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Diplomacy in Action

2010 INCSR: Countries/Jurisdictions of Primary Concern - Netherlands through Zimbabwe


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

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Netherlands

The Netherlands is a major financial center and consequently an attractive venue for laundering funds generated from illicit activities. These activities are often related to the sale of cocaine, cannabis, or synthetic and designer drugs (such as ecstasy). Financial fraud is believed to generate a considerable portion of domestic money laundering, and there is evidence of trade-based money laundering. There are no indications of syndicate-type structures in organized crime or money laundering, and there is virtually no black market for smuggled goods in the Netherlands. Although under the Schengen Accord there are no formal controls on national borders within the European Union (EU), the Dutch authorities run special operations in the border areas with Germany and Belgium to keep smuggling to a minimum.

Offshore Center: No

Free Trade Zones: No

Criminalizes narcotics money laundering: Yes

The Netherlands has an “all offenses” regime for predicate offenses of money laundering that includes narcotics money laundering.

Criminalizes other money laundering, including terrorism-related: Yes

In 2008, the Netherlands amended its original anti-money laundering (AML) legislation and approved the new Prevention of Money Laundering and Financing of Terrorism Act (WWFT). The WWFT implements the Third EU money laundering directive into national law and combines existing AML legislation into one single act. Any terrorist crime automatically qualifies as a predicate offense under the Netherlands “all offenses” regime for predicate offenses of 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/)

In August 2004, the Act on Terrorist Crimes became effective. The Act makes conspiracy to commit a terrorist act a criminal offense. Involvement in financial transactions with suspected terrorists and terrorist organizations listed on the UN 1267 Sanctions Committee’s consolidated list or designated by the EU is also a criminal offense. The 2004 Act on Terrorist Offenses introduces Article 140A of the Criminal Code, which criminalizes participation in a terrorist organization, and defines participation as membership or providing provision of monetary or other material support.

Know-your-customer rules: Yes

The WFFT incorporates the previous separate acts on identification and reporting and institutes a more risk-based approach to customer identification. It also establishes the requirement for all obligated entities to verify the identity of a transaction’s ultimate beneficial owner as well as politically exposed persons. Banks, exchange offices, casinos, money service businesses, lawyers, notaries, and tax specialists are all covered under know your customer regulations.

Bank records retention: Yes

Financial institutions are required by law to maintain records necessary to reconstruct financial transactions for five years after termination of the relationship.

Suspicious transaction reporting: Yes

The Netherlands has established an “unusual transaction” reporting system. Banks, bureaux de change, casinos, financing companies, commercial dealers of high-value goods, notaries, lawyers, real estate agents/intermediaries, accountants, business economic consultants, independent legal advisers, tax advisors, trust companies, other providers of trust-related services, life insurance companies, securities firms, stock brokers, and credit card companies are required to file unusual transaction reports (UTRs) with the Netherlands’ financial intelligence unit (FIU) on any transaction that appears unusual (applying a broader standard than “suspicious”) or when there is reason to believe that a transaction is connected with money laundering or terrorist financing. The FIU reviews UTRs and forwards them to law enforcement for criminal investigation; once the FIU forwards the report, the report is then classified as a suspicious transaction (STR). In 2008, the FIU received 388,842 UTRs and forwarded 54,605 STRs, totaling approximately 0.8 billion Euros (approximately $1,143,000,000).

Large currency transaction reporting: Yes

Banks, bureaux de change, casinos, financing companies, commercial dealers of high-value goods, notaries, lawyers, real estate agents/intermediaries, accountants, business economic consultants, independent legal advisers, tax advisors, trust companies, other providers of trust-related services, life insurance companies, securities firms, stock brokers, and credit card companies in the Netherlands are required to report cash transactions over certain thresholds (varying from 2,000 to 25,000 Euros or approximately $2,900 to $36,000).

Narcotics asset seizure and forfeiture: Yes

The Asset Seizure and Confiscation Act, as amended in 2003, enables authorities to freeze, seize and confiscate assets that are illicitly obtained or otherwise connected to criminal acts. All law enforcement investigations into serious crime may integrate asset seizure. Authorities may seize any tangible assets, such as real estate, that were purchased directly with proceeds tracked to illegal activities. Assets can be seized as a value-based confiscation. Legislation provides for the seizure of additional assets controlled by a drug-trafficker. Proceeds from narcotics asset seizures and forfeitures are deposited in the general fund of the Ministry of Finance. Statistics provided by the Office of the Public Prosecutor show the assets seized in 2008 amounted to 23.5 million Euros (approximately $33,570,000).

Increasing seizures of criminal assets is a priority. In 2009, the Dutch Minister of Justice proposed a new law in parliament to further enhance the GON’s ability to confiscate and recover assets. The draft legislation includes a key provision transferring the burden of proof to the defendant to demonstrate assets were acquired legitimately.

UNSCR 1267/1390 is implemented through Council Regulation 881/02. In the Netherlands, Sanctions Law 1977 also addresses this requirement parallel to the regulation.

Narcotics asset sharing authority: Yes

The United States and the Netherlands have had an asset-sharing agreement in place since 1994.

Cross-border currency transportation requirements: Yes

In June 2007, the Netherlands implemented EU regulation 1889/2005 which requires natural persons to declare to customs authorities when they enter or depart the EU carrying 10,000 Euros (approximately $14,300) or more in cash. However, the EU has no similar declaration obligation when transiting within the EU. The Dutch Tax and Customs Administration makes all these declarations available to the FIU. In 2008, the financial intelligence unit received 1,807 reported declarations totaling almost 78 million Euros, and declared 39 of these reports suspicious.

Cooperation with foreign governments (including refusals):

No legal issues hamper the government's ability to assist foreign governments in mutual legal assistance requests when a bilateral treaty is in place.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

In practice, Dutch public prosecutors move to seize assets in only a small proportion of money laundering cases. This is due to a shortage of trained financial investigators and a compartmentalized approach where the financial analysts and operational drug investigation teams often do not act in unison.

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

In 2009, specially trained dogs found four million Euros (approximately $5,750,000) in passenger luggage at Schiphol airport. Dutch authorities arrested two people at Schiphol airport in February 2009 with one million Euros (approximately $1,440,000) concealed and another two people in September 2009 attempting to smuggle 500,000 Euros (approximately $720,000) into the Netherlands.

In 2008, the Public Prosecution Office served a summons to suspects of money laundering offenses in 1041 cases. The Netherlands Court of Audit reported in June 2008 that 63 percent of money laundering cases referred to the Office of Public Prosecution resulted in a conviction.

In a notable conviction, a Rotterdam court sentenced seven men in April 2009 for cocaine trafficking and laundering at least 22 million Euros (approximately $31,650,000). Authorities confiscated twenty properties as well as $3.6 million and 900,000 Euros (approximately $1,295,000) in cash. In August 2009, the Public Prosecutor’s office in Maastricht confiscated 134 properties and pieces of land from a real estate dealer suspected of money laundering, cannabis cultivation and tax fraud. This is reportedly the largest judicial seizure of property ever in the Netherlands.

U.S.-related currency transactions:

Several Dutch financial institutions engage in international business transactions involving large amounts of United States currency. However, there are no indications that significant amounts of U.S. dollar transactions conducted by financial institutions in the Netherlands stem from illicit activity.

Records exchange mechanism with U.S.:

The United States enjoys strong cooperation with the Netherlands in fighting international crime, including money laundering. A mutual legal assistance treaty (MLAT) between the Netherlands and the United States has been in force since 1983. The Netherlands also has ratified the bilateral implementing instruments for the U.S.-EU MLAT and extradition treaties. The U.S.-EU MLAT is expected to come into force in February 2010. One provision included in the U.S.-EU legal assistance agreement will facilitate the exchange of information on bank accounts. The Dutch Ministry of Justice and the National Police work together with U.S. law enforcement authorities in the Netherlands on operational money laundering initiatives. Through a memorandum of understanding in place since 2004, the FIU shares information regularly with the Financial Crimes Enforcement Network, the U.S. FIU.

International agreements:

The Netherlands has a fairly comprehensive set of bilateral and multilateral treaties that provide for mutual legal assistance and extradition in money laundering and terrorist financing matters. Mutual legal assistance is available for both negligent and intentional conduct, and when the investigation or proceeding relates to a predicate offense and money laundering, and to money laundering alone. Without a treaty, assistance is limited to specified measures not requiring coercion.

The Netherlands 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 Netherlands is a member of the Financial Action Task Force (FATF) and the Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a FATF-style regional body. In lieu of an evaluation by the FATF, the International Monetary Fund (IMF) prepared a Report on the Observance of Standards and Codes. The report can be found here: http://www.imf.org/external/pubs/ft/scr/2004/cr04312.pdf.

Recommendations:

The Government of the Netherlands (GON) should intensify its focus on confiscation of criminal assets. Although resources dedicated to investigating financial crimes have increased in recent years, the GON should continue its drive to increase the expertise within its enforcement authorities to handle more serious and complex cases. For example, the GON should follow through on its commitment to add more special investigators for financial crimes. The GON should devote more resources toward getting better data and a better understanding of alternative remittance systems in the Netherlands, and channel more investigative resources toward tracing these systems. The Ministries of Interior, Finance, and Justice should take steps to improve information sharing, increase the use of asset seizure powers, and enhance supervision of notaries, lawyers, and accountants.

Nigeria

Nigeria remains a major drug trans-shipment point and a significant center for criminal financial activity. Individuals and criminal organizations have taken advantage of the country's location, porous borders, weak laws, corruption, lack of enforcement, and poor socioeconomic conditions to launder the proceeds of crime. The proceeds of illicit drugs in Nigeria derive largely from foreign criminal activity rather than domestic activities. One of the schemes used by drug traffickers to repatriate and launder their proceeds is through the importation of various commodities, predominantly luxury cars and other items such as textiles, computers, and mobile telephone units. Nigerian financial institutions are also reportedly used for currency transactions involving US dollars derived from illicit drugs.

Proceeds from drug trafficking, illegal oil bunkering, bribery and embezzlement, contraband smuggling, theft, and financial crimes, such as bank fraud, real estate fraud, and identity theft constitute major sources of illicit proceeds in Nigeria. Advance fee fraud, also known as "419" fraud in reference to the fraud section in Nigeria's criminal code, is a lucrative financial crime that generates hundreds of millions of illicit dollars annually. Money laundering in Nigeria takes many forms, including: investment in real estate; wire transfers to offshore banks; political party financing; deposits in foreign bank accounts; use of professional services, such as lawyers, accountants, and investment advisers; and cash smuggling. Nigerian criminal enterprises are adept at devising ways to subvert international and domestic law enforcement efforts and evade detection.

Offshore Center: Yes

The Central Bank of Nigeria (CBN) licenses off-shore banks; however, it performs background checks on all applicants. Two off-shore banks operate in Nigeria—Citibank Nigeria Limited and Standard Chartered Bank Limited. The same regulatory rules apply to both domestic banks and off-shore banks. However, additional regulation is applied to off-shore banks.

Free Trade Zone: Yes

Free Trade Zones (FTZs) exist in Nigeria. Eleven are operational and mostly belong to the Federal Government. The FTZs are licensed by the Nigeria Export Processing Zones Authority (NEPZA), responsible for the regulation, operation and monitoring of FTZs’ activities in Nigeria. Standardized procedures exist for FTZs, including a registration process involving the identification of companies and individuals who want to use the zones. Nigeria has not reported any cases of misuse of the FTZs for money laundering or terrorism financing.

Criminalizes narcotics money laundering: Yes

The Money Laundering (Prohibition) Act (MLPA), 2004 criminalizes narcotics-related money laundering.

Criminalizes other money laundering, including terrorism-related: Partially

The MLPA criminalizes money laundering related to the proceeds of all financial crimes. However, terrorism and terrorist financing are not specifically identified as predicate offenses. Money laundering controls apply to banks and other financial institutions, including stock brokerages and currency exchange houses, as well as designated nonfinancial businesses and professions (DNFBPs). These institutions include dealers in jewelry, cars and luxury goods, chartered accountants, audit firms, tax consultants, clearing and settlement companies, legal practitioners, hotels, casinos, supermarkets and other businesses that the Federal Ministry of Commerce (FMC) designates as a money laundering risk.

Criminalizes terrorist financing: No

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

The Economic and Financial Crimes Commission (EFCC) Act does not provide a comprehensive framework for dealing with the tripartite offenses of terrorism, namely, terrorist financing, terrorists act and terrorist organizations. While provision or collection of funds to be used to carry out a terrorist act is covered, provision or collection of funds to be used by a terrorist organization or individual terrorist is not. The Act does not criminalize terrorist financing, nor does it reference terrorist financing as a predicate offense for money laundering. A comprehensive bill for the prevention of terrorism that includes a more expansive provision related to terrorist financing, is currently pending before the National Assembly.

Know-your-customer rules: Yes

Financial institutions subject to KYC regulations include banks, community banks, mortgage institutions, development finance banks, financial service companies, bureaus de change; the insurance, and securities and investment industry; as well as any individual body, association or group of persons, whether corporate or incorporated, which carries on the business of a discount house, finance company, money brokerage, and whose principal object include factoring, project financing, equipment leasing, debt administration, fund management, private ledger services, invest management, export finance, pension fund administration and project consultancy.

The MLPA requires financial institutions to identify individuals and legal entities before opening an account or establishing any other business relationship with the person and specifies the types of documentation and information to be obtained.

Bank records retention: Yes

The MLPA provides the legal framework requiring financial institutions and designated non-financial institutions to preserve records of transactions for a period of at least five years. Details of the records to be kept include origin of funds, destination of funds, purpose of the transaction, and the identity of the beneficiary.

Suspicious transaction reporting: Yes

The MLPA requires suspicious transaction reports (STRs) to be submitted by financial institutions and DNFPs, and gives the Nigerian Financial Intelligence Unit (NFIU) the authority to receive them. An August 2006 Central Bank of Nigeria circular requires all financial institutions to forward STRs for potential terrorist financing transactions. Between January and September 2009, the NFIU received a total of 826 STRs, 55 of which were developed and disseminated to relevant authorities for investigation.

Large currency transaction reporting:

Only transactions involving the transfer to or from a foreign country of funds or securities exceeding $10,000 in value are reportable to the NFIU. All financial institutions and designated nonfinancial institutions are required by law to furnish the NFIU with details of these financial transactions.

Narcotics asset seizure and forfeiture:

Nigeria has established a legal framework and regulatory systems for identifying, tracing, freezing, seizing, and forfeiting proceeds of crime. The National Drug Law Enforcement Agency Act (NDLEA Act) includes provisions for the forfeiture of a variety of assets acquired with the proceeds of illicit drugs and enumerates the powers of the NDLEA to seize, freeze and confiscate proceeds of illicit drugs. Furthermore, under the MLPA, assets connected to money laundering offenses are also subject to forfeiture. These provisions cover both foreign and domestic drug proceeds and instrumentalities, as well as the conveyance of real properties used for drug cultivation, storage, and trafficking. All means of conveyance, including aircraft, vehicles, or vessels used or intended to be used to transport or facilitate the transportation, sale, receipt, possession or concealment of economic or financial crimes, are likewise subject to forfeiture. The MLPA authorizes forfeiture of assets of corporate bodies involved in money laundering activities. NDLEA can immediately freeze assets but has a difficult time in initially tracking them down.

Forfeiture is possible only as part of a criminal prosecution. There is no comparable law providing for civil forfeiture. A non-conviction-based forfeiture statute is now pending in the National Assembly. From January to December 2009, NDLEA reported it seized a total $1,631,789 in currency and real estate.

Narcotics asset sharing authority:

No information available.

Cross-border currency transportation requirements: Yes

Nigeria has adopted a declaration system for all persons entering or leaving Nigeria in possession of currency and bearer negotiable instruments in excess of $5,000 or its equivalent.

Cooperation with foreign governments (including refusals):

No known impediments exist to cooperation.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

Nigeria’s failure to criminalize terrorist financing limits its ability to inhibit terrorism-related activity.

Corruption continues to be a significant problem. Despite its past success, in 2009, the EFCC faced significant challenges in fulfilling its mandate to fight financial crimes and money laundering. An apparent lack of political will to enforce the laws and continuous delays within the justice sector has hindered the progress of many prosecutions and/or investigations. As a result of these challenges, the EFCC has not prosecuted any money laundering related case, nor secured any convictions in the past year.

Nigeria does not have an asset forfeiture fund. Consequently, seized assets remain in the custody of the seizing agency until they revert to the GON. Due to lack of proper accountability, forfeited assets are sometimes lost or stolen.

From January 1, 2009 to September 30, 2009, the NDLEA handled a total of 25 money laundering investigations resulting in 16 arrests. No drug-related convictions were obtained but there are 18 pending cases in the courts.

U.S.-related currency transactions:

Nigerian financial institutions are reportedly used for currency transactions involving US dollars derived from illicit drugs.

Records exchange mechanism with U.S.:

The United States and Nigeria entered into a mutual legal assistance treaty (MLAT) in 2003.

International agreements:

Nigeria 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. Nigeria has signed memoranda of understanding with Russia, Iran, India, Pakistan and Uganda to facilitate cooperation in the fight against narcotics-trafficking and money laundering. Nigeria has also signed bilateral agreements for information exchange relating to money laundering with South Africa, the United Kingdom, and all Commonwealth and Economic Community of West African States (ECOWAS) countries.

Nigeria is a 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

Nigeria is a member of the Inter-Governmental Action Group against Money Laundering in West Africa (GIABA). Its most recent mutual evaluation can be found here: http://www.giaba.org/.

Recommendations:

The Government of Nigeria (GON) should work to ensure that its anti-money laundering legislation complies with international standards and covers all of the recommended predicate offenses, including terrorist financing. The GON should ensure the autonomy and independence of the EFCC and NFIU from political pressure. The GON should also strengthen its supervision of designated nonfinancial businesses and professions. Moreover, the GON should ensure that the NPF has the capacity to function as an investigative partner in financial crimes cases, as well as work to eradicate any corruption that might exist within law enforcement bodies. Nigeria should re-invigorate its anti-corruption program and support the EFCC, as well as the ICPC, in their mandates to investigate and prosecute corrupt government officials and individuals. The National Assembly should adopt the proposed Special Courts Bill that will establish a special court with specific jurisdiction and trained judges to handle financial crimes. The National Assembly also should adopt the Non-Conviction Based Asset Forfeiture Bill and a comprehensive anti-terrorism bill that includes prohibitions on terrorist financing in line with international standards. Nigerian authorities should work toward full implementation of a regime capable of thwarting money laundering and terrorist financing.

Pakistan

Pakistan continues to suffer from financial crimes related to narcotics trafficking, terrorism, smuggling, tax evasion, corruption, counterfeit goods and fraud. Pakistan is a major drug-transit country. The abuse of the charitable sector, trade-based money laundering, hawala/hundi, and physical cross-border cash transfers are the common methods used to launder money and finance terrorism in Pakistan. Pakistan’s real estate sector also is a popular destination for illicit funds, as many real estate transactions are poorly documented. Pakistani criminal networks play a central role in the transshipment of narcotics and smuggled goods from Afghanistan to international markets. Pakistan does not have firm control of its borders with Afghanistan, Iran and China, facilitating the flow of smuggled goods to the Federally Administered Tribal Areas (FATA) and Baluchistan. Some consumer goods transiting Pakistan duty-free under the Afghan Transit Trade Agreement are sold illegally in Pakistan. Madrassas (Islamic schools) have been used as training grounds for terrorists and for terrorist funding. The lack of control of madrassas, similar to the lack of control of Islamic charities, allows terrorist and jihadist organizations to receive financial support under the guise of support of Islamic education.

Money laundering and terrorist financing are often accomplished in Pakistan via the hundi/hawala alternative remittance system; most illicit funds are moved through these unlicensed operators. The State Bank of Pakistan (SBP) requires all hawaladars to register as authorized foreign exchange dealers and to meet minimum capital requirements. Despite the SBP’s efforts, unlicensed hawaladars still operate illegally in parts of the country (particularly Peshawar and Karachi). Fraudulent invoicing is typical in hundi/hawala counter valuation schemes. However, legitimate remittances from Pakistani expatriates residing abroad now flow mostly through the formal banking sector.

Offshore Center: No

Free Trade Zone: Yes

Pakistan has established a number of Export Processing Zones (EPZs) in all four of the country’s provinces. Although the Government of Pakistan lists a total of ten EPZs, only four are operational (Karachi, Risalpur, Sialkot, Saindak). No definitive evidence exists to link the use of EPZs to money laundering; however, claims of trade-based money laundering, in particular the use of invoice manipulation is commonly reported.

Criminalizes narcotics money laundering: Yes

Pakistani law has in force two offenses of money laundering related to narcotics, including the general offense of money laundering as stipulated in section 3 of the Anti-Money Laundering Act (AMLA) of 2009, and an explicit criminalization of narcotics money laundering in section 12 of the Control of Narcotics Substances Act (CNSA) of 1997.

Criminalizes other money laundering, including terrorism-related: Yes

The AMLA criminalizes money laundering. Terrorist financing is included in the Schedule to AMLA, thus making it a predicate offense to money laundering. Additionally, section 11K of the Anti-Terrorism Act (ATA) of 1997 includes an autonomous offense of laundering terrorist related property.

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/)

Pakistan has specifically criminalized various forms of terrorist financing under the ATA. Sections 11H-K provide that a person commits an offense if he is involved in fund raising, uses and possesses property, or is involved in a funding arrangement intending that such money or other property should be used, or has reasonable belief that they may be used, for the purpose of terrorism; however, it is unclear whether criminalization extends to individual terrorists, un-proscribed terrorist organizations, or terrorist acts against foreign governments or populations.

Know-your-customer rules: Yes

Regulations require financial institutions to take all reasonable measures to determine the true identity of every prospective customer, and provide that the institutions establish specific procedures for verifying identities, ascertaining a customer’s status and the source of earnings, and for monitoring accounts on a regular basis.

Bank records retention: Yes

SBP Regulation M-3 on Record Retention obligates banks and designated financial institutions (DFI) to maintain a record of transactions for a minimum period of five years, including the retention of records five years after the termination of a business relationship.

Suspicious transaction reporting: Yes

Section 7(1) of the AMLA requires every ‘financial institution’ to submit suspicious transaction reports (STRs) to the Financial Monitoring Unit (FMU), the financial intelligence unit (FIU) of Pakistan no later than seven days after forming a suspicion that the transaction: involves funds derived from illegal activities or is intended or conducted in order to hide or disguise proceeds of crime; is designed to evade reporting requirements; has no apparent lawful purpose; or, involves financing of terrorism. The volume of STRs actually filed is not available.

Large currency transaction reporting: Yes

Currency transaction reports (CTRs) are authorized by the AMLA; the SBP issued Circular Letter No. 39 of 2009 mandating the reporting of currency transactions in excess of 2.5 million rupees (approximately $30,000). CTRs are filed with the FMU.

Narcotics asset seizure and forfeiture:

There are specific powers for the seizing and forfeiture of assets related to narcotics under the CNSA. While trying an offense under the CNSA, the Special Court can order the freezing of assets related to the accused, his relatives and associates, if reasonable grounds of criminality are apparent. Section 37(2) of the CNSA empowers designated authorities to freeze assets and, within seven days, to notify the Court. Once assets are frozen and the accused is found guilty, the courts are empowered to forfeit assets to the federal government.

AMLA sections four, nine, and ten provide powers for the forfeiture of assets of any person convicted of money laundering. Section 9 provides for the power to freeze property related to money laundering. However, the ability to freeze and forfeit assets under the AMLA is untested and may prove challenging to enforce in the courts.

Narcotics asset sharing authority: Yes

Both the AMLA and the CNSA provide for the sharing of assets related to narcotics. CNSA section 40 also provides Pakistan the power to share assets with a foreign government following the conviction of a person in a foreign country. The offense must also be punishable under the CNSA.

Cross-border currency transportation requirements: Yes

Pakistan has a currency control regime that restricts the transportation of Pak Rupees and the outbound transportation of foreign currency. Pakistan does not place any restrictions or require declarations on inbound foreign currency. People leaving and entering Pakistan may not carry more than 3,000 rupees (approximately $35). Carrying currency in violation of this regulation is punishable by imprisonment or heavy fines. For foreign currency, anyone transporting more than $10,000 or the foreign currency equivalent out of Pakistan must obtain permission from the SBP before traveling. There are joint counters at international airports staffed by the SBP and Customs to monitor the transportation of foreign currency.

Cooperation with foreign governments: Yes

There is no overarching mutual legal assistance regime in Pakistan, but there is offense-specific assistance under the AMLA (money laundering) and CNSA (narcotics). Section 26 of the AMLA allows for assistance with regard to money laundering investigations, as long as an agreement with the “contracting state” has been established. Analysis of these provisions suggests there are too many legal impediments for the AMLA to be an effective tool. Sections 56 and 59 of the CNSA allow for mutual legal assistance with regard to narcotics investigations. Unlike the AMLA, the CNSA does not require a prior agreement to be established and can be used to undertake searches, produce records, extradite, and freeze and confiscate proceeds related to narcotics offenses. Mutual legal assistance under the CNSA is subject to dual criminality.

U.S. or international sanctions or penalties: No

Pakistan is still included on the Financial Action Task Force’s (FATF) list of countries posing significant anti-money laundering and terrorist financing risks. In February 2008, FATF issued a statement warning financial institutions to be aware that deficiencies in Pakistan’s anti-money laundering/counter-terrorist financing (AML/CFT) system constitute money laundering and terrorist financing vulnerability in the international financial system. In October 2009, the FATF reaffirmed this statement.

Enforcement and implementation issues and comments:

Operational independence and autonomy of the FMU is an issue, especially with regard to the FMU’s ability to utilize its budget and manage staffing needs. Moreover, there appear to be restrictive information sharing rules with foreign counterparts which do not meet the Egmont principles of information sharing or comply with international standards for non-judicial international cooperation.

Pakistan has the ability to freeze bank accounts and property held by terrorist individuals and entities. Pakistan has issued freezing orders for terrorists’ funds and property in accordance with UNSCRs 1267 and 1373. The SBP circulates to its financial institutions the list of individuals and entities that have been included on the UN 1267 Sanctions Committee’s consolidated list.

The ATA also allows the government to bar a fund, entity or individual on the grounds that it is involved with terrorism. This done, the government may order the freezing of its accounts. Section 11B of the ATA specifies that an organization is proscribed or listed if the GOP has reason to believe it is involved with terrorism. There have been some deficiencies concerning the timeliness and thoroughness of the asset freezing regime.

U.S.-related currency transactions:

U.S. currency is widely used in the underground economy.

Records exchange mechanism with U.S.:

Pakistani and U.S. law enforcement agencies cooperate on a case-by-case basis.

The FMU is not a member of the Egmont Group, nor does it have an MOU or exchange of letters with the Financial Crimes Enforcement Network (FinCEN), the FIU of the United States.

International agreements:

Pakistan is a party to:

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

Pakistan is a member of the Asia/Pacific Group on Money Laundering (APG), a FATF-style regional body. Pakistan’s mutual evaluation report, prepared by the World Bank and the APG, can be found here: http://www.apgml.org/documents/docs/17/Pakistan%20MER%20-%20final%20version.pdf.

Recommendations:

Although progress has been made, pervasive corruption and a lack of political will continue to be the two primary obstacles to an effective AML/CFT regime in Pakistan. Pakistan incorporated a multitude of recommendations in the new AMLA 2009; yet legislative shortcomings still persist and should be addressed accordingly. Pakistan’s FMU needs to be strengthened and should be given operational autonomy rather than be subject to the supervision and control of the General Committee, which is comprised of political ministers. The FMU also needs a strong IT infrastructure to aid in the core functions of collection, analysis and dissemination. New legislation and regulations should include robust preventative measures for all financial and non-financial businesses and professions both within the formal financial sector and those currently missing from the formal sector. Suspicious and currency transaction reporting should be fully implemented. Pakistani law enforcement should not, however, become dependent on these reports to initiate investigations; rather, law enforcement authorities should be proactive in pursuing money laundering and terrorist financing in their field investigations. In light of the role private charities have played in terrorist financing, Pakistan must work quickly to conduct outreach, supervise, and monitor charitable organizations and activities, and close those charitable organizations that finance terrorism. Pakistan should implement and enforce cross-border currency reporting requirements and focus greater efforts on identifying and targeting illicit cash couriers. This work can be enhanced by sharing declaration reports with the FMU. Pakistan should also become a party to the UN Convention against Transnational Organized Crime.

Panama

Panama’s economic and geographic proximity to drug-related activity from Colombia, Venezuela, and Mexico, as well as lack of enforcement by the Government of Panama (GOP), make Panama a natural location for laundering money derived from the sale in the United States and Europe of cocaine produced in Colombia. Panama’s land border with Colombia consists of approximately 60 miles of unguarded, dense jungle. Sea and air law enforcement along Panama’s borders has historically been ineffective. As part of a recent plan to build up to 11 naval stations on the Pacific and Atlantic coasts in order to better police drug trafficking routes, in December, 2009 Panama opened a naval operations station in the Pearl Archipelago that has long been a site for drug-trafficking activity.

The very factors that have contributed to Panama’s economic growth and sophistication in the banking and commercial sectors - the large number of offshore banks and shell companies, the presence of the world’s second-largest free trade zone, the spectacular growth in ports and maritime industries, and the use of the U.S. dollar as the official currency—also provide an effective infrastructure for significant money laundering activity. The funds generated from illegal activity may be laundered through a wide variety of methods, including trade in merchandise, the Panamanian banking system, casinos, pre-paid telephone cards, debit cards, insurance companies, and real estate and construction projects. Substantial bulk cash smuggling facilitates the money laundering.

Offshore Center: Yes

Panama is an offshore financial center that includes offshore banks and various forms of shell companies that have been used globally by a wide range of criminal groups to launder money. Panama, through its Bank Superintendent, licenses offshore banks, and through the Public Registry offshore corporations may be formed. The Banking Superintendent requires a list of a bank’s shareholders as part of the licensing process. Of the 90 commercial banks in Panama, 72 are specifically either non-Panamanian or are designed to service offshore clients. Business licenses may be obtained through a newly created online system. The onshore and offshore registration of corporations is also handled by the Public Registry. There is no requirement to disclose the beneficial owners of any corporation or trust. Bearer shares are permitted for corporations, and nominee directors and trustees are allowed by law. Approximately 39,294 new offshore corporations were registered in Panama from October 2008 to October 2009.

Free Trade Zones: Yes

The majority of money laundering activity in Panama is narcotics-related or the result of transshipment of smuggled, pirated, and counterfeit goods through Panama’s major free trade zone, the Colon Free Zone (CFZ), the second largest free trade zone after Hong Kong. Panama, particularly in the CFZ, suffers from substantial transshipment of smuggled or pirated goods, including counterfeit apparel, pharmaceuticals, and pirated DVDs. From January to October of 2009, the CFZ imported and exported over $16 billion in goods. The CFZ currently has over 2,879 businesses and 20 bank branches, employs approximately 29,000 people, and continues to expand. The large volume of international business within the CFZ creates an environment amenable to many types of money laundering for many different purposes.

Criminalizes narcotics money laundering: Yes

Money laundering is a criminal offense under Panama’s Penal Code.

Criminalizes other money laundering, including terrorism-related: Yes

Law 14 (Article 284) of May 17, 2007, amends the Penal Code to expand the predicate offenses for money laundering beyond narcotics-trafficking to include criminal fraud, arms trafficking, trafficking in humans, kidnapping, extortion, embezzlement, corruption of public officials, terrorism, and international theft or trafficking of motor vehicles. Additionally, Law No. 45 of June 4, 2003, establishes criminal penalties of up to ten years in prison and fines of up to $1 million for financial crimes that undermine public trust in the banking system, the financial services sector, or the stock market. The legislation criminalizes a wide range of activities related to financial intermediation, including illicit transfers of monies, accounting fraud, insider trading, and the submission of fraudulent data to supervisory authorities. Law No. 1 of 2004 also adds crimes against intellectual property as a predicate offense for money laundering. The National Assembly approved Law 68 of 2009 that increases the maximum sentence for committing multiple crimes from 35 to 50 years, and expressly applies to money laundering.

Criminalizes terrorist financing: Yes

Panama’s Law 16 of 1982, Article 389, and Law 50 of 2003, Article 264, both criminalize the financing of terrorism as contemplated by UN Security Council Resolution 1373.

Know-your-customer rules: Yes

Under Panamanian law and regulations, financial institutions (banks, trust companies, money exchangers, credit unions, savings and loan associations, stock exchanges, brokerage firms, and investment administrators) must adhere to “know your customer” (KYC) practices for identification of customers, exercise of due diligence, and retention of transaction records.

Bank records retention: Yes

Panamanian law requires all financial institutions to maintain for five years records concerning their anti-money laundering procedures, including information regarding their customers and any information derived as part of the KYC regulations and cash or suspicious transaction reports relating to customer identification.

Suspicious transaction reporting: Yes

Financial institutions must report suspicious financial transactions to the financial intelligence unit (FIU), regardless of amount.

Large currency transaction reporting: Yes

Financial institutions, including casinos, CFZ businesses, pawnshops, the national lottery, real estate agencies and developers, and insurance and reinsurance companies must report currency transactions in excess of $10,000. Article 248 of 2000 requires indigenous alternative remittance systems, such as hawala operations, to adhere to the reporting requirement for cash transactions.

Narcotics asset seizure and forfeiture:

Panamanian Law 38 of August 10, 2007 provides for the tracing, freezing, and seizure of assets derived from criminal activity. Responsibility for tracing, seizing and freezing assets lies principally with the Drug Prosecutor’s Office of the Attorney General’s Office. Upon an arrest, assets are frozen and seized. In the event of a conviction, assets derived from money laundering activity related to narcotics trafficking are delivered to the National Commission for the Study and Prevention of Narcotics Related Crimes (CONAPRED) for administration and distribution among various GOP agencies. Seized perishable assets may be sold and the proceeds deposited in a custodial account with the National Bank. Panamanian law provides for criminal but not civil forfeiture.

Narcotics asset sharing: No

Panama has not enacted any law for sharing seized assets with other governments.

Cross-border currency transportation requirements: Yes

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

Cooperation with foreign governments: Yes

No impediments exist.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

Panama has comprehensive laws against money laundering and financial crimes, but lacks the investigative and judicial infrastructure to prosecute cases. Panama provides substantial cooperation with U.S. law enforcement agencies in combating drug trafficking and making drug seizures, but has not prosecuted a money laundering case in recent years. As long as money is properly declared, there appears to be little scrutiny by Panamanian customs. US law enforcement agencies have indications that possibly tens of millions of dollars are declared upon entry at Panama’s Tocumen airport on a monthly basis and generally pass through customs without investigation.

The FIU is overworked and lacks adequate resources, institutional knowledge and the ability to enforce reporting requirements. The number of CTRs and STRs submitted to the FIU remains extremely low, despite the large number and value of cash transactions taking place in Panama. Between January and November of 2009, 368 reports were forwarded to the Attorney General’s Office for further action.

Between January and November of 2009, the Financial Fraud Prosecutor’s Office investigated 285 cases related to financial crimes. These included credit card fraud (214), bankruptcy (six), money laundering (nine), financial crimes (50), and other (six).

U.S.-related currency transactions:

The US dollar is legal tender in Panama.

Records exchange mechanism with U.S.:

Panama and the United States have a Mutual Legal Assistance Treaty that entered into force in 1995. The FIU has signed a memorandum of understanding (MOU) with the Financial Crimes Enforcement Network (FinCEN).

International agreements:

The FIU has signed more than 43 MOUs with FIUs from other countries. The FIU also has online access to financial information with foreign analogs through the Egmont Secure Web.

Panama 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

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

Recommendations:

The Government of Panama should increase its efforts to prevent, detect, investigate, and prosecute money laundering and terrorist financing. Despite Panama’s considerable financial resources, a judicial system capable of prosecuting money laundering cases is still a work in progress. As a result, there is little disincentive to committing these crimes within Panama’s borders. The GOP’s ability to investigate and prevent money laundering and terrorist finance would improve with better training and pay of its law enforcement personnel and customs officers, in addition to the elimination of corrupt officers. The UAF needs increased staffing, better training and greater transparency. Financial and other institutions should be regularly audited for compliance with reporting obligations. The issuance of bearer shares is a primary concern and the GOP should take adequate steps to eliminate or immobilize these instruments. The GOP should fully implement computer systems with electronic records for all CFZ commercial and financial transactions, and implement an electronic customs database that can be accessed by the FIU. Additionally, the GOP should devote more human and technological resources to combating bulk cash smuggling and trade-based money laundering in the CFZ.

Paraguay

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

Ciudad del Este (CDE), on Paraguay’s border with Brazil and Argentina, represents the heart of Paraguay’s underground or “informal” economy. The area is well known for arms and narcotics trafficking and violations of intellectual property rights—and the illicit proceeds from these crimes are a source of laundered funds. Some proceeds have been forwarded to terrorist organizations. A wide variety of counterfeit goods, including household electronics, cigarettes, software, computer equipment, video games, and DVDs are imported from Asia and transported across the border into Brazil, with a smaller amount remaining in Paraguay for sale in the local economy.

Offshore Center: No

Free Trade Zones: Yes

Paraguay is a landlocked country with no seaports. However, it has been granted free trade ports and warehouses in neighboring countries' seaports for the reception, storage, handling, and transshipment of merchandise transported to and from Paraguay. Paraguayan free trade ports are located in Argentina (Buenos Aires and Rosario); Brazil (Paranagua, Santos, and Rio Grande do Sul); Chile (Antofagasta and Mejillones); and Uruguay (Montevideo and Nueva Palmira). To date, the three Brazilian free trade ports, Nueva Palmira in Uruguay, and the two Chilean free trade ports are in full operation. About three-fourths of goods are transported by barge on the large river system that connects Paraguay with Buenos Aires (Argentina) and Montevideo (Uruguay). The Paraguayan port authority manages the free trade ports and warehouses.

Criminalizes narcotics money laundering: Yes

A new penal code with enhanced penalties for money laundering crimes came into effect in July 2009 with law 3440/08 that modified various articles in law 1160/97. The new penal code makes money laundering an autonomous crime. The new code establishes predicate offenses for money laundering, but does not require a conviction for the predicate offense before initiating money laundering charges. The new code also allows the state to charge financial sector officials who negligently permit money laundering to occur.

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/)

Paraguay does not have laws that criminalize terrorist financing or provide law enforcement agencies with the authority to freeze, seize, or forfeit assets. The Secretariat to Combat Money Laundering (SEPRELAD), presented a draft anti-terrorism finance bill to Congress, but it was withdrawn in late 2009 due to pressure from human rights groups. SEPRELAD has stated that it will present the draft anti-terrorism finance bill to Congress once again in the first quarter of 2010.

Know-your-customer rules: Yes

Banks, finance companies, insurance companies, exchange houses, stock exchanges and securities dealers, investment companies, trust companies, mutual and pension fund administrators, credit and consumer cooperatives, gaming entities, real estate brokers, nongovernmental organizations, pawn shops, and dealers in precious stones, metals, art, and antiques are required to know and record the identity of customers engaging in significant currency transactions. However, little personal background information is required to open a bank account or to conduct financial transactions. Bearer shares are permitted in Paraguay, exposing the country to money laundering risk. A significant portion of corporations issue bearer shares and no measures are in place to ensure that such entities are not being misused for money laundering. Shell companies and trust funds structures are legal but seldom used. Paraguay is also an attractive financial center for neighboring countries, particularly Brazil.

Bank records retention: No

There is no legal obligation for financial institutions to maintain records.

Suspicious transaction reporting: Yes

Banks, finance companies, insurance companies, exchange houses, stock exchanges and securities dealers, investment companies, trust companies, mutual and pension fund administrators, credit and consumer cooperatives, gaming entities, real estate brokers, nongovernmental organizations, pawn shops, and dealers in precious stones, metals, art, and antiques are required to file suspicious transaction reports (STRs) with Paraguay’s financial intelligence unit (FIU) within SEPRELAD. There is no reporting threshold. As of September 2009, SEPRELAD processed 585 STRs and sent 7 cases to the Attorney General’s office.

Large currency transaction reporting: No

Narcotics asset seizure and forfeiture: No

Paraguayan law does not provide for the tracing, freezing, and seizure of many criminally derived assets. Enforcement agencies have limited authority to seize or forfeit assets of suspected money launderers. Assets seized or forfeited are limited to transport vehicles, such as planes and cars, and normally do not include bank accounts. Law enforcement authorities cannot dispose of these assets until a defendant is convicted. They can only freeze assets of persons under investigation for a crime in which the state risks loss of revenue from furtherance of a criminal act, such as tax evasion. The law does not permit assets to be maintained or repaired. New asset forfeiture legislation is required to make improvements in this regard.

Narcotics asset sharing authority: No

Cross-border currency transportation requirements:

Cross-border reporting requirements are limited to customs declaration forms issued by airlines at the time of entry into Paraguay. Persons transporting $10,000 into or out of Paraguay are required to file a customs report.

Cooperation with foreign governments: Yes

There are no known impediments to cooperation. The Egmont Group of FIUs notified Paraguay about the need to comply with its international commitments regarding anti-terrorism finance legislation. If Paraguay does not show reasonable progress in enacting anti-terrorism finance legislation, it could face suspension and ultimately expulsion from the Egmont Group.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues:

Prosecutors handling financial crimes have limited resources to investigate and prosecute. In addition, the selection of judges, prosecutors and public defenders is largely based on politics, nepotism, and influence peddling. According to GOP authorities, as of November 2009, the General Attorney’s office has processed 37 money laundering cases, 11 of which resulted in convictions. These cases reinforce the fact that convictions are possible, although difficult, under the current legal framework. The lack of cooperation among Paraguayan law enforcement is also a large impediment to effective enforcement.

Some former government officials have been accused of involvement in the smuggling of contraband or pirated goods. Although there are ongoing criminal investigations, there have been few convictions for smuggling contraband or pirated goods.

The nonbank financial sector operates in a weak regulatory environment with limited supervision. The organization responsible for regulating and supervising credit unions, the National Institute of Cooperatives, lacks the capacity to enforce compliance. Exchange houses are another nonbank sector where enforcement of compliance requirements remains limited. It is estimated that in CDE alone there are more than 100 illegal exchange houses.

There are no effective controls or laws that regulate the amount of currency that can be brought into or out of Paraguay. Customs declaration reports are seldom checked. Customs operations at the airports or land ports of entry provide no control of cross-border cash movements.

In cooperation with the U.S. Department of Homeland Security’s Immigration and Customs Enforcement (ICE), a Trade Transparency Unit (TTU) was established in Paraguay to examine trade discrepancies that could be indicative of customs or tax fraud, trade-based money laundering, or terrorist financing.

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

U.S.-related currency transactions:

Most high-priced goods in Paraguay are paid for in U.S. dollars. In addition to bulk cash smuggling, the non-bank financial sector (particularly exchange houses), is often used to move illicit proceeds both from within and outside Paraguay into the U.S. banking system. Large sums of dollars generated from normal commercial activity and suspected illicit commercial activity are also transported physically from Paraguay through Uruguay and Brazil to banking centers in the United States. The GOP is only beginning to recognize and address the problem of the international transportation of currency and monetary instruments derived from illegal sources.

Records exchange mechanism with U.S.:

Paraguay and the United States are not parties to a bilateral mutual legal assistance treaty that provides for exchange of information. Paraguayan and U.S. law enforcement agencies cooperate on a case-by-case basis. SEPRELAD is able to exchange information with the U.S. Financial Crimes Enforcement Network (FinCEN).

International agreements:

Paraguay is a party to various bilateral and multi-lateral information exchange agreements, including the Inter-American Convention on Mutual Legal Assistance in Criminal Matters. To date the Paraguayan FIU has signed 29 MOUs with other FIUs and is in the process of signing six more.

Paraguay 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

Paraguay is a member of the “3 Plus 1” Security Group with the United States and the Tri-Border Area countries. Paraguay is a member of Financial Action Task Force against Money Laundering in South America (GAFISUD), a Financial Action Task Force-style regional body. Its most recent mutual evaluation can be found here: http://www.fatf-gafi.org/document/35/0,3343,en_32250379_32236869_34355875_1_1_1_1,00.html.

Recommendations:

The Government of Paraguay (GOP) took a number of positive steps in 2009 to combat money laundering, particularly with the passage of the bill to strengthen SEPRELAD. However, it should continue to pursue other initiatives to increase its effectiveness in combating money laundering and terrorist financing. The GOP should enact legislation and issue regulations to enable law enforcement authorities to more effectively investigate and prosecute money laundering and terrorist financing. Paraguay does not have a law criminalizing terrorist financing; and it should take steps as quickly as possible to ensure that comprehensive counter-terrorism and counter-terrorist financing legislation is introduced and adopted. The GOP should ensure adequate licensing/registration and supervision of nonbank financial institutions. Further reforms in the selection and accountability of judges, prosecutors and public defenders are needed, as are reforms in customs to allow for increased inspections and interdictions at ports of entry. Now that the penal code has been amended, it is critical to Paraguay’s future prosecutorial successes that judges and prosecutors enhance their knowledge regarding the successful prosecution and adjudication of money laundering cases. The GOP should develop strategies targeting the physical movement of bulk cash and combating trade-based money laundering. Additionally, Paraguay should reform its asset forfeiture regime, including the management of seized and forfeited assets.

Philippines

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

Offshore Center: Yes

There are seven offshore banking units (OBUs). The Central Bank exercises regulatory supervision over OBUs, and requires them to meet reporting provisions and other banking rules and regulations.

Free Trade Zones: Yes

Criminalizes narcotics money laundering: Yes

Republic Act (RA) 9160 of 2001, as amended by RA 9194 of 2003 (the Anti Money Laundering Act, “AMLA”) criminalizes money laundering.

Criminalizes other money laundering, including terrorism-related: Yes

The AMLA criminalizes money laundering beyond narcotics money laundering. However, many significant crimes (including arms trafficking, racketeering, and sexual exploitation) are not currently classified as predicate crimes and the proceeds of these illegal activities are therefore exempt from the AML law.

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/)

Terrorist financing is not criminalized as a separate offense under Philippine law. While there is no crime of terrorist financing, a person who finances the commission of terrorism may be prosecuted as a terrorist either as a principal by inducement pursuant to Article 17 of the Revised Penal Code or as an accomplice pursuant to Section 5 of the Human Security Act. This flawed approach requires a terrorist act to have occurred and does not encompass general financial support to terrorist entities for other purposes (recruiting, training, social welfare projects, etc.).

Know-your-customer rules: Yes

Section 9(a) of the AMLA requires banks, trusts, insurance companies, securities dealers, foreign exchange dealers, money remitters, and dealers in valuable objects or cash substitutes to establish and record the true identity of clients.

Bank records retention: Yes

Section 9 of the AMLA requires covered institutions to record the identity of all clients and requires covered institutions to maintain records of all transactions for five years from the date of the transaction or the date the account was closed.

Suspicious transaction reporting: Yes

The AMLA, as amended in 2003, requires the filing of suspicious transaction reports (STRs). Through 2008, the financial intelligence unit (FIU) had received more than 15,553 suspicious transactions reports (STRs). The requirement to report transactions linked to terrorism is not comprehensive enough, however.

Large currency transaction reporting: Yes

The threshold for currency transaction reports is 500,000 pesos (approximately $10,600). Through 2008, the FIU had received 135,790,318 CTRs.

Narcotics asset seizure and forfeiture:

Philippine law RA 9165 provides for the seizure and forfeiture of drug related assets. However, the Philippines has no comprehensive legislation pertaining to civil and criminal forfeiture. Various government authorities have the ability to temporarily seize property obtained in connection with criminal activity. Money and property must be included in the indictment, however, to permit forfeiture. Upon conviction or conclusion of the criminal case, funds left over after paying court and administrative costs are given to the Dangerous Drugs Board to further its campaign against illegal drugs.

The FIU has the ability to institute civil actions for forfeiture of monetary instruments or property involved in any unlawful activity defined in the AMLA. No prior criminal charge or conviction is necessary. Through the end of 2008, funds amounting to almost 1.4 billion Philippine pesos (approximately $30 million) were frozen by the FIU, including funds frozen at the request of the UN Security Council, the United States, and other foreign governments. However, 960 million Philippine pesos have been returned to victims and investors in investment scams.

Narcotics asset sharing authority: No

Cross-border currency transportation requirements: Yes

Any amount in excess of the equivalent of $10,000 of cash or negotiable instruments must be declared upon arrival or departure. However, based on the actual amount of foreign currency exchanged and expended, authorities realize there is systematic abuse of the currency declaration requirements and a large amount of unreported cash entering the Philippines.

Cooperation with foreign governments (including refusals):

A Supreme Court of the Philippine’s decision requiring prior notice and hearing into the application for inquiry into bank deposits will have significant adverse consequences for Philippines law enforcement in extending international cooperation to its partners. As it stands, the FIU will have to prematurely divulge to account holders the fact of the investigation and the basis for inspecting the bank records.

There has been at least one recent U.S. Drug Enforcement Agency drug case in which the Philippine government refused extradition and instead has opted to pursue its own investigation/charges against the defendant wanted by the U.S.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

Except in instances of serious offenses such as kidnapping for ransom, drugs and terrorism-related activities, the FIU is required to secure a court order to examine bank deposit accounts related to unlawful activities enumerated in the AMLA. Likewise, the FIU must obtain a court order to freeze assets of terrorists and terrorist organizations placed on the UN 1267 Sanctions Committee’s consolidated list, the list of Specially Designated Global Terrorists Designated by the United Sates pursuant to E.O. 13224 and the lists of other foreign governments. This requirement is inconsistent with the international standard, which calls for the preventative freezing of terrorist assets “without delay” from the time of designation.

The AMLA does not cover casinos, nonprofit organizations or designated nonfinancial businesses and professions, except trust companies.

U.S.-related currency transactions:

The amount of drug trafficking between the U.S. and the Philippines is not of a high volume; therefore, the amount of drug money flowing between the two countries is not believed to be at a high volume level. The Philippines does have a large expatriate community, with resulting remittances from the U.S.

Records exchange mechanism with U.S.:

The Philippines and the United States have been parties to a bilateral mutual legal assistance treaty that provides for exchange of information since 1996. The Philippines FIU and FinCEN signed a memorandum of understanding in December 2005.

International agreements:

The Philippines 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. The FIU has executed 19 MOUs with foreign counterparts.

The Philippines 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 Philippines is a member of the Asia/Pacific Group on Money Laundering (APG), a Financial Action Task Force-style regional body. Its most recent mutual evaluation can be found here: www.apgml.org.

Recommendations:

Since 2005, the Government of the Philippines (GOP) has continued to make progress enhancing and implementing its anti-money laundering regime, however the GOP needs to take immediate steps to comprehensively criminalize terrorist financing. Accountants, casinos, nonprofit organizations and designated nonfinancial businesses and professions should be fully regulated and supervised for anti-money laundering/counter-terrorist financing compliance and required to file CTRs and STRs. The GOP should enact comprehensive legislation regarding freezing and forfeiture of assets that would empower the FIU to issue administrative freezing orders to avoid funds being withdrawn before a court order is issued. In addition, as an investigative measure, law enforcement should be given the authority to have direct access to financial records without the need for a court order.

Russia

Russia is a regional financial center with a relatively small, but growing, number of depositors. Money laundering (ML) and terrorist financing (TF) are prevalent in Russia, where there is a high level of organized crime and corruption. Criminal elements from neighboring countries extensively use Russia’s financial system to launder money. Domestic sources of laundered funds include organized crime, evasion of tax and customs duties, fraud, public corruption, and smuggling operations. Criminals invest and launder their proceeds in real estate and security instruments, or use them to buy luxury consumer goods. Criminal elements from Russia and neighboring countries continue to use Russia’s financial system and foreign legal entities to launder money. Russia has been a repeated victim of terrorism, and some TF schemes involve the misuse of alternative remittance networks by foreign and North Caucasian terrorist groups. Despite making progress in combating financial crimes, Russia remains vulnerable to such activities because of the many large-scale financial transactions associated with its vast natural resources, the heavy direct and indirect roles of the state in the economy, porous borders, Russia’s role as a geographic gateway to Europe and Asia, and under-funding of regulatory and law enforcement agencies, which contributes to both corruption and lack of regulatory and law enforcement capacity.

Offshore Centers: No

Free Trade Zones: Yes

To date, six Special Economic Zones have been established pursuant to legislation passed in 2005: in Zelenograd and Dubna in the Moscow region (focused on micro-electronics and nuclear technology, respectively); St. Petersburg (information technology); Tomsk (new materials); Lipetsk (appliances and electronics); and Yelabuga (auto components and petrochemicals).

Criminalizes narcotics money laundering: Yes

Russia criminalizes money laundering through articles 174 of the Criminal Code (CC) (regarding money laundering), 174.1 CC (self-laundering) and 175 CC (acquisition of property obtained by crime).

Criminalizes other money laundering, including terrorism-related: Yes

Russia takes an “all crimes” approach to money laundering predicate offenses, with the exception of six financial crimes (such as insider trading and stock market manipulation). To partly remedy these exceptions, Law 241-FZ was passed on October 30, 2009, to criminalize insider trading, stock market manipulation, and other similar crimes. There is no criminal liability for corporations; only a natural person is subject to criminal liability.

Criminalizes terrorist financing: Yes

Russia criminalizes terrorist financing in 205.1 CC, which targets any support or contribution to terrorist activity. The terrorist financing offense covers the provision and collection (“raising”) of funds. The low number of investigations and convictions under the terrorist financing provisions in proportion to the prevalence of terrorism in Russia suggests that these provisions are not being used effectively.

Know-your-customer rules: Yes

Developing customer due diligence practices among financial institutions makes up a large portion of Russia’s anti-money laundering (AML) improvement efforts. Due diligence is supported by both a legal framework and guidelines issued by the Central Bank of Russia (CBR), and is stringently enforced. Federal Law No. 115-FZ prohibits credit institutions from opening, and thus maintaining, new accounts (deposits) registered in the name of anonymous holders, i.e., without the requisite identification documents. The CBR requires financial institutions to update customer information every one to three years, depending on the perceived risk of money laundering. According to Law 121-FZ, effective December 7, 2009, transactions over RUR 15,000 (approximately $500) cannot be conducted without proof of identification.

Russia has established unified anti-money laundering/counter-terrorist financing (AML/CFT) requirements for financial institutions and the majority of designated non-financial businesses and professions (DNFBPs), such as casinos and gambling outlets, jewelers’ businesses, real estate agents, and pawnshops. A draft law currently being considered by the State Duma contains legislative amendments to fully extend the customer identification, record keeping and reporting requirements to lawyers, notaries and auditors.

Russia improved its legislation regarding politically exposed persons (PEPs) in Law 121-FZ, dated June 3, 2009, by allowing financial institutions to identify foreign PEPs, requiring written permission to perform services for foreign PEPs, and permitting financial institutions to determine the sources of monetary funds or other property owned by foreign PEPs. Law 273-FZ and RF Presidential Decree No. 557 established a means for monitoring the incomes of Russian PEPs.

Bank records retention: Yes

In accordance with Law 262-P, banks must obtain information regarding individuals, legal entities and the beneficial owners of corporate entities and retain it for a minimum of five years from the date of the termination of the business relationship.

Suspicious transaction reporting: Yes

Law 115-FZ (AML/CFT Law) requires the reporting of suspicious transactions. Article 7 of the AML/CFT Law includes a requirement to file suspicious transaction reports (STRs) in the case of suspected terrorist financing. Any transaction involving an entity or person included on the Russian government’s list of those involved in extremist activities or terrorism must be reported as a suspicious transaction. Institutions legally required to report suspicious or large transactions include banks, credit organizations, securities market professionals, insurance and leasing companies, the federal postal service, jewelry and precious metals merchants, betting shops, companies managing investment and nongovernmental pension funds, real estate agents, lawyers and notaries, and persons rendering legal or accounting services that involve certain transactions. Between January 1 and October 1, 2009, 2,706,610 STRs were received by the FIU.

Large currency transaction reporting: Yes

Financial institutions are required under the AML/CFT Law to file large currency transaction reports (CTRs). A CTR is filed if a transaction equals or exceeds RUR 600,000 (approximately $20,000). Real estate transactions that are valued at RUR 3,000,000 (approximately $100,000) or more must be reported.

Narcotics asset seizure and forfeiture: Yes

Russian legislation provides for the tracking, seizure and forfeiture of all criminal proceeds. Russia uses two instruments for confiscations: the Code of Criminal Procedure (CCP) Article 81, 104.1 CC, and 104.2 CC. Both articles 81 CCP and 104.1 CC provide for the confiscation of instruments, equipment or other means of committing an offense or intended to be used to commit a crime. The Russian confiscation regime does not make any distinction between money, valuables or any other property. Investigators and prosecutors can apply to the court to freeze or seize property obtained as the result of crime, although there are some exceptions in the law restricting seizure of property identified as a primary residence.

Russia has established a system for freezing terrorist assets to comply with UNSCRs 1267 and 1373, as well as subsequent resolutions. Russia maintains both domestic and international terrorist lists. During the first nine months of 2009, there were 253 cases involving the freezing or seizure of property in Russia. Approximately RUR 282,780,000 (approximately $9,340,000) worth of assets was frozen or seized, and RUR 59,692,000 (approximately $1,970,000) was confiscated.

Narcotics asset sharing authority: Yes

Russia has a number of bilateral and multilateral arrangements with foreign counterparts regarding matters of seizure and confiscation and is able to share assets with foreign countries. Russia can recognize and enforce foreign non-criminal confiscation orders.

Cross-border currency transportation requirements: Yes

Russia has implemented a declaration system, which is not fully identical for incoming and outgoing passengers. According to the Currency Control and Regulation Law, all incoming persons are obliged to declare any foreign or Russian currency, as well as travelers’ checks and securities, if the amount exceeds the equivalent of $10,000. According to the same law, the term securities includes domestic security documents related to the securities market and “other securities” which covers all other bearer negotiable instruments. Outgoing travelers must declare cash between $3,000 and $10,000. The export of amounts exceeding $10,000 in foreign and domestic currency is prohibited, unless otherwise licensed on the incoming declaration form. In March 2009, the Federal Customs Service proposed changes designed to improve the system of controlling the flow of cash and bearer negotiable instruments across the Russian border.

Cooperation with foreign governments (including refusals):

The general provision on (international) information exchange is set out in article 10 of the AML/CFT Law. Even though all agencies concerned can act internationally on their own initiative, most of the international cooperation takes place through the financial intelligence unit (FIU). As Chair of the Eurasian group on combating money laundering and financing of terrorism (EAG), Russia’s FIU continues to play a strong leadership role in the region and provides technical assistance, including staff training for FIUs and other interested ministries and agencies involved in AML/CFT efforts in the region

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

Although both domestic and foreign PEPs are subject to enhanced due diligence, Russian PEPs are not monitored as closely as foreign PEPs. There is no specific provision that prohibits financial institutions from maintaining existing accounts under fictitious names, although, in practice, the Central Bank believes it is unlikely that accounts under fictitious names could operate in the system.

Russia has been criticized for being vulnerable to criminal ownership of financial institutions, and some banks are in fact still believed to be owned and controlled by (suspected) criminals and their front men. To date, the authorities appear to lack the necessary supervisory instruments/legal authorities to prevent criminals from controlling financial institutions, although a draft action plan for the banking sector, and draft legislation, contains provisions to address this problem.

Between January 1 and October 1, 2009, 2462 individuals were charged with money laundering. As of December 1, 2009, the Central Bank had revoked the licenses of nine banks for failure to comply with AML regulations. Additionally, in the first nine months of 2009, the licenses of 14 securities, investment, and pension funds were annulled.

U.S.-related currency transactions:

The U.S. dollar is not Russia’s basic reserve currency anymore. The euro-based share of reserve assets of Russia’s Central Bank increased to the level of 47.5 percent as of January 1, 2009 and exceeded the investments in dollar assets, which made up 41.5 percent. In accordance with the annual report the Russian Central Bank provides to the State Duma, the dollar has lost the status of the basic reserve currency. According to the U.S. Department of the Treasury, Russia became one of the largest creditors of the U.S. administration last year. Russia increased its investments in the debt securities of the U.S. Treasury from $32.7 billion as of December 2007 to $116.4 billion as of December 2008.

Records exchange mechanism with U.S.:

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

During the 2009 Summit in Moscow, Presidents Obama and Medvedev approved the development of a U.S. – Russia bi-lateral initiative aimed to significantly increase the use of financial intelligence and law enforcement tools to stop the illicit financial flows related to drug trafficking in Afghanistan. The initiative will include an operational component to target the trafficking and the illicit networks that support it.

International agreements:

The FIU has 39 memoranda of understanding (MOUs) with other FIUs, including the United States.

Russia 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

Russia is a member of the Financial Action Task Force (FATF) and the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a FATF-style regional body. It also hosts and funds the Secretariat of the Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG), a FATF-style regional body, and through this effort has contributed to improving the region’s capacity for countering money laundering and terrorist financing. Its most recent mutual evaluation report can be found at: http://www.fatf-gafi.org/document/32/0,3343,en_32250379_32236982_35128416_1_1_1_1,00.html.

Recommendations:

Through aggressive enactment and implementation of comprehensive AML/CFT legislation, the Government of Russia (GOR) has established much of the legal and enforcement framework to deal with money laundering and terrorist financing. The GOR should enact the draft law amendments to fully extend the customer identification, record keeping and reporting requirements to lawyers, notaries and auditors, and to provide the legal and supervisory authorities to prevent criminals from controlling financial institutions. Although Russia continues to establish and develop anti-corruption measures, corruption continues to be a problem. The GOR should continue to aggressively pursue corruption; similarly, it should continue to pursue increased transparency in the financial sector. The GOR should ensure that domestic PEPs are monitored on a par with foreign PEPs and prohibit the establishment of accounts in fictitious names. Russia has successfully spread awareness of AML/CFT efforts and has weeded out noncompliant financial institutions; however, significant discrepancies still remain between standards of international and local banks. Further efforts could be made to bring AML efforts of all Russian banks to a more sophisticated level. Finally, Russia should continue to play a leadership role through sustained involvement in the regional and international bodies focusing on AML/CFT regime implementation.

Singapore

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

Offshore Center: Yes

Singapore has a sizeable offshore financial sector. As of December 2009, there were 42 offshore banks in operation, all offshore foreign-owned. Singapore does not permit shell banks. Singapore has increasingly become a center for offshore private banking and asset management. However, due to the global financial crisis, total assets under management in Singapore declined 26 percent in 2008 to $864 billion.

Free Trade Zones: Yes

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

Criminalizes narcotics money laundering: Yes

Singapore’s Corruption, Drug Trafficking, and Other Serious Crimes (Confiscation of Benefits) Act (CDSA) has undergone many revisions, with the latest occurring in February 2008. The key amendments add several new categories to its “Schedule of Serious Offenses.” The CDSA criminalizes the laundering of proceeds from narcotics transactions and other predicate offenses.

Criminalizes other money laundering, including terrorism-related: Yes

Included in the CDSA are crimes associated with terrorist financing, illicit arms trafficking, counterfeiting and piracy of products, environmental crime, computer crime, insider trading, rigging commodities and securities markets, transnational organized crime, maritime offenses, pyramid selling, importation and exportation of radioactive materials/irradiating apparatus, customs offenses, and falsification or use of false Singapore passports.

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 Terrorism (Suppression of Financing) Act that took effect in 2003 criminalizes terrorist financing. In addition to making it a criminal offense to deal with terrorist property (including financial assets), the Act criminalizes the provision or collection of any property (including financial assets) with the reasonable belief that the property will be used to commit any terrorist act or for various terrorist purposes. The Act also provides that any person in Singapore, and every citizen of Singapore outside the country, who has information about any transaction or proposed transaction in respect of terrorist property, or who has information that he/she believes might be of material assistance in preventing a terrorist financing offense, must immediately inform the police. The Act gives the authorities the power to freeze and seize terrorist assets.

Know-your-customer rules: Yes

The Monetary Authority of Singapore (MAS) has issued a series of regulatory guidelines (“Notices”) requiring banks to apply know-your-customer standards. Banks must obtain documentation such as passports or identity cards from all individual customers to verify names, permanent contact addresses, dates of births and nationalities. Banks must also check the bona fides of company customers. The regulations specifically require financial institutions to obtain evidence of the identity of the beneficial owners of offshore companies or trusts. Similar guidelines and notices exist for finance companies, merchant banks, life insurers, brokers, securities dealers, investment advisors, futures brokers and advisors, trust companies, approved trustees, and money changers and remitters. In May 2009, MAS issued a public consultation paper proposing amendments to clarify the current AML/CFT requirements on Simplified Customer Due Diligence and Performance of Customer Due Diligence Measures by Intermediaries.

Bank records retention: Yes

Sections 36 and 37 of the CDSA requires financial institutions to maintain all “financial transaction documents” for at least five years after the date on which the transaction takes place or the account is closed.

Suspicious transaction reporting: Yes

The CDSA also mandates specific reporting requirements and outlines examples of suspicious transactions that should prompt reporting. Section 39 of the CDSA requires any person who, in the course of his/her professional or business duties, knows or has reasonable grounds to suspect that any property may represent the proceeds of drug trafficking or criminal conduct to report to the Suspicious Transaction Reporting Office (STRO), Singapore’s financial intelligence unit (FIU).

Large cash transaction reporting: No

Narcotics asset seizure and forfeiture: Yes

Singapore law provides for the tracing, freezing, and seizure of assets.

Narcotics asset sharing authority:

As ancillary to a foreign criminal prosecution, Singapore may provide assistance to foreign governments in the enforcement of a foreign confiscation or restraint order if the property is reasonably believed to be located in Singapore.

Cross-border currency transportation requirements: Yes

Singapore requires in-bound and out-bound travelers to report cash and bearer-negotiable instruments in excess of Singapore $30,000 (approximately $21,400).

Cooperation with foreign governments: Yes

Singapore’s rigid bank secrecy is sometimes an impediment to effective international cooperation in financial crimes enforcement.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

According to Singapore authorities, domestic corruption is minimal. Singapore has consistently ranked in the top five nations in Transparency International’s Corruption Perception Index (CPI). In 2009, Singapore was rated third out of 180 countries in the CPI.

In 2008, there were a total of 23 prosecutions and 24 convictions for money laundering offenses.

U.S. related currency transactions:

No information available.

Records exchange mechanism with U.S.:

In November 2000, Singapore and the United States signed the Agreement Concerning the Investigation of Drug Trafficking Offenses and Seizure and Forfeiture of Proceeds and Instrumentalities of Drug Trafficking (Drug Designation Agreement or DDA). The DDA is a limited bilateral mutual legal assistance treaty (MLAT) between Singapore and the United States. The DDA facilitates the exchange of banking and corporate information on drug money laundering suspects and targets, including access to bank records. It also entails reciprocal honoring of seizure/forfeiture warrants. This agreement applies only to narcotics cases, and does not cover non-narcotics related money laundering, terrorist financing, or financial fraud.

 

The Financial Crimes Enforcement Network (FinCEN) entered into a memorandum of understanding with the STRO on September 2, 2004.

International agreements:

For a number of years, Singapore’s only mutual legal assistance agreements with other countries covered drug offenses. In April 2006, the Mutual Assistance in Criminal Matters Act was amended to provide a bilateral case-by-case initiative that would be available to all countries in all instances in which Singapore and the foreign government would agree to provide the same type of assistance in a similar reciprocal request. The STRO has signed MOUs with 13 counterparts.

Singapore 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

Singapore is a member of the Financial Action Task Force (FATF) and the Asia/Pacific Group on Money Laundering, a FATF-style regional body. Its most recent mutual evaluation can be found here: http://www.fatf-gafi.org/dataoecd/36/42/40453164.pdf.

Recommendations:

The Government of Singapore (GOS) should continue close monitoring of its domestic and offshore financial sectors. The government should add tax and fiscal offenses to its schedule of serious offenses. The GOS should continually work to strengthen its AML/CFT enforcement abilities. Singapore police are fairly successful at identifying domestic predicate offenses; however, given the potential attractiveness of Singapore as a large, stable and sophisticated financial center through which to launder money, the STRO and criminal investigators are encouraged to more strongly focus on the identification of money laundering that originates from foreign sources and offenses. The conclusion of broad mutual legal assistance agreements is also important to further Singapore’s ability to work internationally to counter money laundering and terrorist financing. Singapore should lift its rigid bank secrecy restrictions to enhance its law enforcement cooperation in areas such as information sharing and to conform to international standards and best practices. Singapore should also strictly enforce border controls and give greater attention to trade-based money laundering.

Spain

Spain is a major European center of money laundering activities as well as a major gateway for illicit narcotics. Drug proceeds from other regions enter Spain as well, particularly proceeds from Afghan hashish entering from Morocco, cocaine entering from Latin America, and heroin entering from Turkey and the Netherlands. Tax evasion in internal markets and the smuggling of goods along the coastline also continue to be sources of illicit funds in Spain. The smuggling of electronics and tobacco from Gibraltar remains an ongoing problem. Passengers traveling from Spain to Latin America reportedly smuggle sizeable sums of bulk cash. Colombian cartels reportedly use proceeds from drug sales in Spain to purchase goods in Asia. They subsequently sell these goods legally in Colombia or at stores run by drug cartels in Europe. Credit card balances are paid in Spanish banks for charges made in Latin America, and money deposited in Spanish banks is withdrawn in Colombia through ATM networks.

An unknown percentage of drug trafficking proceeds are invested in Spanish real estate, particularly in the once-booming coastal areas in the south and east of the country. Up to twenty percent of the 500 euro notes in use in Europe were reported to be in circulation in Spain during 2009, directly linked to the purchase of real estate to launder money. Efforts by Spain’s tax authority to deter fraudulent activity involving these large bank notes have kept the number of 500 euro notes at October 2008 levels (around 110 million notes).

Offshore Center: No

Free Trade Zones: No

Criminalizes narcotics money laundering: Yes

Money laundering is criminalized by Article 301 of the Penal Code, added in 1988 when laundering the proceeds from narcotics trafficking was made a criminal offense.

Criminalizes other money laundering, including terrorism-related: Yes

The law was expanded in 1995 to cover all serious crimes that require a prison sentence greater than three years. Amendments to the code, which took effect in 2004, make all forms of money laundering financial crimes. Any property, of any value, can form the basis for a money laundering offense, and a conviction or a prosecution for a predicate offense is not necessary to prosecute or obtain a conviction for money laundering. Spanish authorities can also prosecute money laundering based on a predicate offense in another country, if the predicate offense would be a crime in Spain.

 

In October 2009, the European Commission filed a complaint against Spain in the European Court of Justice for inadequate implementation of EU norms against money laundering. In December, the Council of Ministers submitted to Congress a draft of a new anti-money laundering/counter-terrorist financing (AML/CFT) law. The legislation aims to codify existing AML/CFT laws and will supersede Law 12/2003 on the Prevention and Blocking of the Financing of Terrorism, which was never fully implemented.

Criminalizes terrorist financing: Yes

See above. In addition, crimes of terrorism are defined in Article 571 of the Penal Code, and penalties are set forth in Articles 572 and 574. Terrorist financing issues are governed by a separate code of law.

Know-your-customer rules: Yes

Money laundering controls apply to most entities active in the financial system, including banks, mutual savings associations, credit companies, insurance companies, financial advisers, brokerage and securities firms, pension fund managers, collective investment schemes, postal services, currency exchange outlets, and individuals and unofficial financial institutions exchanging or transmitting money. Most categories of designated nonfinancial businesses and professions (DNFBPs) are subject to the same core obligations as the financial sector. The list of DNFBPs includes realty agents; dealers in precious metals, stones, antiques and art; legal advisors and lawyers; accountants; auditors; notaries; and casinos.

Bank records retention: Yes

Spanish financial institutions are required by law to maintain fiscal information for five years and mercantile records for six years.

Suspicious transaction reporting: Yes

The financial sector is required to report suspicious transactions. Reporting entities are required to report each suspicious transaction to the financial intelligence unit (FIU). In 2008, the FIU received 2,904 suspicious transaction reports (STRs). Of those received, 328 were submitted by non-bank financial entities.

Large currency transaction reporting: Yes

Law 19/2003 obliges financial institutions to make monthly reports on large transactions. Banks are required to report all international transfers greater than 50,000 Euros (approximately $71,300). The law also requires the declaration and reporting of internal transfers of funds greater than 100,000 Euros (approximately $143,000). Foreign exchange and money remittance entities must report transactions above 5,000 Euros (approximately $7,100).

Narcotics asset seizure and forfeiture:

Article 127 of the Penal Code allows for broad confiscation authority by applying it to all crimes or summary offenses under the Code. Instrumentalities used to commit the offense and the profits derived from the offense can all be confiscated. Article 127 also provides for the confiscation of property intended for use in the commission of any crime or offense. It also applies to property that is derived directly or indirectly from proceeds of crime, regardless of whether the property is held or owned by a criminal defendant or by a third party. Article 374 of the Penal Code calls for the confiscation of goods acquired through drug trafficking-related crimes and of any profit obtained. This allows for the confiscation of instrumentalities used for illegal drug dealing, as well as the goods or proceeds obtained from the illicit traffic.

Narcotics asset sharing authority: Yes

The Fund of Seized Goods of Narcotics Traffickers, established under the National Drug Plan, receives seized assets. The division of assets from seizures involving more than one country depends on the relationship with the country in question. European Union (EU) working groups determine how to divide the proceeds for member countries. Outside of the EU, bilateral commissions are formed with countries that are members of the Financial Action Task Force (FATF), FATF-style regional bodies (FSRBs), and the Egmont Group, to coordinate the division of seized assets. With other countries, negotiations are conducted on an ad hoc basis.

Cross-border currency transportation requirements: Yes

Individuals traveling internationally are required to report the importation or exportation of currency greater than 10,000 Euros (approximately $14,300). Confiscation provisions apply to persons smuggling cash or monetary instruments that are related to money laundering or terrorist financing. Gold, precious metals, and precious stones are considered to be merchandise and are subject to customs legislation. Failing to file a declaration for such goods may constitute a case of smuggling and would fall under the responsibility of the customs authorities.

Cooperation with foreign governments: Yes

Spain regularly cooperates with other countries investigating money laundering, terrorist financing, and other financial crimes.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

Although Spanish authorities have taken steps to neutralize them since 1998, ensuring that mere possession cannot serve as proof of ownership, bearer shares still exist, and the requirements to determine the beneficial owner are inadequate.

Spain has long been dedicated to fighting terrorist organizations, including ETA, GRAPO, and more recently, al-Qaida. Spanish law enforcement entities have identified several methods of terrorist financing: donations to finance nonprofit organizations (including ETA and Islamic groups); establishment of publishing companies that print and distribute books or periodicals for the purposes of propaganda, which then serve as a means for depositing funds obtained through kidnapping or extortion; fraudulent tax and financial assistance collections; the establishment of “cultural associations” used to facilitate the opening of accounts and provide a cover for terrorist financing activity; and alternative remittance system transfers.

Spanish authorities recognize the presence of alternative remittance systems. Informal non-bank outlets such as “locutorios” (communication centers that often offer wire transfer services) are used to move money in and out of Spain by making small international transfers for members of the immigrant community. Spanish regulators also note the presence of hawala networks in the Islamic community.

Spain regularly circulates to its financial institutions the list of individuals and entities that have been included on the UNSCR 1267 Sanctions Committee consolidated list. No assets associated with entities listed by the UNSCR 1267 Sanctions Committee were reported to be in Spain in 2009.

A small percentage of the money laundered in Spain is believed to be used for terrorist financing. It is primarily money from the extortion of businesses in the Basque region that is moved through the financial system and used to finance the Basque terrorist group ETA. Throughout 2009, Spanish authorities conducted numerous AML/CFT operations that resulted in arrests and seizures. In July, the Civil Guard arrested 13 members of a trafficking network operating out of the Barcelona airport, including seven airport employees. Police seized cocaine, 12,000 Euros in cash (approximately $18,000) and 85,000 Euros in jewels (approximately $130,000). In September, police raided an area in Mallorca and seized unspecified amounts of drugs, along with 4.3 million Euros (approximately $6,400,000), 8,000 U.S. dollars, and 7.5 kilos of jewelry. In October, five high-ranking ex-officials from the Catalan regional government were arrested for their involvement in a corruption and money laundering case.

U.S.-related currency transactions:

There are no known currency transactions of significance involving large amounts of U.S. currency and/or direct narcotics proceeds from U.S. sales.

Records exchange mechanism with U.S.:

Spain’s mutual legal assistance treaty with the United States has been in effect since 1993. Spain has a robust information exchange with a variety of U.S. law enforcement agencies.

International agreements:

The Government of Spain has signed criminal mutual legal assistance agreements with a number of countries and has also entered into bilateral agreements for cooperation and information exchange on money laundering issues with 14 countries, as well as with the United States. The FIU has bilateral agreements for cooperation and information exchange on money laundering issues with more than 25 FIUs.

Spain 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

Spain is a member of the FATF and is an observer to the South American Financial Action Task Force and a cooperating and supporting nation to the Caribbean Financial Action Task Force, both FATF-style regional bodies. Its most recent mutual evaluation can be found here: http://www.fatf-gafi.org/dataoecd/52/3/37172019.pdf.

Recommendations:

The scale of money laundering and the sophisticated methods used by criminals represent a major threat to Spain. The Government of Spain (GOS) should review the resources available for industry supervision, and ensure that its FIU has the independence and resources it needs to effectively discharge the duties entrusted to it. The GOS should work to close the loopholes in the areas of customer due diligence, beneficial ownership of legal persons, and the continued use of bearer shares. Congressional approval and implementation of Spain’s new AML/CFT legislation will greatly enhance the authorities’ capacity to combat terrorist financing. The GOS should clarify whether its laws allow civil asset forfeiture. Spain should maintain and disseminate statistics on investigations, prosecutions and convictions, including the amounts and values of assets frozen or confiscated. Spain should continue its efforts to actively participate in international fora and to assist jurisdictions with nascent or developing AML/CFT regimes.

Switzerland

Switzerland is a major international financial center. Reporting indicates that criminals attempt to launder illegal proceeds in Switzerland from a wide range of criminal activities conducted worldwide. These illegal activities include, but are not limited to, financial crimes, narcotics trafficking, arms trafficking, organized crime, terrorist financing and corruption. Although both Swiss and foreign individuals or entities launder money in Switzerland, foreign narcotics trafficking organizations, often based in the Balkans, Eastern Europe, or South America, dominate the narcotics-related money laundering operations in Switzerland. The country’s central geographic location, relative political, social, and monetary stability, the range and sophistication of financial services it provides, and its long tradition of bank secrecy not only contribute to Switzerland’s success as a major international financial center, but also expose Switzerland to potential money laundering abuse.

Offshore Center: Yes

Switzerland is one of the world’s largest offshore centers, with estimates that the country manages as much as one-third of an estimated $7 trillion of offshore money worldwide. While Switzerland’s banking industry offers the same account services for both residents and nonresidents, many Swiss banks offer additional offshore services, including permitting non-residents to form offshore companies to conduct business. However, Swiss commercial law does not recognize any offshore mechanism per se and its provisions apply equally to residents and nonresidents. In April 2009, the Organization for Economic Co-operation and Development (OECD) placed Switzerland on it grey list of tax havens. The country was subsequently removed from the list in September 2009 after having renegotiated a series of Double Tax Agreements (DTAs). The agreements include provisions for extended administrative assistance in tax matters.

Free Trade Zones: Yes

Switzerland has approximately 17 duty free zones located mainly in border cantons like Geneva and Basel. Customs authorities supervise the admission into and the removal of goods from customs warehouses. Warehoused goods may only undergo manipulations necessary for their maintenance, such as repacking, splitting, sorting, mixing, sampling and removal of the external packaging; any further manipulation is subject to authorization. Goods may not be manufactured in these zones. Swiss law has full force in the duty free zones, and export laws on strategic goods, war material, and medicinal products, as well as laws relating to anti-money laundering prohibitions, all apply.

Criminalizes narcotics money laundering: Yes

Money laundering related to all crimes (including narcotics trafficking) is criminalized in Article 305 bis of the Swiss Penal Code, which provides that anyone who commits an act intended to obstruct the identification of the origin, discovery or confiscation of property that he knew or should have presumed was derived from a crime, shall be liable to imprisonment or a fine.

Criminalizes other money laundering, including terrorism-related: Yes

Article 305 bis of the PC and The Federal Act on Combating Money Laundering and Terrorist Financing in the Financial Sector of October 1997 (AML/CFT Act) form the legal basis of Switzerland’s anti-money laundering (AML) regime. Switzerland revised its AML regulations effective February 1, 2009. The regulations, aimed at the banking and securities industries, codify a risk-based approach to suspicious transactions and client identification and install a global know-your-customer risk management program for all banks, including those with branches and subsidiaries abroad. Under the revised AMLA, Swiss law recognizes certain criminal offenses as predicate offenses for money laundering, including illegal trafficking in migrants, counterfeiting and pirating of products, smuggling, insider trading, and market manipulation.

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-related money laundering is criminalized in the AML/CFT Act. Revisions to the Swiss Penal Code regarding terrorist financing entered into force on October 1, 2003. Article 100 of the Penal Code extends criminal liability for terrorist financing to include companies. However, the Swiss Penal Code currently criminalizes the financing of an act of criminal violence, not the financing of an individual, independent of a particular act.

Swiss authorities regularly request that banks and nonbank financial intermediaries check their records and accounts against the U.S. and UN lists and those generated by the Swiss Economic and Finance Ministries.

Know-your-customer rules: Yes

Swiss money laundering laws and regulations apply to both banks and nonbank financial institutions. The Swiss Bankers Association Due Diligence Agreement was drafted by the Swiss banking industry. The guidelines were most recently revised on January 17, 2003. The regulations contain obligations to keep records of all clients’ dates of birth and nationality. Customers have to prove their identity with an official document, even if they are known by a bank employee. In the case of accounts held for legal entities, the individual opening the account has to reveal his identity, while clients opening Internet banking accounts have to provide a copy of their passport or identity card. Financial intermediaries must conduct additional due diligence in the case of higher-risk business relationships. The regulations require increased due diligence for politically exposed persons (PEPs), ensuring that decisions to commence relationships with such persons be undertaken by at least one member of the senior executive body of a financial institution.

Bank records retention: Yes

The AML/CFT Act requires financial intermediaries to keep records of transactions for a minimum of ten years after the termination of the business relationship, or after completion of the transaction.

Suspicious transaction reporting: Yes

Switzerland’s AMLA requires financial institutions to report suspicious transactions to Switzerland’s financial intelligence unit (FIU), the Money Laundering Reporting Office (MROS). In addition to financial institutions, designated nonfinancial businesses and professions (DNFBPs) such as attorneys, commodities and precious metals traders, asset managers and investment advisers, distributors of investment funds, securities traders, and credit card companies are also required to report. There is no currency reporting threshold for suspicious transaction report (STR) filing. MROS received 851 STRs in 2008, and forwarded 81 percent of these to Swiss law enforcement. As was the case in the previous years, “fraud” was by far the most frequently suspected predicate offense (38.5 percent). An amendment to Article 9-1 of the AMLA provided for reporting of suspected terrorist financing.

Large currency transaction reporting: No

Narcotics asset seizure and forfeiture: Yes

Switzerland has implemented legislation for identifying, tracing, freezing, seizing, and forfeiting assets. If financial institutions believe that assets derive from criminal activity, they must freeze the assets immediately until a prosecutor decides on further action. Under Swiss law, suspect assets may be frozen for up to five days while a prosecutor investigates the suspicious activity.

Narcotics asset sharing authority: Yes

Switzerland has shared large amounts of seized narcotics assets with the United States and other countries. In addition, Switzerland has returned a total of $1.6 billion in illegal PEP assets to home countries. Most prominently, Switzerland returned $684 million in assets deposited by Ferdinand Marcos to the Philippines and $700 million in assets deposited by Sani Abacha to Nigeria. Historically, Switzerland has required court rulings in both Switzerland and the PEP’s home country before returning the assets.

Cross-border currency transportation requirements: No

Cooperation with foreign governments: Yes

Swiss authorities cooperate with counterpart bodies from other countries and no legal issues hamper the government's ability to assist foreign governments in mutual legal assistance requests

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

Because there are no laws for declaration of currency and monetary instruments, Swiss authorities cannot effectively initiate bulk cash investigations.

Switzerland ranks third in the highly profitable global artwork trading market, exporting $1.5 billion of artwork in 2008. Because of the size of the Swiss art market, organized crime groups have attempted in the past to transfer stolen art or to use art to launder criminal funds via Switzerland. The United States is by far Switzerland’s most important trading partner in this area, having purchased $476 million worth of works of art in 2008. This sum represents 29% percent of total Swiss artwork exports.

The Swiss Attorney General froze 21 accounts representing about SFr. 21 million (approximately $20.5 million) on the grounds that they were related to terrorism financing. As of November 2009, the State Secretariat for Economic Affairs (SECO) advised that 25 bank accounts totaling Sfr. 17 million (approximately $16.3 million) relating to al-Qaida and the Taliban remained frozen.

U.S.-related currency transactions:

No information available.

Records exchange mechanism with U.S.:

Switzerland has a mutual legal assistance treaty (MLAT) in place with the United States, and Swiss law allows authorities to furnish information to U.S. regulatory agencies, provided it is kept confidential and used for law enforcement purposes. Switzerland has worked closely with the U.S. on numerous money laundering cases and cooperates with U.S. on efforts to trace and seize assets. Swiss legislation permits “spontaneous transmittal,” a process allowing the Swiss investigating magistrate to signal to foreign law enforcement authorities the existence of evidence regarding suspicious bank accounts in Switzerland. However, Swiss privacy laws make it extremely difficult for bank officials and Swiss police to divulge financial crime information to U.S. authorities absent a MLAT request or Letters Rogatory. The Swiss FIU exchanges information regularly with the FIU of the United States without a memorandum of understanding in place.

International agreements:

Switzerland 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.

Switzerland 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

Switzerland is a member of the Financial Action Task Force. Its most recent mutual evaluation can be found here: http://www.fatf-gafi.org/dataoecd/29/11/35670903.pdf.

Recommendations:

The Government of Switzerland (GOS) has been trying to change the country’s image as a haven for illicit banking services for many years. The Swiss believe their system of self-regulation, which incorporates a “culture of cooperation” between regulators and banks, equals or exceeds that of other countries. The GOS should address deficiencies with regard to correspondent banking regulations and beneficial owner identification requirements. Switzerland should enact and implement cross-border currency reporting requirements and consider the implementation of a reporting system for large currency transactions. The GOS should outlaw bearer shares completely, and implement effective AML legislation and rules that monitor and regulate money service businesses and the DNFBP sectors, including ensuring that the competent authorities have the resources to conduct outreach and complete their regulatory missions.

Taiwan

Taiwan’s modern financial sector and its role as a hub for international trade make it susceptible to money laundering. Taiwan’s location astride international shipping lanes makes it vulnerable to transnational crimes, such as narcotics trafficking, trade fraud, and smuggling. There has traditionally been a significant volume of informal financial activity through unregulated non-bank channels, but in recent years Taiwan has taken steps to shift much of this activity into official, regulated financial channels. Most illegal or unregulated financial activities are related to tax evasion, corruption, racketeering, fraud, or intellectual property violations. An emerging trend in money laundering is underground alternative remittance systems operated by jewelry stores which usually use couriers to move gold and currency cross-border.

Offshore Center: Yes

Legislation ratified in 2006 allows the expansion of offshore banking unit (OBU) operations to the same scope as Domestic Business Units (DBU). This was done to assist China-based Taiwan businesspeople in financing their business operations. DBUs engaging in cross-strait financial business must follow the regulations of the “Act Governing Relations between Peoples of the Taiwan Area and the Mainland Area” and “Regulations Governing Approval of Banks to Engage in Financial Activities between the Taiwan Area and the Mainland Area.” According to the Central Bank, as of September 2009, Taiwan hosted 63 offshore banking units. Offshore banks, international businesses, and shell companies must comply with the disclosure regulations from the Central Bank, the Banking Bureau of the Financial Supervisory Commission, and the Anti-Money Laundering Division (AMLD). Supervisory agencies conduct background checks on applicants for banking and business licenses. Offshore casinos and Internet gambling sites are illegal.

Free Trade Zones: Yes

Taiwan has five Free Trade Zones (FTZ)--in Keelung and the areas of Taipei, Taichung, Kaohsiung, and Taoyuan. Each zone is associated with a particular function/industry, categorized as international logistics, high value-added industries, warehousing, transshipment, processing of cargo, and/or mature industrial clusters. The values of shipments through these FTZs in the first nine months of 2009 was NT$145.5 billion (approximately $4.5 billion), up from NT$86.6 billion (approximately $2.57 billion) for the same period in 2008. In 2009, an amendment to Article 3 of Taiwan’s Act for the Establishment and Management of Free Trade Zones was passed, providing for the establishment of a Free Trade Zone Coordination Committee. The Committee will be the designated authority charged with reviewing and examining the development policy of the FTZ, the demarcation and designation of FTZs, and inter-FTZ coordination.

Criminalizes narcotics money laundering: Yes

The offense of money laundering is criminalized under the Money Laundering Control Act 1996 (the MLCA), most recently amended in 2009. Provisions found within the Organized Crime Prevention Act, the Narcotics Hazards Control Act, and Article 38 of the Criminal Code further support the criminalization and subsequent prosecution of drug related money laundering offenses.

Criminalizes other money laundering, including terrorism-related: Yes

The predicate offenses for money laundering are defined in Article 3 of the MLCA and combine both a threshold and list approach, including “serious crimes” which have a minimum punishment of imprisonment of five years or more. July 2007 amendments to the MLCA expand its coverage to include a new agricultural bank, trust companies, and newly licensed currency exchanges as well as hotels, jewelry stores, postal offices, temples, and bus/railway stations, essentially all entities that may be involved in currency exchange.

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 was established as a separate criminal offense in May 2009 with revisions to Article 11 of the amended MLCA. The amended law subjects individuals to criminal liability when they collect funds or use them for themselves or others to commit one or more of 26 designated crimes aimed to blackmail people, coerce the government, or coerce an international organization. Additionally, Article 3 establishes terrorist financing as a predicate to money laundering and enables the government to exercise broader power in punishing nationals who commit terrorist offenses outside of their jurisdiction.

Know-your-customer rules: Yes

The “Regulations Governing Bank Handling of Accounts with Suspicious or Unusual Transactions” requires banks to establish clear know-your-customer (KYC) policies and procedures that include standards for monitoring of deposit accounts and transactions. The directions issued by the Financial Supervisory Commission for banks, securities firms, and life insurance companies engaged in wealth management business require such financial institutions to tailor their KYC rules according to the risk characteristics of each type of business. The directions also require financial institutions to apply stricter customer due diligence (CDD) and approval procedures to individuals of certain background or professions identified as high risk and their family members. Current legislation does not have explicit requirements calling for enhanced CDD measures for Politically Exposed Persons (PEPs).

The threshold for occasional cash transactions that triggers a CDD obligation was lowered from NT$1 million (approximately $31,200) to NT$ 500,000 (approximately $ 15,600). Those who transfer funds over NT$30,000 (approximately $930) at any bank in Taiwan must produce a photo ID, and the bank must record the name, ID number and telephone number of the client.

Bank records retention: Yes

Record keeping requirements are broadly provided under Article 7 of the MLCA that requires financial institutions to keep transaction and customer identification records for five years only for cash transactions exceeding NT$1,000,000 (approximately $31,200). Article 8 of the MLCA also requires financial institutions to keep transaction and customer identification records for suspicious transactions.

Suspicious transaction reporting: Yes

Financial institutions are required to identify, record, and report the identities of customers engaging in significant or suspicious transactions. Revisions to the MLCA extend suspicious transaction reporting to suspected terrorist financing activity. There is no threshold amount specified for filing suspicious transaction reports (STRs). Certain designated nonfinancial businesses and professions (DNFBPs) are also subject to anti-money laundering/counter-terrorist financing (AML/CFT) reporting requirements. The Ministry of Economic Affairs revised the STR reporting forms for jewelry stores in May 2009 to facilitate timelier reporting. Ethics Rules adopted by the Ministry of Interior in December 2008 obligate members of the National Real Estate Broking Agencies Association to report suspicious transactions to the association when they occur.

The Anti-Money Laundering Division (AMLD) of the Ministry of Justice’s Investigation Bureau (IBMJ) is Taiwan's financial intelligence unit (FIU). The AMLD receives, analyzes, and disseminates STRs, currency transaction reports and cross-border currency movement declaration reports. In 2008, the AMLD received 1,643 STRs, 23 of which resulted in prosecutions based on the MLCA.

Large currency transaction reporting: Yes

The “Regulations Governing Cash Transactions Reports and Suspicious Transaction Reports by Financial Institutions” issued took effect in March 2009. Per the regulation, the threshold amount triggering cash transaction reporting was lowered from NT$1 million (approximately $31,200) to NT$500,000 (approximately $15,600). The order imposes similar due diligence obligations and currency transaction reporting on agricultural financial institutions for transactions exceeding NT$500,000. In 2008, the AMLD received 1,133,014 Cash Transaction Reports (CTRs).

When foreign currency in excess of NT$500,000 (approximately $15,600) is transferred into or out of Taiwan via the Taiwan banking system, the transfer must be reported to the Central Bank. Prior approval is required for exchanges between New Taiwan dollars and foreign currency when the amount exceeds $5 million for an individual resident or $50 million for a corporate entity.

Narcotics asset seizure and forfeiture: Yes

The MLCA, Article 9, provides that whenever the prosecutor obtains sufficient evidence to prove the offender has committed a crime prescribed in Article 11 (stipulating money laundering and terrorist financing offenses) by transporting or transferring a monetary instrument or funds, the prosecutor may request the court to order the financial institution to freeze that specific transaction to prevent withdrawal, transfer, or other disposition of the involved funds for a period not more than six months. Assets of drug traffickers, including instruments of crime and intangible property, can be seized along with legitimate businesses used to launder money. The law does not allow for civil forfeiture.

To support these efforts the Ministry of Justice organized a “laws and decrees amendment researching” task force in March 2009. The group of multi-disciplinary stakeholders is charged with developing a comprehensive seizure and confiscation regime.

Narcotics asset sharing authority: Yes

Taiwan has promulgated drug-related asset seizure and forfeiture regulations that stipulate that—in accordance with treaties or international agreements—Taiwan’s Ministry of Justice shall share seized assets with foreign official agencies, private institutions, or international parties that provide Taiwan with assistance in investigations or enforcement.

Cross-border currency transportation requirements: Yes

According to legislation passed in July 2007, individuals are required to report currency transported into or out of Taiwan in excess of NT$60,000 (approximately $1,900), $10,000 or equivalent in foreign currency, 20,000 Chinese Yuan (approximately $2,930), or gold worth more than $20,000.

Cooperation with foreign governments: Yes

Taiwan provides information to international counterparts upon request, based on the principles of mutual benefits and reciprocity. With regard to mutual legal assistance requests made by foreign jurisdictions (where there is no agreement or memorandum of understanding (MOU) with Taiwan), the Ministry of Justice in accordance with established procedure, forwards the requests to the relevant prosecutors’ office to provide the assistance requested. The Act of Handling Foreign Court-Commissioned Cases and the Taiwan-American Agreement on Mutual Legal Assistance in Criminal Matters establish a basis through which Taiwan can respond to requests of foreign nations that do not relate to a case under prosecution.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

Taiwan prosecuted 33 cases involving money laundering in 2008. Among the 33 cases, 19 involved financial crimes, such as unregistered stock trading, credit card theft, currency counterfeiting or fraud; four were corruption-related.

Amendments to the Foreign Exchange Control Act and the Offshore Banking Act on April 29, 2009 implement the requirements of UNSCRs 1267 and 1373 on combating the financing of terrorism.

U.S.-related currency transactions:

Direct two-way remittance of funds between Taiwan and the Peoples Republic of China (PRC) started on February 26, 2009. In Taiwan, the transfer of funds to the PRC is handled at branches designated by Chunghwa Post. Since no mechanism is in place for the cross-Strait settlement of the Renminbi (RMB) and New Taiwan Dollar (NT$) currencies, cross-Strait remittances currently have to be denominated in U.S. dollars.

The possession, distribution and use of counterfeit US Federal Reserve Notes and fraudulent US Bonds continues to occur in Taiwan, often in concert with other illicit activity. During 2009, the United States Secret Service (USSS) continued on-going investigations, involving over $4 million in counterfeit currency. In 2009, there was a new case involving the seizure of $75.5 billion in fraudulent US Bonds.

Records exchange mechanism with U.S.:

A mutual legal assistance agreement (MLAA) between the American Institute in Taiwan (AIT) and the Taipei Economic and Cultural Representative Office in the United States (TECRO) entered into force in March 2002. It provides a basis for Taiwan and U.S. law enforcement agencies to cooperate in investigations and prosecutions for narcotics trafficking, money laundering (including the financing of terrorism), and other financial crimes.

The AMLD is able to exchange information with the Financial Crimes Enforcement Network (FinCEN).

International agreements:

Revisions to the MLCA in 2007 reduced restrictions on mutual legal assistance where previously mutual legal assistance treaties or MLAA were required. Taiwan is now able to exchange information based on the principles of reciprocity and mutual benefits. Since June 2008, Taiwan has signed MOUs to establish mechanisms for cooperation with countries and jurisdictions including the United States, Macedonia, the Netherlands Antilles and Aruba. Customs became a member of the Customs Asia Pacific Enforcement Reporting System and has signed MOUs with counterparts in the U.S., Australia, and the Philippines for sharing customs information.

Taiwan is unable to ratify UN Conventions because of long standing political issues. However, it has enacted domestic legislation to implement the standards in the key AML/CFT UN Conventions. The new amendment of the MLCA has incorporated related laws to fully implement the provisions of the Vienna, Palermo and Terrorist Financing conventions and resolutions.

Taiwan 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/Chinese%20Taipei%20MER2_FINAL.pdf.

Recommendations:

Taiwan continues to improve and implement an anti-money laundering regime that largely comports with international standards. Taiwan should pass legislation to criminalize terrorism and terrorist financing as an autonomous crime. It should exert more authority over its nonprofit organizations. The authorities on Taiwan should continue to strengthen the existing anti-money laundering regime as they implement new measures included in the 2009 MLCA amendments. Taiwan should abolish all shell companies and prohibit new shell companies of any type from being established. Taiwan should enhance implementation of legislation regarding alternate remittance systems and Taiwan law enforcement should enhance investigations of underground finance and its links to trade fraud and trade-based money laundering.

Thailand

Thailand is a centrally located, developed Southeast Asian country surrounded by economically less vibrant neighbors along an extremely porous border. Thailand is vulnerable to money laundering from its own underground economy as well as many categories of cross-border crime, including illicit narcotics and other contraband smuggling. The Thai black market includes a wide range of pirated and smuggled goods, from counterfeit medicines to luxury automobiles. Money launderers and traffickers use banks, as well as non-bank financial institutions and businesses to move the profits of narcotics trafficking and other criminal enterprises. Thailand is a significant destination and source country for international migrant smuggling and trafficking in persons, a production and distribution center for counterfeit consumer goods and, increasingly, a center for the production and sale of fraudulent travel documents. Illegal gambling, underground lotteries, and prostitution are all problems. Underground finance and remittance systems are used to launder illicit proceeds. In addition to its home-grown and regional criminal problems, some parts of Thailand are becoming havens for criminal elements from other regions, particularly West Africa and the former Soviet Union. The capacity of Thailand’s criminal justice system to deal with these daunting challenges is low.

Offshore Center: No

Free Trade Zones: No

Criminalizes narcotics money laundering: Yes

Thailand’s anti-money laundering legislation, the 1999 Anti-Money Laundering Act (AMLA) and subsequent amendments, criminalize money laundering for narcotics trafficking.

Criminalizes other money laundering, including terrorism-related: Yes

The AMLA and subsequent amendments criminalize money laundering for the following nine offenses: narcotics trafficking, trafficking in women or children for sexual purposes, public fraud, financial institution fraud, public corruption, customs evasion and blackmail, terrorist activity, and illegal gambling.

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 2003, the Royal Thai Government (RTG) issued two Emergency Decrees to enact measures related to terrorist financing. The first Decree amended Section 135 of the Thai Penal Code. The second Decree amended Section 3 of the AMLA to add the offenses related to terrorism under the Thai Penal Code, including the financing of terrorism, as predicate offenses for money laundering. Parliament endorsed the status of such decrees as legal acts in April 2004. However, terrorist financing has not been criminalized consistent with international standards, as the terrorist financing offense does not conform to the UN Convention for the Suppression of the Financing of Terrorism. Further, Thai legislation does not criminalize all situations for the provision or collection of funds for an individual terrorist or a terrorist organization, nor does the terrorist financing offense extend to the unlisted individual terrorist or terrorist organization.

Know-your-customer rules: Yes

In 2009, a new amendment to the AMLA was passed broadening the range of non-bank businesses required to follow reporting and identification requirements. Unlike the requirements for financial institutions, only suspicious transactions or those exceeding certain amounts are subject to the identification requirement. Apart from investment advisors, the amended AMLA also covers eight additional non-bank businesses, including jewelry and gold shops, automotive hire-purchase businesses or car dealers, real-estate agents/brokers, antiques shops, personal loan businesses, electronic card businesses, credit card businesses, and electronic payment businesses. However, the minimum monetary thresholds for reporting business transactions have not yet been finalized.

Bank records retention: Yes

Under AMLA requirements, financial institutions are required to keep customer identification and specific transaction records for a period of five years from the date an account was closed, or from the date a final transaction occurred, whichever is longer.

Suspicious transaction reporting: Yes

The AMLA requires financial institutions (private banks, state owned-banks, finance companies, insurance companies, savings cooperatives, etc.), and land registration offices to report suspicious transactions to the Thai Anti-Money Laundering Office (AMLO) which serves as the financial intelligence unit (FIU). During the 2009 fiscal year (October 08 – September 09), AMLO received 11,951 suspicious transaction reports and disseminated 23 reports within AMLO and to other agencies.

Large currency transaction reporting: Yes

The AMLA also requires that obligated entities report most financial transactions exceeding Bt 2 million (approximately $60,500), including purchases of securities and insurance, and property transactions exceeding Bt 5 million (approximately $151,300).

Narcotics asset seizure and forfeiture: Yes

The Act for the Suppression of Drugs Offenders of 1991 provides for the tracing, freezing, and seizure of assets. In addition, the AMLA provides for civil forfeiture of property involved in a money laundering offense. Money and property derived from commission of a predicate offense, from aiding or abetting the commission of a predicate offense, or derived from the sale, distribution, transfer, or returns of such money or assets may be seized under section 3 of the AMLA. AMLO, through the Transaction Committee, is responsible for tracing, freezing, and seizing assets. The AMLA makes no provision for substitute seizures if authorities cannot prove a relationship between the asset and the predicate offense.

Narcotics asset sharing authority: Yes

Under the Suppression of Drugs Offenders Law Thai law enforcement entities may share assets as a function of a bilateral agreement, though in practice this has rarely happened.

Cross-border currency transportation requirements: No

There are no restrictions or reporting obligations on the importation or exportation of foreign currency (or bearer-negotiable instruments). Export of domestic currency is subject to authorization when the amount exceeds 50,000 baht ($1,500), or 500,000 baht ($15,100) when traveling to adjacent countries.

Cooperation with foreign governments: Yes

The RTG routinely cooperates with other jurisdictions in financial crimes investigations.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

AMLO, the Bank of Thailand, the Securities and Exchange Commission and the Department of Special Investigation are all responsible for investigating financial crimes, with overlapping jurisdictions and quite varied levels of competence.

Thailand does not have mechanisms in place for freezing funds or other assets of persons designated under UNSCRs 1267 and 1373.

The AMLO prosecuted 15 cases and seized Bt 18.4 million (approximately $529,000) during the first six months of FY 2008 fiscal year. However, the prosecution process ceased in April 2008 because an amendment to the AMLA in early 2008 required that both the Anti-Money Laundering Board and the Transaction Committee be dissolved (in March 2008) and replaced by new bodies in line with the amended AMLA. Without these two bodies, asset forfeiture and financial asset seizure cannot be processed, as the AMLA does not have any provision to allow existing bodies to continue their work while the selection process of new members takes place. The selection process also was delayed due to three changes of government in 2008, and a later disagreement between the Cabinet and the Parliament on the proposed list of experts for the AML Board. Although asset forfeiture and financial asset seizure operations are on hold, the AMLO retains the power to investigate cases, and pursued 184 of them during FY 2009.

U.S.-related currency transactions:

Currency transactions between the US and Thailand are voluminous, mostly related to trade matters. It is likely that currency transactions resulting from the illicit narcotics trade do transit the Thai banking system.

Records exchange mechanism with U.S.:

Thailand and the United States are parties to a bilateral mutual legal assistance treaty (MLAT). AMLO is able to exchange information with the Financial Crimes Enforcement Network (FinCEN).

International agreements:

Thailand has MLATS with ten additional countries and is party to the regional Association of Southeast Asian Nations (ASEAN) Mutual Legal Assistance Agreement. Thailand is also a party to various information exchange agreements. Thai 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. AMLO has memoranda of understanding (MOUs) on money laundering cooperation with 36 other FIUs. It also actively exchanges information with nations with which it has not entered into an MOU, including the United States, Singapore, and Canada.

Thailand is a party to:

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

Thailand is a member of the Asia/Pacific Group on Money Laundering (APG), a Financial Action Task Force-style regional body. Its most recent mutual evaluation can be found here: www.apgml.org.

Recommendations:

During the past several years, the Royal Thai Government (RTG) has demonstrated more of a commitment to the adoption of anti-money laundering/counter-terrorist financing (AML/CFT) international best practices. While many improvements have already been identified and adopted by Thai agencies, there are important actions still pending, including the passage of key bills, regulations, or measures which will help augment the current AML/CFT regime in Thailand. The RTG must take steps to amend the process by which the Anti-Money Laundering Board and Transaction Committee members are replaced to preclude lengthy interruption of the prosecution process. Until the RTG provides a viable mechanism for all of its financial institutions to be examined for compliance with the AMLA, Thailand’s AML/CFT regime will not fully comport with international standards. Thailand should institute mandatory cross-border currency reporting requirements. The RTG should take steps to eliminate overlapping jurisdictions or to clarify investigative responsibilities. Additionally, the RTG should ensure its investigative agencies receive the appropriate training to enable them to competently perform their duties. The RTG should take additional measures to address the vulnerabilities presented by alternative remittance systems. The RTG should become a party to the UN Convention against Transnational Organized Crime and the UN Convention against Corruption.

Turkey

Turkey is an important regional financial center, particularly for Central Asia and the Caucasus, as well as for the Middle East and Eastern Europe. It continues to be a major transit route for Southwest Asian opiates moving to Europe. However, narcotics-trafficking is only one source of the funds laundered in Turkey. Other significant sources include invoice fraud and tax evasion, and to a lesser extent, smuggling, counterfeit goods, and forgery. Terrorist financing and terrorist organizations with suspected involvement in narcotics-trafficking and other illicit activities are also present in Turkey. Money laundering takes place in banks, non-bank financial institutions, and the underground economy. Informed observers estimate as much as 40 to 50 percent of the economic activity is derived from unregistered businesses. Money laundering methods in Turkey include: the large-scale cross-border smuggling of currency; bank transfers into and out of the country; trade fraud; and the purchase of high-value items such as real estate, gold, and luxury automobiles. Turkish-based traffickers transfer money and sometimes gold via couriers, the underground banking system, and bank transfers to pay narcotics suppliers in Pakistan or Afghanistan. Funds are often transferred to accounts in the United Arab Emirates, Pakistan, and other Middle Eastern countries.

Offshore Center: No

Free Trade Zones: Yes

There are 19 free trade zones (FTZ) in Turkey: Mersin, Antalya, Adana-Yumurtalik, Izmir, Denizli, Izmir Menemen, Istanbul Thrace, Istanbul Ataturk Airport, Istanbul Leather and Industry, Europe FTZ, Kocaeli, TUBITAK MAM Technology, Bursa, Trabzon, Rize, Samsun, Mardin, Gaziantep and Kayseri. These FTZs have a wide range of activities, including manufacturing, trading, storing, packing, banking and finance, software, and research and development. All the companies wishing to operate in FTZs must apply to the FTZ’s General Directorate in the Foreign Trade Undersecretariat. Full identification of all applicants is required. The companies are also required to report on their activities to the zone directorate, which regularly sends reports to the Undersecretariat. The General Directorate of FTZs has the authority to cancel operating licenses if the companies are involved in activities not included in the initial description of their field of activity, or if they fail to pay taxes. The companies are also required to submit identification information on any personnel they employ or dismiss during their time of activity in the zone.

Criminalizes narcotics money laundering: Yes

Turkey’s Law on Prevention of Money Laundering, most recently amended in September 2009 and numbered 5918, criminalizes money laundering. It provides for penalties of three to seven years in prison for money launderers, a fine of 20,000 TL (approximately $13,700) plus asset forfeiture provisions.

Criminalizes other money laundering, including terrorism-related: Yes

The present code defines money laundering predicate offenses as all offenses for which the punishment is imprisonment for one year or more.

Criminalizes terrorist financing: Yes

Existing Turkish law criminalizing terrorist financing include: Articles 2, 7, and 8 of the Law to Fight Terrorism numbered 3713; and various articles of the penal code which can be used to punish the financing of terrorism. A separate law, Number 5549 (October 2006), includes significant provisions to prevent money laundering and terrorist financing. The laws are limited to acts committed by members of organizations operating against the Turkish Republic, so the collection, donation and movement of funds by terrorist organizations would not be prohibited if the funds could not be linked to a specific domestic terrorist act. Turkey issued additional regulations to combat terrorist financing in January 2008.

Know-your-customer rules: Yes

Under a 2007 Ministry of Finance (MOF) banking regulation circular, all banks and regulated financial institutions, including the Central Bank, securities companies, post office banks, and Islamic financial houses are required to record tax identity information for all customers opening new accounts, applying for checking accounts, or cashing checks. The circular also requires exchange offices to sign contracts with their clients. The MOF also mandates that a tax identity number be used for all financial transactions.

Bank records retention: Yes

The Council of Ministers passed a set of regulations that requiring know-your-customer provisions and bank maintenance of transaction records for five years.

Suspicious transaction reporting: Yes

Turkish law provides safe harbor protection to the filers of suspicious transaction reports (STRs). The law also covers a range of entities subject to reporting requirements, to include several designated non-financial businesses and professions (DNFBPs), such as art dealers, insurance companies, lotteries, vehicle sales outlets, antique dealers, pension funds, exchange houses, jewelry stores, notaries, sports clubs, and real estate companies. In November 2007, the Government of Turkey (GOT) issued a General Communiqué of Suspicious Transaction Reporting Regarding Terrorist Financing to require the reporting of suspicious transactions related to terrorist financing.

MASAK, the Financial Crimes Investigation Board, is Turkey’s financial intelligence unit (FIU). MASAK receives, analyzes, and refers STRs for investigation. In 2008, 4,924 STRs were filed, of which 228 were linked to terrorist financing activities. Nine were from brokerage houses, 15 were from factoring entities, and 10 were from insurance companies. As of October 2009, there have been 7,797 STRs filed.

Large currency transaction reporting: No

Narcotics asset seizure and forfeiture: Yes

Turkey has a system for identifying, tracing, freezing, and seizing assets that are not related to terrorism, although the law allows only for their criminal, not administrative, forfeiture. Applicable law provides for the confiscation after conviction of all property and assets (including derived income or returns) that are the proceeds of a money-laundering predicate offense. The law allows for the confiscation of the instrumentalities of money laundering and the equivalent value of direct proceeds that could not be seized. The defendant must own the property subject to forfeiture. Legitimate businesses can be seized if used to launder drug money or support terrorist activity, or are related to other criminal proceeds.

Narcotics asset sharing authority:

There is no specific provision in Turkish law for the sharing of seized assets with other countries; however the United States and Turkey shared seized assets in one narcotics case.

Cross-border currency transportation requirements: Yes

Travelers may take up to $5,000 (approximately 7,750 Turkish Lira) or its equivalent in foreign currency notes out of the country. Turkey does have cross-border currency reporting requirements, and the law gives Customs officials the authority to sequester valuables of travelers who make false or misleading declarations and impose fines for such declarations. The currency reporting thresholds and whether the requirements are both in and outbound are not known.

Cooperation with foreign governments:

There are no known impediments to cooperation.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

According to MASAK statistics, as of December 31, 2008 it had pursued 1532 money laundering investigations since 2003. Of these, 459 were referred for further investigation, but only 19 cases resulted in convictions. There are still 188 cases pending in the courts. Moreover, all of the convictions are reportedly under appeal. There is a lack of specialization and understanding of AML/CFT provisions among relevant authorities, which has contributed to the high number of acquittals in money laundering cases. In 2008, the GOT opened 34 money laundering cases, of which seven resulted in a conviction. It should be noted there is no way to corroborate the accuracy of these statistics, as Turkish Criminal Court records are closed to the public.

The GOT’s non-profit sector is vulnerable to terrorist financing. Turkey's investigative powers, law enforcement capability, oversight and outreach are weak and lacking in all the necessary tools and expertise to effectively counter this threat through a comprehensive approach; all these areas need to be strengthened. The nonprofit sector is not audited on a regular basis for counter-terrorist finance vulnerabilities and does not receive adequate anti-money laundering/counter-terrorist financing (AML/CFT) outreach or guidance from the GOT. The General Director of Foundations (GDF) issues licenses for charitable foundations and oversees them. However, there are a limited number of auditors to cover more than 70,000 institutions

Turkey has not taken sufficient steps to implement an effective regime to combat terrorist financing, especially as it relates to UNSCRs 1267 and 1373. For example, while the GOT has implemented UNSCR 1267, it has failed to establish punishment or sanctions for institutions that fail to observe a freezing order, and it has not established procedures for delisting entities or unfreezing funds. Additionally, the GOT has not taken steps that would allow it to freeze the assets of entities designated by other jurisdictions, as required under UNSCR 1373.

U.S.-related currency transactions:

No information provided.

Records exchange mechanism with U.S.:

Turkey and the United States have a Mutual Legal Assistance Treaty (MLAT) and cooperate closely on narcotics and money laundering investigations. Turkey and the United States are both members of the Egmont Group and occasionally exchange financial intelligence.

International agreements:

The GOT cooperates closely with its neighbors in the Southeast Europe Cooperation Initiative (SECI).

Turkey 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

Turkey is a member of the FATF. It’s most recent 2007 mutual evaluation can be found here: http://www.fatf-gafi.org/dataoecd/14/7/38341173.pdf.

Recommendations:

The Government of Turkey (GOT) should regulate and investigate remittance networks to thwart their potential misuse by terrorist organizations or their supporters. The GOT should expand its narrow legal definition of terrorism and take steps to fully implement UNSCRs 1267 and 1373. The GOT must also strengthen its oversight of foundations and charities, which currently receive only cursory overview and auditing. AML and CFT prosecutions, convictions, and penalties remain low and many have been overturned on appeal. In order to better investigate and prosecute cases, law enforcement and judicial authorities should enhance their knowledge of AML/CFT issues and what constitutes an offense.

Ukraine

In the Ukraine, high risks of money laundering have been identified in foreign economic activities, credit and finance, the fuel and energy industry, and the metal and mineral resources market. Illicit proceeds are primarily generated through corruption, fictitious entrepreneurship, fraud, drug trafficking, arms trafficking, organized crime, prostitution, tax evasion, and trafficking in persons. Various laundering methodologies are used including the use of real estate, insurance, bulk cash smuggling, and financial institutions

Offshore Center: No

Free Trade Zones: Yes

In 2005, the Government of Ukraine (GOU) eliminated the tax and customs duty privileges available in 11 Special Economic Zones (SEZs) and nine Priority Development Territories (PDTs) operating within Ukraine, which have been associated with rampant evasion of customs duties and taxes.

Criminalizes narcotics money laundering: Yes

In November 2002, Ukraine enacted an anti-money laundering (AML) package entitled “On Prevention and Counteraction of the Legalization (Laundering) of the Proceeds of Crime” (the Basic AML Law), which serves as the legal basis for a national anti-money laundering/counter-terrorist financing (AML/CFT) regime. Specific elements of the money laundering offense are also contained in Article 306 of the Criminal Code, which addresses laundering of proceeds generated from drug trafficking.

Criminalizes other money laundering, including terrorism-related: Yes

With the exception of market manipulation and financing of terrorism (in all its forms) the range of offenses set out in the Criminal Code which are predicate offenses to money laundering include all categories of offenses included in the international standards. However, certain offenses and acts are not sufficiently covered.

On November 6, 2009, Parliament passed significant amendments to the Basic AML law, designed to address many of the identified deficiencies and to take significant steps to bring the regime into compliance with international standards. However, the President vetoed the bill on December 8 in response to pressure from the financial community, which complained of onerous additional reporting requirements.

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 Ukrainian legal framework does not criminalize terrorist financing as an autonomous offense. The terrorism offense is criminalized in article 258 of the Criminal Code. However, the Criminal Code only provides for the criminalization of terrorist financing based on funding linked to a specific terrorist act and does not cover sole funding for an individual terrorist or a terrorist organization.

Know-your-customer rules: Yes

The legal framework for customer due diligence is set out in a variety of documents. All types of financial institutions are covered by AML/CFT obligations for customer due diligence through a combination of the Basic AML Law, the Law on Financial Services and State Regulation of Financial Markets, and the Law of Ukraine on Securities and Stock Market. The measures apply to legal persons, authorized representatives, and beneficial owners. Additional requirements stipulate the procedures for conducting customer identification that apply to non-banking institutions, insurance companies, gambling institutions, credit unions, depositories, securities traders, registers, pawn shops, and leasing providers.

Bank records retention: Yes

Article 5 of the Basic AML Law requires financial institutions to keep documents on financial transactions for five years following the completion of the transaction. The Law on Banks and Banking repeats this requirement. However, non-bank financial institutions are not required to maintain such records. There is also no requirement that transaction records should be sufficient to permit reconstruction of individual transactions.

Suspicious transaction reporting: Yes

The Basic AML Law requires reporting to the financial intelligence unit (FIU) of all transactions that appear to be suspicious and certain forms of attempted transactions. However, there is no explicit legal requirement to report all types of attempted transactions, not just those that have been refused by the obligated entities. There are few STRs regarding terrorist financing. According to the Basic AML Law, there is no reporting threshold for suspicious transactions.

Large currency transaction reporting: Partially

Any transaction of 80,000 UAH (approximately $9,300), or foreign currency equivalent, must be reported if the transaction meets one of several suspicious activity criteria set out in article 11 of the Basic AML Law. In 2008, the FIU received 1,083,461 transaction reports, which include STRs and large currency transaction reports, and sent 641 separate cases to law enforcement agencies.

Narcotics asset seizure and forfeiture:

Ukraine has a general asset forfeiture regime that is largely an inappropriate and ineffective relic of Soviet-era legislation. Article 59 of the Ukrainian Criminal Code provides for the mandatory seizure of all or a part of the property of any person convicted for “grave or particularly grave offenses,” as defined in the code, regardless of whether this property bore any relation to the crime of conviction. With respect to money laundering, Article 209 allows for the forfeiture of criminally obtained money and other property. However, confiscation of instrumentalities intended for use in the commission of a money laundering offense; property of corresponding value; and income, profits or other benefits from the proceeds of crime do not appear to be captured by the Ukrainian legislation.

Narcotics asset sharing authority:

Ukrainian authorities have indicated that sharing of confiscated assets with other countries might be resolved by bilateral agreements on coordination of seizure and confiscation actions. Mechanisms for international cooperation on confiscation measures have not yet been tested. Civil confiscation orders are not recognized in the Ukrainian criminal legislation.

Cross-border currency transportation requirements: Yes

Cash smuggling is substantial in Ukraine, although it is reportedly more related to unauthorized capital flight than to criminal proceeds or terrorist funding. Beginning in May 2008, as a result of amendments to the “Resolution on the Adoption of Instructions Regarding Movement of Currency, Precious Metals, Payment Documents, and Other Banking Documents over the Customs Border of Ukraine,” travelers must declare both inbound and outbound cross-border transportation of cash exceeding euro 10,000 (approximately $14,100) and name the origin of such funds. Precious metals also subject to reporting are defined as gold, silver, and platinum. Persons may not import or export precious metals exceeding 500g in weight without a written declaration submitted to customs.

Cooperation with foreign governments:

Ukraine provides mutual legal assistance (MLA) on the basis of multilateral international treaties and bilateral agreements, and in the absence of an agreement, requests for legal assistance are considered on the basis of the reciprocity principle via diplomatic channels. The Basic AML Law provides that the FIU shall cooperate internationally to exchange experience and information with relevant foreign agencies on the basis of international agreements in force or on a reciprocity basis.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

Ukraine’s AML/CFT legal framework is significantly deficient in that the laws do not provide for autonomous prosecution of money laundering - a money laundering conviction requires prior or simultaneous conviction for a predicate offense linked to the laundered proceeds; cover all predicate crime categories; cover conversion or transfer of property; or cover terrorist financing in all its aspects or as a separate offense. In addition, Ukraine appears to have serious difficulties implementing the law.

Ukraine’s customer due diligence (CDD) regime does not adequately cover all institutions and types of transactions. For example, the definition of beneficial owner does not cover natural persons, and there is no requirement that financial institutions determine the identity of the natural persons who ultimately own or control the customer; securities institutions are only required to identify the control structure and beneficial owners of the customer and to obtain information on the purpose and nature of the business relationship in higher risk situations; there is no specific requirement for any institution to conduct ongoing due diligence; and, there is no general requirement to perform enhanced due diligence for higher risk categories of customers, business relationships or transactions.

Suspicious transaction reporting requirements are not well understood outside of the banking sector. Additionally, there is a pronounced lack of guidance to reporting institutions on how to detect suspicious transactions related to terrorism.

Ukraine lacks any functional regime for locating or seizing forfeitable assets. In particular, Ukraine lacks legislation allowing in rem forfeiture or the seizure of corporate assets, has no specialized asset forfeiture prosecutors or officials, and lacks any entity to administer forfeited assets.

In 2008, law enforcement agencies initiated 354 formal criminal investigations and submitted indictments in 117 of those cases; there were 76 convictions.

Through their regulatory agencies, banks and non-bank financial services receive the U.S. designations of suspected terrorists and terrorist organizations under Executive Order 13224 and other U.S. authorities and are instructed to report any transactions involving designated individuals or entities.

U.S.-related currency transactions:

The local currency (hryvnia) is tied to the dollar. Dollars and, increasingly, Euros are ubiquitous. It is the common view that dollars are for savings kept at home and for big purchases, while hryvnias are for day-to-day expenses. Ukrainians are still mistrustful of their monetary system so many people still prefer to secrete dollars in hiding places rather than deposit them in a bank.

Records exchange mechanism with U.S.:

The U.S.-Ukraine Treaty on Mutual Legal Assistance in Criminal Matters entered into force in February 2001. A bilateral Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, which provides for the exchange of information in administrative, civil, and criminal matters, is also in force.

International agreements:

As of December 2009, the FIU has signed memoranda of understanding (MOUs) with the FIUs of 46 countries. In July, 2009, Ukraine amended the law on Banks and Banking to permit international exchange of information between the National Bank and respective regulators of other countries for purposes of combating money laundering.

Ukraine 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

Ukraine is a member of MONEYVAL and an observer to the Eurasian Group on Combating Money Laundering and the Financing of Terrorism (EAG), both Financial Action Task Force-style regional bodies. Ukraine’s most recent mutual evaluation can be found here: http://www.coe.int/t/dghl/monitoring/moneyval/Evaluations/Evaluation_reports_en.asp.

Recommendations:

The Government of Ukraine (GOU) has strengthened and clarified its legislation and established a comprehensive anti-money laundering regime. However, Ukraine’s ability to implement this regime through consistent successful criminal prosecutions has yet to be proven. The GOU should adopt draft legislation to bring its AML/CFT regime into closer accordance with both the language and the intent of international standards. The recent veto of amendments that would do just this is unfortunate. The GOU also should consider carefully the consequences of reestablishing tax and customs privileges that have been abused in the past. Ukraine should provide guidance to all reporting institutions, bank and non-bank, on the reporting requirements for suspicious transactions related to both money laundering and terrorist financing. Law enforcement officers, customs, and the judiciary need a better understanding of the theoretical and practical aspects of identifying, investigating and prosecuting money laundering cases, especially in the regions where implementation is poor. The GOU also should more aggressively address public corruption by investigating, prosecuting and convicting corrupt public officials.

United Arab Emirates

The United Arab Emirates (UAE) is an important financial center in the Gulf region. Dubai, in particular, is a major international banking and trading center. The country also has a growing offshore financial free zone. The UAE’s robust economic development, political stability, and liberal business environment have attracted a massive influx of people, goods, and capital, which makes the country susceptible to possible money laundering activities. The UAE also is susceptible to money laundering due to its geographic location as the primary transportation and trading hub for the Gulf States, East Africa, and South Asia; longstanding trade relations with Iran; its expanding trade ties with the countries of the former Soviet Union; and lagging relative transparency in its corporate environment.

The potential for money laundering is exacerbated by the large number of resident expatriates (roughly 80—85 percent of total population) who send remittances to their homelands. However, in 2009 the Ministry of Labor introduced a new electronic wage protection system, designed to replace cash salary payments with direct deposits into a personal bank account. Given the country’s proximity to Afghanistan, narcotics traffickers are increasingly reported to be attracted to the UAE’s financial and trade centers. Other money laundering vulnerabilities in the UAE include hawala, trade fraud, smuggling, the real estate sector, the misuse of the international gold and diamond trade, the misuse of shell companies and the use of UAE-based companies to assist in transactions that violate U.S. and/or U.N sanctions. Reportedly, the UAE is used as a financial center by pirate networks operating off the coast of Somalia and for corrupt officials in Afghanistan and Pakistan.

Offshore Center: Yes

In March 2004, the Government of the UAE (GUAE) passed Federal Law No. 8, regarding the Financial Free Zones (FFZs) (Law No. 8/2004). Although the new law exempts FFZs and their activities from UAE civil and commercial laws, FFZs and their operations are still subject to federal criminal laws including the Anti-Money Laundering Law (Law No. 4/2002) and the Anti-Terror Law (Law No. 1/2004). As a result of Law 8/2004 and a subsequent federal decree, the UAE’s first financial free zone (FFZ), known as the Dubai International Financial Center (DIFC), was established in September 2004, supervised by the Dubai Financial Services Authority (DFSA). By September 2005, the DIFC had opened its securities market, the Dubai International Financial Exchange (DIFX). The law prohibits companies licensed in the FFZ from dealing in UAE currency (i.e., dirham), or taking domestic deposits. Further, the law stipulates that the licensing standards of companies shall be comparable to those for domestic companies. Insurance activities conducted in the FFZ are limited by law to reinsurance contracts only.

Free Trade Zones: Yes

The number of FTZs is growing, with 38 currently operating in the UAE. Every emirate has at least one functioning FTZ. There are over 5,000 multinational companies located in the FTZs, and thousands more individual trading companies. The FTZs permit 100 percent foreign ownership, no import duties, full repatriation of capital and profits, no taxation, and easily obtainable licenses. Companies located in the free trade zones are considered offshore or foreign entities for legal purposes. However, UAE law prohibits the establishment of shell companies and trusts, and does not permit nonresidents to open bank accounts in the UAE. The larger FTZs in Dubai are well-regulated.

Criminalizes narcotics money laundering: Yes

Criminalizes other money laundering, including terrorism-related: Yes

The UAE has enacted the Anti-Money Laundering Law No. 4/2002, and the Anti-Terrorism Law No. 1/2004. Both pieces of legislation, in addition to the Cyber Crimes Law No. 2/2006, serve as the foundation for the country’s anti-money laundering/counter-terrorist financing (AML/CFT) efforts. Law No. 4/2002 criminalizes all forms of money laundering activities.

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 July 2004, the UAE government strengthened its legal authority to combat terrorism and terrorist financing by passing Federal Law Number No. 1/2004. The law specifically criminalizes the funding of terrorist activities and terrorist organizations.

Know-your-customer rules: Yes

Administrative Regulation No. 24/2000 requires banks, money exchange houses, finance companies, and any other financial institutions to follow customer due diligence procedures for accountholders and to verify a customer’s identity and maintain transaction details (i.e., name and address of originator and beneficiary) for all exchange house transactions over the equivalent of $545 and for all non-accountholder bank transactions over $10,900. The regulation delineates the procedures to be followed for the identification of natural and juridical persons. Amendments to the Regulations in July 2006 add enhanced due diligence requirements for charities; and, in August 2009, the Central Bank issued a circular instructing local banks not to handle accounts belonging to politically exposed persons (PEPs).

Bank records retention: Yes

Regulation 24/2000 calls for customer records to be maintained for a minimum of five years and further requires they be periodically updated as long as the account is open.

Suspicious transaction reporting: Yes

In the first five months of 2009, 6,198 suspicious transaction reports (STRs) were filed. In 2008, 13,101 STRs were filed. Of the total STRs filed in the UAE from 2002 to date, 285 have been referred to the UAE Public Prosecutor’s office, of which 20 have reached the courts.

Large currency transaction reporting:

Law No. 4/2002 calls for stringent reporting requirements for wire transfers exceeding 2000 dirhams (approximately $545) and currency imports above 40,000 dirhams (approximately $10,900).

Narcotics asset seizure and forfeiture:

Law No. 1/2004, addressing terrorism and terrorist financing, also provides for asset seizure and confiscation. Article 31 gives the Attorney General the authority to seize or freeze assets until the investigation is completed. Article 32 confirms the Central Bank’s authority to freeze accounts for up to seven days if it suspects the funds will be used to fund or commit any of the crimes listed in the law. Amendments to the Central Bank Regulations 24/2000 in July 2006 require financial institutions to freeze transactions they believe may be destined for funding terrorism, terrorist organizations, or for terrorist purposes.

Narcotics asset sharing authority: No

Cross-border currency transportation requirements:

The Central Bank requires any cash imports over the equivalent of $10,900 to be declared to Customs; otherwise undeclared cash may be seized upon attempted entry into the country. However, enforcement mechanisms are ineffectual and failure to declare is not specifically penalized. Because movements of bulk cash across borders is often used to support trade for countries in the region with underdeveloped banking systems, customs officials, police, and judicial authorities tend to not regard large cash imports as potentially suspicious or criminal activities, and it is not unusual for people to carry significant sums of cash. The UAE has not set any limits on the amount of cash that can be imported into or exported from the country. No reporting requirements currently exist for cash exports, constituting a significant vulnerability in the UAE’s enforcement regime.

Cooperation with foreign governments (including refusals):

There is a reference in UAE law that enables the UAE to provide international "judicial" cooperation, but this provision has been interpreted narrowly. However, there have been recent examples of UAE cooperation in pending US criminal cases, including the production of financial records and the identification of criminal assets.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

The free trade zones are monitored by the local emirate rather than federal authorities. Although some trade-based money laundering undoubtedly occurs in the large FTZs, a higher potential for financial crime exists in some of the smaller FTZs located in the northern emirates. The UAE is also a hub for re-export activity that permits Iran to evade internationally imposed sanctions.

Although firms operating in the DIFC are subject to Law No. 4/2002, the DFSA has issued its own anti-money laundering regulations and supervisory regime, which has caused some ambiguity about the Central Bank’s and the FIU’s respective authorities within the DIFC.

No cross-border currency transportation reporting requirements currently exist for cash exports.

In 2003, the Central Bank issued regulations to help improve the oversight of hawala, including registration of hawala brokers. The regulations require hawaladars to submit the names and addresses of all originators and beneficiaries of funds and to file STRs on a monthly or quarterly basis. However, since the inception of the program, there reportedly have not been any STRs filed by hawaladars.

The Central Bank states it circulates an updated UNSCR 1267 Sanctions Committee’s consolidated list of suspected terrorists and terrorist organizations to all the financial institutions under its supervision.

In June 2009, a Dutch suspect was arrested in Dubai for suspected involvement in international money laundering, reportedly based on an Interpol request. The accused, who was looking to open a commercial company in a UAE free trade zone, was suspected of being part of a European gang involved in drug trafficking and of supplying South American narcotics to European countries and South Africa. Dubai Police also reported the disruption of a narcotics-related international money laundering operation worth $28 billion.

U.S.-related currency transactions:

No information available.

Records exchange mechanism with U.S.:

There is no mutual legal assistance treaty (MLAT) between the U.S. and the UAE, which has historically prevented timely UAE compliance with US investigative requests in financial crimes cases. However, the UAE Attorney General has expressed an interest in removing certain preconditions that have historically prevented the signing of an MLAT with the U.S., and discussions between the U.S. and the UAE on this issue are anticipated to be ongoing. The UAE FIU exchanges and shares information with FinCEN, the FIU of the United States. The DFSA has a memorandum of understanding (MOU) with the U.S. Commodity Futures Trading Commission. On October 23, 2007, the DFSA entered into a MOU with the five U.S. banking supervisors.

International agreements:

The DFSA has undertaken a campaign to reach out to other international regulatory authorities to facilitate information sharing. The DFSA has MOUs with more than 41 other regulatory bodies, including the UK’s Financial Services Authority and the Securities and Exchange Board of India. The UAE Central Bank has signed a number of MOUs with Egmont member countries, including Nigeria, the Philippines, Canada and Holland, and continues this effort. In May 2008, the UAE and Russia signed an executive plan for enforcement of the Anti-Crime Cooperation Agreement.

The UAE 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 UAE is a member of The Middle East and North Africa Financial Action Task Force (MENAFATF), a Financial Action Task Force-style regional body. It’s most recent mutual evaluation can be found here: www.MENAFATF.org.

Recommendations:

The Government of the UAE (GUAE) has shown some progress in enhancing its AML/CFT program. However, several areas continue to need further action by the GUAE. Most importantly, the UAE should adopt outbound cash and gold declaration requirements, a key vulnerability in the UAE’s AML/CFT regime. Additionally, law enforcement and customs officials should be more proactive in developing cases based on investigations, rather than on STRs, and should step up inquiries into large and undeclared cash imports into the country. The GUAE should continue to strengthen its regulatory and enforcement regime to interdict potential illicit cash couriers transiting major airports. All forms of trade-based money laundering must be given greater scrutiny by UAE customs and law enforcement officials, including customs fraud, the trade in gold and precious gems, commodities used as counter-valuation in hawala transactions, and the misuse of trade to launder narcotics proceeds. The UAE FIU remains under-resourced and lacks investigative capacity. The GUAE should increase the resources it devotes to supervision and investigation of AML/CFT both federally and at the emirate level, including ensuring all free trade zones are adequately supervised. Moreover, the absence of meaningful statistics across all sectors is a significant hindrance to the assessment of the effectiveness of the AML/CFT program. The Central Bank should review the effectiveness of its hawaladar registration and dramatically step up its enforcement and oversight of this sector. The UAE should also continue its regional efforts to promote sound charitable oversight. Action also should be taken to clamp down on Iranian activity in the UAE that evades international sanctions regimes.

United Kingdom

The United Kingdom (UK) plays a leading role in European and world finance and remains attractive to money launderers because of the size, sophistication, and reputation of its financial markets. Although narcotics are still a major source of illegal proceeds for money laundering, the proceeds of other offenses, such as financial fraud and the smuggling of people and goods, have become increasingly important. The past few years have witnessed the movement of cash placement away from banks and mainstream financial institutions as these entities have tightened their controls and increased their vigilance. The use of bureaux de change, cash smugglers (into and out of the UK), and traditional gatekeepers (including solicitors and accountants) to move and launder criminal proceeds has been increasing. Also on the rise are credit/debit card fraud and the purchasing of high-value assets to disguise illegally obtained money. Additionally, the Internet increasingly provides criminals with a variety of money making opportunities and methods to launder funds.

The UK Threat Assessment conducted by the Serious Organized Crime Agency (SOCA) estimated the annual proceeds from crime were between £19 billion (approximately $32 billion) and £48 billion (approximately $80 billion) with £25 billion (approximately $42 billion) representing a realistic figure for the amount laundered each year.

Offshore center: No

Free trade zones: Yes

The UK has five designated Free Zones in which non-European Union (EU) goods are treated as outside the customs territory of the EU for the purposes of import duties until the goods are released for free circulation. Import VAT and excise duty are also suspended until the goods are removed to the UK market or used or consumed within the Free Zone. The Free Zones are located in Liverpool, Prestwick, Port of Sheerness, Southampton, and Port of Tilbury.

Criminalizes narcotics money laundering: Yes

Criminalizes other money laundering, including terrorism-related: Yes

The Proceeds of Crime Act (POCA) of 2002 consolidates and expands pre-existing legislation criminalizing money laundering. POCA covers all crimes as predicate offenses. It also creates a new criminal offense, applicable to all regulated sectors, of failing to disclose suspicious transactions.

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 Terrorism Act of 2000 criminalizes terrorist financing. Additionally, the Terrorism (United Nations Measures) Order 2006 and the Al-Qaida and the Taliban (United Nations Measures) Order 2006 provide the Treasury with designation authority. The Counter-Terrorism Act of 2008 (CTA) came into effect on November 27, 2008. Schedule 7 of the CTA gives the Treasury additional powers to act against terrorist financing and money laundering.

Know-your-customer rules: Yes

The Money Laundering Regulations of 2007 implement in part the EU’s Third Money Laundering Directive and include an obligation to establish and maintain appropriate and risk-sensitive policies and procedures relating to customer due diligence measures and ongoing monitoring, reporting, record keeping, and risk assessment. Covered entities include credit and financial institutions, auditors, accountants, tax advisers and insolvency practitioners, independent legal professionals, trust or company service providers, estate agents, high value dealers, and casinos.

Bank records retention: Yes

Pursuant to the Money Laundering Regulations of 2007, relevant persons must retain transaction records and identity verification documents for at least five years.

Suspicious transaction reporting: Yes

Business sectors subject to formal suspicious transaction reporting (STR) requirements include attorneys, solicitors, accountants, real estate agents, and dealers in high-value goods, such as cars and jewelry. Sectors of the betting and gaming industry that are not currently regulated are being encouraged to establish their own codes of practice, including a requirement to disclose suspicious transactions. In fiscal year 2008, 210,524 STRs were filed with the UK Financial Intelligence Unit (UK FIU).

Large currency transaction reporting:

The UK government considered the feasibility of a fixed threshold currency transaction reporting system, but made a policy decision not to introduce such a system.

Narcotics asset seizure and forfeiture:

UK legislation, most notably the Serious Crime Act of 2007 which consolidates existing laws on forfeiture and money laundering, provides for the confiscation of laundered property which represents proceeds from, instrumentalities used in, and instrumentalities intended for use in the commission of money laundering, terrorist financing, or other predicate offenses, and property of corresponding value. The UK has in place four different schemes for confiscation and recovery with regard to proceeds of crime: confiscation following a criminal conviction, civil recovery, taxation, and seizure-forfeiture of cash.

Narcotics asset sharing authority:

The UK is able to share confiscated and forfeited assets with other countries that have assisted operations to bring the confiscation to fruition. The UK has authority to share up to 50% of the proceeds of confiscation, net of costs. The UK can share with other countries on an ad hoc case-by-case basis.

Cross-border currency transportation requirements: Yes

The Control of Cash (Penalties) Regulations of 2007 provides for penalties for failing to declare movement of cash amounting to €10,000 (approximately $14,500) or more into and out of the European Community.

Cooperation with foreign governments: Yes

The UK cooperates with international anti-money laundering authorities on regulatory and criminal matters.

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

Enforcement and implementation issues and comments:

Businesses in the UK that are particularly attractive to money launderers are those with high cash turnovers and those involved in overseas trading. Illicit cash is consolidated in the UK, and then moved overseas where it can enter the legitimate financial system, either directly or by other means such as purchasing property or trade goods. Because cash is the mainstay of the illicit narcotics trade, traffickers make extensive use of money transmission agents (MTA), cash smuggling, and alternative remittance systems such as hawala to transfer money and value from the UK.

U.S.-related currency transactions:

No information available.

Records exchange mechanism with U.S.:

A Mutual Legal Assistance Treaty (MLAT) between the US and the UK has been in force since 1996, and the two countries signed a reciprocal asset sharing agreement in 2003. There is a memorandum of understanding (MOU) in force between the U.S. Immigration and Customs Enforcement and HM Revenue and Customs. The U.S. Department of Treasury’s Financial Crimes Enforcement Network also signed a MOU with the UK in 1995 and regularly exchanges information with the UK FIU.

International agreements:

The UK 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. While the UK legislative framework does not require MLATS, the UK has signed treaties with over 30 countries in order to execute requests.

The UK 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 UK is a member of the Financial Action Task Force (FATF). Its most recent mutual evaluation can be found here:http://www.fatf-gafi.org/dataoecd/55/29/39064399.pdf.

Recommendations:

The United Kingdom has a comprehensive AML/CFT regime. The UK should continue its active participation in international fora and its efforts to provide assistance to jurisdictions with nascent or developing anti-money laundering/counter-terrorist financing regimes.

Uruguay

Uruguay’s financial system remains vulnerable to the threats of money laundering and terrorist financing. Officials from the Uruguayan police and judiciary assess that there is a growing presence of Mexican and Colombian cartels in the Southern Cone and fear they will begin operating in earnest in Uruguay. Drug dealers are slowly starting to participate in other illicit activities like car theft and trafficking in persons. The Government of Uruguay (GOU) acknowledges that there is a growing risk of money laundering in the real estate sector, in free zones and in bureaus that administer corporations.

Offshore Center: Yes

The six offshore banks are subject to the same laws, regulations, and controls as local banks, with the GOU requiring them to be licensed through a formal process that includes a background investigation of the principals. Offshore trusts are not allowed. Bearer shares may not be used in banks and institutions under the authority of the Central Bank, and any share transactions must be authorized by the Central Bank.

Free Trade Zones: Yes

There are 12 free trade zones located throughout the country. While most are dedicated almost exclusively to warehousing, two were created exclusively for the development of the paper and pulp industry, and three accommodate a wide variety of tenants offering a wide range of services, including financial services. Some of the warehouse-style free trade zones have been used as transit points for containers of counterfeit goods bound for Brazil and Paraguay.

Criminalizes narcotics money laundering: Yes

Money laundering is criminalized under Law 17.343 of 2001, Law 17.835 of 2004, and Law 18.494 of 2009. Decrees 296/09 and 305/09 (from June 22, 2009 and October 26, 2009, respectively) create the first “Comprehensive Permanent National Plan against Drug Trafficking and Money Laundering.”

Criminalizes other money laundering, including terrorism-related: Yes

Law 17.343 identifies money laundering predicate offenses to include narcotics-trafficking; corruption; terrorism; smuggling (of items valued at more than $20,000); illegal trafficking in weapons, explosives and ammunition; trafficking in human organs, tissues, and medications; trafficking in human beings; extortion; kidnapping; bribery; trafficking in nuclear and toxic substances; and illegal trafficking in animals or antiques. Law 18.494 incorporates seven new predicate offenses: fraud; embezzlement; fraudulent bankruptcy; fraudulent insolvency; offenses against trademarks and intellectual property rights; offenses related to trafficking in persons and sexual exploitation; and counterfeiting or alteration of currency.

Criminalizes terrorist financing: Yes

Law 17.835 and Law 18.494 significantly strengthen the GOU’s anti-money laundering/counter-terrorist financing (AML/CFT) regime by including specific provisions related to terrorist financing and the freezing of assets linked to terrorist organizations. Under Law 17.835, terrorist financing is a separate, autonomous offense. Under Law 18.494 a direct relationship between the funds provided and a terrorist act is no longer required as the following have been included as elements of the offense: a) that the purpose is to finance a terrorist organization, a member of a terrorist organization, or an individual terrorist, and b) that it is an offense regardless of whether a terrorist act is committed.

Know-your-customer rules: Yes

Obligated entities are mandated to know their customers. Under Law 17.835, all obligated entities must implement AML policies, such as thoroughly identifying customers, recording transactions of more than $10,000 in internal databases, and reporting suspicious transactions to the financial intelligence unit (FIU). This obligation extends to all financial intermediaries, including banks, currency exchange houses, stockbrokers, insurance companies, casinos, art dealers, and real estate and fiduciary companies. Lawyers, accountants, and other non-banking professionals that habitually carry out financial transactions or manage commercial companies on behalf of third parties are also required to identify customers whose transactions exceed $15,000 and report suspicious activities of any amount.

Bank records retention:

Obligated entities are mandated to know their customers on a permanent basis, keep adequate records and report suspicious activities to the FIU.

Suspicious transaction reporting: Yes

Law 18.494 obliges ten new types of individuals or enterprises to report unusual or suspicious transactions: businesses that perform safekeeping, courier or asset transfer services; professional trust managers, investment advisory services; casinos; real estate brokers and intermediaries; notaries, when carrying out certain operations; auctioneers; dealers in antiques, fine art and precious metals or stones; free trade zones operators; and natural or judicial persons who carry out transactions or administer corporations on behalf of third parties. The law also requires reporting of suspected terrorist financing activity. Fines can be levied for failure to report.

The FIU received 174 suspicious transaction reports (STRs) in 2009. Banks and exchange houses accounted for 60 percent and 19 percent of total reports, respectively. In 2009, eight cases stemming from STRs were sent to prosecutors. Four cases stemming from STRs have ended in prosecutions in recent years.

Large currency transaction reporting: Yes

Central Bank Circular 1.978 mandates financial intermediaries to report the conversion of foreign exchange or precious metals over $10,000 into cash, bank checks, deposits or other liquid instruments; cash withdrawals over $10,000; and wire transfers over $1,000.

Narcotics asset seizure and forfeiture:

The courts have the power to seize and confiscate property, products or financial instruments linked to money laundering activities. Law 18.494 improves the seizure regime by listing the kind of property that can be seized while establishing the possibility of seizing assets of similar worth or imposing a fine when listed property cannot be seized. Based on a prosecutor’s request, courts can seize: prohibited narcotics and psychotropic substances confiscated in the investigation; property or instruments used in committing the criminal offense; property and products considered proceeds of the criminal offense. In 2009, the FIU froze $17 million in assets.

Narcotics asset sharing authority:

No information was available on the legal provisions addressing asset sharing authority. Both Uruguay and the U.S. have expressed their willingness to sign an agreement to share the value of assets seized in joint operations, but no progress has been made as of December 2009.

Cross-border currency transportation requirements: Yes

Law 17.835 and Law 18.494 extend reporting requirements to all persons entering or exiting Uruguay with more than $10,000 in cash or monetary instruments. New legislation and enforcement efforts resulted in the detection of $2.5 million in undeclared cross-border cash and other financial instrument movements.

Cooperation with foreign governments: Yes

Tax evasion is not an offense in Uruguay, which in practice limits cooperation possibilities because the FIU cannot share tax-related information with its counterparts.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

Law 18.494, passed in June 2009, significantly upgrades Uruguay’s AML efforts by giving national authorities more flexibility to fight money laundering and terrorist financing. The GOU applied the set of new investigative techniques (the use of collaborators and the improved electronic surveillance) provided by Law 18.494 for the first time. These recent developments have led to the prosecution of 39 individuals. The use of new techniques has triggered a moderate public debate over the need to keep a balance between investigative requirements, respect for the privacy of individuals, and potential uncertainty in the practice of law. There have been no reported cases or investigations related to terrorist financing.

The way real estate is registered complicates efforts to track money laundering in this sector, especially in the partially foreign-owned tourist sector. Authorities must obtain a judicial order to gain access to the names of titleholders.

The FIU has circulated to financial institutions the list of individuals and entities included in UN 1267 Sanctions Committee and published it on its web page.

U.S.-related currency transactions: No

Records exchange mechanism with U.S.:

Uruguay and the United States are parties to a mutual legal assistance treaty that entered into force in 1994.

International agreements:

The FIU may exchange information relevant to AML/CFT investigations and is becoming increasingly active in cooperation with counterpart FIUs and judiciaries from other countries. The FIU is not currently a member of the Egmont Group of Financial Intelligence Units.

Uruguay 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 GOU is a member of the Organization of American States Inter-American Drug Abuse Control Commission (CICAD) Experts Group to Control Money Laundering. Uruguay is a founding member of the Financial Action Task Force of South America (GAFISUD), a Financial Action Task Force-style regional body. Its most recent evaluation can be found here: http://www.gafisud.info/pdf/InformedeAvanceUruguay_1.pdf.

Recommendations:

The Government of Uruguay (GOU) has taken significant steps over the past few years to strengthen its AML/CFT regime. To continue its recent progress, Uruguay should continue its implementation and enforcement of recently enacted legislation. The FIU should prioritize efforts to gain membership in the Egmont Group; such a step would enable it to share financial information with other FIUs globally. The GOU should exert greater vigilance in detecting undeclared and cross-border movements of cash and other monetary instruments. The GOU should enhance its regulation and monitoring of the real estate sector and sports industries.

Venezuela

According to the UNODC 2009 World Drug Report, Venezuela is one of the principal drug-transit countries in the Western Hemisphere. Venezuela’s proximity to drug producing countries, weaknesses in its anti-money laundering regime, refusal to cooperate regularly with the United States in mutual legal assistance matters, including on counter-narcotics activities, and alleged substantial corruption in law enforcement and other relevant sectors continue to make Venezuela vulnerable to money laundering. The main sources of money laundering are proceeds generated by drug trafficking organizations, the embezzlement of funds from the petroleum industry, and illegal transactions that exploit Venezuela’s currency controls. Trade-based money laundering, such as the Black Market Peso Exchange, through which money launderers furnish narcotics-generated dollars in the United States to commercial smugglers, travel agents, investors, and others in exchange for Colombian pesos, remains a prominent method for laundering regional narcotics proceeds. Venezuela is not a regional financial center and does not have an offshore financial sector, although many local banks have offshore affiliates in the Caribbean.

Offshore Center: No

Free Trade Zones: Yes

The Free-Trade Zone Law of Venezuela (1991) provides for free trade zones/free ports. The three existing free trade zones (FTZs) are located in the Paraguana Peninsula on Venezuela's northwest coast, Atuja in the State of Zulia, and Merida. These zones provide exemptions from most import and export duties and offer foreign-owned firms the same investment opportunities as host country firms. The Paraguana and Atuja zones provide additional exemption of local services such as water and electricity. Venezuela also has two free ports that also enjoy exemptions from most tariff duties: Margarita Island (Nueva Esparta) and Santa Elena de Uairen in the state of Bolivar. The FTZ law designates the customs authority of each jurisdiction as responsible for its respective FTZ. The Ministry of Economy and Finance is responsible for the oversight of the customs authority with regard to FTZs. It is reported that many black market traders ship their wares through Margarita Island’s free port.

Criminalizes narcotics money laundering: Yes

The 2005 Organic Law against Organized Crime (OLOC) criminalizes money laundering as an autonomous offense.

Criminalizes other money laundering, including terrorism-related: Yes

Those who cannot establish the legitimacy of possessed or transferred funds, or are aware of the illegitimate origins of those funds, can be charged with money laundering. Predicate offenses for money laundering under the OLOC include: trafficking, trade, retailing, manufacture and other illicit activities connected with, inter alia, narcotics and psychotropic substances, child pornography, corruption, extortion, trafficking in persons and migrants, smuggling and other customs offenses. The most common predicate offenses for money laundering are illicit drug trafficking and trading.

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/)

Under the OLOC, terrorist financing is a crime against public order in Venezuela and is criminalized to the extent that an individual finances, belongs to, acts or collaborates with armed bands or criminal groups with the purpose to commit violent acts or to subvert the constitutional order or gravely alter the public peace. Terrorist financing, however, is not adequately criminalized in accordance with international standards. The law does not establish terrorist financing as a separate crime, nor does it provide adequate mechanisms for freezing or confiscating assets.

Know-your-customer rules: Yes

Under the OLOC and Resolution 185.01 of the Superintendencia de Bancos y Otras Instituciones Financieras (SUDEBAN), anti-money laundering controls have been implemented that include strict customer identification requirements. These know-your-customer (KYC) controls apply to all banks (commercial, investment, mortgage, and private), insurance and reinsurance companies, savings and loan institutions, financial rental agencies, currency exchange houses, money remitters, money market funds, capitalization companies, frontier foreign currency dealers, casinos, real estate agents, construction companies, car dealerships, hotels and the tourism industry, travel agents, and dealers in precious metals and stones. In practice the institutions often have difficulty obtaining all the data or information for every customer.

Bank records retention: Yes

Banks and other financial institutions supervised by SUDEBAN are required to retain documents or records of customer transactions and business relationships for five years, including customer identification documentation.

Suspicious transaction reporting: Yes

The entities that must comply with KYC rules also are required to file suspicious and cash transaction reports with Venezuela’s financial intelligence unit (FIU), the Unidad Nacional de Inteligencia Financiera (UNIF). However, insurance and reinsurance companies, tax collection entities and public service payroll agencies are not required to file suspicious transaction reports (STRs). The Venezuelan Association of Currency Exchange Houses (AVCC), which counts all but one of the country’s money exchange companies among its membership, voluntarily complies with the same reporting standards as those required of banks. SUDEBAN Circular 3759 of 2003 requires its supervised financial institutions to report suspicious activities related to terrorist financing. The UNIF analyzes STRs and other reports, and refers those deemed appropriate for further investigation to the Public Ministry (the Office of the Attorney General). In 2009, 1,234 STRs were received by UNIF and 529 were forwarded to the Public Ministry.

Large cash transaction reports: Yes

The UNIF receives reports on currency transactions exceeding approximately $10,000. UNIF also receives reports on the sale and purchase, and the domestic transfer of foreign currency exceeding $10,000. An exemption process is available for customers who frequently conduct otherwise reportable currency transactions in the course of their businesses.

Narcotics asset seizure and forfeiture: Yes

The OLOC also expands Venezuela’s mechanisms for freezing assets tied to illicit activities. A prosecutor may now solicit judicial permission to freeze or block accounts in the investigation of any crime included under the law. However, to date, there have been no significant seizures of assets and few if any successful money laundering prosecutions as a result of the law’s passage.

Narcotics asset sharing authority: No

Cross-border currency transportation requirements:

Article 4 of the Law against Exchange Offenses stipulates that natural or legal persons who import or export foreign currency in an amount in excess of $10,000, or the equivalent in other currencies, are required to declare to the competent authority the amount and type of funds. However, the law also states that all foreign currency acquired by non-resident natural persons in transit or tourists whose stay in the country less than 180 continuous days are exempt from this obligation, thereby negating the overall effectiveness of the requirement.

Cooperation with foreign governments:

Venezuela has regularly refused to cooperate with the United States in mutual legal assistance matters, including on counter-narcotics activities.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

Corruption is a very serious problem in Venezuela and appears to be worsening. Transparency International’s Corruption Perception Index for 2009 ranks Venezuela at 162 of 180 countries on the index. Venezuela has laws to prevent and prosecute corruption, and accepting a bribe is a criminal act. However, the judicial system has been ineffective historically and is accused of being overtly politicized. The current regime of price and foreign exchange controls also has provided opportunity for corruption.

There is little evidence the Government of Venezuela (GOV) has made enforcement of anti-money laundering laws and regulations a priority. Reportedly, many, if not most, judicial and law enforcement officials remain ignorant of the OLOC and its specific provisions, and the UNIF does not have the necessary autonomy to operate effectively. According to reported statistics, from 2006-2008 there were 335 money laundering investigations resulting in one conviction.

The SUDEBAN has distributed to its supervised financial entities the list of individuals and entities included on the UNSCR 1267 sanctions committee’s consolidated list. No statistics are available on the amount of assets frozen, if any.

U.S.-related currency transactions:

U.S.-Venezuelan commercial ties are deep. The United States is Venezuela's most important trading partner, with U.S. goods accounting for about 26% of imports, and approximately 60% of Venezuelan exports going to the United States. In turn, Venezuela is the United States’ third-largest export market in Latin America. Venezuela is one of the top four suppliers of foreign oil to the United States. There is also a large movement of currency between both countries (in the billions). However, Venezuela has strict currency exchange controls and limits the access of its citizens to the US dollar. Despite these controls, dollars are illegally offered for sale on the black market at almost twice the official rate. The US dollar is the currency of choice in Venezuela and the surrounding region for narcotics-trafficking organizations.

Records exchange mechanism with U.S.:

Venezuela and the United States signed a Mutual Legal Assistance Treaty (MLAT) in 1997. In 2009, there was no money laundering information exchange between Venezuela and the United States. The Financial Crimes Enforcement Network (FinCEN) suspended the exchange of information with the UNIF in January 2007 due to the unauthorized disclosure of information provided by FinCEN, and the relationship has not resumed to date.

International agreements:

UNIF has signed bilateral information exchange agreements with counterparts worldwide.

Venezuela 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

Venezuela participates in the Organization of American States Inter-American Commission on Drug Abuse Control (OAS/CICAD) Money Laundering Experts Working Group. Venezuela also is a member of the Caribbean Financial Action Task Force, a Financial Action Task Force-style regional body. Its most recent mutual evaluation can be found here: http://www.cfatf-gafic.org/downloadables/mer/Venezuela_3rd_Round_MER_%28Final%29_English.pdf.

Recommendations:

The Government of Venezuela (GOV) took no significant steps to expand its anti-money laundering regime in 2009. The 2005 passage of the Organic Law against Organized Crime was a step toward strengthening the GOV’s abilities to fight money laundering; however, Venezuela needs to enforce the law by implementing the draft procedures to expedite asset freezing, establishing an autonomous financial investigative unit, and ensuring that law enforcement and prosecutors have the necessary expertise and resources to successfully investigate and prosecute money laundering cases. The GOV should also adequately criminalize the financing of terrorism and establish procedures for freezing terrorist assets in order to conform to international standards. SUDEBAN should supervise currency exchange operators, particularly those situated close to the frontiers. Cross-border currency declarations should be established that adhere to international standards. Venezuelan customs and law enforcement officials should investigate trade-based money laundering and value exchange. The UNIF should take the necessary steps to ensure that information exchanged with other FIUs is subject to the appropriate safeguards mandated by the Egmont Group.

Zimbabwe

Though Zimbabwe is not a regional financial center, it faces problems related to money laundering and official corruption. In addition to regulatory weaknesses in the financial sector, deficiencies include a lack of trained regulators and investigators and limited asset seizure authority. These deficiencies in the Government of Zimbabwe's regulatory and enforcement framework contribute to Zimbabwe’s attractiveness as a money laundering destination. Money is most often laundered through the financial sector, encompassing both the formal and the informal financial sector. Building societies, moneylenders, insurance brokers, realtors and lawyers are also vulnerable to exploitation by money launderers. Financial crime is fueled by smuggling of precious minerals.

In 2009 the Government of Zimbabwe (GOZ) abolished the Zimbabwe dollar and switched to a multi-currency system based predominantly on the U.S. dollar and South African rand. This has reduced opportunities for money laundering and financial crime committed by government elites and well-connected insiders. The elimination of the Reserve Bank of Zimbabwe’s (RBZ) capacity to print money and the withdrawal of the Zimbabwe dollar has shut down a parallel foreign-exchange market that rewarded officials loyal to President Robert Mugabe and sustained the Zimbabwe African National Union – Patriotic Front (ZANU-PF) party. Additionally, in February 2009, the formation of an inclusive government representing ZANU-PF and two factions of the rival Movement for Democratic Change party (MDC-T and MDC-M) has increased scrutiny of government activities and expenditures. For instance, the Ministry of Finance -- led by the MDC-T -- has sought to further curtail the RBZ’s capacity to fund unbudgeted expenditures by promoting legislation that improves oversight of RBZ activities. As of yearend 2009, the amendment to the RBZ statute was awaiting passage by Parliament.

Offshore Center: No

Free Trade Zones: No

Criminalizes narcotics money laundering: Yes,

Zimbabwe criminalizes money laundering under Sections 63 and 64 of The Serious Offenses (Confiscation of Profits) Act. Money Laundering is a specified offense under Section 2, in which money laundering is referred to in relation to the proceeds of a serious narcotics offense.

Criminalizes other money laundering, including terrorism-related: Yes

The GOZ’s Anti-Money Laundering and Proceeds of Crime Act, enacted in December 2003, criminalizes money laundering. In 2004 ,the GOZ adopted the Bank Use Promotion and Suppression of Money Laundering Act (the 2004 Act), which extends the anti-money laundering law to all serious offenses, criminalizes terrorist financing, and authorizes the tracking and seizure of assets. In 2008 the government amended the schedule of fines applicable to those convicted of financial crimes. The new guidelines established minimum penalties, allowing judges to apply whatever maximum fine they determine appropriate to the offense.

Criminalizes terrorist financing: Partially

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

Zimbabwe has criminalized terrorist financing, but the law does not comport with international standards, as it has not criminalized (i) conspiracy to commit money laundering or terrorist financing outside of the context of an organized criminal group; and (ii) obtaining or collecting funds/assets to be used by a terrorist organization/individual terrorist where their use/intended use cannot be connected with a specific terrorist act.

Know-your-customer rules: Yes

The Bank Use Promotion and Suppression of Money Laundering Act 2002 (BUPSMLA) requires designated institutions to identify customers. Although Zimbabwe has implemented basic customer identification obligations, it has not implemented full customer due diligence (CDD) requirements for all financial institutions and designated nonfinancial businesses and professions (DNFBPs). In May 2006, the RBZ issued new Anti-Money Laundering Guidelines that reinforce requirements for financial institutions and DNFBPs. These binding requirements address politically exposed persons, mandating obligated entities to gather more personal data on these high-profile clients.

Bank records retention: Yes.

Financial institutions must keep records of accounts and transactions for at least ten years.

Suspicious transaction reporting: Yes.

The law requires financial institutions, money transfer businesses and DNFBPs, including trustee companies, casinos, real estate agencies, precious metals and stones dealers, and accountants, to file suspicious transaction reports (STRs) with the Financial Intelligence Inspectorate and Evaluation Unit (FIIE), Zimbabwe’s financial intelligence unit (FIU). The BUPSMLA Guidelines provide in detail how the BUPSMLA should be implemented by all obligated institutions. However, compliance from the DNFBP sector is lacking.

Large currency transaction reporting: Yes

In June 2007, the RBZ installed an electronic surveillance system to track all financial transactions in the banking system.

Narcotics asset seizure and forfeiture:

The 2001 Serious Offenses (Confiscation of Profits) Act establishes a protocol for asset forfeiture. The BUPSMLA also provides for confiscation, seizure and forfeiture of proceeds of crime and incorporates money laundering among the bases for the GOZ to confiscate assets. The Attorney General may request confiscation of illicit assets within six months of the conviction date. The court can then issue a forfeiture order against any property. However, the system has not yet been tested in relation to money laundering offenses. The legislation is unclear as to whether instrumentalities used in, or intended for use in, money laundering are subject to freeze or forfeiture provisions.

Narcotics asset sharing authority:

No information available.

Cross-border currency transportation requirements: Yes

The Exchange Control Act provides for a reporting system that requires all persons to make a declaration of goods and currency they are carrying when exiting the country. This includes the reporting of suspicious cross-border transportation of currency. Under the Act, cross-border monitoring of cash is enforced by the Zimbabwe Revenue Authority (ZIMRA). Currency crossing the Zimbabwe borders under suspicious circumstances is investigated by ZIMRA, which will pass the investigation on to the Zimbabwe Republic Police. However, ZIMRA does not report declarations, seizures or suspicious persons or activities to the FIU.

Cooperation with foreign governments (including refusals):

Mutual legal assistance is regulated by the Attorney General’s Department of Zimbabwe. In general, there are no legal or practical impediments to rendering assistance, providing both Zimbabwe and the requesting country criminalize the conduct underlying the offense. Since terrorist financing has not yet been criminalized there is no scope for mutual legal assistance or extradition. Zimbabwe can only respond to both mutual legal assistance and extradition requests regarding other serious offenses.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

Zimbabwe’s laws and regulations are ineffective in combating money laundering. The RBZ is the lead agency for prosecuting money laundering offenses. The BUPSML Guidelines came into force in April 2006 and as yet no sanctions have been taken against institutions for non-compliance. Burdensome GOZ regulations and difficult business climate encourage circumvention of the law by otherwise legitimate businesses. Furthermore, the government’s anti-money laundering efforts throughout the year appeared to be directed less to ensuring compliance than to targeting opponents.

Despite having the legal framework in place to combat money laundering, the sharp contraction of the economy over the past decade, vulnerability of the population, and decline of judicial independence raise concerns about the capacity and integrity of Zimbabwean law enforcement. The 2004 Act has reportedly raised human rights concerns due to the GOZ’s history of selective use of the legal system against its political opponents. But to date the 2004 Act has not been associated with any reported due process abuses.

Charitable organizations are obligated to register with the Ministry of Public Service, Labor and Social Welfare; but Zimbabwe has not implemented regulations or enforcement to combat the exploitation of charities by money launderers or terrorist financiers.

U.S.-related currency transactions:

In March 2009, the Minister of Finance introduced a revised GOZ budget that legalized the replacement of the Zimbabwe dollar with several foreign currencies, including the U.S. dollar. The Minister has maintained his commitment to exclusive use of foreign currencies in the 2010 budget delivered in December 2009.

Records exchange mechanism with U.S.:

Zimbabwe and the United States are not parties to a bilateral mutual legal assistance treaty that provides for exchange of information, but the banking community and the RBZ have cooperated with the United States in global efforts to identify individuals and organizations associated with terrorist financing.

International agreements:

Mutual legal assistance and extradition measures apply to money laundering since money laundering is a criminal offense, and both the Criminal Matters (Mutual Assistance) Act and the Extradition Act provide that measures must be taken against “any” criminal offense and in the absence of an applicable treaty.

Zimbabwe 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

Zimbabwe is a member of the Financial Action Task Force-style regional body, the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG). Its most recent mutual evaluation can be found here: www.esaamlg.org.

Recommendations:

The Government of Zimbabwe (GOZ) leadership should work to develop and maintain transparency, prevent corruption, and subscribe to practices ensuring the rule of law. The GOZ can illustrate its commitment to combating money laundering and terrorist financing by using its legislation for the purposes for which it was designed, instead of using it to persecute opponents of ZANU-PF and nongovernmental organizations which disagree with GOZ policies. Once these basic prerequisites are met, the GOZ should endeavor to develop and implement an anti-money laundering/counter-terrorist financing regime that comports with international standards. The GOZ also should become a party to the UN International Convention for the Suppression of the Financing of Terrorism and revise its counter-terrorist financing legislation to bring it in line with international standards.



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