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2011 INCSR: Major Money Laundering Countries


Bureau of International Narcotics and Law Enforcement Affairs
Report
March 3, 2011

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Every year, U.S. officials from agencies with anti-money laundering responsibilities meet to assess the money laundering situations in 200 jurisdictions. The review includes an assessment of the significance of financial transactions in the country’s financial institutions involving proceeds of serious crime, steps taken or not taken to address financial crime and money laundering, each jurisdiction’s vulnerability to money laundering, the conformance of its laws and policies to international standards, the effectiveness with which the government has acted, and the government’s political will to take needed actions.

The 2011 INCSR identifies money laundering priority jurisdictions and countries using a classification system that consists of three different categories: Jurisdictions of Primary Concern, Jurisdictions of Concern, and Other Jurisdictions Monitored.

“Jurisdictions of Primary Concern” are those that are identified, pursuant to INCSR reporting requirements, as “major money laundering countries.” A major money laundering country is defined by statute as one “whose financial institutions engage in currency transactions involving significant amounts of proceeds from international narcotics trafficking.” However, the complex nature of money laundering transactions today makes it difficult in many cases to distinguish the proceeds of narcotics trafficking from the proceeds of other serious crime. Moreover, financial institutions engaged in transactions that involve significant amounts of proceeds from other serious crimes are vulnerable to narcotics-related money laundering. The category “Jurisdiction of Primary Concern” recognizes this relationship by including all countries and other jurisdictions whose financial institutions engage in transactions involving significant amounts of proceeds from all serious crimes. Thus, the focus in considering whether a country or jurisdiction should be included in this category is on the significance of the amount of proceeds laundered, not of the anti-money laundering measures taken. This is a different approach taken than that of the Financial Action Task Force’s International Cooperation Review Group (ICRG) exercise, which focuses on a jurisdiction’s compliance with stated criteria regarding its legal and regulatory framework, international cooperation, and resource allocations. A government (e.g., the United States or the United Kingdom) can have comprehensive anti-money laundering laws on its books and conduct aggressive anti-money laundering enforcement efforts but still be classified a “Primary Concern” jurisdiction. In some cases, this classification may simply or largely be a function of the size of the jurisdiction’s economy. In such jurisdictions, quick, continuous and effective anti-money laundering efforts by the government are critical.

All other countries and jurisdictions evaluated in the INCSR are separated into the two remaining groups, “Jurisdictions of Concern” and “Other Jurisdictions Monitored,” on the basis of several factors that may include: (1) whether the country’s financial institutions engage in transactions involving significant amounts of proceeds from serious crimes; (2) the extent to which the jurisdiction is or remains vulnerable to money laundering, notwithstanding its money laundering countermeasures, if any (an illustrative list of factors that may indicate vulnerability is provided below); (3) the nature and extent of the money laundering situation in each jurisdiction (e.g., whether it involves drugs or other contraband); (4) the ways in which the U.S. Government (USG) regards the situation as having international ramifications; (5) the situation’s impact on U.S. interests; (6) whether the jurisdiction has taken appropriate legislative actions to address specific problems; (7) whether there is a lack of licensing and oversight of offshore financial centers and businesses; (8) whether the jurisdiction’s laws are being effectively implemented; and (9) where U.S. interests are involved, the degree of cooperation between the foreign government and the USG. Additionally, given concerns about the increasing interrelationship between inadequate money laundering legislation and terrorist financing, terrorist financing is an additional factor considered in making a determination as to whether a country should be considered a “Jurisdiction of Concern” or an “Other Jurisdiction Monitored.” While the actual money laundering problem in jurisdictions classified as “Jurisdictions of Concern” is not as acute as in those considered to be of “Primary Concern,” they too must undertake efforts to develop or enhance their anti-money laundering regimes. Finally, while jurisdictions in the “Other Jurisdictions Monitored” category do not pose an immediate concern, it is nevertheless important to monitor their money laundering situations because, under certain circumstances, virtually any jurisdiction of any size can develop into a significant money laundering center.

Vulnerability Factors

The current ability of money launderers to penetrate virtually any financial system makes every jurisdiction a potential money laundering center. There is no precise measure of vulnerability for any financial system, and not every vulnerable financial system will, in fact, be host to large volumes of laundered proceeds. A checklist of what drug money managers reportedly look for, however, provides a basic guide. The checklist includes:

  • Failure to criminalize money laundering for all serious crimes or limiting the offense to narrow predicates.
     
  • Rigid bank secrecy rules that obstruct law enforcement investigations or that prohibit or inhibit large value and/or suspicious or unusual transaction reporting by both banks and nonbank financial institutions.
     
  • Lack of or inadequate “know your customer” requirements to open accounts or conduct financial transactions, including the permitted use of anonymous, nominee, numbered or trustee accounts.
     
  • No requirement to disclose the beneficial owner of an account or the true beneficiary of a transaction.
     
  • Lack of effective monitoring of cross-border currency movements.
     
  • No reporting requirements for large cash transactions.
     
  • No requirement to maintain financial records over a specific period of time.
     
  • No mandatory requirement to report suspicious transactions or a pattern of inconsistent reporting under a voluntary system and a lack of uniform guidelines for identifying suspicious transactions.
     
  • Use of bearer monetary instruments.
     
  • Well-established non-bank financial systems, especially where regulation, supervision, and monitoring are absent or lax.
     
  • Patterns of evasion of exchange controls by legitimate businesses.
     
  • Ease of incorporation, in particular where ownership can be held through nominees or bearer shares, or where off-the-shelf corporations can be acquired.
     
  • No central reporting unit for receiving, analyzing, and disseminating to the competent authorities information on large value, suspicious or unusual financial transactions that might identify possible money laundering activity.
     
  • Lack of or weak bank regulatory controls, or failure to adopt or adhere to Basel Committee’s “Core Principles for Effective Banking Supervision,” especially in jurisdictions where the monetary or bank supervisory authority is understaffed, under-skilled or uncommitted.
     
  • Well-established offshore financial centers or tax-haven banking systems, especially jurisdictions where such banks and accounts can be readily established with minimal background investigations.
     
  • Extensive foreign banking operations, especially where there is significant wire transfer activity or multiple branches of foreign banks, or limited audit authority over foreign-owned banks or institutions.
     
  • Jurisdictions where charitable organizations or alternative remittance systems, because of their unregulated and unsupervised nature, are used as avenues for money laundering or terrorist financing.
     
  • Limited asset seizure or confiscation authority.
     
  • Limited narcotics, money laundering, and financial crime enforcement, and lack of trained investigators or regulators.
     
  • Jurisdictions with free trade zones where there is little government presence or other supervisory authority.
     
  • Patterns of official corruption or a laissez-faire attitude toward business and banking communities.
     
  • Jurisdictions where the U.S. dollar is readily accepted, especially jurisdictions where banks and other financial institutions allow dollar deposits.
     
  • Well-established access to international bullion trading centers in New York, Istanbul, Zurich, Dubai, and Mumbai.
     
  • Jurisdictions where there is significant trade in or export of gold, diamonds, and other gems.
     
  • Jurisdictions with large parallel or black market economies.
     
  • Limited or no ability to share financial information with foreign law enforcement authorities.

Changes in INCSR Priorities for 2011

Jurisdictions moving from the “Jurisdiction of Concern” column to the “Primary Concern” column:

--British Virgin Islands and Iraq

New jurisdiction in “Primary Concern” column (first time in report):

--Somalia

Jurisdictions moving from the “Other Jurisdictions Monitored” column to the “Jurisdiction of Concern” column:

--Kazakhstan, Kosovo, and Montenegro

Jurisdiction moving from the “Jurisdiction of Concern” column to the “Other Jurisdictions Monitored” column:

--Uzbekistan

New jurisdiction in “Other Jurisdictions Monitored” column (first time in report):

--Sudan

In the Country/Jurisdiction Table on the following page, “major money laundering countries” that are in the “Jurisdictions of Primary Concern” category are identified for purposes of INCSR statutory reporting requirements. Identification as a “major money laundering country” is based on whether the country or jurisdiction’s financial institutions engage in transactions involving significant amounts of proceeds from serious crime. It is not based on an assessment of the country or jurisdiction’s legal framework to combat money laundering; its role in the terrorist financing problem; or the degree of its cooperation in the international fight against money laundering, including terrorist financing. These factors, however, are included among the vulnerability factors when deciding whether to place a country or jurisdiction in the “Jurisdictions of Concern” or “Other Jurisdictions Monitored” category.

Note: Country reports are provided for only those countries and jurisdictions listed in the “Primary Jurisdictions of Concern” category.

Countries and Jurisdictions Table

Countries/
Jurisdictions of Primary Concern

Countries/
Jurisdictions of Concern

Other Countries/
Jurisdictions Monitored

Afghanistan

Liechtenstein

Albania

Moldova

Andorra

Madagascar

Antigua and Barbuda

Luxembourg

Algeria

Monaco

Anguilla

Malawi

Australia

Macau

Angola

Montenegro

Armenia

Maldives

Austria

Mexico

Argentina

Morocco

Benin

Mali

Bahamas

Netherlands

Aruba

Nicaragua

Bermuda

Malta

Belize

Nigeria

Azerbaijan

Palau

Botswana

Marshall Islands

Bolivia

Pakistan

Bahrain

Peru

Brunei

Mauritania

Brazil

Panama

Bangladesh

Poland

Burkina Faso

Mauritius

British Virgin Islands

Paraguay

Barbados

Portugal

Burundi

Micronesia FS

Burma

Philippines

Belarus

Qatar

Cameroon

Mongolia

Cambodia

Russia

Belgium

Romania

Cape Verde

Montserrat

Canada

Singapore

Bosnia and Herzegovina

Samoa

Central African Republic

Mozambique

Cayman Islands

Somalia

Bulgaria

Saudi Arabia

Chad

Namibia

China, People Rep

Spain

Chile

Senegal

Congo, Dem Rep of

Nauru

Colombia

Switzerland

Comoros

Serbia

Congo, Rep of

Nepal

Costa Rica

Taiwan

Cook Islands

Seychelles

Croatia

New Zealand

Cyprus

Thailand

Cote d’Ivoire

Sierra Leone

Cuba

Niger

Dominican Republic

Turkey

Curacao

Slovakia

Denmark

Niue

France

Ukraine

Czech Rep

South Africa

Djibouti

Norway

Germany

United Arab Emirates

Ecuador

St. Kitts & Nevis

Dominica

Oman

Greece

United Kingdom

Egypt

St. Lucia

East Timor

Papua New Guinea

Guatemala

United States

El Salvador

St. Maarten

Equatorial Guinea

Rwanda

 

Guernsey

Uruguay

Ghana

St. Vincent

Eritrea

San Marino

Guinea-Bissau

Venezuela

Gibraltar

Suriname

Estonia

Sao Tome & Principe

Haiti

Zimbabwe

Grenada

Syria

Ethiopia

Slovenia

Hong Kong

 

Guyana

Tanzania

Fiji

Solomon Islands

India

   

Honduras

Trinidad and Tobago

Finland

Sri Lanka

Indonesia

   

Hungary

Turks and Caicos

Gabon

Sudan

Iran

   

Ireland

Vanuatu

Gambia

Swaziland

Iraq

   

Jamaica

Vietnam

Georgia

Sweden

Isle of Man

 

Jordan

Yemen

Guinea

Tajikistan

Israel

 

Kazakhstan

 

Iceland

Togo

Italy

 

Korea, North

 

Kyrgyz Republic

Tonga

Japan

 

Korea, South

 

Lesotho

Tunisia

Jersey

 

Kosovo

 

Liberia

Turkmenistan

Kenya

 

Kuwait

 

Libya

Uganda

Latvia

 

Laos

 

Lithuania

Uzbekistan

Lebanon

 

Malaysia

 

Macedonia

Zambia

Introduction to Comparative Table

The comparative table that follows the Glossary of Terms below identifies the broad range of actions, effective as of December 31, 2010, that jurisdictions have, or have not, taken to combat money laundering. This reference table provides a comparison of elements that includes legislative activity and other identifying characteristics that can have a relationship to a jurisdiction’s money laundering vulnerability.

Glossary of Terms

1. “Criminalized Drug Money Laundering”: The jurisdiction has enacted laws criminalizing the offense of money laundering related to the drug trade.

2. “Criminalized Beyond Drugs”: The jurisdiction has enacted laws criminalizing the offense of money laundering related to crimes other than the drug trade.

3. “Know Your Customer Provisions”: By law or regulation, the government requires banks and/or other covered entities to adopt and implement Know Your Customer/Customer Due Diligence programs for their customers or clientele.

4. “Report Large Transactions”: By law or regulation, banks and/or other covered entities are required to report large transactions in currency or other monetary instruments to designated authorities.

5. “Report Suspicious Transactions”: By law or regulation, banks and/or other covered entities are required to report suspicious or unusual transactions to designated authorities. On the Comparative Table the letter “Y” signifies mandatory reporting; “P” signifies reporting is not required but rather is permissible or optional; “N” signifies no reporting regime.

6. “Maintain Records over Time”: By law or regulation, banks and/or other covered entities are required to keep records, especially of large or unusual transactions, for a specified period of time, e.g., five years.

7. “Disclosure Protection - ‘Safe Harbor”: By law, the jurisdiction provides a “safe harbor” defense to banks and/or other covered entities and their employees who provide otherwise confidential banking data to authorities in pursuit of authorized investigations.

8. “Criminalize “Tipping Off”: By law, disclosure of the reporting of suspicious or unusual activity to an individual who is the subject of such a report, or to a third party, is a criminal offense.

9. “Financial Intelligence Unit”: The jurisdiction has established an operative central, national agency responsible for receiving (and, as permitted, requesting), analyzing, and disseminating to the competent authorities disclosures of financial information in order to counter money laundering. An asterisk reflects those jurisdictions that are not members of the Egmont Group.

10. “Cross-Border Transportation of Currency”: By law or regulation, the jurisdiction has established a declaration or disclosure system for persons transiting the jurisdiction’s borders, either inbound or outbound, and carrying currency or monetary instruments above a specified threshold.

11. “International Law Enforcement Cooperation”: Jurisdiction cooperates with authorized investigations involving or initiated by third party jurisdictions, including sharing of records or other financial data, upon request. No known legal impediments to cooperation exist in current law.

12. “Mutual Legal Assistance”: By law or through treaty, the jurisdiction has agreed to provide and receive mutual legal assistance, including the sharing of records and data.

13. “System for Identifying and Forfeiting Assets”: The jurisdiction has established a legally authorized system for the tracing, freezing, seizure, and forfeiture of assets identified as relating to or generated by money laundering activities.

14. “Arrangements for Asset Sharing”: By law, regulation or bilateral agreement, the jurisdiction permits sharing of seized assets with third party jurisdictions that assisted in the conduct of the underlying investigation.

15. “Criminalized the Financing of Terrorism”: The jurisdiction has criminalized the provision of material support to terrorists, terrorist activities, and/or terrorist organizations as required by the UN International Convention for the Suppression of the Financing of Terrorism and UN Security Council Resolution 1373.

16. “Report Suspected Terrorist Financing”: By law or regulation, banks and/or other covered entities are required to record and report transactions suspected to relate to the financing of terrorists, terrorist groups or terrorist activities to designated authorities.

17. “States Party to 1988 UN Drug Convention”: States party to the 1988 United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, or a territorial entity to which the application of the Convention has been extended by a party to the Convention.

18. “States Party to the UN International Convention for the Suppression of the Financing of Terrorism”: States party to the International Convention for the Suppression of the Financing of Terrorism, or a territorial entity to which the application of the Convention has been extended by a party to the Convention.

19. “States Party to the UN Convention against Transnational Organized Crime”: States party to the United Nations Convention against Transnational Organized Crime (UNTOC), or a territorial entity to which the application of the Convention has been extended by a party to the Convention.

20. “States Party to the UN Convention against Corruption”: States party to the United Nations Convention against Corruption (UNCAC), or a territorial entity to which the application of the Convention has been extended by a party to the Convention.

21. “US or International Sanctions/Penalties”: The US, another jurisdiction and/or an international organization, e.g., the UN or FATF, has imposed sanctions or penalties against the jurisdiction. A country’s inclusion in the FATF’s International Cooperation Review Group exercise is not considered a sanction or penalty unless the FATF recommended counter-measures against the country/jurisdiction.

Go to:  Comparative Chart

INCSR Volume II Template Key

1. Introductory Paragraph

This section provides a historical and economic picture of the country or jurisdiction, particularly relating to the country’s vulnerabilities to money laundering/terrorist financing (ML/TF). Information on the extent of organized criminal activity, corruption, drug-related money laundering, financial crimes, smuggling, black market activity and terrorist financing should be included.

This section should also include a brief summary of the scope of any offshore sector, free trade zones, the informal financial sector, alternative remittance systems or other prevalent area of concern or vulnerability. Discussion of deficiencies in any of these areas should be further discussed in item 9, below.

2. Do Financial Institutions Engage in Currency Transactions Related to International Narcotics Trafficking That Include Significant Amounts of U.S. Currency; Currency Derived from Illegal Sales in the U.S.; or That Otherwise Significantly Affect the U.S.: (Y/N)

This question addresses whether the jurisdiction’s financial institutions engage in currency transactions involving international narcotics trafficking proceeds that include significant amounts of U.S. currency or currency derived from illegal drug sales in the United States or that otherwise significantly affect the United States.

3. Criminalization of Money Laundering:

All serious crimes approach or list approach to predicate crimes:

Legal persons covered: criminally: (Y/N) civilly: (Y/N)

In general, two methods of designating money laundering predicate crimes are in use. The response to this question indicates which method of designation the country uses - does the country list specific crimes as predicate crimes for money laundering in its penal code? Conversely, does it use an “all serious crimes” approach, stating that all crimes with penalties over a specified amount or that carry a threshold minimum sentence are money laundering predicate crimes?

Are legal persons, that is, corporations, partnerships, or any legal entity, liable for money laundering/terrorist financing activity by law? Are they subject to criminal penalties, such as fines? Are they subject to civil or administrative penalties, such as civil money penalties, or suspension or loss of license?

4. Criminalization of Terrorist Financing:

Ability to freeze terrorist assets without delay: (Y/N)

UN lists of designated terrorists or terrorist entities distributed to financial institutions: (Y/N)

(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 seizure and forfeiture of assets (including but not limited to bank accounts, other financial assets, airplanes, autos, residences, other property) belonging to terrorists or terrorist organizations can be important elements in efforts to control the financing and perpetration of terrorist acts and terrorism.

Does the government have an independent national system and mechanism for freezing terrorist assets in a timely manner?

Does the government distribute to financial institutions the names of suspected terrorists and terrorist organizations listed on the United Nations 1267 Sanctions Committee’s consolidated list as being linked to Usama bin Ladin, members of the al-Qaida organization or the Taliban?

The link to the Department of State’s Country Reports on Terrorism will appear if a submission for the country/jurisdiction appears in that report.

5. Know-Your-Customer Rules:

Covered entities: A list of the types of financial institutions and designated non-financial businesses and professions covered by KYC rules

Enhanced due diligence procedures for PEPs: Foreign: (Y/N) Domestic: (Y/N)

Customer due diligence (CDD) or know your customer (KYC) programs should apply not only to banks or financial institutions but also to designated non-financial businesses and professions (DNFBPs). Covered institutions should be required to know, record, and report the identity of customers engaging in significant transactions. Entities such as securities and insurance brokers, money exchanges or remitters, financial management firms, gaming establishments, lawyers, real estate brokers, high-value goods dealers and accountants, among others, should all be covered by such programs.

Countries should be using a risk-based approach to CDD or KYC. Using that approach, types of accounts or customers may be considered either less or more risky and be subject to varying degrees of due diligence. Politically exposed persons (PEPs) should be considered high risk and should be subject to enhanced due diligence and monitoring. PEPs are those individuals who are entrusted with prominent public functions in a country, for example, heads of state; senior politicians; senior government, judicial or military officials; senior executives of state-owned corporations; important political party officials. Does the country apply enhanced due diligence procedures to foreign and/or domestic PEPs?

6. Suspicious Transaction Reporting Requirements:

Covered entities: A list of the types of financial institutions and designated non-financial businesses and professions covered by reporting rules.

Number of STRs received and time frame:

Number of CTRs received and time frame:

Suspicious transaction reporting requirements should apply not only to banks or financial institutions but also to DNFBPs. Entities such as securities and insurance brokers, money exchanges or remitters, financial management firms, gaming establishments, lawyers, real estate brokers, high-value goods dealers and accountants, among others, should all be covered by such programs.

If available, the report will include the number of suspicious transaction reports (STRs) received by the designated government body and the time frame during which they were received. The most recent information available, preferably the activity in 2010, will be included.

Similarly, if the country has a large currency transaction reporting requirement, whereby all currency transactions over a threshold amount are reported to a designated government body, the report will include the number of currency transaction reports (CTRs) received by the designated government body and the time frame during which they were received. The most recent information available, preferably the activity in 2010, will be included. The report should not include information on CTRs not required to be forwarded to a designated government body but held in institutions for government review.

7. Money Laundering Criminal Prosecutions/Convictions:

Prosecutions: (Number and time frame)

Convictions: (Number and time frame)

Assets forfeited: criminally: (amount and time frame) civilly: (amount and time frame)

The seizure and forfeiture of assets (including but not limited to bank accounts, other financial assets, airplanes, autos, residences, and other property) derived from the international drug trade, money laundering, or other serious crimes can be important elements in efforts to control criminal activity. If the jurisdiction has enacted laws authorizing the seizure and forfeiture of assets identified as relating to or generated by money laundering activities, the report will indicate the dollar equivalent of assets subject to criminal forfeiture and the relevant time frame. Similarly, if the country has a non-conviction based or civil asset forfeiture regime, the dollar equivalent of assets forfeited civilly and the relevant time frame will be included.

If available, the report will include the numbers of prosecutions and convictions and the relevant time frames. The most recent information available, preferably the activity in 2010, will be included.

8. Records Exchange Mechanism:

With U.S.: (Y/N)

With other governments/jurisdictions: (Y/N)

Does the country/jurisdiction have in place treaties, memoranda of understanding or other agreements to share information related to financial crimes, money laundering, and terrorist financing with the United States? With other governments?

The report will indicate if the country/jurisdiction is a member of the Financial Action Task Force (FATF) or a FATF-style regional body. A link to the website with its most recent mutual evaluation will be shown.

9. Enforcement and Implementation Issues and Comments:

Information in this section should include: changes in policy, law, and implementation of regulations occurring since January 1, 2010, and any issues or deficiencies noted in the country/jurisdiction’s AML/CFT program. These may include the following: resource issues, legislative deficiencies, and/or implementation deficiencies; information on any U.S. or international sanctions against the country/jurisdiction; whether the country has cooperated on important cases with USG agencies or has refused to cooperate with foreign governments, as well as any actions taken by the USG or any international organization to address such obstacles, including the imposition of sanctions or penalties; any known issues with or abuse of non-profit organizations, alternative remittance systems, offshore sectors, free trade zones, bearer shares, or other specific sectors, or situations; any other information which impacts on the country’s/jurisdiction’s ability to successfully implement a comprehensive AML/CFT regime or provides information on successful, innovative policies or procedures.



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