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Diplomacy in Action

2010 INCSR: Countries/Jurisdictions of Primary Concern - Guatemala through Mexico


Bureau of International Narcotics and Law Enforcement Affairs
Report
March 1, 2010

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Guatemala

Historically weak law enforcement and judiciary systems coupled with endemic corruption and increasing organized crime activity contribute to a favorable climate for significant money laundering in Guatemala. According to law enforcement agencies, narcotics trafficking and corruption are the primary sources of money laundered in Guatemala; however, the laundering of proceeds from other illicit activities, such as human trafficking, contraband, kidnapping, tax evasion, and vehicle theft, is substantial.

Offshore Center: Yes

In June 2002, Guatemala enacted the Banks and Financial Groups Law (No. 19-2002), which placed offshore banks under the supervision of the Superintendence of Banks (SIB). The law requires offshore banks that belong to a Guatemalan financial group to be authorized by the Monetary Board and to maintain an affiliation with a domestic institution. It also prohibits an offshore bank that is authorized in Guatemala from conducting financial intermediation activities in another jurisdiction. Banks authorized by other jurisdictions may do business in Guatemala under certain limited conditions. By law, no offshore financial services businesses, other than banks, are allowed. There are no exchange controls and dollar accounts are common. Some larger banks conduct significant business through their offshore subsidiaries.

Free Trade Zones: Yes

Guatemala’s relatively small free trade zones target regional “maquila” (assembly line industry) and logistics center operations and are not considered by officials to be a major money laundering concern, although some proceeds from tax-related contraband may be laundered through them. The Ministry of Economy reviews and approves applications for companies to open facilities in free trade zones and confirms their business operations meet legal requirements.

Criminalizes narcotics money laundering: Yes

Decree 67-2001, the Law against Money and Asset Laundering, criminalizes money laundering in Guatemala. Conspiracy and attempt to commit money laundering are also penalized.

Criminalizes other money laundering, including terrorism-related: Yes

The law applies to money laundering from any crime where illegal proceeds are generated and does not require a minimum threshold to be invoked.

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 June 2005, the Guatemalan Congress passed legislation criminalizing terrorist financing, the Law Against the Financing of Terrorism. Implementing regulations were enacted by the Monetary Board in December 2005. The counter-terrorist financing legislation also clarifies the legality of freezing assets in the absence of a conviction where the assets were destined to support terrorists or terrorist acts. The Law Against the Financing of Terrorism also requires remitters to maintain name and address information on senders (97 percent are U. S. based) of transfers equal to or over $2,000.

Know-your-customer rules: Yes

The Guatemalan Monetary Board’s Resolution JM-191, which approved the Regulation to Prevent and Detect the Laundering of Assets (RPDLA), establishes anti-money laundering requirements for financial institutions including know-your-customer provisions. Financial institutions are required to keep a registry of their customers. In 2009, the FIU developed a list of Politically Exposed Persons (PEPs) and began requiring individuals on the list and their immediate family members to explain the source of deposited funds.

Bank records retention: Yes

Financial institutions must keep customer registries and records of transactions for five years.

Suspicious transaction reporting: Yes

Financial institutions are also mandated by law to report all suspicious transactions to the financial intelligence unit (FIU). The FIU received 330 suspicious transaction reports (STRs) in 2008 and 214 from January to October 2009.

Large currency transaction reporting: Yes

Financial institutions must keep records of cash transactions exceeding $10,000 or more per day. Cash transaction reports are forwarded to the FIU. As of June 1, 2009, the FIU issued new regulations requiring all individuals and legal entities involved in the purchase or sale of real estate, motorized vehicles (including cars, tractors, motorcycles, and boats), jewelry, gems, precious metals, art and antiques to report transactions in cash above $10,000.

Narcotics asset seizure and forfeiture: Yes

Current law permits the seizure of any assets linked to money laundering. The FIU, the National Civil Police, and the Public Ministry have the authority to trace assets; the Public Ministry can seize assets temporarily in urgent circumstances, and the courts (administered by the Supreme Court of Justice) have the authority to permanently seize assets. In 2006, Guatemala passed an Anti-Organized Crime Law. The Anti-Organized Crime Law also provides for a summary procedure to forfeit the seized assets and allows both civil and criminal forfeiture.

In 2009, the Legislative and Constitutional Affairs Committee of Congress developed a draft Asset Forfeiture Law with the aim of creating a civil forfeiture process that would be complimentary to the provisions in the Anti-Organized Crime Law. The draft bill has not yet been presented to the full Congress.

Narcotics asset sharing: No

The international sharing of seized assets is not permitted.

Cross-border currency transportation requirements: Yes

Decree 67-2001 obligates individuals to declare the cross-border movement of currency in excess of approximately $10,000 at the ports of entry. The declaration forms are provided and collected by the tax authority at land borders, airports, and ports. The Law Against the Financing of Terrorism penalizes the omission of a declaration with a sentence from one to three years in prison.

As of late 2009, approximately $727,000 has been seized at the airports – a very small sum that suggests that proceeds from illicit activity are transported across Guatemalan borders. There is little official monitoring of compliance with cross-border currency reporting. Further complicating cross-border currency reporting is the Central American Four Agreement, which allows free movement of the citizens of Guatemala, Honduras, Nicaragua, and El Salvador across their respective borders.

Cooperation with foreign government: Yes

Guatemala is leading an effort within the Caribbean Financial Action Task Force (CFATF) to develop a regional list of persons and entities involved in money laundering as well as a method for sharing information among regional FIUs. Guatemala has cooperated, when requested, with U.S. law enforcement agencies.

U.S. or international sanctions or penalties:

In 2009, the Organization for Economic Co-operation and Development (OECD) placed Guatemala on its list of countries that have committed to the internationally agreed tax standard but have not yet substantially implemented the standard. The ability of companies to issue bearer shares as well as strong bank secrecy rules have made it difficult for Guatemala to enter into tax information exchange agreements with OECD member countries.

Enforcement and implementation issues and comments:

At the end of 2009, the FIU referred 18 complaints and 12 reports to the anti-money laundering (AML) Unit in the Public Ministry. In 2009, the AML Unit detained 13 individuals and received sentences against 11.

There is no central tracking system for seized assets, and it is currently impossible for the Supreme Court to provide an accurate listing of the seized assets it is holding in custody. The lack of access to the resources of seized assets, and the failure of the judiciary to share seized assets with law enforcement entities, has made sustaining seizure levels difficult for the resource-strapped enforcement agencies.

Gambling is not legal in Guatemala, however, a number of casinos, games of chance and video lotteries began operating in 1993, both onshore and offshore. There is no regulatory oversight or legal framework for their operation, therefore the Superintendence of Banks and the Superintendence of Tax Administration are not able to supervise or audit gambling operations. Unsupervised gambling represents a severe money laundering vulnerability.

In September 2009, the FIU uncovered a trade based money laundering scheme involving 13 companies, many of which could be fictitious, that exported cardamom to seven countries in the Middle East (Saudi Arabia, Bahrain, United Arab Emirates, Iran, Egypt, Israel, and Iraq). The case involved approximately $120 million of suspicious goods movements from September 11, 2008 to April 28, 2009. The Attorney General’s office is investigating the entities and movements.

The GOG has fully cooperated with U.S. efforts to track terrorist financing funds and distributes the UN 1267 sanctions committee’s consolidated list to Guatemalan financial institutions. No reports or cases of terrorist financing were reported in 2009.

U.S.-related currency transactions:

Guatemala is a major transit country for illegal narcotics from South America, revenues from illegal drug sales in the U.S. and precursor chemicals from Europe and Asia. Mexican drug traffickers are increasing their presence in the country. The U.S. dollar dominates the regional narcotics trade.

Records exchange mechanism with U.S.: Yes

Guatemala and the United States are party to a bilateral mutual legal assistance treaty that provides for exchange of information. The FIU is able to exchange financial information on money laundering issues with the U.S. Financial Crimes Enforcement Network (FinCEN).

International agreements:

The FIU has signed a number of memoranda of understanding regarding the exchange of information on money laundering issues, some of which also include the exchange of information regarding terrorist financing.

Guatemala 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

Guatemala is a member of the Caribbean Financial Action Task Force, a Financial Action Task Force-style regional body. Its most recent mutual evaluation was conducted in June of 2009 and will be available to the public in May 2010 here: http://www.cfatf-gafic.org/mutual-evaluation-reports.html.

Recommendations:

The Government of Guatemala (GOG) should eliminate the use of bearer shares and regulate both on-shore and offshore gaming and casino establishments. The GOG should also continue efforts to improve enforcement of existing regulations, establish units to execute undercover operations and controlled deliveries authorized in the Anti-Organized Crime Law, and pursue much needed reforms in the law enforcement and judicial systems. Guatemala should increase its capacity to successfully investigate and prosecute money laundering cases. Additionally, the GOG should create an asset forfeiture fund and a centralized agency to manage and dispose of seized and forfeited assets, at least a portion of which should be provided to law enforcement agencies to provide the resources necessary to successfully fight money laundering, terrorist financing, and other financial crimes. In addition, the GOG should enhance its pursuit of confiscation and forfeiture of the proceeds of arms smuggling, human trafficking, corruption, and other organized criminal activities, and should enact domestic laws permitting international sharing of confiscated assets.

Guernsey

The Bailiwick of Guernsey (the Bailiwick) encompasses a number of the Channel Islands (Guernsey, Alderney, Sark, and Herm). A Crown Dependency of the United Kingdom, it relies on the United Kingdom (UK) for its defense and international relations. Alderney and Sark have their own separate parliaments and civil law systems. Guernsey’s parliament legislates in matters of criminal justice for all of the islands in the Bailiwick. The Bailiwick is a sophisticated financial center and, as such, it continues to be vulnerable to money laundering.

Offshore Center: Yes

The Bailiwick is an offshore financial center. As of September 2009, the financial services industry consisted of 45 banks, all of which have offices, records, and a substantial presence in the Bailiwick. The banks are licensed to conduct business with residents and nonresidents alike. The approximately 18,800 companies registered in the Bailiwick do not fall within the standard definition of an international business company (IBC). Guernsey and Alderney incorporate companies, but Sark, which has no company legislation, does not. Companies in Guernsey must disclose beneficial ownership to the Guernsey Financial Services Commission. In 2008, there were approximately 714 international insurance companies and 829 collective investment funds.

Free Trade Zone: No

Criminalizes narcotics money laundering: Yes

Money laundering involving drug trafficking is covered by the Drug Trafficking (Bailiwick of Guernsey) Law 2000, as amended (DTL).

Criminalizes other money laundering, including terrorism-related: Yes

Money laundering is criminalized with the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law 1999, as amended (POCL). The POCL covers proceeds of all serious offenses.

Criminalizes terrorist financing: Yes

Terrorist financing is criminalized by the Terrorism and Crime (Bailiwick of Guernsey) Law 2002, as amended (TCL).

Know your customer rules: Yes

The Bailiwick does not permit bank accounts to be opened unless there has been a know your customer (KYC) inquiry and the customer provides verification details. The Criminal Justice (Proceeds of Crime) (Financial Services Businesses) (Bailiwick of Guernsey) Regulations 2007, as amended (2007 Regulations) set forth customer due diligence (CDD) obligations for financial services businesses and the Criminal Justice (Proceeds of Crime) (Legal Professionals, Accountants and Estate Agents) (Bailiwick of Guernsey) Regulations 2008 (2008 Regulations) apply to prescribed businesses: lawyers, accountants and estate agents.

Bank records retention: Yes

Financial services businesses and prescribed businesses are required to maintain CDD information pursuant to the 2007 and 2008 Regulations. CDD information, suspicious transaction reports, and transaction documents should be kept for five years.

Suspicious transaction reporting: Yes

The Disclosure (Bailiwick of Guernsey) Law 2007 makes failure to disclose the knowledge or suspicion of money laundering a criminal offense. The duty to disclose suspicious activity extends to all businesses. The Financial Intelligence Service (FIS) is the Bailiwick’s financial intelligence unit. The FIS serves as the central point for the receipt, collection, analysis, and dissemination of all financial crime intelligence.

Large currency transaction reporting: No

Narcotics asset seizure and forfeiture: Yes

Guernsey authorities approved further measures to strengthen the existing anti-money laundering/counter-terrorist finance (AML/CFT) regime with the passage of numerous legislation, regulations, and ordinances in 2008 including a comprehensive civil forfeiture law.

Narcotics asset sharing authority: Yes

There are currently no specific legislative provisions relating to the sharing of confiscated assets with other jurisdictions. Asset sharing is negotiated on a case-by-case basis. With regards to sharing with the U.S., the 1988 U.S.-UK Agreement Concerning the Investigation of Drug Trafficking Offenses and the Seizure and Forfeiture of Proceeds and Instrumentalities of Drug Trafficking, as amended in 1994, was extended to the Bailiwick in 1996.

Cross-border currency transportation requirements: Yes

Those carrying euro 10,000 (approximately $14,100) or greater, or the equivalent amount in any currency, must complete and submit a cash declaration form to Customs upon entering or leaving the Bailiwick.

Cooperation with foreign governments: Yes

Guernsey cooperates with international law enforcement on money laundering cases. The FSC also cooperates with regulatory/supervisory and law enforcement bodies. The Criminal Justice (International Cooperation) (Bailiwick of Guernsey) Law, 2000 furthers cooperation between Guernsey and other jurisdictions by allowing certain investigative information concerning financial transactions to be exchanged. In cases of serious or complex fraud, Guernsey’s Attorney General can provide assistance under the Criminal Justice (Fraud Investigation) (Bailiwick of Guernsey) Law 1991.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

Not all designated nonfinancial businesses and professions are covered by the AML/CFT regulations.

U.S.-related currency transactions:

No information provided.

Records exchange mechanism with U.S.:

The 1988 U.S. - UK Agreement Concerning the Investigation of Drug Trafficking Offenses and the Seizure and Forfeiture of Proceeds and Instrumentalities of Drug Trafficking, as amended in 1994, was extended to the Bailiwick in 1996. On September 19, 2002, the United States and Guernsey signed a Tax Information Exchange Agreement, which came fully into force in 2006. The agreement provides for the exchange of information on a variety of tax investigations, paving the way for audits that could uncover tax evasion or money laundering activities. The FIS shares information with the U.S. Department of Treasury’s Financial Crimes Enforcement Network.

International agreements:

As a British Crown Dependency, the Bailiwick is not empowered to sign or ratify international conventions on its own behalf. However, following a request by the Guernsey Government, the UK may extend ratification of any convention to the Bailiwick. Application of the 1988 UN Drug Convention was extended to the Bailiwick in 2002. The UN Convention for the Suppression of the Financing of Terrorism was also extended to the Bailiwick in 2008 as was the UN Convention against Corruption in 2009.

Guernsey’s 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.ogbs.net/evaluations.htm.

Recommendations:

Guernsey should continue to amend its legislation to meet international AML/CFT standards and should ensure complete implementation of its new 2008 legislation. Guernsey also should take steps to ensure the obliged entities uphold their legal obligations, and the regulatory authorities have the tools they need to provide supervisory functions, especially with regard to non-financial businesses and professions not currently regulated. Guernsey should ensure all obliged entities receive the UN 1267 Sanctions Committee’s consolidated list of entities and individuals.

Guinea-Bissau

Guinea-Bissau is not a regional financial center. Increased drug trafficking and the prospect of oil production increase its vulnerability to money laundering and financial crime. Drug traffickers transiting between Latin America and Europe have increased their use of the country. Guinea-Bissau is often the placement point for proceeds from drug payoffs, theft of foreign aid, and corrupt diversion of oil and other state resources headed for investment abroad. A recent boom in the construction of luxury homes, hotels and businesses, and the proliferation of expensive vehicles, stands in sharp contrast to the conditions in the poor local economy. It is likely that at least some of the new wealth derives from money laundered from drug trafficking. Banking officials also think the country is vulnerable to trade-based money laundering. Transparency International’s 2009 Corruption Perception index ranks Guinea-Bissau 162 out of 180 countries.

Offshore Center: No

Free Trade Zones: No

Criminalizes narcotics money laundering: Yes

Criminalizes other money laundering, including terrorism-related: Yes

The legal basis for Guinea-Bissau’s anti-money laundering/counter-terrorist financing (AML/CFT) framework is the Anti-Money Laundering Uniform Law No. 2004-09 (AML Uniform Law). As the common law to be passed by the members of the West African Economic and Monetary Union (WAEMU), all member states are required to enact and implement the legislation. The legislation largely meets international standards with respect to money laundering. Guinea-Bissau has an “all crimes” approach to money laundering. It is not necessary to have a conviction for the predicate offense before prosecuting or obtaining a conviction for money laundering. Criminal liability applies to all natural and legal persons.

Criminalizes terrorist financing:

Article 203, Title VI of Guinea-Bissau’s penal code criminalizes terrorist financing. However, because the penal code only criminalizes the financing of terrorist groups or organizations, and only when the money is used to commit terrorist acts, the legislation does not address financing of a single or individual terrorist.

Know-your-customer rules: Yes

Obligated institutions include financial institutions and nonbank financial institutions such as exchange houses, microfinance institutions, securities firms, brokerages, cash couriers, casinos, insurance companies, charities, nongovernmental organizations (NGOs), and intermediaries such as lawyers, accountants, notaries and broker/dealers.

Bank records retention: Yes

Financial institutions must keep records and documents relating to transactions and to client identification for a period of ten years.

Suspicious transaction reporting: Yes

The law requires obligated entities to file suspicious transaction reports (STRs) with the financial intelligence unit (FIU). No STRs were filed in 2008, and the operations of the FIU have been suspended, pending identification of new premises.

Large currency transaction reporting: Yes

Narcotics asset seizure and forfeiture:

Legal authorities have the powers to identify, freeze, seize and confiscate goods or funds obtained from the proceeds of major offenses. Articles 16 and 17 of the Drug Law provide for confiscation of the instrumentalities and proceeds from drug trafficking and money laundering. Further, Article 45 of the AML Uniform Law provides for the confiscation of assets resulting from money laundering offenses, and Articles 41 and 42 provide for the confiscation of the instrumentalities of the crime as well as the proceeds.

Narcotics asset sharing authority: Yes

Although the law provides for the sharing of confiscated assets, a lack of coordination mechanisms to facilitate requests for cooperation in freezing and confiscation from other countries hampers cooperation.

Cross-border currency transportation requirements: No

There is no reporting requirement for cross-border currency transportation within the WAEMU internal border area. Currency importation from outside the WAEMU boundaries is not limited, although if the value exceeds 300,000 CFA it must be brought to a licensed intermediary within eight days. Currency exportation should be disclosed when the value exceeds 2 million CFA. However, there is no cash declaration system, and no universal written declaration.

Cooperation with foreign governments (including refusals):

No information available.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

The Commission Bancaire, the entity responsible for bank inspections, does not execute a full AML examination during its standard bank compliance examinations.

The AML Uniform Law does not comply with international standards concerning politically-exposed persons (PEPs), and lacks certain compliance provisions for nonfinancial institutions.

Reportedly, banks are reluctant to file STRs because of the fear of “tipping off” by an allegedly indiscrete judiciary. Article 26 of National Assembly Resolution No. 4 of 2004 stipulates that if a bank suspects money laundering it must obtain a declaration of all properties and assets from the subject and notify the Attorney General, who must then appoint a judge to investigate. The bank’s solicitation of an asset list from its client could also amount to “tipping off” the subject.

Reportedly, corruption in the Customs agency exacerbates problems with porous borders and cash smuggling.

Despite the 2004 AML Uniform Law, no operational FIU exists in the country. Lack of capacity, corruption, instability, and distrust (particularly of the judicial sector), could significantly hamper progress in the FIU’s development. The Attorney General’s office houses a small unit to investigate corruption and economic crimes, but the ability to use special investigative measures is limited to drug trafficking and distribution. In 2008, no money laundering investigations were initiated. There are no known prosecutions of money laundering.

U.S.-related currency transactions:

No information available.

Records exchange mechanism with U.S.:

Guinea-Bissau and the United States are not parties to a bilateral mutual legal assistance treaty that provides for exchange of information.

International agreements:

Multilateral Economic Community Of West African States (ECOWAS) treaties deal with extradition and legal assistance.

Guinea-Bissau 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

Guinea-Bissau is a member of the Financial Action Task Force-style regional body, the Intergovernmental Action Group against Money Laundering in West Africa (GIABA). While Guinea-Bissau has undergone a mutual evaluation the report has not yet been published. When it is published, it will be found here: www.giaba.org.

Recommendations:

The Government of Guinea-Bissau (GOGB) should continue to work with its partners in GIABA, WAEMU and ECOWAS to establish and implement a comprehensive AML/CFT regime that comports with all international standards. The GOGB should speed up the establishment of an operational FIU that could exchange information and share intelligence with other law enforcement bodies, both inside and outside the country. It should establish and staff the FIU and ensure that resources are available to sustain its capacity. The GOGB should ensure the sectors covered by its AML Uniform Law have implementing regulations and competent authorities to ensure compliance with the law’s requirements. The GOGB should clarify, amend or eliminate Article 26 of the 2004 National Assembly Resolution that appears to mandate actions resulting in the tipping off of suspects. It also should adopt and enact a comprehensive WAEMU Uniform Law related to terrorist financing and amend the definitions in its penal code to comport with the international standards regarding financing of individual terrorists and terrorist groups engaging in acts other than terrorism. The GOGB should work to improve the training and capacity of its police and judiciary to combat financial crimes, and address any issues resulting from a lack of understanding of money laundering and terrorist financing. Guinea-Bissau should undertake efforts to eradicate systemic corruption and become a party to the UN Convention for the Suppression of the Financing of Terrorism and the UN Conventions against Corruption and Transnational Organized Crime.

Haiti

Haiti is a major drug-transit country with money laundering activity linked principally to narcotics trafficking and kidnapping. Official corruption also generates illicit proceeds. While the informal economy in Haiti is significant and is partly funded by illicit narcotics proceeds, smuggling is prevalent and predates narcotics trafficking. Haiti’s geographical location, lack of an efficiently functioning judiciary system, poorly controlled land and sea borders, inadequately-sized police force (less than one police officer per 1,000 inhabitants), insufficiently resourced anti-money laundering prosecutorial unit, and endemic corruption create favorable conditions for money laundering. Banks and casinos, as well as foreign currency and real estate transactions, facilitate money laundering and other financial crimes. Dire economic conditions and an unstable political situation inhibit the country from advancing the development of its formal financial sector.

Offshore Center: No

Haiti’s commercial law does not allow incorporation of offshore companies.

Free Trade Zones: No information provided.

Criminalizes narcotics money laundering: Yes

The 2001 Law on Money Laundering from Illicit Drug Trafficking and other Crimes and Punishable Offenses (AMLL) criminalizes money laundering.

Criminalizes other money laundering, including terrorism-related: Yes

See above.

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/)

Haiti has yet to pass legislation criminalizing terrorist financing, although counter-terrorist financing legislation has been drafted with USG assistance.

Know-your-customer rules: Yes

The AMLL regulations were amended in 2008 and require financial institutions to verify the identity of customers who open accounts or conduct transactions that exceed 400,000 Haitian Gourdes (HTG), equivalent to approximately $10, 000. The regulations also require exchange brokers and money remitters to compile information on the source of funds exceeding 120,000 HTG (approximately $3,000) or its equivalent in foreign currency.

Bank records retention: Yes

Banks are required to maintain records for five years. Bank secrecy or professional secrecy cannot be invoked as grounds for refusing information requests from authorities.

Suspicious transaction reporting: Yes

The AMLL establishes a wide range of financial institutions as obligated entities, including banks, money remitters, exchange houses, casinos, and real estate agents. Insurance companies, which are only nominally represented in Haiti, are not covered. Haiti’s financial intelligence unit (FIU), the Unité Centrale de Renseignements Financiers (UCREF), receives the reports submitted by financial institutions. The number of suspicious transactions reports (STRs) is very small. The financial sector’s compliance with its anti-money laundering obligations is not properly supervised.

Large currency transaction reporting: Yes

Financial institutions, including banks, credit unions, exchange brokers, lawyers, accountants, and casinos, are required to file a cash transaction report (CTR) with UCREF for all transactions exceeding 400,000 HTG (approximately $10,000). Money transfer companies, given the high risk associated with them, must file CTRs for all transactions of 120,000 HTG (approximately $3,000) or more. Failure to report such transactions is punishable by imprisonment and/or a fine.

Narcotics asset seizure and forfeiture:

The AMLL contains provisions for the seizure and forfeiture of assets; however, the Haitian government cannot seize and declare the assets forfeited until there is a conviction. The Government of Haiti (GOH) has expanded the legal interpretation of conviction to include convictions obtained in foreign jurisdictions. In the fourth quarter of 2008, Haitian authorities, with U.S. Drug Enforcement Administration assistance, began seizing properties in Haiti belonging to drug traffickers incarcerated in the United States for use or disposal by the GOH. In 2008, there were 14 properties including residences, businesses and bank accounts, valued at approximately $16.44 million, seized and forfeited to the GOH based on U.S. convictions. An additional 20 other properties are the subject of this new initiative. In 2009, $23 million and some 16 properties with an estimated value of $8.27 million were seized.

During 2009, President Preval was instrumental in adopting official pre-seizure planning guidelines to attempt to better regulate the management of the increasing number of assets seized for forfeiture. Corruption and provisional use (official use before final forfeiture) continue to be of concern in this area. Despite the numerous seizures made, Haiti has not yet obtained a final order of forfeiture with respect to any assets.

Narcotics asset sharing authority:

No information available.

Cross-border currency transportation requirements: No

The AMLL does prohibit cash transfers of more than 200,000 HTG (approximately $5,000). Enforcement of this prohibition is a major challenge, except at the Port-au-Prince airport. The customs administration regularly seizes funds subject to this prohibition, but several of these seizures have been overturned by the courts, to the detriment of the legitimacy of the legal framework.

Cooperation with foreign governments:

The AMLL introduces measures for cooperation on mutual legal assistance and extraditions. These provisions seem to be in line with international standards. However, inadequate criminalization of money laundering is a constraint because of the dual criminality principle. International legal assistance cannot be provided for terrorist financing since it is not a crime in Haiti. In practice, Haiti has yet to engage in international legal assistance. International cooperation by the National Police of Haiti is based primarily on Interpol and operational relations with foreign authorities.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

There has been a reassignment of all criminal investigative responsibilities to the Bureau of Financial and Economic Affairs (BAFE), a component of the Haitian National Police Office of Judicial Police. A number of prosecutions are currently in the investigation stage. No convictions have yet been obtained. Prosecutions focus on predicate offenses and deal with money laundering in connection with drug-trafficking only.

The integrity of the police and the courts is often described as inadequate and the Haitian authorities have recently undertaken an ambitious program of reform and renewal. The police and the courts are also suffering from a lack of capacity that has not yet been remedied as they have received only sporadic training in fighting money laundering.

The AMLL may provide sufficient grounds for freezing and seizing terrorists’ assets; however, given that there is currently no indication of terrorist financing in Haiti, this has not yet been tested.

U.S.-related currency transactions:

The U.S. dollar is commonly used in both the formal and informal economies. The dollar is the currency of choice for smuggling.

Records exchange mechanism with U.S.:

Haitian authorities provide evidence to support prosecutions in the United States. The UCREF and the BAFE are currently assisting the United States in three major investigations that have lead to the indictments of persons prominent in the Haitian telecommunications industry.

International agreements:

Mutual legal assistance is allowed. The UCREF is not a member of the Egmont Group of financial intelligence units but has memoranda of understanding (MOUs) with the FIUs of the Dominican Republic, Panama, Guatemala and Honduras.

Haiti 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 - Yes

Haiti is a member of the Caribbean Financial Action Task Force (CFATF), a Financial Action Task Force (FATF)-style regional body. Its most recent mutual evaluation can be found here: http://www.cfatf-gafic.org/

Recommendations:

The implementation of the Government of Haiti’s (GOH) existing anti-money laundering/counter-terrorist financing regime is insufficient, ineffective and weakly coordinated. It is not sufficient to fight the money laundering and terrorism financing risks facing the country. The key institutions necessary to the satisfactory functioning of the legislative framework are in place, but they have not yet sufficiently used the tools provided by the AMLL. The GOH should move to enact the draft pieces of legislation pertaining to anticorruption and the new Customs Code bill. Haiti should update its criminal code and reform the civil tax code. Other areas in need of improvement include the country’s ineffective court system, weak enforcement mechanisms and poor knowledge of current laws governing this area. The GOH should expedite prosecution of corruption, narcotics trafficking and money laundering cases. This would send a positive message that financial crimes will be punished to the fullest extent of the law and also help garner broader public support for the rule of law – something that is beginning to occur with the recent asset seizures. Finally, initiatives are needed to enhance the UCREF’s capacity to provide timely and accurate reports on suspicious financial activities and meet Egmont Group membership standards.

Hong Kong

Hong Kong, a Special Administrative Region of the People’s Republic of China, is a major international financial center. As of October 2009, with a total market capitalization of $2.18 trillion, Hong Kong’s stock market was the seventh largest in the world and third largest in Asia. Hong Kong was also the world’s 15th largest banking center and the world’s sixth largest foreign exchange trading center. In July 2009, Hong Kong launched a pilot program whereby Hong Kong banks with correspondent relationships in mainland China can engage in Chinese Renminbi (RMB) trade settlement.

Hong Kong’s low and simplified tax system, coupled with its sophisticated banking system, shell company formation agents, and the absence of currency and exchange controls facilitate financial activity but also make Hong Kong vulnerable to money laundering. The primary sources of laundered funds in Hong Kong are corruption, tax evasion, fraud, illegal gambling and bookmaking, prostitution, loan sharking, commercial crimes, and intellectual property rights infringement. Criminal proceeds laundered in Hong Kong are derived from local and overseas criminal activities, but Hong Kong law enforcement authorities attribute only a small percentage of these to drug-trafficking organizations.

Offshore Center: Yes

Hong Kong does not make a distinction between onshore and offshore entities, including banks. Its financial regulatory regimes are applicable to residents and nonresidents alike. All companies must be incorporated or registered under the Companies or Trustee Ordinances and file information annually with the Companies Registry, including annual accounts, details on registered offices, directors, company secretary, etc. Companies require licensing to engage in asset management or fund advisory activities in Hong Kong. As of October 2009, 715 corporations held licenses. No differential treatment is provided for nonresidents, including taxation and exchange controls. Bearer shares are not permitted.

Free Trade Zones: No

Hong Kong is a free port without foreign trade zones. Hong Kong's modern and efficient infrastructure supports Hong Kong's role as a regional trade, financial and services center

Criminalizes narcotics money laundering: Yes

Narcotics money laundering is a criminal offense in Hong Kong under the Drug Trafficking Recovery of Proceeds Ordinance (DTROP) and the Organized and Serious Crimes Ordinance (OSCO). Introduced in 1989, the DTROP provides that it is a criminal offense for a person to deal in property “knowing or having reasonable grounds to believe” that the property “in whole or in part directly or indirectly represents any person’s proceeds of drug-trafficking.” There have been no recent amendments to this law.

Criminalizes other money laundering, including terrorism-related: Yes

DTROP and OSCO criminalize the laundering of proceeds from all indictable offenses. Laundering, to include self-laundered money, of any property that represents in whole or in part, directly or indirectly, the proceeds of crime are an offense.

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/)

Terrorism and terrorist financing were criminalized in 2002 with the enactment of The United Nations Anti-Terrorism Measures Ordinance (UNATMO), Cap. 575. An amendment to the legislation in 2004 provides for the freezing of terrorist related assets. However, the offense is viewed as being narrow in scope and certain key provisions of this ordinance are not yet in force. Not covered in the current legislation is terrorism directed at an international organization or where the financing is in the form of assets other than ‘funds’.

Know-your-customer rules: Yes

Banking, securities and insurance entities must identify and verify the identity of customers, including any beneficial owners, before establishing a business relationship. Only basic customer-due-diligence obligations are in place for money remitters and money exchange companies, and there are no due-diligence obligations for money lenders, credit unions and financial leasing companies. Guidelines impose obligations on banking and insurance institutions to exercise enhanced due diligence with respect to politically exposed persons. However, these guidelines do not specify that senior management approval is required to continue a business relationship with a customer discovered to be a politically exposed person. A supplement to the Banking Guidelines issued in November 2007 added the requirement of obtaining the purpose and reason for opening an account.

Bank records retention: Yes

Financial institutions are required to know and record the identities of their customers and maintain records for five to seven years. Remittance agents and moneychangers must register their businesses with the police and keep customer identification and transaction records for cash transactions above a HK 8,000 (approximately $1,032) threshold for at least six years.

Suspicious transaction reporting: Yes

Hong Kong’s reporting obligations require the reporting of suspected money laundering or terrorist financing irrespective of the amount involved. The legal obligations for all persons, including financial institutions, to file suspicious transaction reports (STRs) are articulated in the DTROP for narcotics proceeds, OSCO for the proceeds of indictable offenses and organized crime, and UNATMO for terrorism finance. As of October 2009, Hong Kong’s financial intelligence unit (FIU) received 13,553 STRs and referred 1,926 to law enforcement agencies for further investigation.

Large currency transaction reporting: No

Narcotics asset seizure and forfeiture: Yes

Under the DTROP and OSCO, a court may issue a restraining order against a defendant’s property at or near the time criminal proceedings are instituted. Property includes money, goods, real property, and instruments of crime. A court may issue confiscation orders at the value of a defendant’s proceeds from illicit activities. Cash imported into or exported from Hong Kong that is connected to narcotics-trafficking may be seized, and a court may order its forfeiture. However, restraint and confiscation provisions are limited in their availability as they can be used only for those indictable offenses listed in OSCO and restraint may only occur where the amount involved is over HK 100,000 (approximately $12,900). Some types of instrumentalities are subject to forfeiture. According to Hong Kong government statistics as of September 30, 2009, the value of frozen assets was $324.2 million while the value of assets under a court confiscation order but not yet paid to the government was $14.62 million.

Under DTROP section 28, the Chief Executive may promulgate orders designating countries whose confiscation orders can be considered as though they were made pursuant to DTROP (with some modifications). The net effect of such designations is to confer legal recognition upon confiscation orders of certain other countries. Pursuant to this power, the Chief Executive has promulgated the Drug Trafficking (Recovery of FATF/ME (2008)4 186 Proceeds) (Designated Countries and Territories) Order.

Narcotics asset sharing authority: Yes

Hong Kong’s Mutual Legal Assistance Ordinance (MLAO), DTROP, and various administrative measures provide a platform for the sharing of seized assets with other governments. Bilateral agreements generally incorporate provisions on asset sharing that provide for assets to remain with the requested jurisdiction, subject to sharing on a case by case basis. In practice, realized funds over a threshold of HK$10million (approximately $1,290,000) are shared equally.

Cross-border currency transportation requirements: No

Hong Kong does not require reporting of the movement of any amount of currency across its borders.

Cooperation with foreign government: Yes

UNATMO, DTROP and OSCO enable information sharing with relevant authorities outside Hong Kong to prevent and suppress the financing of terrorist acts, drug-trafficking and other crimes.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

The formal banking sector is believed to be the primary means of money laundering in Hong Kong. For 2008, Hong Kong police reported 4,653 cases of deception; 20 business fraud cases; and 1,190 forgery and coinage cases. Crime statistics for 2009 were not available. From January to September 2009, Hong Kong prosecuted 340 persons for Money Laundering. One significant case involved the arrest and prosecution of 16 persons for money laundering by the Hong Kong Customs and Excise Department.

No provisions are in place for forfeiture of proceeds and instrumentalities of terrorist acts or terror finance. There were no prosecutions for terrorist financing as of September 2009.

U.S.-related currency transactions:

No information provided.

Records exchange mechanism with U.S.:

Hong Kong’s mutual legal assistance agreements generally provide for asset tracing, seizure, and sharing. Hong Kong signed and ratified a mutual legal assistance agreement (MLAA) with the United States that came into force in January 2000. Law enforcement cooperation remains a central pillar of U.S. - Hong Kong relations.

Legislative amendments to DTROP and OSCO in 2004 now allow the financial intelligence unit to disseminate information derived from STRs to overseas counterparts and non-counterparts for the purposes of combating crime, without the need for any reciprocity.

International agreements:

As of November 2009, Hong Kong has signed bilateral MLAAs with 27 jurisdictions. Hong Kong has also signed surrender-of-fugitive-offenders (extradition) agreements with 18 countries, including the United States, and has signed agreements for the transfer of sentenced persons with ten countries, also including the United States. Hong Kong authorities exchange information on an informal basis with overseas counterparts and with Interpol.

Hong Kong 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 above conventions apply to Hong Kong through mainland China’s participation in the conventions.

Hong Kong is a member of the FATF and the Asia/Pacific Group on Money Laundering (APG), a FATF-style regional body. It’s most recent 2008 mutual evaluation can be found here: http://www.fatf-gafi.org/dataoecd/19/38/41032809.pdf.

Recommendations:

Hong Kong should institute mandatory oversight for the designated non-financial businesses and professions and money remitters. Hong Kong should establish mandatory cross-border currency reporting requirements. The anti-money laundering/counter-terrorist financing framework should be further enhanced with the establishment of threshold reporting requirements for currency transactions and by putting into place “structuring” provisions to counter evasion efforts. As a major trading center, Hong Kong should seriously examine trade-based money laundering.

India

India’s emerging role in regional financial transactions, its large system of informal cross-border money flows, large underground economy, widespread use of hawala, and historically disadvantageous tax administration and currency controls all contribute to the country’s vulnerability to money laundering activities. While much money laundering in India aims to facilitate widespread tax avoidance, criminal activity contributes substantially. Common sources of illegal proceeds in India include: narcotics trafficking, illegal trade in endangered wildlife, trade in illegal gems (particularly diamonds), smuggling, trafficking in persons, and income tax evasion. Corruption, both in the private and public sectors, is also a potential source of money laundering. Money laundering methods are diverse. In domestic crimes, the most common money laundering methods are opening multiple bank accounts, intermingling criminal proceeds with assets of a legal origin, purchasing bank checks with cash, and routing through complex legal structures. In transnational organised crimes, offshore corporations and trade based money laundering may be used to disguise the criminal origin of the funds. Money laundering also takes place in India through charities and non-profit organizations. Because of its location between the heroin-producing countries of the Golden Triangle and Golden Crescent, India continues to be a drug-transit country. The 2008 terrorist attacks in Mumbai intensified concerns about terrorist financing in India. Major sources for terrorist financing include: funds/resources from organizations outside India including; extortion; counterfeiting of currency; and use of formal channels and new payment methods.

Offshore Center: No

India does not have a traditional offshore financial center but does license offshore banking units (OBUs) to operate in the Special Economic Zones (SEZs). Nine OBUs have been set up in specific zones, although they can provide services across the entire network. These units are prohibited from engaging in cash transactions and are restricted to lending to the SEZ wholesale commercial sector. Although located in India, they essentially function as foreign branches of Indian banks. India licenses and regulates OBUs the same way as domestic commercial banks, and they are subject to the same anti-money laundering/counter-terrorist financing (AML/CFT) provisions as the domestic sector.

Free Trade Zone: Yes

Special Economic Zones (SEZs) are being established to promote export-oriented commercial businesses, including manufacturing, trading and services (mostly information technology). As of December, 2009, approximately 350 SEZs had been proposed throughout India. The SEZs have defined physical boundaries, with access controlled by Customs officers. In November 2009, the Government of India (GOI) gave permission to various investigative agencies to conduct searches, inspect, seize and investigate the consignments inside the SEZs without permission from the SEZ development commissioner.

Criminalizes narcotics money laundering: Yes

The Prevention of Money Laundering Amendment Act (PMLA), 2009 [No. 21 of 2009] criminalizes narcotics-related money laundering.

Criminalizes other money laundering, including terrorism-related: Yes

PMLA amendments introduced a new category of predicate offenses, cross-border crimes such as fraud and theft, with no threshold amount for prosecution. Offenses under the Unlawful Activities (Prevention) Act (UAPA) relating to terrorism and terrorist financing are included as predicate offenses, as are insider trading and market manipulation. Offenses relating to human trafficking, smuggling of migrants, counterfeiting, piracy, environmental crimes, and over- and under-invoicing under the Customs Act have become punishable under the amended PMLA.

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 UAPA was amended in 2004 to criminalize terrorist acts, including raising funds for terrorism. However, the Act did not provide a comprehensive framework for dealing with the tripartite offenses of terrorism, namely, financing of terrorism, terrorists acts and terrorist organizations. In December 2008, India’s parliament enacted an amendment to the UAPA containing provisions to address the legal authority and enforcement mechanism for freezing the funds of terrorist entities, including an explicit authority to freeze the funds of terrorist entities designated under UNSCRs 1267 and 1373. In August 2009, the government issued orders to implement the UAPA for terrorist-related predicate offenses. India has seized, attached and forfeited property of Dawood Ibrahim Kaskar, a designated individual, valued at more than INR 1.5 billion.

Know-your-customer rules: Yes

In October 2009, the Reserve Bank of India (RBI) strengthened its “Know Your Customer (KYC) Norms/Anti Money Laundering Standards/Combating of Financing of Terrorism” guidelines by issuing notifications to all banks and financial institutions on appropriate procedures regarding customer identification and verification. Entities covered by KYC regulations include banks, securities firms and broker dealers, insurance companies, authorized money changers (money remitters, bureaus de change, money changers) and payment systems operators. In November 2009, the RBI tightened the KYC norms for authorized money transfer service agents, requiring enhanced due diligence for new customers based on a customer’s risk profile and increased monitoring of receipts considered especially risky based on indicators such as country of origin, sources of funds, and type of transaction. The RBI also has directed banks to take additional precautions on customers’ business transactions with entities or banks from Iran, Pakistan, Uzbekistan, Turkmenistan, and Sao Tome.

Bank records retention: Yes

The PMLA obligates every banking company, financial institution, and intermediary of the securities market (such as stock brokers) to maintain records of all transactions and customer verification for ten years.

Suspicious transaction reporting: Yes

In June 2009, amendments to the PMLA came into force, adding additional entities to those subject to reporting requirements, including: casinos, authorized money changers; money transfer service agents (Western Union); and, international payment gateways (e.g., Visa and Master Card). Following a listing in the Official Gazette in November 2009, charitable trusts including temples, churches, mosques, non-governmental bodies, and educational institutions, even if registered as non-profit organizations, are under the purview of the amended PMLA. These entities need to disclose their source of funds and must report both suspicious transactions and large monetary transactions. Obligated entities are required to submit suspicious transaction reports (STRs) to India’s financial intelligence unit (FIU). According to the FIU’s 2009 fiscal year Annual Report, the FIU received 4,409 STRs, of which 2,450 were shared with relevant law enforcement agencies. According to FIU officials, income tax evasion has been readily detected in the STRs and has also led to the arrest of suspected terror operatives.

Large cash transaction reports: Yes

The PMLA requires every bank, financial institution and intermediary to furnish to the FIU information relating to cash transactions of more than 1 million rupees (approximately $21,700), or its equivalent in foreign currency. Indian outlets of wire transfer services and casinos have also been ordered to report their transactions every month. Individual cash transactions below 50,000 rupees (approximately $1,080) need not be reported.

Narcotics asset seizure and forfeiture: Yes

The 1973 Code of Criminal Procedure, Chapter XXXIV (Sections 451-459), establishes India’s basic framework for confiscating illegal proceeds. The Narcotic Drugs and Psychotropic Substances Act (NDPSA) as amended in 2000, requires the tracking and forfeiture of assets that have been acquired through narcotics trafficking and prohibits attempts to transfer and conceal those assets. The Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act of 1976 (SAFEMA) allows for the seizure and forfeiture of assets linked to Customs Act violations. The Competent Authority (CA), within the Ministry of Finance, administers both the NDPSA and the SAFEMA. The 2001 amendments to the NDPSA allow the CA to seize any asset owned or used by an accused narcotics trafficker immediately upon arrest; previously, assets could only be seized after a conviction.

Narcotics asset sharing authority:

No information available.

Cross-border currency transportation requirements: Yes

A declaration must be made upon entering India with an aggregate value of Indian currency notes, bank notes, or traveler’s checks exceeding $10,000 or its equivalent, and/or an aggregate value of foreign currency notes of $5,000 or its equivalent.

Cooperation with foreign governments: Yes

The GOI routinely cooperates with other jurisdictions in anti-money laundering and financial crimes investigations. India’s Customs Service shares enforcement information with countries in the Asia/Pacific region.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

India’s widespread informal remittance systems, such as hawala, and its large underground economy are non-transparent and resistant to money laundering countermeasures. According to Indian observers, funds transferred through the hawala market are equal to between 30 to 40 percent of the formal market, totaling between $13 and $17 billion. The RBI estimates that remittances to India sent through legal, formal channels during fiscal year 2009 (ending March 31, 2009) amounted to $46.4 billion.

Smuggled goods such as computer parts, gold, and a wide range of imported consumer goods are routinely sold through the black market. However, the volume in business-related smuggled goods has fallen significantly. Nonetheless, private analysts estimate India’s black market to range from $2.1 - $2.5 trillion.

India is one of the most active members of the Asian Clearing Union (ACU), a regional clearing house based in Tehran for participants to settle trade transactions in Euros and dollars. The ACU could be used for financing trade with countries such as Iran and Burma, while avoiding U.S. sanctions.

The GOI requires charities to register with the Registrar of Societies but enforcement of GOI regulations governing charities remains weak. The Foreign Contribution Regulation Act (FCRA) of 1976 regulates the use of foreign funds received by charitable/nonprofit organizations. Their coverage under the PMLA is a good step toward more effective oversight but is too recent to evaluate. Some religious trusts and charities operate as sources of funds for terrorist organizations under anonymous/fictitious names. There are over a million charitable and private organizations registered in India. There is insufficient integration and coordination between charities’ regulators and law enforcement authorities regarding the threat of terrorist financing.

To date, India has had very few money laundering prosecutions, particularly for a country and financial sector of its size.

U.S.-related currency transactions:

No information available.

Records exchange mechanism with U.S.:

The FIU is able to exchange financial intelligence with the Financial Crimes Enforcement Network (FinCEN).

International agreements:

India is a party to various information exchange agreements. 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 signed bilateral MOUs to further facilitate and expedite financial intelligence information sharing.

India 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

India is a member of the Asia/Pacific Group on Money Laundering (APG), a Financial Action Task Force-style regional body. India’s mutual evaluation report can be found here: http://www.apgml.org/documents/docs/8/India%20ME1%20-%20Final.pdf.

Recommendations:

The Government of India (GOI) amended the PMLA in order to strengthen its AML/CFT regime. However, the GOI should extend the PMLA to dealers in precious stones and metals; real estate agents; lawyers, notaries and other independent legal professionals; and accountants. Further tax reform, loosening of currency controls, and facilitating the development of money transfer services should enhance the availability of legal alternatives to hawala and reduce ML/TF vulnerabilities. Given the fact that in India hawala is directly linked to terrorist financing, the GOI should take action to provide increased transparency in alternative remittance systems. India should take measures to demonstrate that it is also applying the full range of its AML/CFT measures to transactions conducted under the Asian Clearing Union with Iran and other participating countries. India should become a party to the UN Conventions against Transnational Organized Crime and Corruption. Also, India should pass the Foreign Contribution Regulation Bill for regulating nongovernmental organizations, including charities. India should devote more law enforcement and customs resources to curb abuses in the diamond trade. It should also consider the establishment of a Trade Transparency Unit (TTU) to promote trade transparency; in India, trade is the “back door” to underground financial systems.

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.

 

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.

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.

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.

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.

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.

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.

Countries/Jurisdictions of Primary Concern - Netherlands through Zimbabwe



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