the DIFC.
The DFSA supervises and regulates a total of 299 entities: 232 authorized firms, 49 ancillary services providers, 16 registered auditors and 2 markets. The DFSA prohibits offshore casinos or Internet gaming sites in the UAE, and requires firms to send suspicious transaction reports to the AMLSCU (along with a copy to the DFSA). To date, there have been 30 suspicious transaction reports issued from firms operating in the DIFC (seven in 2008). Although firms operating in the DIFC are subject to Law No. 4/2002, the DFSA has issued its own anti-money laundering regulations and supervisory regime, which has caused some ambiguity about the Central Bank’s and the AMLSCU’s respective authorities within the DIFC. Ongoing discussions continue between the DFSA and the UAE Central Bank to create a formal bilateral arrangement.
As a result, the DIFC acknowledged the need to enhance its regulatory and compliance authority. On July 18, 2007, it enacted regulations for nonfinancial Anti-Money Laundering Anti Terrorist Finance which applies Financial Action Task Force (FATF) compliant requirements in the DIFC jurisdiction to real estate agents, dealers in precious metals and stones, dealers in high value goods (cash payments of over the equivalent of $15,000), non-Authorized Service Providers, lawyers, accountants, auditors, and non-DFSA regulated Trust and Company Service Providers. These regulations do not apply to DFSA regulated firms. With regard to auditors and accountants, for example, this would apply to those that do not audit authorized firms. In January 2008, DFSA issued a notice to authorized firms, authorized market institutions, and ancillary service providers highlighting 2007 FATF guidance on financial prohibitions with respect to Iran.
The DFSA has undertaken a campaign to reach out to other international regulatory authorities to facilitate information sharing. As of November 2008, the DFSA has MOUs with 41 other regulatory bodies, including the UK’s Financial Services Authority (FSA), the Emirates Securities and Commodities Authority, and the U.S. Commodity Futures Trading Commission (CFTC). On October 23, 2007, the DFSA entered into a MOU with the five U.S. banking supervisors.
In September 2008, the IMF issued n a 250-page report on the UAE’s anti-laundering efforts. While the UAE was among the first Arab countries to enforce anti-laundering legislation, the report stated that the UAE’s laws need to be amended to block loopholes, cope with changes and match international standards. The IMF also recommended the UAE increase human and material resources, given the rapid expansion in the country’s free zones and an influx of foreign capital into these zones. Following publication of the report, the UAE Federal Customs Authority (FCA) acknowledged that more needs to be done to standardize customs laws and enforcement across UAE to curb money laundering and that the agency is working to comply with IMF recommendations.
The UAE is a party to the 1988 UN Drug Convention, the UN International Convention for the Suppression of the Financing of Terrorism, the UN Convention against Corruption, and the UN Convention against Transnational Organized Crime. The UAE is a member of the Middle East and North Africa Financial Action Task Force (MENAFATF).
The Government of the UAE has shown some progress in enhancing its AML/CTF program. Information sharing between the AMLSCU and foreign FIUs has substantially improved. However, several areas requiring further action by the UAEG remain. Law enforcement and customs officials need to proactively recognize money laundering activity and develop cases based on investigations, rather than wait for case referrals from the AMLSCU that are based on SARs. Additionally, law enforcement and customs officials should conduct more thorough inquiries into large and undeclared cash imports into the country, as well as require—and enforce—outbound declarations of cash and gold. All forms of trade-based money laundering must be given greater scrutiny by UAE customs and law enforcement officials, including customs fraud, the trade in gold and precious gems, commodities used as countervaluation in hawala transactions, and the misuse of trade to launder narcotics proceeds. The UAE should increase the resources it devotes to investigation of AML/CTF both federally at the AMLSCU and at emirate level law enforcement. Moreover, per observations in the 2008 MENAFATF mutual evaluation of the UAE, the absence of meaningful statistics across all sectors is a significant hindrance to the assessment of the effectiveness of the AML/CTF program. The Central Bank should move from the initial phase of hawaladar registration to compliance and enforcement coupled with investigations. The cooperation between the Central Bank and the DFSA needs improvement, and lines of authority need to be clarified. Cabinet Resolution No. 28 of 2007 should help in this regard. The UAE should conduct more follow-ups with financial institutions and the MSA regarding the recent tightening of regulations on charities to ensure their registration at the federal level. The UAE should also continue its regional efforts to promote sound charitable oversight, and engage in a public campaign to ensure all local charities are aware of registration requirements.
The United Kingdom (UK) plays a leading role in European and world finance and remains attractive to money launderers because of the size, sophistication, and reputation of its financial markets. Although narcotics are still a major source of illegal proceeds, the proceeds of other offenses, such as financial fraud and the smuggling of people and goods, have become increasingly important. The past few years have witnessed the movement of cash placement away from banks and mainstream financial institutions as these entities have tightened their controls and increased their vigilance. The use of bureaux de change, cash smugglers (into and out of the UK), and traditional gatekeepers (including solicitors and accountants) to move and launder criminal proceeds has been increasing since 2002.
Also on the rise are credit and debit card fraud and the purchasing of high-value assets to disguise illegally obtained money. In 2007, total card fraud losses increased by 25 percent to £535 million (approximately $936,250,000). However, over the past three years losses on mainstream card transactions have fallen by 67 percent, due largely to the use of the chip and PIN system. Counterfeit card fraud increased overall by 46 percent to £144.3 million (approximately $252,530,000) in 2007, primarily due to criminals copying British cards and using them in countries which do not yet have the chip and PIN system. The main area of credit card fraud to rise in 2007 was card-not-present (CNP) fraud, which increased by 37 percent in 2007, compared to 2006. However, the number of people and retailers offering online and telephone shopping have also hugely increased in the same period.
Criminal proceeds are mostly generated in the large metropolitan areas by drug-traffickers and other domestic criminals. Cities such as London, Liverpool and Birmingham have large drug markets and also serve as supply points for markets in smaller cities and towns, drawing in significant flows of illicit cash. Additionally, according to a Home Office estimate published by the Serious Organized Crime Agency (SOCA), the markets for illegal goods and services as well as criminal abuse of legitimate markets in the UK generate about £15 billion (approximately $26,250,000,000) in revenue per annum for organized crime. Businesses that are particularly attractive to criminals are those with high cash turnovers and those involved in overseas trading.
Illicit cash is consolidated in the UK, and then moved overseas. Traffickers make extensive use of money service businesses (MSBs), cash smuggling, and alternative remittance systems to remove cash from the UK. Because dealers in the UK generally collect cash, most traffickers are left with excess small currency, usually £10 notes. This has led to the creation of cash smuggling operations to move large sums of sterling out of the country. The SOCA analysis suggests that more sterling has exited the UK in recent years than entered due to the relative ease of converting sterling in other countries. Cash can be smuggled via courier, freight or post, and moved through the various points of exit from the UK. Heroin proceeds from the UK are often laundered through Dubai en route to traffickers in Pakistan and Turkey. Cocaine proceeds are frequently repatriated to South America via Jamaica and Panama.
Narcotics-related money laundering has been a criminal offense in the UK since 1986. The laundering of proceeds from other serious crimes is criminalized by subsequent legislation. The Proceeds of Crime Act 2002 (POCA) creates a new criminal offense, applicable to all regulated sectors, of failing to disclose suspicious transactions in respect to all crimes, not just “serious,” narcotics- or terrorism-related crimes, as had previously been the rule. The POCA also expands investigative powers relative to large movements of cash. Sections 327 to 340 of the Act address possession, acquisition, transfer, removal, use, conversion, concealment or disguise of criminal or terrorist property, inclusive of, but not limited to, money. The POCA also criminalizes tipping off. The “Money Laundering Regulations 2003,” along with amending orders for the POCA and the Terrorism Act, impose requirements on various entities, including attorneys, and introduce a client identification requirement and requirements for internal reporting procedures and training.
The Fraud Act 2006, which took effect on 15 January 2007, brings significant changes to offenses in the fraud and forgery offense group. Changes are also made to the way in which the police record fraud offenses. In October 2008, the National Fraud Strategic Authority was launched as an Executive Agency of the Attorney General’s Office to coordinate activity across the whole economy, both the private and public sectors, in order to offer further protection of the economy against fraud.
Banks and nonbank financial institutions in the UK must report suspicious transactions. In 2001, money laundering regulations were extended to MSBs, and in September 2006, the Government of the United Kingdom (GOUK) published a review of the regulation and performance of MSBs in preventing money laundering and terrorist financing. Since 2004, more business sectors are subject to formal suspicious activity reporting (SAR) requirements, including attorneys, solicitors, accountants, real estate agents, and dealers in high-value goods, such as cars and jewelry. Sectors of the betting and gaming industry that are not currently regulated are being encouraged to establish their own codes of practice, including a requirement to disclose suspicious transactions.
Following an extensive consultation period, Her Majesty’s Treasury published new Money Laundering Regulations which took effect December 15, 2007. The regulations introduce a comprehensive requirement to identify and provide an extensive definition of the beneficial owner; and introduce explicit requirements to apply enhanced due diligence, plus additional steps, when dealing with politically exposed persons. Correspondent banking relationships with shell banks are banned; and regulated firms, including designated nonfinancial businesses, are provided a legally sanctioned ‘safe harbor’ when they comply with HM Treasury approved guidance. The 2007 Regulations also give the UK Gambling Commission the power to supervise casinos, ensuring their compliance with the obligations placed on the physical and virtual casino sectors in the UK, including appropriate customer due diligence requirements.
European Union Council Regulation No. 1889/2005, known as the “Cash Controls Regulation,” became applicable in the UK on June 15, 2007. This regulation mandates a cash declaration system for every person entering or exiting the EU with cash of 10,000 euros (approximately $13,500) or its equivalent in other currencies. The UK employs a written declaration system.
The UK’s banking sector provides accounts to residents and nonresidents, who can open accounts through various intermediaries that often advertise on the Internet and also offer various offshore services. Individuals typically open nonresident accounts for tax advantages or for investment purposes. Private banking constitutes a significant portion of the British banking industry. Both resident and nonresident accounts are subject to the same reporting and record keeping requirements.
Bank supervision is the responsibility of the Financial Services Authority (FSA). The FSA’s primary responsibilities relate to the safety and soundness of the institutions under its jurisdiction, however, it also plays an important role in the fight against money laundering through its continued involvement in the authorization of banks and investigations of money laundering activities involving banks. The FSA regulates some 29,000 firms, including European Economic Area (EEA) firms “passporting” into the UK (firms doing business on a cross-border basis), ranging from global investment banks to very small businesses, and around 165,000 individuals. It also regulates mortgage and general insurance agencies, totaling over 30,000 institutions. The FSA administers a civil-fines regime and has prosecutorial powers. It also has the power to make regulatory rules with respect to money laundering and to enforce those rules with a range of disciplinary measures (including fines) if the institutions fail to comply. In October 2006, the financial services sector adopted National Occupational Standards of Competence in the fields of compliance and anti-money laundering.
The Serious Organized Crime and Police Act of 2005 (SOCAP) amends the money laundering provisions in the POCA. Under the SOCAP, foreign acts are no longer considered money laundering if they do not violate the law in the foreign jurisdiction. SOCAP also creates the SOCA, which houses the UK’s financial intelligence unit (FIU). In 2006, SOCA assumed all FIU functions from the National Criminal Intelligence Service (NCIS). SOCA has three functions: the prevention and detection of serious organized crime; the mitigation of the consequences of such crime; and the function of receiving, storing, analyzing and disseminating information, including SARs. Under the law, SOCA’s functions are not restricted to serious or organized crime but are applicable to all crimes, and those functions include assistance to other agencies in their enforcement responsibilities. The number of SARs received dipped from 220,484 SARs during the year ending September 30, 2007, to 210,524 during the most recent reporting period of October 2007—September 2008. During the current reporting period, 956 SARS were referred to the National Terrorist Finance Investigation Unit, as compared to 1,088 in the period ending September 2007.
The POCA enhances the efficiency of the forfeiture process and increases the recovered amount of illegally obtained assets by consolidating existing laws on forfeiture and money laundering into a single piece of legislation, and, perhaps most importantly, creating a civil asset forfeiture system for the proceeds of unlawful conduct. The Assets Recovery Agency (ARA), established to enhance financial investigators’ power to request client information from a bank, is a product of this legislation. The Act provides for confiscation orders and for restraint orders to prohibit dealing with property. It also allows for recovery of property obtained through or used for unlawful conduct. Furthermore, the Act shifts the burden of proof to the holder of the assets to prove the assets were acquired through lawful means. In the absence of such proof, assets may be forfeited, even without a criminal conviction. The Act gives standing to overseas requests and orders concerning property believed to be the proceeds of criminal conduct. The POCA also gives greater powers of seizure at a lower standard of proof. In light of this, Her Majesty’s Revenue and Customs increased its national priorities to include investigating the movement of cash through money exchange houses and identifying unlicensed money remitters. The Serious Crime Act 2007 merges the ARA’s operational arm with SOCA and ARA’s training function with the National Policing Improvement Authority. It also extends the powers of civil recovery to wider prosecution authorities and the powers of cash seizure to a wider range of law enforcement bodies. In its 2007/2008 annual report as of March 31, 2008, SOCA noted that 41 Financial Reporting Orders had been imposed, resulting in reports on convicted criminals’ finances being received and scrutinized; omissions detected and appropriate action taken. The total value of assets recovered by all agencies in England, Wales, and Northern Ireland reached over £185 million (approximately $296,000,000) over three years.
In an illustrative case, agencies looked into the activities of UK-based criminals who used the internet to trade stolen bank, credit card, and identity information using a website they had created. The agencies were able to identify the offenders and arrested, prosecuted, and convicted involved UK citizens. The potential loss to the UK financial sector from the actions of just one of the conspirators was estimated in excess of £6 million (approximately $9,600,000). Another investigation targeted an organized group of money launderers operating in the UK but controlled from Dubai and Pakistan. They used hawala to eventually move drug money between the UK, Pakistan and Dubai, among other countries. The UK end of the organization provided laundering services to UK drug dealers. Records seized showed that almost £15 million (approximately $26,250,000) in cash had been passed. In September 2007, the last of eight men was sentenced. The main defendant received ten years imprisonment; the eight defendants together received 39 years for money laundering.
The Terrorism (United Nations Measures) Order 2001 makes it an offense for any individual to provide financial or related services, directly or indirectly, to or for the benefit of a person who commits, attempts to commit, facilitates, or participates in the commission of acts of terrorism. The Order also makes it an offense for a covered entity to fail to disclose to Her Majesty’s Treasury a suspicion that a customer or entity is attempting to participate in acts of terrorism. The Anti-Terrorism, Crime, and Security Act 2001 provides for the freezing of assets.
The UK’s new terrorism legislation, the Counter-Terrorism Act 2008, entered into force on November 26, 2008. The new law grants the UK further authority to gather and share information for counterterrorism and other purposes, and to act against terrorist financing, money laundering, and certain other activities. The Act also amends the definition of “terrorism,” and amends previous legislation relating to terrorist offences, control orders and the forfeiture of terrorist cash. Under the new law, the UK has the authority to impose measures on private sector actors that do business with non-EEA countries (1) against which the Financial Action Task Force (FATF) has applied countermeasures; (2) that HM Treasury has determined pose a money laundering or terrorist financing risk; or (3) that have developed or facilitated weapons of mass destruction that pose a risk to the UK.
As a direct result of the events of September 11, 2001, NCIS established a separate National Terrorist Financing Investigative Unit (NTFIU), controlled by the Metropolitan Police Services (MPS, also known as “Scotland Yard”) to maximize the effect of reports from the regulated sector. The NTFIU chairs a law enforcement group to provide outreach to the financial industry concerning requirements and typologies. The operational unit that responds to the work and intelligence development of the NTFIU has seen a threefold increase in staffing levels directly due to the increase in the workload. The MPS has responded to the growing emphasis on terrorist financing by expanding the focus and strength of its specialist financial unit dedicated to this area of investigations.
In the UK, HM Treasury implements UN financial sanction regimes using its powers under the relevant Order in Council, and those sanctions are enforced by the Treasury’s Asset Freezing Unit. Individuals and organizations who have been listed by the UN Sanctions Committee or who are suspected of committing or facilitating terrorist acts, are listed on the sanctions page on its website. UK financial institutions are immediately alerted to changes to lists. UK banks and financial institutions are legally obliged to freeze the funds of all those individuals and organizations whose names appear on the lists.
Charitable organizations and foundations are subject to supervision by the UK Charities Commission. Such entities must be licensed and are subject to reporting and record keeping requirements. The Commission has investigative and administrative sanctioning authority, including the authority to remove management, appoint trustees and place organizations into receivership. The GOUK reviewed regulation of the charitable sector in January 2008; the review formed the basis of a new Charities Commission strategy, including practical and regulatory changes to strengthen the safeguards against terrorist abuse of the charitable sector.
The UK 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 UK is a member of the Financial Action Task Force, and SOCA is a member of the Egmont Group. The UK cooperates with foreign law enforcement agencies investigating narcotics-related financial crimes. The Mutual Legal Assistance Treaty (MLAT) between the UK and the United States has been in force since 1996, and the two countries signed a reciprocal asset sharing agreement in March 2003. The UK also has an MLAT with the Bahamas. Additionally, there is a memorandum of understanding in force between U.S. Immigration and Customs Enforcement and HM Revenue and Customs.
The United Kingdom has a comprehensive anti-money laundering/counterterrorist financing (AML/CTF) regime. Authorities should continue to track and examine the effects of the SOCAP change regarding acts and assets in or from foreign jurisdictions, and revisit this legislation to determine whether it has been effective, or whether it has enabled exploitation. The UK should continue its active participation in international fora and its efforts to provide assistance to jurisdictions with nascent or developing AML/CTF regimes.
Uruguay is a money laundering country of primary concern. While the level of domestic money laundering and related crimes is considered relatively low, Uruguay’s financial system nevertheless remains vulnerable to money laundering and terrorist financing risks associated with international sources that may be involved in Uruguay’s cross-border financial operations. Officials from the Uruguayan police and judiciary assess that there is a growing presence of Mexican and Colombian cartels in the Southern Cone and fear they will begin operating in earnest in Uruguay. Drug dealers are slowly starting to participate in other illicit activities like car theft and trafficking in persons, according to the police. The Government of Uruguay (GOU) acknowledges that there is also a risk of money laundering in the real estate sector and in the sports industry, and seeks to develop new regulations soon to address this emerging vulnerability.
In the past, Uruguay’s strict bank secrecy laws, liberal currency exchange and capital mobility regulations, and overall economic stability made it a regional financial center (mainly for Argentine depositors) vulnerable to money laundering, though the extent and the nature of suspicious financial transactions have been unclear. In recent years, however, Uruguay has made significant efforts to expand the reach and strength of its anti-money laundering and counterterrorist financing (AML/CTF) regime, including by enacting several laws to criminalize money laundering and terrorist financing. These recent developments have led to the prosecution of 25 individuals; new legislation and enforcement efforts also resulted in the freezing of $1.5 million in assets, the detection of $1.7 million in undeclared cross-border cash and other financial instrument movements, and increases in suspicious activities reports and information requests about international financial activities.
One government owned commercial bank (which has roughly half of total deposits and credits), 14 foreign-owned banks, six financial houses, six offshore banks, and 21 representative offices of foreign banks comprise Uruguay’s financial sector. The six offshore banks are subject to the same laws and regulations as local banks, with the GOU requiring them to be licensed through a formal process that includes a background investigation. Offshore trusts are not allowed. Bearer shares may not be used in banks and institutions under the authority of the Central Bank, and any share transactions must be authorized by the Central Bank. The financial private sector, most of which is foreign-owned, has developed self-regulatory measures against money laundering, such as the Codes of Conduct approved by the Association of Banks and the Chamber of Financial Entities (1997), the Association of Exchange Houses (2001), and the Securities Market (2002).
There are twelve free trade zones located throughout the country. While most are dedicated almost exclusively to warehousing, three host a wide variety of tenants performing a wide range of services, including financial services. Two free trade zones were created exclusively for the development of the paper and pulp industry. Some of the warehouse-style free trade zones have been used as transit points for containers of counterfeit goods bound for Brazil and Paraguay. There are nine casinos, eight of which are government owned, and 26 premises with slot machines (although media reports indicate a problem with businesses running unregistered slot machines). Four of the eight government-owned casinos are run by the state, and the other four by private sector concessions. Fiduciary companies called SAFIs (Anonymous Societies for Financial Investment) are also thought to be a convenient conduit for illegal money transactions. As of January 1, 2006, all SAFIs were required to provide the names of their directors to the Finance Ministry. In addition, the GOU implemented a comprehensive tax reform law in July 2007, which prohibited the establishment of new SAFIs as of that date. All existing SAFIs are to be eliminated by 2010. The tax reform law also implemented a personal income tax for the first time in Uruguay.
Uruguay achieved several notable actions against financial crime in 2008. Parliament passed laws 18.362 and 18.390 in October 2008, which created three courts and two prosecutor’s offices dedicated to prosecuting organized crime. These new offices will deal with money laundering, terrorism financing, banking fraud, tax fraud, counterfeiting, as well as drug trafficking, corruption, trafficking of weapons, child prostitution, among other crimes.
In the past several years, 25 individuals were prosecuted for money laundering; 22 were related to drugs and three to sexual exploitation. Uruguay’s first arrest and prosecution for money laundering (under Law 17.835) occurred in October 2005 and resulted in the conviction of the offender. In another ongoing high-profile case, 14 people were indicted in September 2006 for a money laundering charge tied to the largest cocaine seizure in Uruguay’s history; in June 2008, the kingpin was convicted. This case has significantly invigorated the GOU’s efforts to fight money laundering and to push for increased reporting of suspicious activities. Other cases involving another large cocaine seizure and proceeds from trafficking in 2007 and undeclared transit of gold from Brazil in 2008 are also under investigation. There have been no reported cases or investigations related to terrorist financing.
Unlike neighboring Argentina and Brazil, tax evasion is not an offense in Uruguay, which in practice limits cooperation possibilities because the local Financial Intelligence Unit’s Financial Information and Analysis Unit (UIAF) cannot share tax-related information with its counterparts. Nevertheless, the UIAF is becoming increasingly active in cooperation with counterpart financial units and judiciaries from other countries. From 2006 to 2008, the number of information requests received by the UIAF rose from 25 to 50 (mainly from Argentina and Brazil), and the number of information requests issued by the UIAF rose from five to 16. Information requests received by the UIAF from the judiciary also rose from 10 to 26 in the same period.
In Uruguay, money laundering is treated as an autonomous criminal offense, separate from the underlying crimes, which extends, under certain circumstances, to offenses committed in other countries. Money laundering is criminalized under Law 17.343 of 2001 and Law 17.835 of 2004. The courts have the power to seize and confiscate property, products or financial instruments linked to money laundering activities. Law 17.343 identifies money laundering predicate offenses to include narcotics trafficking; corruption; terrorism; smuggling (valued more than $20,000); illegal trafficking in weapons, explosives and ammunition; trafficking in human organs, tissues, and medications; trafficking in human beings; extortion; kidnapping; bribery; trafficking in nuclear and toxic substances; and illegal trafficking in animals or antiques.
Four government bodies are responsible for coordinating GOU efforts to combat money laundering: (1) the UIAF, (2) the National Anti-Drug Secretariat, (3) the Coordination Commission for Anti-Money Laundering and Terrorism Financing, and (4) the National Internal Audit. Decree 245/007 (passed July 2008), transformed the Center for Training on Money Laundering (CECPLA) into the Coordination Commission for Anti-Money Laundering and Terrorism Financing. The Commission works under the National Anti-Drug Secretariat, which is the senior authority for anti-money laundering policy and is headed by the President’s Deputy Chief of Staff. The Commission’s board is composed of government entities involved in anti-money laundering efforts: the head of the UIAF and the Ministries of Education (via prosecutors), of the Interior (via the police force), Defense (via the Naval Prefecture), and Economy and Finance. The Director of the Commission serves as coordinator for all government entities involved and sets general policy guidelines. The Director defines and implements GOU policies, in coordination with the Finance Ministry and the UIAF. The UIAF is responsible for supervising all financial institutions and the National Internal Audit Office (AIN) is responsible for overseeing all nonfinancial institutions, such as casinos and real estate firms.
The UIAF is a directorate of the Central Bank and is structured in three units: information and analysis, exchange houses, and money laundering control. GOU and private sector entities cannot refuse to provide information to the UIAF on the grounds of banking, professional or tax secrecies. Law 17.835 expands the realm of entities required to file Suspicious Activity Reports (SARs), making reporting of such suspicious financial activities a legal obligation, and conferring upon the UIAF the authority to request additional related information.
Law 18.401 (from October 2008) placed the UIAF under the Central Bank’s Superintendent of Financial Services, and tasked it with several new activities that enhance its power as a mechanism to stop money laundering. While severely understaffed in the past, the UIAF achieved its goal in 2008 of establishing a staff of 19 people. Through funding from the Organization of American States (OAS), the UIAF is updating its hardware and software systems in order to receive SARs electronically, develop electronic early-alarm systems for SARs, and improve control and analysis of its lists. The project is part of the Central Bank’s strategic plan and is expected to be finished this year.
The UIAF has circulated to financial institutions the list of individuals and entities included in UN 1267 Sanctions Committee and published it on its web page. It also works with lists from the Department of Treasury’s Office of Foreign Assets Control (OFAC) and the European Union and is exploring options to purchase commercial databases with global blacklists. The UIAF is also working on a Politically Exposed Persons (PEPs) list that will also be published on their website.
Law 17.835 significantly strengthens the GOU’s anti-money laundering regime by including specific provisions related to the financing of terrorism and to the freezing of assets linked to terrorist organizations, as well as provisions for undercover operations and controlled deliveries. Under this law, terrorist financing is a separate, autonomous offense that can be prosecuted from other terrorism-related crimes. The law, however, suffers from a narrow definition, which is limited to the financing of terrorists or terrorist organizations where specific terrorist acts have been committed or are being planned. As a result, the law does not specifically cover the provision or collection of funds by known terrorists or terrorist organizations for purposes other than terrorist acts. Beyond criminalizing terrorist financing, Law 17.835 provides the courts with the power to seize and confiscate property, products or financial instruments linked to money laundering activities. Despite this power, the way real estate is registered complicates efforts to track money laundering in this sector, especially in the partially foreign-owned tourist sector. The UIAF and other government agencies must obtain a judicial order to have access to the name of titleholders. The GOU is in the process of implementing a national computerized registry that will facilitate the UIAF’s access to titleholders’ names. As of November 2008, the project is at an advanced stage of implementation and its completion target date is December 2008. The UIAF is already using the loaded data for investigation purposes. In 2007, the UIAF froze assets for 72 hours in three occasions, for a total of $1.5 million.
Under Law 17.835, all obligated entities must implement anti-money laundering policies, such as thoroughly identifying customers, recording transactions more than $10,000 in internal databases, and reporting suspicious transactions to the UIAF. This obligation extends to all financial intermediaries, including banks, currency exchange houses, stockbrokers, insurance companies, casinos, art dealers, and real estate and fiduciary companies. Law 17.835 also extended reporting requirements to all persons entering or exiting Uruguay with more than $10,000 in cash or in monetary instruments. This measure has resulted in the detection of over $1.7 million in about 20 undeclared cross-border movements since the declaration requirement entered into force in December 2006. The GOU imposes a fine of 30 percent on all undeclared funds. Since all movements were detected at one single customs office, and given Uruguay’s porous borders, the GOU suspects that many more movements are passing undetected. Lawyers, accountants, and other nonbanking professionals that habitually carry out financial transactions or manage commercial companies on behalf of third parties are also required to identify customers whose transactions exceed $15,000 and report suspicious activities of any amount.
Implementing regulations have been issued by the Central Bank for all entities it supervises (banks, currency exchange houses, stockbrokers, and insurance companies), and are being issued by the Ministry of Economy and Finance for all other reporting entities. On November 26, 2007, the Central Bank issued Circular 1.978, which requires financial intermediary institutions, exchange houses, credit administration companies and correspondent financial institutions to implement detailed anti-money laundering and counterterrorist financing policies. This circular mandates financial intermediaries to report conversion of foreign exchange or precious metals over $10,000 into bank checks, deposits or other liquid instruments; conversion of foreign exchange or precious metals over $10,000 into cash; cash withdrawals over $10,000; and wire transfers over $ 1,000. As of November 2008, the Central Bank’s Capital Market Division is considering requesting reports of transactions with securities over $10,000. Circular 1.978 requires these institutions to pay special attention to business with PEPs; persons, companies, and financial institutions from countries that are not members of the Financial Action Task Force (FATF) or a FATF-style regional body; and persons, companies, and financial institutions from countries that are subject to FATF special measures for failure to comply with the FATF Recommendations.
Obligated entities are mandated to know their customers on a permanent basis, keep adequate records and report suspicious activities to the UIAF. Compliance by reporting entities increased from 94 SARs in all of 2006 to 174 SARs in 2007 and 152 in the first half of 2008. SARs are largely concentrated within the financial system, with banks accounting for 70 percent of total reports and exchange houses for the remaining 30 percent. Other obligated entities, like casinos or real estate agents, have issued few SARs. Sixteen cases from SARs have been filed before the Judiciary but none have been prosecuted. The recent high profile money laundering cases have provided a boost to the money laundering issue and the Central Bank’s efforts.
The GOU states that safeguarding the financial sector from money laundering is a priority, and Uruguay remains active in international anti-money laundering efforts. Uruguay 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. The GOU is also a member of the OAS Inter-American Drug Abuse Control Commission (CICAD) Experts Group to Control Money Laundering. Uruguay and the United States are parties to a mutual legal assistance treaty that entered into force in 1994. Uruguay is also a founding member of the Financial Action Task Force for South America (GAFISUD). Since early 2005, the former director of the GOU’s Center for Training on Money Laundering Issues (CECPLA) has served as GAFISUD Executive Secretary, and has offered the services of Uruguay’s anti-money laundering training center to GAFISUD.
Several notable developments that will strengthen Uruguay’s anti-money laundering regime are expected in 2009. As of November 2008, the GOU has been working on legislation that would incorporate new money laundering predicate offenses to include prostitution, child pornography, intellectual property, trademark offenses, misappropriation, fraudulent bankruptcy, and counterfeiting of notes. Such legislation is also expected to identify new obligated entities that will be subject to Uruguay’s anti-money laundering regime. New types of financial entities, including firms that provide services of leasing and custody of safety boxes, professional trust funds, professional advisors on investments, transportation of assets and wiring services, will be supervised by the UIAF. Various nonfinancial entities, including notaries, auctioneers, free zone exploiters, real estate brokers and other real estate intermediaries, will be supervised by the AIN.
The 2008 rendering of accounts (Law 18.362) granted the AIN additional funding of about $1 million for staffing needs, but the agency would need further leverage to achieve its new tasks. Pending legislation also provides for new investigation techniques (such as undercover and collaborator agents), new witness protection systems, and new measures to facilitate and speed up the seizure of assets. The UIAF plans to submit its application for Egmont Group membership, which is being sponsored by Brazil, in 2009. The GOU will await parliamentary approval of the impending legislation before applying, since that draft legislation incorporates the possibility of exchanging information to fight terrorism financing, which had been involuntarily left out of previous provisions.
The GOU has taken significant steps over the past few years to strengthen its anti-money laundering and counterterrorist financing regime. To continue its recent progress, Uruguay should expedite the passage of pending legislation and continue its implementation and enforcement of recently enacted legislation. The GOU’s UIAF should prioritize efforts to gain membership in the Egmont Group; such a step would enable it to share financial information with other FIUs globally. The GOU should exert greater vigilance in detecting undeclared and cross-border movements of cash and other monetary instruments, as well as enhanced regulating and monitoring of its real estate sector and sports industries.
Uzbekistan is not an important regional financial center and does not have a well-developed financial system. Corruption, narcotics trafficking and smuggling generate the majority of illicit proceeds. Local and regional drug-trafficking and other organized crime organizations control narcotics proceeds and proceeds from other criminal activities, such as smuggling of cash, high-value transferable assets (e.g., gold), property, or automobiles. Drug traffickers and other organized crime groups also control illicit proceeds in foreign bank accounts. Uzbekistan is home to a significant black market for smuggled goods. Since the GOU imposed a very restrictive trade and import regime in the summer of 2002, smuggling of consumer goods, already a considerable problem, increased dramatically. Recent laws and Presidential Decrees suspending Uzbekistan’s anti-money laundering regime have caused concern among the international community.
Many Uzbek citizens continue to make a living by illegally shuttle-trading goods from neighboring countries and regions, including China, Turkey, Iran, India, Korea, the Middle East, Europe, and the U.S. The black market for smuggled goods does not appear to be significantly funded by narcotics proceeds, but, as noted above, drug dealers use the robust black market to clean their drug-related money.
Legitimate business owners, ordinary citizens, and foreign residents generally attempt to avoid using the Uzbek banking system for transactions except when absolutely required, because of the onerous nature of the Government of Uzbekistan’s (GOU) financial control system, fear of GOU seizure of assets, and lack of trust in the banking system as a whole. The Central Bank of Uzbekistan (CBU), General Prosecutor’s Office (GPO), and the National Security Service (NSS) closely monitor all domestic banking transactions for tax and currency control purposes. As a result, Uzbek citizens have functioning bank accounts only if they are required to do so by law. They only deposit funds that they are legally required to deposit, and often resort to subterfuge to avoid depositing currency. In particular, banks are required to know, record, and report the identity of customers engaging in significant transactions, including the recording of large currency transactions above $40,000. All transactions involving sums greater than U.S. $1,000 in salary expenses for legal entities and U.S. $500 in salaries for individuals must be tracked and reported to the authorities. The CBU unofficially requires commercial banks to report on private transfers to foreign banks exceeding U.S. $10,000. The Central Bank of Uzbekistan (CBU) states that deposits from individuals have been increasing in recent years, but it is still seeking to increase consumer confidence in banks.
Reportedly, the unofficial, unmonitored cash-based market creates an opportunity for small-scale terrorist or drug-related laundering activity destined for internal operations. For the most part, the funds generated by smuggling and corruption are not directly laundered through the banking system, but through seemingly legitimate businesses, such as restaurants and high-end retail stores. There appears to be virtually no money laundering through formal financial institutions in Uzbekistan because of the extremely high degree of supervision and control over all bank accounts in the country exercised by the Central Bank, Ministry of Finance, General Prosecutor’s Office (GPO), the National Security Service (NSS), and state-owned and controlled banks. Although Uzbek financial institutions are not known to engage in illegal transactions in U.S. currency, illegal unofficial exchange houses, where the majority of cash-only money laundering takes place, deal in Uzbek soum and U.S. dollars. Moreover, drug dealers and others can transport their criminal proceeds in cash across Uzbekistan’s porous borders for deposit in the banking systems of other countries, such as Kazakhstan, Russia or the United Arab Emirates.
Money laundering from the proceeds from drug-trafficking and other criminal activities is a criminal offense. Article 41 of the Law on Narcotic Drugs and Psychotropic Substances (1999) stipulates that any institution may be closed for performing a financial transaction for the purpose of legalizing (laundering) proceeds derived from illicit narcotics trafficking. GOU officials noted that there have been no related cases thus far in Uzbekistan. The law protects reporting individuals with respect to their cooperation with law enforcement entities. The GOU has reportedly not adopted laws holding individual bankers responsible if their institutions launder money.
The Law on Banks and Bank Activity (1996), article 38, stipulates conditions under which banking information can be released to law enforcement, investigative and tax authorities, prosecutor’s office and courts. Different conditions for disclosure apply to different types of clients—individuals and institutions. In September 2003, Uzbekistan enacted a bank secrecy law that prevents the disclosure of client and ownership information for domestic and offshore financial services companies to bank supervisors and law enforcement authorities. In all cases, banks can disclose private information to prosecution and investigation authorities if a criminal investigation is underway. They can provide information to the courts on the basis of a written request in relation to cases currently under consideration. Tax authorities can also obtain protected banking information in cases involving the taxation of a bank’s client. GOU officials noted that the secrecy law does not apply if a group is on a list of designated terrorist organizations.
Penalties for money laundering are from ten to fifteen years imprisonment, under Article 243 of the Criminal Code. This article defines the act of money laundering to include as punishable acts the transfer; conversion; exchange; or concealment of origin, true nature, source, location, disposition, movement and rights with respect to the assets derived from criminal activity.
The Department of Investigation of Economic Crimes within the Ministry of Internal Affairs (MVD) conducts investigations of all types of economic offenses. A specialized structure within the NSS and the Department on Tax, Currency Crimes and Legalization of Criminal Proceeds is also authorized to conduct investigations of money laundering offenses. Unofficial information from numerous law enforcement officials indicates that there have been few, if any, prosecutions for money laundering under article 243 of the Criminal Code since its enactment in 2001. Officials from the Office of the State Prosecutor reported that there were 11 money laundering-related cases in 2006 and five in 2007. As of October 2008, officials stated that three of the sixteen cases are still pending. The status or disposition of the other cases is unknown. Overall, the GOU reportedly lacks a sufficient number of experienced and knowledgeable agents to investigate money laundering. Moreover, although the law has been in effect for more than five years, officials from the State Prosecutor’s Office reported that Article 243 does not work well because different judges and attorneys can interpret it in different ways.
In 2004, Uzbekistan enacted a basic AML/CTF regime that contained a range of AML/CTF provisions, including CDD, record keeping, reporting, and the establishment of an FIU. While the AML/CTF law went into effect on January 1, 2006, important parts of the law were repealed pursuant to several presidential decrees and an additional law. In particular, provisions relating to suspicious transaction reporting, CDD, information gathering, and the FIU were suspended until 1 January 2013. In addition, pursuant to a February 2008 decree that expires on 1 April 2009, banks are prohibited from inquiring into customers’ source of funds and providing customer information to any government authorities.
Specifically, the Presidential Decrees had the effect of rescinding the main legislative provisions as follows: Presidential Decree No. PP-565 of 12 January 2007 suspended the obligation of covered entities to report to the FIU information about threshold financial transactions (i.e., cash transactions above U.S. $40,000 (approximately), and suspicious transactions), and further subjects such reports to legislation on bank secrecy. Presidential Decree No. PP-586 of 20 February 2007 suspended all AML/CTF Presidential and Cabinet of Ministers Decrees until 1 January 2013. It rescinds the various authorities provided to the FIU including the authority to establish a financial intelligence system, monitor financial and property transactions, identify money laundering and terrorist financing mechanisms and channels, share information on identified crimes with law enforcement agencies for criminal prosecution, cooperate and exchange information with foreign agencies and international organizations on AML/CTF issues based on international obligations and agreements of Uzbekistan. Presidential Decree No. PP-586 also suspends the Cabinet of Ministers Regulations on the creation of the FIU database and the reporting procedure. Law RU-94 of 27 April 2007 suspends Articles 9 and 13-16 of the main AML/CTF Law which correspond to these FIU authorities and include all of the covered entities’ obligations regarding customer identification/due diligence, threshold transaction reports, suspicious transaction reports and internal control requirements. However, Article 21 on record keeping remains in place.
Separately and in addition, on 20 February 2008, the Government of Uzbekistan issued Decree No. YP-3968 that expires on 1 April 2009. This decree imposes blanket bank secrecy within the Uzbek financial system for natural persons—residents of Uzbekistan. It prohibits financial institutions from requesting background information from customers making deposits and transferring money from abroad into Uzbek banks; and further prohibits financial institutions from providing such information with respect to those customers to any governmental authorities. The express purpose of this decree—as stated in its preamble—is to reinforce people’s confidence in the banking system, reduce the volume of cash transactions that are not made through banks, and create “further incentives to attract people’s idle funds to deposits with commercial banks as a key source of investment resources for rapid development of the country’s economy.”
Together, the above actions had a marked effect: banks reported 17,000 suspicious transactions in a six-month period before the law was suspended, compared with 400 in the six months following the law’s suspension.
These executive and legislative actions led the FATF ICRG to review the AML/CTF situation in Uzbekistan. The FATF Plenary has issued two public statement (February 2008 and October 2008), expressing FATF’s concerns about Uzbekistan’s AML/CTF vulnerabilities; calling upon Uzbekistan to restore its AML/CTF regime and establish an AML/CTF regime that meets international standards; and calling on its members and urging all jurisdictions to advise their financial institutions to take the risk arising from the deficiencies in Uzbekistan’s AML/CTF regime into account for enhanced due diligence. A joint FATF-EAG High-Level/Technical Mission to Uzbekistan took place on November 24-25, 2008, which gathered information on Uzbekistan’s AML/CTF deficiencies, measures currently in place, and steps taken to address FATF’s concerns. During the course of this mission, the GOU acknowledged that it is currently relying on a tax regulatory system to partially compensate for their repealed AML/CTF provisions, but that these measures are inadequate and that an actual AML/CTF regime needs to be restored. The Uzbek authorities further acknowledged that FATF’s concerns were reasonable and committed to instituting an AML/CTF regime that meets international standards by enacting necessary legislation within 6 months that will address FATF’s concerns.
Existing controls on transportation of currency across borders would, in theory, facilitate detection of the international transportation of illegal source currency. When entering or exiting the country, foreigners and Uzbek citizens are required to report all currency they are carrying. Residents and nonresidents may bring the equivalent of U.S. $10,000 into the country tax-free, and authorities assess a one-percent duty on amounts in excess of this limit. Customs officers at Tashkent Airport vigorously enforce this limit and target foreign nationals for careful searches as they depart the country. Those caught in possession of more currency than they declared upon entering Uzbekistan are assessed severe fines and may face criminal charges. Residents may export up to the equivalent of U.S. $2,000. Residents wishing to take out higher amounts must obtain authorization to do so; amounts over U.S. $2,000 must be approved by an authorized commercial bank, and amounts over U.S. $5,000 must be approved by the CBU. International cash transfers to or from an individual person are limited to U.S. $5,000 per transaction; there is no monetary limit on international cash transfers made by legal entities, such as a corporation. However, Uzbekistan does not permit direct wire transfers to or from other Central Asian countries; a third country must be used.
Uzbekistan permits offices of international business companies, which are subject to the same regulations as domestic businesses, but prohibits offshore banks. Other forms of exempt or shell companies are not officially present.
Article 155 of Uzbekistan’s Criminal Code and the law “On Fighting Terrorism” criminalize terrorist financing. The latter law names the NSS, the MVD, the Committee on the Protection of State Borders, the State Customs Committee, the Ministry of Defense, and the Ministry for Emergency Situations as responsible for implementing the counterterrorist legislation, and designates the NSS as the coordinator for government agencies fighting terrorism. The GOU has the authority to identify, freeze, and seize terrorist assets. Uzbekistan has circulated to its financial institutions the names of suspected terrorists and terrorist organizations listed on the UN 1267 Sanctions Committee’s consolidated list. In addition, the GOU has circulated the list of Specially Designated Global Terrorists designated by the United States pursuant to E.O. 13224 to the CBU, which has, in turn, forwarded these lists to banks operating in Uzbekistan. According to the CBU and the Office of the State Prosecutor, no assets have been frozen.
Other than a plan to step up enforcement of currency regulations, the GOU has taken no steps to regulate alternative remittance systems such as hawala, or deter black market exchanges, trade-based money laundering, or the misuse of gold, precious metals and gems. GOU officials noted that most overseas migrants work in more advanced countries, such as Russia or Korea, where financial institutions track remittances. Although officially there is complete currency convertibility, in reality, authorities can significantly delay or outright refuse the conversion, and do so during such times as the annual autumn cotton harvest, when cash supplies are needed internally to support the extensive mobilization of people and machinery to collect the crop. Foreign companies complain that they must wait over six months to convert the profits from local sales into foreign currencies in order to transfer the money out of Uzbekistan.
The GOU closely monitors the activities of charitable and nonprofit entities, such as NGOs, that terrorism financiers could exploit. In February 2004, the Cabinet of Ministers issued Decree 56 to allow the government to vet grants to local NGOs from foreign sources, ostensibly to fight money laundering and terrorist financing. Given the high level of supervision of charities and other nonprofits, and the perceived threat from the Islamic Movement of Uzbekistan (IMU) and other extremist organizations, it is unlikely that the NSS would knowingly allow any funds to be funneled to terrorists through Uzbekistan-based charitable organizations or NGOs.
Uzbekistan has established systems for identifying, tracing, freezing, seizing, and forfeiting proceeds of both narcotics-related and money laundering-related crimes. Current laws include the ability to seize items used in the commission of crimes, such as conveyances used to transport narcotics, farm facilities (except land) where illicit crops are grown or which are used to support terrorist activity, legitimate businesses if related to criminal proceeds and bank accounts. The banking community, which is entirely state-controlled and with few exceptions, state-owned, cooperates with efforts to trace funds and seize bank accounts. Uzbek law does not allow for civil asset forfeiture, but the Criminal Procedure Code provides for “civil” proceedings within a criminal case to decide forfeiture issues. As a practical matter, authorities conduct these proceedings as part of the criminal case. The obstacles to enacting such laws are largely rooted in the widespread corruption that exists within the country.
In 2000, Uzbekistan established a special fund to direct confiscated assets to law enforcement activities. In 2004, the Cabinet of Ministers closed the Special Fund. Under the new procedure, each agency manages the assets it seizes. There is also a specialized fund within the MVD to reward those officers who directly participate in or contribute to law enforcement efforts leading to the confiscation of property. This fund has generated 20 percent of its assets from the sale of property confiscated from persons who have committed offenses, such as the organization of criminal associations, bribery and racketeering. The GOU is believed to enforce existing drug-related asset seizure and forfeiture laws enthusiastically, although there is no information regarding the total dollar value of crime related assets. Reportedly, existing legislation does not permit sharing of seized narcotics assets with other governments.
The GOU realizes the importance of international cooperation in the fight against drugs and transnational organized crime and has made some efforts to integrate the country into the system of international cooperation. Uzbekistan has entered into bilateral agreements for cooperation or exchange of information on drug related issues with the United States, Germany, Italy, Latvia, Bulgaria, Poland, China, Iran, Pakistan, the Commonwealth of Independent States (CIS), and all the countries in Central Asia. It has multilateral agreements under the framework of the CIS and the Shanghai Cooperation Organization, and under memoranda of understanding.
Uzbekistan signed an “Agreement on Narcotics Control and Law Enforcement Assistance” with the United States on August 14, 2001, with two supplemental agreements that came into force in 2004. Uzbekistan does not have a Mutual Legal Assistance Treaty with the United States. However, Uzbekistan and the United States have reached informal agreement on mechanisms for exchanging adequate records in connection with investigations and proceedings relating to narcotics, terrorism, terrorist financing and other serious crimes. In the past, Uzbekistan has cooperated with appropriate law enforcement agencies of the USG and other governments investigating financial crimes and several important terrorist-related cases. Cooperation in these areas became increasingly problematic in an atmosphere of strained U.S.-Uzbekistan bilateral relations, but there was gradual improvement in 2008.
Uzbekistan has been a member of the Eurasian Group on Combating Money Laundering and the Financing of Terrorism (EAG), a FATF-style regional body, since 2005.
The GOU is an active party to the relevant agreements concluded under the CIS, the Central Asian Economic Community (CAEC), the Economic Cooperation Organization (ECO), and the Shanghai Cooperation Organization. Uzbekistan 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.
A lack of trained personnel, resources, and modern equipment continues to hinder Uzbekistan’s efforts to fight money laundering and terrorist financing. Moreover, the decrees suspending the main provisions of the money laundering law until 2013 and the February 2008 Presidential decree providing an amnesty on deposits were major AML/CTF setbacks. The GOU should immediately rescind these decrees while continuing to refine its legislation to bring it into conformity with international standards. Additional revisions should expand the cross-border currency reporting rules to cover the transfer of monetary instruments, precious metals and stones. Regulatory and law enforcement agencies should have access to financial institution records, so that they can properly conduct compliance examinations and investigations. While the 2006 establishment of an FIU was a positive step, the repeal of the AML/CTF provisions makes it impossible for the Uzbek FIU to function effectively. Assuming restoration of Uzbekistan’s AML/CTF regime, much will depend on the FIU’s ability to become fully operational and to cooperate effectively with other GOU law enforcement and regulatory agencies in receiving and disseminating information on suspicious transactions.
Vanuatu’s offshore sector is vulnerable to money laundering, as Vanuatu has historically maintained strict bank secrecy provisions that have the effect of preventing law enforcement agencies from identifying the beneficial owners of offshore entities registered in the sector. Due to allegations of money laundering, and in response to pressure from the Financial Action Task Force (FATF), a few United States-based banks announced in December 1999 that they would no longer process U.S. dollar transactions to or from Vanuatu. The Government of Vanuatu (GOV) responded to these concerns by introducing reforms designed to strengthen domestic and offshore financial regulation. The GOV passed amendments to four of its main pieces of legislation relative to money laundering and terrorist financing during its last session of Parliament in November 2005. The four pieces of legislation affected are the Mutual Assistance in Criminal Matters Act No. 31 of 2005, the Financial Transaction Reporting Act No. 28 of 2005, the Counter-Terrorism and Transnational Organized Crime Act No. 29 of 2005, and the Proceeds of Crime Act (Amendment) Act No. 30 of 2005. The International Companies Act was amended in 2006. Taken with Ministerial Order No. 15 (April 2007), this amendment immobilized Bearer Shares and required the identification of Bearer Share custodians.
Vanuatu’s financial sector includes five domestic licensed banks (that carry out domestic and offshore business); one credit union; eight international banks; seventy insurance companies (both life and general); and eight foreign exchange instrument dealers, money remittance dealers and bureaux de change, all of which are regulated by the Reserve Bank of Vanuatu. Since the passage of the International Banking Act of 2002, the Reserve Bank of Vanuatu (RBV) regulates the offshore banking sector that includes the eight international banks and approximately 3,603 international business companies (IBCs), as well as offshore trusts and captive insurance companies. These institutions were once regulated by the Financial Services Commission. IBCs are now registered with the Vanuatu Financial Services Commission (VFSC). This change was one of many recommendations of the 2002 International Monetary Fund Module II Assessment Report (IMFR) that found Vanuatu’s onshore and offshore sectors to be “noncompliant” with many international standards.�n
Regulatory agencies in Vanuatu have instituted stricter procedures for issuance of offshore banking licenses under the International Banking Act No. 4 of 2002, and continue to review the status of previously issued licenses. All financial institutions, both domestic and offshore, are required to report suspicious transactions and to maintain records of all transactions for six years, including the identities of the parties involved.
The Financial Transaction Reporting Act (FTRA) of 2000 established the Vanuatu Financial Intelligence Unit (VFIU) within the State Law Office. Under the Financial Transactions Reporting (Amendment) Act No. 28 of 2005 (FTRAA), the VFIU has a role in ensuring compliance by financial services sector with financial reporting obligations. The VFIU receives suspicious transaction reports (STRs) filed by banks and distributes them to the Public Prosecutor’s Office, the Reserve Bank of Vanuatu, the Vanuatu Police Force, the Vanuatu Financial Services Commission, and law enforcement agencies or supervisory bodies outside Vanuatu. The VFIU also issues guidelines to, and provides training programs for, financial institutions regarding record keeping for transactions and reporting obligations. The Act also regulates how such information can be shared with law enforcement agencies investigating financial crimes. Financial institutions within Vanuatu must establish and maintain internal procedures to combat financial crime. Every financial institution is required to keep records of all transactions. Five key pieces of information are required to be kept for every financial transaction: the nature of the transaction, the amount of the transaction, the currency in which it was denominated, the date the transaction was conducted, and the parties to the transaction. As of July 2007, the FIU had received a total of 33 suspicious transaction reports. Vanuatu has no AML/CTF prosecutions and conviction, to date.
Although the amendments have been withdrawn from Parliament twice, the FTRA amendments were finally passed in November 2005 and enacted in late February 2006. The amendments include mandatory customer identification requirements; broaden the range of covered institutions required to file STRs to include auditors, trust companies, and company service providers; and provide safe harbor for both individuals and institutions required to file STRs. In addition to STR filings, financial institutions will now be required to file currency transaction reports (CTRs) that involve any single transaction in excess of Vanuatu currency Vatu (VT) 1,000,000, or its equivalent in a foreign currency, and wire transfers into and out of Vanuatu in excess of VT 1,000,000 ($9,100). The amendments also require financial institutions to maintain internal procedures to implement reporting requirements, appoint compliance officers, establish an audit function to test their anti-money laundering and counterterrorist financing procedures and systems, as well as provide the VFIU a copy of their internal procedures. Failure to do so will result in a fine or imprisonment for an individual, or a fine in the case of a corporate entity. The amendments supersede any inconsistent banking or other secrecy provisions and clarify the VFIU’s investigative powers.
The amended FTRA defines financial institutions to include casinos licensed under the Casino Control Act No.6 of 1993, lawyers, notaries, accountants and trust and company service providers. The scope of the legislation is so broad that entities such as car dealers and various financial services that currently do not exist in Vanuatu (and are unlikely to in the future) are covered. Applications by foreigners to open casinos are subject to clearance by the Vanuatu Investment Promotion Authority (VIPA) which reviews applications and conducts a form of due diligence on the applicant before issuing a certification to the Department of Customs and Inland Revenue to issue an appropriate license. The Department of Customs and Inland Revenue receives applications from local applicants directly. In June 2008, the FIU began to conduct on-site reviews of money exchanges, law firms, accounting firms, real estates companies and casinos. The onsite examination is a part of the VFIU’s awareness campaign to familiarize these industries to their obligations, set forth under the FTRAA.
The Vanuatu Police Department and the VFIU are the primary agencies responsible for ensuring money laundering and terrorist financing offences are properly investigated in Vanuatu. The Public Prosecutions Office (PPO) is responsible for the prosecution of money laundering and terrorist financing offences. The Vanuatu Police Department has established a Transnational Crime Unit (TCU), and is responsible for investigations involving money laundering and terrorist financing offences, the identification and seizure of criminal proceeds, as well as conducting investigations in cooperation with foreign jurisdictions.
Supervision of the financial services sector is divided between three main agencies: the Reserve Bank of Vanuatu (RBV), the Vanuatu Financial Services Commission (VFSC) and the Customs and Revenue Branch of the Ministry of Finance. The RBV is responsible for supervising and regulating domestic and offshore banks. The VFSC supervises insurance providers, credit unions, charities and trust and company service providers, but is unable to issue comprehensive guidelines or to regulate the financial sectors for which it has responsibility.
The Serious Offenses (Confiscation of Proceeds) Act 1989 criminalized the laundering of proceeds from all serious crimes and provided for seizure of criminal assets and confiscation after a conviction. The Proceeds of Crime Act (2002) retained the criminalization of the laundering of proceeds from all serious crimes, criminalized the financing of terrorism, and included full asset forfeiture, restraining, monitoring, and production powers regarding assets. The Proceeds of Crime Act No. 30 of 2005 through its new Section 74A effective in November 2005 required all incoming and outgoing passengers to and from Vanuatu to declare to the Department of Customs cash exceeding one million VT in possession ($9,100).
Vanuatu passed the Mutual Assistance in Criminal Matters Act in December 2002 for the purpose of facilitating the provision of international assistance in criminal matters for the taking of evidence, search and seizure proceedings, forfeiture or confiscation of property, and restraints on dealings in property that may be subject to forfeiture or seizure. The Attorney General possesses the authority to grant requests for assistance, and may require government agencies to assist in the collection of information pursuant to the request. The Extradition Act of 2002 includes money laundering within the scope of extraditable offenses.
The amended International Banking Act has now placed Vanuatu’s international and offshore banks under the supervision of the Reserve Bank of Vanuatu. Section 5(5) of the Act states that if existing licensees wish to carry on international banking business after December 31, 2003, the licensee should have submitted an application to the Reserve Bank of Vanuatu under Section 6 of the Act for a license to carry on international banking business. If an unregistered licensee continued to conduct international banking business after December 31, 2003, in violation of Section 4 of the Act, the licensee is subject to a fine or imprisonment. Under Section 19 of the Act, the Reserve Bank can conduct investigations where it suspects that an unlicensed person or entity is carrying on international banking business. Since this time, three international banking businesses have had their licenses revoked.
One of the most significant requirements of the amended legislation is the banning of shell banks. As of January 1, 2004, all offshore banks registered in Vanuatu must have a physical presence in Vanuatu, and management, directors, and employees must be in residence. At the September 2003 plenary session of the Asia/Pacific Group on Money Laundering (APG), Vanuatu noted its intention to draft new legislation regarding trust companies and company service providers. The VFSC has prepared the Trust and Company Services Providers Bill and the GOV will present the bill before Parliament during the first half of 2008. The new legislation will cover disclosure of information with other regulatory authorities, capital and solvency requirements, and “fit and proper” requirements. In 2005, Vanuatu enacted Insurance Act No. 54, drafted in compliance with standards set by the International Association of Insurance Supervisors. Insurance Regulation Order No.16 of 2006 was issued on May 2006, and regulates the insurance industry, to include intermediary and agents roles.
International Business Companies (IBC) traditionally could be registered using bearer shares, shielding the identity and assets of beneficial owners of these entities. Secrecy provisions protected all information regarding IBCs and provided penal sanctions for unauthorized disclosure of information. These secrecy provisions, along with the ease and low cost of incorporation, made IBCs ideal mechanisms for money laundering and other financial crimes. Section 125 of the International Companies Act No. 31 of 1992 (ICA), provided a strict secrecy provision for information disclosure related to shareholders, beneficial ownership, and the management and affairs of IBCs registered in Vanuatu. This provision, in the past, has been used by the industry to decline requests made by the VFIU for information. However, section 17(3) of the new amended FTRA clearly states that the new secrecy-overriding provision in the FTRA overrides section 125 of the ICA. Moreover, the International Companies (Amendment) Act No. 45 of 2006 (ICA) revised the regime governing IBC operations. Ministerial Order No. 15 of 2007 created a Guideline of Custody of Bearer Shares, which immobilized Bearer Shares and requires the identification of Bearer Share custodians.
In November 2005, Vanuatu passed the Counter-Terrorism and Transnational Organized Crime Act (CTTOCA) No. 29 of 2005. The CTTOCA was brought into force on 24 February 2006. The aim of the Act is to implement UN Security Council Resolutions and Conventions dealing with terrorism and transnational organized crime, to prevent terrorists from operating in Vanuatu or receiving assistance through financial resources available to support the activities of terrorist organizations, and to criminalize human trafficking and smuggling. Terrorist financing is criminalized under section 6 of the CTTOCA. Section 7 of the CTTOCA makes it an offence to “directly or indirectly, knowingly make available property or financial or other related services to, or for the benefit of, a terrorist group.” The penalty upon conviction is a term of imprisonment of not more than 25 years or a fine of not more than VT 125 million (U.S. $1,000,000), or both. Section 8 criminalizes dealing with terrorist property. The penalty upon conviction is a term of imprisonment of not more than 20 years or a fine of not more than VT 100 million (U.S. $876,500), or both. There were no terrorist financing or terrorism-related prosecutions or investigations in 2006.
In March 2006, the APG conducted a mutual evaluation of Vanuatu, the results of which were reported at the APG plenary meeting in November 2006. The APG evaluation team found that Vanuatu had improved its anti-money laundering and counterterrorist financing regime since its first evaluation in 2000 by criminalizing terrorist financing, requiring a wider range of entities to report to the VFIU and enhancing supervisory oversight of obligated entities. However, some deficiencies remain: the GOV has not taken a risk-based approach to combating money laundering and terrorist financing; a person who commits a predicate offense for money laundering cannot also be charged with money laundering; and current law does not require the names and addresses of directors and shareholders to be provided upon registration of an IBC. It is further recommended that the GOV issue regulations under the FTRAA, particularly those relating to customer due diligence. The GOV was advised to issue guidelines to financial institutions and DNFBPs, with regard to customer identification, record keeping, reporting obligations, identification of suspicious transactions and money laundering and financing of terrorism typologies.
The GOV has created the Vanuatu Financial Sector Assessment Group (VFSAG). The VFSAG is comprised of the Director-General of the Prime Minister’s Office, the Director-General of Finance, the Attorney-General, the Governor and Deputy Governor of the RBV, the Commissioner of the Vanuatu Financial Services Commission (VFSC), Department of Finance and a member of the VFIU. The VFSAG have discussed the possibility of creating an additional working group that will be responsible for the implementation of recommendations and policies relating to Vanuatu’s AML/CTF regime. The proposed group will be comprised of law enforcement officials, legal entities, and the VFIU.
In addition to its membership the Asia Pacific Group on Money Laundering, Vanuatu is a member of the Offshore Group of Banking Supervisors, the Commonwealth Secretariat, and the Pacific Island Forum. Its Financial Intelligence Unit became a member of the Egmont Group in June 2002. Vanuatu is a party to the UN Convention for the Suppression of the Financing of Terrorism, the UN Convention against Transnational Organized Crime and the 1988 UN Drug Convention. Vanuatu is not a party to the UN Convention against Corruption. The VFIU has a memorandum of understanding with Australia.
The Government of Vanuatu should implement all the provisions of its Proceeds of Crime Act and enact all additional legislation that is necessary to bring both its onshore and offshore financial sectors into compliance with international standards. The GOV should also establish a viable asset forfeiture regime and circulate the updated UNSCR 1267 Sanctions Committee updated list of designated terrorist entities. With the passage of the amendments to the FTRAA, the GOV should continue to initiate outreach to all reporting institutions regarding new CDD obligations, as well as establish legislative requirements for financial institutions to have policies and procedures to address risks arising from new or developing technologies and non-face-to-face businesses in particular internet accounts. Vanuatu should become a party to the UN Convention against Corruption.
Venezuela is not a regional financial center, nor does it have an offshore financial sector. The relatively small but modern banking sector, which consists of 60 banks, primarily serves the domestic market. However, Venezuela is a country of primary money laundering concern and one of the principal drug-transit countries in the Western Hemisphere. Venezuela’s proximity to drug producing countries, weaknesses in its anti-money laundering regime, refusal to cooperate with the United States in mutual legal assistance matters, including on counternarcotics activities, and rampant corruption throughout the law enforcement, judicial, banking, and banking regulatory sectors continue to make Venezuela vulnerable to money laundering. The main sources of money laundering are from proceeds generated by cocaine and heroin trafficking organizations, the embezzlement of funds from the petroleum industry and illegal currency exchange on the black market. Trade-based money laundering, such as the Black Market Peso Exchange, through which money launderers furnish narcotics-generated dollars in the United States to commercial smugglers, travel agents, investors, and others in exchange for Colombian pesos, remains a prominent method for laundering narcotics proceeds. There has been an increase in money laundering due to a lack of access to foreign currency exchange and diminished investment opportunities. Transparency International’s Corruption Perception Index for 2008 ranks Venezuela at 158 of 180 countries on the index.
Venezuelan law provides for the establishment of free trade ports and zones in any part of the country, as designated by the Executive. Currently, Venezuela has four free trade zones: Paraguana Peninsula, Margarita Island, Merida and Santa Elena de Uairen. Merida’s free trade privileges extend solely to cultural items or scientific or technological development. The Law on Free Trade Zones designates that the customs authority of each jurisdiction is responsible for its respective free trade zone. The Ministry of Economy and Finance is responsible for the oversight of the customs authority with regard to free trade zones. It is reported that many black market traders ship their wares through Margarita Island’s free trade zone. Reportedly, some money is also laundered through the real estate market in Margarita Island. However, statistics regarding activities in the free trade zones were not available as of the time of this report.
The 2005 Organic Law against Organized Crime criminalized money laundering as an autonomous offense, punishable by a sentence of eight to 12 years in prison and a fine equivalent to the increased value obtained by the crime. Those who cannot establish the legitimacy of possessed or transferred funds, or are aware of the illegitimate origins of those funds, can be charged with money laundering, without any connection to drug trafficking. In addition to establishing money laundering as an autonomous offense, the Organic Law against Organized Crime broadens asset forfeiture and sharing provisions, adds conspiracy as a criminal offense, strengthens due diligence requirements, and provides law enforcement with stronger investigative powers by authorizing the use of modern investigative techniques, such as the use of undercover agents. The Organic Law against Organized Crime addresses bank secrecy, requiring supervised entities to report suspicious activities. Supervised entities may not invoke bank secrecy to avoid reporting. Contravention of the law based upon the notion of bank secrecy is punishable by a fine of $84,000 to $126,000. The Organic Law against Organized Crime coupled with the Law against the Trafficking and Consumption of Narcotics and Psychotropic Substances, effectively brings Venezuela’s Penal Code in line with the 1988 UN Drug Convention.
Under the Organic Law Against Organized Crime, terrorist financing is a crime against public order in Venezuela and is criminalized to the extent that if an individual finances, belongs to, acts or collaborates with armed bands or criminal groups with the purpose to wreak havoc, catastrophes, fires, explosions of mines, bombs or other explosive devices or to subvert the constitutional order and democratic institutions or gravely alter the public peace. Punishment for these activities is a prison term of ten to 15 years. Terrorist financing, however, is not adequately criminalized in accordance with the Financial Action Task Force (FATF) Nine Special Recommendations on Terrorist Financing. The law does not establish terrorist financing as a separate crime, nor does it provide adequate mechanisms for freezing assets.
In spite of the advances made with the passage of the Organic Law against Organized Crime in 2005, there is little evidence that the Government of Venezuela (GOV) has the political will to effectively enforce the legislation it has promulgated. To date, not a single case has been tried under the law. Reportedly, many, if not most, judicial and law enforcement officials remain ignorant of the Law against Organized Crime and its specific provisions, and the GOV’s financial intelligence unit (FIU) does not have the necessary autonomy to operate effectively. Widespread corruption within the judicial and law enforcement sectors also undermines the effectiveness of the law as a tool to combat the growing problem of money laundering.
The Superintendent of Banks and Other Financial Institutions (SBOIF) is the entity that supervises and examines supervised financial institutions for compliance with anti-money laundering laws and regulations. The SBOIF conducts audits of supervised financial institutions, including a review of anti-money laundering compliance procedures, on a yearly cycle with the possibility of off-cycle audits on an as-needed basis.
Under the Organic Law against Organized Crime and Resolution 185.01 of the SBOIF anti-money laundering controls have been implemented, requiring strict customer identification requirements and the reporting of both currency transactions over a designated threshold and suspicious transactions. These controls apply to all banks (commercial, investment, mortgage, and private), insurance and reinsurance companies, savings and loan institutions, financial rental agencies, currency exchange houses, money remitters, money market funds, capitalization companies, frontier foreign currency dealers, casinos, real estate agents, construction companies, car dealerships, hotels and the tourism industry, travel agents, and dealers in precious metals and stones. These entities, with the exception of the insurance industry and designated nonfinancial businesses and professions, are required to file suspicious and cash transaction reports with Venezuela’s FIU, the Unidad Nacional de Inteligencia Financiera (UNIF). Financial institutions are required to maintain records for a period of five years.
The UNIF was created under the SBOIF in July 1997 and began operating in June 1998. The UNIF is not an autonomous entity. The UNIF has a staff of approximately 30 and has undergone multiple bureaucratic changes, with six different directors presiding over the UNIF since 2004. The UNIF receives reports on currency transactions (CTRs) exceeding approximately $10,000 and suspicious transaction reports (STRs) from institutions regulated by the SBOIF: the National Securities and Exchange Commission, the Central Bank of Venezuela and the Bank Deposits and Protection Guarantee Fund. The Venezuelan Association of Currency Exchange Houses (AVCC), which counts all but one of the country’s money exchange companies among its membership, voluntarily complies with the same reporting standards as those required of banks. Some institutions regulated by the SBOIF, such as tax collection entities and public service payroll agencies, are exempt from the reporting requirement. The SBOIF also allows certain customers of financial institutions—those who demonstrate “habitual behavior” in the types and amounts of transactions they conduct—to be excluded from currency transaction reports filed with the UNIF. SBOIF Circular 3759 of 2003 requires financial institutions that fall under the supervision of the SBOIF to report suspicious activities related to terrorist financing.
In addition to STRs and CTRs, the UNIF also receives reports on the domestic transfer of foreign currency exceeding $10,000, the sale and purchase of foreign currency exceeding $10,000, and summaries of cash transactions that exceed approximately $2,100. The UNIF does not, however, receive reports on the physical transportation of currency or monetary instruments into or out of Venezuela. A system has been developed for electronic receipt of CTRs, but STRs must be filed in paper format. Obligated entities are forbidden to reveal reports filed with the UNIF or suspend accounts during an investigation without official approval, and are also subject to sanctions for failure to file reports with the UNIF. Article 67 of the Organic Law against Organized Crime protects individuals and institutions with regard to cooperation with law enforcement and the judicial process. However, this protection expires 15 days after the individual exits Venezuela.
The UNIF analyzes STRs and other reports, and refers those deemed appropriate for further investigation to the Public Ministry (the Office of the Attorney General). For the six month period ending in June 2008, the UNIF received 603 STRs. In 2007, the UNIF forwarded approximately 40 percent of the STRs it received to the Attorney General’s Office. The Attorney General’s office subsequently opens and oversees the criminal investigation. Although the UNIF does not receive statistics from the Office of the Attorney General at this time concerning the number of prosecutions for money laundering, the UNIF is working on the implementation of a database for tracking cases referred to the Attorney General’s office for investigation. The UNIF maintains several memoranda of understanding (MOUs) with Venezuelan government institutions regarding the sharing of information. In addition, the UNIF is working on updating all circulars and guidance so that the 2005 law is incorporated into its rules and regulations.
Prior to the passage of the 2005 Organic Law against Organized Crime, there was no special prosecutorial unit for the prosecution of money laundering cases under the Attorney General’s office, which is the only entity legally capable of initiating money laundering investigations. As a result of the limited resources and expertise of drug prosecutors who previously handled money laundering investigations, there have only been three money laundering convictions in Venezuela since 1993 and all of them were narcotics-related. The Organic Law against Organized Crime calls for a new unit to be established, the General Commission against Organized Crime, with specialized technical expertise in the analysis and investigation of money laundering and other financial crimes. This commission has not been established to date. The Organic Law against Organized Crime also expanded Venezuela’s mechanisms for freezing assets tied to illicit activities. A prosecutor may now solicit judicial permission to freeze or block accounts in the investigation of any crime included under the law. However, to date there have been no significant seizures of assets or successful money laundering prosecutions as a result of the law’s passage. The SBOIF has distributed to its supervised financial entities the list of individuals and entities that have been included on the UN 1267 sanctions committee’s consolidated list. No statistics are available on the amount of assets frozen, if any.
The UNIF has been a member of the Egmont Group since 1999 and has signed bilateral information exchange agreements with counterparts worldwide. The UNIF does share information with Egmont Group members, but does not publish statistical information regarding such information sharing. Due to the unauthorized disclosure of information provided by the Financial Crimes Enforcement Network, (FinCEN, the U.S. FIU) to the UNIF, FinCEN suspended information exchange with the UNIF in January 2007. FinCEN and the UNIF are currently negotiating the terms and necessary measures that need to be taken by the UNIF to guarantee the protection of FinCEN information before information exchange will resume between the two FIUs. Once this issue is resolved, FinCEN will begin sharing financial intelligence with the UNIF again.
Venezuela participates in the Organization of American States Inter-American Commission on Drug Abuse Control (OAS/CICAD) Money Laundering Experts Working Group and is a member of the Caribbean Financial Action Task Force (CFATF). The GOV is a party to the 1988 UN Drug Convention, the UN Convention against Transnational Organized Crime, and the UN Convention for the Suppression of the Financing of Terrorism. The GOV has signed, but not yet ratified, the UN Convention against Corruption. Although the GOV committed to sharing money laundering information with U.S. law enforcement authorities under the 1990 Agreement Regarding Cooperation in the Prevention and Control of Money Laundering Arising from Illicit Trafficking in Narcotics Drugs and Psychotropic Substances, which entered into force on January 1, 1991, no such information sharing occurred in 2008. Venezuela and the United States signed a Mutual Legal Assistance Treaty (MLAT) in 1997. Venezuela is currently undergoing a CFATF mutual evaluation, with a report to be presented at the May 2009 CFATF plenary. Its last evaluation was undertaken in 1999.
The GOV took no significant steps to expand its anti-money laundering regime in 2008. There were no prosecutions or convictions for money laundering in 2008, and this is unlikely to change in 2009. The 2005 passage of the Organic Law against Organized Crime was a step toward strengthening the GOV’s abilities to fight money laundering. However, Venezuela needs to enforce the law by implementing the draft procedures to expedite asset freezing, establishing an autonomous financial investigative unit, and ensuring that law enforcement and prosecutors have the necessary expertise and resources to successfully investigate and prosecute money laundering cases. The GOV should also adequately criminalize the financing of terrorism and establish procedures for freezing terrorist assets in order to conform to international standards. The UNIF should continue to pursue the normalization of information exchange with FinCEN, and take the necessary steps to ensure that information exchanged with other FIUs is subject to the appropriate safeguards mandated by the Egmont Group. The GOV should honor its commitment to share information with U.S. law enforcement agencies.
Vietnam is not an important regional financial center, but is the site of significant money laundering activities. Vietnam remains a largely cash-based economy and both U.S. dollars and gold are widely used as a means of exchange and of stored value. Remittances are a large source of foreign exchange, exceeding annual disbursements of development assistance. Remittances from the proceeds of narcotics in Canada and the United States are also a significant source of money laundering as are proceeds attributed to Vietnam’s role as a transit country for narcotics.
The Vietnamese banking sector is in transition from a state-owned to a partially privatized industry. At present, approximately 50 percent of the assets of the banking system are held by state-owned commercial banks that allocate much of the available credit to state-owned enterprises. Almost all trade and investment receipts and expenditures are processed by the banking system, but neither trade nor investment transactions are monitored effectively. As a result, the banking system could be used for money laundering either through over or under invoicing exports or imports or through phony investment transactions. Official inward remittances for the first six months of 2008 are estimated to be approximately $3.5 billion. These amounts are generally transmitted by wire services and while officially recorded, there is no reliable information on either the source or the recipients of these funds. Financial industry experts believe that actual remittances may be double the official figures. There is evidence that large mounts of cash are hand carried into Vietnam, which is legal as long as the funds are declared. The Government of Vietnam (GOV) does not require any explanation of the source or intended use of funds brought into the country in this way. In 2006, Vietnam Airlines was implicated in a U.S. $93 million money laundering scheme uncovered by the Australian Crime Commission. Vietnamese organized crime syndicates operating in Australia and involved in money transfer businesses used the airline to help smuggle money to Vietnam.
A form of informal value transfer service, which often operates through the use of domestic jewelry and gold shops, is widely used to transfer funds within Vietnam. Money or value transmitters are defined as financial institutions by Decree No. 74 and are therefore subject to its AML-related provisions; however, the informal transmitters have not been brought under regulation or supervision.
The U.S. Drug Enforcement Agency (DEA) is engaged in a number of investigations targeting significant ecstasy and marijuana trafficking organizations, composed primarily of Vietnamese legal permanent residents in the United States and Vietnamese landed immigrants in Canada as well as naturalized U.S. and Canadian citizens. These drug trafficking networks are capable of laundering tens of millions of dollars per month back to Vietnam, exploiting U.S. financial institutions to wire or transfer money to Vietnamese bank and remittance accounts, as well as engaging in the smuggling of bulk amounts of U.S. currency and gold into Vietnam. The drug investigations have also identified multiple United States-based money remittances businesses that have remitted over $100 million annually to Vietnam. It is suspected that the vast amount of that money is derived from criminal activity. Law enforcement agencies in Australia and the United Kingdom have also tracked large transfers of drug profits back to Vietnam.
Articles 250 and 251 of the Amended Penal Code criminalize money laundering. Article 251 of the Penal Code defines the offense of legalizing money or property obtained through the commission of crime, while the Article 250 defines the offense of harboring (such as acquiring, possessing, hiding or concealing etc.) or consuming (such as trading, exchanging etc.) property obtained from the commission of crime by others. Although this offence aims at punishing those who generate a black market for consuming property acquired through the commission of crime rather than those who legalize the illicit origin of such property, its guilty acts cover some forms of money-laundering prescribed under the Palermo Convention. The Counter-Narcotics Law, which took effect June 1, 2001, makes two narrow references to money laundering in relation to drug offenses: it prohibits the “legalizing” (i.e., laundering) of monies and/or property acquired by committing drug offenses (article 3.5); and, it gives the Ministry of Public Security’s specialized counternarcotics agency the authority to require disclosure of financial and banking records when there is a suspected violation of the law. The Penal Code governs money laundering related offenses but no money laundering cases have been prosecuted under Article 251 to date. Similarly, while there have been many convictions under Article 250, such convictions have not involved money laundering, but instead relate to harboring property from crimes of others. Article 251 does not meet current international standards; among other weaknesses, the law requires a very high burden of proof (essentially, a confession) to pursue AML allegations, so prosecutions are non-existent and international cooperation is extremely difficult. The GOV presented a draft revision of Article 251 to the National Assembly in October 2008, for approval sometime in 2009.
In June 2005, the GOV issued Decree 74/2005/ND-CP on Prevention and Combating of Money Laundering. The Decree covers acts committed by individuals or organizations to legitimize money or property acquired from criminal activities. The Decree applies to banks and nonbank financial institutions. The State Bank of Vietnam (SBV) and the Ministry of Public Security (MPS) take primary responsibility for preventing and combating money laundering. Neither the Penal Code nor the Decree currently covers counterterrorist finance. A new draft article defining and criminalizing terrorism finance was presented to the National Assembly in October 2008 for approval sometime in 2009.
The SBV supervises and examines financial institutions for compliance with anti-money laundering/counterterrorist financing regulations. Financial institutions are responsible for knowing and recording the identity of their customers. They are required to report cash transactions conducted in one day with aggregate value of Vietnam Dong (VND) 200 million (approximately U.S. $13,000) or more, or equivalent amount in foreign currency or gold. The threshold for aggregate daily account based transactions is VND 500 million (approximately $31,000). Cash transaction reporting is not effective due to the absence of a suitable information technology solution to facilitate such reporting. Furthermore, financial institutions are required to report all suspicious transactions. Banks are also required to maintain records for seven years or more. Banks are responsible for keeping information on their customers secret, but they are required to provide necessary information to law enforcement agencies for investigation purposes.
Foreign currency (including notes, coins and traveler’s checks) in excess of U.S. $7,000 and gold of more than 300 grams must be declared at customs upon arrival and departure. There is no limitation on either the export or import of U.S. dollars or other foreign currency provided that all currency in excess of $7,000 (or its equivalent in other foreign currencies) is declared upon arrival and departure, and supported by appropriate documentation. If excess cash is not declared, it is confiscated at the port of entry/exit and the passenger may be fined.
The 2005 Decree on Prevention and Combating of Money Laundering provides for provisional measures to be applied to prevent and combat money laundering. Those measures include 1) suspending transactions; 2) blocking accounts; 3) sealing or seizing property; 4) seizing violators of the law; and, 5) taking other preventive measures allowed under the law.
The 2005 Decree also provides for the establishment of an Anti-Money Laundering Information Center (AMLIC) under the State Bank of Vietnam (SBV). Similar to a Financial Intelligence Unit (FIU), the AMLIC functions as the sole body to receive and process financial information required by the Decree. It has the right to request concerned agencies to provide information and records for suspected transactions. The AMLIC was formally established and began operations since February 2006. The Director of the center is appointed by the Governor of the SBV and reports directly to the Governor on anti-money laundering issues. SBV acts as the sole agency responsible for negotiating, concluding and implementing international treaties and agreements on exchange of information on transactions related to money laundering. In December 2008, SBV signed an information sharing agreement with Interpol’s Vietnam office.
The AMLIC has 23 full time staff members, including a Director and two Deputy Directors and is working to hire more staff. The FIU is organized into three divisions: Administrative and Research, Collecting and Analyzing Information; and, Technical and Network. The FIU has established liaison with ministries and agencies such as Ministries of Justice, Public Security, Finance, Foreign Affairs, the Supreme People’s Procuracy, the Supreme People’s Court, and the Banking Association. The AMLIC has virtually no IT capacity and a very low level of analytical ability. In spite of these drawbacks, AMLIC has begun to conduct awareness training with local financial institutions and with the public, and has its own section on the SBV website
The AMLIC has received 37 suspicious transaction reports and has referred two STRs to MPS for investigation. The MPS is responsible for investigating money laundering related offences. There is no information from MPS on investigations, arrests, and prosecutions for money laundering or terrorist financing, but the SBV reports that there are two cases pending prosecution in 2008. MPS is responsible for negotiating and concluding international treaties on judicial assistance, cooperation and extradition in the prevention and combat of money laundering related offenses. MPS signed a nonbinding Memorandum of Understanding with DEA in 2006 to strengthen law enforcement cooperation in combating transnational drug-related crimes, including money laundering, but claims it is unable to provide such information due to constraints within the Vietnamese legal system.
In 2007 Vietnam became a member of the Asia/Pacific Group on Money Laundering (APG). As a member of APG, Vietnam underwent a mutual evaluation of its AML/CTF regime in November, 2008. The results of the review will be discussed at the annual APG meeting in July, 2009. The Prime Minister has also ordered the formation of an inter-agency anti-money laundering coordination committee, to be chaired by a Deputy Prime Minister.
Vietnam is a party to the UN Convention for the Suppression of the Financing of Terrorism. Reportedly, Vietnam plans to draft new legislation governing counterterrorist financing, though it will not set a specific time frame for this drafting. Currently SBV circulates to its financial institutions the list of individuals and entities that have been included on the UN 1267 Sanctions Committee’s consolidated list. No related assets have been identified.
Vietnam is a party to the 1988 UN Drug Convention. Under existing Vietnamese legislation, there are provisions for seizing assets linked to drug trafficking. In the course of its drug investigations, MPS has seized vehicles, property and cash, though the seizures are usually directly linked to drug crimes. Final confiscation requires a court finding. Reportedly, MPS can notify a bank that an account is “seized” and that is sufficient to have the account frozen.
The GOV should promulgate all necessary regulations to implement fully the 2005 Decree on the Prevention and Combating of Money Laundering. Vietnam should also enact legislation to fully criminalize money laundering and to make terrorist financing a criminal offense, as well as including provisions to address the prevention and suppression of terrorist financing. Vietnam should ratify the UN Conventions against Transnational Organized Crime and Corruption. Vietnamese law enforcement authorities should investigate money laundering, trade fraud, alternative remittance systems, and other financial crimes in Vietnam’s shadow economy. The AMLIC should be equipped with an electronic information reporting system to enable it to effectively collect, store and analyze financial transactions. Vietnam should continue to take those additional steps necessary to establish its anti-money laundering/counterterrorist financing regime so that it comports with international standards.
The financial system in Yemen is not well developed and the extent of money laundering is not known. Yemen is not considered a regional financial center. Financial institutions are subject to regulations and limited monitoring by the Central Bank of Yemen (CBY). However, alternative remittance systems, such as hawala, are not subject to scrutiny and are vulnerable to money laundering and other financial abuses—including possible terrorist financing. The official banking sector is relatively small with 17 commercial banks, including four Islamic banks. Yemeni banks account for approximately 60 percent of total banking activities. All banks are under the supervision of the CBY. Yemen has no offshore banks or shell companies.
Yemen has a large underground economy due, in part, to the profitability of the smuggling of trade goods and contraband. Khat is a recreational drug produced from the leaves of a bush grown in parts of East Africa and Arabia. The use of khat is common in Yemen and there have been a number of investigations over the years of khat being smuggled from Yemen and East Africa into the United States with profits laundered and repatriated via hawala networks. Smuggling and piracy are rampant along Yemen’s sea border with Oman, across the Red Sea from the Horn of Africa, and along the land border with Saudi Arabia in the North.
In April 2003 Yemen’s Parliament passed anti-money laundering (AML) legislation (Law 35). The legislation criminalizes money laundering for a wide range of crimes, including narcotics offenses, kidnapping, embezzlement, bribery, fraud, tax evasion, illegal arms trading, and monetary theft, and imposes penalties of three to five years of imprisonment. Yemen has no specific legislation criminalizing terrorist financing nor are there obligations to report suspicious transactions associated with terrorist financing. In November 2007 the Cabinet sent a draft of more comprehensive anti-money laundering and counterterrorist financing legislation to Parliament to accommodate international standards. However, it appears unlikely the bill will be passed in the near term.
Law 35 requires banks, financial institutions, and precious metals and gems dealers to verify the identity of individuals and entities that open accounts to keep records of transactions for up to five years, and to report and file suspicious transaction reports (STRs). In addition, the law requires that reports be submitted to the Anti-Money Laundering Information Unit (AMLIU), which acts as the country’s financial intelligence unit (FIU). The AMLIU reports to the Anti-Money Laundering Committee (AMLC).
The AMLC, housed within the CBY, is composed of representatives from the Ministries of Finance, Foreign Affairs, Justice, Interior, and Industry and Trade, the Central Accounting Office, the General Union of Chambers of Commerce and Industry, the Association of Banks, and the CBY. The AMLC is authorized to issue regulations and guidelines and provide training related to combating money laundering and other financial crimes. Law 35 grants the AMLC the ability to exchange information with foreign entities that have signed a letter of understanding with Yemen; however the FIU is not autonomous since it is not granted the authority to receive information from other competent authorities without referring to AMLC or the CBY Governor.
There are approximately 448 registered money exchange businesses in Yemen, which serve primarily as currency exchangers in addition to performing funds transfer services. Money transfer businesses are required to register with Central Bank, and can open offices at multiple locations. Fund transfers that exceed the equivalent of $10,000 require permission from the CBY. The CBY has not performed examination of the money exchange business for anti-money laundering and combating the finance of terrorism (AML/CTF) compliance.
The AMLIU has only a few employees. The AMLIU uses the services of field inspectors from the CBY’s Banking Supervision Department for some of the FIU duties. The AMLIU has no database and is not networked to other government data systems. The CBY provides training to other members of the government to assist in elements of anti-money laundering enforcement. In September 2008, the World Bank initiated a restructuring project which will establish divisions within the AMLIU dealing with the receipt of STRs, financial investigations, database maintenance and the exchange of information. The project also aims at increasing the number of AMLIU staff to 15. The functions of the AMLIU are restricted to money laundering issues and do not cover terrorist financing.
The head of the AMLC is empowered by law to ask local judicial authorities to enforce foreign court verdicts based on reciprocity. There is no Mutual Legal Assistance Treaty (MLAT) or extradition treaty between Yemen and the United States. The Legal Attaché’s Office at the U.S. Embassy in Sana’a routinely passes requests for information and assistance to the Government of Yemen (GOY) concerning terrorist financing and other issues but seldom receives responses.
Prior to passage of the AML law, the CBY issued Circular 22008 in April 2002, instructing financial institutions to positively identify the place of residence of all persons and businesses that establish relationships with them. The circular also requires that banks verify the identity of persons or entities that wish to transfer more than the equivalent of $10,000, when they have no accounts at the banks in question. The same provision applies to beneficiaries of such transfers. The circular also prohibits inbound and out-bound money transfer of more than the equivalent of $10,000 cash without prior permission from the CBY, although this requirement is not strictly enforced. The circular is distributed to the banks along with a copy of the Basel Committee’s “Customer Due Diligence for Banks,” concerning “know your customer” procedures and “Core Principles for Effective Banking Supervision.” However, the due diligence process is limited in most financial institutions, particularly the nonbanking ones, to customer identification. Little attention is paid to account activities or the size of the account. The existing AML law protects individuals, banks and others with respect to their cooperation with law enforcement entities. The CBY has a program to educate the public and the financial sector about the proper ways of detecting and reporting suspicious financial transactions. Since 2005, only ten STRs have been filed with the AMLIU, with a few forwarded to the Office of the Public Prosecutor for suspected money laundering. There has not been any money laundering prosecutions or convictions in Yemen.
Yemen has no cross-border cash declarations or disclosure requirements. Customs inspectors do file currency declaration forms if funds are discovered. Yemen has one free trade zone (FTZ) in the port city of Aden. Identification requirements with the FTZs are enforced. For example, truckers must file the necessary paperwork in relevant trucking company offices and must wear ID badges. FTZ employees must undergo background checks by police, the Customs Authority and employers. There is no evidence that the FTZ is being used for trade-based money laundering or terrorist financing schemes.
In September 2003, the CBY responded to the UNSCR 1267 Sanctions Committee’s consolidated list, the Specially Designated Global Terrorists by the United States pursuant to E.O. 13224, and Yemen’s Council of Ministers’ directives, by issuing circulars 75304 and 75305 to all banks operating in Yemen. Circulars 75304 and 75305 directed banks to freeze the accounts of 144 persons, companies, and organizations, and to report any findings to the CBY. As a result, one account was immediately frozen. In 2006, the CBY began issuing a circular every three months containing an updated list of persons and entities belonging to Al-Qaida and the Taliban. However, since the February 2004 addition of Yemeni Sheikh Abdul Majid Zindani to the UNSCR 1267 Sanctions Committee’s consolidated list, the Yemeni government has made no known attempt to enforce the sanctions and freeze his assets. There is no information on whether Yemeni authorities have identified, frozen, seized, or forfeited other assets related to terrorist financing.
The GOY has a forfeiture system in place. A judge must order the forfeiture for the items involved in or proceeds from the crime for which the defendant was convicted. Forfeiture is available for all crimes and extends to funds and property. Authorities deposit forfeited funds into the general treasury unless the funds are the proceeds from a drug offense, in which case the proceeds go to law enforcement authorities, who can use the proceeds to buy vehicles or other equipment. If the court orders a defendant to forfeit property, the judge issues an order to auction off the property to the public, with the funds from the auction going into the general treasury. In some instances, the courts can order real property, such as a dwelling, to be closed for one year before the owner may use it again. Yemen has not yet forfeited any real property.
In 2001 the government enacted a law governing charitable organizations. This law entrusts the Ministry of Social Affairs and Labor (MOSAL) with overseeing their activities. The law also imposes penalties of fines and/or imprisonment on any society or its members convicted of carrying out activities or spending funds for other than the stated purpose for which the society in question was established. In addition to keeping accounts under continuous supervision in coordination with the MOSAL, Central Bank Circular No. 33989 of June 2002 and Circular No. 91737 of November 2004, ordered banks to enhance controls regulating opening and managing charities’ accounts.
Yemen is a member of the Middle East and North Africa Financial Action Task Force (MENAFATF). In 2007 there was a MENAFATF mutual evaluation of Yemen. The report has not been released. The United States concluded in a recent Financial Systems Assessment Team (FSAT) report that Yemen is in the early stages of developing its ability to control money laundering and numerous factors should be considered in developing programs to deal with the cash-intensive nature of the economy, significant levels of corruption, and problems in the judicial system.
In September 2008, the Yemeni President ordered the establishment of an independent supervisory committee, chaired by the Minister of Finance, which would meet on an ad-hoc basis, to oversee the government’s anti-money laundering program and eventually appoint a technical committee to carry out the recommendations of the FSAT and MENAFATF recommendations.
Yemen is a party to the 1988 UN Drug Convention; it has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. The GOY is a party to the UN Convention against Corruption. Yemen is listed 141 out of 180 countries in Transparency International’s 2008 Corruption Perception Index.
The Government of Yemen should continue to develop an anti-money laundering regime that adheres to international standards. Banks and nonbank financial institutions should enhance their capacity to detect and report suspicious financial transactions to the FIU, including those related to terror finance. The AMLIU needs substantial improvement of its operational capacity to enhance its analytical capabilities and other duties. Yemen should investigate the abuse of alternative remittance systems such as hawala networks with regard to money laundering and terrorist financing. Law enforcement and customs authorities should also examine trade-based money laundering and customs fraud. Yemen should enact specific legislation with respect to terrorist financing and forfeiture of the assets of those suspected of terrorism. Yemen should enforce sanctions and freeze the assets of Sheikh Abdul Majid Zindani, who was added to the UN 1267 Sanctions Committee’s consolidated list in February 2004. Yemen should ratify the UN Convention against Transnational Organized Crime and should also become a party to the UN International Convention for the Suppression of the Financing of Terrorism. Yemen has no institutionalized coordination for terrorism matters among the different ministries and has yet to implement steps listed under the UN international terrorism protocols, to which Yemen is a party.
Zimbabwe is not a regional financial center, but continued rapid economic deterioration has led to the growth of money laundering opportunities for regime officials and well-connected elites. This situation results from official corruption and impunity; a flourishing parallel exchange market; rampant smuggling of precious minerals; widespread evasion of exchange controls; and company ownership through nominees. Deficiencies in the Government of Zimbabwe’s (GOZ) regulatory and enforcement framework contribute to Zimbabwe’s potential as a money laundering destination. These deficiencies include an understaffed bank supervisory authority; a lack of trained regulators and investigators to investigate and enforce penalties for violations and financial crime; financial institutions determined to bypass the regulatory framework; limited asset seizure authority; a laissez-faire attitude toward compliance with the law on the part of elements of the business community; ready acceptance of the U.S. dollar in transactions; and significant exports and illegal trading, particularly regarding gold and diamonds.
In July 2008, the GOZ implemented a currency re-denomination program that slashed ten zeros from Zimbabwe’s currency (so that Z$10,000,000,000 became Z$1). The purpose of the campaign was to ease bookkeeping and the handling of cash transactions under runaway inflation and at the same time assert greater GOZ control over the financial sector.
In October 2008, the GOZ froze the majority of electronic bank transfers by suspending the Real-Time Gross Settlement system (RTGS). Reserve Bank of Zimbabwe (RBZ) officials were trying to curb a scheme known as “burning” in which people used RTGS transfers to evade the daily cash withdrawal limit. The RTGS transfers electronically moved funds in local currency from a single account into dozens of different accounts. From these accounts, runners extract the funds as cash withdrawals up to the daily cash withdrawal limit (raised to $500,000 Zimbabwean dollars in November 2008 (approximately $8.25). The scheme was profitable because the scarcity of cash had driven the value of the Zimbabwean dollar high above the value of electronic funds. The RBZ justified this radical step by stating it would curb money laundering and illegal foreign currency dealings on the parallel market. In November 2008, the RBZ reversed the unpopular suspension and reinstated the RTGS, stressing the need for banks to know their customers.
In 2008, the government also amended the schedule of fines applicable to those convicted of financial crimes. The new guidelines establish only minimum penalties, allowing judges to apply whatever maximum fine they determine appropriate to the offense. This is a means of curbing the hyperinflationary effect that makes worthless nearly any fine not immediately collected.
In December 2003, the GOZ enacted the Anti-Money Laundering and Proceeds of Crime Act. This bill criminalizes money laundering and implements a six-year record keeping requirement. In 2004, the GOZ adopted the more expansive Bank Use Promotion and Suppression of Money Laundering Act (the 2004 Act) that extends the anti-money laundering law to all serious offenses. The 2004 Act mandates a prison sentence of up to fifteen years for a conviction. It also criminalizes terrorist financing and authorizes the tracking and seizure of assets. The 2004 Act has reportedly raised human rights concerns due to the GOZ’s history of selective use of the legal system against its political opponents, but its use to date has not been associated with any reported due process abuses or provoked any serious public opposition. The Exchange Control Order, enacted in 1996, obligates banks to require individuals who deposit foreign currency into a foreign currency account to submit a written disclosure of the sources of the funds.
The RBZ is the lead agency for prosecuting money laundering offenses. In May 2006, the RBZ issued new Anti-Money Laundering Guidelines that outline and reinforce requirements established in the Act for financial institutions and designated nonfinancial businesses and professions. These binding requirements address politically exposed persons, mandating obliged entities to gather and make available to regulators more personal data on these high-profile clients. Financial institutions must now keep records of accounts and transactions for at least ten years, and report any suspicious transactions to the financial intelligence unit (FIU). The Act also criminalizes tipping off. Failure to report suspected money laundering activities or violating rules on properly maintaining customer data carries a possible fine of Zimbabwe $3 million—a nearly worthless amount at current exchange rates—for each day that a financial institution is in default of compliance.
The 2004 Act provides for the establishment of Zimbabwe’s FIU, housed within the RBZ and known as the Financial Intelligence Inspectorate and Evaluation Unit (FIIE). The FIIE receives suspicious transaction reports (STRs), issues guidelines (including the Anti-Money Laundering Guidelines issued in May 2006), and enforces compliance with procedures and reporting standards for obliged entities.
In June 2007, the RBZ installed an electronic surveillance system to track all financial transactions in the banking system. The FIIE reported that after the launch of the new system, there was a noticeable improvement in self-regulation at banks as demonstrated by an increase in the number of STRs received. During the year, the RBZ continued to tightly control limits on daily cash withdrawals for individuals and companies, ostensibly in an effort to curtail money laundering, but more likely to inhibit private sector parallel foreign exchange activities. When requested, the local banking community has cooperated with the GOZ in the enforcement of asset tracking laws. However, increasingly burdensome GOZ regulations and the resulting hostile business climate have led to growing circumvention of the law by otherwise legitimate businesses. In May, the RBZ cancelled the foreign currency exchange license of NMB Bank, the first indigenous bank in Zimbabwe, after a senior NMB official allegedly externalized more than $4.5 million in embezzled funds and fled the country. RBZ cited a breach of Exchange Control Regulations and a failure to report suspicious transactions as required under the Act.
The GOZ continued to arrest prominent Zimbabweans for activities that it calls “financial crimes.” Prosecutions for such crimes, however, have reportedly been selective and politically motivated. The government often targets persons who have either fallen out of favor with the ruling party, or individuals without high-level political backing. Most financial crimes involved violations of currency restrictions that criminalize the externalization of foreign exchange. In light of the inability of the vast majority of businesses to access foreign exchange from the RBZ, most companies privately admit to externalizing their foreign exchange earnings or to accessing foreign currency on the parallel market. Moreover, the GOZ itself, through the RBZ, has been a major purchaser of foreign currency on the parallel market.
The 2001 Serious Offenses (Confiscation of Profits) Act establishes a protocol for asset forfeiture. The Attorney General may request confiscation of illicit assets. The Attorney General must apply to the court that has rendered the conviction within six months of the conviction date. The court can then issue a forfeiture order against any property. Despite the early date of this law compared to the money laundering legislation that followed, this law does define and incorporate money laundering among the bases for the GOZ to confiscate assets.
With the country in steep economic decline and increasingly isolated, Zimbabwe’s laws and regulations remained ineffective in combating money laundering. The government’s anti-money laundering efforts throughout the year appeared to be directed less to ensuring compliance than to securing the government’s access to foreign currency, targeting opponents, and tightening control over precious minerals. Despite having the legal framework in place to combat money laundering, the sharp contraction of the economy, growing vulnerability of the population, and decline of judicial independence raise concerns about the capacity and integrity of Zimbabwean law enforcement. Transparency International ranks the Government of Zimbabwe at 166 of 180 countries on its 2008 Corruption Perceptions Index. The banking community and the RBZ have cooperated with the United States in global efforts to identify individuals and organizations associated with terrorist financing.
Zimbabwe is a party to the 1988 UN Drug Convention and the UN Convention against Transnational Crime. Zimbabwe is also a party to the UN Convention against Corruption. It has not signed the UN Convention for the Suppression of the Financing of Terrorism. Zimbabwe joined the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG) in 2003 and assumed the Presidency for ESAAMLG for the 2006/2007 administrative year. Zimbabwe experienced the first completed mutual evaluation undertaken by ESAAMLG. The report was adopted at the plenary and Council of Ministers meeting in August 2007.
The GOZ leadership should work to develop and maintain transparency, prevent corruption, and subscribe to practices ensuring the rule of law. The GOZ must also work toward reducing the rate of inflation, halting the economic collapse, and rebuilding the economy to restore confidence in the currency. The GOZ can illustrate its commitment to combating money laundering and terrorist financing by using its legislation for the purposes for which it was designed, instead of using it to persecute opponents of the regime and nongovernmental organizations with which it disagrees. Once these basic prerequisites are met, the GOZ should endeavor to develop and implement an anti-money laundering/counterterrorist financing regime that comports with international standards. The GOZ should also become a party to the UN International Convention for the Suppression of the Financing of Terrorism.