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2010 International Narcotics Control Strategy Report (INCSR)--Volume II: Money Laundering and Financial Crimes Country Database--Indonesia through Mongolia


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Bureau of International Narcotics and Law Enforcement Affairs
May 4, 2010

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All Money Laundering and Financial Crimes Countries/Jurisdiction: Indonesia through Mongolia

Indonesia

Although neither a regional financial center nor an offshore financial haven, Indonesia is vulnerable to money laundering and terrorist financing due to gaps in financial system regulation, a cash-based economy, a lack of effective law enforcement, and the increasingly sophisticated tactics of major indigenous terrorist groups, such as Jemaah Islamiya, and their financiers from abroad. Most money laundering in the country is connected to non-drug criminal activity such as gambling, prostitution, bank fraud, theft, credit card fraud, maritime piracy, sale of counterfeit goods, illegal logging, and corruption. Indonesia also has a long history of smuggling, a practice facilitated by thousands of miles of unpatrolled coastline, weak law enforcement, and poor customs infrastructure. The proceeds of illicit activities are easily moved offshore and repatriated as needed for commercial and personal needs. Although Indonesia’s corruption indicators are improving, corruption remains a very significant issue for all aspects of Indonesian society and a challenge for anti-money laundering/counter terrorist financing (AML/CFT) implementation.

Offshore Center: No

Free Trade Zones: Yes

The Government of Indonesia (GOI) has established special economic zones to attract both foreign and domestic investment. In 2007, the House of Representatives approved establishment of free trade zones (FTZs) in the Batam, Bintan and Karimun (BBK) islands. Batam Island, located just south of Singapore, has long been a bonded zone in which investment incentives have been offered to foreign and domestic companies. In 2009, the BBK FTZ officially became effective. As of the end of 2008, more than 1,015 domestic and foreign companies and joint ventures had invested more than $10 billion in the zone. Supervision of the FTZs includes confirming the identities of investors. In March 2009, the GOI issued regulations providing additional authority for Customs & Excise officials to regulate the flow of goods through the new BBK FTZ, given its vulnerability to smuggling.

Criminalizes narcotics money laundering: Yes

Indonesia’s Law 15/2002 concerning the Crime of Money Laundering as amended by Law 25/2003 (“The AML Law”) came into force in April 2003. Article 1 provides a definition of money laundering; Article 2 defines assets and predicate offenses, to include narcotics-trafficking; and Articles 3-7 establish the money laundering offense.

Criminalizes other money laundering, including terrorism-related: Yes

Law 15/2002 identifies 15 predicate offenses related to money laundering, including narcotics-trafficking and most major crimes. The law criminalizes the laundering of "proceeds" of crimes. Because it is often unclear to what extent terrorism generates proceeds, terrorist financing is not fully included as a predicate for the money laundering offense.

Criminalizes terrorist financing: Yes

Terrorist financing is criminalized in Articles 11-13 of Law 15/2003 Concerning Government Regulation in Lieu of Law 1/2002 Concerning Combating Criminal Acts of Terrorism. However, there are serious criticisms of the enabling legislation.

Know-your-customer rules: Yes

The GOI’s financial regulatory authorities have issued regulations, decrees, and rules that set out obligations for their respective sectors to implement know your customer (KYC) principles. Anonymous and fictitious accounts are prohibited. Effective January 1, 2009, money remitters are subject to KYC and suspicious transaction reporting (STR) guidelines.

Bank records retention: Yes

Article 17 of the AML Law states that covered institutions must maintain records and documents concerning the identity of users of financial services for five years from the end of the business relationship.

Suspicious transaction reporting: Yes

Article 13 of the AML Law requires providers of financial services to report suspicious financial transactions to the Indonesian financial intelligence unit (FIU) - the Financial Transactions Reports and Analysis Centre (PPATK). The obligation to report a suspicious financial transaction is based on a “reasonable grounds to suspect” that funds are the proceeds of crime. Financial institutions are required to report suspicious transactions regardless of the amount of the transaction. From January through November 30, 2009, the PPATK received 21,600 STRs from banks and non-bank financial institutions.

Large currency transaction reporting: Yes

The threshold for cash transaction reports (CTRs) is Rp 100,000,000 (approximately $10,900). The PPATK reported that in 2009 it received more than 791,000 CTRs from banks, moneychangers, rural banks, insurance companies, and securities companies.

Narcotics asset seizure and forfeiture:

The GOI has limited formal instruments to trace and forfeit illicit assets. Under the Indonesian legal system, confiscation against all types of assets must be effected through criminal justice proceedings and be based on a court order. The AML Law provides that investigators, public prosecutors, and judges are authorized to freeze any assets that are reasonably suspected to be the proceeds of crime.

Narcotics asset sharing authority: No

Cross-border currency transportation requirements:

Article 16 of the AML Law contains a reporting requirement for any person taking cash into or out of Indonesia in the amount of Rp 100 million (approximately $10,900) or more, or the equivalent in foreign currency. The requirement does not cover bearer negotiable instruments.

Cooperation with foreign governments: Yes

There are no known issues that hamper the GOI’s ability to assist foreign governments in mutual assistance requests. Authorities can share information or provide assistance to foreign jurisdictions in matters related to money laundering or other financial crimes without the need for a treaty.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

Given the size of the country and the money laundering and terrorist financing threat level, the Indonesian National Police (POLRI) lacks capacity to proactively initiate investigations. Although the POLRI has successfully arrested more than 400 terrorists in recent years, the agency had not generally investigated terrorist financing related to those cases.

Through November 2009, there have been six money laundering convictions for the year. These six cases involved predicate offenses of embezzlement, bribery, corruption, and narcotics.

The GOI has no clear legal mechanism to trace and freeze assets of individuals or entities on the UNSCR 1267 Sanctions Committee's consolidated list, and there is no clear administrative or judicial process to implement this resolution and UNSCR 1373.

Although the Limited Liability Company Law (Law 40/2007) prohibits bearer shares, complete implementing regulations have not yet been issued, and the process for removing bearer shares from the system is not clear. Previously issued bearer shares appear to remain valid.

U.S.-related currency transactions:

No information available.

Records exchange mechanism with U.S.: No

Indonesia and the United States are not parties to a bilateral mutual legal assistance treaty that provides for exchange of information. Indonesian and U.S. law enforcement entities have a close working relationship.

International agreements:

Indonesia has signed Mutual Legal Assistance Treaties with Australia, China, and South Korea. Indonesia joined other Association of Southeast Asian Nations (ASEAN) members in signing the ASEAN Treaty on Mutual Legal Assistance in Criminal Matters on November 29, 2004. It enacted Law 15/2008 to ratify the treaty, effective April 30, 2008. The PPATK has concluded 31 MOUs with other FIUs and has entered into an Exchange of Letters enabling international exchange with Hong Kong. Authorities can share information or provide assistance to foreign jurisdictions in matters related to money laundering or other financial crimes without the need for a treaty.

Indonesia is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - Yes

Indonesia is a member of the Asia/Pacific Group on Money Laundering (APG). Its most recent mutual evaluation can be found at: http://www.apgml.org/documents/docs/17/Indonesia%20MER2_FINAL.pdf

Recommendations:

The Government of Indonesia (GOI) has made progress in constructing an AML regime. It has also recently taken steps to strengthen its legal and regulatory framework for combating terrorist financing. Increased prosecution of high-profile corruption cases in 2008 and 2009 was an important advance in the GOI’s efforts to eradicate pervasive corruption. Further investment in human and technical capacity is needed to develop a truly effective AML/CFT regime. Authorities should ensure the PPATK has access, directly or indirectly, to required financial, administrative, and law enforcement information on a timely basis. Indonesian police and customs authorities should be encouraged to initiate money laundering investigations at the “street level” and not be dependent on financial intelligence filed with the PPATK. Law enforcement agencies should systematically investigate money laundering in parallel with their investigations of predicate offenses. The GOI should issue the regulations necessary to eliminate bearer shares. The GOI also should establish comprehensive controls or oversight over the provision of wire transfers. Indonesia’s cross-border currency declarations should also cover bearer negotiable instruments. Indonesia should establish clear legal mechanisms and administrative or judicial processes to trace and freeze assets of entities included on the UNSCR 1267 Consolidated List and to implement its obligations under UNSCR 1373. The GOI must continue to improve capacity and interagency cooperation in analyzing suspicious and cash transactions, investigating and prosecuting cases, and achieving deterrent levels of convictions. As part of this effort, the GOI should review and streamline its process for reviewing UN designations and identifying, freezing, and seizing terrorist assets.

Iran

Iran is not a regional financial center and its economy, marked by a bloated and inefficient state sector, is heavily dependent on its petroleum industry. A combination of price controls and subsidies continues to weigh down the economy and, along with widespread corruption, has undermined the potential for private sector-led growth. As a state sponsor of terrorism, the threat of terrorism finance emanating from Iran is so significant that the Financial Action Task Force (FATF) has issued seven statements to alert its members to concerns about this risk and has advised jurisdictions around the world to impose financial countermeasures on Iran to protect against this threat. Iran has a large underground economy, spurred by restrictive taxation, widespread smuggling, currency exchange controls, capital flight, and a large Iranian expatriate community.

Iran has established an international banking network with branches of a number of state-owned banks in Europe, the Middle East, and Asia. In 1994, Iran authorized the creation of private credit institutions. Licenses for these banks were first granted in 2001, and three new banks were added in August 2009. In a number of cases, Iran has used its state owned banks to channel funds to terrorist organizations. The U.S. designated Bank Saderat in October 2007 for its role in channeling funds to terrorist organizations, including Hizballah, Hamas, PFLP-GC, and the Palestinian Islamic Jihad. According to the statement issued with this action, between 2001 and 2006, Bank Saderat transferred $50 million from the Central Bank of Iran through Bank Saderat’s subsidiary in London to its branch in Beirut for the benefit of Hizballah fronts that support acts of violence. Hizballah also used Bank Saderat to send funds to other terrorist organizations, including Hamas, which itself had substantial assets deposited in Bank Saderat as of early 2005.

Offshore Center:

No information available.

Free Trade Zones: Yes

Iran has six free trade zones (FTZs), including a large FTZ located on Kish Island.

Criminalizes narcotics money laundering: Yes

A new Iranian anti-money laundering (AML) law was approved by the Islamic Parliament on January 22, 2008 and by the Guardian Council on February 6, 2008. The law creates a High Council on Anti-Money Laundering chaired by the Minister of Economic Affairs and Finance. The High Council coordinates and collects information and evidence concerning money laundering offenses. Nonetheless, the new anti-money laundering law falls significantly short of meeting international standards and the status of its implementation is not known.

Criminalizes other money laundering, including terrorism-related: See above

Criminalizes terrorist financing: No

The U.S. Department of State has designated Iran as a state sponsor of terrorism.

Know-your-customer rules: Yes

According to the AML law, all legal entities including the Central Bank, banks, financial and credit institutions, insurance companies, the Central Insurance, interest-free funds, charity organizations and institutions, municipalities, notary public offices, lawyers, accountants, auditors, authorized specialists of the Justice Ministry, and official inspectors are obligated to produce the information necessary for the implementation of this law, which, per Article 7a includes, “Verification of the identity of the client, and where relevant verification of the identity and relationship of the client's representative or proxy, as well as verification of the identity of the principal, in case there are evidences of offense.”

Bank records retention: Yes

According to the AML law, Article 7d, obligated entities are required to maintain records on client identification, account history, operations and transactions “as long as determined in the executive by-law.”

Suspicious transaction reporting: Yes

According to Article 7c of the AML law, obligated entities must report suspicious transactions and operations to a competent authority as designated by the Anti-Money Laundering High Council. No information is available on the implementation of Article 7c.

Large currency transaction reporting:

No information available.

Narcotics asset seizure and forfeiture:

According to Article 9 of the AML law, “Those who engage in the crime of money laundering will, in addition to returning the assets and the proceeds derived from the crime comprising the original assets and the profits there of (and if nonexistent, the equivalent or the price), be sentenced to a fine of one fourth of the value of the proceeds of the crime which should be deposited into the public Revenues Account with the Central Bank of the Islamic Republic of Iran.” If the proceeds have been converted into other property, that property will be seized. The order to seize the assets and their derived profits can be issued and exercised if the accused “has not been subject to this order under predicate offenses.” No information was available on the implementation of Article 9.

Narcotics asset sharing authority:

No information available.

Cross-border currency transportation requirements:

No information available.

Cooperation with foreign governments: No

Iran does not cooperate with the international community regarding anti-money laundering/counter-terrorist financing (AML/CFT) matters.

U.S. or international sanctions or penalties: Yes

In 1984, the Department of State designated Iran as a state sponsor of international terrorism. Iran continues to provide material support, including resources and guidance, to multiple terrorist organizations and other groups that undermine the stability of the Middle East and Central Asia. Hamas, Hizballah, and the Palestinian Islamic Jihad (PIJ) maintain representative offices in Tehran in part to help coordinate Iranian financing and training. Since 1987, U.S. agencies also have implemented numerous sanctions, virtually blocking all trade and investment activities with Iran. In November 2008, Treasury revoked the license authorizing “U-turn” transfers involving Iran, thus terminating Iran’s ability to access the U.S. financial system indirectly via non-Iranian foreign banks.

Since 2006, the U.S. has taken a number of targeted financial actions against key Iranian financial institutions, entities, and individuals under proliferation, terrorism, and Iraq-related authorities, i.e., Executive Order 13382, Executive Order 13224, and Executive Order 13438, respectively. To date, the Departments of Treasury and State have designated 117 Iranian entities and individuals under Executive Order 13382.

The following are some examples of notable designations under the Executive Orders: Four state-owned Iranian banks (Bank Sepah, Bank Melli, Bank Mellat, and the Export Development Bank of Iran, as well as all of their foreign operations) were designated for facilitating Iran’s proliferation activities. One state-owned Iranian bank (Bank Saderat and its foreign operations) was designated for funneling money to terrorist organizations. The Qods Force, a branch of the IRGC, was designated for providing material support to the Taliban, Lebanese Hizballah, and Palestinian Islamic Jihad. The Iran-based Martyrs Foundation (also known as Bonyad Shahid) was designated for its support to terrorism. The Martyrs Foundation is an Iranian parastatal organization that channels financial support from Iran to several terrorist organizations in the Levant, including Hizballah, Hamas, and the Palestinian Islamic Jihad (PIJ). The designation includes the Lebanon-based Martyrs Foundation, which is staffed by Hizballah officials and provides financial support to the organization, and the U.S-based fundraising office established by the Martyrs Foundation to support the organization in Lebanon.

Iran’s defiance of the international community over its nuclear program and the role of Iranian banks in facilitating proliferation activity have also led to a number of international multilateral actions on Iran’s financial sector. Since July 2006, the United Nations Security Council (UNSC) has passed five related resolutions (UNSCRs), three of which call for financial restrictions on Iran.

On October 11, 2007, the FATF released a statement of concern that “Iran’s lack of a comprehensive anti-money laundering/counter-terrorist finance regime represents a significant vulnerability within the international financial system.” The FATF has subsequently issued six additional statements, the most recent of which was released on October 16, 2009. The statement expressed concerns about Iran’s failure to “address the risk of terrorist financing and the serious threat this poses to the integrity of the international financial system” and urged all jurisdictions to “apply effective counter-measures to protect their financial sectors from money laundering and financing of terrorism (ML/FT) risks emanating from Iran.”

Since February 2007, the European Union (EU) has adopted numerous Common Positions to implement the UNSCRs on Iran. While these regulations strictly implement the provisions of the UNSCRs, they also go beyond the requirements of the UNSCRs to require additional action from member states. For example, the EU has designated numerous additional entities and individuals that had not been included in the annexes of UNSCRs 1737, 1747, or 1803, including Bank Melli and IRGC subsidiary Khatam al-Anbiya. The EU regulations also include, among other provisions, a prohibition on the provision of financial assistance and training to Iran, restrictions on export credits, and enhanced vigilance on all Iranian banks, and, specifically, on Iran’s Bank Saderat.

Numerous countries around the world have also restricted their financial and business dealings with Iran in response to both the UNSC measures on Iran as well as the FATF statements on Iran’s lack of adequate AML/CFT controls. Many of the world’s leading financial institutions have essentially stopped dealing with Iranian banks, in any currency, and Iranian companies and businesses are facing increased difficulty in obtaining letters of credit. For example, in October 2009 the United Kingdom announced domestic sanctions against IRISL and Bank Mellat under its 2008 Counterterrorism Act. In September 2008, Australia took domestic action against Iran by designating Banks Melli and Saderat, as well as implementing a series of other financial measures designed to pressure a change in Iran’s course.

Enforcement and implementation issues and comments:

Iran is ranked 168 out of 180 countries listed in Transparency International’s 2009 Corruption Perception Index. There is pervasive corruption within the ruling elite, government ministries, and government controlled business enterprises.

In Iran and elsewhere in the region, proceeds from narcotics sales are sometimes exchanged for trade goods via value transfer. The United Nations Global Program against Money Laundering also reports that illicit proceeds from narcotics trafficking are used to purchase goods in the domestic Iranian market; those goods are often exported and sold in Dubai. Iran’s merchant community makes active use of hawala and moneylenders. Counter-valuation in hawala transactions is often accomplished via trade, thus trade-based money laundering is likely a prevalent form of money laundering. Many hawaladars and traditional bazaari are linked directly to the regional hawala hub in Dubai. Over 400,000 Iranians reside in Dubai, with approximately 10,000 Iranian-owned companies based there. It is believed Iranian front companies based in Dubai are used to thwart U.S. and international sanctions.

Iran’s real estate market is often used to launder money. Frequently, real estate settlements and payments are made overseas. In addition, there are reports that billions of dollars in Iranian capital has been invested in the United Arab Emirates, particularly in Dubai real estate.

U.S.-related currency transactions:

Prior to the revocation of the U-turn exemption, Iran transacted more than a trillion dollars of U.S. dollar payments through the United States over a roughly five-year period. In addition to payments which were, at the time, presumed legal under the U-turn exemption, Iran transacted more than a billion dollars through the United States financial system over a five-year period in violation of U.S. law.

Records exchange mechanism with U.S.: No

International agreements:

Iran is a party to:

  • the 1988 UN Drug Convention - Yes
  • the UN Convention for the Suppression of the Financing of Terrorism – No
  • the UN Convention against Transnational Organized Crime - No
  • the UN Convention against Corruption – No

Iran is not a member of a FATF-style regional body.

Recommendations:

The Government of Iran (GOI) should vigorously pursue the implementation of a viable anti-money laundering/terrorist financing regime, including effective legislation and proper regulations that adhere to international standards and seek to address the risk of terrorist financing emanating from Iran. Above all, the GOI should cease its financial and material support of terrorist organizations and terrorism, as well as its abuse of the international financial system to facilitate proliferation. Iran should be more active in countering regional smuggling. Iran should create an anti-corruption law with strict penalties and enforcement, applying it equally to figures with close ties to the government, ruling class, business leaders, and the clerical communities. Iran should become a party to the UN Convention against Transnational Organized Crime, the UN Convention against Corruption, and the UN Convention for the Suppression of the Financing of Terrorism.

Iraq

Iraq’s economy is primarily cash-based, and there is little data available on the extent of money laundering in the country. Smuggling is endemic, involving consumer goods, cigarettes, and petroleum products. There is a large market in Iraq for stolen automobiles from Europe and the United States. Bulk cash smuggling, counterfeit currency, trafficking in persons, and intellectual property rights violations are also major problems. Ransoms from kidnappings and extortion are often used to finance terrorist networks. There are credible reports of counterfeiting. Trade-based money laundering, customs fraud, and value transfer are found in the underground economy. Hawala networks, both licensed and unlicensed, are widely used for legitimate and illicit purposes. Regulation and supervision of the formal and informal financial sectors is still quite limited and enforcement is subject to political constraints, resulting in weak private sector controls. Corruption is a major challenge and is exacerbated by weak financial controls in the banking sector and weak links to the international law enforcement community. Transparency International’s 2009 International Corruption Perception index ranked Iraq as 176 out of 180 countries, demonstrating only minimal change from the previous year.

Offshore Center: No

Free Trade Zones: Yes

Iraq has four free trade zones: the Basra/Khor al-Zubair seaport; Ninewa/Falafel area; Sulaymaniyah; and al-Qaim, located in western Al Anbar province. Under the Free Trade Zone (FTZ) Authority Law, goods imported or exported from the FTZ are generally exempt from all taxes and duties, unless the goods are to be imported for use in Iraq. Additionally, capital, profits, and investment income from projects in the FTZ are exempt from taxes and fees throughout the life of the project, including the foundation and construction phases. Value transfer via trade goods is a significant problem in Iraq and the surrounding region.

Criminalizes narcotics money laundering: Yes

The Coalition Provision Authority (CPA) Order No. 93, the “Anti-Money Laundering Act of 2004” (AMLA), sets out Iraq’s anti-money laundering/counter-terrorist financing (AML/CFT) legal framework. The law has major deficiencies, including that money laundering is treated as a misdemeanor, with fine-based penalties. Another structural defect of the current law is that its provisions were never defined or integrated into existing Iraqi legal provisions and processes. The result is that the law is not understood by government agencies and officials and is not implemented. The Government of Iraq (GOI) has been working with international organizations to draft a new AML/CFT law that would better fit within Iraq’s existing legal framework.

Criminalizes other money laundering, including terrorism-related: Yes

The AMLA criminalizes money laundering, financial crime (including the financing of terrorism), and structuring cash transactions to obscure possible illicit activities and avoid legal or regulatory requirements. The AMLA covers banks; investment funds; securities dealers; insurance entities; money transmitters; and foreign currency exchange dealers as well as persons who deal in financial instruments, precious metals or gems; and persons who undertake hawala transactions.

Criminalizes terrorist financing: Partially

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

The AMLA criminalizes terrorist financing. As with money laundering, terrorist financing is treated as a misdemeanor, with very low penalties. Currently there is no legislation in Iraq allowing the GOI to freeze and confiscate terrorist assets without delay under civil proceedings.

Know-your-customer rules: Yes

Covered entities are required to verify the identity of non-account holders performing a transaction or series of transactions whose value is equal to or greater than five million Iraqi dinars (approximately $4,250). Beneficial owners must be identified upon account opening and for transactions exceeding 10 million Iraqi dinars (approximately $8,500). In practice, most banks open accounts based on the referral of existing customers and/or verification of a person’s employment. Actual application of the rules varies widely across Iraq’s 39 state-owned and private banks.

Bank records retention: Yes

Financial institutions must maintain records for a period of at least five years after the customer relationship ends or the transaction occurs.

Suspicious transaction reporting: Yes

Entities covered by the AMLA must report suspicious transactions to Iraq’s financial intelligence unit (FIU) and wait for guidance before proceeding with the transaction; the relevant funds are frozen until guidance is received. Suspicious transaction reports (STRs) are to be completed for any transactions over 4 million Iraqi dinars (approximately $3,400) believed to involve funds derived from illegal activities or money laundering, intended for the financing of crime (including terrorism), or over which a criminal organization has disposal power; or a transaction conducted to evade any law or which has no apparent business or other lawful purpose. In practice, most banks either do internal investigations or contact the FIU, which does an account review to resolve any questionable transactions. In practice, very few STRs re filed.

Large currency transaction reporting: Yes

The AMLA gives the Central Bank of Iraq (CBI) the authority to adopt regulations to require the reporting of all cash transactions over 15 million dinars. It also gives the CBI the sole discretion to exempt individuals or entities from reporting requirements. Implementation of the requirement is spotty; many banks and individuals continue to deal in large amounts of cash without filing reports.

Narcotics asset seizure and forfeiture:

Asset forfeiture is rudimentary at best. The AMLA includes provisions for the forfeiture of any property. Such property includes, but is not limited to, funds involved in a covered offense, or property traceable to the property, or any property gained as a result of such an offense. The courts can order confiscation of property, but only if the property is directly related to the crime, including drug proceeds. The lack of automation or infrastructure in the banking sector hinders the government’s ability to identify and freeze assets linked to illicit activities.

Narcotics asset sharing authority:

No information available.

Cross-border currency transportation requirements: Yes

It is illegal under Iraqi law to export dinars. Neither Iraqis nor foreigners are permitted to carry more than $10,000 in U.S. currency when exiting Iraq, but these measures are rarely enforced. The AMLA authorizes the CBI to require all persons to submit a report of currency and monetary instruments to the FIU and/or the Iraqi Customs Service when importing or exporting currency or other monetary instruments greater than 15 million dinar. In practice, the use of a form has been abandoned.

Cooperation with foreign governments (including refusals):

U.S. law enforcement agencies indicate that cooperation with Iraqi counterparts has been somewhat sporadic but is increasing. Iraq has no formal law enforcement cooperation programs or plans with neighboring countries in the region.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

Communication is poor between the CBI and Iraq’s public and private banks, particularly with respect to money laundering, terrorist financing, and other potential risks. Although officially under the aegis of the CBI, money exchangers and money transmitters, including hawaladars, are largely unregulated.

Iraq’s financial intelligence unit (FIU), the Money Laundering Reporting Office (MLRO), is only marginally functional, lacking resources, autonomy and the expertise to adequately fulfill its responsibilities. Furthermore, the MLRO does not have a cooperative relationship with Iraqi law enforcement agencies. The lack of outreach, communication and overall knowledge of AML/CFT issues is a major impediment to progress.

There is little institutional knowledge in the CBI, law enforcement agencies, or the judiciary regarding implementing Iraq’s AML/CFT legislation and combating systemic money laundering and terrorist financing threats. There has not been a single conviction for money laundering or terrorist financing since the AMLA was enacted in 2004.

Banks do receive the UNSCR 1267 Committee list of designated terrorists and terrorist organizations, although the current process for distribution is very inefficient. The Bank Supervision Department of the CBI is not familiar with the list and is not aware of how banks get the information.

U.S.-related currency transactions:

US dollars are widely accepted and are used for many payments made by the US military, and assistance agencies and their contractors.

Records exchange mechanism with U.S.: No

Iraq does not have a Mutual Legal Assistance Treaty with the United States.

International agreements:

Iraq is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - No
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - Yes

Iraq is a member of the Middle East and North Africa Financial Action Task Force (FATF) (MENAFATF), a FATF-style regional body. Iraq has not yet undergone a mutual evaluation.

Recommendations:

The Government of Iraq (GOI) has taken initial steps to develop an AML/CFT regime. Iraq should fully implement existing legislation and should enact the proposed new AML/CFT law that more closely comports with international standards. As part of any new legislation, penalties for money laundering and terrorist financing should be made strong enough to serve as real deterrents to those crimes. The GOI also should pass legislation that allows Iraq to freeze and confiscate criminal and terrorist assets. The GOI should bolster the relevant agencies in Iraq’s AML/CFT regime, and issue or establish the proper regulations and legislation related to combating systemic money laundering and terrorist financing threats in Iraq. The CBI should be particularly cautious about granting licenses to banks from jurisdictions of concern; the MLRO needs proper training, equipment, and direction to be better able to receive and analyze STRs; the Iraqi financial sector needs to adopt and use AML/CFT standards and best practices and develop internal private sector controls; Iraq needs to participate fully in the MENAFATF by attending its plenary meetings, taking advantage of its training opportunities, and implementing the FATF’s international standards; Iraqi law enforcement and the judiciary at national and regional levels need to enhance their ability to soundly interpret, apply, and enforce the legal principles of the AMLA and therefore better conduct investigations and to cooperate with one another; Iraqi law enforcement, border authorities, and customs service should continue to strengthen border enforcement and identify and pursue smuggling, trade-based money laundering, and terrorist financing networks; and, the GOI should make a concerted effort to combat the corruption that hinders development and impedes an effective AML/CFT regime. Implementation of all these measures will require concerted capacity development efforts within the Central Bank, security forces, and border and customs authorities. Finally, Iraq should become a party to the UN Convention for the Suppression of the Financing of Terrorism.

Isle of Man

Isle of Man (IOM) is a British crown dependency, and while it has its own parliament, government, and laws, the United Kingdom (UK) remains constitutionally responsible for its defense and international representation. Offshore banking, manufacturing, and tourism are key sectors of the economy. The government offers incentives to high-technology companies and financial institutions to locate on the island. Its large and sophisticated financial center is potentially vulnerable to money laundering. Most of the illicit funds in the IOM are from fraud schemes and narcotics-trafficking in other jurisdictions, including the UK. Identity theft and Internet abuse are growing segments of financial crime activity.

Offshore Center: Yes

Isle of Man is an offshore financial center. As of December 31, 2008, there were 40 banking, building society and Class 1 deposit taking license holders; 81 investment business and Class 2 investment business license holders; 61 managers of collective investment schemes and Class 3 services to collective investment schemes license holders; 204 corporate service providers and Class 4 corporate services license holders; and 131 trust service providers and Class 5 trust services license holders.

Free Trade Zone: Yes

Isle of Man has one Freeport, the Ronaldsway Freeport.

Criminalizes narcotics money laundering: Yes

Narcotics-related money laundering is criminalized through the Proceeds of Crime Act 2008.

Criminalizes other money laundering, including terrorism-related: Yes

Money laundering is criminalized broadly in the Proceeds of Crime Act 2008. All relevant categories of predicate offenses are covered, including terrorism.

Criminalizes terrorist financing: Yes

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

Terrorist financing is criminalized in the Isle of Man by sections 7–10 of the Anti-Terrorism and Crime Act 2003. A new Terrorism (Finance) Act 2009 (TFA) came into force on July 15, 2009. The TFA allows the IOM authorities to compile its own list of suspects subject to sanctions when appropriate.

Know-your-customer rules: Yes

Coverage of preventive measures in the IOM includes all of the main financial businesses covered by the FATF definition of “financial institution.” The Criminal Justice (Money Laundering) Code 2008 includes an obligation to identify (and to take reasonable steps to verify) all customers and beneficial owners. Appropriate requirements apply in relation to legal persons, parties to legal arrangements, and persons acting on behalf of others. The TFA provides the Treasury with powers to issue directions to individuals or companies to enhance Customer Due Diligence (CDD), monitoring or systematic reporting.

Bank records retention: Yes

Pursuant to the Criminal Justice (Money Laundering) Code 2008, transaction records and identity verification documents must be retained for at least five years.

Suspicious transaction reporting: Yes

The Financial Crime Unit (FCU), the IOM’s financial intelligence unit, is the national center for receiving, analyzing and disseminating suspicious transaction reports (STRs) and other relevant intelligence. In 2008, 918 STRs were filed.

Large currency transaction reporting: No

The IOM authorities have considered the feasibility and relative utility of introducing a threshold-based reporting system for currency transactions. They determined, however, that such a reporting system was not feasible for the IOM and that the continuation of the current system based on suspicious transaction reporting was more appropriate.

Narcotics asset seizure and forfeiture: Yes

The Proceeds of Crime Act 2008 allows the recovery of property which is or represents property obtained through unlawful conduct, or which is intended to be used in unlawful conduct. It also provides for confiscation orders in relation to persons who benefit from criminal conduct and for restraint orders to prohibit dealing with property.

Narcotics asset sharing authority:

There are currently no specific legislative provisions relating to the sharing of confiscated assets with other jurisdictions. Asset sharing is negotiated on an individual case by case basis. The Proceeds of Crime Act 2008 contains a provision allowing the Treasury to enter into asset sharing agreements on behalf of the IOM.

Cross-border currency transportation requirements: Yes

Travelers entering or leaving the Isle of Man and carrying any sum equal to or exceeding 10,000 Euros (or its equivalent in other currencies or easily convertible negotiable instruments) are required to make a declaration to the customs authorities.

Cooperation with foreign governments (including refusals): Yes

The IOM cooperates with international authorities on regulatory and criminal matters. Under the 1990 Criminal Justice Act, the provision of documents and information is available to all countries and territories for the purposes of investigations into serious or complex fraud, drug-trafficking and terrorism. All decisions for assistance are made by the Attorney General of the IOM on a case-by-case basis, depending on the circumstances of the inquiry.

The Proceeds of Crime Act 2008 contains provisions to give effect to overseas requests and orders related to property found or believed to be obtained through criminal conduct. The Customs and Excise (Amendment) Act 2001 permits Customs and Excise to release information to any agency within or outside the IOM for the purposes of any criminal investigation and proceeding, either spontaneously or upon request.

U.S. or international sanctions or penalties: No.

Enforcement and implementation issues and comments:

IOM legislation provides powers to constables, including customs officers, to investigate whether a person has benefited from any criminal conduct. These powers allow information to be obtained about that person’s financial affairs. These powers can be used to assist in criminal investigations abroad as well as in the IOM.

U.S.-related currency transactions:

The U.S. dollar is the most commonly used currency for criminal activity in the IOM.

Records exchange mechanism with U.S.:

In 2003, the U.S. and the UK agreed to extend to the IOM the U.S.-UK Treaty on Mutual Legal Assistance in Criminal Matters. The FCU is able to exchange information with the Financial Crimes Enforcement Network (FinCEN).

International agreements:

As a British Crown Dependency, the IOM is not empowered to sign or ratify international conventions on its own behalf. However, following a request by the IOM Government, the UK may extend ratification of any convention to the IOM. Application of the 1988 UN Drug Convention was extended to the IOM in 1993. The UN Convention for the Suppression of the Financing of Terrorism was also extended to the IOM in 2008 as was the UN Convention against Corruption in 2006.

The IOM is a party to various information exchange agreements with countries in addition to the United States; authorities can share information or provide assistance to foreign jurisdictions in matters relating to money laundering or other financial crimes without need for a treaty.

Compliance with the FATF recommendations was evaluated in a report prepared by the International Monetary Fund’s Financial Sector Assessment Program. The report can be found here: http://www.imf.org/external/pubs/ft/scr/2009/cr09275.pdf

Recommendations:

The Isle of Man has had anti-money laundering/counter-terrorist financing (AML/CFT) legislation in place for well over a decade. The new regulatory regime consolidates and simplifies the old regime and provides a transparent and user-friendly regulatory environment, further promoting the Isle of Man as a leading offshore market. Isle of Man officials should continue to support and educate the local financial sector to help it combat current trends in money laundering and terrorist financing. The IOM should ensure that obligated entities understand and respond to their new and revised responsibilities. The authorities also should continue to work with international AML/CFT authorities to deter financial crime and the financing of terrorism and terrorists.

Israel

Israel is not regarded as a regional financial center. It primarily conducts financial activity with the markets of the United States and Europe, and to a lesser extent with the Far East. Criminal groups in Israel with ties to the former Soviet Union, United States, and European Union often utilize a maze of offshore shell companies and bearer shares to obscure beneficial owners. Recent studies by the authorities estimate illegal gambling profits at over $2 billion per year and domestic narcotics profits at $1.5 billion per year. Human trafficking is considered the crime-for-profit with the greatest human toll in Israel, and public corruption the crime with the greatest social toll. Black market penetration in Israel remains low and is comparable in scale to that of western, industrialized nations. While there have been some reports of trade-based money laundering, Israeli enforcement capacity is adequate to keep the problem to minimum levels. With the exception of a few isolated incidents involving the sales of drugs in the United States by Israeli organized crime, Israel’s illicit drug trade is domestically focused and has little to no connection with illegal drug sales in the United States.

Offshore Center: No

Free Trade Zones: No

Criminalizes narcotics money laundering: Yes

Criminalizes other money laundering, including terrorism-related: Yes

In August 2000, Israel enacted its anti-money laundering legislation, the Prohibition on Money Laundering Law (PMLL, Law No. 5760-2000). Among other things, the PMLL criminalizes money laundering and includes 18 serious crimes, in addition to offenses described in the prevention of terrorism ordinance, as predicate offenses for money laundering, even if committed in a foreign jurisdiction.

Criminalizes terrorist financing: Yes

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

In December 2004, the Israeli Parliament adopted the prohibition on terrorist financing law 5765-2004, which further modernizes and enhances Israel’s ability to combat terrorist financing and to cooperate with other countries on such matters. The Law went into effect in August 2005, criminalizing the financing of terrorism.

Know-your-customer rules: Yes

In 2001, Israel adopted the Banking Corporations Requirement Regarding Identification, Reporting, and Record Keeping Order. The Order establishes specific procedures for banks with respect to customer identification, record keeping, and the reporting of irregular and suspicious transactions.

Bank records retention: Yes

Amendments to the PMLL authorize the issuance of regulations requiring financial service providers to identify, report, and keep records for specified transactions for seven years.

Suspicious transaction reporting: Yes

Clarifications to the PMLL were approved in Orders 5761-2001 and 5762-2002 requiring that, in addition to banks, suspicious transactions be reported by members of the stock exchange, portfolio managers, insurers or insurance agents, provident funds and companies managing a provident fund, providers of currency services, money services businesses and the Postal Bank. Suspected terrorist financing activity must also be reported.

Through November 2009, IMPA received 23,902 suspicious transaction reports and disseminated 418 intelligence reports to law enforcement agencies and 205 to foreign FIUs.

Large currency transaction reporting: Yes

Financial institutions must report all transactions that exceed a minimum threshold that varies based on the relevant sectors and the risks that may arise, with more stringent requirements for transactions originating in a high-risk country or territory.

Narcotics asset seizure and forfeiture:

Israeli law provides for the tracing, freezing, and seizure of assets. In 2009, the Israeli National Police (INP) reported a significant increase in the amount of monetary seizures over the previous year—more than triple the amount of 2008. Through November 2009, the INP reported narcotics-related monetary seizures of NIS 20.2 million (approximately $5.32 million), anti-money laundering-related seizures of NIS 49.9 million (approximately $13.14 million), and NIS 6.6 million for other seizures (approximately $1.74 million). Through September 2009, IMPA reports that about NIS 11.9 million (approximately $3.2 million) was frozen, seized, or confiscated in AML/CFT-related actions.

Israel’s International Legal Assistance Law enables Israel to offer full and effective cooperation to authorities in foreign states, including enforcement of foreign forfeiture orders in terror financing cases (both civil and criminal).

On December 24, 2008, the Security Cabinet approved the designation of 35 foreign terrorist organizations, all of which were related to Al Qaeda or the Taliban, and appeared on both the UNSCR 1267 Sanctions Committee consolidated list and the list of Specially Designated Global Terrorists designated by the United States pursuant to E.O. 13224. On November 5, 2009 Israel also designated an additional 50 foreign terrorist organizations, based on the UN Security Council Resolution 1267 list.

Narcotics asset sharing authority:

No information provided.

Cross-border currency transportation requirements: Yes

Regulations establish methods of reporting to the Customs Authority monies brought into or out of Israel, and criteria for financial sanctions for violating the law. The regulations require the declaration of currency transferred (including cash, travelers’ checks, and banker checks) into or out of Israel for sums above 90,000 new Israeli shekels (NIS) (approximately $23,600). This applies to any person entering or leaving Israel, and to any person bringing or taking money into or out of Israel by mail or any other methods, including cash couriers. On September 24, 2009, an additional draft Bill for PMLL (Amendment No. 8) was published. Among its amendments: the threshold regarding the obligation to report monies upon entry to/exit from Israel was reduced to approximately $10,000 and the differentiation of assets and “willful blindness” exemption were removed; and cross-border declarations must now include all negotiable instruments.

Cooperation with foreign governments (including refusals): Yes

No known impediments exist to cooperation.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

In 2009, there were several changes to Israel’s anti-money laundering/counter-terrorist financing (AML/CFT) legislation, and a significant increase in the number of reported seizures related to financial crime by the INP.

Through September 2009, IMPA reported 30 investigations (concerning 66 persons), 10 prosecutions (concerning 21 persons) and six final convictions (concerning 14 persons) relating to money laundering and/or terrorist financing. Through November 2009,

U.S.-related currency transactions:

In May 2008, Agents from U.S. Immigration and Customs Enforcement (ICE) and officers from U.S. Customs and Border Protection (CBP) conducted joint bulk currency interdiction operations with Israeli law enforcement counterparts in Israel and at U.S. airports as part of the Department of Homeland Security’s (DHS) “Hands Across the World” initiative. The coordinated law enforcement effort resulted in an arrest and two seizures in the United States and 14 seizures in Israel. The combined seizures totaled nearly $500,000 in cash, negotiable checks, gold and diamonds.

In October 2006, the U.S. Department of Treasury, the Federal Deposit Insurance Corporation, and the New York State Banking Department penalized Israel Discount Bank $12 million to settle charges that its AML procedures were lax. The action was specifically related to the transfer of billions of dollars of illicit funds from Brazil to Israel Discount Bank’s New York offices.

Records exchange mechanism with U.S.:

Israel has a Mutual Legal Assistance Treaty with the United States, as well as a bilateral mutual assistance agreement in customs matters. On November 20 2009, the Constitution, Law and Justice Committee of the Knesset approved an amendment to the International Legal Assistance Law of 1998 concerning additional related predicate offences. This amendment will improve international cooperation by increasing Israel’s effectiveness in providing mutual legal assistance to foreign countries related to the freezing, seizure and confiscation of instruments and proceeds of crime. This amendment will enable the enforcement of foreign forfeiture orders in Israel according to requests of another state and enforcement of forfeiture orders abroad according to requests on behalf of the state of Israel. Customs, IMPA, the INP and the Israel Securities Agencies routinely exchange information with U.S. agencies through their regional liaison offices, as well as through the Israel Police Liaison Office in Washington.

The U.S. Financial Crimes Enforcement Network (FinCEN) and the IMPA engage in sharing and exchanging financial intelligence information.

International agreements:

The Israeli FIU can share information or provide assistance to foreign counterparts in matters relating to money laundering or other financial crimes without need for a treaty.

Israel is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - No

Israel is an observer of the Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a FATF-style regional body. Its most recent mutual evaluation can be found at: www.coe.int/moneyval

Recommendations:

The Government of Israel has developed an AML/CFT financial regulatory sector and enforcement capacity that compares with advanced, industrialized nations. Israel remains deficient, however, in regulating its diamond trade, intermediaries such as accountants and lawyers, and other nonbank sectors. Following the establishment of a new government in 2009, Israel should continue its aggressive investigation of money laundering activity associated with organized criminal groups. Israel should ratify the UN Convention against Corruption.

Italy

Italy is fully integrated into the European Union (EU) single market for financial services. Money laundering is a concern because of the prevalence of homegrown organized crime groups as well as criminal organizations from abroad, especially from Albania, Bulgaria, China, Israel, Romania and Russia. Italy is both a consumer country and a major transit point for heroin coming from South Asia through the Balkans en route to Western/Central Europe and, to a lesser extent, the United States. The heavy involvement of organized crime groups in narcotics-trafficking complicates narcotics-related anti-money laundering (AML) activities because of the sophistication of the laundering methods used by these groups. Italian and ethnic Albanian criminal organizations work together to funnel drugs to Italy and, in many cases, on to third countries. Additional important trafficking groups include Balkan organized crime entities, as well as Nigerian, Colombian, and other South American trafficking groups. In addition to the narcotics trade, laundered money originates from myriad criminal activities, such as alien smuggling, contraband cigarette smuggling, counterfeit goods, extortion, human trafficking, and usury. Financial crimes not directly linked to money laundering, such as credit card fraud, Internet fraud, and phishing have increased over the past year.

Money laundering occurs both in the regular banking sector and in the nonbank financial system, including casinos, money transfer houses, and the gold market. There is a substantial black market for smuggled goods in the country, but it is not believed to be funded significantly by narcotics proceeds. Italy’s underground economy is an estimated 15-17 percent of Italian GDP, totaling about 226 to 250 billion Euros (approximately $336 billion to $371 billion), though a substantial fraction of this total is related to tax evasion of otherwise legitimate commerce.

Offshore Center: No

Free Trade Zones: Yes

Free trade zones are located in Trieste and Venice

Criminalizes narcotics money laundering: Yes

All criminal offenses are predicates to the crime of money laundering, regardless of the applicable sentence for the predicate offense.

Criminalizes other money laundering, including terrorism-related: Yes

Law 197 of July 1991 is Italy’s framework AML legislation. It was amended in 2007 by Anti-Money Laundering/Counter-Terrorist Financing (AML/CFT) Legislative Decree 231/2007 which broadens the range of predicate offenses. The Decree consolidates the existing AML/CFT regulations and stipulates the general principles and definitions of AML/CFT measures; authorities in charge; customer due diligence (CDD) requirements and obligations, record keeping and suspicious transaction reporting; prohibition of bearer instruments, anonymous accounts and saving books; and sanctions. Article 648 of the Penal Code criminalizes money laundering.

Criminalizes terrorist financing: Yes

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

Article 270 of the Penal Code criminalizes terrorist financing.

Know-your-customer rules: Yes

Legislative decree 231 of 2007 sets out CDD requirements. Italy utilizes the risk-based approach. Covered entities include banks, Italian postal services, electronic money institutions, investment firms, insurance companies, agencies providing tax collection services, stock brokers, financial intermediaries, trust companies, lawyers, accountants, auditors, and casinos. Anonymous accounts are prohibited, as are bearer passbooks with a balance exceeding 12,500 Euros (approximately $16,900).

Bank records retention: Yes

Records must be retained for a period of ten years after the continuous relationship or professional service has ended.

Suspicious transaction reporting: Yes

There is no reporting threshold for suspicious transaction report (STR) filing. The financial intelligence unit (FIU) received 14,068 STRs in 2008, and 9,600 in the first half of 2009 from credit and financial institutions. It received an additional 173 STRs in 2008, and 83 through June 2009 from designated non-financial businesses and professions.

Large currency transaction reporting:

Financial institutions are required to maintain a centralized electronic AML database for all transactions (including wire transfers) over 15,000 Euros (approximately $20,250) and to submit this data monthly to the FIU.

Narcotics asset seizure and forfeiture:

Italy has established reliable systems for identifying, tracing, freezing, seizing, and forfeiting assets from narcotics-trafficking and other serious crimes, including terrorism. These assets include currency accounts, real estate, vehicles, vessels, drugs, legitimate businesses used to launder drug money, and other instruments of crime. Under anti-mafia legislation, seized financial and nonfinancial assets of organized crime groups can be forfeited. The burden of proof is on the Italian government to make a case in court that assets are related to narcotics-trafficking or other serious crimes. Law enforcement officials have adequate powers and resources to trace and seize assets, with judicial concurrence. The Agenzia del Demanio (State Property Agency) is responsible for managing both frozen terrorist-related assets and sequestered criminal assets.

Italy currently has frozen 177,833 Euros (approximately $240,075) in funds in 36 accounts, belonging to 30 persons designated terrorists under UNSCR 1267and domestic authority, which is used to implement UNSCR 1373.

Narcotics asset sharing: Yes

Italy shares seized assets with member states of the European Union. Currently, assets can be shared bilaterally only if agreement is reached on a case-specific basis.

Cross-border currency transportation requirements: Yes

Italy applies the 10,000 euro-equivalent (approximately $14,500) reporting requirement to cross-border transport of domestic and foreign currencies and negotiable bearer instruments. Italy has a declaration system, rather than disclosure system, and the fines for failure to declare a cross-border transaction or transportation of funds may be up to 40 percent of the amount beyond the threshold.

Cooperation with foreign governments (including refusals): Yes

To date, Italy has never refused a request for assistance in providing information to another nation’s FIU. There are no known impediments to cooperation.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

Italian law does not allow someone to be prosecuted for laundering the proceeds of crimes they themselves committed (self-laundering).

In 2009, Italy declared a Tax Amnesty to encourage the repatriation of otherwise legitimate funds sent abroad purely to evade taxes. The Italian government insists that all AML obligations for STRs are still in place; therefore, it does not believe the tax amnesty will present new opportunities for the conversion of illicit funds.

Currently, approximately 1.3 billion Euros worth of ‘old’ lira are still outstanding in the economy. The Ministry of Economics and Finance (MEF) estimates that between 700-800 million Euros worth of these lira are crime related and will have to be laundered prior to the 2012 deadline for converting them into Euros. The MEF has issued a directive to private sector financial intermediaries to be aware of this and to strictly adhere to all STR obligations.

U.S.-related currency transactions:

Money launderers predominantly use nonbank financial institutions for the export of undeclared or illicitly obtained currency—primarily U.S. dollars and Euros—for laundering in offshore companies.

Records exchange mechanism with U.S.:

Italy and the United States are parties to a bilateral mutual legal assistance treaty (MLAT) that provides for exchange of information. In May 2006, the U.S. and Italy signed a new bilateral instrument on mutual legal assistance as part of the process of implementing the U.S. - EU Agreement on Mutual Legal Assistance. Once ratified, the new U.S./Italy bilateral treaty will allow for joint investigative teams, easier asset freezing, and faster sharing of financial information. The U.S. Senate has already ratified the treaties. On the Italian side, the treaties were approved by the Council of Ministers in November 2008; as of November 2009, Italy had not yet ratified the treaty.

The Italian FIU regularly exchanges information with the FIU of the United States, FinCEN, through the Egmont Group information sharing process. The Italian FIU has also signed a memorandum of understanding (MOU) with FinCEN.

International agreements:

Italy is a party to various information exchange agreements with numerous foreign governments.

Italy is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - Yes

Italy is a member of FATF. It’s most recent mutual evaluation can be found here: http://www.fatf-gafi.org/dataoecd/52/29/36221355.pdf

Recommendations:

Given the relatively low number of STRs being filed by nonbank financial institutions, Italy should improve its training efforts and supervision in this sector and should clarify attorney/client privilege. Italy should take steps to allow for civil in rem forfeiture of criminal proceeds. Italian law enforcement agencies should take additional steps to understand and identify underground finance and value transfer methodologies employed by Italy’s burgeoning immigrant communities. Italy also should ensure its new regulations on PEPs are enforced. The Government of Italy should ratify the bilateral instrument on Mutual Legal Assistance. Finally, Italy should continue its active participation in multilateral fora dedicated to the global fight against money laundering and terrorist financing and its assistance to jurisdictions with nascent or developing AML/CFT regimes.

Japan

Japan is the world’s second largest economy. Although the Japanese government continues to strengthen legal institutions to permit more effective enforcement of anti-money laundering/counter-terrorist financing (AML/CFT) laws, Japan still faces substantial risk of money laundering by organized crime and other domestic and international criminal elements. In 2008, organized crime groups were involved in 36 percent of the money laundering cases. The major sources of money laundering proceeds include drug trafficking, fraud, the black market economy, remittance frauds, prostitution, illicit gambling and loan-sharking. In general, the police are well aware of the money laundering schemes used in Japan.

Offshore Center: No

Free Trade Zones: Yes

Japan has one free-trade zone, the Okinawa Special Free Trade Zone, established in 1999 in Naha, to promote industry and trade in Okinawa. The zone is regulated by the Department of Okinawa Affairs in the Cabinet Office. Japan also has two free ports, Nagasaki and Niigata. Customs authorities allow the bonding of warehousing and processing facilities adjacent to these ports on a case-by-case basis.

Criminalizes narcotics money laundering: Yes

Drug-related money laundering was first criminalized under the Anti-Drug Special Provisions Law that took effect in July 1992. The narrow scope of this law and the burden required of law enforcement to prove a direct link between money and assets to specific drug activity limits the law’s effectiveness.

Criminalizes other money laundering, including terrorism-related: Yes

Japan expanded its money laundering law beyond narcotics trafficking to include money laundering predicate offenses such as murder, aggravated assault, extortion, theft, fraud, and kidnapping when it passed the 1999 Anti-Organized Crime Law (AOCL), which took effect in February 2000.

Criminalizes terrorist financing: Yes

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

The 2002 Act on Punishment of Financing of Offenses of Public Intimidation, enacted in July 2002, criminalizes terrorism and terrorist financing, adds terrorist financing to the list of predicate offenses for money laundering, and provides for the freezing of terrorism-related assets. The terrorist finance offense does not cover collection of funds by non-terrorists, nor does it criminalize the indirect collection or provision of funds.

Know-your-customer rules: Yes

In April 2002, the Law on Customer Identification and Retention of Records on Transactions with Customers by Financial Institutions was enacted. The law reinforces and codifies the customer identification and record-keeping procedures that banks had practiced for years. The Foreign Exchange and Foreign Trade law was revised in January 2007, to require financial institutions to make positive customer identification for both domestic transactions and transfers abroad in amounts of more than 100,000 yen (approximately $1,120).

The Customer Due Diligence (CDD) requirements of the Prevention of Transfer of Criminal Proceeds Act, (PTCPA) which require financial institutions to verify customer identification data for natural and legal persons, effectively prohibit the opening of anonymous accounts or accounts in fictitious names. Effective March 1, 2008, the entities obligated to undertake customer identification, record keeping, and suspicious transaction reporting include designated nonfinancial businesses and professions (DNFBPs), to include real estate agents, private mail box agencies, dealers of precious metals and stones; and certain types of trust and company service providers. On March 6, 2009, the Financial Services Agency (FSA) submitted the “Payment Services Bill” to the Diet. The bill enables entities other than banks (i.e., funds transfer service providers) to engage in the remittance business under a registration system and requires them to comply with anti-money laundering regulations, based on the PTCPA.

Bank records retention: Yes

The PTCPA requires financial institutions, upon concluding a transaction (international or domestic), to immediately prepare transaction records and to maintain those records for seven years from the day the transaction was conducted. Banks and financial institutions also are required to maintain customer identification records for seven years.

Suspicious transaction reporting: Yes

The PTCPA obligates financial institutions to promptly report information on suspicious transactions. Japan’s financial intelligence unit (FIU) reports receiving more than 235,000 suspicious transaction reports (STRs) in 2008. Following its analysis, the FIU circulates approximately 62 percent of the STRs received to law enforcement agencies.

Large currency transaction reporting: No

Narcotics asset seizure and forfeiture:

Japanese law provides for the tracing, freezing, and seizure of assets. Chapter 9 of the Code of Criminal Procedure provides for broad search and seizure authority. However, the Anti-Drug Special Provisions Law contains two articles of significant scope. Article 19 provides for an ex parte application for an order to secure against drug proceeds while Article 20 allows a freezing order for all property of a future defendant even before court proceedings have been initiated. Article 22 of the Act on the Punishment of Organized Crime contains similar provisions for securing assets related to crime and drug proceeds.

As to the freezing of terrorist assets, the system does not allow for freezing without delay. Japan’s system does not cover assets raised by a non-terrorist for use by a terrorist or terrorist organization. To freeze terrorist assets, Japan relies on a licensing system that does not require financial institutions to screen their customer database and freeze designated funds or assets. The process does not cover transactions in domestic currency within Japan that does not involve a nonresident. Japan can freeze terrorist funds under the Act on the Punishment of Financing of Offenses of Public Intimidation and the Act on the Punishment of Organized Crime only if there is an attempted transaction in foreign currency, with a non-resident in Japan, or overseas transactions are undertaken. Japan’s freezing mechanism reaches only funds, not other kinds of assets.

Narcotics Asset sharing Authority: No

Japan has not enacted laws that allow for sharing of seized narcotics assets with other countries. However, the Japanese government fully cooperates with efforts by the United States and other countries to trace and seize assets.

Cross-border currency transportation requirements: Yes

The Foreign Exchange and Foreign Trade Law requires travelers entering and departing Japan to report physically transported currency and monetary instruments (including securities and gold weighing over one kilogram) exceeding one million yen (approximately $11,235), or its equivalent in foreign currency, to customs authorities. Failure to submit a report, or submitting a false or fraudulent report, may result in sanctions.

Cooperation with foreign governments (including refusals):

In certain types of cases, Japan’s dual criminality condition acts as a significant barrier to mutual legal assistance. Limitations in Japan’s money laundering offense, including with respect to narcotics money laundering, restricts the extent and effectiveness of Japan’s capacity to confiscate, seize and freeze assets in the context of mutual legal assistance.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

The current CDD provisions have been noted to be deficient with respect to identifying authorized persons, representatives and beneficiaries, or beneficial owners. There is no requirement for financial institutions to gather information on the purpose and intended nature of the business relationship or to conduct ongoing due diligence on these relationships. Additionally, Japan has not implemented an AML/CFT risk-based approach; consequently, there are no provisions that mandate enhanced due diligence for higher-risk customers, business relationships and transactions, or that authorize simplified due diligence. Additionally, there are exemptions to the identification obligation on the grounds that the customer or transaction poses no or little risk of money laundering or terrorist financing.

Japanese police and prosecutors have undertaken few investigations and prosecutions of suspected money laundering, in part because public prosecutors require a very high certainty of conviction before instigating court proceedings and rely heavily on confessions, which are not readily available in cases involving money laundering cases involving drug trafficking proceeds.

Few resources are devoted to enforcement of cross-border currency declaration requirements.

In June 2009, the FSA ordered Citigroup Japan to suspend sale promotions for a month at its retail bank for insufficient oversight against money laundering. The FSA said Citigroup had not developed adequate systems to detect suspicious transactions, such as money laundering, citing a similar violation that was part of the reason regulators closed its private banking business in 2004.

U.S.-related currency transactions:

U.S. law enforcement investigations periodically show a link between drug-related money laundering activities in the U.S. and bank accounts in Japan.

Records exchange mechanism with U.S.:

A mutual legal assistance treaty (MLAT) exists between Japan and the United States. Since November 2004, FinCEN and the Japanese FIU have had a memorandum of understanding, formalizing their information exchange arrangement. In 2002, Japan’s FSA and the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) signed a nonbinding Statement of Intent (SOI) concerning cooperation and the exchange of information related to securities law violations. In 2006, an amendment to the SOI added financial derivatives.

International agreements:

Japan has existing MLATs with the Republic of Korea, the People’s Republic of China, Hong Kong and Russia. These treaties enable both countries to execute mutual legal assistance promptly through the central authorities, and strengthen the cooperation of both countries in criminal matters, including AML/CFT matters. Japan’s FIU has made Statements of Cooperation with authorities of Hong Kong, Australia, Belgium, Malaysia, Thailand, Singapore, Canada, Indonesia, the United Kingdom, Brazil, the Philippines, Switzerland, Italy, Portugal, the Republic of Korea, Romania and Paraguay.

Japan is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - No
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - No

Japan is a member of the Financial Action Task Force (FATF) and the FATF-style regional body, the Asia/Pacific Group against Money Laundering (APG). Its most recent mutual evaluation can be found here: http://www.fatf-gafi.org/dataoecd/8/48/41654127.pdf

Recommendations:

The Government of Japan has many legal tools and programs in place to successfully detect, investigate, and combat money laundering and terrorist financing. However, the number of investigations, prosecutions, and convictions for money laundering remain low in relation to the amount of illicit drugs consumed and other predicate offenses. To strengthen its AML/CFT regime, Japan should provide more training and investigatory resources for AML/CFT law enforcement authorities. Japan should also consider the implementation of a system to report large currency transactions. Japan should implement an effective CDD regime that comports with international standards. Increased emphasis should be given to combating underground financial networks that are not subject to financial transparency safeguards. Since Japan is a major trading power and the misuse of trade is often the facilitator in alternative remittance systems, underground finance, and value transfer schemes, Japan should take steps to identify and combat trade-based money laundering. Japan should also become a party to the UN Convention against Transnational Organized Crime and the UN Convention against Corruption, and should fully implement the freezing obligations for terrorist funds, including other property, according to the UN Convention for the Suppression of the Financing of Terrorism.

Jersey

The Island of Jersey, the largest of the Channel Islands, is an international financial center offering a sophisticated array of offshore services. Jersey is a British crown dependency but has its own parliament, government, and laws. The United Kingdom (UK) remains constitutionally responsible for its defense and international representation but has entrusted Jersey to negotiate and sign tax information exchange agreements directly with other jurisdictions. The financial services industry is a key sector, with banking, investment services, and trust and company services accounting for approximately half of Jersey’s total economic activity. As a substantial proportion of customer relationships are established with nonresidents, most of the illicit money in Jersey is derived from foreign criminal activity. In particular, the Island’s financial services industry continues to be vulnerable to the laundering of the proceeds of foreign political corruption in industries such as oil, gas and transportation.

Offshore Center: Yes

Jersey is an offshore financial center. As of December 31, 2009, the financial service industry consisted of 47 banks; ten recognized funds and 1,472 fund certificate holders; 186 insurance businesses, which are largely UK-based; 113 investment businesses; five money service businesses; 438 fund services businesses; and 186 trust and company businesses. In addition to financial services, trust companies offer corporate services, such as special purpose vehicles used for debt restructuring and employee share ownership schemes, and wealth management services. All regulated entities can sell their services to both residents and nonresidents. All banks and most other regulated entities have a physical presence in Jersey, where management must also be. Jersey’s trust companies administer a number of companies registered in other jurisdictions and owned by non-residents. These administered companies do not pay Jersey income tax unless they have Jersey source trading income.

Free Trade Zone: No

Criminalizes narcotics money laundering: Yes

Jersey’s main anti-money laundering (AML) laws are the Drug Trafficking Offenses (Jersey) Law 1988 (DTOL) criminalizes money laundering related to narcotics trafficking; and

Criminalizes other money laundering, including terrorism-related: Yes

The Proceeds of Crime (Jersey) Law 1999 (POCL) extends the predicate offenses for money laundering to all offenses punishable by at least one year in prison. Both the DTOL and the POCL were last amended in 2008 to enhance various provisions, including those regarding the failure to report knowledge or suspicion of money laundering and the enforcement of external confiscation orders.

Criminalizes terrorist financing: Yes

Jersey criminalizes money laundering related to terrorist activity through the Terrorism (Jersey) Law 2002. This law was last amended in 2008, to enhance the powers of the authorities to cooperate with law enforcement agencies in other jurisdictions, enforce external confiscation orders, and to share forfeited assets.

Know-your-customer rules: Yes

Customer due-diligence (CDD) requirements are set forth in the POCL and the Money Laundering (Jersey) Order 2008 (MLO). Jersey’s CDD requirements cover all of the financial businesses covered by the Financial Action Task Force (FATF) definitions of “financial institution,” and “designated non-financial businesses and professions”.

Reportedly, a substantial proportion—believed to be around 90 percent in some sectors—of nonresident customer relationships and financial services business conducted are on a non-face-to-face basis. In many cases the business relationship is established through intermediaries or introducers (Jersey or foreign). Subject to certain legal requirements, Jersey financial institutions are permitted to rely on intermediaries or introducers to conduct CDD on their behalf. Even where reliance is placed, CDD evidence is often independently checked by the Jersey financial institution, employing a risk-based approach.

Bank records retention: Yes

Under the MLO, obligated entities must keep a record containing details relating to each transaction for a period of five years after the transaction is completed.

Suspicious transaction reporting: Yes

The Jersey Joint Financial Crime Unit (JFCU), Jersey’s financial intelligence unit (FIU) receives suspicious activity reports (SARs). As of December 31, 2009, 1,854 STRs were filed with the JFCU. In 2008, 1,404 STRs were filed. There is no reporting threshold for STRs.

Large cash transaction reports: No

In 2007 the AML/CFT Strategy Group considered the feasibility of and decided against implementing a reporting system for large currency transactions.

Narcotics asset seizure and forfeiture: Yes

There are provisions for seizure and confiscation measures for drug-related money laundering. The Drug Trafficking Offenses (Enforcement of Confiscation Orders) (Jersey) Regulations 2008 covers seizing of funds or property related to drug trafficking offenses upon request of a foreign jurisdiction.

Narcotics asset sharing authority: No

There are currently no specific legislative provisions relating to the sharing of confiscated assets with other jurisdictions. Asset sharing is negotiated on an individual case by case basis.

Cross-border currency transportation requirements: Yes

Persons entering and leaving Jersey (or exporting or importing goods) may be required to make a disclosure of the value of any cash or bearer negotiable instruments above euro 10,000 (approximately $14,100).

Cooperation with foreign government: Yes

Jersey cooperates with international jurisdictions on regulatory and criminal matters. The Jersey Financial Services Commission (JFSC) deals with requests for regulatory assistance, and the Attorney General is responsible for handling requests concerning criminal matters. Both publish guidance to assist foreign counterparts with making a request.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

Jersey authorities have a continuing concern regarding the increasing incidence of domestic drug related crimes. The customs and law enforcement authorities devote considerable resources to countering drug-related crime. Over the past five years, approximately ten percent of SARs filed with the FIU were drug-crime related.

Jersey does not circulate the names of suspected terrorists and terrorist organizations. Jersey expects its institutions to gather information on the UNSCR 1267 Sanctions Committee’s consolidated list and other entities designated by the UK from the websites of the JFSC, the Chief Minister’s Department, other Internet websites, and other public sources. The Island has not designated any domestic terrorists, but does require regulated entities to follow UK and US terrorist lists. Jersey authorities have instituted sanction orders freezing accounts of individuals suspected of terrorist activity.

U.S.-related currency transactions:

No information provided.

Records exchange mechanism with U.S.:

Jersey and the U.S. are not parties to a bilateral mutual legal assistance treaty that provides for exchange of information; however, Jersey has granted U.S. requests for assistance in criminal matters. Jersey signed a Tax Information Exchange Agreement (TIEA) with the United States in 2002. The JFCU shares information with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) and the JFSC with its U.S. counterparts. In 2009, the JFSC signed a statement of cooperation with the Board of Governors of the Federal Reserve System, Office of the Comptroller of Currency, Federal Deposit Insurance Corporation, and Office of Thrift Supervision. This statement is in addition to existing memoranda of understanding with the Securities and Exchange Commission and Commodity Futures Trading Commission.

International agreements:

Jersey is a Crown Dependency and cannot sign or ratify international conventions in its own right unless entrusted so to do as is the case with tax information exchange agreements. Rather, the UK is responsible for Jersey’s international affairs and, at Jersey’s request, may arrange for the ratification of any Convention to be extended to Jersey. For example, the UK’s ratification of the 1988 UN Drug Convention was extended to include Jersey in July 1998, and the UK’s ratification of the International Convention for the Suppression of the Financing of Terrorism was extended to Jersey on September 25, 2008.

In lieu of a mutual evaluation, a report was prepared by the International Monetary Fund’s Financial Sector Assessment Program. The report can be found here: http://www.imf.org/external/pubs/ft/scr/2009/cr09280.pdf

Recommendations:

Jersey should continue to maintain and enhance its level of compliance with international standards. The Financial Services Commission should ensure its AML Unit has enough resources to function effectively, and to provide outreach and guidance to the sectors it regulates, especially the newest entities required to file reports. The Commission also should distribute the UN lists of designated terrorists and terrorist organizations to the obligated entities and not expect the entities to stay current through their own Internet research. Jersey also should implement mandatory cross-border currency reporting.

Jordan

Although Jordan is not a regional or offshore financial center, it does have a well developed financial sector with significant banking relationships in the Middle East. Jordan’s long and remote desert borders and nexus to Iraq, Syria, and the West Bank make it susceptible to the smuggling of bulk cash, fuel, narcotics, cigarettes, counterfeit goods and contraband, although there is insufficient information available from the Government of Jordan (GOJ) to quantify this activity. Jordan boasts a thriving “import-export” community of brokers, traders, and entrepreneurs who regionally are involved with value transfer via trade and customs fraud. There are anecdotal indications of the use of Jordan for money laundering of illicit funds derived from narcotics and other criminal activity in the U.S. and possibly Europe via bulk cash smuggling for criminal elements involving Jordanians in those areas. However, it is thought the major sources of illicit funds in Jordan are most likely to be related to commercial fraud, customs fraud, tax fraud and intellectual property rights (IPR) violations.

Offshore Center: No

Free Trade Zones:

There are six public free trade zones (FTZ) in Jordan: the Zarqa Free Zone, the Sahab Free Zone, the Queen Alia International Airport Free Zone, the Al-Karak Free Zone, the Al-Karama Free Zone, and the Aqaba Special Economic Zone (ASEZ). With the exception of Aqaba, these FTZs list their activities merely as trade. There are 36 private free trade zones, a number of which are related to the aviation industry, with five more being established. Some of these FTZs list their activities as industrial, agricultural, pharmaceutical, training of human capital, and multi-purpose. With the exception of ASEZ, all free trade zones are regulated by the Jordan Free Zones Corporation in the Ministry of Finance and are guided by the Law of Free Zones Corporation No. 32 for 1984. Regulations state that companies and individuals using the zones must be identified and registered with the Corporation. State security entities regularly circulate information and names of suspected individuals and activities to the FTZs to ensure no abuse of the free trade status of those areas. The Aqaba Special Economic Zone Authority (ASEZA), a ministerial level authority, controls all of the port city of Aqaba. ASEZA has its own customs authority, which operates separately from Jordan Customs and processes all merchandise and commodities destined for businesses in the zone. It also processes all passengers entering the zone. Jordan Customs processes all shipments of goods in transit to areas outside the zone.

Criminalizes narcotics money laundering: Yes

On July 17, 2007, Jordan enacted Law No. 46 for the Year 2007—the Anti Money Laundering Law (AML Law) that criminalizes money laundering and includes narcotics trafficking as a predicate offense.

Criminalizes other money laundering, including terrorism-related: Yes

The AML Law does not cover financing of terrorism, but it criminalizes money laundering and stipulates as predicate offenses all felony crimes (those with penalties of three years or more incarceration) or any crime stated in international agreements to which Jordan is a party, whether such crimes are committed inside or outside Jordan. With this approach, several of the 20 crimes included in the international standards do not meet the penalty level for major crimes, and therefore are excluded as predicate offenses for money laundering under Jordan’s current AML Law. The most noteworthy of these are: terrorist financing, smuggling, extortion, IPR violations, sexual exploitation of children, trafficking in persons, trafficking in stolen property, and environmental crimes.

Criminalizes terrorist financing: Yes

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

An October 2001 revision to the Penal Code criminalizes terrorist activities and the financing of terrorist acts. The Prevention of Terrorism Act of 2006 also prohibits the financing of terrorist acts. However, Jordan has no legislation that prohibits financing of terrorist organizations or groups.

Know-your-customer rules: Yes

All obligated entities are required to conduct due diligence to identify customers and their activities, legal status, and beneficiaries; and to follow-up on transactions conducted through an ongoing relationship. Business dealings with anonymous persons, persons using fictitious names or shell banks are prohibited.

Bank records retention: Yes

Banks and other financial institutions are required to maintain records for a period of five years in order to facilitate investigations.

Suspicious transaction reporting: Yes

Financial institutions are required under the AML Law to report to the Anti-Money Laundering Unit (AMLU), Jordan’s financial intelligence unit (FIU), all suspicious transactions, whether the transaction was completed or not, via suspicious transaction reports (STRs). Entities required to report include: banks, foreign exchange companies, money transfer companies, stock brokerages, insurance companies, credit companies, and any company engaging in debt collection and payment services, leasing services, investment and financial asset management, real estate trading and development, and companies trading in precious metals and stones. Lawyers and accountants are not considered to be obligated entities under the law. The AMLU received approximately 170 STRs in 2009. There was no report of any STRs being forwarded to prosecutors for further action.

Large currency transaction reporting: No

Narcotics asset seizure and forfeiture:

Seizure and forfeiture of assets related to criminal activity are authorized under a combination of statutes, principal of which are: the Penal Code, the Economic Crimes Law, the AML Law, the Narcotics and Psychotropic Substances Law and the Prevention of Terrorism Act of 2006. Jordan’s Anti-drugs Law allows the courts to seize proceeds and instrumentalities of crime derived from acts proscribed by the law. The Economic Crimes Law gives both prosecutors and the courts the authority to seize from any person proceeds generated by criminal activity under that law for a period of three months while an investigation is underway. Jordan’s penal code further provides prosecutors the authority to confiscate “all things” derived from a felony or intended misdemeanor.

Narcotics asset sharing authority: No

Cross-border currency transportation requirements: Yes

The AML Law requires reporting of inbound cross-border movement of money if the value exceeds JD 15,000 (approximately $21,150). A declaration form was adopted and printed in 2009. At year’s end, Jordan Customs, in consultation with the AMLU, was working on a trial implementation plan to assess the enforcement of reporting requirements through use of the declaration at three ports of entry – Queen Alia International Airport, Aqaba Ferry Terminal, and Jabar land crossing (Syria). The declaration requirement applies only to entry of money into the Kingdom and not exiting.

Cooperation with foreign governments:

Jordan’s AML Law provides judicial authorities the legal basis to cooperate with foreign judicial authorities in providing assistance in foreign investigations, extradition, and freezing and seizing of funds related to money laundering in accordance with current legislation and bilateral or multilateral agreements to which Jordan is a party, based on reciprocity. There was no indication in 2009 that these provisions of the AML Law have been used by the GOJ.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

The money services business sector lacks sufficient regulatory oversight and verification of compliance with STR reporting requirements. Real estate businesses and precious metals and stones dealers are also under-regulated and are generally unaware of their responsibilities to report suspicious transactions.

One phenomenon that surfaced during 2008 and continued through 2009 was the use of gold in lieu of cash for movement of liquid assets. The scheme involves persons crossing into Jordan, making an admission to inspecting customs authorities of trying to enter with multi-kilo quantities of gold, paying a fine and then re-exporting the gold, thus creating a declaration document to lend legitimacy to the movement of the precious metal. The activity noted in 2009 related to smuggling of gold bars into Jordan followed by deposit into a “gold account” in a Jordanian bank with subsequent transfer to other countries like Switzerland, ostensibly for the jewelry trade. Inquiries and assessments conducted during 2009 reveal Jordan continues to be vulnerable to trade-based money laundering, bulk cash smuggling, and abuse of alternative remittance systems. Data on the prevalence of these activities was not available for two reasons: recognition of these methodologies in Jordan is relatively new; and it is common practice for individuals and businesses of all types to first contact the General Intelligence Directorate (GID) if suspicions of certain crimes surface. Offenses perceived as relating to national security, including money laundering and terrorist financing, fall into that category. For example, when MSBs have suspicions about a person using their services, their practice has been to report it to the GID and not submit a STR to the AMLU. Details of these cases are rarely published or revealed.

Due to lack of knowledge of the AML Law, and uncertainty about the role of the AMLU with its limited functional capability, few prosecutors have considered using the AMLU to assist in criminal prosecutions or to charge financial crime violators with money laundering.

One significant challenge facing the GOJ is determining how law enforcement entities are tasked to conduct financial investigations relating to money laundering and terrorist financing. Law enforcement agencies and public prosecutors continue to deliberate the question of whether the AML Law or the Prevention of Terrorism Act of 2006 provides sufficient basis for charging money laundering or terrorist financing. There is no specific GOJ agency designated as the lead entity for investigating financial crimes. In spite of numerous criminal cases involving large financial value, no prosecutions of money laundering have occurred since the passage of the AML Law.

U.S.-related currency transactions:

The U.S. dollar is commonly used in both the licit and illicit economies.

Records exchange mechanism with U.S.:

Jordanian and U.S. law enforcement authorities have a working relationship and regularly exchange information on financial crimes. The GOJ and the U.S. have an extradition treaty.

International agreements:

Jordan is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - Yes

Jordan is a member of the Middle East and North Africa Financial Action Task Force (MENAFATF), a Financial Action Task Force-style regional body. Jordan’s most recent evaluation can be found here: http://www.menafatf.org/

Recommendations:

The Government of Jordan (GOJ) should conduct a comprehensive evaluation of its capabilities to prevent money laundering and enforce its laws in accordance with international standards and best practices. There was little advancement in the AML/CFT regime in 2009. Many of the steps in the FIU implementation plan require action or approval of the National Committee on Anti-Money Laundering which has not steadily moved forward in addressing the necessary requirements needed to comport with international standards. GOJ prosecutorial, law enforcement and customs entities should examine forms of bulk cash smuggling relating to terrorist financing and trade-based money laundering and incorporate preventative and investigative strategies to successfully conduct complex financial investigations. Jordan should also establish and implement a viable asset forfeiture regime. Charitable and nonprofit organizations should have better supervision and oversight. Jordan’s cross-border currency reporting should include outbound declarations. Jordan should draft, pass and implement legislation which meets international standards concerning terrorist financing. The AML Law should be amended to include as predicate offenses to money laundering all crimes addressed by international standards as well as any offense or act that causes a loss of revenue to the Kingdom in excess of JD 10,000 (approximately $14,100). Many offenses that generate large illicit sums that are currently outside of the reach of the AML Law’s definition of money laundering could be targeted.

Kenya

Kenya is developing into a major money laundering country. Kenya’s use as a transit point for international drug traffickers continues to increase and the laundering of funds related to Somali piracy is a substantial problem. Reportedly, Kenya’s financial system may be laundering over $100 million each year, including an undetermined amount of narcotics proceeds and Somali piracy-related funds. There is a black market for smuggled goods in Kenya, which serves as the major transit country for Uganda, Tanzania, Rwanda, Burundi, northern Democratic Republic of Congo (DRC), and Southern Sudan. Goods marked for transit to these northern corridor countries avoid Kenyan customs duties, but authorities acknowledge they are often sold in Kenya. Many entities in Kenya are involved in exporting and importing goods, including nonprofit entities. As a regional financial and trade center for Eastern, Central, and Southern Africa, Kenya’s economy has large formal and informal sectors. Although banks, wire services and other formal channels execute funds transfers, there are also thriving, unregulated informal networks of hawala and other alternative remittance systems using cash-based, unreported transfers that the Government of Kenya (GOK) cannot track. Expatriates, in particular the large Somali refugee population, primarily use hawala to send and receive remittances internationally.

Offshore Center: No

Free Trade Zones: No

Criminalizes narcotics money laundering: Yes

Section 49 of the Narcotic Drugs and Psychotropic Substance Control Act of 1994 criminalizes money laundering related to narcotics trafficking.

Criminalizes other money laundering, including terrorism-related: Yes

In December 2009, Parliament passed the Proceeds of Crime and Anti-Money Laundering Law, 2009 (AML Law), which was signed by the President on December 31, 2009. The AML Law addresses the offense of money laundering and introduces measures providing for the identification, tracing, freezing, seizure and confiscation of the proceeds of crime. It defines proceeds of crime as any property or economic advantage derived or realized, directly or indirectly, as a result of or in connection with an offense. The legislation provides for criminal and civil restraint, seizure and forfeiture. In addition, the AML Law authorizes the establishment of an FIU. However, the law will not come into force until the Minister of Finance sets a date, by notice in the Gazette. According to the Act, such date shall not exceed six months after the date of assent, but no such date has yet been set.

Criminalizes terrorist financing: No

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

Know-your-customer rules: Yes.

The new AML Law establishes new know-your-customer requirements.

Bank records retention: Limited

Records must be maintained for transactions over $100,000 and international transfers exceeding $50,000.

Suspicious transaction reporting: Yes

The AML Law requires financial institutions and nonfinancial businesses and professions, including casinos, real estate agencies, precious metals and stones dealers, and accountants, to file suspicious transaction reports (STRs). Section 45 of the AML Law requires institutions to monitor all transactions, pay attention to unusual patterns of transactions, and report any suspicious transaction.

Large currency transaction reporting: Yes

Under the AML Law reporting institutions must file reports of all cash transactions exceeding the equivalent of $10,000 in any currency.

Narcotics asset seizure and forfeiture:

Kenyan law theoretically provides for the tracing, freezing, and seizure of assets, but it is weak and ineffective due to the requirements for obtaining a warrant. Asset seizures are rare, other than intercepted drugs and narcotics. The new AML Law contains asset seizure and forfeiture provisions but that law is not yet in force.

Narcotics asset sharing:

Information not available.

Cross-border currency transportation requirements: Yes

Regulations are rarely enforced and records are not kept. Kenya has little in the way of cross-border currency controls. GOK regulations require that any amount of cash above $5,000 be disclosed at the point of entry or exit for record keeping purposes only, but this provision is rarely enforced, and authorities keep no record of cash smuggling attempts.

Cooperation with foreign governments (including refusals):

Information not available.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

The new AML Law has a number of deficiencies. While the AML Law does take an “all crimes” approach to money laundering predicate offenses, without a full review of the Kenyan criminal system and related legislation, it is not possible to determine the extent to which the predicate offenses meet the international standard. The AML Law does not mention terrorism or terrorist financing, and neither terrorism nor terrorist financing are criminalized in Kenya. The legislation does not explicitly authorize the seizure of legitimate businesses used to launder money. A number of amendments to the law appear to have made the AML Law less powerful than earlier drafts. For example, in the version of the bill that was passed, legal professionals were removed from those required to file STRs, the penalties for financial institutions were reduced and the definition of monetary instruments was restricted to currency. Due to language in other parts of the law, the final impact of the amendments is unclear.

The GOK did not report any money laundering or terrorist financing arrests, prosecutions, or convictions from 2007 through 2009. Kenya lacks the institutional capacity, investigative skill and equipment to conduct complex investigations independently.

Kenya has no straightforward legal mechanism to freeze or seize criminal or terrorist accounts. To demand bank account records or to seize an account, the police must present evidence linking the deposits to a criminal violation and obtain a court warrant. The confidentiality of this process is difficult to maintain, and as a result of leaks, account holders are warned of investigations and then move their accounts or contest the warrants.

Kenya ranks 146 out of 180 countries on the 2009 Transparency International Corruption Perceptions Index.

U.S.-related currency transactions:

Annual remittances from expatriate Kenyans are estimated at $570 million to $1 billion. Nairobi’s Eastleigh Estate has become an informal remittance hub for the Somali diaspora, transmitting millions of dollars every day from Europe, Canada and the U.S. to points throughout Somalia.

Records exchange mechanism with U.S.:

Kenya and the United States are not parties to a bilateral mutual legal assistance treaty that provides for exchange of information; however, Kenya has an informal arrangement with the U.S. for the exchange of information relating to narcotics, terrorist financing and other serious crime investigations and has cooperated with the U.S. in such situations.

International agreements:

Through an informal arrangement Kenya has cooperated with the United Kingdom in investigations relating to narcotics, terrorist financing and other serious crimes.

Kenya is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - Yes

Kenya is a member of the Financial Action Task Force-style regional body the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG). At the time of publication, Kenya was scheduled to undergo its first mutual evaluation in April 2010. When the report is finalized and adopted, the report will be found at: www.esaamlg.org

Recommendations:

The Government of Kenya should bring into force the Proceeds of Crime and Anti-Money Laundering Law, 2009, as soon as possible. The GOK should implement the AML Law, and create an FIU. The GOK should criminalize terrorist financing and pass a law authorizing the government to seize the financial assets of terrorists. Kenyan authorities should take steps to ensure that nongovernmental organizations (NGOs), suspect charities and nonprofit organizations follow internationally recognized transparency standards and file complete and accurate annual reports. The Central Bank of Kenya (CBK), law enforcement agencies, and the Ministry of Finance should improve coordination to enforce existing laws and regulations to combat money laundering, tax evasion, corruption, and smuggling. The Minister of Finance should revoke or refuse to renew the license of any bank found to have knowingly laundered money, and the CBK should tighten its examinations and audits of banks. Kenyan law enforcement should be more proactive in investigating money laundering and related crimes, and its customs authorities should exert control over Kenya’s borders.

Korea, Democratic Republic of

In the past, citizens of the Democratic People’s Republic of Korea (DPRK) have been apprehended in international investigations for trafficking in narcotics and other forms of criminal behavior, including producing and distributing counterfeit U.S. currency (including $100 “super notes”) and trading in counterfeit products, such as cigarettes and patented pharmaceuticals like Viagra and Cialis. There have also been reports of the DPRK smuggling ivory from Africa. There is substantial evidence that North Korean governmental entities and officials have been involved in the laundering of the proceeds of illicit activities and that they continue to be engaged in illegal activities, including activities related to counterfeiting, through a number of front companies. The illegal revenue garnered from these sources provides desperately needed foreign hard currency for the DPRK economy. The need for foreign currency became especially acute after the June 2009 passage of UN Security Council Resolution 1874.

Offshore Center:

No information available.

Free Trade Zones:

No information available.

Criminalizes narcotics money laundering: See below

Criminalizes other money laundering, including terrorism-related:

On October 25, 2006 the Standing Committee of the Supreme People’s Assembly of the DPRK adopted a law “On the Prevention of Money Laundering.” The law states the DPRK has a “consistent policy to prohibit money laundering.” However, this law is significantly deficient in most important respects, and there is no evidence that it has been implemented.

Criminalizes terrorist financing:

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

Know-your-customer rules:

No information available.

Bank records retention:

No information available.

Suspicious transaction reporting:

No information available.

Large currency transaction reporting:

No information available.

Narcotics asset seizure and forfeiture:

No information available.

Narcotics asset sharing authority:

No information available.

Cross-border currency transportation requirements:

No information available.

Cooperation with foreign governments (including refusals):

No information available.

U.S. or international sanctions or penalties:

On September 15, 2005, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) designated Macau-based Banco Delta Asia (BDA) as a primary money laundering concern under Section 311 of the USA PATRIOT Act and issued a proposed rule regarding the bank, citing the bank’s systemic failures to safeguard against money laundering and other financial crimes. In its designation of BDA as a primary money laundering concern, FinCEN cited “the involvement of North Korean Government agencies and front companies in a wide variety of illegal activities, including drug trafficking and the counterfeiting of goods and currency.” Treasury finalized the Section 311 rule in March 2007, prohibiting U.S. financial institutions from opening or maintaining correspondent accounts for or on behalf of BDA. This rule remains in effect.

On October 11, 2008 the United States Government formally removed North Korea from the U.S. list of state sponsors of terrorism.

In response to concerns that North Korea had conducted nuclear testing, the UN Security Council (UNSC) adopted Resolution 1718 on October 14, 2006, which aimed to prevent a range of nuclear, ballistic missile, and other weapons of mass destruction -related equipment and technology from entering or leaving the Democratic People’s Republic of Korea. The Resolution imposes an asset freeze and travel ban on persons related to the nuclear weapon program. Similar concerns gave rise to the adoption of Resolution 1874 on June 12, 2009, calling for member states to prevent the provision of financial services or any financial or other assets or resources that could contribute to North Korea’s nuclear, ballistic missile, or other weapons of mass destruction-related programs or activities. Resolution 1874 also demands that North Korea immediately comply with UNSCR 1718, which includes a ban on the transfer of luxury goods to North Korea.

In addition, FinCEN issued an initial advisory on June 18, 2009 (amended December 18, 2009) on North Korea Government Agencies’ and Front Companies’ Involvement in Illicit Financial Activities. In light of the financial measures in UNSCRs 1718 and 1874, and the use of deceptive financial practices by North Korea and North Korean entities, as well as individuals acting on their behalf to hide illicit conduct FinCEN advised all U.S. financial institutions to take commensurate risk mitigation measures.

Enforcement and implementation issues and comments:

The DPRK has not taken any steps to establish and implement a viable anti-money laundering/counter-terrorist financing regime.

U.S.-related currency transactions:

Citizens and government officials have been accused and apprehended for producing and distributing counterfeit U.S. currency.

Records exchange mechanism with U.S.:

None

International agreements:

The DPRK is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - No
  • the UN Convention against Transnational Organized Crime - No
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - No

The DPRK is not a participant in any Financial Action Task Force-style regional body (FSRB).

Recommendations:

The DPRK should develop a viable anti-money laundering/counter-terrorist financing regime that comports with international standards and participate in a FSRB. The DPRK also 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.

Korea, Republic of

The Republic of Korea (ROK) is not considered an attractive location for international financial crimes or terrorist financing. Most money laundering appears to be associated with domestic criminal activity or corruption and official bribery. Laundering the proceeds from illegal game rooms, customs fraud, exploiting zero value added tax (VAT) rates applied to gold bars, trade-based money laundering, counterfeit goods and intellectual property rights violations are all areas of vulnerability. Criminal groups based in South Korea maintain international associations with others involved in human trafficking, contraband smuggling and related organized crime. As law enforcement authorities have gained more expertise investigating money laundering and financial crimes, they have become more cognizant of the problems.

Offshore Center:

No information available.

Free Trade Zones:

South Korea has a number of free economic zones (FEZs) that enjoy certain tax privileges. However, companies operating within them are subject to the same general laws on financial transactions as companies operating elsewhere. Korea mandates extensive entrance screening to determine companies’ eligibility to participate in FEZ areas, and firms are subject to standard disclosure rules and criminal laws. In 2007, Korea had six FEZs. Incheon International Airport has been incorporated into the FEZs.

Criminalizes narcotics money laundering: Yes

Criminalizes other money laundering, including terrorism-related: Yes

Forty kinds of serious crimes are predicate offenses in Korea—two crimes under the Act on Special Cases Concerning the Prevention of Illegal Trafficking in Narcotics (1993) and 38 additional kinds of crimes, including economic crimes, bribery, organized crime, and illegal capital flight, under the Proceeds of Crime Act (POCA) ( 2001). In addition, the concealment and disguise of legally owned property for the purpose of tax evasion, illegal refunds, customs evasion or smuggling is considered to be money laundering for the purposes of filing suspicious transaction reports (STRs).

Criminalizes terrorist financing: Yes

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

South Korea’s Prohibition of Financing for Offenses of Public Intimidation Act took effect in December 2008, and is intended to implement the UN Convention for the Suppression of the Financing of Terrorism; however, it is unclear whether it criminalizes the sole raising of terrorist funds. An amendment expanding the ROK Government’s (ROKG) ability to confiscate funds related to terrorism was enacted in March 2009. The amendment adds the Prohibition act to the list of laws covered under the POCA. As a result, the ROKG is now able to confiscate the direct proceeds of terrorism but also funds and assets derived from those proceeds.

Know-your-customer rules: Yes

In Korea, financial institutions are required to conduct customer due diligence under the Act on Real Name Financial Transactions and Guarantee of Secrecy (RNFTA), effective 1993, and the Financial Transaction Reports Act, as amended in December 2008. The RNFTA effectively prohibits anonymous accounts and accounts in obviously fictitious names and requires financial institutions to verify the identity of their customers.

Bank records retention: Yes

There is no specific law or regulation establishing a general record keeping obligation for the purposes of anti-money laundering/counter-terrorist financing (AML/CFT) compliance. Nevertheless, record keeping obligations exist in several laws, primarily those concerning commercial and taxation activities, and these apply to those institutions which are subject to AML/CFT obligations. Obligated entities must keep documentation concerning customer identification, transaction records and the grounds for suspicion for five years from the date a suspicious transaction report is filed.

Suspicious transaction reporting: Yes

Money laundering controls are applied to bank and non-bank financial institutions, such as exchange houses, stock brokerages, casinos, insurance companies, merchant banks, mutual savings banks, finance companies, credit unions, credit cooperatives, trust companies, and securities companies. The Financial Transaction Reports Act establishes STR obligations for designated non-financial businesses and professions. The STR system was strengthened in 2004 with the lowering of the mandatory STR filing threshold from 50 to 20 million won (approximately $17,200). The KFIU plans to abolish the threshold in the long term, to mandate all suspicious transactions be reported. All obligated entities are required to report STRs to the Korea Financial Intelligence Unit (KFIU).

Large currency transaction reporting: Yes

A cash transaction report system was implemented in January 2006. The current threshold of KRW 30 million (approximately $25,800), adopted in January 2008, was reduced to KRW 20 million (approximately $17,200) in January 2010.

Narcotics asset seizure and forfeiture:

In November 2001, Korea established a system for identifying, tracing, freezing, seizing, and forfeiting assets related to narcotics offenses and/or other serious crimes. The Bank Account Tracing Team under the Narcotics Investigation Department of the Seoul District Prosecutor’s Office is responsible for tracing and seizing drug-related assets.

Narcotics asset sharing authority:

No information available.

Cross-border currency transportation requirements: Yes

Korea has a declaration system for cross border movement of currency and bearer negotiable instruments. Any resident or non-resident who intends to export or import means of payment exceeding $10,000 or the equivalent is required to report this to the Korea Customs Service.

Cooperation with foreign governments:

No impediments to cooperation are known to exist.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

Officials charged with investigating money laundering and financial crimes are beginning to widen their scope to include crimes related to commodities trading and industrial smuggling, and continue to search for possible links between domestic illegal activities and international terrorist activity.

Korean government authorities continue to investigate the underground alternative remittance systems used to send illegal remittances abroad by South Korea’s approximately 460,000 documented foreign workers from Asia, as well as thousands of undocumented foreign workers (mainly ethnic Koreans from China, Mongolia, Uzbekistan, and Russia). According to an October 2009 report by the Korea Customs Service, there were 2,258 underground remittance cases worth 3.28 trillion won (approximately $2.97 billion) in 2008, and 1,356 cases totaling 2.3 trillion won (approximately $1.9 billion) in the first eight months of 2009.

The KFIU circulates to its financial institutions the names of suspected terrorists and terrorist organizations listed on the UN 1267 Sanctions Committee’s consolidated list, the list of Specially Designated Global Terrorists designated by the United States pursuant to Executive Order 13224, and those listed by the European Union under relevant authorities. No listed terrorist-related accounts have been reported in Korea. However, from 2003 to September 2008, Korea has detained or deported more than 74 people suspected of having ties to international terrorist networks.

U.S.-related currency transactions:

No information available.

Records exchange mechanism with U.S.:

An extradition treaty between the United States and the ROK entered into force in December 1999. The United States and the ROK cooperate in judicial matters under a Mutual Legal Assistance Treaty, which entered into force in 1997.

International agreements:

The FIU continues to actively pursue information-sharing agreements with a number of countries. As of 2008, the FIU had signed memoranda of understanding with 39 countries.

The ROK is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - No
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - Yes

The ROK became a member of the Financial Action Task Force (FATF) in October 2009. South Korea also is a member of the Asia/Pacific Group on Money Laundering (APG), a FATF-style regional body. Its most recent mutual evaluation can be found here:

http://www.apgml.org/documents/docs/17/Korea%20MER%202009.pdf

Recommendations:

The Republic of Korea Government should continue its policy of active participation in international AML/CFT efforts, both bilaterally and in multilateral fora. Spurred by enhanced local and international concern, Korean law enforcement officials and policymakers now understand the potential negative impact of such activity on their country, and are taking steps to combat its growth. The ROK should take steps in the short term rather than long term to eliminate the STR reporting threshold. The ROKG should become a party to the UN Convention against Transnational Organized Crime.

Kosovo

The Republic of Kosovo declared independence on February 17, 2008, after being administered by the United Nations Interim Administrative Mission in Kosovo (UNMIK) since 1999. Kosovo is located on the Balkan Peninsula in southeastern Europe. Less than two years old, Kosovo is in the process of drafting and implementing new laws to address money laundering and financial crimes, as well as developing the necessary framework to execute this legislation. There is a shortage of resources, both monetary and human, to review and draft required legislation needed for the short- and long-term. Kosovo faces many challenges: a struggling economy with high unemployment; corruption; crime; and weak adherence to, and respect for, the rule of law. Kosovo is not considered an important regional financial or offshore center, and does not play a significant role in terms of money laundering. The country does, however, have an active black market for smuggled consumer goods and pirated products. According to the Customs Service, significant amounts of cigarettes and fuel are smuggled into the country. There is no indication that these smuggled items are funded by narcotic or other illicit proceeds. Illegal proceeds from domestic and foreign criminal activity are generated from official corruption, tax evasion, customs fraud, organized crime, contraband and other types of financial crimes. Most of the proceeds from smuggling activity are believed to go directly into the economy in areas such as construction and real estate, retail and commercial stores, banks, financial services, casinos and trading companies. Smaller amounts are thought to be laundered through the financial system. There is some evidence of trade-based money laundering in the form of over-and-under invoicing.

Offshore Center: No

Free Trade Zones: No

Criminalizes narcotics money laundering: See below

Criminalizes other money laundering, including terrorism-related:

UNMIK Regulation 2004/2 on the Deterrence of Money Laundering and Related Criminal Offenses criminalizes money laundering and all serious crimes related to money laundering, including terrorist financing.

Criminalizes terrorist financing:

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

Kosovo criminalized terrorist financing with the implementation of Article 112 of the Provisional Criminal Code of Kosovo on July 6, 2003 (UNMIK Regulation 2003/25). This regulation calls for punishment by imprisonment for the facilitation of the commission of terrorism. According to the article, facilitation is understood to mean any action that provides, solicits, collects or conceals funds or other material resources used for the purpose of committing terrorism.

Know-your-customer rules: Yes

Banks and other financial institutions are required to know, record, and report the identity of customers engaging in significant transactions, including recording large currency transactions at the statutory threshold of 10,000 euros (approximately $14,000). There is currently no requirement to monitor the financial transactions of politically exposed persons.

Bank records retention: Yes

While financial institutions are required to maintain records on client identification, suspicious transactions, and transactions exceeding the threshold amount for a period of five years, there is no specific requirement to fully maintain records for the purpose of reconstructing transactions.

Suspicious transaction reporting: Yes

Banks, financial institutions, non-governmental organizations, political parties, attorneys, accountants, auditors, and non-bank business organizations are required by law to report suspicious transactions, including suspicious immovable property transactions. The current financial intelligence unit, the Financial Intelligence Center (FIC), was created in 2004 through UNMIK Regulation 2004/2.

Large currency transaction reporting: No

Narcotics asset seizure and forfeiture:

Pursuant to UNMIK Regulation 2004/2, prosecutors have the ability to bring a forfeiture action against the proceeds of a crime that are used, or intended to be used, to commit or facilitate money laundering, or the predicate offense from which the proceeds of the crime are derived. Such action may be brought regardless of whether criminal proceedings have been initiated against a person in connection with the property. There is also a provision allowing for temporarily securing property, and the law allows for civil and criminal forfeiture. However, there is no systematic process for identifying, tracing, freezing, seizing, or forfeiting criminal assets; while there appear to be adequate police powers and resources, there is a lack of technical capacity and expertise to enact these measures.

Narcotics asset sharing authority: No

There is no law authorizing the sharing of seized assets with other governments.

Cross-border currency transportation requirements: Yes

UNMIK Regulation 2004/2 requires persons entering or leaving Kosovo to declare monetary instruments (currency, traveler’s checks, personal checks, etc.) in excess of 10,000 euros. The amount and source of the monetary instruments must be declared on a mandatory form that is submitted to the Customs Service at the point of entry or departure.

Cooperation with foreign governments:

No known impediments exist to cooperation.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

The FIC has no access to the records or databases of other government entities.

The number and types of obligated reporting subjects are abbreviated, leaving out casinos, real estate agents/brokers, precious metals/stones dealers and other mandated subjects.

Kosovo has circulated the list of individuals and entities included on the UN 1267 sanctions committee’s consolidated list to financial institutions, as well as the list of terrorist organizations/financiers that the U.S. Government and the European Union have designated under relevant authorities. Kosovo did not find any evidence of terrorist financing activity in the past year.

U.S.-related currency transactions:

There is little indication that Kosovo’s financial institutions engage in currency transactions that include significant amounts of U.S. currency or currency derived from illegal drug sales in the United States. There have been no reports of laundered money heading to the United States.

Records exchange mechanism with U.S.:

No information available.

International agreements:

The FIC has formal agreements in place to share information with the financial intelligence units of Albania, Montenegro and Macedonia.

Kosovo is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - No
  • the UN Convention against Transnational Organized Crime - No
  • the 1988 UN Drug Convention - No
  • the UN Convention against Corruption - No

Kosovo’s Ministry of Foreign Affairs is undertaking a review of the agreements Kosovo can become a party to without being a member of the United Nations.

Kosovo is not a member of a Financial Action Task Force-style regional body.

Recommendations:

While there are shortcomings in Kosovo’s current legal foundation dedicated to anti-money laundering measures, Kosovo is committed to drafting and implementing the required legislation to meet international standards to combat money laundering and terrorist financing. Kosovo should make passing the necessary legislation, such as the draft Law on the Prevention of Money Laundering and Terrorist Financing, and the law to establish an agency to manage frozen and confiscated assets, priorities. As part of any new legislation, the Government of Kosovo should expand obligated reporting entities to include those non-financial businesses and professions that are not currently covered, including casinos, real estate brokers and dealers of high-value goods. Additionally, Kosovo’s FIU should be given access to the records of other relevant government agencies to enable it to fulfill its responsibilities.

Kuwait

In Kuwait, illicit funds reportedly are generated largely as revenues from drug and alcohol smuggling into the country and the sale of counterfeit goods. The provision of financial support to terrorist groups, both by charities and by individuals utilizing cash couriers continues to be a major concern. The banking sector in Kuwait plays an important role in combating financial crimes. The Central Bank of Kuwait (CBK) reported in October 2009 total banking sector assets equal 40.2 KD billion. Kuwait has nineteen banks: six conventional (commercial) banks, four Islamic banks, eight branches of foreign banks, and one specialized bank.

Offshore Center: No

Free Trade Zones: Yes

The Kuwait Free Trade Zone (KFTZ), located in Shuwaikh Port, is owned and operated by the Kuwait Ports Authority (KPA).

Criminalizes narcotics money laundering: Yes

On March 10, 2002, the Emir of Kuwait (Head of State) signed Law No. 35 which criminalizes money laundering. The anti-money laundering law imposes penalties which may be doubled if an organized group commits the crime or if the offender uses his professional position when committing the offense.

Criminalizes other money laundering, including terrorism-related: Partially

Law No. 35 does not specifically cite terrorist financing as a crime. Other types of terrorism offenses are handled under ‘crimes against the state’ statutes, but Kuwait does not prosecute terrorist financing.

Criminalizes terrorist financing: No

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

Know-your-customer rules: Yes

Law 35 stipulates that banks and financial institutions must collect proper identification of all clients. The law applies to banks, other financial institutions, insurance agents, insurance brokers and companies; investment companies; exchange bureaus; jewelry establishments (including gold, metal and other precious commodity traders); real estate establishments and agents, and auditing firms In addition to Law No. 35, anti-money laundering reporting requirements and other rules are contained in CBK instructions No. (2/sb/92/2002). The instructions provide for, inter alia, customer identification and the prohibition of anonymous or fictitious accounts (Articles 1-5).

Bank records retention: Yes

Law 35 requires banks to keep records of transactions including customer identification information, for a minimum of five years.

Suspicious transaction reporting: Yes

Law No. 35 requires banks to file suspicious transaction reports (STRs) with the Office of Public Prosecution (OPP), who, in accordance with an MOU with the Central Bank, will in turn refer the STRs to the financial intelligence unit (FIU) within the CBK for analysis. The FIU conducts analysis and reports any findings to the OPP for the initiation of a criminal case. The vague delineations of the roles and responsibilities of the FIU, CBK, and OPP continue to hinder the overall effectiveness of Kuwait’s anti-money laundering regime.

Large currency transaction reporting: Yes

According to the 2002 CBK instructions (Article 20), there is a requirement to report to the CBK all cash transactions in excess of approximately $10,000.

Narcotics asset seizure and forfeiture:

The CBK, upon notification from the Ministry of Foreign Affairs (MFA), issues circulars to institutions subject to supervision requiring them to freeze the assets of suspected terrorists and terrorist organizations listed on the UNSCR 1267 Sanctions Committee’s consolidated list. Financial entities are instructed to freeze any found assets immediately and for an indefinite period of time, pending further instructions from the Central Bank.

Narcotics asset sharing authority:

Provisions of Law No. 15/1960 states that seized funds will be disposed of in accordance with rules and procedures issued by the Finance Minister. Asset sharing is based on either ratified bilateral agreements or in accordance with a principle of reciprocal treatment.

Cross-border currency transportation requirements: Partially

Provisions of Article 4 of Law No. 35 require travelers to disclose to customs authorities upon entry if they are carrying any national or foreign currency, gold bullion, or other precious materials valued in excess of 3,000 Kuwaiti dinars (approximately $10,900). However, the law does not require individuals to file declaration forms when carrying cash or precious metals when exiting Kuwait. Currency smuggling into Kuwait is criminalized under Law No. 35. There was one case of currency smuggling reported in 2008, which has not gone to court. The case reportedly involved smuggling of counterfeit U.S. dollar bills, euros and Gulf Cooperation Council (GCC) currencies.

Cooperation with foreign governments:

Kuwait cooperates on a case-by-case basis with other jurisdictions on financial crimes investigations and enforcement.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

Kuwait has had difficulty implementing the current anti-money laundering law due in part to structural inconsistencies within the law itself. Law No. 35 does not mandate that the FIU act as the central or sole unit for the receipt, analysis, and dissemination of STRs. Banks in Kuwait are required to file STRs with the OPP, rather than directly with the FIU. The FIU analysis is limited due to its inability to effectively analyze STRs and its inability to share information without prior approval from the OPP. The FIU is operating under the direct supervision of the CBK which means it is not an independent body in accordance with international standards.

Cash reporting requirements are not uniformly enforced at ports of entry (except at Kuwait International Airport and the Al-Abdali Border point).

Kuwait’s financial crimes enforcement and investigative capacity is weak.

In December 2009, the Government of Kuwait (GOK) provided an amended version of Law Number 35 to parliament for review and ratification. The amendment includes the restructuring of the FIU, inclusion of definitions of roles and responsibilities, and criminalization of terrorist financing. However, similar amendments have been provided to parliament for the last several years and have not been enacted into law.

U.S.-related currency transactions:

There is no evidence US currency is used in any significant volume in licit or illicit transactions.

Records exchange mechanism with U.S.:

Kuwait and the United States do not have a mutual legal assistance agreement, although negotiations are in process.

International agreements:

Kuwait is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - No
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - Yes

Although the GCC is a full member of the Financial Action Task Force (FATF), individual member countries of the GCC are not. Kuwait has played an active role in the Middle East North Africa Financial Action Task Force (MENAFATF) through its participation in drafting regulations and guidelines pertaining to charities oversight and cash couriers. Kuwait’s mutual evaluations are conducted jointly by the FATF and MENAFATF. No mutual evaluation is available for Kuwait.

Recommendations:

In order to bring Kuwait into compliance with international standards, the Government of Kuwait (GOK) should criminalize terrorist financing and ratify and implement fully the UN International Convention for the Suppression of the Financing of Terrorism. Kuwait should take steps to implement and enforce a uniform cash declaration policy for both inbound and outbound travelers at all its ports. The FIU should be given true operational independence and strengthened so it can serve as the national center for the receiving, analysis and dissemination of STRs and other information regarding potential money laundering or terrorist financing. Also, the GOK should take measures to bring its FIU into compliance with the standards set out for Egmont Group membership and consider joining that organization. Kuwait customs, police and prosecutors should be made aware of money laundering methodologies and initiate inquiries and investigations without waiting for the filing and dissemination of a STR.

Kyrgyz Republic

The Kyrgyz Republic is not a regional financial center. The Kyrgyz banking system remains comparatively underdeveloped. Like other countries in the region, the Kyrgyz Republic’s alternative remittance systems are susceptible to money laundering activity or trade-based fraud. Money laundering and terrorist financing primarily occur through trade-based fraud and bulk cash carriers. Narcotics trafficking, the smuggling of consumer goods, tax and tariff evasion, and official corruption continue as major sources of illegal proceeds within the Kyrgyz Republic. The lack of political will and inter-agency cooperation, resource constraints, inefficient financial systems, and corruption all serve to stifle efforts to effectively combat money laundering and terrorist financing.

Offshore Center: No

Free Trade Zones: There are four Free Economic Zones (FEZs) in the Kyrgyz Republic: Bishkek, Naryn, Karakol and Maimak. Each is situated to make use of transportation infrastructure and/or customs posts along the Kyrgyz borders. Goods entering and traded within the zones are duty free within the Kyrgyz Republic. Government incentives for investment in the zones include exemption from several taxes, duties and payments; simplified customs procedures; and direct access to utility suppliers. The production and sale of petroleum, liquor, and tobacco products in FEZs are banned.

Criminalizes narcotics money laundering: Yes

Criminalizes other money laundering, including terrorism-related:

In 2009, the legislature passed amendments to the 2006 law on “Counteracting Terrorist Financing and Legalization of Proceeds from Crime (Money Laundering) (ML/TF Law).” The law defines predicate offenses as crimes under the Kyrgyz Criminal Code, and criminalizes income obtained as a result of a criminal action. The money laundering controls are applied equally to all banking and non-banking financial institutions, to include banks, credit institutions, stock brokerages, foreign exchange offices, casinos, and insurance companies. Recent amendments expand the list to include: notaries, tax consultants/auditors, realtors, the state’s property agency, trustees, jewelry stores and dealers.

Criminalizes terrorist financing:

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

In 2009 Kyrgyzstan introduced amendments to the Criminal Code, Article 226-1, which criminalize terrorist financing.

Know-your-customer rules:

Customer identification must be carried out when establishing business relations or when carrying out occasional transactions (irrespective of any threshold), including all wire transfers.

Bank records retention: Yes

All Kyrgyz financial institutions must retain records for five years after closure of the account. Documents related to customer identification and customer transactions should be kept for a period of ten years.

Suspicious transaction reporting: Yes

The ML/TF Law requires mandatory reporting of suspicious transactions. The Kyrgyz Financial Intelligence Service (FIS), the Kyrgyz financial intelligence unit, collects and analyzes information related to financial and suspicious transactions. Since 2006, there have been nine cases referred to the Financial Police by the FIS. Of those, two were investigated and none prosecuted to date.

Large currency transaction reporting:

The statutory threshold amount that triggers mandatory reporting is $25,000.

Narcotics asset seizure and forfeiture:

The 2009 amendments address the issue of asset forfeiture. Procedures for seizing and forfeiting assets derived from criminal activity need to be clarified. Kyrgyz law enforcement and other competent bodies including the FIS are not adequately empowered to identify and find property subject to confiscation or property suspected of being the proceeds of a crime. There is no provision under Kyrgyz law to allow for civil forfeiture.

Narcotics asset sharing authority:

No information available.

Cross-border currency transportation requirements:

The import and export of currency is not subject to any restrictions provided it is declared at the customs control points. The law “On Operations in Foreign Currency” does say that the transportation of currency valuables (gold, precious metals and other means that can be changed into currency) is to be declared but this does not include bearer negotiable instruments.

Cooperation with foreign governments (including refusals):

Chapter IV of the money laundering law does provide for an international exchange of information and legal assistance. The law mandates that the FIS, in compliance with international treaty obligations, collaborate with foreign counterparts in financial intelligence and terrorist financing matters.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

Oversight of the banking sector is generally weak, and Kyrgyz law enforcement agencies lack the expertise and resources necessary to effectively monitor and investigate financial irregularities.

U.S.-related currency transactions:

No information available.

Records exchange mechanism with U.S.:

The FIS shares information with FinCEN.

International agreements:

In May 2009, the FIS became a member of the Egmont Group of financial intelligence units. It now shares information with other member FIUs.

The Kyrgyz Republic is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - Yes

The Kyrgyz Republic is a member of the Eurasian Group on Combating Money Laundering and Financing of Terrorism, a Financial Action Task Force-style regional body. Its most recent mutual evaluation can be found here: http://www.eurasiangroup.org/en/mers.html

Recommendations:

The Government of the Kyrgyz Republic should continue to strengthen its anti-money laundering/counter-terrorist financing legislation. In addition, the Kyrgyz Republic should increase and enhance training in money laundering and terrorist financing investigative techniques and devote sufficient resources to entities with responsibilities under the legislation. The GOK should review its reporting threshold for large transactions to determine its appropriateness.

Laos

The opportunities and conditions for money laundering and related financial crimes in Laos have increased over the past year and the lack of an effective and comprehensive legal and regulatory framework along with even less effective implementation of the existing framework leaves the country vulnerable to abuse. Illegal timber harvesting, official corruption, cross-border smuggling of goods and currency, high value used cars, illicit proceeds from the sale of methamphetamine and opiates, including heroin, and domestic crime may all be sources of illicit funds. In 2009, the Lao Government endorsed an estimate of the value of the illicit drug economy to be about ten percent of GDP or up to $750 million. There are continued reports of illicit funds being diverted into hotel construction, resort development, mining ventures, golf courses, luxury real and personal property, and industrial tree cropping projects. In addition, Laos receives a large amount of development assistance from overseas donors and there are concerns that a substantial portion of these monies are stolen or otherwise diverted. In recent years a number of private sector financed projects and/or parastatal enterprises in the hydropower, mining, and construction sectors have started to generate revenues to the government but reliable public reporting of these revenues is often lacking and the possibility exists of theft and/or diversion. Anecdotal evidence indicates that bulk cash generated from illicit activities is often smuggled across borders and deposited in accounts in Thailand, China, and Vietnam.

Offshore Center: No

Free Trade Zones: Yes

In 2009, the Lao government approved two new special economic zones in Luang Namtha and Bokeo provinces to be developed and managed by Chinese private companies. The Savan-Seno Special economic zone, in Savannakhet Province, was established in 2005 and is managed by a Malaysian firm.

Criminalizes narcotics money laundering: Yes

Criminalizes other money laundering, including terrorism-related: Yes

Money laundering is a criminal offense in Laos and covered in at least two separate decrees. The penal code contains a provision adopted in November 2005 (Article 64) that criminalizes money laundering and provides sentencing guidelines. On March 27, 2006, the Prime Minister issued decree No. 55/PM on anti-money laundering. The decree is roughly equivalent to a law.

Criminalizes terrorist financing: Yes

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

A revision to the penal law in November 2005 includes Article 58/2 which makes financing terrorism punishable by fines, prison sentences, and the possibility of the death penalty.

Know-your-customer rules: Yes

Chapter III, Article 7 of the Guidelines on Anti Money Laundering Procedures and Operational Controls of Reporting Institutions under Supervision of the Bank of Lao, PDR addresses customer due diligence.

Bank records retention: Yes

All records are to be maintained for at least ten years after the account has been closed or the business relationship with the customer has been terminated, or for transaction-related records, for ten years from the date the transaction was conducted.

Suspicious transaction reporting: Yes

Financial institutions are required to submit suspicious transaction reports (STRs) to the Anti-Money Laundering Intelligence Unit (AMLIU), the Lao financial intelligence unit (FIU). Other reporting entities (e.g., casinos, money service businesses, pawn shops, dealers in precious metals, etc.) designated in the anti-money laundering (AML) decree are not believed to be supervised at all for AML purposes. In October 2007, the Bank of Laos issued a guideline for suspicious transaction reporting (No. 66). To date only a small number of reports has been received by AMLIU and none are known to have resulted in referrals to law enforcement. AMLIU does not have, at this point, the data, technical means, analytic capacity, and procedural means to detect and refer such cases.

Large currency transaction reporting: No

The AMLIU is mandated to establish transaction thresholds for mandatory reports but a lack of technical ability has prevented AMLIU from receiving such reports.

Narcotics asset seizure and forfeiture:

The Prime Minister’s 2006 decree on money laundering specifically authorizes asset seizures but there is no established procedure to implement this program. The “Law on Drugs and Article 146 of the Penal Code” promulgated in early 2008 also allows for the seizure of assets from drug traffickers (Article 35). However, again, the legal and procedural processes are not specified, and thus neither the prosecutors nor the court system have taken any legal action regarding asset seizures. There is anecdotal evidence that, in the provinces, seized assets of drug traffickers such as vehicles and cash may be held and used by the state at the local level. No legal asset seizures related to narcotics trafficking or terrorism were reported in 2008 or 2009.

Narcotics asset sharing authority:

No information available. Lao laws and regulations regarding asset seizures are not clear and as yet, unenforceable. .

Cross-border currency transportation requirements: Yes

When carrying cash inbound and outbound across international borders, Laos requires a declaration for amounts over $5,000. Failure to show a declaration of incoming cash when exporting it could lead to seizure of the money or a fine, although in practice that is unlikely to occur.

Cooperation with foreign governments:

The lack of an asset forfeiture regime could hinder Lao assistance in money laundering or terrorist financing investigations and assistance requests.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

The gambling industry represents a particularly large and growing vulnerability. The industry continued to grow in 2009 with the opening of two new casinos. Although the ownership structure is not positively known, one of these, the “Savan Vegas Casino” at Savannakhet Province on the Thai border, is reportedly owned by Macao interests. The second and largest casino complex, the “Golden City Casino”, was built at a reported cost of $2.2 billion, again reportedly with Macao-based funds, and opened in the “Golden Quadrangle” area in northern Laos situated near Thailand, Burma, and China. The project includes housing for some 10,000 Chinese workers. There are rumors of two new casinos planned for 2010. The casinos are regulated by the Ministry of Culture and Information, which has no known AML controls in place as part of its regulatory regime for casinos. It is not clear what, if any regulatory authority exists for casinos located inside “special economic zones.”

The Bank of Laos has circulated to financial institutions the consolidated list of the UN 1267 Sanctions Committee, although the regularity of such circulation is not known.

U.S.-related currency transactions:

No information available.

Records exchange mechanism with U.S.:

No information available.

International agreements:

Laos is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - Yes

The Government of Laos is a member of the Asia/Pacific Group on Money Laundering (APG), a Financial Action Task Force-style regional body. Laos will be subject to its first mutual evaluation in 2010.

Recommendations:

The Government of Laos (GOL) should place priority upon full implementation of its existing anti-money laundering/counter-terrorist financing (AML/CFT) decrees. Training and awareness programs should be undertaken for appropriate supervisory, law enforcement, FIU and prosecutorial personnel as well as the judiciary. Furthermore, outreach should be made to entities subject to the reporting requirements of the decrees to make them aware of their compliance responsibilities. The GOL should ensure all entities not supervised by the Bank of Laos, especially the new casinos, are adequately supervised and monitored for AML/CFT compliance. Appropriate steps should be taken to ensure forfeited assets are accounted for and disposed of in accordance with the laws.

Latvia

Latvia is a growing regional financial center that has a large number of commercial banks with a sizeable nonresident deposit base. Authorities report that the largest source of money laundered in Latvia is tax evasion/fraud. Other sources include financial fraud, smuggling, and public corruption. Some proceeds of tax evasion appear to originate from outside of Latvia. Reportedly, Russian organized crime is active in Latvia, and authorities believe that a portion of domestically obtained criminal proceeds derives from organized crime. Latvia is among the Eastern European emerging economies most affected by the global financial turmoil. A large current account deficit, high external debt, and a very high loan to deposit ratio resulted in loss of access to foreign exchange funding in the second half of 2008. To ease the situation, the Government of Latvia (GOL) sought external financial support and agreed to an international stabilization program.

Offshore Center: No

Free Trade Zones: Yes

Four special economic zones provide a variety of significant tax incentives for manufacturing, outsourcing, logistics centers, and the transshipment of goods to other free trade zones. These zones are located at the free ports of Ventspils, Riga, and Liepaja, and in the inland city of Rezekne near the Russian and Belarusian borders. Though there have been instances of reported cigarette smuggling in the free trade zones, there have been no confirmed cases of the zones being used for money laundering schemes or by terrorist financiers. The zones are covered by the same regulatory oversight and enterprise registration regulations that exist for non-zone areas.

Criminalizes narcotics money laundering: Yes

In 2004, the GOL criminalized money laundering for all crimes listed in the Criminal Law of the Latvian Republic. Latvia’s new anti-money laundering/counter-terrorist financing (AML/CFT) law, The Law on Prevention of Money Laundering and Terrorist Financing, has been in force since August 2008, and the GOL updated acts relevant to its enforcement.

Criminalizes other money laundering, including terrorism-related: Yes

Article 195 of Criminal Law has adopted an “all crimes” approach, so all proceeds-generating criminal offenses are considered predicate offenses to money laundering. The Criminal Law is extensive and covers all the categories of predicate offenses included in international standards.

Criminalizes terrorist financing: Yes

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

Article 88-1 of the Criminal Code, enacted April 28, 2005, criminalizes terrorist financing and meets the United Nations Security Council Resolution (UNSCR) 1373 requirements. The law penalizes the direct or indirect collection or transfer of any type of acquired funds or other property for the purposes of terrorism.

Know-your-customer rules: Yes

The AML/CFT law states financial institutions must identify all clients, both account holders and those who wish to carry out individual transactions, and report cash transactions based on established thresholds. The Regulations for Enhanced Customer Due Diligence provide additional measures on obtaining further information on beneficiaries. The Regulations also provide minimum requirements for enhanced due diligence at inception of a business relationship with a customer as well as due diligence performed during a business relationship.

Bank records retention: Yes

Entities must retain transaction and identification data for at least five years after ending a business relationship with a client. This five year period can be extended by one year upon the request of the financial intelligence unit (FIU).

Suspicious transaction reporting: Yes

The AML/CFT law states that, in addition to credit and financial institutions, the law applies to tax advisors, external accountants, sworn auditors, sworn notaries, sworn advocates, other legal professionals in certain capacities, persons acting in the capacity of agents or intermediaries in real estate transactions, organizers of lotteries and gambling, persons providing money collection services, and other legal or natural persons involved in trading real estate, vehicles, items of culture, precious metals, precious stones and articles thereof or other goods. Obligated entities must file a suspicious transaction report (STR) with the FIU if there appears to be laundering or attempted laundering of the proceeds of crime or terrorist financing, based on a list of indicators of suspicious transactions. There are no monetary thresholds for suspicious transactions. In the first nine months of 2009, the FIU received 16,519 STRs. During the same period, the FIU submitted 102 cases for investigation.

Large currency transaction reporting: Yes

Obligated financial entities must report large cash transactions to the FIU. Depending on the situation and the business, the reporting threshold varies from 1000 lats to 40,000 lats (approximately $2,000-$80,000).

Narcotics asset seizure and forfeiture:

Latvia’s Criminal Procedures Law enables law enforcement authorities to identify, trace, freeze, seize and confiscate criminal proceeds derived from all criminal acts, including terrorism and narcotics commerce. The FIU is empowered to issue freezing orders based on bank reports. Latvia does not have a civil forfeiture law. However, under Latvia’s Criminal Procedures Law authorities can initiate a forfeiture action for assets recovered during a criminal investigation concurrently with the investigation itself - they do not need to wait until the investigation is complete or a trial begins. Latvia does enforce existing asset seizure and forfeiture laws. In the first nine months of 2009, Latvia froze 6,953,578 Euros (approximately $9,753,000), seized 1,018,343 Euros (approximately $1,400,000), and confiscated 709,453 Euros (approximately $1,000,000).

Narcotics asset sharing authority: Yes

According to Article 785 of the Criminal Procedures Law, the Ministry of Justice has the authority to share seized assets with other governments based on established criteria. The Criminal Procedures Law also establishes a process for responding to the request of a foreign state for the confiscation of property. In 2009, Latvia implemented the European Council Framework Decision 2006/783/JHA, which establishes the principle of mutual recognition of confiscation orders among EU member states.

Cross-border currency transportation requirements: Yes

The AML/CFT law obliges all persons transporting more than 10,000 Euros (approximately $14,000) in cash or monetary instruments between Latvia and any non-EU member state, to complete a written cash declaration form and submit it to a customs officer, or, where there is no customs checkpoint, to a border guard. People moving within the EU are exempt from any declaration requirement. In the first nine months of 2009, the FIU received 150 cash declaration reports.

Cooperation with foreign government: Yes

Article 62 of Latvia’s AML/CFT law establishes procedures for exchanging information with foreign governments.

U.S. or international sanctions or penalties: Yes

In April 2005, the United States outlined concerns in a Notice of Proposed Rulemaking against VEF Banka, under Section 311 of the USA PATRIOT Act. The bank was found to lack adequate AML/CFT controls and was used by criminal elements to facilitate money laundering, particularly through shell companies. In August 2006, the United States issued a final rule imposing a special measure against the VEF Banka, as a financial institution of primary money laundering concern. This measure is still in effect.

Enforcement and implementation issues and comments:

Law enforcement agencies have a heavy workload and their budgets, salaries, and in some cases, personnel have been reduced due to the severe economic crisis. There were 39 criminal investigations, 24 prosecutions against 48 persons, and 3 persons convicted in the first nine months of 2009 on money laundering charges.

In 2009, the Latvian Central Criminal Police concluded a 20-month investigation in which they worked in close concert with other European countries, Ecuador and the United States to target a drug smuggling conspiracy led by a major Latvian organized crime figure.

Authorities report that there has been no significant change in the number of financial crimes over the past year, but the overall monetary value of money laundering may be decreasing due to the economic crisis. Authorities report seeing cases indicating possible trade-based money laundering schemes, but have not brought any such cases to court on money laundering charges.

U.S.-related currency transactions:

Currency transactions involving international narcotics trafficking proceeds do not include significant amounts of United States currency and apparently do not derive from illegal drug sales in the United States. However, U.S. law enforcement agencies have determined that some U.S criminal elements utilize the Latvian financial sector to launder narcotics proceeds.

Records exchange mechanism with U.S:

A Mutual Legal Assistance Treaty (MLAT) has been in force between the United States and Latvia since 1999. Latvia has cooperated with USG law enforcement agencies to investigate numerous financial crimes and narcotics smuggling. The Latvian FIU exchanges information with the U.S. FIU, FinCEN.

International agreements:

Latvia provides mutual legal assistance on the basis of international, bilateral or multilateral agreements to which Latvia is a party. Authorities in Latvia are also able to provide assistance outside of the formal mutual legal assistance process. The Ministry of Interior has concluded several bilateral law enforcement cooperation agreements. The AML/CFT law allows the Latvian FIU to exchange information with any government. Latvia’s FIU has bilateral agreements with 20 other FIUs.

Latvia is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism – Yes
  • the UN Convention against Transnational Organized Crime – Yes
  • the 1988 UN Drug Convention – Yes
  • the UN Convention against Corruption – Yes

Latvia is a member of the Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a Financial Action Task Force (FATF)-style regional body. The mutual evaluation report of Latvia conducted by MONEYVAL and the International Monetary Fund can be found here: http://www.coe.int/t/dghl/monitoring/moneyval/Countries/Latvia_en.asp

Recommendations:

Despite legislative and regulatory improvements, Latvia still faces significant money laundering threats tied to corruption, organized crime and nonresident account holders. It should continue to implement and make full use of the 2005 amendments to its Criminal Procedures Law and continue to actively implement and vigorously enforce the AML/CFT law. It is also vital that competent authorities be provided adequate resources and staffing to carry out their duties. Latvia should continue to strengthen its risk-based approach to AML/CFT and take steps to further enhance the preventative aspects of its AML/CFT regime, including ensuring effective implementation of customer due diligence requirements and increased scrutiny of higher risk categories of transactions, clients and countries. The GOL should continue to take steps to increase information sharing and cooperation between law enforcement agencies at the working level. The GOL also should work toward increasing its authorities’ ability and effectiveness in aggressively prosecuting and convicting those involved in financial crimes.

Lebanon

Lebanon is a financial hub for banking activities in the Middle East and eastern Mediterranean and has one of the more sophisticated banking sectors in the region. Lebanon faces significant money laundering and terrorist financing vulnerabilities. For example, Lebanon has a substantial influx of remittances from expatriate workers and family members, estimated by the World Bank at $7 billion per year. It has been reported that a number of these Lebanese abroad are involved in underground finance and trade-based money laundering (TBML) activities. Laundered criminal proceeds come primarily from foreign criminal activity and organized crime. There is some smuggling of cigarettes and pirated software, but the sale of these goods does not generate large amounts of funds that are then laundered through the formal banking system. There is a black market for stolen cars, counterfeit goods and pirated software, CDs, and DVDs. The domestic illicit narcotics trade is not a principal source of money laundering proceeds.

Offshore Center: Yes

Although offshore banking, trust and insurance companies are not permitted in Lebanon, the government enacted Law No. 19 on September 5, 2008, expanding existing provisions regarding activities of offshore companies and transactions conducted outside Lebanon or in the Lebanese Customs Free Zone. All offshore companies must register with the Beirut Commercial Registrar, and the owners of an offshore company must submit copies of their identifications. Moreover, the Beirut Commercial Registrar maintains a special register, containing all relevant information about offshore companies. Offshore companies can issue bearer shares.

Free Trade Zones: Yes

There are two free trade zones (FTZ) operating in Lebanon: the Port of Beirut and the Port of Tripoli. FTZs fall under the supervision of the Customs Authority. Exporters moving goods into and out of the free zones submit a detailed manifest to Customs. Customs is required to inform the financial intelligence unit (FIU) on suspected TBML or terrorist financing, however, high-levels of corruption within Customs create vulnerabilities for TBML and other threats. Companies using the FTZ must be registered and must submit appropriate documentation, which is kept on file for a minimum of five years.

Criminalizes narcotics money laundering: Yes

In 2001, Lebanon enacted its anti-money laundering (AML) legislation, Law No. 318. This legislation creates a framework for lifting bank secrecy, broadening the criminalization of money laundering, and facilitating access to banking information and records by judicial authorities. Under this law, money laundering is a criminal offense.

Criminalizes other money laundering, including terrorism-related: Partially

Law No. 318 broadens the criminalization of money laundering beyond narcotics but does not cover all terrorist financing transactions.

Criminalizes terrorist financing:

In 2003, Lebanon also adopted Laws 547 and 553. Law 547 expands Article One of Law No. 318, criminalizing any funds resulting from the financing or contribution to the financing of terrorism or terrorist acts or organizations based on the definition of terrorism as it appears in the Lebanese Penal Code. Such definition does not apply to Hizballah, which is considered a legitimate political party—represented by members of Parliament and two Cabinet ministers in the current Cabinet—and resistance organization in Lebanon. The widespread view of Hizballah as a legitimate resistance organization, and thus not subject to Lebanese anti-terror financing laws poses a terrorist financing threat.

On October 8, 2008, the Parliament approved Law 32, which expands the scope of investigators’ field of inquiry, granting them greater authority to include funds originating from corruption activities into money laundering cases.

Know-your-customer rules: Yes

All financial institutions and money exchange houses are regulated by Law No. 318, which clarifies the Central Bank’s, Banque du Liban, powers to: require financial institutions to identify all clients, including transient clients; maintain records of customer identification information; request information about the beneficial owners of accounts; conduct internal audits; and, exercise due diligence in conducting transactions for clients.

Bank records retention: Yes

All obligated reporting entities must retain records for five years.

Suspicious transaction reporting: Yes

Law No. 318 established Lebanon’s FIU, the Special Investigation Commission (SIC). The provisions of Law No. 318 expand the type of financial institutions subject to the provisions of the Banking Secrecy Law of 1956, to include institutions such as exchange offices, financial intermediation companies, leasing companies, mutual funds, insurance companies, companies promoting and selling real estate and construction, and dealers in high-value commodities. In addition, Law No. 318 requires companies engaged in transactions for high-value items (i.e., precious metals, antiquities, etc.) and real estate to report suspicious transactions.

Large currency transaction reporting: No

Narcotics asset seizure and forfeiture: Yes

Lebanese law allows for property forfeiture in civil as well as criminal proceedings. The Government of Lebanon (GOL) enforces existing drug-related asset seizure and forfeiture laws, allowing for the confiscation of assets determined to be related to or proceeding from money laundering or terrorist financing. Vehicles used to transport illegal goods, such as drugs, as well as legitimate businesses established from illegal proceeds are subject to seizure under Law 318. Forfeitures are then transferred to the Lebanese Treasury.

Narcotics asset sharing authority:

Lebanon cannot legally return forfeited assets (such as fraud proceeds) to the U.S.

Cross-border currency transportation requirements: No

Lebanon has no cross-border currency reporting requirements, presenting a significant cash-smuggling vulnerability.

Cooperation with foreign governments (including refusals): Yes.

The GOL is unable in many cases to assist the United States and others in forfeiture related requests. Lebanon cannot provide forfeiture assistance, legally, to the U.S.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

From January through November- 2009, the SIC investigated 116 cases involving allegations of money laundering, terrorism, and terrorist financing activities. Out of the 116, two were related to terrorist financing. The SIC froze the accounts of 23 individuals and 12 companies totaling approximately $2,751,397. As of November 2009, nine cases were transmitted by the general state prosecutor to the penal judge. However, as of late 2009 there has not been any money laundering convictions.

The SIC circulates to all financial institutions the names of suspected terrorists (individuals) and terrorist organizations on the UNSCR 1267 Sanctions Committee’s consolidated list, and the list of Specially Designated Global Terrorists designated by the U.S. pursuant to Executive Order 13224, and by the European Union under their relevant respective authorities.

U.S.-related currency transactions:

The U.S. dollar is often used regionally in money laundering and terrorist financing.

Records exchange mechanism with U.S.:

Lebanon does not have a mutual legal assistance agreement with the United States. The SIC cooperates with U.S. Treasury’s Financial Crimes Enforcement Network (FINCEN); in 2009, the SIC cooperated on corruption cases involving Lebanese and American businessmen regarding contract awards in Iraq.

International agreements:

As of early May 2009, the SIC had signed 21 memoranda of understanding with counterpart FIUs concerning international cooperation.

Lebanon is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - No
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - Yes

Lebanon is a member of the Middle East and North Africa Financial Action Task Force (MENAFATF), a Financial Action Task Force-style regional body. Its most recent evaluation will be posted at: www.menafatf.org

Recommendations:

The Government of Lebanon (GOL) should encourage more efficient cooperation between financial investigators and other relevant agencies such as customs, police, and internal security forces. Lebanon should increase efforts to disrupt and dismantle terrorist financing efforts, including Hizballah. The GOL should consider including a promotion offense within its money laundering law and should consider amending its legislation to allow a greater ability to provide forfeiture cooperation internationally and also provide authority for the return of fraud proceeds. There should be more emphasis on linking predicate offenses to money laundering and not an over-reliance on suspicious transaction reports filed by financial institutions to initiate investigations. Lebanese law enforcement authorities should examine domestic ties to the international network of Lebanese brokers and traders that are commonly found in underground finance, trade fraud, and TBML. Existing safeguards do not address the issue of the laundering of diamonds and value transfer through Lebanon directly or by Lebanese buying agents in Africa. Although the number of suspicious transaction reports filed and subsequent money laundering investigations coordinated by the SIC have steadily increased, prosecutions and convictions are still lacking. The GOL should pass legislation to mandate and enforce cross-border currency reporting. The trading of bearer shares of unlisted companies remains a vulnerability, and the GOL should take action to immobilize those shares. Finally, the GOL should become a party to the UN International Convention for the Suppression of Terrorist Financing.

Lesotho

Lesotho is not a financial center. Authorities do not believe money laundering/terrorist financing occurs in the formal sector. However, there are some financial sector frauds such as those that occur in banks and insurance companies in the form of defrauding of companies and some government departments. It is believed laundered funds are carried across the border as currency. Ostensibly, no transfers are allowed outside the formal financial system; however, in practice, informal money transfer and remittance systems are in use, especially by the growing Chinese community that does not use local banks.

Offshore Center: No

Free Trade Zones: No

Criminalizes narcotics money laundering: Yes

Criminalizes other money laundering, including terrorism-related: Yes

The Money Laundering and Proceeds of Crime Act 4 of 2008 (MLPCA) was passed in April 2009. This legislation criminalizes money laundering beyond narcotics trafficking. Lesotho uses an “all serious crimes” approach to predicate offenses. The law covers banks, money exchangers, insurance companies, securities firms, and designated non-financial businesses and professions. However, because the law is so new, mechanisms have not yet been put in place to implement these provisions for most entities.

Criminalizes terrorist financing: Yes

The MLPCA criminalizes terrorist financing.

Know-your-customer rules: Yes

In addition to the MLPCA, the Financial Institutions (Anti-Money Laundering) guidelines of 2000 require financial institutions to establish and maintain specific policies and procedures to guard against the use of the financial system for the purpose of money laundering.

Bank records retention: Yes

Financial institutions are required to maintain, for a period of ten years, all necessary records to enable them to comply with information requests from competent authorities.

Suspicious transaction reporting: Yes

Under Central Bank of Lesotho (CBL) guidelines, banks report suspicious transactions to the CBL. The MLPCA provides for the filing of suspicious transaction reports (STRs) with the new financial intelligence unit (FIU) authorized by the law. The FIU is in the process of being established. The CBL reported it received less than ten STRs in both 2008 and 2009.

Large currency transaction reporting: Yes

The Government of Lesotho (GOL) requires banks to report all transactions exceeding 100,000 maloti (approximately $14,000) to the Central Bank.

Narcotics asset seizure and forfeiture:

The MLPCA provides for the identification, tracing, freezing, seizure and eventual confiscation of assets and the Central Bank, Police, and the Directorate of Corruption and Economic Offenses (DCEO), through the powers of the attorney general, are responsible to trace, freeze and seize narcotics-related assets. Any assets proved to have been used to facilitate the commission of a serious crime or that are the proceeds of such activity, including bank accounts, can be seized. If the actual assets are not available, substitute payments of a comparable amount can be ordered by the court. Both civil and criminal forfeiture are allowed. There is no independent national system and mechanism for freezing terrorist assets; the government relies on normal court procedures. No assets have been frozen, seized or confiscated as of yearend 2009.

Narcotics asset sharing authority: Yes

Cross-border currency transportation requirements: No

There are no mandatory declaration forms used at border crossings. The new MLPCA will enhance the declaration system and allow for seizure of currency.

Cooperation with foreign governments:

Lesotho is a member of various bodies which seek to fight money laundering, and the law provides for international cooperation.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

There were no arrests, prosecutions or convictions for money laundering or terrorist financing in 2009.

The CBL circulates to financial institutions a list of websites that contain lists of individuals and entities that have been included on the UN 1267 sanctions committee consolidated list of terrorist organizations/financiers.

U.S.-related currency transactions: No

Records exchange mechanism with U.S.:

There are no specific agreements for the exchange of records with United States authorities.

International agreements:

Lesotho is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - Yes

Lesotho is a member of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), a Financial Action Task Force-style regional body. It has not yet had a mutual evaluation.

Recommendations:

The adoption of the new anti-money laundering/counter-terrorist financing legislation in 2009 is a good step forward for Lesotho. The Government of Lesotho should provide the necessary resources to build capacity in all relevant ministries and entities, establish the authorized FIU, and fully implement the new law.

Libya

Libya is not considered to be an important financial center. The Libyan economy depends primarily upon revenues from the oil and gas sector, which constitute over 70 percent of GDP. Libya has a cash-based economy and large underground markets. Libya is a destination and transit point for smuggled goods, particularly alcohol and black market/counterfeit goods from sub-Saharan Africa, Egypt and China. Contraband smuggling includes narcotics, particularly hashish/cannabis and heroin. Libya is not considered to be a production location for illegal drugs, although its geographic position, porous borders and limited law enforcement capacity make it an attractive transit point for illegal drugs. Libya is a transit and destination country for men and women trafficked from sub-Saharan Africa and Asia. Hawala and informal value transfer networks are present. In general, training and resources are lacking for anti-money laundering awareness and countermeasure implementation. A considerable transition time is anticipated while Libya’s banking system is reformed and gradually reintegrated into the international system following the lifting of UN and U.S. sanctions.

Offshore Center: No

Free Trade Zones: Yes

A Free Trade Zone is located in the city of Misrata, 210 kilometers east of Tripoli. Projects in the free zone enjoy tax and customs exemptions.

Criminalizes narcotics money laundering: Yes

Criminalizes other money laundering, including terrorism-related: Yes

Money laundering is illegal in Libya, and terms and penalties are defined in Banking Law No. 2 of 2005 on Combating Money Laundering. Predicate offenses are dealt with under Libya’s Penal Code, Criminal Procedures Law, and related supplementary laws.

Criminalizes terrorist financing: No

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

Know-your-customer rules: Yes

Libyan banks are required to record and report the identity of customers for all transactions.

Bank records retention: Yes

Records of all transactions are retained for a considerable (but indeterminate) period, although a lack of computerized records and systems, particularly in remote areas of the country, preclude reliable record keeping and data retrieval.

Suspicious transaction reporting:

Libya’s Banking Law No. 1 extends the scope of money laundering controls and penalties to non-banking financial institutions. All entities, either financial or non-financial in nature, are required to report money laundering activity to Libyan authorities under penalty of law. Banking Law No. 2 directs the Central Bank to establish a Financial Information Unit (FIU), Libya’s financial intelligence unit.

Large currency transaction reporting:

No information available.

Narcotics asset seizure and forfeiture:

No information available.

Narcotics asset sharing authority:

No information available.

Cross-border currency transportation requirements:

No information available.

Cooperation with foreign governments:

No information available.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

There is no reliable information on the number of filed suspicious transaction reports or on the scope of prosecutions and convictions.

It is illegal to transfer funds outside of Libya without the approval of the Central Bank. Cash courier operations are in violation of Libyan law. It is estimated that up to ten percent of foreign transfers are made through illegal means (i.e., not through the Central Bank). Between 1.5 and 2 million foreigners are thought to live and work in Libya in violation of immigration laws. Funds transfers by migrant workers (mainly from sub-Saharan Africa and Asia) are difficult for the Libyan government to monitor, particularly transfers by criminal organizations.

Informal hawala money dealers (muhawaleen) exist in Libya, and are often used to facilitate trade and small project finance. Given the poor quality and limited reach of Libya’s banking system, Libya’s socialist practices, and commercial rivalries among regime insiders that discourage disclosure of income and business transactions, many Libyans and foreigners rely on informal mechanisms for cash payments and transactions. Until the recent revision of the tax code, tax rates of up to 80-90 percent also encouraged off-the-book transactions.

The GOL has demonstrated some willingness to circulate UN and U.S. lists of terrorist entities; however, there are no indications to suggest that the GOL has made any effort to freeze, seize or forfeit assets of suspected terrorists or financiers of terrorism.

U.S.-related currency transactions:

There are no indications that currency transactions in Libya involve international narcotics trafficking proceeds or include significant amounts of U.S. currency or currency derived from illegal drug sales in the United States or that otherwise significantly affect the United States.

Records exchange mechanism with U.S.:

No information available.

International agreements:

Libya is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - Yes

Libya is a member of the Middle East and North Africa Financial Action Task Force (MENAFATF), a Financial Action Task Force-style regional body. It has not yet had a mutual evaluation.

Recommendations:

The Government of Libya (GOL) should enact counter-terrorist financing legislation and adopt anti-money laundering and counter-terrorist financing policies and programs that adhere to international standards. Libya should continue to modernize its banking sector and adopt procedures that provide full transparency. Tax reform should continue so as to shrink the underground economy. Appropriate entities should become familiar with money laundering and terrorist financing methodologies. In particular, Libyan law enforcement and customs authorities should examine the underground economy, including smuggling networks, and informal value transfer systems. The GOL should continue measures aimed at combating corruption in government and commerce. The GOL should endeavor to provide statistics on the number of money laundering investigations, prosecutions, and convictions.

Liechtenstein

The Principality of Liechtenstein has a well-developed offshore financial services sector, liberal incorporation and corporate governance rules, relatively low tax rates, and a tradition of strict bank secrecy. All of these conditions significantly contribute to the ability of financial intermediaries in Liechtenstein to attract both licit and illicit funds from abroad. Liechtenstein’s financial services sector includes 15 banks, three non-bank financial companies, 16 public investment companies, 163 insurance and reinsurance companies, 401 trust companies and 27 fund management companies with approximately 360 investment funds. The three largest banks control 90 percent of the market.

In recent years the Principality has made continued progress in its efforts against money laundering. On March 12, 2009, the Liechtenstein Government recognized the OECD standard as the global standard in tax cooperation and as a result renegotiated a series of Double Taxation Agreements (DTAs) to include administrative assistance on tax evasion cases.

Offshore Center: Yes

Liechtenstein has a well-developed offshore financial services sector. Liechtenstein’s 392 licensed fiduciary companies and 60 lawyers serve as nominees for or manage more than 75,000 entities (mostly corporations or trusts) available primarily to nonresidents of Liechtenstein. Approximately one-third of these entities hold controlling interests in separate entities chartered outside of Liechtenstein. Laws permit corporations to issue bearer shares.

Free Trade Zones: No

Criminalizes narcotics money laundering: Yes

Narcotics-related money laundering is criminalized through Article 165 of Liechtenstein’s Criminal Code, the Stafgesetzbuch (StGB).

Criminalizes other money laundering, including terrorism-related: Yes

Money laundering is criminalized through Article 165 StGB. Article 1.6 was added in 2003 making terrorism financing a predicate offense for money laundering. In December 2008, the Liechtenstein Parliament passed a new legislative package which includes a comprehensive revision of the Due Diligence Act (DDA) as well as selected amendments to the Criminal Code. These changes also implement the Third European Union (EU) Money Laundering Directive, as well as the EU Directive regarding “politically exposed persons” (PEPs). On December 1, 2009, Liechtenstein adopted amendments to the Criminal Code to include document fraud, environmental crimes and market manipulation as predicate offenses for money laundering.

Criminalizes terrorist financing: Yes

In addition to making terrorist financing a predicate offense for money laundering, Liechtenstein created a new Sanctions Act that improves the legal basis for enhanced cooperation with international organizations and foreign countries in the implementation of sanctions. For this purpose, on March 1, 2009, the Law on the Enforcement of International Sanctions (new Sanctions Act) was passed. The law implements new articles of the Criminal Code to punish financial supporters of a terrorist group, list terrorist offenses, and address terrorist financing. The revised Article 278d explicitly criminalizes financing of individual terrorists in order to correct an identified deficiency. There have been no terrorist financing cases to date.

Know-your-customer rules: Yes

The DDA, as revised in December 2008, defines the scope, requirements, and supervision of customer due diligence procedures, and provides for enforcement and information sharing. The legal requirements are expanded and specified in the Government’s Due Diligence Ordinance (DDO). The DDA and DDO were revised in March 2009. Know Your Customer requirements apply to banks, finance companies, e-money institutions, asset management companies, investment undertakings, and insurance undertakings, as well as to the Liechtenstein Postal Service AG, exchange offices, and branches or establishments of foreign financial institutions. The DDA prohibits banks and postal institutions from maintaining bearer-payable passbooks, accounts, and deposits.

Bank records retention: Yes

In accordance with the DDA and DDO, transaction-related records and receipts must be kept by persons subject to the DDA for at least ten years from the conclusion of the transaction or from their preparation.

Suspicious transaction reporting: Yes

Liechtenstein’s FIU, the Einheit fuer Finanzinformationen (EFFI), receives, analyzes and disseminates suspicious transaction reports (STRs) relating to money laundering and terrorist financing. The STR requirement applies to banks, insurers, financial advisers, postal services, exchange offices, attorneys, financial regulators, casinos, and other entities. In 2008, the EFFI received 189 STRs. STRs mostly involved suspected fraud offenses (103), followed by money laundering (31). Three and a half percent of the beneficial owners were U.S. nationals. Information regarding the number of STRs received in 2009 is not yet available.

Large currency transaction reporting: No

Narcotics asset seizure and forfeiture: Yes

Liechtenstein has legislation to seize, freeze, and confiscate assets. Criminal seizure and confiscation of laundered assets are covered under article 20b Paragraph 2 of the Criminal Code (as amended).

The overall amount of funds frozen in compliance with UNSCR 1267 is currently 90,200 Swiss Francs.

Narcotics asset sharing authority: Yes

Article 253a of the Code of Criminal Procedure provides for the sharing of confiscated assets.

Cross-border currency transportation requirements: No

Cooperation with foreign governments:

No known impediments exist to cooperation.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues/comments:

Liechtenstein’s crime rate is low with 1075 crimes recorded in 2007, of which 550 were economic crimes. The major criminal offenses recognized by authorities as predicate offenses for money laundering are fraud, criminal breach of trust, asset misappropriation, embezzlement, fraudulent bankruptcy, corruption and bribery. There have been only two prosecutions in Liechtenstein for autonomous money laundering and no convictions.

U.S.-related currency transactions:

No information provided.

Records exchange mechanism with U.S.:

The United States and Liechtenstein entered into a mutual legal assistance treaty (MLAT) in 2003. Both countries signed a Tax Information Exchange Agreement (TIEA) in December 2001. The U.S. Department of Justice has acknowledged Liechtenstein’s cooperation in the Al-Taqwa Bank case and in other fraud and narcotics cases.

International agreements:

Liechtenstein is a party to various information exchange agreements with countries in addition to the United States. The EFFI is able to share information with other FIUs without the need of a memorandum of understanding (MOU). However, for those countries that do require such an agreement in order to share information, Liechtenstein is open to negotiating a MOU; Liechtenstein currently has 13 MOUs in place.

When the European Union-Schengen agreement, signed by Liechtenstein in 2008, actually enters into force the government will grant comprehensive legal assistance in cases of direct and indirect tax fraud. As a consequence of the Schengen System, Liechtenstein and Switzerland negotiated a new border treaty regarding the legal mandate of the Swiss Border Guard that has been provisionally applied since December 12, 2008. The new treaty allows the Liechtenstein Police to delegate to the Swiss Border Guards the authority to control cash couriers on Liechtenstein territory.

Liechtenstein is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - No

Liechtenstein is a member of the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a Financial Action Task Force (FATF)-style regional body. Its most recent mutual evaluation can be found here: http://www.coe.int/t/dghl/monitoring/moneyval/Evaluations/round3/MONEYVAL(2007)20Rep-LIE3-I_en.pdf

Recommendations:

While the Government of Liechtenstein has made progress in addressing the shortcomings in its anti-money laundering regime, more remains to be done. The GOL should prohibit the issuance and use of corporate bearer shares and establish the criminal liability of corporate entities. Liechtenstein also should expand its list of predicate offenses to ensure all appropriate crimes are addressed. The EFFI should have access to additional financial information related to STRs. Liechtenstein also should consider creating a national terrorist list, which would allow for the implementation of UNSCRs that do not include a list, such as UNSCR 1373. While Liechtenstein recognizes the rights of third parties and protects uninvolved parties in matters of confiscation, the government should distinguish between bona fide third parties and others. Liechtenstein should enact cross-border and large currency transaction reporting requirements. Finally, the GOL should become a party to the UN Convention against Corruption.

Lithuania

Lithuania is not a regional financial center. Lithuania has adequate legal safeguards against money laundering; however, its geographic location makes it a target for smuggled goods and tax evasion. The sale of narcotics does not generate a significant portion of money laundering activity in Lithuania. Value added tax (VAT) fraud is one of the biggest sources of illicit income, through underreporting of goods’ value. Most financial crimes, including VAT embezzlement, smuggling, illegal production and sale of alcohol, capital flight, and profit concealment, are tied to tax evasion by Lithuanians. According to the Financial Crime Investigation Service (FCIS), attempts to use the Lithuanian banking system in money laundering activities related to cyber and organized crimes have increased. Experts anticipate that smuggling into Lithuania will increase after its adoption of the minimum European Union (EU) excise rate in September 2009. According to a survey conducted by the Lithuanian Free Market Institute, the shadow economy will account for approximately 23 percent of the total gross domestic product of Lithuania in 2009 and will make up approximately 27 percent of the entire economy in 2010. There are no reports of public corruption contributing to money laundering or terrorist financing. There is also no evidence that terrorist financing is taking place in Lithuania.

Offshore Center: No

Free Trade Zones: Yes

Lithuania has Free Economic Zones (FEZ) in the cities of Klaipeda and Kaunas. As of yearend 2009, there are 20 businesses operating in the Klaipeda FEZ, and eight in the Kaunas FEZ. The companies operating in the zones have the same accounting and identification responsibilities as those operating outside the zones. Lithuania’s EU accession agreement permits the indefinite operation of existing free trade zones, but precludes the establishment of new ones.

Criminalizes narcotics money laundering: Yes

The Government of Lithuania (GOL) criminalized the act of money laundering in 1997 with the Law on the Prevention of Money Laundering (LPML), which entered into force in 1998.

Criminalizes other money laundering, including terrorism-related: Yes

Article 216 of the Criminal Code, passed on May 1, 2003 defines a money launderer and includes coverage of self laundering. On January 24, 2008, the law on Money Laundering and Terrorist Financing Prevention (MLTFP) came into force. The goal of the new law was to amend existing legislation to agree with a number of EU directives and regulations. It specifies definitions for money laundering, and terrorist financing; expands the list of covered entities and defines beneficial owner and politically exposed persons. In 2008, the GOL also adopted four legal acts necessary for the implementation of the MLTFP.

Criminalizes terrorist financing: Yes

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

The MLTFP criminalizes terrorist financing. The Criminal Code prescribes a penalty of imprisonment for crimes related to terrorist financing.

Know-your-customer rules: Yes

The Money Laundering and Terrorism Financing Prevention Law (MLTFPL) requires all financial institutions and other entities to perform customer due diligence and establishes guidelines for simplified and complex due diligence. For transactions exceeding 15,000 EUR (approximately $22,180), the MLTFP requires all financial institutions to collect information on the identity of the customer. The law also mandates that life insurance firms and insurance brokers establish the identity of the customer and the insured person, if the amount payable annually by the customer is in excess of 1,000 EUR (approximately $1,478) or the installment amount payable at a time exceeds 2,500 EUR (approximately $3,696). In addition, the law requires casinos to register all patrons who wager, win, or exchange currency for chips. Bearer shares are not restricted by Lithuanian legislation.

Bank records retention: Yes

Under the implementing acts for the MLTFPL, additional requirements for record keeping are provided, for individual and multiple interrelated financial operations, usual and suspicious operations, internal and external remittances, single exchanges of cash from one to another currency, etc. For transactions exceeding 15,000 EUR (approximately $22,180), the MLTFPL requires all financial institutions to maintain customer identification documents for a minimum of ten years.

Suspicious transaction reporting: Yes

The MLTFPL includes regulations for reporting on unusual and suspicious transactions. In the first nine months of 2009, the FCIS received 190 suspicious transaction reports (STRs). In 2008, FCIS received 199 STRs. FCIS reported, in the first nine months of 2009, it conducted nine pre-trial investigations for money laundering in comparison to ten in 2008. There were no reports on terrorist financing.

Large currency transaction reporting:

The MLTFPL requires financial institutions to submit to the FCIS information about the following transactions: (1) when the total amount of the customer’s transfer in cash or of several interrelated transfers in cash exceeds 15,000 EUR (approximately $22,180), or the corresponding amount in foreign currency; (2) when cash exchanges exceed 6,000 EUR (approximately $8,872), or the corresponding amount in foreign currency; or, (3) when performing internal or international remittance transfer services in amounts in excess of 600 EUR (approximately $887), or the corresponding amount in foreign currency. During the first nine months of 2009, FCIS received over 600,000 reports on cash operations in compliance with the MLTFPL. There were over 1 million reports in 2008.

Narcotics asset seizure and forfeiture:

Article 216 of the Code increases the role of prosecutors. Previously, the police could freeze/seize assets on their own authority, but now they must go to prosecutors with the named property and receive authority to freeze/seize the assets of a suspected crime. The court can only seize property which the criminal or accomplice used as an instrument of a crime or a means to commit a crime or which was acquired as the direct result of a criminal act. In the first nine months of 2009, FCIS froze assets worth 70 million LTL (approximately $29 million). In 2008, FCIS froze assets worth 69 million LTL (approximately $25 million). There are no figures available for the total value of forfeited crime-related assets.

Narcotics asset sharing authority: No

Lithuania does not share crime-related assets with other governments.

Cross-border currency transportation requirements:

Individuals who enter Lithuania from a non-EU country or depart Lithuania to a non-EU country must declare to Customs cash they transport into or out of the country in excess of 10,000 EUR (approximately $14,786).

Cooperation with foreign governments:

There are no known impediments to cooperation. Lithuanian law enforcement cooperates with the United States in investigations and the exchange of information related to money laundering, financial crimes, terrorist financing and customs issues.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

According to police statistics, in the first ten months of 2009 there were 4,904 financial crimes in Lithuania in comparison to 2,868 in 2008. In the first nine months of 2009, Lithuania registered five criminal cases under Article 216 of the Criminal Code in comparison to seven in 2008. Two of the five cases were adjudicated. One person was convicted in one case; in the other case, the individual(s) were either not convicted or convicted under other statutes. The National Court Administration registered two cases under Article 250 (Act of Terrorism) in 2009. One case was adjudicated but there were no convictions for terrorist financing.

The State Security Department (VSD), the lead GOL agency coordinating efforts against terrorism, and the FCIS circulate to financial institutions the names of all terrorist individuals and entities on the UNSCR 1267 Sanctions Committee’s consolidated list, and the list of Specially Designated Global Terrorists designated by the United States pursuant to Executive Order 13224.

U.S.-related currency transactions:

No information available.

Records exchange mechanism with U.S.:

There is a mutual legal assistance treaty (MLAT) between the United States and Lithuania, which entered into force in 1999.

International agreements:

Lithuania and Germany signed an agreement in 2001 to cooperate in the fight against organized crime and terrorism. FCIS signed four agreements in 2004 covering cooperation against economic and financial crimes, money laundering, and the exchange of information with the European Anti-Fraud Office, the Azerbaijan Revenue Service, the Italian Guarda Di Finanza and the Estonian Tax and Customs Board. In September 2009, FCIS signed a protocol on cooperation with the Russian Federation. The GOL has signed memoranda on the exchange of money laundering-related financial and intelligence information with the financial intelligence units (FIUs) of Belgium, Croatia, the Czech Republic, Estonia, Portugal, Finland, Latvia, Bulgaria, Slovenia, Ukraine, Moldova and Poland.

Lithuania is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - Yes

Lithuania is a member of the Council of Europe’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL), a Financial Action Task Force (FATF)-style regional body. Its most recent mutual evaluation can be found here: http://www.coe.int/t/dghl/monitoring/moneyval/Countries/Lithuania_en.asp

Recommendations:

The Government of Lithuania has a comprehensive anti-money laundering/counter-terrorist financing regime and should continue to enhance its laws and regulations as necessary to adhere to international standards.

Luxembourg

Despite its standing as the second-smallest member of the European Union (EU), Luxembourg is one of the largest financial centers in the world. While Luxembourg is not a major hub for illicit narcotics distribution, the size and sophistication of its financial sector create opportunities for money laundering, tax evasion, and other financial crimes.

Offshore Center: Yes

Luxembourg is an offshore financial center. Although there are a handful of domestic banks operating in the country, the majority of banks registered in Luxembourg are foreign subsidiaries of banks in Germany, Belgium, France, Italy, and Switzerland.

Free Trade Zone: No

Criminalizes narcotics money laundering: Yes

Money laundering is criminalized by Article 506 of the Penal Code and by Article 8-1 of the Law on the Sale of Medicinal Substances and the Fight against Drug Addiction.

Criminalizes other money laundering, including terrorism-related: Yes

The law of August 11, 1998 establishes a general money laundering offense linked to an extensive list of offenses, including narcotics trafficking. The provisions of this law are codified in article 506 of the Penal Code. This article has been amended on several occasions, most recently by the law of July 17, 2008 on the Fight against Money Laundering and the Financing of Terrorism which incorporates the requirements of the Third EU Money Laundering Directive. On November 10, 2009, the GOL adopted a law on payment services which applies to money laundering related to phone banking cases.

Criminalizes terrorist financing: Yes

The Law of August 12, 2003 on the suppression of terrorism and its financing criminalizes terrorist financing and inserts into the Penal Code a new chapter on terrorist financing (Articles 135-1 to 135-8). It should be noted that, Luxembourg’s criminalization of terrorist financing is not complete in that the legal definition covers financing only if it is intended for commission of an act of terrorism, even if the funds have not actually been used for that purpose. The financing of individual terrorists or terrorist groups beyond the commission of terrorist acts is not criminalized. Also, the notion of terrorist group does not apply to acts committed by two persons.

Know-your-customer rules: Yes

The law imposes strict know your customer (KYC) requirements on obligated entities for all customers, including beneficial owners, trading in goods worth at least euro 15,000 (approximately $20,250). If the transaction or business relationship is remotely based, the law details measures required for customer identification. Entities must proactively monitor their customers for potential risk. The entities subject to KYC regulations include banks, pension funds, insurance brokers and providers, undertakings for collective investment (UCIs), management companies, external auditors, accountants, notaries, lawyers, casinos, gaming establishments, real estate agents, tax and economic advisors, dealers in high-value goods such as jewelry and vehicles, and domiciliary agents.

Bank records retention: Yes

Financial institutions are required to retain records for at least five years. Additional commercial rules require certain bank records to be kept for up to ten years.

Suspicious transaction reporting: Yes

Luxembourg’s financial intelligence unit (FIU), Cellule de Renseignement Financier, receives and analyzes STRs from all obligated entities.

Large currency transaction reporting: No

Narcotics asset seizure and forfeiture:

Luxembourg law allows for criminal forfeitures. Narcotics-related proceeds are pooled in a special fund to invest in anti-drug abuse programs. Luxembourg can confiscate funds found to be the result of money laundering even if they are not the proceeds of a crime. The GOL can, on a case-by-case basis, freeze and seize assets, including assets belonging to legitimate businesses used for money laundering.

Narcotics asset sharing authority:

There is no specific co-ordination mechanism, fund, or procedure in place for sharing seized assets with other jurisdictions. Since its creation in 1992, the Central Office for Combating Drug Trafficking has been the government body in charge of narcotics asset sharing with foreign jurisdictions, including the United States. This Office is in charge of managing narcotics assets.

Cross-border currency transportation requirements: Yes

Travelers entering or leaving the EU and carrying any sum equal to or exceeding euro 10,000 (or its equivalent in other currencies or easily convertible assets) are required to make a declaration to the customs authorities. Luxembourg does not have declaration requirements for those crossing its borders to another EU country.

Cooperation with foreign governments (including refusals):

Luxembourg cooperates with, and provides assistance to foreign governments in their efforts to trace, freeze, seize and forfeit assets. However, in most cases, international cooperation is hampered due to Luxembourg’s requirement for dual criminality as a condition for granting mutual legal assistance, as well as a minimum penalty threshold for responding favorably to requests. There were no U.S.-Luxembourg cooperation initiatives in 2009.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

The GOL actively disseminates to its financial institutions information concerning suspected individuals and entities on the UNSCR 1267 Sanctions Committee’s consolidated list and the list of Specially Designated Global Terrorists designated by the United States pursuant to Executive Order 13224. Luxembourg’s authorities can and do take action against groups targeted through both the UN and EU designation processes. However, Luxembourg does not have legal authority to independently designate terrorist groups or individuals.

U.S.-related currency transactions:

There are no significant U.S. currency transactions on Luxembourg territory.

Records exchange mechanism with U.S.:

The United States and Luxembourg entered into a mutual legal assistance treaty (MLAT) in 2001. On May 20, 2009, Luxembourg and the United States of America signed a Protocol amending the existing Convention between the Government of the United States of America and the Government of Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to taxes on Income and Capital. This Protocol provides for information exchange and allows the United States Government to be given banking information of U.S. Citizens with financial accounts in Luxembourg upon request, on a case by case basis.

International agreements:

Luxembourg is a party to various information exchange agreements with countries in addition to the United States. Authorities can share information or provide assistance to foreign jurisdictions in matters relating to money laundering or other financial crimes without need for a treaty.

Luxembourg is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - Yes

Luxembourg is a member of the Financial Action Task Force. It has not yet had a mutual evaluation.

Recommendations:

With regard to the criminalization of terrorist financing, significant shortcomings exist. The Government of Luxembourg (GOL) should take steps to adequately criminalize money laundering and terrorist financing in a manner consistent with relevant international Conventions in order to cover all conduct cited by those instruments. The scarce number of financial crime cases is of concern, particularly for a country that has such a large financial sector. The GOL should take action to delineate in legislation regulatory, financial intelligence, and prosecutorial AML/CFT activities among governmental entities. The situation is most acute regarding the lack of a distinct legal framework for the FIU whose staff, activities, and authorities are divided among at least four different ministries. The State Prosecutors in the FIU should be exempt from nonfinancial crime duties, and the FIU should increase the number of analytical staff to effectively analyze and disseminate the volume of STRs it receives. The GOL should pass legislation creating the authority for it to independently designate those who finance terrorism as it would be well served to have such authority. The GOL also should enact legislation to address the continued use of bearer shares. The GOL should continue its efforts to assist jurisdictions with nascent or immature AML/CFT regimes.

Macau

Macau, a Special Administrative Region (SAR) of the People’s Republic of China (PRC), is not a significant regional financial center. Macau’s financial system consists of banks and insurance companies that offer traditional products and services to the local population. However, Macau’s gaming and tourist industries attract millions of visitors yearly, mostly from mainland China, and continue to stimulate an unprecedented and rapid economic expansion. Because of the large gaming sector patron flows from abroad, Macau could be used as a hub to launder and remit criminal proceeds. To date, there is no evidence indicating Macau’s financial institutions engage in currency transactions involving international narcotics trafficking proceeds. Money laundering in Macau does not appear to be related to proceeds from illegal narcotics, psychotropic substances, and chemical precursors. The primary sources of criminal proceeds in Macau are financial fraud and illegal gambling. Criminal networks spanning across Macau’s border with mainland China account for much of the criminal activity.

Offshore Center: Yes

Offshore finance businesses, including credit institutions, insurers, underwriters, and offshore trust management companies, are regulated and supervised by the Monetary Authority. Profits derived from offshore activities are fully exempted from all forms of taxes.

Free Trade Zone: No

Macau is a free port without free trade zones.

Criminalizes narcotics money laundering: Yes

Decree Law No. 17/2009 criminalizes the illicit traffic in narcotic drugs and psychotropic substances.

Criminalizes other money laundering, including terrorism-related: Yes

Law No. 2/2006 (Prevention and Repression of Crime of Money Laundering) and Law No. 3/2006 (Prevention and Repression of Crimes of Terrorism) were both adopted to strengthen Macau’s anti-money laundering/counter-terrorist financing (AML/CFT) framework. Macau’s laws apply to all serious crimes including terrorism and terrorist financing. Macau

Criminalizes terrorist financing: Yes

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

In April 2006, Macau adopted Law No. 3/2006 for the “Prevention and Repression of Terrorist Crimes.” Article 7 of Law No. 3/2006 defines and criminalizes terrorist financing. Terrorism and terrorist financing are predicate offenses of money laundering.

Know-your-customer rules: Yes

The Financial System Act and Administrative Regulation No. 7/2006 provide a legal basis for identification of customers of credit and financial institutions. Additionally, the “Guidelines for Financial Institutions” details when financial institutions should exercise customer due diligence. Macau’s AML/CFT controls apply to non-bank financial institutions and designated nonfinancial businesses and professions, such as casinos, gaming intermediaries, remittance agents and money changers (RAMCs), cash couriers, trust and company service providers, realty services, pawn shops, traders in goods of high unit value (e.g., jewels, precious metals, vehicles, etc.), notaries, registrars, commercial offshore service institutions, lawyers, auditors, accountants, and tax consultants.

Banks and other financial institutions are required to know and record the identity of customers engaging in significant transactions. In July 2009, Macau’s Monetary Authority strengthened its AML/CFT Guidelines for RAMCs, and for banks and other financial institutions (excluding the insurance sector), including identification verification procedures for personal and corporate customers. These revised guidelines also enhance customer due diligence (CDD) measures for dealing with trust, nominee and fiduciary accounts or client accounts opened by professional intermediaries; non-face-to-face customers; politically exposed persons (PEPs); fund transfers; and correspondent banking.

Bank records retention: Yes

Financial institutions, including credit institutions and RAMCs, must record transactions exceeding $2,500 (MOP 20,000) and cross-border wire transfers/remittances over $1,000 (MOP 8,000). Financial institutions and RAMCs must retain records for a minimum of five years from the date of transaction. Financial institutions must also maintain customer account files, including identification data and business correspondence, for at least five years after termination of a business relationship.

Suspicious transaction reporting: Yes

The legal requirements that obligate reporting institutions to identify, record, and report STRs are embedded in Law No. 2/2006; Law No. 3/2006; and Administrative Regulation No. 7/2006. Additionally, Section 5 of “The Guideline on large cash transactions” issued by the Monetary Authority of Macau requires financial institutions to establish monitoring systems for high-risk cash transactions (those equal to or exceeding MOP/HKD 250,000 (approximately $31,250) or equivalent). In 2009, Macau’s financial intelligence unit (FIU) received 1,156 STRs. Of these, the FIU submitted 20 referrals to law enforcement for additional action.

Large currency transaction reporting: No

Narcotics asset seizure and forfeiture:

The seizure of criminal proceeds is provided for in Articles 163 to 171 of the Criminal Procedure Code, while the forfeiture of criminal proceeds is provided for in Article 101 to 104 of the Criminal Code. Decree Law No. 17/2009, Article 29 (Prohibition of production, trafficking and consumption of narcotic drugs and psychotropic substances) replaces Decree Law No. 5/91/Mand specifically provides for the forfeiture of assets related to narcotics trafficking or production. In 2009, Macau seized approximately $736,000 in money laundering-related assets; in 2008, Macau seized approximately $8.7 million in money laundering-related assets and approximately $15,300 in narcotics-related assets, all for crimes committed in 2007.

Narcotics asset sharing authority: Yes

Law No. 6/2006 establishes Macau’s legal cooperation regime in criminal matters. Article 29 outlines the possibility for the sharing of seized assets given an agreement with other governments on a case-by-case basis.

Cross-border currency transportation requirements: No

Currently, Macau has neither a declaration system nor a disclosure system in place.

Cooperation with foreign governments (including refusals): Yes

Currently Macau lacks legal procedures to facilitate the freezing of assets. As a result, Macau is unable to assist foreign jurisdictions in matters pertaining to the freezing of assets. Macau is able to request and offer mutual legal assistance in criminal matters even if no bilateral agreement exists between the Macau SAR and the requesting jurisdiction based on the principle of reciprocity. The Macau Government has not refused to cooperate with the USG, or with any other governments, to the best of our knowledge.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

In August 2006, Macau’s Chief Executive established Macau’s FIU as a three-year, non-permanent government department under Macau’s Secretary for Economy and Finance. This method of establishment was employed to expedite the setup of the FIU given that the legislative process amounts to years of negotiation. On July 14, 2009, Macau’s Chief Executive extended the FIU’s term until August 7, 2012. The international community is of the opinion that the GIF is viewed by the Macau SAR Government as an essential component of the long-term infrastructure of the Government.

Although Macau’s criminal legal framework does not contain references to a freezing mechanism, the Monetary Authority’s AML/CFT Guidelines obligate financial institutions to identify and freeze suspect bank accounts or transactions. Despite these due diligence procedures, Macau cannot provide mutual legal assistance on AML/CFT under existing legislation.

Macau publishes the list of individuals and entities designated by the UNSCR 1267 Committee in Macau’s Official Gazette. Additionally, the Monetary Authority circulates the list to all financial institutions operating in Macau. As of November 2009, Macau had not received evidence which led it to identify, freeze, seize, and/or forfeit terrorist-related assets.

U.S.-related currency transactions:

No information available.

Records exchange mechanism with U.S.:

Macau has no formal law enforcement cooperation agreements with the United States, though informal cooperation between the two routinely takes place. The FIU became a member of the Egmont Group in May 2009, which provides a platform for FinCEN and Macau’s FIU to exchange financial intelligence.

International agreements:

Macau currently has mutual legal assistance agreements (MLAA) with Portugal and East Timor, and is negotiating MLAA with Cape Verde, Brazil, and Mongolia. Authorities can share information or provide assistance to foreign jurisdictions in matters relating to money laundering or other financial crimes without need for a treaty. The FIU has memoranda of understanding (MOUs) with the FIUs in Portugal, mainland China, the Hong Kong SAR, Korea, Indonesia, Japan and The Philippines.

In the financial sector, Macau’s Monetary Authority has signed several MOUs for cross-border supervision and information sharing with regulatory authorities in China, the Hong Kong SAR, Portugal Cape Verde, Mozambique, Angola, Brazil, Australia, and São Tomé and Príncipe.

Macau is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes*
  • the UN Convention against Transnational Organized Crime - Yes*
  • the 1988 UN Drug Convention - Yes*
  • the UN Convention against Corruption - Yes*

*In ratifying the above Conventions, China in each case specified that the treaty would apply to the Macau SAR. The Conventions are implemented through local ordinance.

Macau is a member of the Financial Action Task Force-style regional body Asia/Pacific Group on Money Laundering (APG). Its most recent mutual evaluation can be found here: http://www.apgml.org/documents/docs/17/Macao%20ME2%20-%20FINAL.pdf

Recommendations:

Macau has made considerable efforts to develop an AML/CFT framework that meets international standards. However, the Macau Government still needs to make further improvements. It should enhance its ability to implement and enforce existing laws and regulations. Specifically, it should ensure that regulations, structures, and training are adequate to prevent money laundering in the gaming industry, including appropriate oversight of VIP rooms and junket operators. Macau should continue raising AML/CFT public awareness and strengthen interagency coordination and training. It should institutionalize its FIU by making it a permanent body, dedicate additional manpower resources to AML/CFT investigations, enforcement, and cross-border interdiction, and establish a cross-border bulk currency movement detection and declaration system. Additionally, Macau should enhance its ability to support international efforts pertaining to the freezing and seizing of illicit funds by developing its legal framework to facilitate the freezing and seizure of assets.

Macedonia

Macedonia is not a regional financial center. A small portion of money laundering activity may be connected to narcotics trafficking. There is no evidence that narcotics trafficking organizations or terrorist groups control money laundering. Money laundering in Macedonia is mostly connected to financial crimes such as tax evasion, smuggling, financial and privatization fraud, insurance fraud, bribery, and corruption. The Macedonian courts levied criminal charges against several high level government officials for misuse of their official positions under the organized crime and corruption statute. Most of the laundered proceeds come from domestic criminal activities.

Offshore Center: No

Free Trade Zones: Yes

There are a few operational free trade zones in Macedonia, but all of them function as industrial zones within which some industrial production has the legal right to receive the benefits of a free trade zone. The production facilities enjoying these benefits are owned by foreign investors. The GOM is trying to attract more foreign investment by leasing out four large free trade zones. Identification requirements for companies and individuals using the zones are in place, and they are no different from requirements for other companies outside the zones, governed by the existing Trade Companies Law.

Criminalizes narcotics money laundering:

Macedonia’s Criminal Code, which came into force in 1996 and was last amended on September 10, 2009, criminalizes any form of money laundering and terrorist financing. The legislation specifically identifies narcotics and arms trafficking as predicate offenses and contains an additional provision that covers funds acquired from other punishable actions.

Criminalizes other money laundering, including terrorism-related:

The 2008 Law on Preventing Money Laundering and Other Proceeds of Crime and Terrorism Financing (LPMLTF) does not list specific crimes as predicate offenses, instead choosing to take an “all serious crimes” approach with no minimum threshold for sentencing.

Criminalizes terrorist financing:

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

The LPMLTF provides a definition of terrorist financing that is in accordance with the 1999 International Convention for the Suppression of Terrorism. Parliament adopted amendments to the terrorism provisions in the Criminal Code that increase sentences and criminalize offenses committed by terrorist organizations, including terrorist financing. Draft legislation being circulated within the government will address the financing of individual terrorists.

Know-your-customer rules: Yes

The LPMLTF requires financial institutions and designated non-financial businesses and professions such as exchange offices, stock brokerages, insurance companies, audit and accounting companies, notaries, attorneys at law, and casinos to identify, report, and keep track of clients performing those transactions subject to reporting requirements.

Bank records retention: Yes

Banks and other financial institutions are required to maintain records necessary to trace significant transactions for up to ten years.

Suspicious transaction reporting: Yes

All entities covered by the LPMLTF must file suspicious transaction reports (STRs) with the financial intelligence unit (FIU). From January to October 2009, the FIU received 227 STRs compared with 89 during the same period in 2008. The FIU has submitted 27 reports and 96 notifications of suspicious transactions to relevant state institutions for further investigation. In 2009, the FIU sent two money laundering cases to the Public Prosecutor’s Unit for Organized Crime and Corruption for further investigation and filing of criminal charges. In one of the cases, the FIU froze approximately $200,000.

Large currency transaction reporting: Yes

Under the LPMLTF covered institutions must report all cash transactions exceeding 15,000 euros (approximately $21,000). From January to October 2009, the FIU received 72,854 large cash transaction reports.

Narcotics asset seizure and forfeiture:

In September 2009, parliament adopted asset forfeiture and amendments to the Criminal Code, which created the possibility for a five-year window for asset forfeiture for offenders of serious and organized crime, particularly narcotics traffickers, terrorism financers, and money launderers. In addition, this law also contains provisions for confiscation from third parties and family members. The Criminal Code allows for substitute assets to be seized. The Agency for Management of Seized Property was established in March 2009. According to the LPMLTF, financial institutions can temporarily freeze assets of suspected money launderers and terrorist financiers prior to receiving a court order.

Narcotics asset sharing authority:

With the ratification of the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and on the Financing of Terrorism in March 2009, the country can share seized assets with other governments.

Cross-border currency transportation requirements:

The Law on Foreign Exchange Operations requires the Customs Administration to register and report the cross-border transport of currency or monetary instruments in amounts that exceed 10,000 euros. Mandatory declaration forms are used at border crossings. The Customs Administration also has the authority to temporarily seize foreign and domestic currency at border crossings in cases where legal regulations have been violated. From January to October 2009, the Customs Administration sent 821 reports to the FIU on cross-border transport of cash that exceeded the reporting limit.

Cooperation with foreign governments (including refusals):

In 2004, the Macedonian Parliament ratified the Second Additional Protocol to the Council of Europe’s Convention on Mutual Legal Assistance in Criminal Matters. Macedonia has concluded a number of Police Cooperation Agreements with most countries in the region (Albania, Bulgaria, Croatia, Romania, Slovenia, Austria, Turkey, Greece, Russia, Ukraine, Egypt, and Kosovo). Macedonia also provides law enforcement information in connection with requests from other countries with which it lacks a formal information exchange mechanism. In 2009, the FIU cooperated with FinCEN on a money laundering case that derived from an investor scam in the US and also involved the US Securities and Exchange Commission (SEC) and the Macedonian SEC. Macedonian authorities detained one person, suspected to have laundered about $30 million, and informed FinCEN, which was also working on the case in the US.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

The LPMLFT excludes from the list of covered entities dealers of arts, antiques, and other high-valued consumer goods; entities dealing with jewelry and precious metals; and travel agencies.

Covered non-bank businesses and professions are to be inspected by the Public Revenues Office (PRO). However, in practice such inspections rarely occur, as PRO is focused on tax evasion.

In 2002, Macedonia established a Financial Police Unit (FPU) tasked with investigating financial crimes, bank fraud, tax evasion, terrorist financing, and money laundering cases. Despite a new Law on Financial Police in May 2007, making the FPU a separate legal entity with its own budget, and more precisely defining and enhancing the FPU’s responsibilities, there is still overlap in many areas with the PRO, the Customs Administration, and especially with the regular police. In 2009 there were no convictions for money laundering or terrorist financing.

The FIU, the National Bank, and the Ministry of Finance circulate the lists of terrorist financing entities they receive. The authorities are allowed to identify named accounts, but require court orders before they can freeze and/or seize assets in those accounts.

U.S.-related currency transactions:

There is no evidence of currency transactions involving proceeds from narcotics trafficking, including transactions involving U.S. currency or currency derived from illegal drug sales in the United States.

Records exchange mechanism with U.S.:

No information available.

International agreements:

Macedonia has mutual legal assistance agreements with many countries. Macedonia’s FIU has signed MOUs for information exchange on money laundering with 31 other FIUs.

Macedonia is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - Yes

Macedonia is a member of the Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL), a Financial Action Task Force-style regional body. Its most recent mutual evaluation can be found here: http://www.coe.int/t/dghl/monitoring/moneyval/Evaluations/Evaluation_reports_en.asp

Recommendations:

The Government of Macedonia’s enactment of new asset forfeiture laws in 2009 was a positive step forward. The GOM now needs to take additional steps to fully implement its legislation. Macedonia should provide the necessary resources and training to both government and private entities with responsibilities under the laws. The GOM should improve supervision of the non-bank financial sector, including bringing those designated non-financial businesses and professions not currently covered under the LPMLTF -- high value goods dealers, real estate and travel agencies – into the list of responsible entities. Macedonia also should clarify the roles of the various police entities to enhance cooperation and prevent unnecessary overlap and duplication of efforts.

Madagascar

Madagascar is not an important regional financial center. Due to the political crisis in Madagascar, illicit activities, public corruption, and associated money laundering appear to have increased in 2009. Tax and customs fraud, violation of the foreign exchange code, and illegal rosewood logging are the major sources of proceeds. Smuggling of gemstones, protected flora and fauna, and illegal drugs, to a lesser extent, also contributes to money laundering. Madagascar’s inadequately monitored 3,000 mile coastline facilitates smuggling and money laundering. Criminal proceeds laundered in the country derive mostly from domestic criminal activity, but are often linked to international trade. It is suspected that most money laundering occurs through informal channels and is not tracked by the government.

Offshore Center: Yes

Offshore banks and international business companies are permitted in Madagascar. Along with domestic banks and credit institutions, offshore banks are required to request authorization from the Financial and Banking Supervision Committee (CSBF) which is affiliated with the central Bank.

Free Trade Zones:

There is no free trade zone, but producers of export commodities may apply for export processing zone (EPZ) status if they meet certain conditions. EPZ status is not restricted to a geographic area.

Criminalizes narcotics money laundering: Yes

In 1997, Madagascar criminalized money laundering related to narcotics trafficking with Law 97-039, which governs the production, processing and commercialization of narcotics, psychotropic substances, and precursors.

Criminalizes other money laundering, including terrorism-related: Yes

In 2004, Law 2004-020 governing money laundering and the search, seizure, and confiscation of assets was enacted. Law 2004-020 designates money laundering as deriving from all serious offenses.

Criminalizes terrorist financing: No

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

A bill on terrorism financing has been finalized, but its adoption has been delayed due to the dissolution of the parliament following a coup d’état in March 2009.

Know-your-customer rules: Yes

Banks and other financial institutions are required to know, record, and report the identity of customers engaging in transactions above the equivalent of $30,000.

Bank records retention: Yes

Banks and other financial institutions are required to maintain for five years all information regarding significant transactions through financial institutions.

Suspicious transaction reporting: Yes

Law 2004-020 stipulates that financial institutions, including banks and moneychangers, are required to report suspicious transactions. The reporting is mandatory, and there is no reporting threshold. In June 2007, the government issued decree 2007-510 to establish SAMIFIN as Madagascar’s financial intelligence unit (FIU). In 2009, SAMIFIN received 45 suspicious transaction reports. Ten cases were referred to the public prosecutors.

Large currency transaction reporting: No

Narcotics asset seizure and forfeiture: Yes

Law 2004-020 covers the seizure, freezing and forfeiture of narcotics-related assets as well as assets derived from, or intended for, terrorist financing and other serious crimes. The judicial authority is responsible for asset seizure and forfeiture. The law permits the freezing and seizure of assets that are the object of investigation. The public prosecutor can confiscate not only the individual’s assets and properties, but also those of a spouse or children. The law applies to all types of money laundering. There is no civil forfeiture.

Narcotics asset sharing authority:

No information available.

Cross-border currency transportation requirements: Yes

Currency flows out of the country over the equivalent of $7,000 must be reported to the Ministry of Finance. The Ministry of Finance monitors currency inflows. The regulations appear to be aimed at enforcing currency exchange requirements.

Cooperation with foreign governments:

Law 2004-020 (Art 44-46) provides for multilateral cooperation with foreign governments regarding investigation of money laundering cases.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

The public prosecutor is not adequately trained to investigate money laundering. This has hindered the effectiveness of the FIU, as cases that are referred to the prosecutor often do not advance. There were no prosecutions for money laundering by the end of 2009, although SAMIFIN referred ten cases to the public prosecutor during the year.

The existence of black market exchanges and hawala systems are widely acknowledged. The law (foreign exchange code) prohibits such practices, but the law is not enforced sufficiently. The GOM has to date focused on the formal system.

The list of individuals and entities included on the UN 1267 sanctions committee’s consolidated list has been circulated to the FIU. In 2009, the country didn’t identify, freeze or seize related assets.

U.S.-related currency transactions:

Madagascar’s financial institutions do not engage in currency transactions involving international narcotics trafficking proceeds that include significant amounts of U.S. currency or currency derived from illegal drug sales in the United States or that otherwise significantly affect the United States.

Records exchange mechanism with U.S.:

There is no written agreement specifically for the sharing of records on money laundering, narcotics, or terrorism cases, but law enforcement authorities have expressed a willingness to cooperate informally if a need arises.

International agreements:

SAMIFIN’s Egmont Group membership has been delayed due to the delay in approval of the terrorism finance bill.

Madagascar is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism -Yes
  • the UN Convention against Transnational Organized Crime -Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - Yes

Madagascar is not yet a member of a Financial Action Task Force-style regional body. Contacts have been established with the East and Southern Africa Anti-Money Laundering Group (ESAMLAG) secretariat to start the integration process.

Recommendations:

The Government of Madagascar (GOM) should continue to implement the requirements of Law 2004-020 and internationally recognized anti-money laundering/counter-terrorist financing standards. The GOM should pass the stalled legislation on terrorism financing. Additional effort should be made to combat smuggling. Money laundering related to underground finance and informal value transfer systems should be recognized and enforced. The GOM should train police and customs authorities to proactively recognize money laundering at the street level and at the ports of entry. Additionally, prosecutors should receive training so they are more able to successfully prosecute complex financial crime and money laundering cases.

Malawi

Malawi is not a regional financial center. Some money laundering is tied to smuggling and converting remittance savings systems abroad.

Offshore Center:

No information available.

Free Trade Zones:

No information available.

Criminalizes narcotics money laundering: Yes

Criminalizes other money laundering, including terrorism-related:

In August 2006, Malawi passed the Money Laundering, Proceeds of Serious Crime and Terrorist Financing Act (ML/TF Act) which criminalizes money laundering related to all serious crimes.

Criminalizes terrorist financing:

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

No information available.

Know-your-customer rules:

Financial institutions are required to record and report the identity of customers making large transactions. These records must be available to the Reserve Bank of Malawi (RBM) upon request.

Bank records retention:

Banks must maintain the records of identified customers for seven years.

Suspicious transaction reporting:

Banks are allowed, but not required, to submit suspicious transaction reports to the RBM.

Large currency transaction reporting:

No information available.

Narcotics asset seizure and forfeiture:

The ML/TF Act provides a legal framework for identifying, freezing, and seizing assets related to money laundering. The RBM has the legal authority to identify and freeze assets suspected of involvement in terrorist financing.

Narcotics asset sharing authority:

No information available.

Cross-border currency transportation requirements:

No information available.

Cooperation with foreign governments (including refusals):

No information available.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

The ML/TF Act establishes a financial intelligence unit (FIU) to analyze financial transactions to detect money laundering and other crimes. The government has not yet created the FIU or appointed a director to head the organization.

The RBM has circulated to the financial community the names of suspected terrorists and terrorist organizations listed 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.

U.S.-related currency transactions:

No information available.

Records exchange mechanism with U.S.:

No information available.

International agreements:

Malawi is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - Yes

Malawi is a member of the Eastern and Southern Africa Anti-Money Laundering Group, a Financial Action Task Force-style regional body. Its most recent mutual evaluation can be found here: http://www.esaamlg.org/reports/view_me.php?id=165

Recommendations:

Now that the Government of Malawi has adopted its anti-money laundering and counter-terrorist financing legislation, it should work toward full implementation of its laws. The GOLM should appoint a technically competent FIU director and develop viable regimes to thwart both money laundering and terrorist financing. The GOM also should make the filing of STRs by financial institutions mandatory.

Malaysia

Malaysia is a growing regional financial center and has a well developed anti-money laundering/counter-terrorist financing (AML/CFT) framework. Malaysia’s long porous land and sea borders and its strategic geographic position increase its vulnerability to money laundering and terrorist financing in the region. Drug trafficking is the main source of illegal proceeds in Malaysia. Malaysia is primarily used as a transit country to transfer drugs originating from the Golden Triangle, Pakistan, India, and Europe, which, among others, include heroin, amphetamine type substances, and ketamine. Other sources of illegal proceeds include theft, fraud, corruption, criminal breach of trust, smuggling of high tariff goods, trafficking of people, and illegal deposit taking. Money laundering techniques include the use of remittance services, couriers, front companies, purchasing high value goods and real property, and investment in capital markets. Nigerian criminal groups are involved in a variety of financial crimes in Malaysia, to include counterfeit currency, investment schemes, and using Malay bank accounts to transfer funds in and out of Malaysia.

Offshore Center: Yes

While Malaysia’s offshore financial center on the island of Labuan has different regulations for the establishment and operation of offshore businesses, it is subject to the same AML/CFT laws as those governing onshore financial service providers. Malaysia’s Labuan Offshore Financial Services Authority (LOFSA) licenses offshore banks, trust companies, and insurance companies, and performs background checks before granting an offshore license. LOFSA is responsible for ensuring AML/CFT compliance on Labuan.

Labuan’s 48 offshore banks (including ten investment banks), insurance companies, trust companies, trading agents, and listing sponsors are subject to all AML/CFT requirements, including the filing of suspicious transaction reports (STRs). The financial institutions operating in Labuan are generally among the largest international banks and insurers. Nominee (anonymous) directors are not permitted for offshore banks or for trust or insurance companies. As of October 2009, Labuan had 7,322 registered offshore companies. Bearer instruments are strictly prohibited in Labuan. Offshore companies must be established through a trust company, which is required by law to establish true beneficial owners and submit STRs. There is no requirement to publish the true identity of the beneficial owner of international corporations; however, LOFSA requires every organization operating in Labuan to disclose information on its beneficial owner(s), as part of its offshore company licensing procedures. LOFSA maintains financial information on licensed entities, releasing it either with the consent of those entities or upon investigation.

Free Trade Zones: Yes

The Free Zone Act of 1990 is the enabling legislation for free trade zones in Malaysia. The zones are divided into Free Industrial Zones (FIZ), where manufacturing and assembly takes place, and Free Commercial Zones (FCZ), generally for warehousing commercial stock. The FIZs are designed mainly to promote manufacturing industries producing goods mainly for export and are dominated by large international manufacturers such as Dell and Intel, which are attracted to the zones because they offer preferential tax and tariff treatment. The Minister of Finance may designate any suitable area as an FIZ or FCZ. Currently there are 17 FIZs and 17 FCZs in Malaysia. The Minister of Finance may appoint any federal, state, or local government agency or entity as an authority to administer, maintain, and operate any free trade zone. Companies wishing to operate in an FIZ or FCZ must be licensed. The time needed to obtain a license to operate in a particular free trade zone from the administrative authority depends on the type of activity.

Criminalizes narcotics money laundering: Yes

Sections 3 and 4 of the Dangerous Drugs (Forfeiture of Property) Act 1988 criminalize any dealings that involve property derived from or is the subject of a narcotics offense.

Criminalizes other money laundering, including terrorism-related: Yes

Malaysia continues to enhance its AML/CFT framework. In 2009, the types of money laundering serious offenses increased from 223 to 245, which are covered by 37 pieces of legislation collectively known as the AMLATFA. New types of money laundering serious offenses in 2009 originated from modifications to the Anti-Trafficking in Persons Act of 2007, the Money Changing Act of 1998, the Exchange Control Act 1953, and the Malaysian Anti-Corruption Commission Act of 2008.

Criminalizes terrorist financing: Yes

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

As part of the measures to strengthen its counter-terrorism legislative framework, between 2003 and 2004, the Government of Malaysia (GOM) enacted amendments to five different pieces of legislation: the Anti-Money Laundering Act of 2001 or AMLA, the Penal Code, the Subordinate Courts Act, the Courts of Judicature Act, and the Criminal Procedure Code. These amendments which specifically criminalized terrorist acts and terrorism financing were brought into force on March 6, 2007. Moreover, the amendments that impose penalties for terrorist acts allow for the forfeiture of multiple forms of terrorist-related assets and allow for the prosecution of individuals who have provided material support for terrorists.

Know-your-customer rules: Yes

Reporting institutions are subject to strict customer due diligence (CDD) rules under the AMLATFA. The GOM has adopted banker negligence laws that make individual bankers responsible if their institutions launder money or finance terrorists.

Bank records retention: Yes

Every transaction, regardless of its size, is recorded. Reporting institutions must maintain records for at least six years.

Suspicious transaction reporting: Yes

Reporting institutions must promptly report any suspicious transactions to the financial intelligence unit (FIU), regardless of the amount of the transaction. Reporting institutions covered under the AMLATFA include financial institutions from the conventional, Islamic, and offshore sectors, offshore listing sponsors and trading agents, stock brokers, futures brokers, unit trust management companies, fund managers, futures fund managers, money lenders and pawnbrokers, non-bank remittance service providers, non-bank affiliated charge and credit card issuers, insurance financial advisers, e-money issuers and leasing and factoring businesses. Malaysia’s growing Islamic finance sector is subject to the same regulatory requirements and supervision as the conventional banks. Non-financial businesses and professions are also covered, including lawyers, public notaries, accountants, company secretaries, licensed casinos and gaming outlets, registered estate agents, trust companies, and dealers in precious metals and stones.

Large currency transaction reporting: Yes

A cash reporting requirement for all transactions above RM 50,000 (approximately $14,600) is imposed upon banking institutions.

Narcotics asset seizure and forfeiture:

Comprehensive laws exist for the seizing and confiscation of property in relation to the offenses of money laundering and narcotics trafficking. The Dangerous Drugs (Forfeiture of Property) Act 1988 contains specific provisions for the forfeiture of drug-related property. ‘Property’, as defined in section 2 of the Act, may be forfeited with or without a conviction for a predicate offense and where there is no prosecution.

Narcotics asset sharing authority:

Malaysia has no formal mechanism for the sharing of confiscated assets with other countries.

Cross-border currency transportation requirements: Yes

Effective January 2010, under section 23 of AMLATFA, travelers entering or leaving Malaysia must declare cash and/or negotiable bearer instruments exceeding an amount equivalent to $10,000. Travelers could be fined and/or face imprisonment if they fail to declare or make a false declaration.

Cooperation with foreign governments:

The GOM continues to enhance its cooperation on a regional, multilateral, and international basis. The Mutual Assistance in Criminal Matters Act of 2002 enables Malaysia to request and render mutual assistance in criminal matters and thereby assist states in criminal investigations and proceedings on criminal matters related to serious offenses (such as terrorism, drug trafficking, fraud, money laundering and human trafficking).

U.S. or international sanctions or penalties:

In February 2009, LOFSA issued an operating license to Far East Export Bank (FEEB), a wholly owned subsidiary of Iran-based Bank Mellat. Bank Mellat was designated by the United States under E.O. 13382 on October 25, 2007 for engaging in proliferation finance activities in Iran. The U.S. engaged with LOFSA, the central bank and other GOM ministries, identifying Bank Mellat as a known financier of proliferation items for Iran’s nuclear program in contravention of UN Security Council Resolutions. The U.S. recommended that LOFSA not issue the FEEB operating license. Following LOFSA’s decision to issue FEEB a license, the United States has consistently advocated for revocation. FEEB opened its Labuan operation in August 2009. The United States designated FEEB under E.O. 13382 on November 5, 2009, based on its relationship to Bank Mellat. The United States believes that FEEB represents a significant risk to the integrity of Malaysia’s financial system.

Enforcement and implementation issues and comments:

A number of terrorist organizations have been active on Malaysian territory, and authorities have taken action against Jemaah Islamiah and other terrorist networks. Terrorist financing in Malaysia is predominantly carried out using cash and relies on trusted networks. While Malaysia has recently improved the legislative framework to criminalize terrorist financing, there have been no investigations, prosecutions or convictions relating to terrorist financing under this new scheme as the GOM continued to use the Internal Security Act as a preventive measure instead of thorough investigations.

As of December 2009, the Attorney General’s Chambers is prosecuting 84 money laundering cases, involving a total of 2,682 charges with a cumulative total value of RM 941.1 million (approximately $276.8 million). These money laundering cases include self-laundering cases. Out of the 84 cases, there have been eight convictions and three acquittals. The other cases are ongoing.

In 2007, the GOM improved relevant legislation, enabling it to comprehensively freeze assets under the UNSCRs 1267 and 1373. The Home Affairs Ministry has the authority under the AMLATFA to declare terrorists and terrorist organizations listed on the UN 1267 Sanctions Committee’s consolidated list as designated entities whose properties are to be frozen. To ensure immediate freezing action, the FIU disseminates electronically an updated UN consolidated list as well as orders or circulars to financial institutions. At the same time, the FIU also disseminates information on persons and entities designated unilaterally by other countries, including the United States, to these institutions.

U.S.-related currency transactions:

No information available.

Records exchange mechanism with U.S.:

The mutual legal assistance treaty (MLAT) with the United States entered into force in January 2009. The GOM has cooperated closely with U.S. law enforcement in investigating terrorist-related cases since the signing of a joint declaration to combat international terrorism in May 2002.

International agreements:

Since 2003, Malaysia has concluded MLATs with several countries.

Malaysia is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - Yes

Malaysia is an active member of the Asia/Pacific Group on Money Laundering (APG), a Financial Action Task Force-style regional body. Its most recent mutual evaluation report can be found here: http://www.apgml.org/documents/docs/17/Malaysian%20MER%20-%20FINAL%20August%202007.pdf

Recommendations:

Malaysia is not a major money laundering country and has a strong commitment to preventing money laundering and terrorist financing. The Government of Malaysia (GOM) intends to continue its involvement in AML/CFT matters on a regional, multilateral, and international basis and its leadership in global AML/CFT efforts. However, Malaysia should enact legislation to improve AML/CFT oversight in Labuan and endow LOFSA with sufficient resources to carry out adequate supervision, particularly over its banks, IBCs, and trust companies. In addition, LOFSA should revoke the operating license of Far East Export Bank to protect Malaysia from the risk of proliferation finance occurring in its jurisdiction. Bank Negara Malaysia also should continue its efforts to encourage the use of formal rather than informal remittances which are not subject to AML/CFT controls and may pose vulnerabilities for abuse by money launderers and terrorist financiers. Law enforcement and customs authorities should examine trade based money laundering and invoice manipulation and their relationship to underground finance and informal remittance systems. More effort should be made to improve Malaysia’s capacity to identify, investigate, and prosecute terrorist financing.

Maldives

Maldives is not an important regional financial center. The financial sector of the Maldives is very small, with five commercial banks, two insurance companies, and a government provident fund. Although the crime rate in the Maldives is considered low, there is an increasing use of narcotics. The Maldives is located in an area prone to narcotics smuggling making the Maldives vulnerable as a transit point for shipments of illicit drugs meant for other nations and the laundering of narcotics proceeds.

Offshore Center: No

Free Trade Zones:

No information available.

Criminalizes narcotics money laundering: Yes

Law No. 17/77 on Narcotic Drugs and Psychotropic Substances prohibits trafficking of illegal narcotics and the laundering of proceeds from the illicit narcotics trade.

Criminalizes other money laundering, including terrorism-related: No

The Government of Maldives (GOM) has drafted broader anti-money laundering legislation.

Criminalizes terrorist financing:

Law No. 10/90 on Prevention of Terrorism in the Maldives deals with some aspects of money laundering and terrorist financing. Provision of funds or any form of assistance towards the commissioning or planning of any terrorist activity is unlawful.

Know-your-customer rules: Yes

The Maldives Monetary Authority has issued know-your-customer directives.

Bank records retention:

No information available.

Suspicious transaction reporting: Yes

The GOM has created a financial intelligence unit (FIU) within the Maldives Monetary Authority (MMA). The main functions of the FIU are to receive and analyze information on suspicious transactions, and, as appropriate, refer it for investigation to law enforcement agencies. The FIU is at an early stage of development. In the short term, the FIU operates under regulations and circulars issued under the MMA act of 1981. Regulations to cover the FIU are expected to be included in the new money laundering legislation. Through October 2009, the FIU only processed four suspicious transaction reports.

Large currency transaction reporting:

No information available.

Narcotics asset seizure and forfeiture:

No information available.

Narcotics asset sharing authority:

No information available.

Cross-border currency transportation requirements:

No information available.

Cooperation with foreign governments:

No information available.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

The FIU distributes the United Nations’ lists of the proscribed people and organizations. The Maldives does not have a national sanctions list.

U.S.-related currency transactions:

No information available.

Records exchange mechanism with U.S.:

No information available.

International agreements:

The GOM is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - No
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - No

In 2008, the Maldives became a member of the Asia/Pacific Group on Money Laundering (APG), a Financial Action Task Force-style regional body. Maldives has not yet had a mutual evaluation.

Recommendations:

The Government of the Maldives (GOM) is developing its anti-money laundering/counter-terrorist financing (AML/CFT) system. The Maldives is in the process of drafting AML/CFT laws and should work closely with the APG to ensure that countermeasures adhere to international standards. The GOM should pass its draft anti-money laundering law and provide adequate resources and training to its new FIU to enable it to fulfill its responsibilities.

Mali

The formal financial sector is underdeveloped in Mali. The informal sector accounts for a substantial proportion of economic activity in the country, a characteristic shared by the other West African Economic and Monetary Union (WAEMU) member states. The Malian economy functions to a large extent on cash. Transfers of funds from the diaspora are substantial. A major share of transfers of funds is carried out through the physical transportation of currency, either by professional cash couriers or by individuals themselves, mainly through inter-African exchanges. In general, the criminal environment is characterized by sizable amounts of illegal trafficking and by a level of corruption that is perceived to be high by global standards but in the median range by West African standards. The territory of Mali, in particular the desert north, is used for various kinds of trafficking, including narcotics, humans, arms, and cigarettes. In this regard, Mali is directly affected by the increasing role West Africa plays in the international drug trade and, more generally, by the growth of illegal trafficking in the region. Mali has an internal market for smuggled cigarettes, pharmaceuticals, and other products, but these activities are primarily a way to avoid Malian customs duties. Also, since Algeria subsidizes many consumables items, including fuel and many foodstuffs, much of what is traded in northern Mali has been smuggled from southern Algeria.

Terrorism and terrorist financing are also of increasing concern. The Algerian-based terrorist group al-Qaida in the Islamic Maghreb (AQIM) is active in northern Mali. AQIM appears to be financed by the maintenance of lucrative trafficking routes as well as the collection of ransoms following the kidnapping of Westerners in the Sahelian zone, to include Algeria, Mali, Mauritania, and Niger. This situation is aggravated by the vastness of the under-populated north and the long, virtually unmonitored border. The human and material resources available to the authorities for controlling this territory are extremely limited.

Offshore Center: No

Free Trade Zones: No

Criminalizes narcotics money laundering: Yes

Criminalizes other money laundering, including terrorism-related: Partially

The Malian anti-money laundering system is determined by Law No. 06-066 of December 2006, which transposes into national law Community Directive 07/2002, adopted by the WAEMU Council of Ministers in 2002. Law No. 06-066 defines money laundering and specifies the penalties for those guilty of the offense of money laundering. There are serious limitations and deficiencies in the law. Other professions are covered by the law, but their inclusion under the anti-money laundering (AML) system has not been implemented.

Criminalizes terrorist financing: Yes

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

In 2008, Mali passed law No. 08-025, which criminalizes terrorism and terrorist financing.

Know-your-customer rules: Yes

Law No. 06-066 establishes customer due diligence (CDD) obligations, which must be performed by all financial entities before they open an account or enter into any other business relationship with a customer (Article 7); or when they carry out occasional cash transactions exceeding CFAF 5 million (approximately $10,000) or in the case of repeated occasional transactions (Art. 8); and, if the source of funds is questionable in an occasional transaction (Article 8). The CDD obligations apply whenever there are repeated occasional transactions, regardless of the amount threshold. The West African Central Bank (BCEAO) enacted a circular (2007/RB) in 2007 that obliges financial institutions to exercise vigilance with respect to customer identification, record keeping, and detection of suspicious transactions, but it does not establish sufficient guidelines to help financial institutions comply with their AML obligations.

Bank records retention:

No information available.

Suspicious transaction reporting: Yes

Law 06-066 contains provisions for the creation of the National Financial Information Processing Unit (CENTIF), the Malian financial intelligence unit (FIU). Since the creation of CENTIF in May 2008, banks and nonprofit organizations have been obligated to file suspicious transaction reports (STRs). In 2009, Malian banks filed eight STRs with CENTIF. One of these was referred to the Ministry of Justice for further investigation.

Large currency transaction reporting:

No information available.

Narcotics asset seizure and forfeiture: Yes

The mandatory confiscation of goods constituting the proceeds of money laundering is stipulated in Article 45 of Law 06-066. However, the proceeds generated by the commission of a predicate offense to money laundering are not included among the property subject to confiscation. Rather, the confiscation of proceeds generated by the commission of another crime or offense is covered by the Malian penal code, Title III, Article 9.

Narcotics asset sharing authority:

No information available.

Cross-border currency transportation requirements: No

Detection of the physical cross-border transportation of currency falls to the customs service. Community regulations in this area form an annex to the customs code and provide customs agents with code-derived powers to detect and sanction exchange control violations, according to the authorities. The system of controls currently in place is mixed and depends on the status of the person transporting the funds (resident versus nonresident), as well as his/her destination (inside versus outside the WAEMU zone). These different thresholds make it difficult to enforce the regulations.

Cooperation with foreign governments:

An agreement for cooperation in criminal police matters between member countries of ECOWAS was signed by the heads of state in Accra on December 19, 2003. The national Interpol office (BCN-Interpol) in Bamako works in close collaboration with the secretariat of the International Criminal Police Organization (ICPO) and other national offices. Cooperation between WAEMU countries through BCN-Interpol involves both the sharing of information and assistance in conducting investigations. Customs departments collaborate with their counterparts in WAEMU countries through the Customs Enforcement Network (CEN).

AML Law 06-066 allows Mali’s CENTIF to share information with foreign FIUs on the condition of reciprocity and analogous requirements in regard to professional secrecy.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

Mali has a system of informal cooperatives that raise capital called tontines. This informal system poses a dual risk from the money laundering standpoint: they parallel the formal financial system - sometimes to the detriment of the latter’s development - and thus have the potential of recycling some criminal proceeds; they might also serve as a screen to prevent the identification of the origin of funds, imparting an appearance of legality to sometimes very substantial amounts of illicit funds.

In 2009, there were no arrests or prosecutions for money laundering or terrorist financing.

Mali has circulated to its financial institutions the list of individuals and entities included on the UN 1267 sanctions committee’s consolidated list as well as the list of terrorist organizations/financiers that the USG or the European Union have designated under relevant authorities.

U.S.-related currency transactions:

There is no evidence that Mali’s financial institutions engage in currency transactions involving international narcotics trafficking proceeds.

Records exchange mechanism with U.S.:

There have not been any exchanges of information.

International agreements:

Mali participates, under the aegis of the United States, in the Trans-Saharan Counter-Terrorism Initiative, a 12-country mechanism designed to facilitate information sharing and cooperation among these countries in regard to terrorist financing.

Mali is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - Yes

Mali is a member of the Intergovernmental Action Group against Money Laundering in West Africa (GIABA), a Financial Action Task Force-style regional body. Its most recent mutual evaluation report can be found here: http://www.giaba.org/index.php?type=c&id=24&mod=2&men=2

Recommendations:

The Government of Mali should continue to make efforts to implement anti-money laundering and counter-terrorist financing countermeasures that adhere to international standards. The GOM should fully implement Law 06-066, particularly implementing reporting and CDD standards for all covered entities.

Malta

Malta is not a regional financial center. Malta’s location between the African and European continents facilitates narcotics smuggling and possibly the smuggling of persons into other countries – particularly Italy.

Offshore Center: No

Free Trade Zones: Yes

There is one free trade zone in Malta, the Malta Freeport Terminals Ltd., which serves as a transshipment logistical center in the central Mediterranean and provides container handling and industrial storage services.

Criminalizes narcotics money laundering: Yes

Criminalizes other money laundering, including terrorism-related: Yes

On July 31, 2008, the Prevention of Money Laundering and Funding of Terrorism Regulations 2008 (PMLFTR) were implemented, transposing provisions of the European Union’s Third Money Laundering Directive into Maltese law.

Criminalizes terrorist financing: Yes

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

In 2002, the criminal code was amended so that terrorist financing would meet the standard for categorization as a serious crime under Malta’s Prevention of Money Laundering Act (PMLA).  On June 6, 2005, the Act was extensively amended and expanded to include provisions for offenses of terrorism and the funding of terrorism. 

Know-your-customer rules: Yes

Bank records retention: Yes

Financial institutions are required by law to maintain all necessary records on transactions for at least five years following the completion of the transaction (or longer if required to do so) regardless of whether the business relationship is ongoing or has been terminated.

Suspicious transaction reporting: Yes

In 2001, the Financial Intelligence Analysis Unit (FIAU) was established to serve as Malta’s financial intelligence unit (FIU).  The GOM requires banks, currency exchange offices, stockbrokers, insurance companies, money remittance/transfer services, and other designated non-bank financial businesses and professions to file suspicious transaction reports (STRs) with the FIAU, which investigates them.  There is no monetary threshold and filing of a STR is required regardless of whether the transaction is completed.  In 2008, the FIAU received 69 STRs. 

Large currency transaction reporting: No

Narcotics asset seizure and forfeiture: Yes

The PMLA deals with proceeds from any criminal offense. The Criminal Code deals with proceeds and instrumentalities from all crimes and in particular terrorism-related offenses. Confiscation/forfeiture provisions under the PMLA and Criminal Code are mandatory. The forfeiture provisions in the Criminal Code refer to all crimes liable to a punishment of imprisonment for a term of one year or more. Civil forfeiture separate from a conviction is not provided for by law.

Narcotics asset sharing authority:

There is no specific authorization or authority for asset sharing, but no restriction on sharing assets is imposed by statute. There is no record of any prior request for asset sharing.

Cross-border currency transportation requirements: Yes

Legal Notice 149 of 2007 (Cash Control Regulations) requires that any person entering or leaving Malta and carrying a sum equivalent to euro 10,000 (approximately $13,500) or more in cash is obligated to declare that sum to the authorities.

Cooperation with foreign governments:

Malta is party to the 1990 Strasbourg Convention and to several bilateral mutual legal assistance agreements.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

The GOM has designated one of the country’s five prosecutors to deal solely with money laundering cases.  Bank secrecy laws are completely lifted by law in cases of money laundering (or other criminal) investigations.  There were two convictions for money laundering in 2009.

The names of individuals and entities included on the UNSCR 1267 Sanctions Committee’s consolidated list are circulated to financial institutions.  To date, no assets have been identified, frozen and/or seized as a result of this process. 

U.S.-related currency transactions:

There are no indications that currency transactions in Malta involve international narcotics trafficking proceeds or include significant amounts of U.S. currency or currency derived from illegal drug sales in the United States or that otherwise significantly affect the United States.

Records exchange mechanism with U.S.:

The FIAU is able to exchange information with the Financial Crimes Enforcement Network.

International agreements:

Malta is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - Yes

Malta is a member of the Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a Financial Action Task Force-style regional body.  Its most recent mutual evaluation report can be found here:  http://www.coe.int/t/dghl/monitoring/moneyval/Evaluations/round3/MONEYVAL%282007%2905Rep-MLT3_en.pdf 

Recommendations:

The Government of Malta should continue to enhance its anti-money laundering and counter-terrorist financing legislation and procedures, as appropriate.

Mauritania

Mauritania is not a regional financial center. Its economic system suffers from a combination of weak Central Bank oversight, lax financial auditing standards, porous borders, and corruption in government and the private sector. The Government of Mauritania (GOM) did make some improvements in 2007 and 2008 by strengthening the Central Bank’s financial management system and making it more transparent, restructuring the foreign exchange system, and improving oversight of commercial banks. However, the August 2008 coup d’etat and resulting changes to the political and economic systems could make the country more vulnerable to money laundering.

Most money laundering in Mauritania involves profits from graft and small-scale illicit activity. Terrorism financing and narcotics proceeds are believed to constitute a small but growing portion of the sums laundered in Mauritania. Mauritania is a transit country for a variety of smuggled goods, including cigarettes, diverted food aid, small arms, clandestine immigrants, vehicles, and narcotics. Cocaine is the most commonly smuggled drug. Contraband smuggling generates modest funds that are laundered through the banking system. While money laundering and terrorist financing are limited in Mauritania, weak oversight and public corruption allows them to continue.

Offshore Center: No

Free Trade Zones: No

Criminalizes narcotics money laundering: Yes

The 1992 law governing money laundering focuses specifically on laundering from narcotics trafficking.

Criminalizes other money laundering, including terrorism-related: Yes

Money laundering is a criminal offense in Mauritania. The GOM drafted a new body of laws in 2005 that strengthen government control over money laundering related to terrorist groups and activities although they do not take an “all serious crimes” approach.

Criminalizes terrorist financing: Yes

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

On July 27, 2005, the GOM adopted law 2005-47 criminalizing terrorism and law 2005-48 criminalizing money laundering and terrorist financing.

Know-your-customer rules:

Banks are required to record and report to the Central Bank the identity of customers engaging in large-scale financial transactions.

Bank records retention: Yes

Banks and other financial institutions are required to maintain records necessary to reconstruct significant transactions for ten years.

Suspicious transaction reporting: Yes

Anti-money laundering controls are applied to banks and non-bank financial institutions such as exchange houses, and to intermediaries including lawyers, accountants, and broker/dealers. Financial institutions may report transactions they consider suspicious to the Central Bank; however, such reporting is done on a voluntary basis. The 2005 anti-money laundering law provides for the establishment and funding of the Financial Information and Analysis Commission (FIAC), equivalent to a financial intelligence unit (FIU). The FIAC became operational in 2008, but its capacity to conduct analysis has not yet been proven.

Large currency transaction reporting:

No information available.

Narcotics asset seizure and forfeiture:

Mauritania has enacted laws for identifying, tracing, freezing, seizing, and forfeiting narcotics-related assets as well as assets derived from or intended for terrorist financing and other serious crime. The authority comes from the 1992 law governing money laundering from drug trafficking and the 2005 laws governing terrorism, money laundering, and terrorist financing. However, these laws have not been fully implemented. The Ministry of Interior is responsible for tracing, seizing, and freezing assets. The GOM does not have an independent national system and mechanism for freezing terrorist assets.

Narcotics asset sharing authority:

No information available.

Cross-border currency transportation requirements: No

Cross-border transportation of currency and monetary instruments is limited to the equivalent of $3000. The Central Bank can grant exceptions to allow transport of larger amounts of currency across the border. Declaration forms are not used at border crossings. Cash smuggling reports are not entered into a data base.

Cooperation with foreign governments:

There are no known impediments to international cooperation.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

There are four government bodies responsible for investigating financial crimes: the FIAC, the Central Bank, the Ministry of the Interior, and the state Inspector General. These bodies lack adequate staff and training. There have been two arrests and one indictment for money laundering since January 1, 2007. In June 2009, a Mauritanian court indicted an individual for drug trafficking and money laundering.

The GOM acknowledges the existence and use of indigenous alternative remittance systems that bypass financial institutions. The GOM has taken steps to reduce the disparity between the official exchange rate and the parallel exchange rate to make black market exchanges less attractive. It has also increased patrols along its borders and in remote areas of the country to counter cross border cash smuggling.

U.S.-related currency transactions:

There are no indications that currency transactions in Mauritania involve international narcotics trafficking proceeds that include significant amounts of U.S. currency or currency derived from illegal drug sales in the United States or that otherwise significantly affect the United States.

Records exchange mechanism with U.S.:

The GOM has not adopted laws or regulations that allow for the exchange of records with the United States. The GOM has demonstrated a willingness to cooperate with the United States on combating financial crimes, terrorist financing and related issues, but local efforts are hampered by a serious lack of resources, knowledge, and expertise in this area.

International agreements:

Mauritania is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - Yes

The GOM is not a member of any Financial Action Task Force-style regional body.

Recommendations:

The Government of Mauritania should continue to make efforts to adhere to relevant international money laundering and counter-terrorist financing standards. The GOM should fully implement the laws and standards it has established. Mauritania should circulate to its financial institutions the list of individuals and entities included on the UN 1267 sanctions committee’s consolidated list as being linked to Usama Bin Ladin, members of the al-Qaida organization, or the Taliban.

Mauritius

Mauritius has developed a reputation as a well-regulated and credible international financial center.  According to the local Independent Commission Against Corruption (ICAC), laundered funds are primarily the proceeds from drug trafficking – mainly heroin, and increasingly, Subutex.  Other important predicate crimes for money laundering offenses include aggravated larceny, conspiracy, forgery, swindling, and corruption.  Criminal proceeds laundered in Mauritius are not controlled by drug trafficking organizations or organized criminal groups.  There is no significant black market for smuggled goods in Mauritius, although there is occasional smuggling of stolen automobiles and cigarettes.  According to ICAC, money laundering occurs in the banking system, the offshore financial center, as well as the non-bank financial system.  Criminal proceeds are derived from both domestic and foreign criminal activities.  The continuous development of the financial sector in Mauritius has resulted in an increase in financial crimes.

Offshore Center: Yes

The Mauritius Global Business Sector was established in 1992 to attract foreign investment to a wide range of banking and non-banking activities.  The Sector is a major route for foreign investments into the Asian sub-continent and is by far the largest source of foreign direct investment and portfolio investment in India.  In June 2009, there were 32,895 Global Business Companies (GBCs) in Mauritius, including 619 licensed global funds. There are two types of GBCs based on the category of license.  A GBC1 can be structured as a collective investment scheme, global fund or protected cell company.  A trust can also qualify for a GBC1 license.  GBC2s are engaged in invoicing, marketing and international trading activities.  Shell companies and bearer shares are not allowed in Mauritius.  As of the end of June 2009, there were 9,883 GBC1s and 23,012 GBC2s.  A GBC1 company is required by law to have two resident directors, to hold board meetings in Mauritius, and to be administered by a management company.  A GBC2 company must have a management company as a registered agent in Mauritius.  Nominee or anonymous directors and/or trustees are not allowed in Mauritius.  The offshore sector also includes management companies licensed by the Financial Service Commission (FSC) to provide professional services to GBCs.  These services include company incorporation, corporate and fund administration, tax planning and structuring, trusteeship, and accounting services.  The management company is required to carry out proper customer due diligence before accepting new business.  The FSC licenses and supervises all non-banking financial services and GBCs.

Free Trade Zones:

No information available.

Criminalizes narcotics money laundering: Yes

Money laundering is a criminal offense in Mauritius.

Criminalizes other money laundering, including terrorism-related:

The Finance Act 2009, enacted on July 30, 2009, principally enlarges the definition of crime, applying the crime of money laundering to a wider range of predicate offenses.

Criminalizes terrorist financing:  Yes

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

The Prevention of Terrorism Act of 2002 criminalizes terrorist financing.  The legislation gives Mauritius powers to track and investigate terrorist-related funds, property, and assets and to cooperate with international bodies.  Under the 2003 Mutual Assistance in Criminal and Related Matters Act, terrorism and terrorist financing are considered “serious crimes.”

Know-your-customer rules: Yes

It is mandatory for financial institutions to verify the true identity of their customers before opening any account, accepting any deposit of money and securities, or renting a safe deposit box.  The Financial Intelligence and Anti-Money Laundering Regulations of 2003 expressly prohibit financial institutions from opening anonymous or fictitious accounts.  They also require financial institutions to establish and verify the identity and current permanent address of an applicant for a business license, the nature of the business, financial status of the business owner and the capacity in which s/he is entering into a business relationship with the financial institution.

Bank records retention: Yes

All documentation required to verify the identity of customers and of beneficial owners must be retained for a period of not less than seven years after the completion of the relevant transaction, closure of the account, or cessation of the business relationship.

Suspicious transaction reporting: Yes

Financial institutions, including non-bank financial institutions (NBFIs) and designated non-financial businesses and professions (DNFBPs), are required by the Financial Intelligence and Anti-Money Laundering Act 2002 (FIAMLA) to report all suspicious transactions to the financial intelligence unit (FIU).  There is no specific threshold amount for suspicious transactions.  Through December 4, 2009, the FIU received 172 STRs and referred 28 Dissemination and Intelligence Reports to investigatory authorities during the same period. 

Large currency transaction reporting: 

Cash transactions in excess of Rs 500,000 (approximately $16,600) are prohibited in Mauritius, subject to certain exceptions.

Narcotics asset seizure and forfeiture:

Section 45 of the Dangerous Drug Act 2000, as amended by the Finance Act of 2009, includes provisions for the forfeiture of the possessions of convicted persons or any member of his/her family.  According to this Act, a suspect would have his assets frozen by the court upon any provisional drug trafficking charge.  Forfeiture of assets may take place upon conviction.  Although a conveyance used to transport drugs is confiscated, property on which illicit crops are grown is not subject to seizure.  Regarding substitute assets, the relationship to the crime must be proven for the assets to be seized.  There is no provision to seize legitimate businesses if used to launder drug money or support terrorist activity.  In addition to drug-related proceeds, proceeds from corruption offenses also are subject to seizure.  Civil forfeiture is not allowed.

Narcotics asset sharing authority:

Mauritius passed the Mutual Assistance and Criminal Related Matters Act which allows for the sharing of seized assets with other governments.  Thus far there has been no negotiation with other governments to enhance asset tracing, freezing, and seizure.

Cross-border currency transportation requirements:

Section 131A of the Customs Act of 1988 has been amended to provide that, beginning on October 1, 2009, any person making a physical cross-border transportation of currency or bearer negotiable instrument of an amount of more than Rs 500,000 rupees (approximately $16,600) or its equivalent in any foreign currency shall make a declaration to Customs.  Customs Regulations are currently being amended to provide for the use of a currency Declaration Form.  The cash declaration system will be implemented as from the date the principal regulations come into force.

Cooperation with foreign governments:

There are no known impediments to cooperation.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

According to ICAC, 39 suspects have been scrutinized since January 2009 in connection with money laundering offenses and prosecution is being contemplated against some of them.  In addition, four persons have been convicted in relation to money laundering cases.  

In one case, Marie Ange Seblin was convicted for having been in possession of property that, in part, directly represented the proceeds of a crime.  The court determined from the circumstantial evidence available that Seblin had reasonable grounds to suspect or was fully aware of the illicit drug activities of her husband, and the inference was drawn that her accounts were being used to accommodate the proceeds of drug trafficking activities. 

The Bank of Mauritius in turn circulates the UNSCR 1267 Sanctions Committee list to all Mauritius banks.  No terrorist related assets have thus far been identified by banks.

U.S.-related currency transactions:

No information available.

Records exchange mechanism with U.S.:

No information available.

International agreements:

The Mauritius FIU exchanges information with other FIUs which are not members of the Egmont Group on the basis of reciprocity or on the basis of memoranda of understanding.

Mauritius is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - Yes

Mauritius is a member of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), a Financial Action Task Force-style regional body.  Its most recent mutual evaluation can be found here:  http://www.esaamlg.org/reports/view_me.php?id=173 

Recommendations:

Mauritius has adopted a comprehensive anti-money laundering/counter-terrorist financing regime. The Government of Mauritius should continue its efforts to enhance its system, including the timely implementation of its new cross-border currency declaration system. Mauritius also should enact its pending civil asset forfeiture legislation and consider expanding its forfeiture regime beyond just drug or corruption-related offenses.

Mexico

Mexico is a major drug-producing and drug-transit country and is also one of the major conduits for proceeds from illegal drug sales leaving the United States. Proceeds from the illicit drug trade are the principal source of funds laundered through the Mexican financial and commercial systems. Other major sources of illegal proceeds being laundered include corruption, kidnapping, trafficking in firearms and persons, and other crimes. The smuggling of bulk shipments of U.S. currency into Mexico and the repatriation of the cash into the United States via couriers, armored vehicles, and wire transfers remain favored methods for laundering drug proceeds. In addition, criminal organizations have established networks with criminal groups based in other countries to facilitate and develop new methods to transport, transfer, and launder illicit funds. Estimates range from $8 billion to $25 billion being repatriated to Mexico from the U.S. annually by drug trafficking organizations.

Offshore Center: No

Free Trade Zone: No

Criminalizes narcotics money laundering: Yes

Article 400 bis of the Federal Penal Code criminalizes money laundering related to any serious crime.

Criminalizes other money laundering, including terrorism-related: Yes

Mexico’s all-crimes approach to money laundering criminalizes the laundering of the proceeds of any intentional criminal act or omission, regardless of whether or not that act or omission carries a prison term.

Criminalizes terrorist financing: Yes

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

On June 29, 2007, Mexico criminalized terrorist financing under the Federal Penal Procedures Code. Article 139 criminalizes domestic terrorist financing and Article 148 bis criminalizes international terrorist financing.

Know-your-customer rules: Yes

Under the Law of Credit Institutions, Mexican financial institutions, including banks and other financial institutions (including mutual savings companies, insurance companies, securities brokers, retirement and investment funds, financial leasing and factoring funds, casas de cambio, and centros cambiarios) must follow know-your-customer rules. Regulations require enhanced due diligence for higher-risk customers including politically exposed persons.

Changes to the General Law of Credit Auxiliary Organizations and Activities to harmonize requirements, rules and standards to detect money laundering operations between larger banks and other smaller financial institutions were issued in the Official Gazette on September 25, 2009. The reform also reduces the threshold to identify a user of cash operations, travelers’ checks or prepaid cards from $3,000 to $500. For operations larger than $3,000, the reform will require foreign exchange houses, centros cambiarios, and money transmitters to create a complete file of the user.

Bank records retention: Yes

Mexican law obligates banks to maintain business transaction records for at least ten years.

Suspicious transaction reporting: Yes

All Mexican Financial Institutions are required to report actual and attempted suspicious transactions to the Mexican FIU. In 2009, the FIU received 49,908 STRs.

Large currency transaction reporting:

In addition to banks, a 2005 provision of the tax law requires real estate brokerages, attorney, notaries, accountants, and dealers in precious metals and stones to report all transactions exceeding $10,000 (except for centros cambiarios, which are subject to a $3,000 threshold). In 2006, nonprofit organizations were made subject to reporting requirements for donations greater than $10,000.

Narcotics asset seizure and forfeiture: Yes

The forfeiture legislation approved by the Mexican Congress in 2009 allows seizing and forfeiting of assets used by organized criminals in executing drug-trafficking, money laundering, kidnapping, car robbery, embezzlement, and trafficking of persons. The legislation now permits specialized judges to authorize an asset forfeiture procedure independently of the criminal process being followed against an alleged criminal, and before a final ruling or conviction.

The list of individuals and entities included in the UN 1267 Sanction Committee’s consolidated list is distributed to government agencies and to financial institutions.

Narcotics asset sharing authority: No

Cross-border currency transportation requirements: Yes

All individuals entering or departing Mexico with more than $10,000 in currency or monetary instruments must file a report with Customs. Customs authorities send these reports to the financial intelligence unit (FIU). As of November 2009, bulk cash seizures for the year amount to $70 million nationwide.

Cooperation with foreign governments (including refusals): Yes

There are no known impediments to international cooperation.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

Money remitters are not subject to Mexico’s wire transfer regulations.

From 2006 through 2009, authorities have obtained 90 convictions for the offense. In December 2009, Mexican authorities arrested 11 suspected money launderers during raids on 17 finance companies in the northern cities of Culiacan and Tijuana. According to authorities, the money laundering ring operated through a series of companies, some of which posed as authorized financial institutions while others were simply shell companies.

The lack of personnel—including more field investigators, prosecutors, and auditors- monetary resources, a comprehensive and modern database, technological equipment, as well as the vulnerability of its facilities undermine prosecution efforts.

U.S.-related currency transactions:

The United States and Mexico are neighbors and major trading partners. Proceeds from the illicit drug trade are the principal source of funds laundered through the Mexican financial and commercial system. Large amounts of U.S. currency derived through the drug trade is transported, transferred, and laundered into the Mexican financial system.

Records exchange mechanism with U.S.:

In 1991 Mexico signed and ratified a Mutual Legal Assistance Treaty with the United States. The U.S. and Mexican FIU routinely share information through the Egmont system. Other bilateral treaties include: Financial Information Exchange Agreement and the memorandum of understanding (MOU) for the exchange of information on the cross-border movement of currency and monetary instruments. The GOM has responded positively to USG efforts to identify and block terrorist-related funds.

International agreements:

The Mexican government has great working relations with many governments including the United States. Mexico is active in many international groups including the G20 and the Egmont Group.

Mexico is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - Yes

Mexico is a member of the Financial Action Task Force (FATF) and the FATF-style regional body GAFISUD. Mexico also participates in another FATF-style regional body, the Caribbean Financial Action Task Force (CFATF), as a cooperating and supporting nation. Its most recent mutual evaluation can be found here: http://www.fatf-gafi.org/dataoecd/31/45/41970081.pdf

Recommendations:

Mexico should amend its terrorist financing legislation to fully comport with the UN Convention for the Suppression of the Financing of Terrorism; and enact legislation and procedures to freeze terrorist assets of those designated by the UN al-Qaida and Taliban Sanctions Committee. If it has not already done so, the GOM should amend its legislation to ensure that legal persons can be held criminally liable for money laundering and terrorist financing. To create a more effective regime, Mexico should fully implement and improve its mechanisms for asset forfeiture, control the bulk smuggling of currency across its borders, monitor remittance systems for possible exploitation, improve the regulation and supervision of money transmitters, unlicensed currency exchange centers, centros de cambiarios and gambling centers, and extend AML/CFT requirements to designated nonfinancial businesses and professions. Additionally, the capacity of judges and prosecutors should be improved so they are able to successfully prosecute and convict money launderers and terrorist financiers.

Micronesia, Federated States of

The Federated States of Micronesia (FSM) is not an important regional financial center. It is not known to be a significant money laundering location. There are no known instances of money laundering related to illegal narcotics, psychotropic substances and/or chemical precursors. The amount of money believed to be laundered through the country is small, and misuse of public funds is the main source of laundered funds. Local law enforcement suspect some smuggled goods are making their way onshore, mostly cigarettes. The FSM’s isolation, small and relatively poor population, and limited transportation links make it an unlikely destination for large amounts of smuggled goods.

Offshore Center: No

Free Trade Zones: No

Criminalizes narcotics money laundering: Yes

Criminalizes other money laundering, including terrorism-related: Yes

Enacted in 2001, Chapter 9, Title 11 of the FSM Criminal Code, also known as the Money Laundering and Proceeds of Crime provision, made money laundering a criminal offense. The law does not apply solely to drug-related money laundering and takes an “all serious crimes” approach, i.e., any offense punishable by imprisonment of more than one year.

Criminalizes terrorist financing: No

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

The FSM ratified the UN Convention for the Suppression of the Financing of Terrorism in 2001. However, the country has yet to make terrorist financing, or even the commission of terrorist acts, a specific crime.

Know-your-customer rules: Yes

Bank records retention: Yes

Banks and other financial institutions must maintain their records for five years.

Suspicious transaction reporting: Yes

The money laundering law requires all banks and financial institutions to report suspicious transactions to the Department of Justice (DOJ). The DOJ passes the reports to its internal financial intelligence unit (FIU) for investigation. The FIU consists of a single police officer. It has no operational or budgetary independence; it is wholly dependent on the DOJ for funding and the National Police for staff. The officer has both criminal investigative and regulatory responsibilities. There is no threshold amount for a transaction to qualify as an STR. The FIU received 50 STRs in 2009, a substantial increase over 2008.

Large currency transaction reporting: Yes

A transaction of $10,000 or more requires a cash transaction report.

Narcotics asset seizure and forfeiture:

Sections 929-941 of the money laundering law provide for the seizure of “tainted” property, as well as any benefits derived by the defendant from the commission of a money laundering offense. Moreover, the law defines property very broadly as currency and all other real or personal property, wherever it is situated. There is no civil forfeiture. No property has ever been seized or confiscated under the money laundering statute.

Narcotics asset sharing authority: No

Cross-border currency transportation requirements:

The FSM does not currently monitor cross-border currency transactions. FSM Customs requires mandatory declaration forms at all ports of entry. Arriving passengers carrying $10,000 or more in currency must declare the amount.

Cooperation with foreign governments:

The Transnational Crime Unit (TCU), reliant on American funding and Australian supervision since its opening in April, 2009, brought officers from other Pacific island nations to Palikir, the Micronesian capital, to share information on such issues as narcotics, human trafficking, and terrorism.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

Local barbershops transmit money to other countries, mostly to the Philippines. Someone deposits money with the barber who then notifies a counterpart overseas to pay a designated recipient. Although this system is mostly used for remittances to families, it could be used to transfer small amounts of laundered proceeds.

The National Police are responsible for investigating financial crimes. There is not enough staff or resources to adequately monitor the sector. There have been no arrests, prosecutions or convictions for money laundering since the FSM criminalized the offense in 2001.

U.S.-related currency transactions:

There are no indications that currency transactions in Micronesia involving international narcotics trafficking proceeds include significant amounts of U.S. currency or currency derived from illegal drug sales in the United States or that otherwise significantly affect the United States.

Records exchange mechanism with U.S.:

The TCU cooperates with a wide range of U.S. law enforcement agencies.

International agreements:

Micronesia is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - No

Recommendations:

The Government of Micronesia (GOM) should continue to make efforts to adhere to international anti-money laundering/counter-terrorist financing (AML/CFT) standards. The GOM should adopt and monitor cross-border currency reporting requirements for travelers both entering and leaving the jurisdiction. Additionally, the GOM should extend coverage of its AML/CFT laws to informal remittance systems. The GOM should become a party to the UN Convention against Corruption.

Monaco

The Principality of Monaco is the second-smallest country in Europe. It is linked closely to France, and is closely tied to the economic apparatus of the European Union (EU) through its customs union with France and its use of the euro as its official currency. Monaco is known for its security and political stability. Historically, Monaco’s casinos, run by a majority state-owned company, were major sources of income. Now, however, the casino revenues constitute less than 3% of the state budget. Monaco’s state budget is now based primarily on taxes, duties, and excises which account for 75% of the total income. Monaco’s approximately 40 banks and financial institutions hold more than 300,000 accounts and manage total assets of about 750 billion Euros (approximately $102,800,000,000). Non-residents total 46 percent of the financial institutions’ total number of clients, representing 60% of the total assets and deposits, respectively almost 84,000 clients and 45 billion Euros. Money laundering offenses relate mainly to offenses committed abroad. Reportedly, the Principality does not face ordinary forms of organized crime. There is no significant market for smuggled goods.

In March 2009, The Principality of Monaco announced it would follow the international norms in matters of tax transparency. In September 2009, Monaco was removed from the Organization for Economic Cooperation and Development (OECD) list of “non-cooperative” countries in terms of provision of tax information.

Offshore Center: Yes

Offshore companies are subject to the same due diligence and suspicious transaction reporting obligations as banking institutions, and Monegasque authorities conduct on-site audits.

Free Trade Zones: No

Criminalizes narcotics money laundering: Yes

Money laundering is a crime under Act 1.161 of July 7, 1993, which creates an offense of money laundering in the Criminal Code and amends the Code of Criminal Procedure.

Criminalizes other money laundering, including terrorism-related: Yes

On November 9, 2006, Section 218-3 of the Criminal Code was modified to adopt an “all crimes” approach to money laundering. In August 2009, Monaco passed Act 1.362 relating to money laundering, terrorist financing and corruption and promulgated Sovereign Order 2.318 setting conditions for the application of Act 1.362. The legislation includes provisions addressed by the third European Directive on the prevention of money laundering and terrorist financing.

Criminalizes terrorist financing: Yes

In 2002, the GOM passed Act 1.253 and promulgated two Sovereign Orders intended to implement UNSCR 1373 by outlawing terrorism and its financing. Monaco passed additional Sovereign Orders later in 2002, importing into Monegasque law the obligations of the UN Convention for the Suppression of the Financing of Terrorism. In 2006, Monaco further amended domestic law to implement these obligations. Monaco has also enacted domestic measures providing a legal basis for the freezing of terrorist funds. Monaco has not conducted any terrorist financing investigations or prosecutions to date.

Know-your-customer rules: Yes

Act 1.362 institutes procedural requirements regarding client identification. Banking laws do not allow anonymous accounts, but the Government of Monaco (GOM) does permit account owners to use pseudonyms in lieu of their real names. The banks do know the identities of the customers and retain client identification information. Article 3 of Sovereign Order 2318 of August 2009 clarifies the circumstances under which contractually-designated accounts can be used by banks.

Bank records retention: Yes

Act 1.362 establishes procedural requirements regarding retention and maintenance of records.

Suspicious transaction reporting: Yes

Monaco’s AML legislation, as amended, requires banks; insurance companies; stockbrokers; corporate service providers; portfolio managers; some trustees; and institutions within the offshore sector, casinos; money remitters; real estate brokers; consultants or advisors in business, legal or tax matters; dealers in precious stones, precious materials, antiquities, fine art and other valuable assets; lawyers; notaries; and accountants to report suspicious transactions to Monaco’s financial intelligence unit (FIU). In 2008, the FIU received 478 suspicious transaction reports (STRs).

Large currency transaction reporting:

No information available.

Narcotics asset seizure and forfeiture:

Monaco’s legislation allows for the confiscation of property of illicit origin as well as a percentage of co-mingled illegally acquired and legitimate property. Authorities must obtain a court order to confiscate assets. Confiscation of property related to money laundering is restricted to the offenses listed in the Criminal Code.

Narcotics asset sharing authority:

Monaco and the United States signed an asset sharing agreement in March 2007.

Cross-border currency transportation requirements:

No information available.

Cooperation with foreign governments (including refusals):

In June 2007, the European Convention on Mutual Assistance in Criminal Matters entered into force in Monaco. Monaco has concluded 15 extradition treaties with various countries. To date, there have been three extraditions on the grounds of money laundering; two were extradited from Monaco and one was extradited to Monaco.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

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

Monaco’s FIU forwards STRs to the prosecutor when there is evidence of money laundering, terrorist financing or corruption. Four prosecutions for money laundering have taken place in Monaco, resulting in three convictions.

U.S.-related currency transactions:

No information available.

Records exchange mechanism with U.S.:

The Principality of Monaco signed an agreement on exchange of information with the United States on September 8, 2009.

International agreements:

Monaco is party to several EU agreements and conventions that provide for mutual legal assistance and information exchange. The Principality of Monaco has signed 13 agreements on information exchange. Monaco’s FIU has signed information exchange agreements with over 29 foreign FIUs.

The Principality of Monaco is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - No

Monaco 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 Financial Action Task Force (FATF)-style regional body. Its most recent mutual evaluation can be found here: http://www.coe.int/t/dghl/monitoring/moneyval/Countries/Monaco_en.asp

Recommendations:

The Government of Monaco (GOM) should amend its legislation to implement full corporate criminal liability. The Principality should enhance its legal framework for freezing terrorist assets so that it applies to persons, groups, or entities within the EU and provides for specific mechanisms for acting on freezing procedures initiated by other countries. Monaco should enhance the authority of its FIU to forward reports and share financial intelligence with law enforcement and foreign FIUs even when the report or information obtained does not relate specifically to drug trafficking, organized crime, or terrorist financing. Monaco should become a party to the UN Convention against Corruption.

Mongolia

Mongolia is not a financial center. Financial and economic crimes are few but have increased in number over the last few years. Mongolia is vulnerable to a low grade of transnational crime due to the growth in tourism, investment, and remittances from abroad. Mongolia’s extensive borders with Russia and China are liabilities in the fight against smuggling and narcotics, but drug use and trafficking remain limited and unsophisticated. There is a black market for smuggled goods, but this is tied to tax avoidance rather than drug trafficking. There is no evidence of proceeds of international narcotics trafficking in the banking system. Endemic corruption, a weak legal system, the use of alternative remittance systems, the inability to patrol its borders, and a limited capacity to conduct transnational criminal investigations hamper Mongolia’s ability to fight transnational crime.

Offshore Center: No

Free Trade Zones: No

Criminalizes narcotics money laundering: Yes

Criminalizes other money laundering, including terrorism-related: Yes

The 2006 Law on Combating Money Laundering and Terrorism Financing (AML/CFT Law) in the Criminal Code sets predicate offenses for money laundering. In December 2009, Mongolia’s Parliament enacted reforms to the AML/CFT regime to make all offenses except tax evasion, which is rampant, predicate offenses in the criminal code and broaden the definition of money laundering beyond receipt and concealment to include the possession, use, transfer, or conversion of laundered assets.

Criminalizes terrorist financing: Yes

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/j/ct/rls/crt/)

Article 268/1 of the Criminal Code criminalizes the financing of terrorism.

Know-your-customer rules: Yes

Bank records retention: Yes

Records must be kept for a minimum of five years.

Suspicious transaction reporting: Yes

Suspicious transaction reports (STRs) have no minimum threshold and are required by law. STR reporting requirements apply to banks, non-bank financial institutions and certain designated non-financial businesses and professions (DNFPBs). In November 2006, Mongolia established the Financial Information Unit (FIU) under the Bank of Mongolia. In 2009, 40 STRs were analyzed by the FIU and three were referred to law enforcement.

Large currency transaction reporting: Yes

Financial institutions must file cash transaction reports for all transactions greater than the local equivalent of $16,000. Observers criticized the reporting threshold as too high.

Narcotics asset seizure and forfeiture:

Article 268/1 of the Criminal Code mentions the confiscation of assets as a possible punishment for those engaged in money laundering but does not specifically mention seizure and forfeiture, though other sections of law do allow for both civil and criminal forfeiture.

Narcotics asset sharing authority: No

Cross-border currency transportation requirements:

According to Article 15.1 of the AML/CFT Law, the carrying of over 5 million tugriks (approximately $3,500) across the border requires a declaration to the Customs Department. Carrying more than 20 million tugriks (approximately $14,000) requires the filing of a form with the FIU. Mongolia introduced a cash declaration system database in 2009.

Cooperation with foreign governments:

No known impediments to cooperation are known to exist.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

There were no arrests, prosecutions, or convictions related to money laundering or terrorist financing in 2009.

Political opposition has curbed efforts to pass more robust laws against money laundering.

Banks are obligated to screen against UN terrorist lists including those related to UNSCRs 1267 and 1373. Screening against other lists, including those of US and Europe, is encouraged. To date, no terrorist financing activity has been identified by banks and no freezing and confiscation has taken place.

U.S.-related currency transactions:

There are no indications that currency transactions in Mongolia are derived from illegal drug sales in the United States or otherwise significantly affect the United States.

Records exchange mechanism with U.S.:

Mongolia is able to exchange information with the Financial Crimes Enforcement Network.

International agreements:

The FIU holds memoranda of understanding regarding information sharing with counterpart units in Afghanistan, China, Russia and Turkey.

Mongolia is a party to:

  • the UN Convention for the Suppression of the Financing of Terrorism - Yes
  • the UN Convention against Transnational Organized Crime - Yes
  • the 1988 UN Drug Convention - Yes
  • the UN Convention against Corruption - Yes

Mongolia is a member of the Asia/Pacific Group on Money Laundering (APG), a Financial Action Task Force-style regional body. Its most recent mutual evaluation report can be found here: http://www.apgml.org/documents/docs/17/Mongolia%20Mutual%20Evaluation%202007%20-%20Final%20.pdf

Recommendations:

Despite the limited scope of money laundering and the lack of any evidence that terrorist financing has taken place, the trend in Mongolia is toward an increasingly strong stance against money laundering and terrorist financing. Mongolia should seek further opportunities to broaden the cooperative AML/CFT relationships it has established with the U.S., the APG, and with other partners. Mongolia would do well to transform ad hoc cooperation into institutionalized partnerships so that the country can best preserve the relative insulation from these crimes it has enjoyed to date. Mongolia should extend its AML/CFT regime to cover all DNFBPs.

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